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Donnina Halley vs. Printwell, Inc.

Facts: o o o o o o o o BMPI (Business Media Philippines Inc.) is a corporation under the control of its stockholders, including Donnina Halley. In the course of its business, BMPI commissioned PRINTWELL to print Philippines, Inc. (a magazine published and distributed by BMPI) PRINTWELL extended 30-day credit accommodation in favor of BMPI and in a period of 9 mos. BMPI placed several orders amounting to 316,000. However, only 25,000 was paid hence a balance of 291,000 PRINTWELL sued BMPI for collection of the unpaid balance and later on impleaded BMPIs original stockholders and incorporators to recover on their unpaid subscriptions. It appears that BMPI has an authorized capital stock of 3M divided into 300,000 shares with P10 par value. Only 75,000 shares worth P750,000 were originally subscribed of which P187,500 were paid up capital. Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500.

Although the corporation has a personality separate and distinct from its SH, such personality is merely a legal fiction (for the convenience and to promote the ends of justice) which may be disregarded by the courts if it is used as a cloak or cover for fraud, justification of a wrong, or an alter ego for the sole benefit of the SH. As to the Trust Fund Doctrine: The RTC and CA correctly applied the Trust Fund Doctrine Under which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts Subscriptions to the capital of a corporation constitutes a trust fund for the payment of the creditors (by mere analogy) In reality, corporation is a simple debtor. Moreover, the 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, without valuable consideration, or fraudulently, to the prejudice of the creditors. 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. The trust fund doctrine is not limited to reaching the SHs 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.

Halley contends that: 1. They all had already paid their subscriptions in full 2. BMPI had a separate and distinct personality 3. BOD and SH had resolved to dissolve BMPI RTC and CA o Defendant merely used the corporate fiction as a cloak/cover to create an injustice (against PRINTWELL) o Rejected allegations of full payment in view of irregularity in the issuance of ORs (Payment made on a later date was covered by an OR with a lower serial number than payment made on an earlier date. Issue: WON a stockholder who was in active management of the business of the corporation and still has unpaid subscriptions should be made liable for the debts of the corporation by piercing the veil of corporate fiction Held: YES! Such stockholder should be made liable up to the extent of her unpaid subscription Ratio: It was found that at the time the obligation was incurred, BMPI was under the control of its stockholders who know fully well that the corporation was not in a position to pay its account (thinly capitalized). And, that the stockholders personally benefited from the operations of the corporation even though they never paid their subscriptions in full.

The stockholders cannot now claim the doctrine of corporate fiction otherwise (to deny creditors to collect from SH) it would create an injustice because creditors would be at a loss (limbo) against whom it would assert the right to collect. On piercing the veil: