Power of board to elect replacement for resigned holdover director

Under section 29 of the Corporation Code, the board of directors, if there remains a quorum, can fill up a vacancy in the board of directors, except when: (1) the vacancy was caused by the removal of a director by the stockholders; or (2) the vacancy was caused by the expiration of the term of the director.

If the vacancy was caused by the resignation of a director who was occupying the position in a hold-over capacity, can the remaining directors fill up the vacancy or would that power vest with the stockholders?

In Valle Verde Country Club, Inc., et al. vs. Victor Africa, G.R. No. 151969, September 4, 2009, the stockholders of Valle Verde Country Club (VVCC) elected the following as members of the board during its 1996 annual stockholders’ meeting: 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.

Because of lack of quorum, no stockholders’ meetings were held in the years 1997, 1998, 1999, 2000, and 2001. Thus, the directors continued to serve in the VVCC Board in a hold-over capacity.

Dinglasan resigned from his position as member of the VVCC Board on September 1998. The following month, the remaining directors elected Eric Roxas (Roxas) to fill in the vacancy created by the resignation of Dinglasan. Subsequently, Makalintal also resigned as member of the VVCC Board. The remaining members of the VVCC board elected Jose Ramirez (Ramirez) to replace Makalintal on March 6, 2001.

Victor 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. 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. According to Africa, the resulting vacancies 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 SEC and the RTC agreed with Africa.