Title
Halley vs. Printwell, Inc.
Case
G.R. No. 157549
Decision Date
May 30, 2011
Stockholders held liable for unpaid subscriptions under trust fund doctrine; corporate veil pierced to prevent injustice, affirming liability for corporate debts.
individual stockholders
debts
corporation

Case Summary (G.R. No. 157549)

Factual Background

BMPI commissioned Printwell, Inc. to print the magazine Philippines, Inc., wrappers and subscription cards and received thirty-day credit accommodations. Between October 11, 1988 and July 12, 1989, BMPI placed several orders evidenced by invoices and delivery receipts totaling P316,342.76. BMPI paid only P25,000.00. Printwell sued BMPI for the unpaid balance of P291,342.76 on January 26, 1990 and amended its complaint on February 8, 1990 to implead BMPI’s original stockholders to reach unpaid subscriptions alleged to total P562,500.00, showing Petitioner’s unpaid subscription as P262,500.00.

Procedural History at Trial

The stockholders, including Petitioner, filed a consolidated answer asserting full payment of their subscriptions, BMPI’s separate corporate personality, an alleged assignment of one stockholder’s shares, and a corporate resolution to dissolve BMPI. They introduced documentary evidence including several BMPI official receipts (OR Nos. 217, 218, 220, 221, 222, 223, and 227), financial statements, an audit report, income tax returns, journal vouchers, deposit slips, and a BMPI BPI passbook to prove payment.

Ruling of the Regional Trial Court

On November 3, 1993 the RTC rejected the stockholders’ claim of full payment, noted irregularities in the issuance of certain official receipts, and found that the corporate personality had been used to evade payment and create injustice. Applying the trust fund doctrine and relevant jurisprudence, the RTC held the stockholders liable pro rata and rendered judgment for Printwell in the principal amount of P291,342.76 with interest at 20% per annum from date of default, and awarded P30,000.00 as attorney’s fees.

Appeal to the Court of Appeals

All defendants except BMPI appealed. The CA, in a decision promulgated August 14, 2002, affirmed the RTC. The CA agreed that the corporate veil could be pierced where the corporate fiction was used to perpetrate fraud, evade obligations, or create injustice, citing authorities such as First Philippine International Bank v. Court of Appeals and Claparols v. CIR. The CA sustained the trial court’s finding that BMPI incurred the indebtedness and that stockholders managed BMPI’s operations while unpaid subscriptions remained, and it found the stockholders’ documentary proof of payment unconvincing because of inconsistencies in the OR serial numbers and the absence of corroborating corporate records.

Issues Presented to the Supreme Court

Petitioner limited her appeal to three principal arguments: (i) that the RTC violated Section 14, Article VIII, 1987 Constitution and Section 1, Rule 36, Rules of Court by copying respondent’s memorandum into its decision; (ii) that the CA and the RTC erred in piercing the corporate veil absent sufficient grounds; and (iii) that the trust fund doctrine was inapplicable because she had already fully paid her subscription.

Petitioner’s Contentions

Petitioner argued that the RTC’s decision was largely verbatim from Printwell’s memorandum thereby denying a clear statement of facts and law and creating an appearance of bias. She further contended that she had no part in BMPI’s failure to pay Printwell, that she had fully paid her subscription as evidenced by OR No. 227 and other financial documents, and that reliance on the articles of incorporation to establish unpaid subscriptions was improper because those articles reflected only pre-incorporation status.

Supreme Court’s Examination of the Alleged Copying

The Supreme Court rejected the contention that the RTC violated the constitutional and procedural requirements. The Court observed that Petitioner failed to identify specific passages allegedly copied. It explained that a trial judge may adopt parts of a party’s memorandum when those parts correctly state facts or law, and that similarity in expression does not establish impermissible copying. The Court found that the RTC’s decision contained sufficient and distinct findings of fact and law to satisfy constitutional and rules-based mandates.

Supreme Court’s Ruling on Piercing the Corporate Veil

The Supreme Court affirmed the courts below that corporate personality may be disregarded when it is used as a cloak for fraud, illegality, or evasion of obligations. The Court noted the longstanding presumption in favor of corporate separateness but emphasized that the veil could be pierced when wrongdoing is clearly and convincingly shown. It accepted the CA’s factual finding that BMPI ordered and received goods from Printwell, that BMPI failed to pay, and that the stockholders were in charge of BMPI’s operations while unpaid subscriptions remained; therefore, resort to the corporate fiction to evade payment would be improper.

Application of the Trust Fund Doctrine and Burden of Proof

The Supreme Court applied the trust fund doctrine, explaining that subscriptions to capital constitute a fund to which corporate creditors have a right to look. The Court clarified that the doctrine reaches unpaid subscriptions and, in appropriate circumstances, other corporate assets held for the benefit of creditors. The Court placed the burden of proving payment on the stockholders who pleaded full payment. It held that the documentary submissions of Petitioner did not discharge that burden because (a) a receipt is presumptive, not conclusive, evidence of payment; (b) OR No. 227 indicated payment by check but Petitioner produced no cancelled check or proof that the check was encashed; (c) she did not identify the drawee bank or prove clearance; and (d) she produced no stock and transfer book or certificate of stock reflecting full payment, which omissions warranted adverse inference.

Rejection of Challenges to Reliance on Articles of Incorporation

The Court rejected Petitioner’s complaint that the lower courts improperly relied on the articles of incorporation. The Court reiterated that when defendants assert full payment of subscriptions, they carry the burden of proof. The failure to produce corporate books and a stock certificate or other convincing evidence rendered reliance on the recitals in the articles and other evidence permissible to establish unpaid subscriptions.

Modification of Extent of Liability, Interest and Attorney’s Fees

The Su

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