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Corporation name, section 25, section 23 and section 29 of the Corporation Code of the Philippines.

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Digest

G.R. No. 169504

March 3, 2010

COFFEE PARTNERS, INC., Petitioner,
vs.
SAN FRANCISCO COFFEE & ROASTERY, INC., Respondent.

Facts about Petitioner:
Petitioner Coffee Partners, Inc. is a local corporation engaged in the business of
establishing and maintaining coffee shops in the country. It registered with the
Securities and Exchange Commission (SEC) in January 2001. It has a franchise
agreement6 with Coffee Partners Ltd. (CPL), a business entity organized and
existing under the laws of British Virgin Islands, for a non-exclusive right to operate
coffee shops in the Philippines using trademarks designed by CPL such as "SAN
FRANCISCO COFFEE."
Facts from the ruling:

Petitioner contends that when a trade name is not registered, a suit for infringement
is not available. Petitioner alleges respondent has abandoned its trade name.
Petitioner points out that respondent’s registration of its business name with the DTI
expired on 16 June 2000 and it was only in 2001 when petitioner opened a coffee
shop in Libis, Quezon City that respondent made a belated effort to seek the
renewal of its business name registration. Petitioner stresses respondent’s failure to
continue the use of its trade name to designate its goods negates any allegation of
infringement. Petitioner claims no confusion is likely to occur between its trademark
and respondent’s trade name because of a wide divergence in the channels of
trade, petitioner serving ready-made coffee while respondent is in wholesale
blending, roasting, and distribution of coffee. Lastly, petitioner avers the proper
noun "San Francisco" and the generic word "coffee" are not capable of exclusive
appropriation.

Facts about Respondent:
Respondent is a local corporation engaged in the wholesale and retail sale of coffee.
It registered with the SEC in May 1995. It registered the business name "SAN
FRANCISCO COFFEE & ROASTERY, INC." with the Department of Trade and Industry
(DTI) in June 1995. Respondent had since built a customer base that included Figaro
Company, Tagaytay Highlands, Fat Willy’s, and other coffee companies.

In 1998, respondent formed a joint venture company with Boyd Coffee USA under
the company name Boyd Coffee Company Philippines, Inc. (BCCPI). BCCPI engaged
in the processing, roasting, and wholesale selling of coffee. Respondent later
embarked on a project study of setting up coffee carts in malls and other
commercial establishments in Metro Manila.

In June 2001, respondent discovered that petitioner was about to open a coffee
shop under the name "SAN FRANCISCO COFFEE" in Libis, Quezon City. According to
respondent, petitioner’s shop caused confusion in the minds of the public as it bore
a similar name and it also engaged in the business of selling coffee. Respondent
sent a letter to petitioner demanding that the latter stop using the name "SAN
FRANCISCO COFFEE." Respondent also filed a complaint with the Bureau of Legal
Affairs-Intellectual Property Office (BLA-IPO) for infringement and/or unfair
competition with claims for damages.
Facts from the ruling:
Respondent maintains the law protects trade names from infringement even if they
are not registered with the IPO. Respondent claims Republic Act No. 8293 (RA
8293)7 dispensed with registration of a trade name with the IPO as a requirement
for the filing of an action for infringement. All that is required is that the trade name
is previously used in trade or commerce in the Philippines. Respondent insists it
never abandoned the use of its trade name as evidenced by its letter to petitioner
demanding immediate discontinuation of the use of its trademark and by the filing
of the infringement case. Respondent alleges petitioner’s trademark is confusingly
similar to respondent’s trade name. Respondent stresses ordinarily prudent
consumers are likely to be misled about the source, affiliation, or sponsorship of
petitioner’s coffee.

The Ruling of the Bureau of Legal Affairs-Intellectual Property Office

1.) In its 14 August 2002 Decision, the BLA-IPO held that petitioner’s trademark
infringed on respondent’s trade name. It ruled that the right to the exclusive
use of a trade name with freedom from infringement by similarity is
determined from priority of adoption. Since respondent registered its
business name with the DTI in 1995 and petitioner registered its trademark
with the IPO in 2001 in the Philippines and in 1997 in other countries, then
respondent must be protected from infringement of its trade name.

2.) The BLA-IPO also held that respondent did not abandon the use of its trade
name as substantial evidence indicated respondent continuously used its
trade name in connection with the purpose for which it was organized. It
found that although respondent was no longer involved in blending, roasting,
and distribution of coffee because of the creation of BCCPI, it continued
making plans and doing research on the retailing of coffee and the setting up
of coffee carts. The BLA-IPO ruled that for abandonment to exist, the disuse
must be permanent, intentional, and voluntary.

3.) The BLA-IPO held that petitioner’s use of the trademark "SAN FRANCISCO
COFFEE" will likely cause confusion because of the exact similarity in sound,
spelling, pronunciation, and commercial impression of the words "SAN
FRANCISCO" which is the dominant portion of respondent’s trade name and
petitioner’s trademark. It held that no significant difference resulted even
with a diamond-shaped figure with a cup in the center in petitioner's
trademark because greater weight is given to words – the medium consumers
use in ordering coffee products.

4.) On the issue of unfair competition, the BLA-IPO absolved petitioner from
liability. It found that petitioner adopted the trademark "SAN FRANCISCO
COFFEE" because of the authority granted to it by its franchisor. The BLA-IPO
held there was no evidence of intent to defraud on the part of petitioner.

5.) The BLA-IPO also dismissed respondent’s claim of actual damages because its
claims of profit loss were based on mere assumptions as respondent had not
even started the operation of its coffee carts. The BLA-IPO likewise dismissed
respondent’s claim of moral damages, but granted its claim of attorney’s
fees.

Both parties moved for partial reconsideration. Petitioner protested the finding of
infringement, while respondent questioned the denial of actual damages. The BLAIPO denied the parties’ partial motion for reconsideration. The parties appealed to
the Office of the Director General-Intellectual Property Office (ODG-IPO).

The Ruling of the Office of the Director GeneralIntellectual Property Office
In its 22 October 2003 Decision, the ODG-IPO reversed the BLA-IPO.

The Ruling of the Court of Appeals

In its 15 June 2005 Decision, the Court of Appeals set aside the 22 October 2003
decision of the ODG-IPO in so far as it ruled that there was no infringement. It
reinstated the 14 August 2002 decision of the BLA-IPO finding infringement. The
appellate court denied respondent’s claim for actual damages and retained the
award of attorney’s fees. In its 1 September 2005 Resolution, the Court of Appeals
denied petitioner’s motion for reconsideration and respondent’s motion for partial
reconsideration.

The Issue

The sole issue is whether petitioner’s use of the trademark "SAN FRANCISCO
COFFEE" constitutes infringement of respondent’s trade name "SAN FRANCISCO
COFFEE & ROASTERY, INC.," even if the trade name is not registered with the
Intellectual Property Office (IPO).
Supreme Court Ruling:

The petition has no merit.

As to the issue of alleged abandonment of trade name by respondent, the BLA-IPO
found that respondent continued to make plans and do research on the retailing of
coffee and the establishment of coffee carts, which negates abandonment. This
finding was upheld by the Court of Appeals, which further found that while
respondent stopped using its trade name in its business of selling coffee, it
continued to import and sell coffee machines, one of the services for which the use
of the business name has been registered. The binding effect of the factual findings
of the Court of Appeals on this Court applies with greater force when both the quasijudicial body or tribunal like the BLA-IPO and the Court of Appeals are in complete
agreement on their factual findings. It is also settled that absent any circumstance
requiring the overturning of the factual conclusions made by the quasi-judicial body
or tribunal, particularly if affirmed by the Court of Appeals, the Court necessarily
upholds such findings of fact.8

Coming now to the main issue, in Prosource International, Inc. v. Horphag Research
Management SA,9 this Court laid down what constitutes infringement of an
unregistered trade name, thus:

(1) The trademark being infringed is registered in the Intellectual Property Office;
however, in infringement of trade name, the same need not be registered;

(2) The trademark or trade name is reproduced, counterfeited, copied, or colorably
imitated by the infringer;

(3) The infringing mark or trade name is used in connection with the sale, offering
for sale, or advertising of any goods, business or services; or the infringing mark or
trade name is applied to labels, signs, prints, packages, wrappers, receptacles, or
advertisements intended to be used upon or in connection with such goods,
business, or services;

(4) The use or application of the infringing mark or trade name is likely to cause
confusion or mistake or to deceive purchasers or others as to the goods or services
themselves or as to the source or origin of such goods or services or the identity of
such business; and

(5) It is without the consent of the trademark or trade name owner or the assignee
thereof.10 (Emphasis supplied)

Clearly, a trade name need not be registered with the IPO before an infringement
suit may be filed by its owner against the owner of an infringing trademark. All that
is required is that the trade name is previously used in trade or commerce in the
Philippines.11
Section 22 of Republic Act No. 166,12 as amended, required registration of a trade
name as a condition for the institution of an infringement suit
However, RA 8293, which took effect on 1 January 1998, has dispensed with the
registration requirement. Section 165.2 of RA 8293 categorically states that trade
names shall be protected, even prior to or without registration with the IPO, against
any unlawful act including any subsequent use of the trade name by a third party,
whether as a trade name or a trademark likely to mislead the public.1avvph!1 Thus:

SEC. 165.2 (a) Notwithstanding any laws or regulations providing for any obligation
to register trade names, such names shall be protected, even prior to or without
registration, against any unlawful act committed by third parties.

(b) In particular, any subsequent use of a trade name by a third party, whether as a
trade name or a mark or collective mark, or any such use of a similar trade name or
mark, likely to mislead the public, shall be deemed unlawful. (Emphasis supplied)

It is the likelihood of confusion that is the gravamen of infringement. But there is no
absolute standard for likelihood of confusion. Only the particular, and sometimes
peculiar, circumstances of each case can determine its existence. Thus, in
infringement cases, precedents must be evaluated in the light of each particular
case.13

In determining similarity and likelihood of confusion, our jurisprudence has
developed two tests: the dominancy test and the holistic test. The dominancy test
focuses on the similarity of the prevalent features of the competing trademarks that
might cause confusion and deception, thus constituting infringement. If the
competing trademark contains the main, essential, and dominant features of
another, and confusion or deception is likely to result, infringement occurs. Exact
duplication or imitation is not required. The question is whether the use of the

marks involved is likely to cause confusion or mistake in the mind of the public or to
deceive consumers.14

In contrast, the holistic test entails a consideration of the entirety of the marks as
applied to the products, including the labels and packaging, in determining
confusing similarity.15 The discerning eye of the observer must focus not only on
the predominant words but also on the other features appearing on both marks in
order that the observer may draw his conclusion whether one is confusingly similar
to the other.16

Applying either the dominancy test or the holistic test, petitioner’s "SAN FRANCISCO
COFFEE" trademark is a clear infringement of respondent’s "SAN FRANCISCO
COFFEE & ROASTERY, INC." trade name. The descriptive words "SAN FRANCISCO
COFFEE" are precisely the dominant features of respondent’s trade name. Petitioner
and respondent are engaged in the same business of selling coffee, whether
wholesale or retail. The likelihood of confusion is higher in cases where the business
of one corporation is the same or substantially the same as that of another
corporation. In this case, the consuming public will likely be confused as to the
source of the coffee being sold at petitioner’s coffee shops.

Petitioner’s argument that "San Francisco" is just a proper name referring to the
famous city in California and that "coffee" is simply a generic term, is untenable.
Respondent has acquired an exclusive right to the use of the trade name "SAN
FRANCISCO COFFEE & ROASTERY, INC." since the registration of the business name
with the DTI in 1995. Thus, respondent’s use of its trade name from then on must
be free from any infringement by similarity. Of course, this does not mean that
respondent has exclusive use of the geographic word "San Francisco" or the generic
word "coffee." Geographic or generic words are not, per se, subject to exclusive
appropriation. It is only the combination of the words "SAN FRANCISCO COFFEE,"
which is respondent’s trade name in its coffee business, that is protected against
infringement on matters related to the coffee business to avoid confusing or
deceiving the public.

In Philips Export B.V. v. Court of Appeals,17 this Court held that a corporation has an
exclusive right to the use of its name. The right proceeds from the theory that it is a
fraud on the corporation which has acquired a right to that name and perhaps
carried on its business thereunder, that another should attempt to use the same

name, or the same name with a slight variation in such a way as to induce persons
to deal with it in the belief that they are dealing with the corporation which has
given a reputation to the name.18

This Court is not just a court of law, but also of equity. We cannot allow petitioner to
profit by the name and reputation so far built by respondent without running afoul
of the basic demands of fair play. Not only the law but equity considerations hold
petitioner liable for infringement of respondent’s trade name.

The Court of Appeals was correct in setting aside the 22 October 2003 Decision of
the Office of the Director General-Intellectual Property Office and in reinstating the
14 August 2002 Decision of the Bureau of Legal Affairs-Intellectual Property Office.

WHEREFORE, we DENY the petition for review. We AFFIRM the 15 June 2005
Decision and 1 September 2005 Resolution of the Court of Appeals in CA-G.R. SP No.
80396.

Costs against petitioner.

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER,
CATHERINE SPENCER, AND ALEX MANCILLA, Petitioners,
vs.
RICARDO R. COROS, Respondent.

Facts about Respondent
After his dismissal by Matling as its Vice President for Finance and Administration,
the respondent filed on August 10, 2000 a complaint for illegal suspension and
illegal dismissal against Matling and some of its corporate officers (petitioners) in
the NLRC, Sub-Regional Arbitration Branch XII, Iligan City.3

Facts about Petitioner
The petitioners moved to dismiss the complaint,4 raising the ground, among others,
that the complaint pertained to the jurisdiction of the Securities and Exchange
Commission (SEC) due to the controversy being intra-corporate inasmuch as the
respondent was a member of Matling’s Board of Directors aside from being its VicePresident for Finance and Administration prior to his termination.

Labor Arbiter:

On October 16, 2000, the LA granted the petitioners’ motion to dismiss,6 ruling that
the respondent was a corporate officer because he was occupying the position of
Vice President for Finance and Administration and at the same time was a Member
of the Board of Directors of Matling; and that, consequently, his removal was a
corporate act of Matling and the controversy resulting from such removal was under
the jurisdiction of the SEC, pursuant to Section 5, paragraph (c) of Presidential
Decree No. 902.
The respondent appealed to the NLRC
NLRC:

On March 13, 2001, the NLRC set aside the dismissal, concluding that the
respondent’s complaint for illegal dismissal was properly cognizable by the LA, not
by the SEC, because he was not a corporate officer by virtue of his position in
Matling, albeit high ranking and managerial, not being among the positions listed in
Matling’s Constitution and By-Laws.
MOR:

Nonetheless, on April 30, 2001, the NLRC denied the petitioners’ motion for
reconsideration.11
The petitioners elevated the issue to the CA by petition for certiorari, docketed as
C.A.-G.R. No. SP 65714, contending that the NLRC committed grave abuse of
discretion amounting to lack of jurisdiction in reversing the correct decision of the
LA.

Ruling of CA

The position of vice-president for administration and finance, which Coros used to
hold in the corporation, was not created by the corporation’s board of directorsn but
only by its president or executive vice-president pursuant to the by-laws of the
corporation. Moreover, Coros’ appointment to said position was not made through
any act of the board of directors or stockholders of the corporation. Consequently,
the position to which Coros was appointed and later on removed from, is not a
corporate office despite its nomenclature, but an ordinary office in the corporation.

Coros’ alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the
labor arbiter.

WHEREFORE, the petition for certiorari is hereby DISMISSED.

The CA denied the petitioners’ motion for reconsideration on April 2, 2003.13

The decisive issue is whether the respondent was a corporate officer of Matling or
not. The resolution of the issue determines whether the LA or the RTC had
jurisdiction over his complaint for illegal dismissal.
Ruling

The appeal fails.

Was the Respondent’s Position of Vice President
for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondent’s position as Vice President for
Finance and Administration was a corporate office. If it was, his dismissal by the
Board of Directors rendered the matter an intra-corporate dispute cognizable by the
RTC pursuant to RA No. 8799.

The petitioners contend that the position of Vice President for Finance and
Administration was a corporate office, having been created by Matling’s President
pursuant to By-Law No. V,

The petitioners argue that the power to create corporate offices and to appoint the
individuals to assume the offices was delegated by Matling’s Board of Directors to
its President through By-Law No. V, as amended; and that any office the President
created, like the position of the respondent, was as valid and effective a creation as
that made by the Board of Directors, making the office a corporate office

The respondent counters that Matling’s By-Laws did not list his position as Vice
President for Finance and Administration as one of the corporate offices
Xxxx, to be considered as a corporate officer, must be elected by the Board of
Directors or the stockholders, for the President could only appoint an employee to a
position pursuant to By-Law No. V.

We agree with respondent.

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their election, the
directors of a corporation must formally organize by the election of a president, who
shall be a director, a treasurer who may or may not be a director, a secretary who
shall be a resident and citizen of the Philippines, and such other officers as may be
provided for in the by-laws. Any two (2) or more positions may be held concurrently
by the same person, except that no one shall act as president and secretary or as
president and treasurer at the same time.

The directors or trustees and officers to be elected shall perform the duties enjoined
on them by law and the by-laws of the corporation. Unless the articles of
incorporation or the by-laws provide for a greater majority, a majority of the number
of directors or trustees as fixed in the articles of incorporation shall constitute a

quorum for the transaction of corporate business, and every decision of at least a
majority of the directors or trustees present at a meeting at which there is a quorum
shall be valid as a corporate act, except for the election of officers which shall
require the vote of a majority of all the members of the board.

Conformably with Section 25, a position must be expressly mentioned in the ByLaws in order to be considered as a corporate office. Thus, the creation of an office
pursuant to or under a By-Law enabling provision is not enough to make a position a
corporate office. Guerrea v. Lezama,19 the first ruling on the matter, held that the
only officers of a corporation were those given that character either by the
Corporation Code or by the By-Laws; the rest of the corporate officers could be
considered only as employees or subordinate officials. Thus, it was held in Easycall
Communications Phils., Inc. v. King:20

An "office" is created by the charter of the corporation
and the officer is elected by the directors or stockholders.
On the other hand, an employee occupies no office and generally is employed not
by the action of the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid to such employee.

In this case, respondent was appointed vice president for nationwide expansion by
Malonzo, petitioner’'s general manager, not by the board of directors of petitioner. It
was also Malonzo who determined the compensation package of respondent. Thus,
respondent was an employee, not a "corporate officer." The CA was therefore
correct in ruling that jurisdiction over the case was properly with the NLRC, not the
SEC (now the RTC).

This interpretation is the correct application of Section 25 of the Corporation Code,
which plainly states that the corporate officers are the President, Secretary,
Treasurer and such other officers as may be provided for in the By-Laws.
Accordingly, the corporate officers in the context of PD No. 902-A are exclusively
those who are given that character either by the Corporation Code or by the
corporation’s By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to
circumvent the constitutionally guaranteed security of tenure of the employee by

the expedient inclusion in the By-Laws of an enabling clause on the creation of just
any corporate officer position.
It is relevant to state in this connection that the SEC, the primary agency
administering the Corporation Code, adopted a similar interpretation of Section 25
of the Corporation Code in its Opinion dated November 25, 1993,21 to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code),
whoever are the corporate officers enumerated in the by-laws are the exclusive
Officers of the corporation and the Board has no power to create other Offices
without amending first the corporate By-laws. However, the Board may create
appointive positions other than the positions of corporate Officers, but the persons
occupying such positions are not considered as corporate officers within the
meaning of Section 25 of the Corporation Code and are not empowered to exercise
the functions of the corporate Officers, except those functions lawfully delegated to
them. Their functions and duties are to be determined by the Board of
Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to
create a corporate office to the President, in light of Section 25 of the Corporation
Code requiring the Board of Directors itself to elect the corporate officers. Verily, the
power to elect the corporate officers was a discretionary power that the law
exclusively vested in the Board of Directors, and could not be delegated to
subordinate officers or agents.22 The office of Vice President for Finance and
Administration created by Matling’s President pursuant to By Law No. V was an
ordinary, not a corporate, office.

To emphasize, the power to create new offices and the power to appoint the officers
to occupy them vested by By-Law No. V merely allowed Matling’s President to
create non-corporate offices to be occupied by ordinary employees of Matling. Such
powers were incidental to the President’s duties as the executive head of Matling to
assist him in the daily operations of the business.

Did Respondent’s Status as Director and
Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a Director/stockholder of
Matling, and relying on Paguio v. National Labor Relations Commission24 and
Ongkingko v. National Labor Relations Commission,25 the NLRC had no jurisdiction
over his complaint, considering that any case for illegal dismissal brought by a
stockholder/officer against the corporation was an intra-corporate matter that must
fall under the jurisdiction of the SEC conformably with the context of PD No. 902-A.

The petitioners’ insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings,
the complainants were undeniably corporate officers due to their positions being
expressly mentioned in the By-Laws, aside from the fact that both of them had been
duly elected by the respective Boards of Directors. But the herein respondent’s
position of Vice President for Finance and Administration was not expressly
mentioned in the By-Laws; neither was the position of Vice President for Finance and
Administration created by Matling’s Board of Directors. Lastly, the President, not the
Board of Directors, appointed him.
However, the Tabang pronouncement is not controlling because it is too sweeping
and does not accord with reason, justice, and fair play. In order to determine
whether a dispute constitutes an intra-corporate controversy or not, the Court
considers two elements instead, namely: (a) the status or relationship of the parties;
and (b) the nature of the question that is the subject of their controversy
Xx

The fact that the parties involved in the controversy are all stockholders or that the
parties involved are the stockholders and the corporation does not necessarily place
the dispute within the ambit of the jurisdiction of SEC. The better policy to be
followed in determining jurisdiction over a case should be to consider concurrent
factors such as the status or relationship of the parties or the nature of the question
that is the subject of their controversy. In the absence of any one of these factors,
the SEC will not have jurisdiction. Furthermore, it does not necessarily follow that
every conflict between the corporation and its stockholders would involve such
corporate matters as only the SEC can resolve in the exercise of its adjudicatory or
quasi-judicial powers.29

The criteria for distinguishing between corporate officers who may be ousted from
office at will, on one hand, and ordinary corporate employees who may only be

terminated for just cause, on the other hand, do not depend on the nature of the
services performed, but on the manner of creation of the office. In the respondent’s
case, he was supposedly at once an employee, a stockholder, and a Director of
Matling. The circumstances surrounding his appointment to office must be fully
considered to determine whether the dismissal constituted an intra-corporate
controversy or a labor termination dispute. We must also consider whether his
status as Director and stockholder had any relation at all to his appointment and
subsequent dismissal as Vice President for Finance and Administration.

Obviously enough, the respondent was not appointed as Vice President for Finance
and Administration because of his being a stockholder or Director of Matling. He had
started working for Matling on September 8, 1966, and had been employed
continuously for 33 years until his termination on April 17, 2000, first as a
bookkeeper, and his climb in 1987 to his last position as Vice President for Finance
and Administration had been gradual but steady, as the following sequence
indicates:

employee of Matling. His subsequent acquisition of the status of
Director/stockholder had no relation to his promotion. Besides, his status of
Director/stockholder was unaffected by his dismissal from employment as Vice
President for Finance and Administration.1avvphi1
WHEREFORE, we deny the petition for review on certiorari, and affirm the decision
of the Court of Appeals.

Costs of suit to be paid by the petitioners.

G.R. No. 151969

September 4, 2009

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY GAMBOA, AMADO M.
SANTIAGO, JR., FORTUNATO DEE, AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO
ORTIGAS III, ERIC ROXAS, in their capacities as members of the Board of Directors of
Valle Verde Country Club, Inc., and JOSE RAMIREZ, Petitioners,

vs.
VICTOR AFRICA, Respondent.

Facts about Petitioner:
Petitioners are the members of the Board of Directors of Valle Verde Country Club,
Inc., and JOSE RAMIREZ
On September 1, 1998, Dinglasan resigned from his position as member of the
VVCC Board. In a meeting held on October 6, 1998, the remaining directors, still
constituting a quorum of VVCC’s nine-member board, elected Eric Roxas (Roxas) to
fill in the vacancy created by the resignation of Dinglasan.

A year later, or on November 10, 1998, Makalintal also 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.
Facts about Respondent:
Respondent 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. The SEC case questioning the validity of Roxas’ appointment was
docketed as SEC Case No. 01-99-6177. The RTC case questioning the validity of
Ramirez’ appointment was docketed as Civil Case No. 68726.

In his nullification complaint3 before the RTC, Africa alleged that the election of
Roxas was contrary to Section 29, in relation to Section 23, of the Corporation Code
of the Philippines (Corporation Code).
Arguments of Respondent:

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. xxx. [Emphasis
supplied.]

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.

Africa additionally contends that for the members to exercise the authority to fill in
vacancies in the board of directors, Section 29 requires, among others, that there
should be an unexpired term during which the successor-member shall serve. Since
Makalintal’s term had already expired with the lapse of the one-year term provided
in Section 23, there is no more "unexpired term" during which Ramirez could serve.
RTC:
Through a partial decision4 promulgated on January 23, 2002, 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.
SEC
Incidentally, the 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. While
VVCC manifested its intent to appeal from the SEC’s ruling, no petition was actually
filed with the Court of Appeals; thus, the appellate court considered the case closed
and terminated and the SEC’s ruling final and executory.5
CA : case is closed and terminated
To the Supreme Court:
VVCC now appeals to the Court to assail the RTC’s January 23, 2002 partial decision
for being contrary to law and jurisprudence. VVCC made a direct resort to the Court
via a petition for review on certiorari, claiming that the sole issue in the present
case involves a purely legal question.
Issue:
As framed by VVCC, the issue for resolution is 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.

Arguments of Petitioner VVCC:
Citing law and jurisprudence, VVCC posits that the power to fill in a vacancy created
by the resignation of a hold-over director is expressly granted to the remaining
members of the corporation’s board of directors.

Under the above-quoted 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. 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."

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.

Ruling of the Court:
We are not persuaded by VVCC’s arguments and, thus, find its petition
unmeritorious.
The resolution of this legal issue is significantly hinged on the determination of
what constitutes a director’s term of office.

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

The word "term" has acquired a definite meaning in jurisprudence. 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.7 The term of office is not affected by the holdover.8 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.

Based on the above discussion, when Section 239 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.10

After the lapse of one year from his election as member of the VVCC Board in 1996,
Makalintal’s term of office is deemed to have already expired. That he continued to
serve in the VVCC Board in a holdover capacity cannot be considered as extending
his term. To be precise, 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. This
holdover period, however, is not to be considered as part of his term, which, as
declared, had already expired.

With the expiration of Makalintal’s term of office, a vacancy resulted which, by the
terms of Section 2911 of the Corporation Code, must be filled by the stockholders of
VVCC in a regular or special meeting called for the purpose. 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.

xxxx
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.

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.

WHEREFORE, we DENY the petitioners’ petition for review on certiorari, and AFFIRM
the partial decision of the Regional Trial Court, Branch 152, Manila, promulgated on
January 23, 2002, in Civil Case No. 68726. Costs against the petitioners.

SO ORDERED.

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