Title

Halley vs. Printwell, Inc.

Case Decision Date

G.R. No. 157549 May 30, 2011

In the case of Halley v. Printwell, Inc., the court holds individual stockholders
liable for the debts of the corporation up to the extent of their unpaid
subscriptions, lifting the corporate veil to prevent evasion of payment and
injustice. The court orders Halley to pay Printwell the amount of her unpaid
subscription plus interest.

664 Phil. 361

THIRD DIVISION

[ G.R. No. 157549, May 30, 2011 ]

DONNINA C. HALLEY, PETITIONER, VS. PRINTWELL, INC., RESPONDENT.

DECISION

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.

We a!rm with modi"cation the decision promulgated on August 14, 2002,[1] whereby the
Court of Appeals (CA) upheld the decision of the Regional Trial Court, Branch 71, in Pasig
City (RTC),[2] ordering the defendants (including the petitioner) to pay to Printwell, Inc.
(Printwell) the principal sum of P291,342.76 plus interest.

Antecedents
:
 The petitioner was an incorporator and original director of Business Media Philippines, Inc.
(BMPI), which, at its incorporation on November 12, 1987,[3] had an authorized capital stock
of P3,000,000.00 divided into 300,000 shares each with a par value of P10.00, of which
75,000 were initially subscribed, to wit:

Subscriber No. of shares Total subscription Amount paid

Donnina C. Halley 35,000 P 350,000.00 P87,500.00

Roberto V. Cabrera, Jr. 18,000 P 180,000.00 P45,000.00

Albert T. Yu 18,000 P 180,000.00 P45,000.00

Zenaida V. Yu 2,000 P 20,000.00 P5,000.00

Rizalino C. Vineza 2,000 P 20,000.00 P5,000.00

TOTAL 75,000 P750,000.00 P187,500.00

Printwell engaged 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 placed with Printwell several
orders on credit, evidenced by invoices and delivery receipts totaling P316,342.76.
Considering that BMPI paid only P25,000.00, Printwell sued BMPI on January 26, 1990 for
the collection of the unpaid balance of P291,342.76 in the RTC.[4]

On February 8, 1990, Printwell amended the complaint in order to implead as defendants all
the original stockholders and incorporators to recover on their unpaid subscriptions, as
follows:[5]
:
 Name Unpaid Shares

Donnina C. Halley P 262,500.00

Roberto V. Cabrera, Jr. P135,000.00

Albert T. Yu P135,000.00

Zenaida V. Yu P15,000.00

Rizalino C. ViAeza P15,000.00

TOTAL P 562,500.00

The defendants "led a consolidated answer,[6] averring that they all had paid their
subscriptions in full; that BMPI had a separate personality from those of its stockholders;
that Rizalino C. ViAeza had assigned his fully-paid up shares to a certain Gerardo R. Jacinto
in 1989; and that the directors and stockholders of BMPI had resolved to dissolve BMPI
during the annual meeting held on February 5, 1990.

To prove payment of their subscriptions, the defendant stockholders submitted in evidence

BMPI o!cial receipt (OR) no. 217, OR no. 218, OR no. 220, OR no. 221, OR no. 222, OR no. 223,
and OR no. 227, to wit:

Receipt No. Date Name Amount

217 November 5, 1987 Albert T. Yu P 45,000.00

218 May 13, 1988 Albert T. Yu P 135,000.00

220 May 13, 1988 Roberto V. Cabrera, Jr. P 135,000.00

221 November 5, 1987 Roberto V. Cabrera, Jr. P 45,000.00

222 November 5, 1987 Zenaida V. Yu P 5,000.00

:
 223 May 13, 1988 Zenaida V. Yu P 15,000.00

227 May 13, 1988 Donnina C. Halley P 262,500.00

In addition, the stockholders submitted other documents in evidence, namely: (a) an audit
report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC
and the BIR);[7] (b) BMPI balance sheet[8] and income statement[9] as 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 passbook in the name of BMPI.[13]

Ruling of the RTC

On November 3, 1993, the RTC rendered a 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 observing that 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 P135,000.00, is covered by O!cial Receipt No. 218 (Exh. "2"),
whereas the alleged payment made earlier on November 5, 1987, amounting to P5,000.00, is
covered by O!cial 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 defendant
:
 corporation, it was within their exclusive power to prevent the ful"llment of the condition, by
simply not making a call for the payment of the unpaid subscriptions. Their inaction should not
work to their bene"t and unjust enrichment at the expense of plainti#.

Assuming arguendo that the individual defendants have paid their unpaid subscriptions,
still, it is very apparent that individual defendants merely used the corporate "ction 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 P262,500.00

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 P562,500.00
:
 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 e#ect 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 P149,955.65

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 P321,342.75[15]

The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plainti# and against defendants,

ordering defendants to pay to plainti# the amount of P291,342.76, as principal, with interest
thereon at 20% per annum, from date of default, until fully paid, plus P30,000.00 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, and RizalinoViAeza de"ned 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 a!rmed the RTC, holding that the defendants' resort to the
corporate personality would create an injustice because Printwell 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 "ction 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
bene"ted 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 "ction to evade payment of its obligations.[17]
Further, the CA concurred with the RTC on the applicability of the trust 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 insu!ciency 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 re$ect 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 CA declared that the inconsistency in the issuance of the ORs rendered the claim of full
payment of the subscriptions to the capital stock unworthy of consideration; and held that
the veil of corporate "ction 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 - O!cial Receipt No. 217 dated November 5, 1987 amounting to P45,000.00
allegedly representing the initial payment of subscriptions of stockholder Albert Yu.

Exh: "2" - YU - O!cial Receipt No. 218 dated May 13, 1988 amounting to P135,000.00
allegedly representing full payment of balance of subscriptions of stockholder Albert Yu.
(Record p. 352).

Exh: "3" - YU - O!cial Receipt No. 222 dated November 5, 1987 amounting to P5,000.00
allegedly representing the initial payment of subscriptions of stockholder Zenaida Yu.

Exh: "4" - YU - O!cial Receipt No. 223 dated May 13, 1988 amounting to P15,000.00 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 "ndings 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 o!cial receipt since the alleged payment made
on May 13, 1988 amounting to P135,000.00 was covered by O!cial Receipt No. 218 (Record,
p. 352), whereas the alleged payment made earlier on November 5, 1987 amounting to
P5,000.00 is covered by O!cial 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 "ction
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 ViAeza 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 NOT
STATE 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 "rst error, the petitioner contends that the RTC lifted verbatim from the
memorandum of Printwell; and submits that the RTC thereby violated the requirement
imposed in Section 14, Article VIII of the Constitution[20] as well as in Section 1, Rule 36 of
the Rules of Court,[21] to the e#ect that a judgment or "nal 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; and that 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 "ction despite the absence of cogent proof
showing that she, as stockholder of BMPI, had any hand in transacting with Printwell; that
the CA and the RTC failed to appreciate the evidence that she had fully paid her
subscriptions; and the CA and the RTC wrongly relied on the articles of incorporation in
determining the current list of unpaid subscriptions despite the articles of incorporation
being at best re$ective only 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 stockholders by 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,"[23] but fails to specify either the portions allegedly lifted
verbatim from the memorandum, or why she regards the decision as copied. The omission
renders the petition for review insu!cient to support her contention, considering that the
mere similarity in language or thought between Print well's memorandum and the trial
court's decision did not necessarily justify the conclusion that the RTC simply lifted
verbatim or copied from the memorandum.

It is to be observed in this connection that a trial or appellate judge may occasionally view a
party's memorandum or brief as worthy of due consideration either entirely or partly. When
he does so, the judge may adopt and incorporate in his adjudication the 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 is because of the 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 to the adherence by our courts of law and the legal profession to widely know
nor 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 decision
deprived her of the opportunity to analyze its decision as to be able to assign errors on
appeal. The contrary appears, considering that she was able to impute and assign errors to
the RTC that she extensively discussed in her appeal in the CA, indicating her thorough
analysis of the decision of the RTC.

Our own reading of 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 "ndings of facts, and stated the applicable law and jurisprudence, fully
explaining why the defendants were being held liable to the plainti#. 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 petitioner submits that she had no participation in the transaction between BMPI and
Printwell; that BMPI acted on its own; and that she had 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 o!cers,[26] such separate and distinct personality is merely a
"ction created by law for the sake of convenience and to promote the ends of justice.[27] The
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 justi"cation for a wrong; as an alter ego, an adjunct, or a business
conduit for the sole bene"t of the stockholders.[28] As a general rule, a corporation is looked
upon as a legal entity, unless and until su!cient reason to the contrary appears. Thus, the
courts always presume good faith, and for that reason accord prime importance to the
separate personality of the corporation, disregarding the corporate personality only after the
wrong doing is "rst clearly and convincingly established.[29] It 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 o#ered

can it be read or inferred from that the petitioner was instrumental in persuading BMPI to
renege on its obligation to pay; or that she induced Printwell to extend the credit
accommodation by misrepresenting the solvency of BMPI to Printwell, her personal liability,
together with that of her co-defendants, remained because 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 P291,342.76 (Record pp. 3-5, Annex "A") which facts were never
denied by appellants' stockholders that they owe(d) 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
bene"ted 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 "ction 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
good defenses in the suit.

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

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

The petitioner argues, however, that the trust fund doctrine was in applicable because she
had already fully paid her subscriptions to the capital stock of BMPI. She thus insists that
both lower courts erred in disregarding the evidence on the complete payment of the
subscription, like receipts, income tax returns, and relevant "nancial statements.

The petitioner's argument is devoid of substance.

The trust fund doctrine enunciates a -

... 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, "rst enunciated in the American case of Wood v. Dummer,[33]was
adopted in our jurisdiction in Philippine Trust Co. v. Rivera,[34] where this Court 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) ...[35]
We clarify that the trust fund doctrine is 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.[36] All assets and property belonging to the
corporation held in trust for the bene"t of creditors that were distributed or in the
possession of the stockholders, regardless of full payment of 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.[39]
The 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.[40] To 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 the stockholders have not in good faith
paid the par value of the stocks of the corporation.[41]

The petitioner posits that the "nding of irregularity attending the issuance of the receipts
(ORs) issued to the other stockholders/subscribers should not a#ect her because her receipt
did not su#er similar irregularity.

Notwithstanding that the RTC and the CA did not "nd 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, the party who pleads payment has the burden of proving it, that even where
the plainti# must allege nonpayment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plainti# 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, the debtor or the creditor, or the
person rendering services, and the client or the customer.[43] Although a receipt is the best
evidence of the fact of payment, it is not conclusive, but merely presumptive; nor is it
exclusive evidence, considering that parole evidence may also establish the fact of payment.
[44]

The petitioner's OR No. 227, presented to prove the payment of the balance of her
subscription, indicated that her supposed payment had been made by means of a check.
Thus, to discharge the burden to prove payment of her subscription, she had to adduce
evidence satisfactorily proving that her payment by check was regarded as payment under
the law.

Payment is de"ned as the delivery of money.[45] Yet, 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.[47] The following passage
from Bank of Philippine Islands v. Royeca[48] is 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 noti"ed 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 su!cient 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,[49]
and about whether the check was cleared and its amount paid to BMPI.[50] In fact, she did
not present the check itself.

The income 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. ITRs establish a taxpayer'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 re$ecting 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 "nancial status and other matters (like the status of the stockholders),
and are ordinarily the best evidence of corporate acts and proceedings.[51] Speci"cally, 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.[52] That she tendered no explanation why the stock and transfer book was not
presented warrants the inference that the book did not re$ect the actual payment of her
subscription.

Nor did the petitioner present any certi"cate of stock issued by BMPI to her. Such a
:
 certi"cate 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 certi"cate of
stock issues only to a subscriber who has fully paid his subscription. The lack of any
explanation for the absence of a stock certi"cate 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
incorporation as proof of the liabilities of the stockholders subscribing to BMPI's stocks,
averring that the articles of incorporation did not re$ect the latest subscription status of
BMPI.

Although the articles of incorporation may possibly re$ect only the pre-incorporation status
of a corporation, the lower courts' reliance on that document to determine whether the
original subscribers already 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 plainti#, but to the stockholders like the
petitioner who, as the defendants, averred full 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 petitioner was liable pursuant 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 reach her unpaid subscription in satisfaction of its claim.

IV
Liability of stockholders for corporate debts is up
to the extent of 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 petitioner personally liable only in
the amount of P149,955.65.
:
 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 "nancial obligations of the
corporation to the extent of his unpaid subscription.[53] In view of the petitioner's unpaid
subscription being worth P262,500.00, she was liable up to that amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is "xed
at 12% per annum from the date the amended complaint was "led on February 8, 1990 until
the obligation (i.e., to the extent of the petitioner's personal liability of P262,500.00) is fully
paid.[54]

Lastly, we "nd no basis to grant attorney's fees, the award for which must be supported by
"ndings of fact and of law as provided under Article 2208 of the Civil Code[55] incorporated
in the body of decision of the trial court. The absence of the requisite "ndings from the RTC
decision warrants the deletion of the attorney's fees.

ACCORDINGLY, we deny the petition for review on certiorari; and a!rm with modi"cation
the decision promulgated on August 14, 2002by ordering the petitioner to pay to Printwell,
Inc. the sum of P262,500.00, plus interest of 12% per annum to be computed from February
8, 1990 until full payment.

The petitioner shall pay cost of suit in this appeal.

SO ORDERED.

Carpio Morales, (Chairperson), Brion, Villarama, Jr., and Sereno, JJ., concur.

[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.

[14]
Id., pp. 369-370.

[15]
Id., pp. 368-369.

[16]
Records, p. 371.

[17]
Rollo, p. 45.
:
 [18]
Id., pp. 46-47.

[19]
Rollo, 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.

...

[21]
Section 1. Rendition of judgments and "nal orders.--A judgment or "nal 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 "led 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 su!cient
"ndings 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
Re"nery 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.
: