Donnina Halley vs. Printwell, Inc.

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,
Facts:
justification of a wrong, or an alter ego for the sole benefit of the SH.
o BMPI (Business Media Philippines Inc.) is a corporation under the control of its
stockholders, including Donnina Halley.
As to the Trust Fund Doctrine:
o In the course of its business, BMPI commissioned PRINTWELL to print
 The RTC and CA correctly applied the Trust Fund Doctrine
Philippines, Inc. (a magazine published and distributed by BMPI)
 Under which corporate debtors might look to the unpaid subscriptions for the
o PRINTWELL extended 30-day credit accommodation in favor of BMPI and in a
satisfaction of unpaid corporate debts
period of 9 mos. BMPI placed several orders amounting to 316,000.
 Subscriptions to the capital of a corporation constitutes a trust fund for the
o However, only 25,000 was paid hence a balance of 291,000
payment of the creditors (by mere analogy) In reality, corporation is a simple
o PRINTWELL sued BMPI for collection of the unpaid balance and later on
debtor.
impleaded BMPI’s original stockholders and incorporators to recover on their
 Moreover, the corporation has no legal capacity to release an original
unpaid subscriptions.
subscriber to its capital stock from the obligation of paying for his shares, in
o It appears that BMPI has an authorized capital stock of 3M divided into 300,000
whole or in part, without valuable consideration, or fraudulently, to the
shares with P10 par value.
prejudice of the creditors.
o Only 75,000 shares worth P750,000 were originally subscribed of which
 The creditor is allowed to maintain an action upon any unpaid subscriptions
P187,500 were paid up capital.
and thereby steps into the shoes of the corporation for the satisfaction of its
o Halley subscribed to 35,000 shares worth P350,000 but only paid P87,500.
debt.
 The trust fund doctrine is not limited to reaching the SH’s unpaid
Halley contends that:
subscriptions. The scope of the doctrine when the corporation is insolvent
1. They all had already paid their subscriptions in full
encompasses not only the capital stock but also other property and assets
2. BMPI had a separate and distinct personality
generally regarded in equity as a trust fund for the payment of corporate
3. BOD and SH had resolved to dissolve BMPI
debts.
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: