On February 27, 1996, during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club, Inc. (VVCC), the VVCC Board of Directors were elected including Eduardo Makalintal (Makalintal) among others. 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 directors continued to serve in the VVCC Board in a hold-over capacity. Later, Makalintal 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 Ramirez as members of the VVCC Board with the Regional Trial Court (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 sustained Africa’s complaint.
Whether 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.
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.