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Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 157549               May 30, 2011

DONNINA C. HALLEY, Petitioner,
vs.
PRINTWELL, INC., Respondent.

D E C I S I O N

BERSAMIN, J:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil may be lifted to avoid defrauding corporate creditors.

Weaffirm with modification the decisionpromulgated on August 14, 2002,¹whereby the Court of Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC),²ordering the defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum of ₱291,342.76 plus interest.

Antecedents

The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI), which, at its incorporation on November 12, 1987,³had an authorized capital stock of ₱3,000,000.00 divided into 300,000 shares each with a par value of ₱10.00,of which 75,000 were initially subscribed, to wit:

Subscriber	No. of shares	Total subscription	Amount paid
Donnina C. Halley	35,000	₱ 350,000.00	₱87,500.00
Roberto V. Cabrera, Jr.	18,000	₱ 180,000.00	₱45,000.00
Albert T. Yu	18,000	₱ 180,000.00	₱45,000.00
Zenaida V. Yu	2,000	₱ 20,000.00	₱5,000.00
Rizalino C. Vineza	2,000	₱ 20,000.00	₱5,000.00
TOTAL	75,000	₱750,000.00	₱187,500.00

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI.

In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several orders on credit, evidenced byinvoices and delivery receipts totaling₱316,342.76.Considering that BMPI paidonly₱25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance of ₱291,342.76 in the RTC.⁴

On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the original stockholders and incorporators to recover on theirunpaid subscriptions, as follows:⁵

Name	Unpaid Shares
Donnina C. Halley	₱ 262,500.00
Roberto V. Cabrera, Jr.	₱135,000.00
Albert T. Yu	₱135,000.00
Zenaida V. Yu	₱15,000.00
Rizalino C. Viñeza	₱15,000.00
TOTAL	₱ 562,500.00

The defendants filed a consolidated answer,⁶averring that they all had paid their subscriptions in full; that BMPI had a separate personality from those of its stockholders; thatRizalino C. Viñeza had assigned his fully-paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI had resolved to dissolve BMPI during the annual meetingheld on February 5, 1990.

To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no. 227,to wit:

Receipt No.	Date	Name	Amount
217	November 5, 1987	Albert T. Yu	₱ 45,000.00
218	May 13, 1988	Albert T. Yu	₱ 135,000.00
220	May 13, 1988	Roberto V. Cabrera, Jr.	₱ 135,000.00
221	November 5, 1987	Roberto V. Cabrera, Jr.	₱ 45,000.00
222	November 5, 1987	Zenaida V. Yu	₱ 5,000.00
223	May 13, 1988	Zenaida V. Yu	₱ 15,000.00
227	May 13, 1988	Donnina C. Halley	₱ 262,500.00

In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR);⁷(b) BMPIbalance sheet⁸ and income statement⁹as of December 31, 1988; (c) BMPI income tax return for the year 1988 (stamped "received" by the BIR);¹⁰(d) journal vouchers;¹¹(e) cash deposit slips;¹² and(f)Bank of the Philippine Islands (BPI) savings account passbookin the name of BMPI.¹³

Ruling of the RTC

On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of payment in full of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat the defendants had used BMPI’s corporate personality to evade payment and create injustice, viz:

The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt corporation, is not worthy of consideration, because: —

a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the alleged payment made on May 13, 1988 amounting to ₱135,000.00, is covered by Official Receipt No. 218 (Exh. "2"), whereas the alleged payment made earlier on November 5, 1987, amounting to ₱5,000.00, is covered by Official Receipt No. 222 (Exh. "3"). This is cogent proof that said receipts were belatedly issued just to suit their theory since in the ordinary course of business, a receipt issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 has serial numbers (222) higher than those issued on a later date (May 13, 1988).

b) The claim that since there was no call by the Board of Directors of defendant corporation for the payment of unpaid subscriptions will not be a valid excuse to free individual defendants from liability. Since the individual defendants are members of the Board of Directors of defendantcorporation, it was within their exclusive power to prevent the fulfillment of the condition, by simply not making a call for the payment of the unpaid subscriptions. Their inaction should not work to their benefit and unjust enrichment at the expense of plaintiff.

Assuming arguendo that the individual defendants have paid their unpaid subscriptions, still, it is very apparent that individual defendants merely used the corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).¹⁴

Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata, thusly:

Defendant Business Media, Inc. is a registered corporation (Exhibits "A", "A-1" to "A-9"), and, as appearing from the Articles of Incorporation, individual defendants have the following unpaid subscriptions:

Names	Unpaid Subscription
Donnina C. Halley	₱262,500.00
Roberto V. Cabrera, Jr.	135.000.00
Albert T. Yu	135,000.00
Zenaida V. Yu	15,000.00
Rizalino V. Vineza	15,000.00
--------------------------------
Total	₱562,500.00

and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims (Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a corporation has no legal capacity to release a subscriber to its capital stock from the obligation to pay for his shares, and any agreement to this effect is invalid (Velasco vs. Poizat, 37 Phil. 802).

The liability of the individual stockholders in the instant case shall be pro-rated as follows:

Names	Amount
Donnina C. Halley	₱149,955.65
Roberto V. Cabrera, Jr.	77,144.55
Albert T. Yu	77,144.55
Zenaida V. Yu	8,579.00
Rizalino V. Vineza	8,579.00
--------------------------------
Total	₱321,342.7515

The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants to pay to plaintiff the amount of ₱291,342.76, as principal, with interest thereon at 20% per annum, from date of default, until fully paid, plus ₱30,000.00 as attorney’s fees, plus costs of suit.

Defendants’ counterclaims are ordered dismissed for lack of merit.

SO ORDERED.¹⁶

Ruling of the CA

All the defendants, except BMPI, appealed.

Spouses Donnina and Simon Halley, andRizalinoViñeza defined the following errors committed by the RTC, as follows:

I.

THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION.

II.

ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY, THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS.

On their part, Spouses Albert and Zenaida Yu averred:

I.

THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU’S EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING THEM.

II.

THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.

Roberto V. Cabrera, Jr. argued:

I.

IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT THERETO.

II.

IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEE’S CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL DEFENDANTS.

On August 14, 2002, the CA affirmed the RTC, holding that the defendants’ resort to the corporate personality would createan injustice becausePrintwell would thereby be at a loss against whom it would assert the right to collect, viz:

Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievements or perfection of monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals (First Philippine International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613).

In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by appellants’ stockholders that they owe appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants’ stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.¹⁷

Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts, stating thus:

It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to which creditors have a right to look up to for satisfaction of their claims, and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts (PNB vs. Bitulok Sawmill, 23 SCRA 1366).

Premised on the above-doctrine, an inference could be made that the funds, which consists of the payment of subscriptions of the stockholders, is where the creditors can claim monetary considerations for the satisfaction of their claims. If these funds which ought to be fully subscribed by the stockholders were not paid or remain an unpaid subscription of the corporation then the creditors have no other recourse to collect from the corporation of its liability. Such occurrence was evident in the case at bar wherein the appellants as stockholders failed to fully pay their unpaid subscriptions, which left the creditors helpless in collecting their claim due to insufficiency of funds of the corporation. Likewise, the claim of appellants that they already paid the unpaid subscriptions could not be given weight because said payment did not reflect in the Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by the appellants’ stockholders. For it is a rule that a stockholder may be sued directly by creditors to the extent of their unpaid subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86).

Moreover, a corporation has no power to release a subscription or its capital stock, without valuable consideration for such releases, and as against creditors, a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter or the Articles of Incorporation. (PNB vs. Bitulok Sawmill, 23 SCRA 1366).¹⁸

The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the subscriptions to the capital stock unworthy of consideration; andheld that the veil of corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:

Finally, appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions was incontrovertibly established by competent testimonial and documentary evidence, namely – Exhibits "1", "2", "3" & "4", which were never disputed by appellee, clearly shows that they should not be held liable for payment of the said unpaid subscriptions of BMPI.

The reliance is misplaced.

We are hereby reproducing the contents of the above-mentioned exhibits, to wit:

Exh: "1" – YU – Official Receipt No. 217 dated November 5, 1987 amounting to ₱45,000.00 allegedly representing the initial payment of subscriptions of stockholder Albert Yu.

Exh: "2" – YU – Official Receipt No. 218 dated May 13, 1988 amounting to ₱135,000.00 allegedly representing full payment of balance of subscriptions of stockholder Albert Yu. (Record p. 352).

Exh: "3" – YU – Official Receipt No. 222 dated November 5, 1987 amounting to ₱5,000.00 allegedly representing the initial payment of subscriptions of stockholder Zenaida Yu.

Exh: "4" – YU – Official Receipt No. 223 dated May 13, 1988 amounting to ₱15,000.00 allegedly representing the full payment of balance of subscriptions of stockholder Zenaida Yu. (Record p. 353).

Based on the above exhibits, we are in accord with the lower court’s findings that the claim of the individual appellants that they fully paid their subscription to the defendant BMPI is not worthy of consideration, because, in the case of appellants SPS. YU, there is an inconsistency regarding the issuance of the official receipt since the alleged payment made on May 13, 1988 amounting to ₱135,000.00 was covered by Official Receipt No. 218 (Record, p. 352), whereas the alleged payment made earlier on November 5, 1987 amounting to ₱5,000.00 is covered by Official Receipt No. 222 (Record, p. 353). Such issuance is a clear indication that said receipts were belatedly issued just to suit their claim that they have fully paid the unpaid subscriptions since in the ordinary course of business, a receipt is issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 had a serial number (222) higher than those issued on May 13, 1988 (218). And even assuming arguendo that the individual appellants have paid their unpaid subscriptions, still, it is very apparent that the veil of corporate fiction may be pierced when made as a shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs. Court of Appeals, 198 SCRA 211).¹⁹

Spouses Halley and Viñeza moved for a reconsideration, but the CA denied their motion for reconsideration.

Issues

Only Donnina Halley has come to the Court to seek a further review, positing the following for our consideration and resolution, to wit:

I.

THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF RESPONDENT’S MEMORANDUM ADOPTING THE SAME AS THE REASON FOR THE DECISION

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF CORPORATE FICTION

III.

THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.

On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell; and submits that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII of the Constitution²⁰ as well as in Section 1,Rule 36 of the Rules of Court,²¹to the effect that a judgment or final order of a court should state clearly and distinctly the facts and the law on which it is based. The petitioner claims that the RTC’s violation indicated that the RTC did not analyze the case before rendering its decision, thus denying her the opportunity to analyze the decision; andthat a suspicion of partiality arose from the fact that the RTC decision was but a replica of Printwell’s memorandum.She cites Francisco v. Permskul,²² in which the Court has stated that the reason underlying the constitutional requirement, that every decision should clearly and distinctly state the facts and the law on which it is based, is to inform the reader of how the court has reached its decision and thereby give the losing party an opportunity to study and analyze the decision and enable such party to appropriately assign the errors committed therein on appeal.

On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the veil of corporate fiction despite the absence of cogent proof showing that she, as stockholder of BMPI, had any hand in transacting with Printwell; thatthe CA and the RTC failed to appreciate the evidence that she had fully paid her subscriptions; and the CA and the RTCwrongly relied on the articles of incorporation in determining the current list of unpaid subscriptions despite the articles of incorporationbeing at best reflectiveonly of the pre-incorporation status of BMPI.

As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that separated them; and (b) the application of the trust fund doctrine.

Ruling

The petition for review fails.

I
The RTC did not violate
the Constitution and the Rules of Court

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in writing its decision, and did not analyze the records on its own, thereby manifesting a bias in favor of Printwell, is unfounded.

It is noted that the petition for review merely generally alleges that starting from its page 5, the decision of the RTC "copied verbatim the allegations of herein Respondents in its Memorandum before the said court," as if "the Memorandum was the draft of the Decision of the Regional Trial Court of Pasig,"²³but fails to specify either the portions allegedly lifted verbatim from the memorandum, or why she regards the decision as copied. The omission renders thepetition for review insufficient to support her contention, considering that the mere similarityin language or thought between Printwell’s memorandum and the trial court’s decisiondid not necessarily justify the conclusion that the RTC simply lifted verbatim or copied from thememorandum.

It is to be observed in this connection that a trial or appellate judge may occasionally viewa party’s memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems suitable,and yet not be guilty of the accusation of lifting or copying from the memorandum.²⁴ This isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct determination of the controversy.Nor is there anything untoward in the congruence of ideas and views about the legal issues between himself and the party drafting the memorandum.The frequency of similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of the courts and the memoranda of the parties, which may be great or small, can be fairly attributable tothe adherence by our courts of law and the legal profession to widely knownor universally accepted precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.

We also do not agree with the petitioner that the RTC’s manner of writing the decisiondeprivedher ofthe opportunity to analyze its decisionas to be able to assign errors on appeal. The contrary appears, considering that she was able to impute and assignerrors to the RTCthat she extensively discussed in her appeal in the CA, indicating her thorough analysis ofthe decision of the RTC.

Our own readingof the trial court’s decision persuasively shows that the RTC did comply with the requirements regarding the content and the manner of writing a decision prescribed in the Constitution and the Rules of Court. The decision of the RTC contained clear and distinct findings of facts, and stated the applicablelaw and jurisprudence, fully explaining why the defendants were being held liable to the plaintiff. In short, the reader was at once informed of the factual and legal reasons for the ultimate result.

II
Corporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the unpaid subscriptions because it appeared that such subscriptions were the remaining visible assets of BMPI; and (b) to avoid multiplicity of suits.²⁵

The petitionersubmits that she had no participation in the transaction between BMPI and Printwell;that BMPI acted on its own; and that shehad no hand in persuading BMPI to renege on its obligation to pay. Hence, she should not be personally liable.

We rule against the petitioner’s submission.

Although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers,²⁶such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice.²⁷The corporate personality may be disregarded, and the individuals composing the corporation will be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality;as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders.²⁸ As a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to the contrary appears. Thus,the courts always presume good faith, andfor that reason accord prime importance to the separate personality of the corporation, disregarding the corporate personality only after the wrongdoing is first clearly and convincingly established.²⁹It thus behooves the courts to be careful in assessing the milieu where the piercing of the corporate veil shall be done.³⁰

Although nowhere in Printwell’s amended complaint or in the testimonies Printwell offered can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege onits obligation to pay; or that sheinduced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI toPrintwell, her personal liability, together with that of her co-defendants, remainedbecause the CA found her and the other defendant stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred, to wit:

In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the total amount of ₱291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by appellants’ stockholders that they owe(d) appellee the amount of ₱291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.³¹

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its obligations to pay, and whether or not she induced Printwell to transact with BMPI were not gooddefensesin the suit.1avvphi1

III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions

Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders, including the petitioner.

The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had already fully paid her subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts erred in disregarding the evidence on the complete payment of the subscription, like receipts, income tax returns, and relevant financial statements.

The petitioner’s argumentis devoid of substance.

The trust fund doctrineenunciates a –

xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called a trust fund ‘only by way of analogy or metaphor.’ As between the corporation itself and its creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts.³²

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,³³was adopted in our jurisdiction in Philippine Trust Co. v. Rivera,³⁴where thisCourt declared that:

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802) xxx³⁵

We clarify that the trust fund doctrineis not limited to reaching the stockholder’s unpaid subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts.³⁶All assets and property belonging to the corporation held in trust for the benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of full paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim.

Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in whole or in part,³⁷ without a valuable consideration,³⁸ or fraudulently, to the prejudice of creditors.³⁹The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt.⁴⁰To make out a prima facie case in a suit against stockholders of an insolvent corporation to compel them to contribute to the payment of its debts by making good unpaid balances upon their subscriptions, it is only necessary to establish that thestockholders have not in good faith paid the par value of the stocks of the corporation.⁴¹

The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs) issued to the other stockholders/subscribers should not affect her becauseher receipt did not suffer similar irregularity.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor,we still cannot sustain the petitioner’s defense of full payment of her subscription.

In civil cases, theparty who pleads payment has the burden of proving it, that even where the plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden of showing with legal certainty that the obligation has been discharged by payment.⁴²

Apparently, the petitioner failed to discharge her burden.

A receipt is the written acknowledgment of the fact of payment in money or other settlement between the seller and the buyer of goods, thedebtor or thecreditor, or theperson rendering services, and theclient or thecustomer.⁴³Althougha receipt is the best evidence of the fact of payment, it isnot conclusive, but merely presumptive;nor is it exclusive evidence,considering thatparole evidence may also establishthe fact of payment.⁴⁴

The petitioner’s ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated that her supposed payment had beenmade by means of a check. Thus, to discharge theburden to prove payment of her subscription, she had to adduce evidence satisfactorily proving that her payment by check wasregardedas payment under the law.

Paymentis defined as the delivery of money.⁴⁵Yet, because a check is not money and only substitutes for money, the delivery of a check does not operate as payment and does not discharge the obligation under a judgment.⁴⁶ The delivery of a bill of exchange only produces the fact of payment when the bill has been encashed.⁴⁷The following passage fromBank of Philippine Islands v. Royeca⁴⁸is enlightening:

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.

To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks.

Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim.

Ostensibly, therefore, the petitioner’s mere submission of the receipt issued in exchange of the check did not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could not even inform the trial court about the identity of her drawee bank,⁴⁹and about whether the check was cleared and its amount paid to BMPI.⁵⁰In fact, she did not present the check itself.

Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had no bearing on the issue of payment of the subscription because they did not by themselves prove payment. ITRsestablish ataxpayer’s liability for taxes or a taxpayer’s claim for refund. In the same manner, the deposit slips and entries in the passbook issued in the name of BMPI were hardly relevant due to their not reflecting the alleged payments.

It is notable, too, that the petitioner and her co-stockholders did not support their allegation of complete payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed, books and records of a corporation (including the stock and transfer book) are admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts and proceedings.⁵¹Specifically, a stock and transfer book is necessary as a measure of precaution, expediency, and convenience because it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters.⁵²That she tendered no explanation why the stock and transfer book was not presented warrants the inference that the book did not reflect the actual payment of her subscription.

Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate covering her subscription might have been a reliable evidence of full payment of the subscriptions, considering that under Section 65 of the Corporation Code a certificate of stock issues only to a subscriber who has fully paid his subscription. The lack of any explanation for the absence of a stock certificate in her favor likewise warrants an unfavorable inference on the issue of payment.

Lastly, the petitioner maintains that both lower courts erred in relying on the articles of incorporationas proof of the liabilities of the stockholders subscribing to BMPI’s stocks, averring that the articles of incorporationdid not reflect the latest subscription status of BMPI.

Although the articles of incorporation may possibly reflect only the pre-incorporation status of a corporation, the lower courts’ reliance on that document to determine whether the original subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier explained, the burden of establishing the fact of full payment belonged not to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull payment of their subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their failure to counter the reliance on the recitals found in the articles of incorporation simply meant their failure or inability to satisfactorily prove their defense of full payment of the subscriptions.

To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPI’s creditor,had a right to reachher unpaid subscription in satisfaction of its claim.

IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in the capital stock of BMPI); and held the petitionerpersonally liable onlyin the amount of ₱149,955.65.

We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence, we need to modify the extent of the petitioner’s personal liability to Printwell. The prevailing rule is that a stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription.⁵³In view ofthe petitioner’s unpaid subscription being worth ₱262,500.00, shewas liable up to that amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at 12% per annum from the date the amended complaint was filed on February 8, 1990 until the obligation (i.e., to the extent of the petitioner’s personal liability of ₱262,500.00) is fully paid.⁵⁴

Lastly, we find no basis togrant attorney’s fees, the award for which must be supported by findings of fact and of law as provided under Article 2208 of the Civil Code⁵⁵incorporated in the body of decision of the trial court. The absence of the requisite findings from the RTC decision warrants the deletion of the attorney’s fees.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the decision promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum of ₱262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until full payment.

The petitioner shall paycost of suit in this appeal.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

CONCHITA CARPIOMORALES
Associate Justice
Chairperson

ARTURO D. BRION Associate Justice

MARTIN S. VILLARAMA Associate Justice

MARIA LOURDES P. A. SERENO
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CONCHITA CARPIO MORALES
Associate Justice
Chairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes

¹ Penned by Associate Justice Mercedes Gozo-Dadole, with Associate Justices Salvador J. Valdez, Jr. and Amelita G. Tolentino concurring, rollo, pp. 36-49.

² Entitled Printwell, Inc. v. Business Media Phils., Inc., Donnina C. Halley and Simon Halley, Roberto V. Cabrera, Jr., Albert T. Yu, Zenaida V. Yu, and Rizalino C. Vineza, rollo, pp. 222-230.

³ Id., p. 109.

⁴ Records, pp. 6-7.

⁵ Id., pp. 12-16.

⁶ Id., pp. 25-28.

⁷ Id., p. 253.

⁸ Id., p. 254.

⁹ Id., p. 255.

¹⁰ Id., pp. 256-259.

¹¹ Id., pp. 260-265.

¹² Id., pp. 266-272.

¹³ Id., pp. 273-276.

¹⁴Id., pp. 369-370.

¹⁵Id., pp. 368-369

¹⁶ Records, p. 371.

¹⁷ Rollo, p. 45.

¹⁸ Id., pp. 46-47.

¹⁹Rollo, pp. 47-49.

²⁰ Section 14. No decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based.

xxx

²¹ Section 1. Rendition of judgments and final orders.—A judgment or final order determining the merits of the case shall be in writing personally and directly prepared by the judge, stating clearly and distinctly the facts and the law on which it is based, signed by him, and filed with the clerk of the court.

²² G.R. No. 81006, May 12, 1989, 173 SCRA 324.

²³ Rollo, p. 23.

²⁴ See, for instance, Bank of the Philippine Islands v. Leobrera, G.R. No. 137147, January 29, 2002, 375 SCRA 81, 86 (where the Court declared that although it was not good practice, there was nothing illegal in the act of the trial court completely copying the memorandum submitted by a party provided that the decision clearly and distinctly stated sufficient findings of fact and the law on which it was based).

²⁵ Rollo, p. 55.

²⁶ Section 2, Corporation Code; Article 44 (3), Civil Code; Francisco Motors Corporation v. Court of Appeals, G.R. No. 100812, June 25, 1999, 309 SCRA 72, 82.

²⁷ Prudential Bank v. Alviar, G.R. No. 150197, July 28, 2005, 464 SCRA 353, 362; Martinez v. Court of Appeals, G.R. No. 131673, September 10, 2004, 438 SCRA 130, 149-150.

²⁸ Light Rail Transit Authority v. Venus, Jr., G.R. No. 163782, March 24, 2006, 485 SCRA 361, 372;R&E Transport, Inc. v. Latag, G.R. No. 155214, February 13, 2004, 422 SCRA 698; Secosa v. Heirs of Erwin Suarez Francisco, G.R. No. 160039, June 29, 2004, 433 SCRA 273;Gochan v. Young, G.R. No. 131889, March 12, 2001, 354 SCRA 207, 222; Development Bank of the Philippines v. Court of Appeals, G.R. No. 110203, May 9, 2001, 357 SCRA 626; Del Rosario v. National Labor Relations Commission, G.R. No. 85416, July 24, 1990, 187 SCRA 777, 780.

²⁹ Solidbank Corporation v. Mindanao Ferroalloy Corporation, G.R. No. 153535, July 28, 2005, 464 SCRA 409, 424-425; Construction & Development Corporation of the Philippines v. Cuenca, G.R. No. 163981, August 12, 2005, 466 SCRA 714, 727; Matuguina Integrated Wood Products, Inc. v. Court of Appeals, G.R. No. 98310, October 24, 1996, 263 SCRA 490, 509.

³⁰ Francisco Motors Corporation v. Court of Appeals, supra, note 26.

³¹ Rollo, p. 45.

³² 42A, Words and Phrases, Trust Fund Doctrine, p. 445, citing McIver v. Young Hardware Co., 57 S.E. 169, 171, 144 N.C. 478, 119 Am. St. Rep. 970; Gallagher v. Asphalt Co. of America, 55 A. 259, 262, 65 N.J. Eq. 258.

³³ 3 Mason 308, Fed Cas. No. 17, 944.

³⁴ 44 Phil 469 (1923).

³⁵ Id., p. 470.

³⁶ Villanueva, Philippine Corporate Law (2001), pp. 558, citing Chicago Rock Island & Pac. R.R. Co. v. Howard, 7 Wall., 392, 19 L. Ed. 117; Sawyer v. Hoag, 17 Wall 610, 21 L. Ed. 731; and Pullman v. Upton, 96 U.S. 328, 24 L. Ed. 818.

³⁷ Velasco v. Poizat, 37 Phil 802, 808 (1918).

³⁸ Philippine Trust v. Rivera, supra, note 34, pp. 470-471.

³⁹ Fogg v. Blair, 139 US 118 (1891).

⁴⁰ See Velasco v. Poizat, 37 Phil 802, 806 (1918).

⁴¹ Tierney v. Ledden, 121 NW 1050.

⁴² Alonzo v. San Juan, G.R. No. 137549, February 11, 2005, 451 SCRA 45, 55-56; Union Refinery Corporation v. Tolentino, Sr., G.R. No. 155653, September 30, 2005, 471 SCRA 613, 621.

⁴³ Commissioner of Internal Revenue v. Manila Mining Corporation, G.R. No. 153204, August 31, 2005, 468 SCRA 571, 590.

⁴⁴ Philippine National Bank v. Court of Appeals, G.R. No. 116181, April 17, 1996, 256 SCRA 491, 335-336; Towne & City Development Corporation v. Court of Appeals, G.R. No. 135043, July 14, 2004, 434 SCRA 356, 361-362.

⁴⁵ Art. 1232, Civil Code.

⁴⁶ Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 49188, January 30, 1990, 181 SCRA 557, 568.

⁴⁷ Art. 1249, Civil Code.

⁴⁸ G.R. No. 176664, July 21, 2008, 559 SCRA 207, 217-219 (underscoring supplied for emphasis).

⁴⁹ See TSN dated November 6, 1991, p. 4.

⁵⁰ TSN dated November 6, 1991, p. 4.

⁵¹ Bitong v. Court of Appeals (Fifth Division), G.R. No. 123553, July 13, 1998, 292 SCRA 503, 523.

⁵² Lanuza v. Court of Appeals, G.R. No. 131394, March 28, 2005, 454 SCRA 54, 67.

⁵³ Edward A. Keller & Co., Ltd., v. COB Group Marketing, Inc., G.R. No. L-68907, January 16, 1986, 141 SCRA 86, 93 citing Vda. De Salvatierra v. Hon. Garlitos etc, and Refuerzo, 103 Phil, 757, 763 (1958).

⁵⁴ See Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA 78.

⁵⁵ Bunyi v. Factor, G.R. No. 172547, June 30, 2009, 591 SCRA 350, 363; Lapanday Agricultural and Development Corporation (LADECO) v. Angala, G.R. No. 153076, June 21, 2007, 525 SCRA 229; Pajuyo v. Court of Appeals, G.R. No. 146364, June 3, 2004, 430 SCRA 492, 524.

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