Corporation Law, Mercantile Law

VALLE VERDE COUNTRY CLUB v. AFRICA G.R. No. 151969 September 4, 2009 Hold-Over Doctrine, Vacancies in the Board

FACTS: 

Dinglasan and  Makalintal were among the elected members of the Board of Directors of petitioner Valle Verde Country Club, Inc. (VVCC).  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 elected directors continued to serve in the VVCC Board in a hold-over capacity.

In 1998, Dinglasan and Makalintal resigned, hence, the remaining directors, elected Roxas and Ramirez to fill in the vacancy created by their resignation.

Respondent Africa, a member of VVCC, questioned the election of Roxas and Ramirez as members of the VVCC Board with the SEC and the RTC,  respectively.

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.

The RTC ruled in favor of Africa and declared the election of Ramirez, as null and void.

Also, the SEC issued a similar ruling nullifying the election of Roxas as member of the VVCC Board, vice hold-over director Dinglasan. 

VVCC made a direct resort to the Court via a petition for review on certiorari.

ISSUE:

Whether or not the members of a corporation’s board of directors can elect another director to fill in a vacancy caused by the resignation of a hold-over director.

RULING:

We are not persuaded by VVCC’s arguments and, thus, find its petition unmeritorious.

The holdover period is not part of the term of office of a member of the board of directors

The term is 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.

Makalintal’s term of office began in 1996 and expired in 1997, but, by virtue of the holdover doctrine in Section 23 of the Corporation Code, he continued to hold office until his resignation on November 10, 1998. 

As correctly pointed out by the RTC, 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.

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