Solid Bank Corp. vs Mindanao Ferroalloy Corp. G.R. No.

153535 July 28,

2005
Doctrine: It is axiomatic that solidary liability cannot be lightly inferred. Under
Article 1207 of the Civil Code, "there is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires
solidarity."
Facts: Private respondents herein secured a loan to the petitioner bank under the
name of the respondent corporation. In the course of the corporations operation, it
was not able to pay its obligation to the petitioner and has to stop its operation.
Petitioner bank filed an action against the corporation together with its principal
officers for the collection of the loan they acquired. The RTC ruled in favor of the
bank petitioner and ordering the respondent corporation to pay the amount of loan
plus interest. On appeal, the CA held the decision of the RTC and ruled also that the
private respondents were not solidary liable to the petitioner.
Issue: Whether or not principal officers can be held personally liable upon signing
the contract of loan under the name of the corporation?
Ruling: Basic is the principle that a corporation is vested by law with a personality
separate and distinct from that of each person composing or representing it. Equally
fundamental is the general rule that corporate officers cannot be held personally
liable for the consequences of their acts, for as long as these are for and on behalf
of the corporation, within the scope of their authority and in good faith. The
separate corporate personality is a shield against the personal liability of corporate
officers, whose acts are properly attributed to the corporation. Moreover, it is
axiomatic that solidary liability cannot be lightly inferred. Since solidary liability is
not clearly expressed in the Promissory Note and is not required by law or the
nature of the obligation in this case, no conclusion of solidary liability can be made.
Furthermore, nothing supports the alleged joint liability of the individual petitioners
because, as correctly pointed out by the two lower courts, the evidence shows that
there is only one debtor: the corporation.
Acme Shoe, Rubber and Plastic Corporation v. CA G.R. No. 103576, Aug.
22, 1996
FACTS: Chua Pac, president and general manager of Acme Shoe, Rubber and Plastic
Corporation, executed a chattel mortgage in favor of Producers Bank of the
Philippines, as a security for a corporate loan in the amount of P3M. The chattel
mortgage contained a clause that provided for the mortgage to stand as security for
all other obligations contracted before, during and after the constitution of the
mortgage.
The P3M was paid. Subsequently, the corporation obtained additional financial
accommodations totalling P2.7M. This was also paid on the due date. Again, the

bank extended another loan to the corporation in the amount of P1M, covered by
four promissory notes. However, the corporation was unable to pay this at maturity.
Thereupon, the bank applied for an extra-judicial foreclosure of mortgage. For its
part, the corporation filed an action for injunction with prayer for damages. The
lower court ultimately dismissed the case and ordered the extra-judicial foreclosure
of mortgage. Hence, this appeal.
ISSUEs: W/N extra-judicial foreclosure of the chattel mortgage is proper
If not proper, W/N the corporation is entitled to damages as a result of the extrajudicial foreclosure
HELD:
Contracts of Security
Contracts of security are either personal or real. In contracts of personal security,
such as a guaranty or suretyship, the faithful performance of the obligation by the
principal debtor is secured by the personal commitment of another (the guarantor
or surety). In contracts of real security, such as a pledge, a mortgage or an
antichresis, that fulfillment is secured by an encumbrance of property -- in pledge,
the placing of movable property in the possession of the creditor; in chattel
mortgage by the execution of the corresponding and substantially in teh form
prescribed by law; in real estate mortgage, by the execution of a public instrument
encumbering the real property covered thereby; and in antichresis, by a written
instrument granting to the creditor the right to receive the fruits of an immovable
property with the obligation to apply such fruits to the payment of interest, if owing,
and thereafter to the principal of his credit -- upon the essential condition that if the
obligation becomes due and the debtor defaults, then the property encumbered can
be alienated for the payment of the obligation, but that should the obligation be
duly paid, then the contract is automatically extinguished proceeding from the
accessory character of the agreement. As the law so puts it, once the obligation is
complied with, then the contract of security becomes, ipso facto, null and void.
After-incurred Obligations
While a pledge, real estate mortgage, or antichresis may exceptionaly secure afterincurred obligations so long as these future debts are accurately described, a
chattel mortgage, however, can only cover obligations existing at the time the
mortgage is constituted. Although a promise expressed in a chattel mortgage to
include debts that are yet to be contracted can be a binding commitment that can
be compelled upon, the security itself, however, does not come into existence or
arise until after a chattel mortgage agreement covered the newly contracted debt is
executed either by concluding a fresh chattel mortgage or by amending the old
contract conformably with the Chattel Mortgage Law. Refusal on the part of
borrower to execute the agreement so as to cover the after-incurred obligation can

constitute as an act of default on the part of the borrower of the financing

agreement wherein the promise is written, but, of course, the remedy of foreclosure
can only cover the debts extant at the time of constitution and during the life of the
chattel mortgage sought to be foreclosed.
In the case at bar, the chattel mortgage was terminated when payment for the P3M
loan was made so there was no chattel mortgage to even foreclose at the time the
bank instituted the extra-judicial foreclosure.
Damages
In its complaint, the corporation asked for moral damages sustained "as a result of
the unlawful action taken by the respondent bank against it." The court said -"Moral damages are granted in recompense for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. A corporation, being an artificial person and
having existence only in legal contemplation, has no feelings, no emotions, no
senses; therefore it cannot experience physical suffering and mental anguish.
Mental suffering can be experienced only by one having a nervous system and it
flows from real ills and sorrows and griefs of life -- all of which cannot be suffered by
respondent bank as an artificial person.
"Although Chua Pac was included in the case, he was only so named as a party in
representation of the corporation."
Reynoso IV vs CA
Business Organization Corporation Law Piercing the Veil of Corporate Fiction
Facts: Reynoso was the branch manager of Commercial Credit Corporation Quezon
City (CCC-QC), a branch of Commercial Credit Corporation (CCC). It was alleged that
Reynoso was opposed to certain questionable commercial practices being facilitated
by CCC which caused its branches, like CCC-QC, to rack up debts. Eventually,
Reynoso withdrew his own funds from CCC-QC. This prompted CCC-QC to file
criminal cases for estafa and qualified theft against Reynoso. The criminal cases
were dismissed and Reynoso was exonerated and at the same time CCC-QC was
ordered to pay Reynosos counterclaims which amounted to millions. A writ of
execution was issued against CCC-QC. The writ was opposed by CCC-QC as it now
claims that it has already closed and that its assets were taken over by the mother
company, CCC.
Meanwhile, CCC changed its name to General Credit Corporation (GCC).
Reynoso then filed a petition for an alias writ of execution. GCC opposed the writ as
it argued that it is a separate and distinct corporation from CCC and CCC-QC, in
short, it raises the defense of corporate fiction.

ISSUE: Whether or not GCC is correct.

HELD: No. The veil of corporate fiction must be pierced. It is obvious that CCCs
change of name to GCC was made in order to avoid liability. CCC-QC willingly closed
down and transferred its assets to CCC and thereafter changed its name to GCC in
order to avoid its responsibilities from its creditors. GCC and CCC are one and the
same; they are engaged in the same line of business and single transaction process,
i.e. finance and investment. When the mother corporation and its subsidiary cease
to act in good faith and honest business judgment, when the corporate device is
used by the parent to avoid its liability for legitimate obligations of the subsidiary,
and when the corporate fiction is used to perpetrate fraud or promote injustice, the
law steps in to remedy the problem. When that happens, the corporate character is
not necessarily abrogated. It continues for legitimate objectives. However, it is
pierced in order to remedy injustice, such as that inflicted in this case.