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Trust Fund Doctrine

The trust fund doctrine establishes that a corporation's subscribed capital stock and assets are held in trust for creditors. Creditors have the right to look to these funds to satisfy debts owed by the corporation. This doctrine prevents corporations from distributing assets to stockholders before paying debts, and allows creditors to directly sue stockholders for unpaid stock subscriptions. The scope of the doctrine encompasses all corporate property and assets held in trust for creditors when the corporation is insolvent.

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Trust Fund Doctrine

The trust fund doctrine establishes that a corporation's subscribed capital stock and assets are held in trust for creditors. Creditors have the right to look to these funds to satisfy debts owed by the corporation. This doctrine prevents corporations from distributing assets to stockholders before paying debts, and allows creditors to directly sue stockholders for unpaid stock subscriptions. The scope of the doctrine encompasses all corporate property and assets held in trust for creditors when the corporation is insolvent.

Uploaded by

tere_aquinoluna828
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Trust Fund Doctrine - the subscribed capital stock of the corporation is a trust fund for the payment of debts of

the corporation which the creditors have the right to look up to satisfy their credits. Corporations may not dissipate this and the creditors may sue the stockholders directly for their unpaid subscriptions

This term describes the principle that a corporation must pay all of its debts before it can distribute assets to stockholders.

The trust fund doctrine enunciates 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 [1][32] debts. The trust fund doctrine, first enunciated in the American case ofWood v. Dummer, [3][34] jurisdiction in Philippine Trust Co. v. Rivera, where this Court declared that:
[2][33]

was adopted in our

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., [4][35] 802) xxx

We clarify that the trust fund doctrine is 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 [5][36] and assets generally regarded in equity as a trust fund for the payment of corporate debts. All assets and property belonging to the corporation held in trust for the benefit of creditors that were distributed or in the possession of the stockholders, regardless of full payment of their subscriptions, may be reached by the creditor in satisfaction of its claim.

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