66. VALLE VERDE COUNTRY CLUB, INC. (VVCC) v.

VICTOR AFRICA
September 4, 2009 | BRION, J.
Kinds of Voting

DOCTRINE: Theory of Delegated Power; The board of directors, in drawing to themselves the powers of the corporation,
occupies a position of trusteeship in relation to the stockholders, in the sense that the board should exercise not only care
and diligence, but utmost good faith in the management of corporate affairs. 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.

CASE SUMMARY: VVCC’s board was not able to have a quorum for a number of years resulting in the directors holding
position in a hold-over capacity. One of the hold-over directors, Makalintal, resigned and the Board replaced him in a
meeting with quorum, and a similar event happened to another director. Africa opposed this claiming that the term of
makalintal already expired and when he resigned there was no more quorum because hold over directors have no
unexpired term. The SC ruled in favor of Africa stating that Sec. 29 of the Corporation code contemplates a situation
where there is an unexpired term, Sec. 23 provides that the term of a director is only 1 year therefore makalintal has no
unexpired term to replace. The vacancy must be filled by the stockholders in a regular or special meeting called for that
purpose.

FACTS:
 February 27, 1996: Annual Stockholders’ Meeting of VVCC, 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 were elected as members of the Board of Directors.
 The quorum for the holding of the stockholders’ meeting was not met for the years 1997, 1998, 1999, 2000, & 2001
and as consequence the directors continued to serve in the VVCC Board in a hold-over capacity.
o Sep. 1, 1998, Dinglasan resigned from his position as member of the VVCC Board.
o Oct. 6, 1998, the remaining directors, still constituting a quorum of VVCC’s nine-member board, elected Eric
Roxas (Roxas).
o Nov. 10, 1998, Makalintal also resigned  Replaced by Jose Ramirez (Ramirez) in March 2001.
 Africa, a member of the board questioned the election of Roxas and Ramirez as members of the VVCC Board with
SEC and the RTC.
o Before the RTC: Alleged that the election of Roxas was contrary to Section 29, in relation to Section 23, of the
Corporation Code.
 Sec. 29 states that vacancies must be filled by the stockholders in a regular or special meeting called for
that purpose if there is no more quorum.
 1 Year after Makalintal’s election as member of the Board in 1996, his term—as well as those of the other
members of the VVCC Board—should be considered to have already expired.
 Section 29 requires, among others, that there should be an unexpired term during which the successor-
member shall serve.
o RTC: RTC ruled in favor of Africa and declared the election of Ramirez, as Makalintal’s replacement null and
void.
o SEC: Issued a similar ruling on June 3, 2003, nullifying the election of Roxas as member of the VVCC Board,
vice hold-over director Dinglasan
 VVCC intended to appeal the SEC decision but never filed with the CA, so the appellate court considered the case
closed and considered the SEC’s ruling final and executory.
 VVCC before the SC: 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.”.

ISSUE: W/N - The remaining directors of the corporation’s Board, still constituting a quorum, can elect another director to
fill in a vacancy caused by the resignation of a hold-over director. – NO.

RULING:
 The holdover period is not part of the term of office of a member of the board of directors
o In several cases, we have defined “term” as the time during which the officer may claim to hold the office as of
right, and fixes the interval after which the several incumbents shall succeed one another
 o The term of office is not affected by the holdover. 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.
o Term is distinguished from tenure in that an officer’s “tenure” represents the term during which the incumbent
actually holds office.
o We construe the Sec. 23 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.
o 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 a new term.
 ITCAB: After the lapse of 1 year from his election as member of the Board in 1996, Makalintal’s term of office is
deemed to have already expired.
o A vacancy resulted which, by the terms of Section 29 of the Code, must be filled by the stockholders in a regular
or special meeting called for the purpose.

 The powers of the corporation’s board of directors emanate from its stockholders
o VVCC’s construction of Sec. 29 weakens the participation of the Stockholders in corporate governance.
o The Board is the directing and controlling body of the corporation. It is a creation of the stockholders and derives
its power to control and direct the affairs of the corporation from them.
o The underlying policy of the Code is that the business and affairs of a corporation must be governed by a board
whose members have stood for election, and who have actually been elected by the stockholders, on an annual
basis.
 This theory of delegated power of the board similarly explains why, under Section 29, in cases where the vacancy in
the corporation’s board of directors is caused not by the expiration of a member’s term, the successor “so elected to
fill in a vacancy shall be elected only for the unexpired term of his predecessor in office.”
o The law has authorized the remaining members of the board to fill in a vacancy only in specified instances.

 El Hogar cited by VVCC approved of the practice of the directors to fill vacancies in the directorate, we point out that
this ruling was made before the present Code was enacted.

 It also bears noting that the vacancy referred to in Sec. 29 contemplates a vacancy occurring within the director’s term
of office.
o When a vacancy is created by the expiration of a term, logically, there is no more unexpired term to speak of.
o Hence, Section 29 declares that it shall be the corporation’s stockholders who shall possess the authority to fill in
a vacancy caused by the expiration of a member’s term.

DISPOSITION: WHEREFORE, we DENY the petitioners’ petition for review on certiorari, and AFFIRM the partial
decision of the Regional Trial Court, Branch 152

NOTES:

Sec. 23. The board of directors or trustees.— Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors
are elected and qualified.

Sec. 29. Vacancies in the office of director or trustee.— 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.