DONNINA C. HALLEY vs. PRINTWELL, INC.

,
G.R. No. 157549
May 30, 2011
BERSAMIN, J:
Topic: Piercing the Veil of Corporate Fiction; Trust Fund Doctrine
Doctrine: Stockholders of a corporation are liable for the debts of the corporation up to the extent of
their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability,
because the veil may be lifted to avoid defrauding corporate creditors.

Facts: Petitioner Halley was an incorporator and original director of Business Media Phil. Inc.
(BMPI) while respondent was engaged in commercial and industrial printing. BMPI commissioned
respondent for the printing of magazine Philippines together with wrappers and subscription cards
that the former published and sold.
BMPI placed several orders on credit to respondent but failed to pay the balance. Thus,
respondent sued BMPI for the collection of the unpaid balance of P291,342.76 in the RTC.
Printwell amended the complaint in order to implead as defendants all the original stockholders and
incorporators to recover on the unpaid subscriptions.
Petitioner argued that she had paid her subscriptions, evidenced by several official receipts
and that BMPI had a personality separate from its stockholders which personality should not be
disregarded. RTC and CA pierced the veil of corporate fiction and held the stockholders of BMPI as
personally liable for corporate debts up to the extent of their unpaid subscriptions under the Trust
Fund doctrine. Both courts also found some irregularities in the issuance of official receipts.
Issues: (1) Whether the separate personalities of BMPI and its stockholders should be
disregarded.
(2) Whether the trust fund doctrine is applicable.
Ruling:
(1)Yes. Corporate personality should not be used to foster injustice. Printwell impleaded the
petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the unpaid
subscriptions because it appeared that such subscriptions were the remaining visible assets of
BMPI; and (b) to avoid multiplicity of suits.
In the present case, personal liabilities of petitioner with other stockholders remained
because they were in charge of the operations of BMPI at the time the unpaid obligation was
transacted. To deny respondent from recovering from petitioner would place the latter in a limbo on
where to assert their right to collect from BMPI since the stockholders who are petitioners are
availing the defense of corporate fiction to evade payment of its obligation.
(2)Yes. the petitioner was liable pursuant to the trust fund doctrine for the corporate obligation of
BMPI by virtue of her subscription being still unpaid.
The trust fund doctrine states 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. 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.
Thus, Printwell, as BMPIs creditor, had a right to reach petitioner's unpaid subscription in
satisfaction of its claim. The liability of stockholder for corporate debt is up to the extent of their
unpaid subcription. In view of petitioner's unpaid subscription of 265, 500 , she was liable up to that
amount.

VALLE VERDE COUNTRY CLUB, INC., et. al vs.VICTOR AFRICA

G.R. No. 151969
September 4, 2009
BRION, J.:
Topic: Election of Directors; Hold-Over Principle
Doctrine: The holdover period is not part of the term of office of a member of the board of directors.
Business and affairs of a corporation must be governed by a board of directors whose members
have stood for election, and who have actually been elected by the stockholders, on an annual
basis.
Facts: On 1996, during the Annual Stockholders Meeting of petitioner Valle Verde Country Club,
Inc. (VVCC), the following were elected as members of the VVCC Board of Directors:
1.Villaluna
2.DINGLASAN - replaced by ROXAS
3.MAKALINTAL - replaced by RAMIREZ
4 .Ortigas III,
5.Salta
6.Santiago, Jr.,
7.Dee
8.Sunico
9.Gamboa.
In the years 1997- 2001, however, the requisite quorum for the holding of the stockholders meeting
could not be obtained. Consequently, the above-named directors continued to serve in the VVCC
Board in a hold-over capacity.

On 1998, Dinglasan resigned from his position as member of the VVCC Board. In a meeting
held on 1998, the remaining directors, still constituting a quorum of VVCCs nine-member board,
elected Roxas to fill in the vacancy created by the resignation of Dinglasan.
On the same year Makalintal also resigned as member of the VVCC Board. He was replaced
by Ramirez, who was elected by the remaining members of the VVCC Board on 2001.
Respondent Africa a member of VVCC, questioned the election of Roxas and Ramirez as
members of the VVCC Board with the SEC and RTC.He alleged that the election of Roxas was
contrary to Section 29, in relation to Section 23, of the Corporation Code. Africa claimed that a
year after Makalintals election as member of the board in 1996, Makalintals term as well as those
of the other members of the VVCC Board should be considered to have already expired. Thus,
according to Africa, the resulting vacancy should have been filled by the stockholders in a regular or
special meeting called for that purpose, and not by the remaining members of the VVCC Board, as
was done in this case.

Africa additionally contends that for the members to exercise the authority to fill in vacancies
in the board of directors, Section 29 requires, among others, that there should be an unexpired term
during which the successor-member shall serve. Since Makalintals term had already expired with
the lapse of the one-year term provided in Section 23, there is no more "unexpired term" during
which Ramirez could serve.
Issue: Whether the remaining directors of the corporations Board, still constituting a quorum, can
elect another director to fill in a vacancy caused by the resignation of a hold-over director.
Ruling: No. The holdover period is not part of the term of office of a member of the board of
directors. Consequently, when during the holdover period, a director resigns from the board, the
vacancy can only be filled-up, since there is no term left to fill-up pursuant to the provisions of
Section 29 of the Corporation Code which mandates that a vacancy occurring in the board of
directors caused by the expiration of a member's term shall be filled by the corporation's
stockholders.
In the case at bar, after the lapse of one year from his election as member of the VVCC
Board in 1996, Makalintals term of office is deemed to have already expired. That he continued to
serve in the VVCC Board in a holdover capacity cannot be considered as extending his term.
Makalintals term of office began in 1996 and expired in 1997, but, by virtue of the holdover doctrine
in Section 23 of the Corporation Code, he continued to hold office until his resignation on 1998. This
holdover period, however, is not to be considered as part of his term, which, as declared, had
already expired.
With the expiration of Makalintals term of office, a vacancy resulted which, by the terms of
Section 29 of the Corporation Code, must be filled by the stockholders of VVCC in a regular or
special meeting called for the purpose. His resignation as a holdover director did not change the
nature of the vacancy; the vacancy due to the expiration of Makalintals term had been created long
before his resignation.
Hence, Section 29 of the Corporation Code declares that it shall be the corporations
stockholders who shall possess the authority to fill in a vacancy caused by the expiration of a
members term and not by the remaining directors.
TERM
the time during which the officer may claim to
hold the office as of right, and fixes the interval
after which the several incumbents shall
succeed one another.
The holdover period is not part of the term of
office of a member of the board of directors

Fixed by statute and it does not change simply

because the office may have become vacant,
nor because the incumbent holds over in office
beyond the end of the term due to the fact that a
successor has not been elected and has failed

TENURE
represents the term during which the incumbent
actually holds office.
the holdover period, however, constitutes part of
tenure

The tenure may be shorter (or, in case of

holdover, longer) than the term for reasons
within or beyond the power of the incumbent.

to qualify