Western Institute of Technology, Inc. vs. Salas

Directors or trustees may receive compensation apart from reasonable per diems when they render services to the corporation in a capacity other than as directors or trustees (i.e., as corporate officers), and such compensation is not subject to the ten percent limitation under Section 30 of the Corporation Code; furthermore, acquittal in a criminal action based on a finding that the accused did not commit the criminal acts imputed to them bars the civil action arising therefrom.

The case involves an intra-corporate dispute between minority and majority stockholders of Western Institute of Technology, Inc. (WIT), a stock corporation engaged in the operation of an educational institution. The minority stockholders (petitioners) accused the majority stockholders (private respondents) of illegally granting themselves retroactive compensation through Board Resolution No. 48, series of 1986, leading to criminal charges for estafa and falsification of public documents.

• Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S. Salas are the majority and controlling members of the Board of Trustees of Western Institute of Technology, Inc. (WIT), while petitioners Homero L. Villasis, Dimas Enriquez, Preston F. Villasis, and Reginald F. Villasis are minority stockholders.
• On June 1, 1986, a Special Board Meeting was held at the principal office of WIT in La Paz, Iloilo City, attended by Reginald Villasis and other board members, pursuant to a notice dated May 24, 1986 which included Item No. 6 regarding "Possible implementation of Art. III, Sec. 6 of the Amended By-Laws... on compensation of all officers."
• During the meeting, the Board passed Resolution No. 48, series of 1986, granting monthly compensation to corporate officers retroactive to June 1, 1985: Chairman (P9,000/month), Vice-Chairman (P3,500/month), Corporate Treasurer (P3,500/month), and Corporate Secretary (P3,500/month), plus ten percent of net profits distributed equally among board members.
• On March 13, 1991, petitioners filed an affidavit-complaint against private respondents before the Office of the City Prosecutor of Iloilo, alleging that the resolution was actually passed on June 1, 1986 but was made to appear as passed on March 30, 1986 (a date covered by the fiscal year 1985-1986) to justify the disbursement of corporate funds.
• The criminal information for falsification alleged that respondents submitted WIT's income statement for fiscal year 1985-1986 to the Securities and Exchange Commission reflecting disbursement of retroactive compensation based on Resolution No. 48, making it appear the resolution was passed on March 30, 1986 when it was actually passed on June 1, 1986.
• The criminal information for estafa alleged that respondents, knowing they had no lawful authority, disbursed corporate funds amounting to P186,470.70 for retroactive salaries and subsequently paid themselves P19,500.00 monthly starting June 15, 1986, despite objections from minority stockholders.
• The Articles of Incorporation of WIT (adopted May 17, 1957) provide that officers shall receive such compensation as the Board of Directors may provide, and the Amended By-Laws (adopted May 31, 1957) state that all officers shall receive compensation as may be fixed by the Board of Directors.
• The RTC found that the complete minutes of the March 30, 1986 meeting showed Resolution No. 48 was indeed taken up and passed on that date, not on June 1, 1986, and that the grant of compensation was authorized by the Articles and By-Laws.

• Petitioners sought to hold private respondents civilly liable despite their acquittal in the criminal cases, claiming that Resolution No. 48 was illegally issued and that the compensation granted was proscribed under Section 30 of the Corporation Code.
• They maintained that the disbursement of corporate funds for retroactive compensation and subsequent monthly salaries amounted to illegal acts that caused damage to the corporation in the total sum of P1,453,970.79 as of November 15, 1991.
• Petitioners asserted that the case was a derivative suit brought by minority shareholders for and on behalf of the corporation to annul the prejudicial resolution and recover the amounts disbursed.
• They argued that private respondents were obliged to return the amounts received with interest.

• Private respondents (implied from the RTC decision) argued that Resolution No. 48 was validly passed on March 30, 1986, as evidenced by the complete minutes of the meeting, and that the prosecution failed to prove falsification beyond reasonable doubt.
• They contended that the compensation was granted for services rendered as corporate officers (Chairman, Vice-Chairman, Treasurer, Secretary) who oversaw day-to-day operations, not as directors, and was therefore authorized by the Articles of Incorporation and By-Laws.
• They maintained that the receipt of salaries was not tainted with abuse of confidence and did not constitute conversion or misappropriation, as the money belonged to them pursuant to valid corporate authority.

• Procedural Issues:
  • Whether the petition constitutes a derivative suit that should have been filed with the Securities and Exchange Commission (SEC) rather than the Regional Trial Court (RTC).
  • Whether the petitioners can maintain a civil action for damages despite the acquittal of private respondents in the underlying criminal cases.
• Substantive Issues:
  • Whether Section 30 of the Corporation Code prohibits the grant of compensation to private respondents.
  • Whether the compensation was granted for services rendered as directors/trustees or as corporate officers.
  • Whether the acquittal of private respondents in the criminal cases bars the civil liability ex delicto.

• Procedural:
  • The Court held that the petition is not a derivative suit but merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098. A derivative suit requires specific allegations that the plaintiff is suing on a derivative cause of action on behalf of the corporation, which were absent in the pleadings.
  • Even if construed as a derivative suit, the case was wrongfully filed in the regular courts. Under Section 5(b) of P.D. No. 902-A, the SEC has original and exclusive jurisdiction over controversies arising out of intra-corporate relations, including derivative suits.
  • The Court cannot treat the petition as a derivative suit to allow petitioners to short-circuit the established procedure: SEC adjudication first, then petition for review to the Court of Appeals, and only thereafter to the Supreme Court via Rule 45.
• Substantive:
  • Section 30 of the Corporation Code does not prohibit the compensation granted to private respondents. The prohibition against compensation applies only to services rendered "as such directors"—a phrase that delimits the scope to purely directorial functions. The unambiguous implication is that board members may receive compensation when they render services in a capacity other than as directors/trustees.
  • The compensation in this case was validly granted for services rendered as corporate officers (Chairman, Vice-Chairman, Treasurer, and Secretary), not as board members. The Articles of Incorporation and By-Laws of WIT expressly authorized the Board to fix compensation for officers. Consequently, the ten percent limitation under the last sentence of Section 30 does not apply.
  • The civil action ex delicto cannot prosper. Under Section 2(b) of Rule 111 and Section 2 of Rule 120 of the New Rules on Criminal Procedure, when acquittal is based on a declaration that the fact from which the civil liability might arise did not exist (i.e., the accused did not commit the criminal acts), the civil action is barred. The RTC's acquittal was based on a finding that Resolution No. 48 was validly passed on March 30, 1986, and that no falsification or estafa occurred, not merely on reasonable doubt.

• Derivative Suit — An action brought by minority shareholders in the name of the corporation to redress wrongs committed against it for which the directors refuse to sue. It is a remedy designed by equity and requires strict compliance with procedural requirements, including filing with the proper forum (SEC for intra-corporate disputes) and explicit allegations of the derivative nature of the action to vest jurisdiction.
• Compensation of Directors under Section 30 of the Corporation Code — Directors or trustees shall not receive compensation as such directors except for reasonable per diems, unless authorized by the by-laws or by stockholders representing a majority of the outstanding capital stock. However, they may receive compensation for services rendered in another capacity (e.g., as corporate officers), which compensation is not subject to the prohibition or the ten percent net income limitation applicable to directorial compensation.
• Effect of Acquittal on Civil Liability Ex Delicto — The extinction of the penal action does not carry with it extinction of the civil action, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. When acquittal is based on a finding that the accused did not commit the criminal acts imputed to them (as opposed to lack of proof beyond reasonable doubt), the civil action arising from the crime is barred.

• "The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees."
• "A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue."
• "Acquittal in a criminal action bars the civil action arising therefrom where the judgment of acquittal holds that the accused did not commit the criminal acts imputed to them."

• Commart (Phils.) Inc. v. Securities and Exchange Commission, 198 SCRA 73 (1991) — Cited for the principle that derivative suits are the principal defense of minority shareholders against abuses by the majority.
• Sarmiento v. Court of Appeals, 250 SCRA 108 (1995); De Leon v. Court of Appeals, 245 SCRA 166 (1995); Alleje v. Court of Appeals, 240 SCRA 495 (1995) — Cited for the rule that it is the allegations in the complaint that vest jurisdiction upon the court or quasi-judicial body concerned.
• Tan v. Standard Vacuum Oil Co., 91 Phil. 672 — Cited for the rule that acquittal in a criminal action bars the civil action arising therefrom where the judgment holds that the accused did not commit the criminal acts imputed to them.

• Section 30, Corporation Code (Batas Pambansa Blg. 68) — Governs compensation of directors; prohibits compensation "as such directors" except for reasonable per diems unless authorized by by-laws or stockholders representing at least a majority of outstanding capital stock.
• Article 171, Revised Penal Code — Defines falsification of public documents by public officers; basis of Criminal Case No. 37098.
• Article 315, paragraph 1(b), Revised Penal Code — Defines estafa with abuse of confidence; basis of Criminal Case No. 37097.
• Section 5(b), Presidential Decree No. 902-A — Grants the SEC original and exclusive jurisdiction over controversies arising out of intra-corporate or partnership relations, including derivative suits.
• Section 2(b), Rule 111, New Rules on Criminal Procedure — Provides that extinction of penal action does not carry with it extinction of civil action unless the extinction proceeds from a declaration that the fact from which civil liability might arise did not exist.
• Section 2, Rule 120, New Rules on Criminal Procedure — Requires that in case of acquittal, unless there is a clear showing that the act from which civil liability might arise did not exist, the judgment shall make a finding on the civil liability of the accused.
• Rule 43, 1997 Rules of Civil Procedure (formerly Circular No. 1-91 and Revised Administrative Circular No. 1-95) — Governs appeals from the SEC to the Court of Appeals.
• Rule 45, Rules of Court — Governs petitions for review on certiorari to the Supreme Court raising only questions of law.

N/A (Padilla, Bellosillo, Vitug, and Kapunan, JJ., concurred with no separate opinions indicated)