FACTS
Siblings Delfin and Pelagia Pacheco leased a property that they own in the municipality of Polo to Construction Components International, Inc., which subsequently assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc.
Said contract provided the lessees a right of first refusal should the lessor decide to sell the property. Subsequently, Delfin and Pelagia conveyed the subject property to Delpher Traders in exchange of 2,500 shares of stock. Consequently, Hydro Pipes filed an action for reconveyance, arguing that its right of first refusal was not honored. The CFI and IAC ruled in favor of Hydro Pipes.
RULING
The Court ruled in favor of Delpher Traders.
The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. In exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher Traders, a coporation they own, thereby making them stockholders of the corporation by subscription with equity capital of 55 percent.
In effect, Delpher Traders is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Traders to take control of their properties and at the same time save on inheritance taxes.
The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.
