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DONNINA C. HALLEY v. PRINTWELL

FACTS:

The petitioner, an incorporator and director of Business Media Philippines, Inc. (BMPI), was impleaded in a case filed by Printwell, Inc. for the collection of the unpaid balance for printing services. Printwell later amended the complaint to include the original stockholders and incorporators of BMPI to recover on their unpaid subscriptions. The defendants maintained that they had already paid their subscriptions in full and that BMPI had a separate personality from its stockholders. The defendants presented evidence, such as official receipts and financial documents, to support their claim of payment. However, the Regional Trial Court (RTC) ruled in favor of Printwell, rejecting the claim of payment and disregarding BMPI's separate personality. The RTC applied the trust fund doctrine and held the defendant stockholders liable for the debts of BMPI up to the extent of their unpaid subscriptions.

Defendant Business Media, Inc. had unpaid subscriptions from its individual stockholders, namely Donnina C. Halley, Roberto V. Cabrera, Jr., Albert T. Yu, Zenaida V. Yu, and Rizalino V. Vineza. The RTC held that subscriptions to the capital stock of a corporation constitute a fund to which creditors have a right to look for the satisfaction of their claims. As such, the defendant stockholders were deemed liable for their unpaid subscriptions. The RTC ordered the defendants to pay Printwell the amount of P321,342.75, plus interest, attorney's fees, and costs of suit. The defendants appealed to the Court of Appeals (CA), but the CA affirmed the decision of the RTC. The CA agreed that the defendants' reliance on corporate personality would create an injustice and supported the application of the trust fund doctrine, thus allowing Printwell to collect from the defendants' unpaid subscriptions.

The case revolves around the issue of unpaid subscriptions to the capital stock of a corporation. Creditors of the corporation argue that they can seek satisfaction from the unpaid subscriptions. The appellants, who are stockholders of the corporation, failed to fully pay their subscriptions, causing the creditors to be unable to collect their claims. The appellants claimed that they already paid their subscriptions, but this claim was not given weight as it was not reflected in the Articles of Incorporation. The CA held that the claim of full payment was not considered due to inconsistencies in the issuance of official receipts. The CA also stated that the corporate veil can be disregarded when used as a shield for fraud or to confuse legitimate issues. Spouses Halley and Vineza filed a motion for reconsideration, but it was denied. Donnina Halley brought the case to the Supreme Court for further review.

ISSUES:

I. Whether the RTC violated Section 14, Article VIII of the Constitution and Section 1, Rule 36 of the Rules of Court by allegedly copying the contents of the respondent's memorandum in its decision.

II. Whether the Court of Appeals erred in affirming the decision of the Regional Trial Court that pierced the veil of corporate fiction.

III. Whether the Court of Appeals erred in applying the trust fund doctrine when the grounds for its application were not satisfied.

RULING:

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

The Supreme Court found the petitioner's contention unfounded. The trial or appellate judge may occasionally view a party's memorandum or brief as worthy of due consideration. The decision complied with the requirements regarding the content and manner of writing a decision prescribed in the Constitution and the Rules of Court.

II. Corporate personality is not to be used to foster injustice.

The Supreme Court ruled against the petitioner's submission. Despite the legal separation of the corporation and its stockholders, the corporate personality may be disregarded if it is being used as a cloak or cover for fraud or illegality, or as a justification for a wrong.

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

The petitioner failed to discharge the burden of proving full payment of her subscription. The trust fund doctrine was correctly applied, and the stockholder is personally liable for the financial obligations of the corporation to the extent of their unpaid subscription.

PRINCIPLES:

  • Judgment Writing: Section 14, Article VIII of the Constitution and Section 1, Rule 36 of the Rules of Court require that judgments should clearly and distinctly state the facts and the law upon which they are based.

  • Piercing the Veil of Corporate Fiction: Corporate personality may be disregarded if it is used to perpetrate fraud, justify a wrong, or operate merely as an alter ego or a business conduit for the sole benefit of the stockholders.

  • Trust Fund Doctrine: Subscriptions to the capital stock of a corporation constitute a trust fund for the payment of creditors. Creditors may satisfy their claims from unpaid subscriptions, and the corporation itself has no legal capacity to release an original subscriber from the obligation of their unpaid subscriptions without a valuable consideration or fraudulently to the prejudice of creditors.

  • Burden of Proof in Payment: The debtor bears the burden of showing with legal certainty that the obligation has been discharged by payment, and mere submission of a receipt issued in exchange for a check does not satisfactorily establish payment unless the check is proven to have been cleared.

  • Legal Tender: Payment must be made in legal tender; a check is not legal tender and does not constitute valid payment unless it has been encashed.

  • Extent of Stockholder Liability: A stockholder is personally liable for the financial obligations of the corporation to the extent of their unpaid subscription.