Transactions

Dear Atty. Nico,

I made a transaction with a retail store, X company, engaged in selling electronic items. I sold 20 computer monitors, priced at P50,000 each. Initially, X company was able to fulfill payment of half of its price.

However, just before paying the other half of its obligation, the said company became insolvent and later sold all of its assets to another retail store, Y company.

Can I sue Y company to answer for the other half of X company’s obligation, after the former bought all of the latter’s assets?

Thank you very much.

Kenneth

Dear Kenneth,

It was explained in a landmark case that such remedy is not plausible, unless falling under the exceptions.

In the case of The Edward J. Nell Company v Pacific Farms Inc., the Supreme Court laid down the doctrine stating that:

Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1) where the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the transaction is entered into fraudulently in order to escape liability for such debts.

Applying the same in the foregoing facts, it cannot be said that Y company had expressly or impliedly agreed to assume the debt of X company or that the latter is a continuation of the former or that the sale of the assets had been entered into fraudulently, in order to escape liability for its debt. Neither is it claimed that the said transaction has resulted in the consolidation or merger of X company and Y company. Hence, Y company cannot be held liable for the obligation of X company.

Atty. Nico A. Antonio