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Delher Trades is a corporation separate and distinct from the

Delpher Trades Corporation vs. IAC Pachecos.

The legal right of a taxpayer to decrease the amount of Issue: Whether or not the "Deed of Exchange" of the properties
executed by the Pachecos on the one hand and the Delpher Trades
what otherwise could be his taxes or altogether avoid
Corporation on the other was meant to be a contract of sale which,
them, by means which the law permits, cannot be in effect, prejudiced the private respondent's right of first refusal
over the leased property included in the deed of exchange
Delfin Pacheco and sister Pelagia were the owners of a parcel of
land in Polo (now Valenzuela). Subsequently, they leased to Ruling:
Construction Components International Inc. the property and The Court ruled in favor of the petitioner. The "Deed of Exchange"
providing for a right of first refusal should it decide to sell the said of property between the Pachecos and Delpher Trades Corporation
cannot be considered a contract of sale. There was no transfer of
Construction Components International, Inc. assigned its rights and actual ownership interests by the Pachecos to a third party. The
obligations under the contract of lease in favor of Hydro Pipes Pacheco family merely changed their ownership from one form to
Philippines, Inc. with the signed conformity and consent of Delfin another. The ownership remained in the same hands. Hence, the
and Pelagia. In 1976, a deed of exchange was executed between private respondent has no basis for its claim of a light of first
lessors Delfin and Pelagia Pacheco and defendant Delpher Trades refusal under the lease contract.
Corporation whereby the Pachecos conveyed to the latter the
leased property together with another parcel of land also located.
By their ownership of a capital equal to 55% of the shares, the
On the ground that it was not given the first option to buy the Pachecos have the control of the petitioner corporation. In effect,
leased property pursuant to the lease agreement, respondent the petitioner corporation is a business conduit of the Pachecos.
Hydro Pipes Philippines filed an amended complaint for What they really did was to invest their properties and change the
reconveyance of the lot under the conditions similar to those of nature of their ownership from unincorporated to incorporated form
Delpher. The court ruled in favor of Hydro declaring the existence
by organizing Delpher Trades Corporation to take control of their
of its preferential right to acquire the subject property. IAC
affirmed. properties and at the same time save on inheritance taxes

Petitioner Delpher contend that there was actually no transfer of The execution of the deed of exchange on the properties for no par
ownership, the Pachecos having remained in control of the value shares, the Pachecos were able to provide for a tax free
property. They alleged that petitioner Delpher is a family exchange of property, such that they were able to execute the
corporation , organized by the children of Pelagia, who owned the deed of exchange free from income tax and acquire a corporation.
parcel of land leased to private respondent Hydro to perpetuate Sec. 35 of the NIRC provides that No gain or loss shall also be
their control over the property through the corporation and to recognized if a person exchanges his property for stock in a
avoid taxes. It also alleged that to accomplish this, the leased corporation of which as a result of such exchange said person
property was transferred to petitioner Delpher by virtue of a deed alone or together with others not exceeding four persons gains
of exchange, and in exchange for the properties they acquired control of said corporation."
majority shares of petitioner Delpher corporation. In short,
petitioners contend that the Pachecos did not sell the leased The Court believes that there is nothing wring about the estate
property since they exchanged the land for shares in their own planning scheme resorted to by the Pachecos. The legal right of
corporation. Private respondent, however, contend that petitioner 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.