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Case digest · Directors’ compensation; pay as officers, not as directors
Western Institute of Technology, Inc., et al. vs. Salas, et al.
A school corporation’s board granted monthly pay to the board members who served as its Chairman, Vice-Chairman, Treasurer and Secretary. The minority stockholders said the old Corporation Code forbade it. The Supreme Court asked in what capacity the pay was given.
Facts
The corporation
Western Institute of Technology, Inc. (WIT), with its principal office in La Paz, Iloilo City, is “a stock corporation engaged in the operation, among others, of an educational institution.” The private respondents, “belonging to the same family, are the majority and controlling members of the Board of Trustees” of WIT. The petitioners were minority stockholders.
Resolution No. 48
In 1986, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly compensation to the private respondents as corporate officers, retroactive to June 1, 1985: ₱9,000 a month for the Chairman, and ₱3,500 a month each for the Vice-Chairman, the Corporate Treasurer and the Corporate Secretary.
The criminal cases
On March 13, 1991, the petitioners filed a complaint against the private respondents with the City Prosecutor of Iloilo, and two Informations followed: one for estafa, over the pay, and one for falsification of public document, over an income statement filed with the SEC. The estafa Information alleged that the minority stockholders had objected to the disbursements at the annual stockholders’ meeting of June 14, 1986 and every year thereafter.
September 6, 1993
The Regional Trial Court of Iloilo acquitted the private respondents on both counts, without imposing any civil liability. It found that the Articles of Incorporation and the By-Laws let the board fix the officers’ compensation, and that the grant to the accused in their capacity as officers was authorized by both. As the trial court put it, the accused asserted that the grant of salary was “not for directors, but for their being officers of the corporation who oversee the day to day activities and operations of the school.”
In the Supreme Court
The petitioners appealed on the civil aspect. As they counted it, they sought the return to the corporation, with interest, of ₱186,470.70 in retroactive compensation plus ₱1,453,970.79 in later salaries, arguing that the grant was “proscribed under Section 30 of the Corporation Code.” WIT itself moved to intervene, disowning its inclusion in the petition.
Issue
Did Resolution No. 48 violate Sec. 30 of the Corporation Code (B.P. Blg. 68), so that the private respondents were civilly liable to return the compensation it granted?
Ruling
No. The pay was given to the private respondents as officers, not as directors, so Sec. 30 was not violated and its 10% cap did not apply. The Court denied the petition.
The Court started from the rule. Under Sec. 30, there were “only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems”: a by-law provision fixing their compensation, or a grant by the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders’ meeting. But, drawing on Agbayani’s commentary, it held that the phrase “as such directors” limits the prohibition to compensation for services performed purely as directors or trustees. Resolution No. 48 “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.” So the prohibition in Sec. 30 was not violated, and the 10% cap “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.” The Court also held that the case “is not a derivative suit but is merely an appeal on the civil aspect” of the criminal cases. It found the trial court’s factual findings “amply substantiated by the records,” and stressed that the acquittal was “not merely based on reasonable doubt but rather on a finding that the accused-private respondents did not commit the criminal acts complained of.” It denied the petition, with costs against the petitioners. The Court ruled only on the monthly pay given to the private respondents as officers; it did not discuss the resolution’s separate clause on a share of the net profits for the board. The case applied Sec. 30 of B.P. Blg. 68; no Supreme Court decision has yet applied Sec. 29 of the Revised Corporation Code.
“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.”
Doctrine
Drawing on Agbayani’s commentary, the Court stated the default: “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.” Then the limit: “This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule.” Pay for services rendered in another capacity, such as an officer, is outside it; in this case, the Articles and By-Laws let the board fix the officers’ pay. The case applied Sec. 30 of B.P. Blg. 68. Today the rule is Sec. 29 of the Revised Corporation Code, whose cap sentence no longer contains the words “as such directors”; whether the 10% cap now counts a director’s pay as an officer, the Supreme Court has not yet decided.
Compare: the board paying itself
In Central Cooperative Exchange, Inc. vs. Tibe, Sr., et al., G.R. No. L-27972, June 30, 1970, the pay fell. The board voted allowances and per diems for its own members, although the by-laws reserved the power to fix the directors’ compensation to the stockholders, and the Court held that “by voting for themselves compensation for such additional duties, they acted in excess of their authority, as expressed in the By-Laws.”
Bar tip
Separate the capacities. Under Sec. 29 of the Revised Corporation Code (formerly Sec. 30, B.P. Blg. 68), directors as such receive only reasonable per diems unless the by-laws fix their compensation or the stockholders representing at least a majority of the outstanding capital stock grant it. Under old Sec. 30, WIT treated pay for services as an officer as a different matter, and there it had a basis in the Articles and By-Laws. Note the posture, too: an appeal on the civil aspect of a criminal case is not a derivative suit. And the new Code’s cap sentence no longer contains the words “as such directors”; whether it now counts officer pay is still open.
Hear it explained
Directors’ Compensation, Podcast Ep. 9, at 4:17
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This digest is general legal information for education, not legal advice, and it is not a substitute for reading the decision. Quoted passages are taken word for word from the full text.