Manuel R. Dulay Enterprises, Inc. Vs.

COURT of Appeals

FACTS OF THE CASE

Manuel Dulay Enterprises Inc is a domestic corporation with family relatives as its
members; Manuel as the president, treasurer, and general manager, Atty. Virgilio as the
vice president, Plaridel Jose as the secretary, Celia Dulay and Linda DulayMendoza as
members. The corporation owns a 16-unit apartment in Pasay. Through a Board
Resolution, the corporation sold the property to respondents Veloso with a right to
repurchase. Without the knowledge of Manuel, Veloso mortgaged the apartment to Torres.
Veloso failed to fulfill the obligation which led to the foreclosure of the property which
was subsequently bought by mortgagee Torres as the highest bidder. Veloso assigned the
right to redeem to Manuel as a result of the extra judicial sale. Neither Manuel nor
Veloso was able to redeem the property so Torres applied for the consolidation of
ownership for the said property. Torres also filed for a writ of possession against Veloso
and Manuel. According to the lower court, since the corporation had not given
permission to the sale, the corporation should be included. The corporation petitioned for
the annulment of the sale of the apartment by Manuel to Veloso arguing that not all its
members had consented to the sale of the apartment. RTC denied the petition of the
corporation and ruled in favor of Torres to which CA affirmed; hence, this petition

ISSUE: WON the respondent court erred in binding the petitioner corporation for the
transaction of Manuel Dulay by selling the apartment to Maria Veloso.

RULING : NO, Court of Appeals did not commit an error in its decision. In the instant
case, 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.

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.

Virgilio E. Dulay's protestations of complete innocence to the effect that he never

participated nor was even aware of any meeting or resolution authorizing the mortgage or
sale of the subject premises is difficult to believe. On the contrary, he is very much
privy to the transactions involved. The fact that petitioner Virgilio Dulay executed an
affidavit that he was a signatory witness to the execution of the postdated Deed of
Absolute Sale of the subject property in favor of private respondent Torres indicates that
he was aware of the transaction executed between his Manuel and private respondents
and had, 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