GALA ET AL VS ELLICE AGRO-INDUSTRIAL CORP

DOCTRINE:

If a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the

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 Ellice Agro-Industrial Corporation. As payment
for their subscriptions, the Gala spouses transferred several parcels of land located in the
provinces of Quezon and Laguna to Ellice.

In 1982, Manuel Gala, Alicia Gala and Ofelia Gala subscribed to an additional 3,299
shares, 10,652.5 shares and 286.5 shares, respectively. On June 28, 1982, Manuel Gala
and Alicia Gala acquired an additional 550 shares and 281 shares, respectively.

Subsequently, on September 16, 1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio
Galeon and Julian Jader incorporated the Margo Management and Development
Corporation (Margo).

Alicia Gala transferred 1,000 of her shares in Ellice to a certain Victor de Villa on March
2, 1983. That same day, de Villa transferred said shares to Margo. A few months later, on
August 28, 1983, Alicia Gala transferred 854.3 of her shares to Ofelia Gala, 500 to Guia
Domingo and 500 to Raul Gala.  Years later, on February 8, 1988, Manuel Gala
transferred all of his remaining holdings in Ellice, amounting to 2,164 shares, to Raul
Gala.  On July 20, 1988, Alicia Gala transferred 10,000 of her shares to Margo.

On June 23, 1990, a special stockholders’ meeting of Margo was held, where a new board
of directors was elected. That same day, the newly-elected board elected a new set of
officers. Raul Gala was elected as chairman, president and general manager. During the
meeting, the board approved several actions, including the commencement of
proceedings to annul certain dispositions of Margo’s property made by Alicia Gala. The
board also resolved to change the name of the corporation to MRG Management and
Development Corporation. 

Similarly, a special stockholders’ meeting of Ellice was held on August 24, 1990 to elect
a new board of directors. Likewise, Raul Gala was elected as chairman, president and
general manager.

On March 27, 1990, respondents filed against petitioners with the Securities and
Exchange Commission (SEC) a petition for the appointment of a management committee
or receiver, accounting and restitution by the directors and officers, and the dissolution of
Ellice Agro-Industrial Corporation for alleged mismanagement, diversion of funds,
financial losses and the dissipation of assets, docketed as SEC Case No. 3747. 17 The
petition was amended to delete the prayer for the appointment of a management
committee or receiver and for the dissolution of Ellice. Additionally, respondents prayed
that they be allowed to inspect the corporate books and documents of Ellice.

In turn, petitioners initiated a complaint against the respondents on June 26, 1991,
docketed as SEC Case No. 4027, praying for, among others, the nullification of the
elections of directors and officers of both Margo Management and Development
Corporation and Ellice Industrial Corporation; the nullification of all board resolutions
issued by Margo from June 23, 1990 up to the present and all board resolutions issued by
Ellice from August 24, 1990 up to the present; and the return of all titles to real property
in the name of Margo and Ellice, as well as all corporate papers and records of both
Margo and Ellice which are in the possession and control of the respondents.

SEC rendered a Joint Decision in SEC Cases Nos. 3747 and 4027, Dismissing the
petition in SEC Case No. 3747. Issuing the following orders in SEC Case No. 4027;

(a) Enjoining herein respondents to perform corporate acts of both Ellice and Margo, as
directors and officers thereof.

(b) Nullifying the election of the new sets of Board of Directors and Officers of Ellice
and Margo from June 23, 1990 to the present, and that of Ellice from August 24, 1990 to
the present.

(c) Ordering the respondent Raul Gala to return all the titles of real properties in the
names of Ellice and Margo which were unlawfully taken and held by him.

(d) Directing the respondents to return to herein petitioners all corporate papers, records
of both Ellice and Margo which are in their possession and control.

Respondents appeal to SEC En banc and the herein decision was reversed.

Petitioners filed a petition for review with the Court of Appeals which dismissed the
petition for review and affirmed the decision of the SEC En Banc. Hence, this petition.

ISSUE:

W/N the lower court erred in not declaring as illegal and contrary to public policy
the purposes and manner in which respondent corporations were organized- which
were e.g. to (1) “prevent the gala estate from being brought under the coverage of
the Comprehensive Agrarian Reform Program (CARP) and (2) purportedly for
estate planning.

HELD:
NO.

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’ first 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. 3844.26 Furthermore, they alleged
that respondent corporations were run without any of the conventional corporate
formalities. 27

At the outset, the Court holds that petitioners’ contentions impugning the legality of the
purposes for which Ellice and Margo were organized, amount to collateral attacks which
are prohibited in this jurisdiction. 28

The best proof of the purpose of a corporation is its articles of incorporation and by-laws.
The articles of incorporation must state the primary and secondary purposes of the
corporation, while the by-laws outline the administrative organization of the corporation,
which, in turn, is supposed to insure or facilitate the accomplishment of said purpose. 29

In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no
sign of the allegedly illegal purposes that petitioners are complaining of. It is well to note
that, 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.

YOUNG AUTO SUPPLY VS CA

DOCTRINE:

A corporation cannot be allowed to file personal actions in a place other than its
principal place of business unless such a place is also the residence of a co-plaintif or
a defendant.

FACTS:

It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO)
represented by Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of
their shares of stock in Consolidated Marketing & Development Corporation (CMDC) to
Roxas. The purchase price was P8,000,000.00 payable as follows: a downpayment of
P4,000,000.00 and the balance of P4,000,000.00 in four post dated checks of
P1,000,000.00 each.

Immediately after the execution of the agreement, Roxas took full control of the four
markets of CMDC. However, the vendors held on to the stock certificates of CMDC as
security pending full payment of the balance of the purchase price

The first check of P4,000,000.00, representing the down-payment, was honored by the
drawee bank but the four other checks representing the balance of P4,000,000.00 were
dishonored. Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title
to the proceeds of the sale of the CMDC shares to Nemesio Garcia.

On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court,
Branch 11, Cebu City, praying that Roxas be ordered to pay petitioners the sum of
P3,400,00.00 or that full control of the three markets be turned over to YASCO and
Garcia.

On August 19, 1988, the trial court declared Roxas in default. The order of default was,
however, lifted upon motion of Roxas. Roxas filed a motion to dismiss on the grounds
that the complaint did not state a cause of action due to non-joinder of indispensable
parties; the claim or demand set forth in the complaint had been waived, abandoned or
otherwise extinguished; and the venue was improperly laid. After a hearing, wherein
testimonial and documentary evidence were presented by both parties, the trial court in an
Order dated February 8, 1991 denied Roxas' motion to dismiss.

The Court of Appeals sustained the findings of the trial court with regard to the first two
grounds raised in the motion to dismiss but ordered the dismissal of the complaint on the
ground of improper venue.

ISSUE:
W/N the CA erred in holding that the proper venue is in Pasay City, and not in Cebu City
wherein both petitioners and plaintiffs are residents.

HELD:

The Court of Appeals erred in holding that the venue was improperly laid in Cebu City.

A corporation has no residence in the same sense in which this term is applied to a
natural person. But for practical purposes, a corporation is in a metaphysical sense a
resident of the place where its principal office is located as stated in the articles of
incorporation (Cohen v. Benguet Commercial Co., Ltd., 34 Phil. 256 [1916] Clavecilla
Radio System v. Antillon, 19 SCRA 379 [1967]). The Corporation Code precisely
requires each corporation to specify in its articles of incorporation the "place where the
principal office of the corporation is to be located which must be within the Philippines"
(Sec. 14 [3]). The purpose of this requirement is to fix the residence of a corporation in a
definite place, instead of allowing it to be ambulatory.

In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained
why actions cannot be filed against a corporation in any place where the corporation
maintains its branch offices. The Court ruled that to allow an action to be instituted in any
place where the corporation has branch offices, would create confusion and work untold
inconvenience to said entity. By the same token, a corporation cannot be allowed to file
personal actions in a place other than its principal place of business unless such a place is
also the residence of a co-plaintiff or a defendant.