Manuel R. Dulay Enterprises, Inc. v. Court of Appeals
REITERATIONFacts
The Antecedents: Manuel R. Dulay Enterprises, Inc., a close family corporation, owned a property in Pasay City, known as the Dulay Apartment. The corporation, through its president Manuel R. Dulay, obtained loans for a hotel project, leading to Virgilio E. Dulay, a director and son of Manuel R. Dulay, managing the apartment and occupying one unit. On December 23, 1976, Manuel R. Dulay, purportedly by virtue of Board Resolution No. 18, sold the subject property to private respondents Maria Theresa and Castrense Veloso for P300,000.00. Subsequently, Maria Veloso mortgaged the property to Manuel A. Torres for P250,000.00. Due to non-payment, the property was foreclosed and sold to Torres on April 5, 1978. Maria Veloso assigned her right to redeem to Manuel Dulay, but neither redeemed the property within the statutory period. Consequently, Torres consolidated ownership and obtained TCT No. 24799 on April 23, 1979. Procedural History: Private respondent Torres filed a petition for a writ of possession, but it was dismissed when the corporation was ordered impleaded. Subsequently, Torres and his administrator, Edgardo Pabalan, filed Civil Case No. 8198-P against the petitioners for recovery of possession, sum of money, and damages. In response, the corporation filed Civil Case No. 8278-P seeking the cancellation of the sheriff's sale and TCT No. 24799. Separately, private respondents filed an ejectment case (Civil Case No. 38-81) against a tenant, with the corporation intervening. The Metropolitan Trial Court ruled in favor of the private respondents. The corporation and Virgilio Dulay then filed Civil Case No. 2880-P to annul this decision. The Regional Trial Court consolidated and jointly tried these cases, rendering a decision in favor of the private respondents. The petitioners appealed to the Court of Appeals, which affirmed the trial court's decision. A motion for reconsideration was denied, leading to the present petition. The Petition: Petitioners seek review on certiorari of the Court of Appeals' decision affirming the trial court's ruling. They contend that the appellate court erred in piercing the corporate veil and in upholding the sale of the property, arguing that Board Resolution No. 18 was invalidly passed without the full board's approval and was prepared by an unauthorized secretary. Petitioners also claim Torres never acquired ownership due to lack of actual possession. The petition argues that the sale was not a corporate act but a personal transaction of Manuel R. Dulay, and that the corporation should not be bound by his actions. The Supreme Court, however, found that the corporation is a close corporation, and actions taken without formal board meetings can be valid if all stockholders have knowledge and do not object. The Court also noted Virgilio Dulay's prior knowledge and participation in related transactions, including witnessing a deed of sale. Furthermore, the Court held that the execution of a public instrument of sale is equivalent to delivery, and that Torres, as a buyer in a foreclosure sale, is entitled to possession upon consolidation of ownership.
Issue(s)
Whether the sale of the subject property by Manuel R. Dulay to the spouses Veloso, purportedly authorized by Board Resolution No. 18, is valid and binding on Manuel R. Dulay Enterprises, Inc., and whether the doctrine of piercing the veil of corporate entity was correctly applied by the Court of Appeals. Whether the execution of a public instrument is equivalent to delivery of the property under Article 1498 of the New Civil Code. Whether the denial of the motion for reconsideration without the private respondents' comment was proper.
Ruling
The petition is denied, and the decision of the Court of Appeals is affirmed. The sale of the subject property by Manuel R. Dulay to the spouses Veloso is valid and binding on Manuel R. Dulay Enterprises, Inc. The execution of the deed of sale in a public document is equivalent to delivery of the property. The denial of the motion for reconsideration was proper.
Ratio Decidendi
On the validity and binding effect of the sale and the application of piercing the veil of corporate entity: The Court held that Manuel R. Dulay Enterprises, Inc. is a close corporation. Section 101 of the Corporation Code provides that in a close corporation, actions taken without a formal meeting are deemed valid if all directors or stockholders consent in writing, or have knowledge and do not object, or are accustomed to informal action with acquiescence. In this case, Virgilio E. Dulay, a director, failed to object to the sale despite having knowledge, as evidenced by his affidavit as a signatory witness to a post-dated deed of sale in favor of Torres. The Court reiterated that the veil of corporate fiction may be pierced when the corporation is used to defeat public convenience, justify wrong, protect fraud, or defend crime. The privilege of separate personality is confined to legitimate uses and is subject to limitations. When a corporation is used as an alter ego or business conduit, the law will regard the corporation as the act of the person. The Court found that Manuel R. Dulay, as president, treasurer, and general manager of the close family corporation, had almost absolute control, and the corporation was used to annul a valid contract, thus justifying the piercing of the corporate veil. Therefore, the sale executed by Manuel Dulay was a corporate act and is valid and binding. On the equivalence of execution of a public instrument to delivery: The Court cited Article 1498 of the New Civil Code, which states that when a sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the contrary does not appear or cannot be clearly inferred. The Court also referred to its previous rulings that the buyer in a foreclosure sale becomes the absolute owner upon failure to redeem within the redemption period and is entitled to possession. Prior physical delivery or possession is not legally required since the execution of the Deed of Sale is deemed equivalent to delivery. On the propriety of denying the motion for reconsideration without comment: The Court held that the appellate court did not err in denying the motion for reconsideration despite the absence of private respondents' comment. The comment is merely to aid the court in its disposition, and courts are interested in the early disposition of cases. Requiring a comment in such a situation would unnecessarily clog the court's dockets.
Main Doctrine
The veil of corporate fiction may be pierced when the corporation is used to defeat public convenience, justify wrong, protect fraud, or defend crime. In a close corporation, actions taken by the president with the knowledge and implied acquiescence of the directors and stockholders, even without a formal board resolution, can be binding on the corporation.