Case Summary (G.R. No. 151969)
Key Dates
– February 27, 1996: Annual stockholders’ meeting; nine directors elected for one-year term
– 1997–2001: Requisite quorum for stockholders’ meetings not obtained; board holds over
– September 1, 1998: Jaime C. Dinglasan resigns; Eric Roxas elected by board October 6, 1998
– November 10, 1998: Eduardo Makalintal resigns; José Ramirez elected by board March 6, 2001
– January 23, 2002: RTC nullifies Ramirez’s election (Civil Case No. 68726)
– June 3, 2003: SEC nullifies Roxas’s election (SEC Case No. 01-99-6177)
– September 4, 2009: Supreme Court decision
Applicable Law
– 1987 Philippine Constitution (general corporate governance principles)
– Corporation Code of the Philippines (Batas Pambansa Blg. 68):
• Section 23: Directors hold office for one year until successors are elected and qualified
• Section 29: Vacancies other than by stockholder removal or term expiration may be filled by remaining directors (if quorum); vacancies by term expiration must be filled by stockholders
Legal Issue
Whether the remaining directors, still constituting a quorum and serving in a hold-over capacity, may elect a new director to fill the vacancy caused by the resignation of a hold-over director whose one-year term has already expired.
Analysis
Term vs. Tenure and Hold-Over Doctrine
– “Term” is the period an officer may claim the office as of right and is fixed by statute. Once one year elapses, a director’s term expires.
– “Tenure” is the actual period an incumbent holds office; it may extend beyond the term due to hold-over when no successor has been elected and qualified.
– Under Section 23, directors’ one-year term expires one year post-election; any continuation thereafter is hold-over, not an extension of the original term.Vacancy Arising from Term Expiration
– Makalintal’s term expired in 1997; his continued service until November 1998 was hold-over.
– A vacancy resulting from term expiration occurred in 1997, irrespective of the later resignation date.
– Section 29 mandates that vacancies by term expiration must be filled by stockholders in a regular or special meeting, not by the board.Limited Authority of Remaining Directors
– Section 29 authorizes board-appointed successors only for vacancies “other than by … expiration of term” and only for the unexpired term of the predecessor.
– No unexpired term existed after Makalintal’s term lapsed; thus, remaining directors lacked authority to elect Ramirez.Stockholder Primacy and Corporate Governance
– The board derives its powers from stockholders; annual elections ensure directors’ accountability and legitimacy.
– Allowing the board to fill vacancies caused by term expiration would undermine stockholders’ exclusive right to elect directors for each annual t
Case Syllabus (G.R. No. 151969)
Factual Antecedents
- On February 27, 1996, at the Annual Stockholders’ Meeting of Valle Verde Country Club, Inc. (VVCC), nine directors were elected for one-year terms: Ernesto Villaluna, Jaime C. Dinglasan, Eduardo Makalintal, Francisco Ortigas III, Victor Salta, Amado M. Santiago Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa.
- From 1997 to 2001, no stockholders’ meeting could secure a quorum, resulting in the hold-over of all nine directors beyond their one-year terms.
- On September 1, 1998, hold-over director Dinglasan resigned. On October 6, 1998, the remaining directors, constituting a quorum, elected Eric Roxas to fill that vacancy.
- On November 10, 1998, hold-over director Makalintal also resigned. On March 6, 2001, the remaining directors elected Jose Ramirez to fill Makalintal’s seat.
- Victor Africa, a VVCC member, challenged Roxas’s appointment before the SEC (SEC Case No. 01-99-6177) and Ramirez’s appointment before the RTC (Civil Case No. 68726), alleging violations of Sections 23 and 29 of the Corporation Code.
Legal Question Presented
- Whether the remaining members of a corporation’s board of directors, still constituting a quorum, may elect a new director to fill a vacancy caused by the resignation of a hold-over director.
Petitioners’ Contentions (VVCC)
- Section 29 of the Corporation Code grants the board power to fill vacancies, including those caused by resignation of a hold-over director, so long as a quorum remains.
- Section 23 provides that directors hold office “for one year until their successors are elected and qualified,” meaning a term does not expire until a successor is duly qualified.
- Because n