6 Dec. 23, 1976: Manuel Dulay by virtue of Board Resolution No.
18 of MRDEI sold
MANUEL R. DULAY ENTERPRISES, INC. v CA the subject property to private respondents spouses Maria Theresa and
Close Corporation | Aug. 27, 1993 | Nocon, J. Castrense Veloso
In the amount of P300,000.00 as evidenced by the Deed of Absolute Sale
SUMMARY: Manuel Dulay by virtue of Board Resolution 18 sold property owned by Thereafter, TCT No. 17880 was cancelled and TCT No. 23225 was issued to
Petitioner Dulay Enterprises to Respondents Spouses Veloso who then mortgaged private respondent Maria Theresa Veloso
the property to Respondent Manuel Torres for a loan. The loan was not paid thus December 9, 1977: Manuel Dulay and Sps. Veloso executed a Memorandum to
the property was foreclosed and sold to Torres who filed a case for recovery of the Deed of Absolute Sale of December 23, 1976
possession. The corporation claims that Board Resolution 18 was issued without Gave Manuel Dulay within two (2) years or until December 9, 1979 to
the approval of all the members of the board of directors hence the sale invalid. The repurchase the subject property for P200,000
Court held that the petitioner corporation is classified as a close corporation and Such right to repurchase was, however, not annotated either in TCT No.
consequently a board resolution authorizing the sale or mortgage of the subject 17880 or TCT No. 23225
property is not necessary to bind the corporation for the action of its president. As
such, the corporation is liable for the act of Manuel Dulay and the sale of the VELOSO MORTGAGED DULAY APARTMENT TO TORRES
property to Respondents is valid and binding. Dec. 24, 1976: Maria Veloso, without the knowledge of Manuel Dulay, mortgaged
the subject property to private respondent Manuel A. Torres for a loan of
DOCTRINE: In a close corporation, a board resolution authorizing the sale or P250,000.00
mortgage of the subject property is not necessary to bind the corporation for the Such mortgage was duly annotated as Entry No. 68139 in TCT No. 23225
action of its president.
April 5, 1978: Upon the failure of private respondent Maria Veloso to pay Torres,
Although a corporation is an entity which has a personality distinct and separate
the subject property was sold to Torres as the highest bidder in an extrajudicial
from its individual stockholders or members, the veil of corporate fiction may be
foreclosure sale
pierced when it is used to defeat public convenience, justify wrong, protect fraud or
As evidenced by the Certificate of Sheriff's Sale issued on April 20, 1978.
defend crime.
July 20, 1978: Maria Veloso executed a Deed of Absolute Assignment of the
FACTS: Right to Redeem in favor of Manuel Dulay
Veloso assigned her right to repurchase the subject property from Torres, as
Manuel R. Dulay Enterprises Inc. (MRDEI) is a domestic corporation with the ff.
a result of the extrajudicial sale held on April 25, 1978
as members of its Board of Directors:
Torres filed an Affidavit of Consolidation of Ownership with the Registry of Deeds
Manuel R. Dulay with 19,960 shares and designated as president, treasurer
of Pasay City and TCT No. 24799
and general manager
As neither private respondent Maria Veloso nor her assignee Manuel Dulay
Atty. Virgilio E. Dulay with 10 shares and designated as vice-president;
was able to redeem the subject property within the one year statutory period
Linda E. Dulay with 10 shares;
for redemption,
Celia Dulay-Mendoza with 10 shares; and
April 23, 1979: Consolidation of Ownership was subsequently issued to Torres
Atty. Plaridel C. Jose with 10 shares and designated as secretary
October 1, 1979: Torres filed a petition for the issuance of a Writ of Possession
MRDEI owned the ff. properties: against Sps Veloso and Manuel Dulay in LRC Case No. 1742-P
Real property covered by TCT No. 17880 and known as Dulay Apartment Virgilio Dulay appeared in court to intervene in said case
Dulay Apartment consists of sixteen (16) apartment units on a six hundred o Alleging that Manuel Dulay was never authorized by the MRDEI to sell
eighty-nine (689) square meter lot or mortgage the subject property
Located at Seventh Street (now Buendia Extension) and F.B. Harrison The trial court ordered Torres to implead MRDEI as an indispensable party
Street, Pasay City However, Torres moved for the dismissal of his petition
MRDEI, thru its president, obtained various loans for the construction of its hotel April 8, 1980: The trial court granted the dismissal in an Order
project, Dulay Continental Hotel (now Frederick Hotel)
Had to borrow money from Virgilio Dulay to be able to continue the hotel CASES FILED BY TORRES AND PABALAN & MRDEI & DULAY
project [Civil Case No. 8198-P ] June 20, 1980: Torres and Edgardo Pabalan, real estate
As a result, Virgilio Dulay occupied one of the unit apartments in Dulay administrator of Torres, filed an action against MRDEI, Virgilio Dulay , and
Apartment since 1973 Nepomuceno Redovan, a tenant of Dulay Apartment with the then CFI of Rizal
o While at the same time managing the Dulay Apartment as his for:
shareholdings in the corporation was subsequently increased by his Recovery of possession
father
Sum of money and damages
With preliminary injunction
MRDEI SOLD DULAY APARTMENT TO SPS. VELOSO
[Civil Case No. 8278-P] July 21, 1980: MRDEI filed an action against Sps. Veloso 2. All the stockholders have actual or implied knowledge of the action and
and Torres for the cancellation of the Certificate of Sheriff's Sale and TCT No. make no prompt objection thereto in writing; or
24799 with the then CFI of Rizal 3. The directors are accustomed to take informal action with the express or
[Civil Case No. 38-81] January 29, 1981: Pabalan and Torres filed an action implied acquiesce of all the stockholders; or
against Sps. Florentino and Elvira Manalastas, a tenant of Dulay for ejectment in 4. All the directors have express or implied knowledge of the action in
with the MeTC of Pasay City question and none of them makes prompt objection thereto in writing.
With MRDEI as intervenor If a directors' meeting is held without proper call or notice, an action taken therein
April 25, 1985: MeTC of Pasay ruled in favor of Pabalan and Torres within the corporate powers is deemed ratified by a director who failed to attend,
Ordered the defendants and all persons claiming possession under them to unless he promptly les his written objection with the secretary of the corporation
vacate the premises after having knowledge thereof
Ordered the defendants to pay the rents in the sum of P500/mo. from May, MRDEI is classified as a close corporation
1979 until they shall have vacated the premises with interest at the legal Consequently, a board resolution authorizing the sale or mortgage of the
rate; subject property is NOT necessary to bind the corporation for the action of
Ordered the defendants to pay attorney's fees in the sum of P2,000.00 and its president
P1,000.00 as other expenses of litigation and for them to pay the costs of At any rate, a corporate action taken at a board meeting without proper call
the suit or notice in a close corporation is deemed ratified by the absent director
[Civil Case No. 2880-P] May 17, 1985: MRDEI and Virgilio Dulay filed an action o Unless the director promptly files his written objection with the secretary
against the presiding judge of the MeTC of Pasay City, private respondents of the corporation after having knowledge of the meeting
Pabalan and Torres with the RTC of Pasay o In this case, petitioner Virgilio Dulay failed to file such written objection
For the annulment of the April 25, 1985 decision A corporation is an entity which has a personality distinct and separate from its
Thereafter, the three (3) cases were jointly tried individual stockholders or members
RTC rendered a decision in favor of Torres and Pabalan GENERAL RULE: [Piercing the Corporate Veil]
Not satisfied with said decision, MRDEI et al. appealed to the CA The veil of corporate fiction may be pierced when it is used to:
October 23, 1989: CA affirmed the RTC decision o Defeat public convenience
November 8, 1989: MRDEI et al. filed a MR o Justify wrong
January 26, 1990: CA denied the MR o Protect fraud or
MRDEI, Virgilio Dulay, and Nepomuceno Redovan filed a petition for review on o Defend crime
certiorari to annul the CA Decision with the SC The privilege of being treated as an entity distinct and separate from its
Argued that the CA had acted with grave abuse of discretion when it applied stockholders or members is therefore:
the doctrine of piercing the veil of corporate entity in the instant case o Confined to its legitimate uses and
o Considering that the sale of the subject property between private o Subject to certain limitations to prevent the commission of fraud or other
respondents spouses Veloso and Manuel Dulay has no binding effect illegal or unfair act
on MEDEI When the corporation is used merely as an alter ego or business conduit of
o As Board Resolution No. 18, which authorized the sale of the subject a person, the law will regard the corporation as the act of that person
property was resolved without the approval of all the members of the o The SC had repeatedly disregarded the separate personality of the
board of directors corporation, where the corporate entity was used to annul a valid
o As said Board Resolution was prepared by a person not designated by contract executed by one of its members
the corporation to be its secretary APPLICATION:
April 3, 1991: Torres died and named Torres-Pabalan Realty & Development MRDEI et al. claim that the sale of the subject property by its president, Manuel
Corporation as his heir in his holographic will Dulay, to private respondents spouses Veloso is null and void
As the alleged Board Resolution No. 18 was passed without the knowledge
ISSUE/S & RATIO: and consent of the other members of the board of directors
1. W/N the sale between Sps. Veloso and Manuel Dulay was binding on This CANNOT be sustained, as correctly pointed out by the respondent CA,
MRDEI – YES Virgilio Dulay was aware of the transactions between Manuel R. Dulay and the
Section 101 of the Corporation Code of the Philippines provides: When board private respondents
meeting is unnecessary or improperly held. Unless the by-laws provide Appellant Virgilio E. Dulay's protestations of complete innocence to the
otherwise, any action by the directors of a close corporation without a effect that he never participated nor was even aware of any meeting or
meeting shall nevertheless be deemed valid if: resolution authorizing the mortgage or sale of the subject premises is difficult
1. Before or after such action is taken, written consent thereto is signed by all to believe
the directors; or o He is very much privy to the transactions involved
o He is an incorporator and one of the board of directors designated at the It is settled that the buyer in a foreclosure sale becomes the absolute owner
time of the organization of MRDEI of the property purchased if it is not redeemed during the period of one year
o In ordinary parlance, the said entity is loosely referred to as a 'family after the registration of the sale.
corporation' o As such, he is entitled to the possession of the said property and can
The term “family corporation” reflects the cohesiveness of a group and the demand it at any time following the consolidation of ownership in his
parochial instincts of the individual members of such an aggrupation of name and the issuance to him of a new transfer certi cate of title
which MRDEI is typical: o The buyer can in fact demand possession of the land even during the
o Four- fifths of its incorporators being close relatives redemption period except that he has to post a bond in accordance with
o Namely, three (3) children and their father whose name identifies their Section 7 of Act No. 3133 as amended
corporation o No such bond is required after the redemption period if the property is
Moreover, Virgilio Dulay on June 24, 1975 executed an affidavit that he was not redeemed. Possession of the land then becomes an absolute right
a signatory witness to the execution of the post-dated Deed of Absolute Sale of the purchaser as confirmed owner." 26
of the subject property in favor of private respondent Torres Therefore, prior physical delivery or possession is not legally required since
o This indicates that he was aware of the transaction executed between the execution of the Deed of Sale is deemed equivalent to delivery.
his father and private respondents
o He had therefore, adequate knowledge about the sale of the subject Ruling/Dispositive Portion:
property to private respondents WHEREFORE, the petition is DENIED and the decision appealed from is hereby
Consequently, petitioner corporation is liable for the act of Manuel R. Dulay, and AFFIRMED.
the sale of the subject property to private respondents by Manuel Dulay is valid
and binding
CONCLUSION:
The sale between MRDEI and Sps. Veloso was a corporate act of the former,
and not a personal transaction of Manuel R. Dulay
This is so because Manuel R. Dulay was not only president and treasurer,
but also the general manager of the corporation
The corporation was a closed family corporation and the only non-relative in
the board of directors was Atty. Plaridel C. Jose who appeared on paper as
the secretary
o There is no denying the fact, however, that Maria Socorro R. Dulay at
times acted as secretary
o The Court cannot lose sight of the fact that the MRDEI is a closed family
corporation where the incorporators and directors belong to one single
family
It cannot be concealed that Manuel R. Dulay as president, treasurer and general
manager almost had absolute control over the business and affairs of the
corporation
2. W/N Torres never acquired ownership over the subject property since the
latter was never in actual possession of the subject property nor was the
property ever delivered to him – NO
Paragraph 1, Article 1498 of the New Civil Code provides:
"When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be
inferred."
Under the aforementioned article, the mere execution of the deed of sale in a
public document is equivalent to the delivery of the property.
Likewise, this Court had held that:
