Republic of the Philippines were observed, and in particular it does not appear that any certificate was at any

SUPREME COURT time filed in the Bureau of Commerce and Industry, showing such reduction.
Manila
His Honor, the trial judge, therefore held that the resolution relied upon the defendant
EN BANC was without effect and that the defendant was still liable for the unpaid balance of his
subscription. In this we think his Honor was clearly right.
G.R. No. L-19761 January 29, 1923
It is established doctrine that subscription to the capital of a corporation constitute a
PHILIPPINE TRUST COMPANY, as assignee in insolvency of "La Cooperativa find to which creditors have a right to look for satisfaction of their claims and that the
Naval Filipina," plaintiff-appellee, assignee in insolvency can maintain an action upon any unpaid stock subscription in
vs. order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802.)
MARCIANO RIVERA, defendant-appellant. A corporation has no power to release an original subscriber to its capital stock from
the obligation of paying for his shares, without a valuable consideration for such
release; and as against creditors a reduction of the capital stock can take place only
Araneta and Zaragoza for appellant. in the manner an under the conditions prescribed by the statute or the charter or the
Ross and Lawrence for appellee. articles of incorporation. Moreover, strict compliance with the statutory regulations is
necessary (14 C. J., 498, 620).
STREET, J.:
In the case before us the resolution releasing the shareholders from their obligation to
This action was instituted on November 21, 1921, in the Court of First Instance of pay 50 per centum of their respective subscriptions was an attempted withdrawal of
Manila, by the Philippine Trust Company, as assignee in insolvency of La Cooperativa so much capital from the fund upon which the company's creditors were entitled
Naval Filipina, against Marciano Rivera, for the purpose of recovering a balance of ultimately to rely and, having been effected without compliance with the statutory
P22,500, alleged to be due upon defendant's subscription to the capital stock of said requirements, was wholly ineffectual.
insolvent corporation. The trial judge having given judgment in favor of the plaintiff for
the amount sued for, the defendant appealed. The judgment will be affirmed with cost, and it is so ordered.

It appears in evidence that in 1918 the Cooperativa Naval Filipina was duly
incorporated under the laws of the Philippine Islands, with a capital of P100,000,
divided into one thousand shares of a par value of P100 each. Among the
incorporators of this company was numbered the defendant Mariano Rivera, who
subscribed for 450 shares representing a value of P45,000, the remainder of the
stock being taken by other persons. The articles of incorporation were duly registered
in the Bureau of Commerce and Industry on October 30 of the same year.

In the course of time the company became insolvent and went into the hands of the
Philippine Trust Company, as assignee in bankruptcy; and by it this action was
instituted to recover one-half of the stock subscription of the defendant, which
admittedly has never been paid.

The reason given for the failure of the defendant to pay the entire subscription is, that
not long after the Cooperativa Naval Filipina had been incorporated, a meeting of its
stockholders occurred, at which a resolution was adopted to the effect that the capital
should be reduced by 50 per centum and the subscribers released from the obligation
to pay any unpaid balance of their subscription in excess of 50 per centum of the
same. As a result of this resolution it seems to have been supposed that the
subscription of the various shareholders had been cancelled to the extent stated; and
fully paid certificate were issued to each shareholders for one-half of his subscription.
It does not appear that the formalities prescribed in section 17 of the Corporation Law
(Act No. 1459), as amended, relative to the reduction of capital stock in corporations

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20850 November 29, 1965
THE EDWARD J. NELL COMPANY, petitioner,
vs.
PACIFIC FARMS, INC., respondent.
Agrava & Agrava for petitioner.
Araneta, Mendoza & Papa for respondent.
CONCEPCION, J.:
Appeal by certiorari, taken by Edward J. Nell Co. — hereinafter referred to as
appellant — from a decision of the Court of Appeals.
On October 9, 1958, appellant secured in Civil Case No. 58579 of the Municipal Court
of Manila against Insular Farms, Inc. — hereinafter referred to as Insular Farms a
judgment for the sum of P1,853.80 — representing the unpaid balance of the price of
a pump sold by appellant to Insular Farms — with interest on said sum, plus P125.00
as attorney's fees and P84.00 as costs. A writ of execution, issued after the judgment
had become final, was, on August 14, 1959, returned unsatisfied, stating that Insular
Farms had no leviable property. Soon thereafter, or on November 13, 1959, appellant
filed with said court the present action against Pacific Farms, Inc. — hereinafter
referred to as appellee — for the collection of the judgment aforementioned, upon the
theory that appellee is the alter ego of Insular Farms, which appellee has denied. In
due course, the municipal court rendered judgment dismissing appellant's complaint.
Appellant appealed, with the same result, to the court of first instance and,
subsequently, to the Court of Appeals. Hence this appeal by certiorari, upon the
ground that the Court of Appeals had erred: (1) in not holding the appellee liable for
said unpaid obligation of the Insular Farms; and (2) in not granting attorney's fees to
appellant.
With respect to the first ground, it should be noted that appellant's complaint in the
municipal court was anchored upon the theory that appellee is an alter ego of Insular
Farms, because the former had purchased all or substantially all of the shares of
stock, as well as the real and personal properties of the latter, including the pumping
equipment sold by appellant to Insular Farms. The record shows that, on March 21,
1958, appellee purchased 1,000 shares of stock of Insular Farms for P285,126.99;
that, thereupon, appellee sold said shares of stock to certain individuals, who
forthwith reorganized said corporation; and that the board of directors thereof, as
reorganized, then caused its assets, including its leasehold rights over a public land in
Bolinao, Pangasinan, to be sold to herein appellee for P10,000.00. We agree with the
Court of Appeals that these facts do not prove that the appellee is an alter ego of
Insular Farms, or is liable for its debts. The rule is set forth in Fletcher Cyclopedia
Corporations, Vol. 15, Sec. 7122, pp. 160-161, as follows:
Generally where one corporation sells or otherwise transfers all of its assets
to another corporation, the latter is not liable for the debts and liabilities of
the transferor, except: (1) where the purchaser expressly or impliedly agrees
to assume such debts; (2) where the transaction amounts to a consolidation
or merger of the corporations; (3) where the purchasing corporation is
merely a continuation of the selling corporation; and (4) where the
transaction is entered into fraudulently in order to escape liability for such
debts.
In the case at bar, there is neither proof nor allegation that appellee had expressly or
impliedly agreed to assume the debt of Insular Farms in favor of appellant herein, or
that the appellee is a continuation of Insular Farms, or that the sale of either the
shares of stock or the assets of Insular Farms to the appellee has been entered into
fraudulently, in order to escape liability for the debt of the Insular Farms in favor of
appellant herein. In fact, these sales took place (March, 1958) not only over six (6)
months before the rendition of the judgment (October 9, 1958) sought to be collected
in the present action, but, also, over a month before the filing of the case (May 29,
1958) in which said judgment was rendered. Moreover, appellee purchased the
shares of stock of Insular Farms as the highest bidder at an auction sale held at the
instance of a bank to which said shares had been pledged as security for an
obligation of Insular Farms in favor of said bank. It has, also, been established that
the appellee had paid P285,126.99 for said shares of stock, apart from the sum of
P10,000.00 it, likewise, paid for the other assets of Insular Farms.
Neither is it claimed that these transactions have resulted in the consolidation or
merger of the Insular Farms and appellee herein. On the contrary, appellant's theory
to the effect that appellee is an alter ego of the Insular Farms negates such
consolidation or merger, for a corporation cannot be its own alter ego.
It is urged, however, that said P10,000.00 paid by appellee for other assets of Insular
Farms is a grossly inadequate price, because, appellant now claims, said assets were
worth around P285,126.99, and that, consequently, the sale must be considered
fraudulent. However, the sale was submitted to and approved by the Securities and
Exchange Commission. It must be presumed, therefore, that the price paid was fair
and reasonable. Moreover, the only issue raised in the court of origin was whether or
not appellee is an alter ego of Insular Farms. The question of whether the
aforementioned sale of assets for P10,000.00 was fraudulent or not, had not been put
in issue in said court. Hence, it may, not be raised on appeal.
Being a mere consequence of the first assignment of error, which is thus clearly
untenable, appellant's second assignment of error needs no discussion.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against the
appellant. It is so ordered.

THIRD DIVISION[G.R. No. 142936. April 17, 2002]
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT
CORPORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING
COMPANY, respondent.
DECISION
PANGANIBAN, J.:
Basic is the rule that a corporation has a legal personality distinct and separate
from the persons and entities owning it. The corporate veil may be lifted only if it has
been used to shield fraud, defend crime, justify a wrong, defeat public convenience,
insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine
National Bank (PNB) acquired ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at
the resulting public auction by the Development Bank of the Philippines (DBP), will not
make PNB liable for the PASUMILs contractual debts to respondent.
Statement of the Case
Before us is a Petition for Review assailing the April 17, 2000 Decision [1] of the
Court of Appeals (CA) in CA-GR CV No. 57610. The decretal portion of the challenged
Decision reads as follows:
WHEREFORE, the judgment appealed from is hereby AFFIRMED.[2]
The Facts
The factual antecedents of the case are summarized by the Court of Appeals as
follows:
In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly
organized, existing, and operating under the laws of the Philippines, with office and
principal place of business at Nos. 794-812 Del Monte [A]venue, Quezon City, while
the defendant [herein petitioner] Philippine National Bank (herein referred to as PNB),
is a semi-government corporation duly organized, existing and operating under the
laws of the Philippines, with office and principal place of business at Escolta Street,
Sta. Cruz, Manila; whereas, the other defendant, the National Sugar Development
Corporation (NASUDECO in brief), is also a semi-government corporation and the
sugar arm of the PNB, with office and principal place of business at the 2 nd Floor,
Sampaguita Building, Cubao, Quezon City; and the defendant Pampanga Sugar Mills
(PASUMIL in short), is a corporation organized, existing and operating under the 1975
laws of the Philippines, and had its business office before 1975 at Del Carmen,
Floridablanca, Pampanga; that the plaintiff is engaged in the business of general
construction for the repairs and/or construction of different kinds of machineries and
buildings; that on August 26, 1975, the defendant PNB acquired the assets of the
defendant PASUMIL that were earlier foreclosed by the Development Bank of the
Philippines (DBP) under LOI No. 311; that the defendant PNB organized the
defendant NASUDECO in September, 1975, to take ownership and possession of the
assets and ultimately to nationalize and consolidate its interest in other PNB
controlled sugar mills; that prior to October 29, 1971, the defendant PASUMIL
engaged the services of plaintiff for electrical rewinding and repair, most of which
were partially paid by the defendant PASUMIL, leaving several unpaid accounts with
the plaintiff; that finally, on October 29, 1971, the plaintiff and the defendant PASUMIL
entered into a contract for the plaintiff to perform the following, to wit
(a) Construction of one (1) power house building;
(b) Construction of three (3) reinforced concrete foundation for three
(3) units 350 KW diesel engine generating set[s];
(c) Construction of three (3) reinforced concrete foundation for the
5,000 KW and 1,250 KW turbo generator sets;
(d) Complete overhauling and reconditioning tests sum for three (3)
350 KW diesel engine generating set[s];
(e) Installation of turbine and diesel generating sets including
transformer, switchboard, electrical wirings and pipe
provided those stated units are completely supplied with
their accessories;
(f) Relocating of 2,400 V transmission line, demolition of all existing
concrete foundation and drainage canals, excavation, and
earth fillings all for the total amount of P543,500.00 as
evidenced by a contract, [a] xerox copy of which is hereto
attached as Annex A and made an integral part of this
complaint;
that aside from the work contract mentioned-above, the defendant PASUMIL required
the plaintiff to perform extra work, and provide electrical equipment and spare parts,
such as:
(a) Supply of electrical devices;
(b) Extra mechanical works;
(c) Extra fabrication works;
(d) Supply of materials and consumable items;
 (e) Electrical shop repair;
(f) Supply of parts and related works for turbine generator;
(g) Supply of electrical equipment for machinery;
(h) Supply of diesel engine parts and other related works including
fabrication of parts.
that out of the total obligation of P777,263.80, the defendant PASUMIL had paid
only P250,000.00, leaving an unpaid balance, as of June 27, 1973, amounting
to P527,263.80, as shown in the Certification of the chief accountant of the PNB, a
machine copy of which is appended as Annex C of the complaint; that out of said
unpaid balance of P527,263.80, the defendant PASUMIL made a partial payment to
the plaintiff of P14,000.00, in broken amounts, covering the period from January 5,
1974 up to May 23, 1974, leaving an unpaid balance of P513,263.80; that the
defendant PASUMIL and the defendant PNB, and now the defendant NASUDECO,
failed and refused to pay the plaintiff their just, valid and demandable obligation; that
the President of the NASUDECO is also the Vice-President of the PNB, and this
official holds office at the 10th Floor of the PNB, Escolta, Manila, and plaintiff besought
this official to pay the outstanding obligation of the defendant PASUMIL, inasmuch as
the defendant PNB and NASUDECO now owned and possessed the assets of the
defendant PASUMIL, and these defendants all benefited from the works, and the
electrical, as well as the engineering and repairs, performed by the plaintiff; that
because of the failure and refusal of the defendants to pay their just, valid, and
demandable obligations, plaintiff suffered actual damages in the total amount
of P513,263.80; and that in order to recover these sums, the plaintiff was compelled
to engage the professional services of counsel, to whom the plaintiff agreed to pay a
sum equivalent to 25% of the amount of the obligation due by way of attorneys
fees. Accordingly, the plaintiff prayed that judgment be rendered against the
defendants PNB, NASUDECO, and PASUMIL, jointly and severally to wit:
(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with
annual interest of 14% from the time the obligation falls due and demandable;
(2) Condemning the defendants to pay attorneys fees amounting to 25% of the
amount claim;
(3) Ordering the defendants to pay the costs of the suit.
The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint
chiefly on the ground that the complaint failed to state sufficient allegations to
establish a cause of action against both defendants, inasmuch as there is lack or
want of privity of contract between the plaintiff and the two defendants, the PNB and
NASUDECO, said defendants citing Article 1311 of the New Civil Code, and the case
law ruling in Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port Service,
et al. v. Court of Appeals, et al., 20 SCRA 1214.
The motion to dismiss was by the court a quo denied in its Order of November 27,
1980; in the same order, that court directed the defendants to file their answer to the
complaint within 15 days.
In their answer, the defendant NASUDECO reiterated the grounds of its motion to
dismiss, to wit:
That the complaint does not state a sufficient cause of action against the defendant
NASUDECO because: (a) NASUDECO is not x x x privy to the various electrical
construction jobs being sued upon by the plaintiff under the present complaint; (b) the
taking over by NASUDECO of the assets of defendant PASUMIL was solely for the
purpose of reconditioning the sugar central of defendant PASUMIL pursuant to martial
law powers of the President under the Constitution; (c) nothing in the LOI No. 189-A
(as well as in LOI No. 311) authorized or commanded the PNB or its subsidiary
corporation, the NASUDECO, to assume the corporate obligations of PASUMIL as
that being involved in the present case; and, (d) all that was mentioned by the said
letter of instruction insofar as the PASUMIL liabilities [were] concerned [was] for the
PNB, or its subsidiary corporation the NASUDECO, to make a study of, and submit [a]
recommendation on the problems concerning the same.
By way of counterclaim, the NASUDECO averred that by reason of the filing by the
plaintiff of the present suit, which it [labeled] as unfounded or baseless, the defendant
NASUDECO was constrained to litigate and incur litigation expenses in the amount
of P50,000.00, which plaintiff should be sentenced to pay. Accordingly, NASUDECO
prayed that the complaint be dismissed and on its counterclaim, that the plaintiff be
condemned to pay P50,000.00 in concept of attorneys fees as well as exemplary
damages.
In its answer, the defendant PNB likewise reiterated the grounds of its motion to
dismiss, namely: (1) the complaint states no cause of action against the defendant
PNB; (2) that PNB is not a party to the contract alleged in par. 6 of the complaint and
that the alleged services rendered by the plaintiff to the defendant PASUMIL upon
which plaintiffs suit is erected, was rendered long before PNB took possession of the
assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take-over of
the assets of the defendant PASUMIL under LOI 189-A was solely for the purpose of
reconditioning the sugar central so that PASUMIL may resume its operations in time
for the 1974-75 milling season, and that nothing in the said LOI No. 189-A, as well as
in LOI No. 311, authorized or directed PNB to assume the corporate obligation/s of
PASUMIL, let alone that for which the present action is brought; (4) that PNBs
management and operation under LOI No. 311 did not refer to any asset of PASUMIL
which the PNB had to acquire and thereafter [manage], but only to those which were
foreclosed by the DBP and were in turn redeemed by the PNB from the DBP; (5) that
conformably to LOI No. 311, on August 15, 1975, the PNB and the Development
Bank of the Philippines (DBP) entered into a Redemption Agreement whereby DBP
sold, transferred and conveyed in favor of the PNB, by way of redemption, all its
(DBP) rights and interest in and over the foreclosed real and/or personal properties of
PASUMIL, as shown in Annex C which is made an integral part of the answer; (6) that
again, conformably with LOI No. 311, PNB pursuant to a Deed of Assignment dated
October 21, 1975, conveyed, transferred, and assigned for valuable consideration, in
favor of NASUDECO, a distinct and independent corporation, all its (PNB) rights and
interest in and under the above Redemption Agreement. This is shown in Annex D Judg
which is also made an integral part of the answer; [7] that as a consequence of the e[3]
said Deed of Assignment, PNB on October 21, 1975 ceased to managed and operate
the above-mentioned assets of PASUMIL, which function was now actually
transferred to NASUDECO. In other words, so asserted PNB, the complaint as to
PNB, had become moot and academic because of the execution of the said Deed of Ruling of the Court of Appeals
Assignment; [8] that moreover, LOI No. 311 did not authorize or direct PNB to
assume the corporate obligations of PASUMIL, including the alleged obligation upon
which this present suit was brought; and [9] that, at most, what was granted to PNB in Affirming the trial court, the CA held that it was offensive to the basic tenets of
this respect was the authority to make a study of and submit recommendation on the justice and equity for a corporation to take over and operate the business of another
problems concerning the claims of PASUMIL creditors, under sub-par. 5 LOI No. 311. corporation, while disavowing or repudiating any responsibility, obligation or liability
arising therefrom.[4]
In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate Hence, this Petition.[5]
and to incur expenses in this case, hence it is entitled to claim attorneys fees in the
amount of at least P50,000.00. Accordingly, PNB prayed that the complaint be
dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay
defendant PNB the sum of P50,000.00 as attorneys fees, aside from exemplary Issues
damages in such amount that the court may seem just and equitable in the premises.

Summons by publication was made via the Philippines Daily Express, a newspaper In their Memorandum, petitioners raise the following errors for the Courts
with editorial office at 371 Bonifacio Drive, Port Area, Manila, against the defendant consideration:
PASUMIL, which was thereafter declared in default as shown in the August 7, 1981 I
Order issued by the Trial Court.

After due proceedings, the Trial Court rendered judgment, the decretal portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the
defendant Corporation, Philippine National Bank (PNB) NATIONAL SUGAR
DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS
(PASUMIL), ordering the latter to pay jointly and severally the former the following:
The Court of Appeals gravely erred in law in holding the herein petitioners liable
for the unpaid corporate debts of PASUMIL, a corporation whose corporate
existence has not been legally extinguished or terminated, simply because of
petitioners[] take-over of the management and operation of PASUMIL pursuant
to the mandates of LOI No. 189-A, as amended by LOI No. 311.
II

The Court of Appeals gravely erred in law in not applying [to] the case at bench
1. The sum of P513,623.80 plus interest thereon at the rate of the ruling enunciated in Edward J. Nell Co. v. Pacific Farms, 15 SCRA 415.[6]
14% per annum as claimed from September 25, 1980 until
fully paid;
Succinctly put, the aforesaid errors boil down to the principal issue of whether
PNB is liable for the unpaid debts of PASUMIL to respondent.
2. The sum of P102,724.76 as attorneys fees; and,

3. Costs.
This Courts Ruling
SO ORDERED.
The Petition is meritorious.
Manila, Philippines, September 4, 1986.

'(SGD)
ERNESTO S. Main Issue:
TENGCO Liability for Corporate Debts
 As a general rule, questions of fact may not be raised in a petition for review under
Rule 45 of the Rules of Court.[7] To this rule, however, there are some exceptions
enumerated in Fuentes v. Court of Appeals.[8] After a careful scrutiny of the records and
the pleadings submitted by the parties, we find that the lower courts misappreciated the
evidence presented.[9] Overlooked by the CA were certain relevant facts that would
justify a conclusion different from that reached in the assailed Decision. [10]
Petitioners posit that they should not be held liable for the corporate debts of
PASUMIL, because their takeover of the latters foreclosed assets did not make them
assignees. On the other hand, respondent asserts that petitioners and PASUMIL
should be treated as one entity and, as such, jointly and severally held liable for
PASUMILs unpaid obligation.
As a rule, a corporation that purchases the assets of another will not be liable for
the debts of the selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets, except when any of the following
circumstances is present: (1) where the purchaser expressly or impliedly agrees to
assume the debts, (2) where the transaction amounts to a consolidation or merger of
the corporations, (3) where the purchasing corporation is merely a continuation of the
selling corporation, and (4) where the transaction is fraudulently entered into in order
to escape liability for those debts.[11]
Piercing the Corporate
Veil Not Warranted
A corporation is an artificial being created by operation of law. It possesses the
right of succession and such powers, attributes, and properties expressly authorized
by law or incident to its existence.[12] It has a personality separate and distinct from the
persons composing it, as well as from any other legal entity to which it may be
related.[13] This is basic.
Equally well-settled is the principle that the corporate mask may be removed or
the corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation.[14] For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled[15] only when it becomes a shield for fraud,
illegality or inequity committed against third persons.[16]
Hence, any application of the doctrine of piercing the corporate veil should be
done with caution.[17] A court should be mindful of the milieu where it is to be
applied.[18] It must be certain that the corporate fiction was misused to such an extent
that injustice, fraud, or crime was committed against another, in disregard of its
rights.[19] The wrongdoing must be clearly and convincingly established; it cannot be
presumed.[20] Otherwise, an injustice that was never unintended may result from an
erroneous application.[21]
This Court has pierced the corporate veil to ward off a judgment credit,[22] to avoid
inclusion of corporate assets as part of the estate of the decedent,[23] to escape liability
arising from a debt,[24] or to perpetuate fraud and/or confuse legitimate issues[25]either
to promote or to shield unfair objectives[26] or to cover up an otherwise blatant violation
of the prohibition against forum-shopping.[27] Only in these and similar instances may
the veil be pierced and disregarded.[28]
The question of whether a corporation is a mere alter ego is one of
fact.[29] Piercing the veil of corporate fiction may be allowed only if the following
elements concur: (1) control -- not mere stock control, but complete domination -- not
only of finances, but of policy and business practice in respect to the transaction
attacked, must have been such that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own; (2) such control must have been
used by the defendant to commit a fraud or a wrong to perpetuate the violation of a
statutory or other positive legal duty, or a dishonest and an unjust act in contravention
of plaintiffs legal right; and (3) the said control and breach of duty must have proximately
caused the injury or unjust loss complained of.[30]
We believe that the absence of the foregoing elements in the present case
precludes the piercing of the corporate veil. First, other than the fact that petitioners
acquired the assets of PASUMIL, there is no showing that their control over it warrants
the disregard of corporate personalities.[31] Second, there is no evidence that their
juridical personality was used to commit a fraud or to do a wrong; or that the separate
corporate entity was farcically used as a mere alter ego, business conduit or
instrumentality of another entity or person.[32] Third, respondent was not defrauded or
injured when petitioners acquired the assets of PASUMIL.[33]
Being the party that asked for the piercing of the corporate veil, respondent had
the burden of presenting clear and convincing evidence to justify the setting aside of
the separate corporate personality rule.[34] However, it utterly failed to discharge this
burden;[35] it failed to establish by competent evidence that petitioners separate
corporate veil had been used to conceal fraud, illegality or inequity. [36]
While we agree with respondents claim that the assets of the National Sugar
Development Corporation (NASUDECO) can be easily traced to PASUMIL, [37] we are
not convinced that the transfer of the latters assets to petitioners was fraudulently
entered into in order to escape liability for its debt to respondent. [38]
A careful review of the records reveals that DBP foreclosed the mortgage
executed by PASUMIL and acquired the assets as the highest bidder at the public
auction conducted.[39] The bank was justified in foreclosing the mortgage, because the
PASUMIL account had incurred arrearages of more than 20 percent of the total
outstanding obligation.[40] Thus, DBP had not only a right, but also a duty under the law
to foreclose the subject properties.[41]
Pursuant to LOI No. 189-A[42] as amended by LOI No. 311,[43] PNB acquired
PASUMILs assets that DBP had foreclosed and purchased in the normal
course. Petitioner bank was likewise tasked to manage temporarily the operation of
such assets either by itself or through a subsidiary corporation. [44]
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL
assets pursuant to Section 6 of Act No. 3135.[45] These assets were later conveyed to
PNB for a consideration, the terms of which were embodied in the Redemption
Agreement.[46] PNB, as successor-in-interest, stepped into the shoes of DBP as
PASUMILs creditor.[47] By way of a Deed of Assignment,[48] PNB then transferred to
NASUDECO all its rights under the Redemption Agreement.
 In Development Bank of the Philippines v. Court of Appeals,[49] we had the separateness between PASUMIL and PNB remains, despite respondents insistence to
occasion to resolve a similar issue. We ruled that PNB, DBP and their transferees were the contrary.[63]
not liable for Marinduque Minings unpaid obligations to Remington Industrial Sales
Corporation (Remington) after the two banks had foreclosed the assets of Marinduque WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET
Mining. We likewise held that Remington failed to discharge its burden of proving bad ASIDE. No pronouncement as to costs.
faith on the part of Marinduque Mining to justify the piercing of the corporate veil. SO ORDERED.
In the instant case, the CA erred in affirming the trial courts lifting of the corporate
mask.[50] The CA did not point to any fact evidencing bad faith on the part of PNB and
its transferee.[51] The corporate fiction was not used to defeat public convenience,
justify a wrong, protect fraud or defend crime.[52] None of the foregoing exceptions was
shown to exist in the present case.[53] On the contrary, the lifting of the corporate veil
would result in manifest injustice. This we cannot allow.

No Merger or Consolidation

Respondent further claims that petitioners should be held liable for the unpaid
obligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly
authorized PASUMIL and PNB to merge or consolidate. On the other hand, petitioners
contend that their takeover of the operations of PASUMIL did not involve any corporate
merger or consolidation, because the latter had never lost its separate identity as a
corporation.
A consolidation is the union of two or more existing entities to form a new entity
called the consolidated corporation. A merger, on the other hand, is a union whereby
one or more existing corporations are absorbed by another corporation that survives
and continues the combined business.[54]
The merger, however, does not become effective upon the mere agreement of
the constituent corporations.[55] Since a merger or consolidation involves fundamental
changes in the corporation, as well as in the rights of stockholders and creditors, there
must be an express provision of law authorizing them. [56] For a valid merger or
consolidation, the approval by the Securities and Exchange Commission (SEC) of the
articles of merger or consolidation is required. [57] These articles must likewise be duly
approved by a majority of the respective stockholders of the constituent corporations. [58]
In the case at bar, we hold that there is no merger or consolidation with respect
to PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation
Code[59] was not followed.
In fact, PASUMILs corporate existence, as correctly found by the CA, had not
been legally extinguished or terminated. [60]Further, prior to PNBs acquisition of the
foreclosed assets, PASUMIL had previously made partial payments to respondent for
the formers obligation in the amount of P777,263.80. As of June 27, 1973, PASUMIL
had paid P250,000 to respondent and, from January 5, 1974 to May 23, 1974,
another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL
to respondent.[61] LOI No. 11 explicitly provides that PNB shall study and submit
recommendations on the claims of PASUMILs creditors.[62] Clearly, the corporate
 Republic of the Philippines the SRF ought to be based on the par value of its outstanding capital stock. Its protest
SUPREME COURT was denied by the NTC and likewise, its motion for reconsideration.
Manila
PLDT appealed before the CA. The CA modified the disposition of the NTC
by holding that the SRF should be assessed at par value of the outstanding capital
SECOND DIVISION stock of PLDT, excluding stock dividends.

With the denial of the NTCs partial reconsideration of the CA Decision, the
PHILIPPINE LONG DISTANCE G.R. No. 152685 issue of the basis for the assessment of the SRF was brought before this Court under
TELEPHONE COMPANY, G.R. No. 127937 wherein we ruled that the SRF should be based neither on the par
Petitioner, value nor the market value of the outstanding capital stock but on the value of the stocks
Present: subscribed or paid including the premiums paid therefor, that is, the amount that the
- versus - corporation receives, inclusive of the premiums if any, in consideration of the original
QUISUMBING, J., Chairperson, issuance of the shares. We added that in the case of stock dividends, it is the amount
CARPIO, that the corporation transfers from its surplus profit account to its capital account, that
CARPIO MORALES, is, the amount the stock dividends represent is equivalent to the value paid for its
NATIONAL TINGA, and original issuance.
TELECOMMUNICATIONS VELASCO, JR., JJ.
COMMISSION, JOSEPH A. PLDT wanted our July 28, 1999 Decision in G.R. No. 127937 clarified. It
SANTIAGO, in his capacity as NTC posited that the SRF should be based on the par value in consonance with our holding
Commissioner, and EDGARDO in Philippine Long Distance Telephone Company v. Public Service Commission,[7] and
CABARRIOS, in his capacity as Promulgated: that the premiums on issued shares should not be included in the valuation of the
Chief, CCAD, outstanding capital stock. Through our November 15, 1999 Resolution in G.R. No.
Respondents. December 4, 2007 127937, we elucidated that our July 28, 1999 decision was not in conflict with our ruling
x-----------------------------------------------------------------------------------------x in Philippine Long Distance Telephone Company since we never enunciated in the said
case that the phrase capital stock subscribed or paid must be determined at par
RESOLUTION value. We reiterated that the term capital stock subscribed or paid is the amount that
VELASCO, JR., J.: the corporation receives, inclusive of the premiums, if any, in consideration of the
original issuance of the shares.

Before us is a Petition for Review on Certiorari [1] under Rule 45 of the Rules
of Court. It assails the February 12, 2001 Decision[2] of the Court of Appeals (CA) in
CA-G.R. SP No. 61033, which dismissed petitioners special civil action for certiorari
and prohibition, and the March 21, 2002 Resolution [3] of the CA denying petitioners
motion for reconsideration. The petition raises the sole issue on whether the appellate
court erred in holding that the assessments of the National Telecommunications
Commission (NTC) were contrary to our Decision in G.R. No. 127937 entitled NTC v.
Honorable Court of Appeals. [4]
This case pertains to Section 40 (e)[5] of the Public Service Act[6] (PSA), as
amended on March 15, 1984, pursuant to Batas Pambansa Blg. 325, which authorized
the NTC to collect from public telecommunications companies Supervision and
Regulation Fees (SRF) of PhP 0.50 for every PhP 100 or a fraction of the capital and
stock subscribed or paid for of a stock corporation, partnership or single proprietorship
of the capital invested, or of the property and equipment, whichever is higher.
Under Section 40 (e) of the PSA, the NTC sent SRF assessments to petitioner
Philippine Long Distance Telephone Company (PLDT) starting sometime in 1988. The
SRF assessments were based on the market value of the outstanding capital stock,
including stock dividends, of PLDT. PLDT protested the assessments contending that
Thereafter, to comply with our disposition in G.R. No. 127937, for the
reassessment of the SRF based on the value of the stocks subscribed or paid including
the premiums paid for the stocks, if any, the NTC sent the assailed assessments of
February 10, 2000[8] and September 5, 2000[9] to PLDT which included the value of
stock dividends issued by PLDT.The assailed assessments were based on the
schedule of capital stock submitted by PLDT.
PLDT now contends that our disposition in G.R. No. 127937 excluded stock
dividends from the SRF coverage, while the NTC asserts the contrary. Also, PLDT
questions the assessments for violating our disposition in G.R. No. 127937 since these
assessments were identical to the previous assessments from 1988 which were
questioned by PLDT in G.R. No. 127937 for being based on the market value of its
outstanding capital stock.
PLDT wrote a letter protesting the assailed February 10, 2000 assessment
which was not acted upon by the NTC.Instead, the NTC sent a second assailed
assessment on September 5, 2000. Thus, in an attempt to clarify and resolve this issue,
PLDT filed a Motion for Clarification of Enforcement of the Decision dated 28 July
1999 in G.R. No. 127937 which this Court simply noted for the case had already
become final and executory.
 Thus, on October 2, 2000, PLDT instituted the special civil action for certiorari
and prohibition docketed as CA-G.R. SP No. 61033[10] before the CA. To maintain the
status quo and to defer the enforcement of the assailed assessments and subsequent
assessments, on October 3, 2000, the CA issued a Temporary Restraining Order.
On December 4, 2000, a writ of preliminary injunction was granted.
Subsequently, on February 12, 2001, the CA rendered the assailed Decision
dismissing the petition. The dispositive portion reads:
WHEREFORE, the petition is DISMISSED for lack of merit,
and the writ of preliminary injunction heretofore issued is
DISSOLVED.[11]
PLDTs motion for reconsideration was denied by the CAs Special Division of
Five on March 21, 2002.
Hence, the instant petition for review, raising the core issue:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
DISPUTED NTC ASSESSMENTS WERE NOT CONTRARY TO
THE PURISIMA DECISION.[12]
The petition is bereft of merit.
PLDT argues that in our Decision in G.R. No. 127937 we have excluded from
the coverage of the SRF the capital stocks issued as stock dividends. Petitioner argues
that G.R. No. 127937 clearly delineates between capital subscribed and stock
dividends to the effect that the latter are not included in the concept of capital stock
subscribed because subscribers or shareholders do not pay for their subscriptions as
no amount is received by the corporation in consideration of such issuances since these
are effected as mere book entries, that is, the transfer from the retained earnings
account to the capital or stock account. To bolster its position, PLDT repeatedly used
the phrase actual payments received by a corporation as a consideration for issuances
of shares which do not apply to stock dividends.
We are not persuaded.
Crucial in point is our disquisition in G.R. No. 127937 entitled National
Telecommunications Commission v. Honorable Court of Appeals, which we quote:
The term capital and other terms used to describe the
capital structure of a corporation are of universal acceptance and
their usages have long been established in jurisprudence. Briefly,
capital refers to the value of the property or assets of a
corporation. The capital subscribed is the total amount of the
capital that persons (subscribers or shareholders) have agreed
to take and pay for, which need not necessarily by, and can be more
than, the par value of the shares. In fine, it is the amount that the
corporation receives, inclusive of the premiums if any, in
consideration of the original issuance of the shares. In the case
of stock dividends, it is the amount that the corporation
transfers from its surplus profit account to its capital account. It
is the same amount that can be loosely termed as the trust fund of
the corporation. The Trust Fund doctrine considers this subscribed
capital as a trust fund for the payment of the debts of the corporation,
to which the creditors may look for satisfaction. Until the liquidation
of the corporation, no part of the subscribed capital may be returned
or released to the stockholder (except in the redemption of
redeemable shares) without violating this principle. Thus, dividends
must never impair the subscribed capital; subscription commitments
cannot be condoned or remitted; nor can the corporation buy its own
shares using the subscribed capital as the considerations
therefor.[13] (Emphasis supplied.)
Two concepts can be gleaned from the above. First, what constitutes capital
stock that is subject to the SRF. Second, such capital stock is equated to the trust fund
of a corporation held in trust as security for satisfaction to creditors in case of corporate
liquidation.
The first asks if stock dividends are part of the outstanding capital stocks of a
corporation insofar as it is subject to the SRF. They are. The first issue we have to
tackle is, are all the stock dividends that are part of the outstanding capital stock of
PLDT subject to the SRF? Yes, they are.
PLDTs contention, that stock dividends are not similarly situated as the
subscribed capital stock because the subscribers or shareholders do not pay for their
issuances as no amount was received by the corporation in consideration of such
issuances since these are effected as a mere book entry, is erroneous.
Dividends, regardless of the form these are declared, that is, cash, property
or stocks, are valued at the amount of the declared dividend taken from the unrestricted
retained earnings of a corporation. Thus, the value of the declaration in the case of a
stock dividend is the actual value of the original issuance of said stocks. In G.R. No.
127937 we said that in the case of stock dividends, it is the amount that the corporation
transfers from its surplus profit account to its capital account or it is the amount that the
corporation receives in consideration of the original issuance of the shares. It is the
distribution of current or accumulated earnings to the shareholders of a corporation pro
rata based on the number of shares owned. [14]Such distribution in whatever form is
valued at the declared amount or monetary equivalent.
Thus, it cannot be said that no consideration is involved in the issuance of
stock dividends. In fact, the declaration of stock dividends is akin to a forced purchase
of stocks. By declaring stock dividends, a corporation ploughs back a portion or its
entire unrestricted retained earnings either to its working capital or for capital asset
acquisition or investments. It is simplistic to say that the corporation did not receive any
actual payment for these. When the dividend is distributed, it ceases to be a property
of the corporation as the entire or portion of its unrestricted retained earnings is
distributed pro rata to corporate shareholders.
 When stock dividends are distributed, the amount declared ceases to belong
to the corporation but is distributed among the shareholders. Consequently, the
unrestricted retained earnings of the corporation are diminished by the amount of the
declared dividend while the stockholders equity is increased. Furthermore, the actual
payment is the cash value from the unrestricted retained earnings that each
shareholder foregoes for additional stocks/shares which he would otherwise receive as
required by the Corporation Code to be given to the stockholders subject to the
availability and conditioned on a certain level of retained earnings. [15] Elsewise put,
where the unrestricted retained earnings of a corporation are more than 100% of the
paid-in capital stock, the corporate Board of Directors is mandated to declare dividends
which the shareholders will receive in cash unless otherwise declared as property or
stock dividends, which in the latter case the stockholders are forced to forego cash in
lieu of property or stocks.
In essence, therefore, the stockholders by receiving stock dividends are
forced to exchange the monetary value of their dividend for capital stock, and the
monetary value they forego is considered the actual payment for the original issuance
of the stocks given as dividends. Therefore, stock dividends acquired by shareholders
for the monetary value they forego are under the coverage of the SRF and the basis
for the latter is such monetary value as declared by the board of directors.
On the second issue, do the assailed NTC assessments violate the ruling in
G.R. No. 127937? PLDT contends that these did since the assessments are identical
to the previous assessments from 1988 which were questioned by PLDT in the seminal
G.R. No. 127937 for being based on the market value of its outstanding capital stock.
A cursory review of the assessments made by the NTC prior to our July 28,
1999 Decision in G.R. No. 127937 and the assailed assessments of February 10, 2000
and September 5, 2000 does show that the assessments are substantially identical. In
our July 28, 1999 Decision in G.R. No. 127937, we noted, and similarly true in the
petition before us, that, The actual capital paid or the amount of capital stock paid and
for which PLDT received actual payments were not disclosed or extant in the records
before the Court.[16]
Hence, as before, we cannot factually determine whether the assailed
assessments substantially followed our Decision in G.R. No. 127937. It is apparent that
the assessments are identical and that the NTC in the earlier case asserted that the
SRF be based on the market value of the capital stock, yet it assessed it to
PLDT. However, a closer look at the assailed assessments of February 13,
2000 and September 5, 2000 would show that the NTC based its assessment on the
schedule of capital stock submitted by PLDT. PLDT did not dispute this; it only disputed
the level of assessment which was the same as before.
Now, where should the NTC base its assessment? It is incumbent upon PLDT
to furnish the NTC the actual payment made on the subscription of its capital stock in
order for the NTC to assess the proper SRF. Logically, the NTC would base its SRF
assessment of PLDT from PLDT data.
PLDT should not bewail that the assailed assessments are substantially the
same assessments it protested in G.R. No. 127937. After all, it had not shown the actual
figures of the amount of premiums and subscriptions it had received for the original
issuances of its capital stock. While indeed it submitted a table of the comparative
assessments made by the NTC to this Court, PLDT has not furnished the NTC nor this
Court the correct figures of the actual payments made for its capital stock.
We are not unaware that in accounting practice, the journal entries for
transactions are recorded in historical value or cost. Thus, the purchase of properties
or assets is recorded at acquisition cost. The same is true with liabilities and equity
transactions where the actual loan and the amount paid for the subscription are
recorded at the actual payment, including the premiums paid for the subscription of
capital stock.
Moreover, it is common practice that the values of the accounts recorded at
historical value or cost are not increased or decreased due to market forces. In the case
of properties, the appreciation in values is generally not recorded as income nor the
increase in the corresponding asset because the increase or decrease is not yet
realized until the property is actually sold. The same is true with the capital
account. The market value may be much higher than the actual payment of the par
value and premium of capital stock. Still, the books of account will not reflect such
increase; and vice-versa, any decrease of the value of stocks is likewise not reflected
in the books of account. Thus, given the general practice that book entries of the
premiums and subscriptions for capital stock are the actual value for the original
issuance of stocks, then the NTC was correct to follow the schedule of capital stocks
submitted by PLDT.
Moreover, the Trust Fund doctrine, the second concept this Court elucidated
in G.R. No. 127937 and quoted above, bolsters the correctness of the assessments
made by the NTC. As a fund in trust for creditors in case of liquidation, the actual value
of the subscriptions and the value of stock dividends distributed may not be decreased
or increased by the fluctuating market value of the stocks. Thus, absent any showing
by PLDT of the actual payment it received for the original issuance of its capital stock,
the assessments made by the NTC, based on the schedule of outstanding capital stock
of PLDT recorded at historical value payments made, is deemed correct.
Anent stock dividends, the value transferred from the unrestricted retained
earnings of PLDT to the capital stock account pursuant to the issuance of stock
dividends is the proper basis for the assessment of the SRF, which the NTC correctly
assessed.
WHEREFORE, we DENY the petition for lack of merit,
and AFFIRM the February 12, 2001 Decision and March 21, 2002 Resolution in CA-
G.R. SP No. 61033. Costs against petitioner.
SO ORDERED.

FIRST DIVISION
[G.R. No. 125198. March 3, 1997]
MSCI-NACUSIP Local Chapter, petitioner, vs. NATIONAL WAGES AND
PRODUCTIVITY COMMISSION and MONOMER SUGAR CENTRAL,
INC., respondents.
DECISION
HERMOSISIMA, JR., J.:
This is a petition for certiorari questioning the February 1, 1995 Decision of public
respondent National Wages and Productivity Commission (Commission, for brevity) in
NWPC Case No. E-93-007 which reversed on appeal the August 17, 1993 Decision of
the Regional Tripartite Wages and Productivity Board VI (Board, for brevity) denying
the application for exemption of private respondent Monomer Sugar Central, Inc.
(MSCI, for brevity) from Wage Order No. RO VI-01 issued by the Board.
On August 17, 1993, the Board denied MSCI's application for exemption based
on the finding that the applicant's losses of P3,400,738.00 for the period February 15,
1990 to August 31, 1990 constitute an impairment of only 5.25% of its paid-up capital
of P64,688,528.00, can not be said to be sufficient to meet the required 25% in order
to qualify for the exemption, as provided in NWPC Guidelines No. 01, Series of 1992
entitled "REVISED GUIDELINES ON EXEMPTION FROM COMPLIANCE WITH THE
PRESCRIBED WAGE/COST OF LIVING ALLOWANCE INCREASES GRANTED BY
THE REGIONAL TRIPARTITE WAGES AND PRODUCTIVITY BOARDS:"
"SECTION 3. CRITERIA FOR EXEMPTION
The following criteria shall be used to determine whether the applicant-establishment
is qualified for exemption:
xxx xxx xxx
3. For Distressed Establishments:

The relevant antecedents are undisputed.

a. In the case of a stock corporation, partnership, single proprietorship, non-stock,
On January 11, 1990, Asturias Sugar Central, Inc. (ASCI, for brevity), executed a non-profit organization or cooperative engaged in a business activity or charging fees
Memorandum of Agreement with Monomer Trading Industries, Inc. (MTII, for brevity), for its services
whereby MTII shall acquire the assets of ASCI by way of a Deed of Assignment
provided that an entirely new organization in place of MTII shall be organized, which a.1 When accumulated losses for the last 2 full accounting periods and interim period,
new corporation shall be the assignee of the assets of ASCI. if any, immediately preceding the effectivity of the Order have impaired by at least 25
percent the:
By virtue of this Agreement, a new corporation was organized and incorporated
on February 15, 1990 under the corporate name Monomer Sugar Central, Inc. or MSCI,
the private respondent herein. Paid-up capital at the end of the last full accounting period preceding the effectivity of
the Order, in the case of corporations:
On January 16, 1991, MSCI applied for exemption from the coverage of Wage
Order No. RO VI-01 issued by the Board on the ground that it is a distressed employer.
Total invested capital at the beginning of the last full accounting period preceding the
In support thereto, MSCI submitted its audited financial statements and income tax
effectivity of the Order in the case of partnerships and single proprietorships.
returns duly stamped "received" by the Bureau of Internal Revenue (BIR) and the
Securities and Exchange Commission (SEC) for the period beginning February 15,
1990 and ending August 31, 1990, including the quarterly financial statements and xxx xxx xxx"
income tax returns for the two quarters ending November 30, 1990 and February 28,
The motion for reconsideration, filed by MSCI on September 20, 1993, was denied
1991.
by the Board on October 12, 1993.
The petitioner herein MSCI-NACUSIP Local Chapter (Union, for brevity), in
A timely appeal was brought before the public respondent Commission. In its
opposition, maintained that MSCI is not distressed; that respondent applicant has not
decision dated February 1, 1995, the Commission reversed and set aside the foregoing
complied with the requirements for exemption; and that the financial statements
orders of the Board, and granted MSCI's application for exemption from Wage Order
submitted by MSCI do not reflect the true and valid financial status of the company, and
No. RO VI-01, for a period of one (1) year from its effectivity or from November 27,
that the paid-up capital would have been higher than P5 million and thus impairment
1990 to November 26, 1991, in the following manner:
would have been lower than 25% had the pre-organization agreement between ASCI
and MTII been complied with.
"WHEREFORE, premises considered, the Orders of the Board appealed from are
The Board conducted hearings on the application, during which the applicant was hereby REVERSED and SET ASIDE. Monomer is hereby GRANTED full exemption
required to submit additional documents such as its Articles of Incorporation, from Wage Order No. RO VI-01, for a period of one year from effectivity of the Wage
Memorandum of Agreement between ASCI and MTII, SEC registration, including the Order, which is from 27 November 1990 to 26 November 1991.
schedules of its long-term liabilities, income and expenses, production reports and mill
share, among others.
SO DECIDED."[1]
Petitioner has come before us by way of a Petition for Certiorari under Rule 65.
The issue posed is whether or not respondent MSCI can qualify as a distressed
employer from February 15, 1990 to August 31, 1990 as well as during the interim
period from September 1, 1990 to November 30, 1990 and thus be entitled to
exemption from compliance with Wage Order No. RO VI-01. To resolve this issue,
however, a pivotal determination must first be made: What is the correct paid-up capital
of MSCI for the pertinent period covered by the application for exemption P5 million
or P64,688,528.00?
The Board held that the paid-up capital of MSCI on the aforesaid dates was
actually P64,688,528.00 and not P5 million as claimed by MSCI in its application for
exemption and, thus, the established losses amounting to P3,400,738.00 constitute an
impairment of only 5.25% of the true paid-up capital of P64 million plus,[2] which losses
are not enough to meet the required 25% impairment requirement. This conclusion is
anchored on the belief of the Board that the value of the assets of ASCI, party to the
Memorandum of Agreement, transferred to MSCI on March 28, 1990 should be taken
into consideration in computing the paid-up capital of MSCI to reflect its true financial
structure. Moreover, the loans or advances extended by MTII, the other party to the
Agreement, to MSCI should allegedly be treated as additional investments to
MSCI[3] and must therefore be included in computing respondent's paid-up capital.
Public respondent-Commission thought otherwise. In reversing the Board and
granting the exemption, the Commission held that the Board exceeded its authority in
computing and giving new valuation to what should be the paid-up capital of MSCI. It
stressed that RA No. 6727, or the Wage Rationalization Act, and its implementing
guidelines have not conferred upon the Board the authority to change the paid-up
capital of a corporation.[4]
The foregoing asseveration of the parties considered, we find no grave abuse of
discretion on the part of the Commission in setting aside the findings of the Board and
granting full exemption to MSCI from Wage Order No. RO VI-01.
NWPC Guidelines No. 01, Series of 1992 as well as the new NWPC Guidelines
No. 01, Series of 1996, define Capital as referring to paid-up capital at the end of the
last full accounting period, in the case of corporations or total invested capital at the
beginning of the period under review, in the case of partnerships and single
proprietorships. To have a clear understanding of what paid-up capital is, however, a
referral to Sections 12 and 13 of BP Blg. 68 or the Corporation Code would be very
helpful, viz:
"Sec. 12. Minimum capital stock required of stock corporations. Stock corporations
incorporated under this Code shall not be required to have any minimum authorized
capital stock except as otherwise specifically provided for by special law, and subject
to the provisions of the following section."
"Sec. 13. Amount of capital stock to be subscribed and paid for purposes of
incorporation. At least twenty-five (25%) percent of the authorized capital stock
as stated in the articles of incorporation must be subscribed at the time of
incorporation, and at least twenty-five (25%) percent of the total subscription must be
paid upon subscription, the balance to be payable on a date or dates fixed in the
contract of subscription without need of call, or in the absence of a fixed date or
dates, upon call for payment by the board of directors: Provided, however, That in no
case shall the paid-up capital be less than five thousand (P5,000.00) pesos. (n)"
By express provision of Section 13, paid-up capital is that portion of the authorized
capital stock which has been both subscribed and paid. To illustrate, where the
authorized capital stock of a corporation is worth P1 million and the total subscription
amounts to P250,000.00, at least 25% of this amount, namely, P62,500.00 must be
paid up per Section 13. The latter, P62,500.00, is the paid-up capital or what should
more accurately be termed as "paid-up capital stock."[5]
In the case under consideration, there is no dispute, and the Board even
mentioned in its August 17, 1993 Decision, that MSCI was organized and incorporated
on February 15, 1990 with an authorized capital stock of P60 million, P20 million of
which was subscribed. Of the P20 million subscribed capital stock, P5 million was paid-
up.[6] This fact is only too glaring for the Board to have been misled into believing that
MSCI's paid-up capital stock was P64 million plus and not P5 million.
The submission of the Board that the value of the assets of Asturias Sugar
Central, Inc. transferred to MSCI on March 28, 1990, as well as the loans or advances
made by MTII to MSCI should have been taken into consideration in computing the
paid-up capital of MSCI is unmeritorious, at best, and betrays the Board's sheer lack of
grasp of a basic concept in Corporation Law, at worst. Not all funds or assets received
by the corporation can be considered paid-up capital, for this term has a technical
signification in Corporation Law. Such must form part of the authorized capital stock of
the corporation, subscribed and then actually paid up.
Furthermore, the Commission aptly observed that the loans and advances of MTII
to respondent MSCI cannot be treated as investments, unless the corresponding
shares of stocks are issued. But as it turned out, such loans and advances were in fact
treated as liabilities of MSCI to MTII as shown in its 1990 audited financial
statements.[7] The treatment by the Board of these loans as part of MSCI's capital stock
without satisfying certain mandatory requirements is proscribed under Section 38 of the
Corporation Code which provides:
"Power to increase or decrease capital stock; incur, create or increase bonded
indebtedness. No corporation shall increase or decrease its capital stock or incur,
create or increase any bonded indebtedness unless approved by a majority vote of
the board of directors and, at a stockholders' meeting duly called for the purpose, two-
thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of
the capital stock, or the incurring, creating or increasing of any bonded indebtedness.
Written notice of the proposed increase or diminution of the capital stock or of the
incurring, creating, or increasing of any bonded indebtedness and of the time and
place of the stockholders' meeting at which the proposed increase or diminution of the
capital stock or the incurring or increasing of any bonded indebtedness is to be
considered, must be addressed to each stockholders at his place of residence as
shown on the books of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally."
The above requirements, which are condition precedents before the capital stock
of a corporation may be increased, were unquestionably not observed in this case.
Henceforth, the paid-up capital stock of MSCI for the period covered by the application
for exemption still stood at P5 million. The losses, therefore, amounting
to P3,400,738.00 for the period February 15, 1990 to August 31, 1990 impaired MSCI's
paid-up capital of P5 million by as much as 68%. Likewise, the losses incurred by MSCI
for the interim period from September 1, 1990 to November 30, 1990, as found by the
Commission, per MSCI's quarterly income statements, amounting to P13,554,337.33
impaired the company's paid-up capital of P5 million by a whopping 271.08%,[8] more
than enough to qualify MSCI as a distressed employer. Respondent Commission thus
acted well within its jurisdiction in granting MSCI full exemption from Wage Order No.
RO VI-01 as a distressed employer.
WHEREFORE, the petition is DISMISSED. Costs against petitioner.
SO ORDERED.
 Republic of the Philippines Albert T. Yu 18,000 P 180,000.00 P45,000.00
Supreme Court Zenaida V. Yu 2,000 P 20,000.00 P5,000.00
Manila Rizalino C. Vineza 2,000 P 20,000.00 P5,000.00
THIRD DIVISION TOTAL 75,000 P750,000.00 P187,500.00

DONNINA C. HALLEY, G.R. No. 157549 Printwellengaged in commercial and industrial printing.BMPI commissioned
Petitioner, Printwell for the printing of the magazine Philippines, Inc. (together with wrappers and
Present: subscription cards) that BMPI published and sold. For that purpose, Printwell extended
30-day credit accommodations to BMPI.
CARPIO MORALES, Chairperson,
BRION, In the period from October 11, 1988 until July 12, 1989, BMPI placedwith
-versus- BERSAMIN, Printwell several orders on credit, evidenced byinvoices and delivery receipts
VILLARAMA, JR., and totalingP316,342.76.Considering that BMPI paidonlyP25,000.00,Printwell
SERENO, JJ. suedBMPIon January 26, 1990 for the collection of the unpaid balance of P291,342.76
in the RTC.[4]
Promulgated:
PRINTWELL, INC., On February 8, 1990,Printwell amended thecomplaint in order to implead as
Respondent. May 30, 2011 defendants all the original stockholders and incorporators to recover on theirunpaid
x-----------------------------------------------------------------------------------------x subscriptions, as follows:[5]

DECISION Name Unpaid Shares

Donnina C. Halley P 262,500.00
Roberto V. Cabrera, Jr. P135,000.00
BERSAMIN, J: Albert T. Yu P135,000.00
Zenaida V. Yu P15,000.00
Rizalino C. Vieza P15,000.00
Stockholders of a corporation are liable for the debts of the corporation up to the extent
TOTAL P 562,500.00
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. The defendants filed 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; thatRizalino C. Vieza had assigned his fully-paid up sharesto a certain
Weaffirm with modification the decisionpromulgated on August 14, Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI had
2002,[1]whereby the Court of Appeals(CA) upheld thedecision of the Regional Trial resolved to dissolve BMPI during the annual meetingheld on February 5, 1990.
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 To prove payment of their subscriptions, the defendantstockholderssubmitted in
interest. evidenceBMPI official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR
no. 222, OR no. 223, andOR no. 227,to wit:
Antecedents
Receipt No. Date Name Amount
The petitioner wasan incorporator and original director of Business Media 217 November 5, Albert T. Yu P 45,000.00
Philippines, Inc. (BMPI), which, at its incorporation on November 12, 1987, [3]had an 1987
authorized capital stock of P3,000,000.00 divided into 300,000 shares each with a par 218 May 13, 1988 Albert T. Yu P 135,000.00
value of P10.00,of which 75,000 were initially subscribed, to wit: 220 May 13, 1988 Roberto V. Cabrera, P 135,000.00
Jr.
Subscriber No. of Total subscription Amount paid 221 November 5, Roberto V. Cabrera, P 45,000.00
shares 1987 Jr.
Donnina C. Halley 35,000 P 350,000.00 P87,500.00 222 November 5, Zenaida V. Yu P 5,000.00
Roberto V. Cabrera, 18,000 P 180,000.00 P45,000.00 1987
Jr. 223 May 13, 1988 Zenaida V. Yu P 15,000.00
 227 May 13, 1988 Donnina C. Halley P 262,500.00 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
In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an Printwell pro rata, thusly:
audit report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted
to the SEC and the BIR);[7](b) BMPIbalance sheet[8] and income statement[9]as of Defendant Business Media, Inc. is a registered corporation
December 31, 1988; (c) BMPI income tax return for the year 1988 (Exhibits A, A-1 to A-9), and, as appearing from the Articles of
(stamped received by the BIR);[10](d) journal vouchers;[11](e) cash deposit Incorporation, individual defendants have the following unpaid
slips;[12] and(f)Bank of the Philippine Islands (BPI) savings account passbookin the subscriptions:
name of BMPI.[13] Names Unpaid Subscription
Donnina C. Halley P262,500.00
Ruling of the RTC Roberto V. Cabrera, Jr. 135.000.00
Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the Rizalino V. Vineza 15,000.00
allegation of payment in full of the subscriptions in view of an irregularity in the issuance --------------------
of the ORs and observingthat the defendants had used BMPIs corporate personality to Total P562,500.00
evade payment and create injustice, viz:
and it is an established doctrine that subscriptions to the capital stock
The claim of individual defendants that they have fully paid of a corporation constitute a fund to which creditors have a right to
their subscriptions to defend[a]nt corporation, is not worthy of look for satisfaction of their claims (Philippine National Bank vs.
consideration, because: 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
a) in the case of defendants-spouses Albert and Zenaida Yu, obligation to pay for his shares, and any agreement to this effect is
it will be noted that the alleged payment made on May 13, invalid (Velasco vs. Poizat, 37 Phil. 802).
1988 amounting to P135,000.00, is covered by Official
Receipt No. 218 (Exh. 2), whereas the alleged payment The liability of the individual stockholders in the instant case
made earlier on November 5, 1987, amounting shall be pro-rated as follows:
to P5,000.00, is covered by Official Receipt No. 222 (Exh.
3). This is cogent proof that said receipts were belatedly Names Amount
issued just to suit their theory since in the ordinary course Donnina C. Halley P149,955.65
of business, a receipt issued earlier must have serial Roberto V. Cabrera, Jr. 77,144.55
numbers lower than those issued on a later date. But in the Albert T. Yu 77,144.55
case at bar, the receipt issued on November 5, 1987 has Zenaida V. Yu 8,579.00
serial numbers (222) higher than those issued on a later Rizalino V. Vineza 8,579.00
date (May 13, 1988). ------------------
Total P321,342.75[15]
b) The claim that since there was no call by the Board of
Directors of defendant corporation for the payment of The RTC disposed as follows:
unpaid subscriptions will not be a valid excuse to free WHEREFORE, judgment is hereby rendered in favor of plaintiff and
individual defendants from liability. Since the individual against defendants, ordering defendants to pay to plaintiff the
defendants are members of the Board of Directors of amount of P291,342.76, as principal, with interest thereon at 20%
defendantcorporation, it was within their exclusive power to per annum, from date of default, until fully paid, plus P30,000.00 as
prevent the fulfillment of the condition, by simply not making attorneys fees, plus costs of suit.
a call for the payment of the unpaid subscriptions. Their
inaction should not work to their benefit and unjust Defendants counterclaims are ordered dismissed for lack of merit.
enrichment at the expense of plaintiff.
Assuming arguendo that the individual defendants have paid SO ORDERED.[16]
their unpaid subscriptions, still, it is very apparent that individual
defendants merely used the corporate fiction as a cloak or cover to Ruling of the CA
create an injustice; hence, the alleged separate personality of
All the defendants, except BMPI, appealed.
Spouses Donnina and Simon Halley, andRizalinoVieza defined 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 YUS 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-APPELLEES 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 affirmed the RTC, holding that the defendants resort to
the corporate personality would createan injustice becausePrintwell 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 fiction 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
benefited 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 fiction to
evade payment of its obligations.[17]
Further, the CA concurred with the RTC on theapplicability of thetrust 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 insufficiency 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 reflect 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 CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim
of full payment of the subscriptions to the capital stock unworthy of consideration;
andheld that the veil of corporate fiction 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 Official 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 Official 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 Official 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 Official 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
courts findings 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 official receipt since
the alleged payment made on May 13, 1988 amounting
to P135,000.00 was covered by Official Receipt No. 218 (Record, p.
352), whereas the alleged payment made earlier on November 5,
1987 amounting to P5,000.00 is covered by Official 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 fiction 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 Vieza 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 NOTSTATE THE FACTS AND THE LAW
UPON WHICH THE JUDGMENT WAS BASED BUT MERELY
COPIED THE CONTENTS OF RESPONDENTS 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 first error, the petitioner contends that the RTC lifted verbatim from the
memorandum of Printwell; and submits that the RTCthereby violatedthe 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 effect that a judgment or final order of a court should
state clearly and distinctly the facts and the law on which it is based. The petitioner
claims that the RTCs violation indicated that the RTC did not analyze the case before
rendering its decision, thus denying her the opportunity to analyze the decision; andthat
a suspicion of partiality arose from the fact that the RTC decision was but a replica of
Printwells 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 fiction despite the absence of cogent proof
showing that she, as stockholder of BMPI, had any hand in transacting with Printwell;
thatthe CA and the RTC failed to appreciate the evidence that she had fully paid her
subscriptions; and the CA and the RTCwrongly relied on the articles of incorporation in
determining the current list of unpaid subscriptions despite the articles of
incorporationbeing at best reflectiveonly 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 stockholdersby
piercing the thin veil that separated them; and (b) the application of the trust fund
doctrine.
Ruling
The petition for review fails.
I Printwell impleaded the petitioner and the other stockholders of BMPI for two
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 thepetition for review insufficient to support
her contention, considering that the mere similarityin language or thought between
Printwells memorandum and the trial courts decisiondid not necessarily justify the
conclusion that the RTC simply lifted verbatim or copied from thememorandum.
It is to be observed in this connection that a trial or appellate judge may
occasionally viewa partys memorandum or brief as worthy of due consideration either
entirely or partly. When he does so, the judgemay adopt and incorporatein his
adjudicationthe 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 isbecause ofthe
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 tothe
adherence by our courts of law and the legal profession to widely knownor 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 RTCs manner of writing the
decisiondeprivedher ofthe opportunity to analyze its decisionas to be able to assign
errors on appeal. The contrary appears, considering that she was able to impute and
assignerrors to the RTCthat she extensively discussed in her appeal in the CA,
indicating her thorough analysis ofthe decision of the RTC.
Our own readingof the trial courts 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 findings of facts, and stated the applicablelaw and
jurisprudence, fully explaining why the defendants were being held liable to the
plaintiff. 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
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 petitionersubmits that she had no participation in the transaction between
BMPI and Printwell;that BMPI acted on its own; and that shehad no hand in persuading
BMPI to renege on its obligation to pay. Hence, she should not be personally liable.
We rule against the petitioners submission.
Although a corporation has a personality separate and distinct from those of
its stockholders, directors, or officers,[26]such separate and distinct personality is merely
a fiction 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 justification for a wrong; as an alter ego, an
adjunct, or a business conduit for the sole benefit of the stockholders.[28] As a general
rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to
the contrary appears. Thus,the courts always presume good faith, andfor that reason
accord prime importance to the separate personality of the corporation, disregarding
the corporate personality only after the wrongdoing is first 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 Printwells amended complaint or in the testimonies
Printwell offered can it be read or inferred from that the petitioner was instrumental in
persuading BMPI to renege onits obligation to pay; or that sheinduced Printwell to
extend the credit accommodation by misrepresenting the solvency of BMPI toPrintwell,
her personal liability, together with that of her co-defendants, remainedbecause 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
benefited 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 fiction 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 gooddefensesin the suit.
III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions
Both the RTC and the CA applied the trust fund doctrineagainst the defendant
stockholders, including the petitioner.
The petitionerargues, however,that the trust fund doctrinewas
inapplicablebecause she had already fully paid her subscriptions to the capital stock of
BMPI. She thus insiststhat both lower courts erred in disregarding the evidence on the
complete payment of the subscription, like receipts, income tax returns, and relevant
financial statements.
The petitioners argumentis devoid of substance.
The trust fund doctrineenunciates a
xxx 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, first enunciated in the American case of Wood v.
Dummer,[33]was adopted in our jurisdiction in Philippine Trust Co. v. Rivera,[34]where
thisCourt 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) xxx[35]
We clarify that the trust fund doctrineis not limited to reaching the stockholders
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 benefit of creditors thatwere
distributed or in the possession of the stockholders, regardless of full paymentof 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
thestockholders have not in good faith paid the par value of the stocks of the
corporation.[41]
The petitionerposits that the finding of irregularity attending the issuance of
the receipts (ORs) issued to the other stockholders/subscribers should not affect her
becauseher receipt did not suffer similar irregularity.
 Notwithstanding that the RTC and the CA did not find any irregularity in the
OR issued in her favor,we still cannot sustain the petitioners defense of full payment of
her subscription.
In civil cases, theparty who pleads payment has the burden of proving it, that
even where the plaintiff must allege nonpayment, the general rule is that the burden
rests on the defendant to prove payment, rather than on the plaintiff 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, thedebtor or thecreditor,
or theperson rendering services, and theclient or thecustomer. [43]Althougha receipt is
the best evidence of the fact of payment, it isnot conclusive, but merely presumptive;nor
is it exclusive evidence,considering thatparole evidence may also establishthe fact of
payment.[44]
The petitioners ORNo. 227,presentedto prove the payment of the balance of
her subscription, indicated that her supposed payment had beenmade by means of a
check. Thus, to discharge theburden to prove payment of her subscription, she had to
adduce evidence satisfactorily proving that her payment by check wasregardedas
payment under the law.
Paymentis defined 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 fromBank 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 notified 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 sufficient
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 petitioners 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.
Theincome 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. ITRsestablish ataxpayers liability for taxes
or a taxpayers 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
reflecting 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 financial status and other matters (like the
status of the stockholders), and are ordinarily the best evidence of corporate acts and
proceedings.[51]Specifically, 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 reflect the actual payment of her subscription.
Nor did the petitioner present any certificate of stock issued by BMPI to her.
Such a certificate 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 certificate of stock issues only to a subscriber who has fully paid his
subscription. The lack of any explanation for the absence of a stock certificate 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 incorporationas proof of the liabilities of the stockholders subscribing to
BMPIs stocks, averring that the articles of incorporationdid not reflect the latest
subscription status of BMPI.
Although the articles of incorporation may possibly reflect only the pre-
incorporation status of a corporation, the lower courts reliance on that document to
determine whether the original subscribersalready 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 plaintiff,
but to the stockholders like the petitioner who, as the defendants, averredfull 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 petitionerwas liablepursuant to the trust fund doctrine for the
corporate obligation of BMPI by virtue of her subscription being still unpaid. Printwell,
as BMPIs creditor,had a right to reachher unpaid subscription in satisfaction of its claim.

IV
Liability of stockholders for corporate debts isup
to the extentof 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 petitionerpersonally
liable onlyin 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 petitioners personal liability to
Printwell. The prevailing rule is that a stockholder is personally liable for the financial
obligations of the corporation to the extent of his unpaid subscription.[53]In view ofthe
petitioners unpaid subscription being worth P262,500.00, shewas liable up to that
amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation,

interest is fixed at 12% per annum from the date the amended complaint was filed on
February 8, 1990 until the obligation (i.e., to the extent of the petitioners personal
liability of P262,500.00) is fully paid.[54]

Lastly, we find no basis togrant attorneys fees, the award for which must be
supported by findings 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 findings from the RTC decision warrants the deletion of the attorneys fees.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with

modification the decision promulgated on August 14, 2002by ordering the petitionerto
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 paycost of suit in this appeal.

SO ORDERED.