GR 151969; (September, 2009) (Digest)
G.R. No. 151969 ; September 4, 2009
Valle Verde Country Club, Inc., et al., vs. Victor Africa
FACTS
During the 1996 Annual Stockholders’ Meeting of Valle Verde Country Club, Inc. (VVCC), nine individuals were elected to its Board of Directors for a one-year term. From 1997 to 2001, however, no annual stockholders’ meeting could be held due to lack of quorum. Consequently, the directors continued to serve in a hold-over capacity. In 1998, director Jaime Dinglasan resigned, and the remaining board members, constituting a quorum, elected Eric Roxas to fill the vacancy. In 1999, another director, Eduardo Makalintal, also resigned. The board later elected Jose Ramirez to replace him in 2001.
Respondent Victor Africa, a VVCC member, challenged these elections. He argued that under Sections 23 and 29 of the Corporation Code, a hold-over director’s term is deemed to have expired one year after election. Thus, any vacancy should be filled by the stockholders, not the remaining directors. The Regional Trial Court ruled in favor of Africa, declaring Ramirez’s election null and void. A similar ruling from the Securities and Exchange Commission regarding Roxas became final.
ISSUE
Whether the remaining members of a corporate board, still constituting a quorum, can validly elect a director to fill a vacancy caused by the resignation of a hold-over director.
RULING
Yes, the board can validly fill such a vacancy. The Supreme Court reversed the RTC decision. The legal logic hinges on the interpretation of a hold-over director’s term under the Corporation Code. Section 23 provides that directors hold office for one year “until their successors are elected and qualified.” This “hold-over” period is not a new term but a mere extension of the original term. Crucially, the vacancy in question was created by resignation, not by the “expiration of term” as specified in Section 29.
Section 29 states that vacancies “other than by removal by the stockholders or members or by expiration of term” may be filled by the remaining directors if they constitute a quorum. Since the hold-over directors’ original terms had not expired—as their successors had not been elected and qualified—the vacancies caused by Dinglasan’s and Makalintal’s resignations fell under this provision. Therefore, the board acted within its authority. The Court emphasized that the hold-over doctrine ensures corporate continuity, and allowing the board to fill such vacancies aligns with this purpose and the statutory grant of power.