Gala vs.
Ellice Agro-Industrial Corporation
418 SCRA 431
G.R. No. 156819
December 11, 2003
FACTS:
On March 28, 1979, the spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia Gala, Raul
Gala, and Rita Benson, and their encargados Virgilio Galeon and Julian Jader formed and organized the
Subsequently, on September 16, 1982, the Margo Management and Development Corporation (Margo)
was incorporated. The total subscribed capital stock of Margo was 20,000 shares at P200, 000.00.
Several transfers of shares of Ellice to Margo were made by the stockholders. As payment for their
subscriptions, the Gala spouses transferred several parcels of land located in the provinces of Quezon
and Laguna to Ellice.
In essence, petitioners want this Court to disregard the separate juridical personalities of Ellice and
Margo for the purpose of treating all property purportedly owned by said corporations as property
solely owned by the Gala spouses. The petitioners‘ contention in support of this theory is that the
purposes for which Ellice and Margo were organized should be declared as illegal and contrary to public
policy.
They claim that the respondents never pursued exemption from land reform coverage in good faith and
instead merely used the corporations as tools to circumvent land reform laws and to avoid estate taxes.
Specifically, they point out that respondents have not shown that the transfers of the land in favor of
Ellice were executed in compliance with the requirements of Section 13 of R.A. 3844. Furthermore, they
alleged that respondent corporations were run without any of the conventional corporate formalities.
ISSUE:
1. Whether the purposes for which Ellice and Margo were organized should be declared as illegal
and contrary to public policy.
2. Whether the piercing of the corporate veil may be availed.
RULING:
1. A perusal of the Articles of Incorporation of Ellice and Margo shows no sign of the allegedly
illegal purposes that petitioners are complaining of.
If a corporation‘s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has no
authority to inquire whether the corporation has purposes other than those stated, and mandamus will
lie to compel it to issue the certificate of incorporation.
With regard to their claim that Ellice and Margo were meant to be used as mere tools for the avoidance
of estate taxes, suffice it say that the legal right of a taxpayer to reduce the amount of what otherwise
could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.
Thus, even if Ellice and Margo were organized for the purpose of exempting the properties of the Gala
spouses from the coverage of land reform legislation and avoiding estate taxes, the court cannot
disregard their separate juridical personalities.
2. Petitioners pray that the veil of corporate fiction that shroud both Ellice and Margo be pierced,
consistent with their earlier allegation that both corporations were formed for purposes
contrary to law and public policy.
In sum, they submit that the respondent corporations are mere business conduits of the deceased
Manuel Gala and thus may be disregarded to prevent injustice, the distortion or hiding of the truth or
the “letting in” of a just defense.
However, to warrant resort to the extraordinary remedy of piercing the veil of corporate fiction, there
must be proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work
injustice.
The petitioners have failed to prove that Ellice and Margo were being used thus. They have not
presented any evidence to show how the separate juridical entities of Ellice and Margo were used by the
respondents to commit fraudulent, illegal or unjust acts. Hence, this contention, too, must fail.
It is always sad to see families torn apart by money matters and property disputes.
The concept of a close corporation organized for the purpose of running a family business or managing
family property has formed the backbone of Philippine commerce and industry. Through this device,
Filipino families have been able to turn their humble, hard-earned life savings into going concerns
capable of providing them and their families with a modicum of material comfort and financial security
as a reward for years of hard work.
A family corporation should serve as a rallying point for family unity and prosperity, not as a flashpoint
for familial strife. It is hoped that people reacquaint themselves with the concepts of mutual aid and
security that are the original driving forces behind the formation of family corporations and use these
tenets in order to facilitate more civil, if not more amicable, settlements of family corporate disputes.
