Case Summary (G.R. No. 151969)
Key Dates and Procedural History
- February 27, 1996: Annual stockholders’ meeting — nine directors elected including Dinglasan and Makalintal.
- 1997–2001: Annual meetings failed for lack of quorum; directors served in holdover capacity.
- September 1, 1998: Dinglasan resigned.
- October 6, 1998: Remaining directors elected Eric Roxas to fill Dinglasan’s vacancy.
- November 10, 1998: Makalintal resigned.
- March 6, 2001: Remaining directors elected Jose Ramirez to fill Makalintal’s vacancy.
- SEC proceedings: SEC nullified Roxas’s election (SEC Case No. 01-99-6177) by decision dated June 3, 2003; the decision became final and executory when no appeal was filed.
- RTC proceedings: Victor Africa filed a nullification complaint (Civil Case No. 68726) contesting Ramirez’s election; RTC issued a partial decision on January 23, 2002, nullifying Ramirez’s election.
- Supreme Court: Petition for review on certiorari filed by VVCC; Supreme Court resolved the legal issue on appeal.
Facts
VVCC’s duly elected directors (1996) continued in office beyond one year because subsequent annual stockholders’ meetings lacked a quorum. Two of those holdover directors eventually resigned: Dinglasan in September 1998 and Makalintal in November 1998. The remaining board members — still constituting a quorum — elected Roxas (October 6, 1998) and later Ramirez (March 6, 2001) to fill the respective vacancies. Victor Africa challenged those board appointments, asserting that vacancies caused by expiration of term cannot be filled by remaining directors under Sections 23 and 29 of the Corporation Code, and that no “unexpired term” existed for successors to serve.
Issue Presented
Whether the remaining members of a corporation’s board of directors, still constituting a quorum, may elect a director to fill a vacancy that arises in the seat of a holdover director.
Relevant Statutory Provisions
- Section 23 (Corporation Code): Directors “shall hold office for one (1) year until their successors are elected and qualified,” establishing one-year terms and recognizing holdover where successors are not elected/qualified.
- Section 29 (Corporation Code): Vacancies occurring in the board other than by removal or by expiration of term “may be filled by the vote of at least a majority of the remaining directors … if still constituting a quorum; otherwise … filled by the stockholders.” A director elected to fill a vacancy serves only for the unexpired term of the predecessor.
Parties’ Contentions
- VVCC: Argues that Section 23’s phrase “until their successors are elected and qualified” means directors’ terms effectively continue until successors are elected and qualified; therefore, the directors serving in holdover are still within their terms and any vacancy by resignation may be filled by the remaining directors under Section 29. VVCC relied on prior authority (El Hogar, 1927) approving directors’ practice of filling vacancies.
- Africa: Contends that the statutory one-year term fixed in Section 23 expired after one year; holdover service does not extend the original term. Thus, when Makalintal’s one-year term expired, a vacancy arose that must be filled by the stockholders, and Section 29 does not authorize directors to fill a vacancy caused by expiration of term (there is no “unexpired term” for a successor to serve).
Court’s Legal Analysis — Term versus Tenure (Holdover)
The Court explained the distinction between “term” and “tenure.” Jurisprudence treats “term” as the fixed statutory interval an officer may claim as of right (here, one year), while “tenure” refers to the actual period the incumbent holds office and may include holdover time. The Court held that the one-year term fixed by Section 23 expires one year after election; the subsequent holdover period is not part of the original term but is part of the incumbent’s tenure until a successor is elected and qualified. Accordingly, Makalintal’s term (1996–1997) expired after one year despite his continued holdover until resignation in 1998.
Court’s Legal Analysis — Application of Section 29
Section 29 permits the remaining directors to fill vacancies only when the vacancy occurs for reasons other than removal by stockholders or expiration of term. Because Makalintal’s statutory term had already expired prior to his resignation, the vacancy existed by reason of expiration of term, not solely by his subsequent resignation as a holdover director. When a vacancy results from expiration of term, there is no “unexpired term” to be filled by a successor elected by the board; therefore the power to fill the vacancy resides with the stockholders in a regular or special meeting called for that purpose. The Court rejected VVCC’s attempt to treat the vacancy as created only by resignation and held that characterizing the vacancy as caused by resignation would improperly circumvent the stockholders’ right to e
...continue readingCase Syllabus (G.R. No. 151969)
Case Citation and Procedural Posture
- Reported at 614 Phil. 390, Second Division, G.R. No. 151969, decided September 04, 2009.
- Decision authored by Justice Brion. Quisumbing (Chairperson), Carpio-Morales, Del Castillo, and Abad, JJ., concurred.
- Petition for review on certiorari filed under Rule 45 of the Rules of Court; referenced rollo pages in the source.
- Petitioners: Valle Verde Country Club, Inc. (VVCC) and named members of its Board of Directors in their capacities (Ernesto Villaluna, Ray Gamboa, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, Victor Salta, Francisco Ortigas III, Eric Roxas) and Jose Ramirez.
- Respondent: Victor Africa, a member of VVCC.
- Core procedural posture: Africa filed a nullification complaint in the Regional Trial Court (RTC) (Civil Case No. 68726) challenging the validity of Ramirez’s election; Africa also brought a separate challenge to Roxas’s appointment before the Securities and Exchange Commission (SEC) (SEC Case No. 01-99-6177). The RTC issued a partial decision on January 23, 2002 nullifying Ramirez’s election. The SEC nullified Roxas’s election on June 3, 2003; VVCC manifested intent to appeal but did not file a petition with the Court of Appeals, which regarded the SEC ruling as final and executory (CA Resolution dated August 27, 2003).
- Relief sought by petitioners: annulment of RTC partial decision and vindication of the Board’s authority to elect directors to fill vacancies caused by resignations of hold-over directors.
Factual Antecedents
- On February 27, 1996 (Annual Stockholders’ Meeting), the following were elected as members of the VVCC Board of Directors: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa.
- In 1997, 1998, 1999, 2000, and 2001, the stockholders’ meetings failed to obtain the requisite quorum; consequently, the directors elected in 1996 continued to serve in a hold-over capacity.
- September 1, 1998: Dinglasan resigned as member of the VVCC Board.
- October 6, 1998: The remaining directors, still constituting a quorum of the nine-member board, elected Eric Roxas (Roxas) to fill the vacancy caused by Dinglasan’s resignation.
- November 10, 1998: Makalintal resigned as member of the VVCC Board.
- March 6, 2001: The remaining members of the VVCC Board elected Jose Ramirez (Ramirez) to replace Makalintal.
- Victor Africa challenged Roxas’s appointment before the SEC and Ramirez’s appointment before the RTC, alleging statutory violation of the Corporation Code provisions on terms and vacancies.
Legal Question Presented
- Whether the remaining directors of a corporation’s Board, still constituting a quorum, can elect another director to fill a vacancy caused by the resignation of a hold-over director.
- How Sections 23 and 29 of the Corporation Code interrelate with respect to the definition and effect of a director’s “term,” the hold-over doctrine, and the authority to fill vacancies.
Relevant Statutory Provisions Quoted in the Case
- Section 23 (as quoted in the source):
- “The board of directors or trustees... shall hold office for one (1) year until their successors are elected and qualified.” (Full text reproduced in the source; includes other requirements such as share ownership and residency.)
- Section 29 (as quoted in the source):
- “Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office.” (Full text reproduced in the source.)
- Notation in the source: emphasis supplied to key phrases indicating statutory limits.
Parties’ Contentions
- Petitioners (VVCC and co-petitioners):
- Assert that the Board’s remaining members, still constituting a quorum, have the express power under Section 29 to fill vacancies arising from resignations even if the resigning director was a hold-over.
- Rely on the language of Section 23 that directors “shall hold office for one (1) year until their successors are elected and qualified,” arguing that the term continues until a successor is elected and qualified; therefore, the hold-over period should be considered part of the term and a successor may be elected by the Board when a vacancy occurs during that hold-over period.
- Cite El Hogar (Government of the Philippine Islands v. El Hogar Filipino,