Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 93695 February 4, 1992
RAMON C. LEE and ANTONIO DM. LACDAO, petitioners,
vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS
GONZALES, respondents.
Cayanga, Zuniga & Angel Law Offices for petitioners.
Timbol & Associates for private respondents.

GUTIERREZ, JR., J .:
What is the nature of the voting trust agreement executed between two parties in this case? Who
owns the stocks of the corporation under the terms of the voting trust agreement? How long can
a voting trust agreement remain valid and effective? Did a director of the corporation cease to be
such upon the creation of the voting trust agreement? These are the questions the answers to
which are necessary in resolving the principal issue in this petition for certiorari whether or
not there was proper service of summons on Alfa Integrated Textile Mills (ALFA, for short)
through the petitioners as president and vice-president, allegedly, of the subject corporation after
the execution of a voting trust agreement between ALFA and the Development Bank of the
Philippines (DBP, for short).
From the records of the instant case, the following antecedent facts appear:
On November 15, 1985, a complaint for a sum of money was filed by the International Corporate
Bank, Inc. against the private respondents who, in turn, filed a third party complaint against
ALFA and the petitioners on March 17, 1986.
On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which
the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27, 1988.
On July 18, 1988, the petitioners filed their answer to the third party complaint.
Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of
an alias summons upon ALFA through the DBP as a consequence of the petitioner's letter
informing the court that the summons for ALFA was erroneously served upon them considering
that the management of ALFA had been transferred to the DBP.
In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive
summons on behalf of ALFA since the DBP had not taken over the company which has a
separate and distinct corporate personality and existence.
On August 4, 1988, the trial court issued an order advising the private respondents to take the
appropriate steps to serve the summons to ALFA.
On August 16, 1988, the private respondents filed a Manifestation and Motion for the
Declaration of Proper Service of Summons which the trial court granted on August 17, 1988.
On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule
14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers
of ALFA and that the private respondents should have availed of another mode of service under
Rule 14, Section 16 of the said Rules, i.e.,through publication to effect proper service upon
ALFA.
In their Comment to the Motion for Reconsideration dated September 27, 1988, the private
respondents argued that the voting trust agreement dated March 11, 1981 did not divest the
petitioners of their positions as president and executive vice-president of ALFA so that service of
summons upon ALFA through the petitioners as corporate officers was proper.
On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA
through the petitioners, thus, denying the latter's motion for reconsideration and requiring ALFA
to filed its answer through the petitioners as its corporate officers.
On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating
their stand that by virtue of the voting trust agreement they ceased to be officers and directors of
ALFA, hence, they could no longer receive summons or any court processes for or on behalf of
ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a
copy of the voting trust agreement between all the stockholders of ALFA (the petitioners
included), on the one hand, and the DBP, on the other hand, whereby the management and
control of ALFA became vested upon the DBP.
On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January
2, 1989 and declared that service upon the petitioners who were no longer corporate officers of
ALFA cannot be considered as proper service of summons on ALFA.
On May 15, 1989, the private respondents moved for a reconsideration of the above Order which
was affirmed by the court in its Order dated August 14, 1989 denying the private respondent's
motion for reconsideration.
On September 18, 1989, a petition for certiorari was belatedly submitted by the private
respondent before the public respondent which, nonetheless, resolved to give due course thereto
on September 21, 1989.
On October 17, 1989, the trial court, not having been notified of the pending petition
for certiorari with public respondent issued an Order declaring as final the Order dated April 25,
1989. The private respondents in the said Order were required to take positive steps in
prosecuting the third party complaint in order that the court would not be constrained to dismiss
the same for failure to prosecute. Subsequently, on October 25, 1989 the private respondents
filed a motion for reconsideration on which the trial court took no further action.
On March 19, 1990, after the petitioners filed their answer to the private respondents' petition
for certiorari, the public respondent rendered its decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the orders of respondent judge dated
April 25, 1989 and August 14, 1989 are hereby SET ASIDE and respondent
corporation is ordered to file its answer within the reglementary period. (CA
Decision, p. 8; Rollo, p. 24)
On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public
respondent which resolved to deny the same on May 10, 1990. Hence, the petitioners filed
this certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction on
the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and
August 14, 1989 of the court a quo, thus, holding that there was proper service of summons on
ALFA through the petitioners.
In the meantime, the public respondent inadvertently made an entry of judgment on July 16,
1990 erroneously applying the rule that the period during which a motion for reconsideration has
been pending must be deducted from the 15-day period to appeal. However, in its Resolution
dated January 3, 1991, the public respondent set aside the aforestated entry of judgment after
further considering that the rule it relied on applies to appeals from decisions of the Regional
Trial Courts to the Court of Appeals, not to appeals from its decision to us pursuant to our ruling
in the case of Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176
SCRA 539 [1989]. (CA Rollo, pp. 249-250)
In their memorandum, the petitioners present the following arguments, to wit:
(1) that the execution of the voting trust agreement by a stockholders whereby all
his shares to the corporation have been transferred to the trustee deprives the
stockholders of his position as director of the corporation; to rule otherwise, as the
respondent Court of Appeals did, would be violative of section 23 of the
Corporation Code ( Rollo, pp. 270-3273); and
(2) that the petitioners were no longer acting or holding any of the positions
provided under Rule 14, Section 13 of the Rules of Court authorized to receive
service of summons for and in behalf of the private domestic corporation so that
the service of summons on ALFA effected through the petitioners is not valid and
ineffective; to maintain the respondent Court of Appeals' position that ALFA was
properly served its summons through the petitioners would be contrary to the
general principle that a corporation can only be bound by such acts which are
within the scope of its officers' or agents' authority (Rollo, pp. 273-275)
In resolving the issue of the propriety of the service of summons in the instant case, we dwell
first on the nature of a voting trust agreement and the consequent effects upon its creation in the
light of the provisions of the Corporation Code.
A voting trust is defined in Ballentine's Law Dictionary as follows:
(a) trust created by an agreement between a group of the stockholders of a
corporation and the trustee or by a group of identical agreements between
individual stockholders and a common trustee, whereby it is provided that for a
term of years, or for a period contingent upon a certain event, or until the
agreement is terminated, control over the stock owned by such stockholders,
either for certain purposes or for all purposes, is to be lodged in the trustee, either
with or without a reservation to the owners, or persons designated by them, of the
power to direct how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19
Am J 2d Corp. sec. 685).
Under Section 59 of the new Corporation Code which expressly recognizes voting trust
agreements, a more definitive meaning may be gathered. The said provision partly reads:
Sec. 59. Voting Trusts One or more stockholders of a stock corporation may
create a voting trust for the purpose of conferring upon a trustee or trustees the
right to vote and other rights pertaining to the share for a period rights pertaining
to the shares for a period not exceeding five (5) years at any one time: Provided,
that in the case of a voting trust specifically required as a condition in a loan
agreement, said voting trust may be for a period exceeding (5) years but shall
automatically expire upon full payment of the loan. A voting trust agreement must
be in writing and notarized, and shall specify the terms and conditions thereof. A
certified copy of such agreement shall be filed with the corporation and with the
Securities and Exchange Commission; otherwise, said agreement is ineffective
and unenforceable. The certificate or certificates of stock covered by the voting
trust agreement shall be cancelled and new ones shall be issued in the name of the
trustee or trustees stating that they are issued pursuant to said agreement. In the
books of the corporation, it shall be noted that the transfer in the name of the
trustee or trustees is made pursuant to said voting trust agreement.
By its very nature, a voting trust agreement results in the separation of the voting rights of a
stockholder from his other rights such as the right to receive dividends, the right to inspect the
books of the corporation, the right to sell certain interests in the assets of the corporation and
other rights to which a stockholder may be entitled until the liquidation of the corporation.
However, in order to distinguish a voting trust agreement from proxies and other voting pools
and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock
are separated from the other attributes of ownership; (2) that the voting rights granted are
intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the
grant of voting rights is to acquire voting control of the corporation. (5 Fletcher, Cyclopedia of
the Law on Private Corporations, section 2075 [1976] p. 331citing Tankersly v. Albright, 374 F.
Supp. 538)
Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a
trustee not only the stockholder's voting rights but also other rights pertaining to his shares as
long as the voting trust agreement is not entered "for the purpose of circumventing the law
against monopolies and illegal combinations in restraint of trade or used for purposes of fraud."
(section 59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a voting
trust agreement primarily intended to single out a stockholder's right to vote from his other rights
as such and made irrevocable for a limited duration may in practice become a legal device
whereby a transfer of the stockholder's shares is effected subject to the specific provision of the
voting trust agreement.
The execution of a voting trust agreement, therefore, may create a dichotomy between the
equitable or beneficial ownership of the corporate shares of a stockholders, on the one hand, and
the legal title thereto on the other hand.
The law simply provides that a voting trust agreement is an agreement in writing whereby one or
more stockholders of a corporation consent to transfer his or their shares to a trustee in order to
vest in the latter voting or other rights pertaining to said shares for a period not exceeding five
years upon the fulfillment of statutory conditions and such other terms and conditions specified
in the agreement. The five year-period may be extended in cases where the voting trust is
executed pursuant to a loan agreement whereby the period is made contingent upon full payment
of the loan.
In the instant case, the point of controversy arises from the effects of the creation of the voting
trust agreement. The petitioners maintain that with the execution of the voting trust agreement
between them and the other stockholders of ALFA, as one party, and the DBP, as the other party,
the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that
by virtue to of the voting trust agreement the petitioners can no longer be considered directors of
ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code
which provides, in part, that:
Every director must own at least one (1) share of the capital stock of the
corporation of which he is a director which share shall stand in his name on the
books of the corporation. Any director who ceases to be the owner of at least one
(1) share of the capital stock of the corporation of which he is a director shall
thereby cease to be director . . . (Rollo, p. 270)
The private respondents, on the contrary, insist that the voting trust agreement between ALFA
and the DBP had all the more safeguarded the petitioners' continuance as officers and directors
of ALFA inasmuch as the general object of voting trust is to insure permanency of the tenure of
the directors of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the
right and status of the transferring stockholders, to wit:
The "transferring stockholder", also called the "depositing stockholder", is
equitable owner for the stocks represented by the voting trust certificates and the
stock reversible on termination of the trust by surrender. It is said that the voting
trust agreement does not destroy the status of the transferring stockholders as
such, and thus render them ineligible as directors. But a more accurate statement
seems to be that for some purposes the depositing stockholder holding voting trust
certificates in lieu of his stock and being the beneficial owner thereof, remains
and is treated as a stockholder. It seems to be deducible from the case that he may
sue as a stockholder if the suit is in equity or is of an equitable nature, such as, a
technical stockholders' suit in right of the corporation. [Commercial Laws of the
Philippines by Agbayani, Vol. 3 pp. 492-493, citing 5 Fletcher 326, 327] (Rollo,
p. 291)
We find the petitioners' position meritorious.
Both under the old and the new Corporation Codes there is no dispute as to the most immediate
effect of a voting trust agreement on the status of a stockholder who is a party to its execution
from legal titleholder or owner of the shares subject of the voting trust agreement, he becomes
the equitable or beneficial owner. (Salonga,Philippine Law on Private Corporations, 1958 ed., p.
268; Pineda and Carlos, The Law on Private Corporations and Corporate Practice, 1969 ed., p.
175; Campos and Lopez-Campos, The Corporation Code; Comments, Notes & Selected
Cases, 1981, ed., p. 386; Agbayani, Commentaries and Jurisprudence on the Commercial Laws
of the Philippines, Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is whether the
change in his status deprives the stockholder of the right to qualify as a director under section 23
of the present Corporation Code which deletes the phrase "in his own right." Section 30 of the
old Code states that:
Every director must own in his own right at least one share of the capital stock of
the stock corporation of which he is a director, which stock shall stand in his
name on the books of the corporation. A director who ceases to be the owner of at
least one share of the capital stock of a stock corporation of which is a director
shall thereby cease to be a director . . . (Emphasis supplied)
Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be
adversely affected by the simple act of such director being a party to a voting trust agreement
inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the
voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the
trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue
of the phrase "in his own right" provided under the old Corporation Code.
With the omission of the phrase "in his own right" the election of trustees and other persons who
in fact are not beneficial owners of the shares registered in their names on the books of the
corporation becomes formally legalized (see Campos and Lopez-Campos, supra, p. 296) Hence,
this is a clear indication that in order to be eligible as a director, what is material is the legal title
to, not beneficial ownership of, the stock as appearing on the books of the corporation (2
Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969]citing People
v. Lihme, 269 Ill. 351, 109 N.E. 1051).
The facts of this case show that the petitioners, by virtue of the voting trust agreement executed
in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as
trustee. Consequently, the petitioners ceased to own at least one share standing in their names on
the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased
to have anything to do with the management of the enterprise. The petitioners ceased to be
directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their
respective positions as directors of ALFA. The transfer of shares from the stockholder of ALFA
to the DBP is the essence of the subject voting trust agreement as evident from the following
stipulations:
1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks
owned by them respectively and shall do all things necessary for the transfer of their respective shares to the
TRUSTEE on the books of ALFA.
2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares
transferred, which shall be transferrable in the same manner and with the same effect as certificates of stock
subject to the provisions of this agreement;
3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any
resolution, matter or business that may be submitted to any such meeting, and shall possess in that respect
the same powers as owners of the equitable as well as the legal title to the stock;
4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying
such person as director of ALFA, and cause a certificate of stock evidencing the share so transferred to be
issued in the name of such person;
xxx xxx xxx
9. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the
need of revising this agreement, and this agreement shall have the same force and effect upon that said
stockholder. (CA Rollo, pp. 137-138; Emphasis supplied)
Considering that the voting trust agreement between ALFA and the DBP transferred legal
ownership of the stock covered by the agreement to the DBP as trustee, the latter became the
stockholder of record with respect to the said shares of stocks. In the absence of a showing that
the DBP had caused to be transferred in their names one share of stock for the purpose of
qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their
status as officers of ALFA which was the case before the execution of the subject voting trust
agreement. There appears to be no dispute from the records that DBP has taken over full control
and management of the firm.
Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A.
Guevarra, Vice-President of its Special Accounts Department II, Remedial Management Group,
the petitioners were no longer included in the list of officers of ALFA "as of April 1982."
(CA Rollo, pp. 140-142)
Inasmuch as the private respondents in this case failed to substantiate their claim that the subject
voting trust agreement did not deprive the petitioners of their position as directors of ALFA, the
public respondent committed a reversible error when it ruled that:
. . . while the individual respondents (petitioners Lee and Lacdao) may have
ceased to be president and vice-president, respectively, of the corporation at the
time of service of summons on them on August 21, 1987, they were at least up to
that time, still directors . . .
The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No.
4 of the subject voting trust agreement. Both parties, ALFA and the DBP, were aware at the time
of the execution of the agreement that by virtue of the transfer of shares of ALFA to the DBP, all
the directors of ALFA were stripped of their positions as such.
There can be no reliance on the inference that the five-year period of the voting trust agreement
in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust
agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the 6th
paragraph of section 59 of the new Corporation Code which reads:
Unless expressly renewed, all rights granted in a voting trust agreement shall
automatically expire at the end of the agreed period, and the voting trust
certificate as well as the certificates of stock in the name of the trustee or trustees
shall thereby be deemed cancelled and new certificates of stock shall be reissued
in the name of the transferors.
On the contrary, it is manifestly clear from the terms of the voting trust agreement between
ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of
certain obligations of ALFA with the DBP. This is shown by the following portions of the
agreement.
WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first
mortgage on the manufacturing plant of said company;
WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and
because of the burden of these obligations is encountering very serious difficulties in continuing
with its operations.
WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had
offered and the TRUSTEE has accepted participation in the management and control of the
company and to assure the aforesaid participation by the TRUSTEE, the TRUSTORS have agreed
to execute a voting trust covering their shareholding in ALFA in favor of the TRUSTEE;
AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned.
NOW, THEREFORE, it is hereby agreed as follows:
xxx xxx xxx
6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the
obligations of ALFA with DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137-
138)
Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have
transferred all its rights, titles and interests in ALFA "effective June 30, 1986" to the national
government through the Asset Privatization Trust (APT) as attested to in a Certification dated
January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In the
same certification, it is stated that the DBP, from 1987 until 1989, had handled APT's account
which included ALFA's assets pursuant to a management agreement by and between the DBP
and APT (CA Rollo, p. 142) Hence, there is evidence on record that at the time of the service of
summons on ALFA through the petitioners on August 21, 1987, the voting trust agreement in
question was not yet terminated so that the legal title to the stocks of ALFA, then, still belonged
to the DBP.
In view of the foregoing, the ultimate issue of whether or not there was proper service of
summons on ALFA through the petitioners is readily answered in the negative.
Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:
Sec. 13. Service upon private domestic corporation or partnership. If the
defendant is a corporation organized under the laws of the Philippines or a
partnership duly registered, service may be made on the president, manager,
secretary, cashier, agent or any of its directors.
It is a basic principle in Corporation Law that a corporation has a personality separate and
distinct from the officers or members who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc.,
72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et al., G.R.
Nos. 83257-58, December 21, 1990). Thus, the above rule on service of processes of a
corporation enumerates the representatives of a corporation who can validly receive court
processes on its behalf. Not every stockholder or officer can bind the corporation considering the
existence of a corporate entity separate from those who compose it.
The rationale of the aforecited rule is that service must be made on a representative so integrated
with the corporation sued as to make it a priori supposable that he will realize his responsibilities
and know what he should do with any legal papers served on him. (Far Corporation v. Francisco,
146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far East Motor Corp. 81 SCRA 303
[1978]).
The petitioners in this case do not fall under any of the enumerated officers. The service of
summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as
correctly argued by the petitioners, will contravene the general principle that a corporation can
only be bound by such acts which are within the scope of the officer's or agent's authority.
(see Vicente v. Geraldez, 52 SCRA 210 [1973]).
WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision
dated March 19, 1990 and the Court of Appeals' resolution of May 10, 1990 are SET ASIDE and
the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional Trial Court of
Makati, Branch 58 are REINSTATED.
SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 113032 August 21, 1997
WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS
ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F. VILLASIS, petitioner,
vs.
RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA,
ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE PORFIRIO
PARIAN, respondents.

HERMOSISIMA, JR., J .:
Up for review on certiorari are: (1) the Decision dated September 6, 1993 and (2) the Order
dated November 23, 1993 of Branch 33 of the Regional Trial Court of Iloilo City in Criminal
Cases Nos. 37097 and 37098 for estafa and falsification of a public document, respectively. The
judgment acquitted the private respondents of both charges, but petitioners seek to hold them
civilly liable.
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S.
Salas, and Richard S. Salas, belonging to the same family, are the majority and controlling
members of the Board of Trustees of Western Institute of Technology, Inc. (WIT, for short), a
stock corporation engaged in the operation, among others, of an educational institution.
According to petitioners, the minority stockholders of WIT, sometime on June 1, 1986 in the
principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In attendance
were other members of the Board including one of the petitioners Reginald Villasis. Prior to
aforesaid Special Board Meeting, copies of notice thereof, dated May 24, 1986, were distributed
to all Board Members. The notice allegedly indicated that the meeting to be held on June 1, 1986
included Item No. 6 which states:
Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western Institute
of Technology, Inc. on compensation of all officers of the corporation.
1

In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly
compensation to the private respondents as corporate officers retroactive June 1, 1985, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja
(accused), it was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation for
services rendered as follows: Chairman P9,000.00/month, Vice
Chairman P3,500.00/month, Corporate Treasurer P3,500.00/month
and Corporate Secretary P3,500.00/month, retroactive June 1, 1985 and
the ten per centum of the net profits shall be distributed equally among the
ten members of the Board of Trustees. This shall amend and superceed
(sic) any previous resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of the Board of
Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and
correct to the best of my knowledge and belief.
(Sgd)
ANTONIO S.
SALAS
Corporate
Secretary
2

A few years later, that is, on March 13, 1991, petitioners Homero Villasis, Prestod Villasis,
Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against private respondents
before the Office of the City Prosecutor of Iloilo, as a result of which two (2) separate criminal
informations, one for falsification of a public document under Article 171 of the Revised Penal
Code and the other for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch
33 of the Regional Trial Court of Iloilo City. The charge for falsification of public document was
anchored on the private respondents' submission of WIT's income statement for the fiscal year
1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the
disbursement of corporate funds for the compensation of private respondents based on
Resolution No. 4, series of 1986, making it appear that the same was passed by the board on
March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date not covered
by the corporation's fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30, 1986).
The Information for falsification of a public document states:
The undersigned City Prosecutor accuses RICARDO T. SALAS, SALVADOR T.
SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS and RICHARD S.
SALAS (whose dates and places of birth cannot be ascertained) of the crime of
FALSIFICATION OF A PUBLIC DOCUMENT, Art. 171 of the Revised Penal Code,
committed as follows:
That on or about the 10th day of June, 1986, in the City of Iloilo,
Philippines and within the jurisdiction of this Honorable Court, the above-
named accused, being then the Chairman, Vice-Chairman, Treasurer,
Secretary, and Trustee (who later became Secretary), respectively, of the
board of trustees of the Western Institute of Technology, Inc., a
corporation duly organized and existing under the laws of the Republic of
the Philippines, conspiring and confederating together and mutually
helping one another, to better realized (sic) their purpose, did then and
there wilfully, unlawfully and criminally prepare and execute and
subsequently cause to be submitted to the Securities and Exchange
Commission an income statement of the corporation for the fiscal year
1985-1986, the same being required to be submitted every end of the
corporation fiscal year by the aforesaid Commission, and therefore, a
public document, including therein the disbursement of the retroactive
compensation of accused corporate officers in the amount of P186,470.70,
by then and there making it appear that the basis thereof Resolution No. 4,
Series of 1986 was passed by the board of trustees on March 30, 1986, a
date covered by the corporation's fiscal year 1985-1986 (i.e., from May 1,
1985 to April 30, 1986), when in truth and in fact, as said accused well
knew, no such Resolution No. 48, Series of 1986 was passed on March 30,
1986.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22, 1991.
3
[Emphasis ours].
The Information, on the other hand, for estafa reads:
The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR T. SALAS,
SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS (whose
dates and places of birth cannot be ascertained) of the crime of ESTAFA, Art. 315, par. 1
(b) of the Revised Penal Code, committed as follows:
That on or about the 1st day of June, 1986, in the City of Iloilo,
Philippines, and within the jurisdiction of this Honorable Court, the above-
named accused, being then the Chairman, Vice-Chairman, Treasurer,
Secretary, and Trustee (who later became Secretary), respectively; of the
Board of Trustees of Western Institute of Technology, Inc., a corporation
duly organized and existing under the laws of the Republic of the
Philippines, conspiring and confederating together and mutually helping
one another to better realize their purpose, did then and there wilfully,
unlawfully and feloniously defraud the said corporation (and its
stockholders) in the following manner, to wit: herein accused, knowing
fully well that they have no sufficient, lawful authority to disburse let
alone violation of applicable laws and jurisprudence, disbursed the funds
of the corporation by effecting payment of their retroactive salaries in the
amount of P186,470.00 and subsequently paying themselves every 15th
and 30th of the month starting June 15, 1986 until the present, in the
amount of P19,500.00 per month, as if the same were their own, and when
herein accused were informed of the illegality of these disbursements by
the minority stockholders by way of objections made in an annual
stockholders' meeting held on June 14, 1986 and every year thereafter,
they refused, and still refuse, to rectify the same to the damage and
prejudice of the corporation (and its stockholders) in the total sum of
P1,453,970.79 as of November 15, 1991.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22, 1991.
4
[Emphasis ours]
Thereafter, trial for the two criminal cases, docketed as Criminal Cases Nos. 37097 and 37098,
was consolidated. After a full-blown hearing, Judge Porfirio Parian handed down a verdict of
acquittal on both counts
5
dated September 6, 1993 without imposing any civil liability against
the accused therein.
Petitioners filed a Motion for Reconsideration
6
of the civil aspect of the RTC Decision which
was, however, denied in an Order dated November 23, 1993.
7

Hence, the instant petition.
Significantly on December 8, 1994, a Motion for Intervention, dated December 2, 1994, was
filed before this Court by Western Institute of Technology, Inc., supposedly one of the
petitioners herein, disowning its inclusion in the petition and submitting that Atty. Tranquilino R.
Gale, counsel for the other petitioners, had no authority whatsoever to represent the corporation
in filing the petition. Intervenor likewise prayed for the dismissal of the petition for being utterly
without merit. The Motion for Intervention was granted on January 16, 1995.
8

Petitioners would like us to hold private respondents civilly liable despite their acquittal in
Criminal Cases Nos. 37097 and 37098. They base their claim on the alleged illegal issuance by
private respondents of Resolution No. 48, series of 1986 ordering the disbursement of corporate
funds in the amount of P186,470.70 representing retroactive compensation as of June 1, 1985 in
favor of private respondents, board members of WIT, plus P1,453,970.79 for the subsequent
collective salaries of private respondents every 15th and 30th of the month until the filing of the
criminal complaints against them on March 1991. Petitioners maintain that this grant of
compensation to private respondents is proscribed under Section 30 of the Corporation Code.
Thus, private respondents are obliged to return these amounts to the corporation with interest.
We cannot sustain the petitioners. The pertinent section of the Corporation Code provides:
Sec. 30. Compensation of directors In the absence of any provision in the by-laws
fixing their compensation, the directors shall not receive any compensation, as such
directors, except for reasonable per diems: Provided, however, That any such
compensation (other than per diems) may be granted to directors by the vote of the
stockholders representing at least a majority of the outstanding capital stock at a regular
or special stockholders' meeting. In no case shall the total yearly compensation of
directors, as such directors, exceed ten (10%) percent of the net income before income
tax of the corporation during the preceding year. [Emphasis ours]
There is no argument that directors or trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than the usual and ordinary duties of their
office. This rule is founded upon a presumption that directors/trustees render service
gratuitously, and that the return upon their shares adequately furnishes the motives for service,
without compensation.
9
Under the foregoing section, there are only two (2) ways by which
members of the board can be granted compensation apart from reasonable per diems: (1) when
there is a provision in the by-laws fixing their compensation; and (2) when the stockholders
representing a majority of the outstanding capital stock at a regular or special stockholders'
meeting agree to give it to them.
This proscription, however, against granting compensation to directors/trustees of a corporation
is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: ". . .
[T]he directors shall not receive any compensation, as such directors, . . . ." 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. The
unambiguous implication is that members of the board may receive compensation, in addition to
reasonable per diems, when they render services to the corporation in a capacity other than as
directors/trustees.
10
In the case at bench, Resolution No. 48, s. 1986 granted monthly
compensation to private respondents not in their capacity as members of the board, but rather as
officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and
Secretary of Western Institute of Technology. We quote once more Resolution No. 48, s. 1986
for easy reference, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja
(accused), it was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation for
services rendered as follows: Chairman P9,000.00/month, Vice
Chairman P3,500.00/month, Corporate Treasurer P3,500.00/month
and Corporate Secretary P3,500.00/month, retroactive June 1, 1985 and
the ten per centum of the net profits shall be distributed equally among the
ten members of the Board of Trustees. This shall amend and superceed
(sic) any previous resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of the Board of
Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and
correct to the best of my knowledge and belief.
(Sgd) ANTONIO S. SALAS
Corporate Secretary
11
[Emphasis ours]
Clearly, therefore, the prohibition with respect to granting compensation to corporate
directors/trustees as suchunder Section 30 is not violated in this particular case. Consequently,
the last sentence of Section 30 which provides:
. . . . . . . In no case shall the total yearly compensation of directors, as such directors,
exceed ten (10%) percent of the net income before income tax of the corporation during
the preceding year. (Emphasis ours]
does not likewise find application in this case since the compensation is being given to private
respondents in their capacity as officers of WIT and not as board members.
Petitioners assert that the instant case is a derivative suit brought by them as minority
shareholders of WIT for and on behalf of the corporation to annul Resolution No. 48, s. 1986
which is prejudicial to the corporation.
We are unpersuaded. 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.
12
It is a remedy designed by equity and has been the principal defense of the minority
shareholders against abuses by the majority.
13
Here, however, the case is not a derivative suit but
is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the
RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for
a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the proper forum that he is suing on a derivative
cause of action on behalf of the corporation and all other shareholders similarly situated who
wish to join.
14
This is necessary to vest jurisdiction upon the tribunal in line with the rule that it
is the allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body
concerned over the subject matter and nature of the action.
15
This was not complied with by the
petitioners either in their complaint before the court a quo nor in the instant petition which, in
part, merely states that "this is a petition for review on certiorari on pure questions of law to set
aside a portion of the RTC decision in Criminal Cases Nos. 37097 and 37098"
16
since the trial
court's judgment of acquittal failed to impose any civil liability against the private respondents.
By no amount of equity considerations, if at all deserved, can a mere appeal on the civil aspect of
a criminal case be treated as a derivative suit.
Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which
it is not, the same is outrightly dismissible for having been wrongfully filed in the regular court
devoid of any jurisdiction to entertain the complaint. The ease should have been filed with the
Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction
over derivative suits, they being intra-corporate disputes, per Section 5 (b) of P.D. No. 902-A:
In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered
with it as expressly granted under existing laws and decrees, it shall have original and
exclusive jurisdiction to hear and decide cases involving:
xxx xxx xxx
b) Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members, or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association and the
State insofar as it concerns their individual franchise or right to exist as such entity;
xxx xxx xxx
[Emphasis ours]
Once the case is decided by the SEC, the losing party may file a petition for review before the
Court of Appeals raising questions of fact, of law, or mixed questions of fact and law.
17
It is only
after the case has ran this course, and not earlier, can it be brought to us via a petition for review
on certiorari under Rule 45 raising only pure questions of law.
18
Petitioners, in pleading that we
treat the instant petition as a derivative suit, are trying to short-circuit the entire process which
we cannot here sanction.
As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 for falsification of
public document and estafa, which this petition truly is, we have to deny the petition just the
same. It will be well to quote the respondent court's ratiocinations acquitting the private
respondents on both counts:
The prosecution wants this Court to believe and agree that there is falsification of public
document because, as claimed by the prosecution, Resolution No. 48, Series of 1986
(Exh. "1-E-1") was not taken up and passed during the Regular Meeting of the Board of
Trustees of the Western Institute of Technology (WIT), Inc. on March 30, 1986, but on
June 1, 1986 special meeting of the same board of trustees.
This Court is reluctant to accept this claim of falsification. The prosecution omitted to
submit the complete minutes of the regular meeting of the Board of Trustees on March
30, 1986. It only presented in evidence Exh. "C", which is page 5 or the last page of the
said minutes. Had the complete minutes (Exh. "1") consisting of five (5) pages, been
submitted, it can be readily seen and understood that Resolution No. 48, Series of 1986
(Exh. "1-E-1") giving compensation to corporate officers, was indeed included in Other
Business, No. 6 of the Agenda, and was taken up and passed on March 30, 1986. The
mere fact of existence of Exh. "C" also proves that it was passed on March 30, 1986 for
Exh. "C" is part and parcel of the whole minutes of the Board of Trustees Regular
Meeting on March 30, 1986. No better and more credible proof can be considered other
than the Minutes (Exh. "1") itself of the Regular Meeting of the Board of Trustees on
March 30, 1986. The imputation that said Resolution No. 48 was neither taken up nor
passed on March 30, 1986 because the matter regarding compensation was not
specifically stated or written in the Agenda and that the words "possible implementation
of said Resolution No. 48, was expressly written in the Agenda for the Special Meeting of
the Board on June 1, 1986, is simply an implication. This evidence by implication to the
mind of the court cannot prevail over the Minutes (Exh. "1") and cannot ripen into proof
beyond reasonable doubt which is demanded in all criminal prosecutions.
This Court finds that under the Eleventh Article (Exh. "3-D-1") of the Articles of
Incorporation (Exh. "3-B") of the Panay Educational Institution, Inc., now the Western
Institute of Technology, Inc., the officers of the corporation shall receive such
compensation as the Board of Directors may provide. These Articles of Incorporation
was adopted on May 17, 1957 (Exh. "3-E"). The Officers of the corporation and their
corresponding duties are enumerated and stated in Sections 1, 2, 3 and 4 of Art. III of the
Amended By-Laws of the Corporation (Exh. "4-A") which was adopted on May 31,
1957. According to Sec. 6, Art. III of the same By-Laws, all officers shall receive such
compensation as may be fixed by the Board of Directors.
It is the perception of this Court that the grant of compensation or salary to the accused in
their capacity as officers of the corporation, through Resolution No. 48, enacted on
March 30, 1986 by the Board of Trustees, is authorized by both the Articles of
Incorporation and the By-Laws of the corporation. To state otherwise is to depart from
the clear terms of the said articles and by-laws. In their defense the accused have properly
and rightly asserted that the grant of salary is not for directors, but for their being officers
of the corporation who oversee the day to day activities and operations of the school.
xxx xxx xxx
. . .[O]n the question of whether or not the accused can be held liable for estafa under
Sec. 1 (b) of Art. 315 of the Revised Penal Code, it is perceived by this Court that the
receipt and the holding of the money by the accused as salary on basis of the authority
granted by the Articles and By-Laws of the corporation are not tainted with abuse of
confidence. The money they received belongs to them and cannot be said to have been
converted and/or misappropriated by them.
xxx xxx xxx
19

[Emphasis ours]
From the foregoing factual findings, which we find to be amply substantiated by the records, it is
evident that there is simply no basis to hold the accused, private respondents herein, civilly
liable. Section 2(b) of Rule 111 on the New Rules on Criminal Procedure provides:
Sec. 2. Institution of separate civil action.
xxx xxx xxx
(b) Extinction of the penal action does not carry with it extinction of the civil, unless the
extinction proceeds from a declaration in a final judgment that the fact from which the
civil might arise did not exist. [Emphasis ours]
Likewise, the last paragraph of Section 2, Rule 120 reads:
Sec. 2. Form and contents of judgment.
xxx xxx xxx
In case of acquittal, unless there is a clear showing that the act from which the civil
liability might arise did not exist, the judgment shall make a finding on the civil liability
of the accused in favor of the offended party. [Emphasis ours]
The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based on reasonable doubt
but rather on a finding that the accused-private respondents did not commit the criminal acts
complained of. Thus, pursuant to the above rule and settled jurisprudence, any civil action ex
delicto cannot prosper. 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.
20

WHEREFORE, the instant petition is hereby DENIED with costs against petitioners.
SO ORDERED.