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PEA vs CA

FACTS: Pampanga Bus Co (PAMBUSCO) was the original owner of 3 lots covered by TCTs which it
mortgaged to the DBP in consideration of P935,000. The mortgage was forclosed and the properties
were awarded to Rosita Pea as highest bidder. A certificate of sale was issued in favor of her and
registered. The board of directors of PAMBUSCO through 3/5 of its directors, resolved to assign its
right of redemption over the foreclosed lots and authorized one of its members (Atty. Briones) to
execute and sign a Deed of Assignment on behalf of PAMBUSCO. Atty. Briones executed a deed of
assignment in favor of Marcelino Enriquez who redeemed the said properties. A day after the certificate
of redemption was issued, Enriques sold the properties to Spouses Rising T. Yap and Catalina Lugue.

[A levy of attachment in favor of Capitol Allied Trading and a Notice of a pending consulta was
annotated on the titles of the lots, the later concerning the Allied Trading case entitled Dante
Gutierrez, et al. vs. PAMBUSCO in which the registrability of the aforesaid lots in the name of the
spouses Yap was sought to be resolved (no trial was held on this case, it was later dismissed w/o
prejudice). All previous mentioned transactions on the lot including the deed of assignment were also
annotated.]

Pea wrote the Sheriff notifying him that the redemption was not valid as it was made under a void
deed of assignment. She then requested the recall of the said redemption and a restraint on any
registration or transaction regarding the lots in question. Pea, through counsel, wrote the Sheriff
asking for the execution of a deed of final sale in her favor on the ground that 'the one (1) year period
of redemption has long elapsed without any valid redemption having been exercised;' hence she 'will
now refuse to receive the redemption money.

Yap wrote defendant Pea asking payment of back rentals in the amount of P42,750.00 'for the use and
occupancy of the land and house located at Sta. Lucia, San Fernando, Pampanga,' and informing her of
an increase in monthly rental to P2,000; otherwise, to vacate the premises or face an eviction cum
collection suit. The lots were registered in Yap's name with an annotation of a levy on attachment in
favor of Capitol Allied Trading.

Despite the foregoing, defendant-appellee Pea remained in possession of the lots in question; hence,
the spouses Yap were prompted to file the instant case to recover possession of the lots on the ground
that being registered owners, they have to enforce their right to possession against defendants who have
been allegedly in unlawful possession thereof. Pea argued in her answer that she is now the legitimate
owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the
DBP with no valid redemption having been effected during the period prescribed by law.

The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was
void ab initio for being an ultra vires act of its board of directors and, for being without any valuable
consideration, it could not have had any legal effect; hence, all the acts which flowed from it and all the
rights and obligations which derived from the aforesaid void deed are likewise void and without any
legal effect. She also alleged the spouses were buyers in bad faith.

TRIAL COURT DECISION: In favor of Pea, declared the deed of assignment and all rights and
obligations derived from it as void. TC's reason: PAMBUSCO's by-laws required the presence of 4/5 of
the directors but in this case there were only 3 members present.

CA DECISION (on appeal): Reversed the trial court's ruling. CA's reason: There is no evidence that
said provision of the by-laws applies to this case. Further, there is no categorical declaration in the by-
laws that a failure to comply with the attendance requirement in a special meeting should make all the
acts of the board therein null and void ab initio. A cursory reading of the subject provision, as
aforequoted, would show that its framers only intended to make voidable a board meeting held without
the necessary compliance with the attendance requirement in the by-laws. More significantly, it should
be noted that even if the subject special meeting is itself declared void, it does not follow that the acts
of the board therein are ipso facto void and without any legal effect.

ISSUE: Whether the board resolution authorizing Atty. Briones to execute a deed of assignment on
behalf of PAMBUSCO was valid

HELD: NO, it was invalid, CA ruling reversed. The by-laws of a corporation are its own private laws
which substantially have the same effect as the laws of the corporation. Any number less than the
number provided in the articles or by-laws therein cannot constitute a quorum and any act therein
would not bind the corporation; all that the attending directors could do is to adjourn.

Moreover, the records show that PAMBUSCO has ceased to operate, Being a dormant corporation for
several years, it was highly irregular, if not anomalous, for a group of three (3) individuals representing
themselves to be the directors of respondent PAMBUSCO to pass a resolution disposing of the only
remaining asset of the corporation in favor of a former corporate officer. As a matter of face, the 3
alleged directors were not even listed as directors or stockholders in the latest general information sheet
and latest list of stockholders of PAMBUSCO.

Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share
in their own right may qualify to be directors of a corporation. Further, under Section 28 1/2 of the said
law, the sale or disposition of all and/or substantially all properties of the corporation requires, in
addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-
thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt,
the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the
purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting
power in the corporation. The same requirement is found in Section 40 of the present Corporation
Code.

Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the questioned
resolution was not approved by the required number of stockholders under the law, the said resolution,
as well as the subsequent assignment, assigning to respondent Enriquez the said right of redemption,
should be struck down as null and void.

As correctly argued by the petitioner, the deed of assignment was in fact a deed of donation Since
undeniably the deed of assignment shows that there was no acceptance of the donation in the same and
in a separate document (as required by Art. 725 of the Civil Code), the said deed of assignment is thus
void ab initio and of no force and effect.

DETECTIVE PROTECTIVE BUREAU INC vs HON. CLORIBEL

FACTS: Fausto Alberto (respondent) was the managing director of Detective Protective Bureau Inc.
(petitioner) from 1952-1964. Petitioner filed a complaint with the CFI against Alberto alleging that on
1963, he had illegally seized and took control of all the assets as well as the books, records, vouchers
and receipts of the corporation from the accountant-cashier, concealed them illegally and refused to
allow any member of the corporation to see and examine the same. They claimed that on January 1964,
the stockholders, in a meeting, removed defendant as managing director and elected Jose de la Rosa in
his stead, but not only did Alberto refuse to vacate his office and deliver the assets to de la Rosa, but he
also continued to perform unauthorized acts for and in behalf of the petitioner corporation. Alberto was
also required to submit a financial statement and to render an accounting of his administration from
1952 but he failed to do so. Alberto has been, contrary to the resolution adopted by the Board of
Directors, illegally disposing of corporate funds.

Respondent Judge Cloribel issued a writ of preliminary injuction as prayed for by the petitioner,
however, when Alberto filed a motion to admit a counter-bond for the purpose of lifting said writ,
Judge Cloribel issued an order admitting the counter-bond and setting aside the writ of preliminary
injuction. Thus this petition for certiorari.

ISSUE: Whether Judge Cloribel gravely abused his discretion

HELD: NO, he did not.

One of the reasons petitioners allege Judge Cloribel gravely abused his discretion is that Alberto had
arrogated to himself the powers of the Board of Directors of the corporation because he refused to
vacate the office and surrender the same to Jose de la Rosa who had been elected managing director by
the Board to succeed him. This assertion, however, was disputed by respondent Alberto who stated that
Jose de la Rosa could not be elected managing director because he did not own any stock in the
corporation.

There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. If he
did not own any share of stock, certainly he could not be a director pursuant to the mandatory provision
of Section 30 of the Corporation Law, which in part provides: "Sec. 30. Every director must own in his
own right at least one share of the capital stock of the stock corporation of which he is a director, which
stock shall stand in his name on the books of the corporation .." If he could not be a director, he could
also not be a managing director of the corporation, pursuant to Article V, Section 3 of the By-Laws of
the Corporation.

If the managing director-elect was not qualified to become managing director, respondent Fausto
Alberto could not be compelled to vacate his office and cede the same to the managing director-elect
because the by-laws of the corporation provides in Article IV, Section 1 that "Directors shall serve until
the election and qualification of their duly qualified successor."

[there were four other grounds alleged namely: (1) the motion to admit respondent's counter- bond for
the dissolution of the writ was not supported by affidavits as required by Section 6 of Rule 58 of the
Rules of Court; (2 & 3) The second and third reasons alleged by petitioner in its petition for certiorari
assume that a preliminary injunction issued after hearing and in accordance with Rule 58 cannot be
set aside; (4) the counter-bond could not compensate for the irreparable damage that the corporation
would suffer by reason of the continuance of respondent Fausto Alberto as managing director of the
corporation. All of these were set aside by the court]

LEE vs CA
FACTS: International Corporate Bank, Inc. filed a complaint for a sum of money against private
respondents (Sacoba Manufacturing Corp., Pablo Gonzales, Jr. and Tomas Gonzales) who, in turn, filed
a 3rd party complaint against Alfa Integrated Textile Mills (ALFA) and petitioners Lee and Lacdao.The
RTC issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a
consequence of the petitioners' letter informing the court that the summons for ALFA was erroneously
served upon them considering that the management of ALFA had been transferred to the DBP. They
claim that the voting trust agreement dated March 11, 1981 divested them of their positions as president
and executive vice-president of ALFA. The DBP claimed that it was not authorized to receive summons
on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct
corporate personality and existence.

The trial court upheld the validity of the service of summons on ALFA through the petitioners, thus,
denying the latter's motion for reconsideration and requiring ALFA to file its answer through the
petitioners as its corporate officers. However, petitioners filed a motion for reconsideration attaching a
copy of the voting trust agreement to it, and the trial court reversed itself. Petitioners filed a petition for
certiorari to the CA. The CA set aside the trial court's decision.

Thus this petition.

The petitioners maintain that with the execution of the voting trust agreement between them and the
other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and
transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue of the voting trust
agreement the petitioners can no longer be considered directors of ALFA. In support of their
contention, the petitioners invoke section 23 of the Corporation Code.

The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the
DBP had all the more safeguarded the petitioners' continuance as officers and directors of ALFA
inasmuch as the general object of voting trust is to insure permanency of the tenure of the directors of a
corporation.

ISSUE: Whether the voting trust agreement dated March 11, 1981 divested petitioners of their
positions as president and executive vice-president of ALFA, thus summons cannont be served to ALFA
through them

HELD: YES, SC sided with petitioner's argument.

A voting trust is defined under Section 59 of the Corporation Code. The law simply provides that a
voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation
consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights
pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory
conditions and such other terms and conditions specified in the agreement. The five year-period may be
extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is
made contingent upon full payment of the loan.

In order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it
must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the
other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a
definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire
voting control of the corporation.
In the instant case, the point of controversy arises from the effects of the creation of the voting trust
agreement. Both under the old and the new Corporation Codes there is no dispute as to the most
immediate effect of a voting trust agreement on the status of a stockholder who is a party to its
execution from legal title-holder or owner of the shares subject of the voting trust agreement, he
becomes the equitable or beneficial owner.

The question, therefore, is whether the change in his status deprives the stockholder of the right to
qualify as a director under section 23 of the present Corporation Code which deletes the phrase "in his
own right" from Sec. 30 of the old Code. With the omission of the phrase "in his own right" the election
of trustees and other persons who in fact are not the beneficial owners of the shares registered in their
names on the books of the corporation becomes formally legalized. Hence, this is a clear indication that
in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the
stock as appearing on the books of the corporation.

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981
disposed of all their shares through assignment and delivery in favor of the DBP, as trustee .
Consequently, the petitioners ceased to own at least one share standing in their names on the books of
ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to
do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of
the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA.

Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of
the stocks covered by the agreement to the DBP as trustee, the latter became the stockholder of record
with respect to the said shares of stocks. In the absence of a showing that the DBP had caused to be
transferred in their names one share of stock for the purpose of qualifying as directors of ALFA, the
petitioners can no longer be deemed to have retained their status as officers of ALFA which was the
case before the execution of the subject voting trust agreement. There appears to be no dispute from the
records that DBP has taken over full control and management of the firm.

In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on
ALFA through the petitioners is readily answered in the negative.

PREMIUM MARBLE RESOURCES, INC. vs CA

FACTS: Premium Marble Resources, Inc. (Premium) filed an action for damaged against International
Corporate Bank (ICB). They alleged hat Ayala Investment and Development Corporation issued 3
checks payable to Premium and drawn against Citibank. Former officers of Premium headed by
Saturnino Belen Jr., without any authority whatsoever from Premium, deposited the checks to the
current account of his conduit corporation, Intervest Merchant Finance (Intervest) which the latter
maintained with the defendant Bank (ICB). Although the checks were clearly payable to Premium and
crossed on their face and for Premium's account only, ICB accepted the checks to be deposited to the
current account of Intervest and presented the same for collection with Citibank which subsequently
cleared the same. Premium demanded restitution of the amount but ICB refused and continues to refuse
Premium's demands.

In the meantime, the same corporation, i.e., Premium, but this time represented by Siguion Reyna,
Montecillio and Ongsiako Law Office as counsel, filed a motion to dismiss on the ground that the filing
of the case was without authority from its duly constituted board of directors as shown by the excerpt
of the minutes of the Premium's board of directors' meeting.

In its opposition to the motion to dismiss, Premium thru Atty. Dumadag contended that the persons who
signed the board resolution namely Belen, Jr., Nograles & Reyes, are not directors of the corporation
and were allegedly former officers and stockholders of Premium who were dismissed for various
irregularities and fraudulent acts; that Siguion Reyna Law office is the lawyer of Belen and Nograles
and not of Premium and that the Articles of Incorporation of Premium shows that Belen, Nograles and
Reyes are not majority stockholders.

The trial court ruled that that the officers represented by Atty. Dumadag do not as yet have the legal
capacity to sue for and in behalf of the plaintiff corporation and/or the filing of the present action by
them before Case No. 2688 of the SEC could be decided is a premature exercise of authority or
assumption of legal capacity for and in behalf of Premium. The trial court was of the opinion that
before SEC Case No. 2688 could be decided, neither the set of officers represented by Atty. Dumadag
nor that set represented by the Siguion Reyna, Montecillo and Ongsiako Law Office, may prosecute
cases in the name of the plaintiff corporation. The CA affirmed the decision on appeal, hence this
petition.

ISSUE: Whether the filing of the case for damages against private respondent was authorized by a duly
constituted Board of Directors of Premium

HELD: No, it was not. While the Minutes of the Meeting of the Board on April 1, 1982 states that the
newly elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo
Millare, petitioner failed to show proof that this election was reported to the SEC. In fact, the last entry
in their General Information Sheet with the SEC, as of 1986 appears to be the set of officers elected in
March 1981.

The SC agreed with the CA that "in the absence of any board resolution from its board of directors the
authority to act for and in behalf of the corporation, the present action must necessarily fail. The power
of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its
corporate powers. Thus, the issue of authority and the invalidity of plaintiff-appellant's subscription
which is still pending, is a matter that is also addressed, considering the premises, to the sound
judgment of the Securities & Exchange Commission."

By the express mandate of the Corporation Code (Section 6), all duly organized pursuant thereto are
required to submit within the period therein stated (30 days) to the Securities and Exchange
Commission the names, nationalities and residences of the directors, trustees and officers elected.

Sec. 26 of the Corporation Code provides, thus: "Sec. 26. Report of election of directors, trustees and
officers . Within thirty (30) days after the election of the directors, trustees and officers of the
corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and
Exchange Commission, the names, nationalities and residences of the directors, trustees and officers
elected. . ."

[Evidently, the objective sought to be achieved by Section 26 is to give the public information, under
sanction of oath of responsible officers, of the nature of business, financial condition and operational
status of the company together with information on its key officers or managers so that those dealing
with it and those who intend to do business with it may know or have the means of knowing facts
concerning the corporation's financial resources and business responsibility.]
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the
incumbent officers of Premium has not been fully substantiated. In the absence of an authority from the
board of directors, no person, not even the ofcers of the corporation, can validly bind the corporation.

ROXAS vs DE LA ROSA

FACTS: Binalbagan Estate, Inc., is a corporation having its principal plant in Occidental Negros where
it is engaged in the manufacture of raw sugar from canes grown upon farms accessible to its central.
The possessors of a majority of the share of the Binalbagan Estate, Inc., formed a voting trust
composed of 3 members (Salvador Laguda, Segundo Monteblanco, and Arthur Fisher) as trustees. The
document constituting this voting trust authorized the trustees to represent and vote the shares
pertaining to their constituents, and to this end the shareholders undertook to assign their shares to the
trustees on the books of the company. The total number of outstanding shares of the corporation is
somewhat over 5,500, while the number of shares controlled by the voting trust is less than 3,000.

The general annual meeting of the shareholders of the Binalbagan Estate, Inc., took place, at which Mr.
J. P. Heilbronn appeared as representative of the voting trust, his authority being recognized by the
holders of all the other shares present at this meeting. Upon said occasion Heilbronn, by virtue of
controlling the majority of the shares, was able to nominate and elect a board of directors to his own
liking, without opposition from the minority. After the board of directors had been thus elected and had
qualified, they chose a set of officers. Said officials immediately entered upon the discharge of their
duties and have continued in possession of their respective offices until the present time.

Since the creation of the voting trust there have been a number of vacancies caused by resignation or
the absence of members from the Philippine Islands, with the result that various substitutions have been
made in the personnel of the voting trust. At the present time the petitioners Roxas, Echaus, and Lacson
presumably constitute its membership. Although the present officers of the Binalbagan Estate, Inc.,
were elected by the representative of the voting trust, the present trustees want to oust the said officiers
without awaiting the termination of their official term at the expiration of one year from the date of
their election. They caused the secretary of the Binalbagan Estate Inc. to issue a notice calling for a
general hearing for the election of the board of directors, for the amendment of the by-laws and other
businesses.

Because of this, Agustin Corua, as member of the existing board, and Mauro Ledesma, as a simple
shareholder of the corporation, instituted a civil action in the CFI against the trustees for the purpose of
enjoining the meeting. Respondent Judge issued a writ of preliminary injunction preventing the
meeting from taking place. Petitioners now assert this was beyond the powers of the Judge.

ISSUE: Whether the meeting to replace the current directors can be held

HELD: NO. Upon examining into the number of shares controlled by the voting trust, it will be seen
that, while the trust controls a majority of the stock, it does not have a clear two-third majority. The
intention of the planned meeting is obviously to replace the current board of directors as if the
directorate had been vacant. The law contemplates and intends that there shall be one set of directors at
a time and that new directors shall be elected only as vacancies occur in the directorate by death,
resignation, removal, or otherwise.There is insiunuation that there was some irregularity in the election
of the present directorate, but there is no evidence of this. The present board of the directors are then
the de facto incumbents whose acts will be valid until they are lawfully removed/discharged.
VALLE VERDE COUNTRY CLUB, INC. vs VICTOR AFRICA

FACTS: 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 Makalintals election as member of the VVCC
Board in 1996, his [Makalintals] 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 Makalintal's replacement, to
the VVCC Board as null and void. Thus this petition

VVCC's argument: Under 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. As the vacancy in this case was caused
by Makalintal's resignation, not by the expiration of his term, VVCC insists that the board rightfully
appointed Ramirez to fill in the vacancy.

ISSUE: 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

HELD: NO, the SC rejects the VVCC's argument. 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. 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. Term is distinguished from tenure in that an officer's
"tenure" represents the term during which the incumbent actually holds office. The tenure may be
shorter (or, in case of holdover, longer) than the term for reasons within or beyond the power of the
incumbent.

Given this, 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.
When the remaining members of the VVCC Board elected Ramirez to replace Makalintal, there was no
more unexpired term to speak of, as Makalintals one-year term had already expired. Pursuant to law,
the authority to fill in the vacancy caused by Makalintals leaving lies with the VVCCs stockholders,
not the remaining members of its board of directors. To assume as VVCC does that the vacancy is
caused by Makalintals 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 Makalintals term had been created long before his resignation.

Also, VVCC's construction of Section 29 of the Corporation Code on the authority to fill up vacancies
in the board of directors, in relation to Section 23 thereof, effectively weakens the stockholders' power
to participate in the corporate governance by electing their representatives to the board of directors. The
board of directors 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.

This theory of delegated power of the board of directors similarly explains why, under Section 29 of the
Corporation Code, 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 the his predecessor in office". The law has authorized the remaining members of
the board to fill in a vacancy only in specified instances, so as not to retard or impair the corporation's
operations; yet, in recognition of the stockholders' right to elect the members of the board, it limited the
period during which the successor shall serve only to the "unexpired term of his predecessor in office".

It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring within
the director's term of office. When a vacancy is created by the expiration of a term, logically, there is no
more unexpired term to speak of. 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.

GRACE CHRISTIAN HIGH SCHOOL vs CA

FACTS: Grace Christian High School is an educational institution at the Grace Village in Quezon City
while private respondent Grace Village Association, Inc., is an organization of lot and/or building
owners, lessees and residents at Grace Village. On December 20, 1975, a committee of the board of
directors of the Association prepared a draft of an amendment to the 1968 by-laws of the Association
providing, among others, that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent
Director of the ASSOCIATION," but the draft was never presented to the general membership for
approval. Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board of
directors of the Association. However, on February 13, 1990, the Association's committee on election
informed the principal of the school that all directors should be elected by members of the Association
and that making the School representative as a permanent director of the Association should be
reexamined. The School then brought suit to compel the board of directors of the Association to
recognize its right to a permanent seat in the board.

The hearing officer of the HIGC held that the amended by-laws upon which the claim was merely a
proposed by-laws which had not yet been ratified by the members of the association nor approved by
competent authority. The appeals board of the HIGC affirmed the decision of the hearing officer citing
Section 92 of the Corporation Code.
Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February
9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was no valid
amendment of the association's by-laws because of failure to comply with the requirement of its
existing by-laws.

ISSUE: Whether or not the representative from Grace Christian High School should be allowed to
have a permanent seat in the board of directors.

HELD: No. The Corporation Code is clear when it provides that members of the board of a corporation
must be elected by the stockholders (stock corporation) or the members (non-stock corporation).
Admittedly, there are corporations who allow some of their directors to sit in the board without being
elected but such practice cannot prevail over provisions of law. Practice, no matter how long
continued, cannot give rise to any vested right if it is contrary to law. Further, there is no reason as to
why a representative from GCHS should be given an automatic seat. It should therefore go through the
process of election. It cannot also be argued that the draft of the by-laws in 1975 was ratified when
GCHS was allowed to take its seat for 15 years without an election. In the first place, the proposal was
merely a draft and even if passed and approved by the general membership, it cannot be given effect
because it is void and contrary to the law. GCHS seat in the corporate board is at best merely tolerated
by GVAI.

(I dont know why this is under vacancies, the only time vacancies was discussed was when the HIGC
appeals board cited Section 92 of the Corporation Code which states: Election and term of trustees.
Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-
stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of
incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of
one-third (1/3) of the number shall expire every year; and subsequent elections of trustees comprising
one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term
of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a
particular term shall hold office only for the unexpired period.)