SEC Opinion 21-01: Filling-up of Vacancies in the Board of Trustees

In SEC-OGC Opinion No. 21-01 dated January 18, 2021, the Securities and Exchange Commission (“SEC”) discussed how a condominium corporation may fill-up the vacancies in the Board of Trustees resulting from resignation when the remaining members no longer constitute a quorum. 

The By-Laws of Padgett Place Condominium Corp. (“TPPC Corp.”) does not provide for the procedure in filling-up vacancies in the Board of Trustees, where three (3) out of its five (5) members resigned. The opinion of the SEC is sought on:

1. How the vacancies will be filled-up; and 
2. Whether the remaining two (2) trustees have the power and authority to merely appoint the replacement of the member of the Board of Trustees who resigned. 

The SEC cited Section 28 of the Revised Corporation Code (“RCC”) which, in part, provides that “Any vacancy occurring in the board of directors or trustees other than by removal 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 or members in a regular or special meeting called for that purpose.”

The SEC explained that in requiring that vacancies in the board resulting from resignation be filled-up by the stockholders or members in a regular or special meeting called for the purpose if the remaining trustees do not constitute a quorum, the law seeks to ensure the recognition and strict implementation of the policy that only those who have been elected by the shareholders or members can rightfully exercise and discharge the duties and functions of a director or trustee, and be made fully accountable to the shareholders or members for the same. 

The SEC cited the case of Valle Verde Country Club, Inc. v. Africa where the Supreme Court held that 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.

On the basis of the foregoing, the SEC stated that the remaining two members of the Board of Trustees of TPPC Corp. cannot fill-up the vacancies left by the three other members of the board who all resigned on the ground that the remaining two trustees will no longer constitute a quorum. Considering that the remaining two members of the Board of Trustees of TPPC Corp. do not constitute a quorum, they do not have the legal authority to fill-up the vacancies by majority vote. Hence, the filling-up of the vacancies in the Board of Trustees must be done by the general membership of TPPC Corp. in a regular or special meeting called for that purpose.