Title
Supreme Court
Gala vs. Ellice Agro-Industrial Corp.
Case
G.R. No. 156819
Decision Date
Dec 11, 2003
Family dispute over corporate control of Ellice and Margo, involving allegations of mismanagement, tax avoidance, and land reform evasion; courts upheld corporate legality and denied piercing the corporate veil.

Case Summary (G.R. No. 156819)

Petitioners

Alicia E. Gala, Guia G. Domingo and Rita G. Benson, acting in their capacities as shareholders of Ellice and Margo and as compulsory heirs of the late Manuel R. Gala, challenged the conduct of corporate affairs, the validity of board elections, certain property dispositions and sought to nullify corporate resolutions and recover titles, records and dividends.

Respondents

Ellice Agro-Industrial Corporation; Margo Management and Development Corporation (later renamed MRG Management and Development Corporation); individual directors and officers including Raul E. Gala (chairman, president, general manager from 1990), Vitaliano N. Aguirre II, Adnan V. Alonto, Elias N. Cresencio, Moises S. Maniego, Rodolfo B. Reyno, Renato S. Gonzales, Vicente C. Nolan, and Nestor N. Baticulon.

Key Dates

• March 28, 1979 – Incorporation of Ellice Agro-Industrial Corporation.
• September 16, 1982 – Incorporation of Margo Management and Development Corporation.
• June 23, 1990 – Special stockholders’ meeting of Margo; new board and resolutions to annul certain dispositions and rename the corporation.
• August 24, 1990 – Special meeting of Ellice; new board and officers elected.
• March 27, 1990 – Filing of SEC Case No. 3747 by respondents seeking receiver, accounting, restitution and dissolution of Ellice.
• June 26, 1991 – Filing of SEC Case No. 4027 by petitioners seeking nullification of elections, resolutions, and return of corporate assets.
• November 3, 1998 – SEC Hearing Officer’s Joint Decision dismissing SEC 3747 and granting relief in SEC 4027.
• July 4, 2002 – SEC En Banc Decision reversing the SEC Hearing Officer, granting relief to respondents in both cases.
• November 8, 2002 – Court of Appeals Decision affirming SEC En Banc.
• December 27, 2002 – Court of Appeals Resolution denying reconsideration.
• December 11, 2003 – Supreme Court Decision under the 1987 Constitution.

Applicable Law

• 1987 Philippine Constitution provisions on equal protection, due process and corporate personality.
• Corporation Code (Republic Act No. 11232 and predecessors) on articles of incorporation, by-laws, corporate entities and piercing the corporate veil.
• Republic Act No. 3844 (Agrarian Reform Code) Section 13 and Republic Act No. 6657 (Comprehensive Agrarian Reform Law) on administrative jurisdiction.
• National Internal Revenue Code provisions on documentary stamp taxes (Sections 176, 201) and capital gains tax.
• Rules of Court, Rule 45 on petitions for review; Rule 73 and Rule 90 on estate settlement procedures.

Factual Background

Ellice was originally capitalized at ₱3.5 million (35,000 shares) funded by land transfers from the Gala spouses and children. Over 1979–1988, additional share subscriptions and numerous transfers occurred: Manuel and Alicia Gala increased shares; Manuel sold shares to Margo; Alicia transferred shares to Victor de Villa then to Margo; thereafter further gifts and sales redistributed Ellice shares among Margo, the Gala spouses, children and encargados. By commencement of litigation, Ellice had 50,000 shares valued at ₱5 million, with Margo holding nearly half.

Procedural History in the SEC

Respondents first filed SEC Case No. 3747 against petitioners in March 1990 seeking appointment of a receiver, accounting, restitution by directors and dissolution of Ellice for alleged mismanagement. This petition was later amended to drop dissolution and receiver prayers and sought inspection of corporate books. Petitioners counter-filed SEC Case No. 4027 in June 1991 to nullify board elections and corporate resolutions, recover titles and records. The two cases were consolidated in November 1993. The SEC Hearing Officer’s Joint Decision (November 3, 1998) dismissed No. 3747 and granted nullification of elections, return of titles and records in No. 4027. The SEC En Banc (July 4, 2002) reversed, upholding respondents’ petition in No. 3747 for accounting and damages and granting the compulsory counterclaim in No. 4027 to return records but dismissing nullification requests.

Court of Appeals Decision

The Court of Appeals denied petitioners’ Rule 45 petition, affirming the SEC En Banc in a Decision promulgated two days after respondents’ comment and denying reconsideration by Resolution on December 27, 2002.

Issues Presented

  1. Legality and public policy of the purposes and manner of organization of Ellice and Margo (alleged schemes to evade agrarian reform coverage and estate taxes).
  2. Alleged precipitous resolution by the Court of Appeals without deliberation on facts.
  3. Alleged deprivation of petitioners’ legitime through corporate structuring.
  4. Piercing the corporate veil to treat corporate assets as Gala spouses’ assets.

Supreme Court Ruling on Corporate Purpose and Public Policy

The Court held that collateral attacks on corporate purposes are barred; the articles of incorporation and by-laws govern the declared lawful purposes, and the SEC cannot inquire beyond those stated. Challenges to compliance with agrarian reform law Section 13 of R.A. 3844 must be brought before the Department of Agrarian Reform Adjudication Board (primary jurisdiction), not in an intra-corporate suit. Use of a corporation to minimize or avoid taxes is permissible where the law so allows.

Ruling on Procedural Expediency and Factual Findings

Prompt promulgation by the appellate court does not indicate a lack of deliberation; judicial diligence often involves pre-decision study. Factual findings

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