Case Citation: MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E.
DULAY AND
NEPOMUCENO REDOVAN v. THE HONORABLE COURT OF APPEALS,
EDGARDO D. PABALAN, MANUEL A. TORRES, JR., MARIA THERESA V.
VELOSO AND CASTRENSE C. VELOSO
G.R. No. 91889
Date: August 27, 1993
Petitioners: MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND
NEPOMUCENO REDOVAN
Respondents: THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN,
MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO AND
CASTRENSE C. VELOSO
Syllabus Topic: Close Corporations (v. Ordinary Stock Corporations)
Doctrine: A close corporation and consequently a board resolution authorizing the sale
or mortgage of the subject property is not necessary to bind the corporation for
the action of its president. At any rate, corporate action taken at a board
meeting without proper call or notice in a close corporation is deemed ratified
by the absent director unless the latter promptly files his written objection with
the secretary of the corporation after having knowledge of the meeting
Quick summary: Manuel Dulay Enterprises is a domestic corporation, four-fifths of its
incorporators being close relatives namely, three (3) children and their father’s
name, Manuel Dulay, identifies their corporation. Manuel Dulay, president,
general manager, and treasurer of the corporation, by virtue of Board
Resolution No. 18 of the Corporation sold Dulay Continental Hotel to spouses
Veloso. Subsequently, spouses Veloso mortgaged the property to Torres.
Upon failure to pay, Torres was able to buy the property as the highest bidder
in an extrajudicial foreclosure. He then filed ejectment cases against the
tenants of the property and the corporation itself. MeTC, RTC and CA ruled in
favor of Torres. SC upheld the decisions of the lower courts arguing that being
a closed corporation, in ordinary parlance, a “family corporation”, a board
resolution authorizing the sale or mortgage of the subject property is not
necessary to bind the corporation for the action of its president.
Antecedent 1. Petitioner Manuel R. Dulay Enterprises, Inc is a domestic corporation.
Facts: Its designated president, treasurer and general manager is Manuel
Dulay with 19,960 shares. Petitioner corporation through its president,
Manuel Dulay, obtained various loans for the construction of its hotel
project, Dulay Continental Hotel (now Frederick Hotel).
2. On December 23, 1976, Manuel Dulay by virtue of Board Resolution
No 18 of petitioner corporation sold the subject property to private
respondents spouses Veloso.
3. On December 24, 1976, private respondent Maria Veloso, without the
knowledge of Manuel Dulay, mortgaged the subject property to private
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respondent Manuel A. Torres for a loan of P250,000.00, duly annotated
in one of the TCTs.
4. Upon the failure of private respondent Maria Veloso to pay private
respondent Torres, the subject property was sold on April 5, 1978 to
private respondent Torres as the highest bidder in an extrajudicial
foreclosure sale.
5. Maria Veloso executed a Deed of Absolute Assignment of the Right to
Redeem in favor of Manuel Dulay assigning her right to repurchase the
subject property from private respondent Torres as a result of the extra
sale held on April 25, 1978.
6. Upon failure to redeem by Manuel Dulay nor Maria Veloso, Torres filed
an Affidavit of Consolidation of Ownership with RD and the latter issued
a new TCT infavor of Torres.
7. Torres filed a petition for the issuance of a writ of possession against
spouses Veloso and Manuel Dulay. However, this was dismissed
because of Torres’ failure to implead petitioner corporation which is an
indispensable party to the case.
8. Torres and Edgardo Pabalan, real estate administrator of Torres, filed
an action against petitioner corporation, Virgilio Dulay and
Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for
the recovery of possession, sum of money and damages with
preliminary injunction. Subsequently, they filed another ejectment case
against spouses Manalastas, another tenant of Dulay Apartment, with
petitioner corporation as intervenor.
MeTC Ruling: MeTC ruled in favor of Torres and Pabalan. Thereafter, petitioner corporation
and Virgilio Dulay filed an action against the presiding judge of the
Metropolitan Trial Court of Pasay City, private respondents Pabalan and
Torres for the annulment of said decision with Pasay RTC.
RTC and CA RTC ruled in favor of Torres and Pabalan. CA affirmed RTC’s decision.
Ruling:
Petitioner’s Petitioners contend that the respondent court had acted with grave abuse of
Contention: discretion when it applied the doctrine of piercing the veil of corporate entity in
the instant case considering that the sale of the subject property between
spouses Dulay has no binding effect on petitioner corporation as Board
Resolution No. 18 which authorized the sale of the subject property was
resolved without the approval of all the members of the board of directors and
said Board Resolution was prepared by a person not designated by the
corporation to be its secretary.
Respondent’s
Contention:
Issue: Was the CA correct in applying the doctrine of piercing the veil of corporate
entity?
SC Ruling: Yes.
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Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or improperly held. Unless the
by-laws provide otherwise, any action by the directors of a close corporation
without a meeting shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed
by all the directors, or
2. All the stockholders have actual or implied knowledge of the action
and make no prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with the
express or implied acquiese of all the stockholders, or
4. All the directors have express or implied knowledge of the action in
question and none of them makes prompt objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken
therein within the corporate powers is deemed ratified by a director
who failed to attend, unless he promptly files his written objection with
the secretary of the corporation after having knowledge thereof.
Here, petitioner corporation is classified as a close corporation and
consequently a board resolution authorizing the sale or mortgage of the
subject property is not necessary to bind the corporation for the action
of its president. At any rate, corporate action taken at a board meeting
without proper call or notice in a close corporation is deemed ratified by
the absent director unless the latter promptly files his written objection
with the secretary of the corporation after having knowledge of the
meeting which, in his case, petitioner Virgilio Dulay failed to do.
Although a corporation is an entity which has a personality distinct and
separate from its individual stockholders or members, the veil of corporate
fiction may be pierced when it is used to defeat public convenience justify
wrong, protect fraud or defend crime.
Petitioners' claim that the sale of the subject property by its president, Manuel
Dulay, to spouses Veloso is null and void as the alleged Board Resolution No.
18 was passed without the knowledge and consent of the other members of
the board of directors cannot be sustained. In ordinary parlance, the entity is
loosely referred to as a “family corporation.” The nomenclature, if imprecise,
however, fairly reflects the cohesiveness of a group and the parochial instincts
of the individual members of such an aggrupation of which Manuel R. Dulay
Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives
namely, three (3) children and their father whose name identifies their
corporation (Articles of Incorporation of Manuel R. Dulay Enterprises, Inc. Exh.
"31-A"). It would be therefore hard to believe Virgilio Dulay’s contention that he
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is innocent and had never participated in any meetings authorizing the
mortgage or sale of the subject property.
Besides, Virgilio Dulay executed an affidavit that he was a signatory witness to
the execution of the post-dated Deed of Absolute Sale of the subject property
in favor of Torres. This indicates that he was aware of the transaction
executed between his father and Torres, therefore, adequate knowledge about
the sale of the subject property to private respondents.
Consequently, petitioner corporation is liable for the act of Manuel Dulay and
the sale of the subject property to private respondents by Manuel Dulay is
valid and binding. The trial court correctly held:
The sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria
Theresa V. Veloso and Castrense C. 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. There is no denying the fact,
however, that Maria Socorro R. Dulay at times acted as secretary, the Court
cannot lose sight of the fact that the Manuel R. Dulay Enterprises, Inc. 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.
Others/Notes: 1. The privilege of being treated as an entity distinct and separate from its
stockholder or members is therefore confined to its legitimate uses and
is subject to certain limitations to prevent the commission of fraud or
other illegal or unfair act. When the corporation is used merely as an alter
ego or business conduit of a person, the law will regard the corporation
as the act of that person. The Supreme Court had repeatedly disregarded
the separate personality of the corporation where the corporate entity
was used to annul a valid contract executed by one of its members.
2. Petitioners' contention that private respondent 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 is also without merit. Under the Article 1498(1) of the NCC, the
mere execution of the deed of sale in a public document is equivalent to
the delivery of the property. Therefore, prior physical delivery or
possession is not legally required since the execution of the Deed of Sale
in deemed equivalent to delivery.
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