VALLE VERDE COUNTRY CLUB v. AFRICA G.R. No.

151969 September 4, 2009

On February 27, 1996, during the Annual Stockholders’ Meeting of petitioner Valle Verde
Country Club, Inc. (VVCC), 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 the years 1997, 1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of
the stockholders’ meeting could not be obtained. Consequently, the above-named directors
continued to serve in the VVCC Board in a hold-over capacity.

September 1, 1998, Dinglasan resigned from his position as member of the VVCC Board. In a
meeting held on October 6, 1998, the remaining directors, still constituting a quorum of VVCC’s
nine-member board, elected Eric Roxas (Roxas) to fill in the vacancy created by the resignation
of Dinglasan.

November 10, 1998, Makalintal also resigned as member of the VVCC Board. He was replaced
by Jose Ramirez (Ramirez), who was elected by the remaining members of the VVCC Board on
March 6, 2001.

Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez
as members of the VVCC Board with the Securities and Exchange Commission (SEC) and the
Regional Trial Court (RTC), respectively.

AFRICA'S argument:

In his nullification complaint before the RTC, Africa alleged that the election of Roxas was
contrary to Section 29, in relation to Section 23, of the Corporation Code of the Philippines
(Corporation Code).

Africa claimed that a year after Makalintal’s election as member of the VVCC Board in 1996, his
[Makalintal’s] term – as well as those of the other members of the VVCC Board – should be
considered to have already expired. Thus, according to Africa, the resulting vacancy should
have been filled by the stockholders in a regular or special meeting called for that purpose, and
not by the remaining members of the VVCC Board, as was done in this case.

Africa additionally contends that for the members to exercise the authority to fill in vacancies in
the board of directors, Section 29 requires, among others, that there should be an unexpired
term during which the successor-member shall serve. Since Makalintal’s term had already
expired with the lapse of the one-year term provided in Section 23, there is no more "unexpired
term" during which Ramirez could serve.

RTC: Favored Africa - Ramirez as Makalintal's replacement = null and void

VVCC contention

Citing law and jurisprudence, VVCC posits that the power to fill in a vacancy created by the
resignation of a hold-over director is expressly granted to the remaining members of the
corporation’s board of directors.

Under the above-quoted Section 29 of the Corporation Code, a vacancy occurring in the board
of directors caused by the expiration of a member’s term shall be filled by the corporation’s
stockholders. Correlating Section 29 with Section 23 of the same law, VVCC alleges that a
member’s term shall be for one year and until his successor is elected and qualified; otherwise
stated, a member’s term expires only when his successor to the Board is elected and qualified.
Thus, "until such time as [a successor is] elected or qualified in an annual election where a
quorum is present," VVCC contends that "the term of [a member] of the board of directors has
yet not expired.

ISSUES:

1. W/N there is an unexpired term - NO

HELD:​ Petition Denied. RTC Affirmed.

1. NO

“term” time during which the officer may claim to hold the office as of right not affected by the
holdover
fixed by statute and it does not change simply because the office may have become vacant, nor
because the incumbent holds over in office beyond the end of the term due to the fact that a
successor has not been elected and has failed to qualify.

“tenure”
term during which the incumbent actually holds office.
Section 23 of the Corporation Code: term of BOD only 1 year - fixed and has expired (1 yr after
1996)

When Section 23 of the Corporation Code declares that “the board of directors…shall hold office
for one (1) year until their successors are elected and qualified,” we construe the provision to
mean that the term of the members of the board of directors shall be only for one year; their
term expires one year after election to the office. The holdover period – that time from the lapse
of one year from a member’s election to the Board and until his successor’s election and
qualification – is not part of the director’s original term of office, nor is it a new term; the holdover
period, however, constitutes part of his tenure. Corollary, when an incumbent member of the
board of directors continues to serve in a holdover capacity, it implies that the office has a fixed
term, which has expired, and the incumbent is holding the succeeding term.

[Here], when remaining members of the VVCC Board elected Ramirez to replace Makalintal,
there was no more unexpired term to speak of, as Makalintal’s one-year term had already
expired. Pursuant to law, the authority to fill in the vacancy caused by Makalintal’s leaving lies
with the VVCC’s stockholders, not the remaining members of its board of directors. To assume
– as VVCC does – that the vacancy is caused by Makalintal’s resignation in 1998, not by the
expiration of his term in 1997, is both illogical and unreasonable. His resignation as a holdover
director did not change the nature of the vacancy; the vacancy due to the expiration of
Makalintal’s term had been created long before his resignation.

2. NO

Underlying policy of the Corporation Code is that the business and affairs of a corporation must
be governed by a board of directors whose members have stood for election, and who have
actually been elected by the stockholders, on an annual basis. Only in that way can the
directors' continued accountability to shareholders, and the legitimacy of their decisions that
bind the corporation's stockholders, be assured. The shareholder vote is critical to the theory
that legitimizes the exercise of power by the directors or officers over properties that they do not
own.

Theory of delegated power of the board of directors.