GR 131394; (March, 2005) (Digest)
G.R. No. 131394 ; March 28, 2005
JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, Petitioner, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT MARINE SCHOOL, INC., Respondents.
FACTS
The Philippine Merchant Marine School, Inc. (PMMSI) was incorporated in 1952 with an initial subscribed capital stock of 776 shares (700 founders’ and 76 common) as per its Articles of Incorporation. However, its stock and transfer book was only registered in 1978, reflecting only 33 common shares as issued and outstanding. In 1992, a special stockholders’ meeting was held to elect a new board, with the quorum calculated based on the 165 shares then recorded in the stock and transfer book. Private respondents, other stockholders, challenged this meeting’s validity, arguing the quorum should be based on the 776 shares stated in the 1952 Articles of Incorporation. The SEC En Banc agreed with private respondents, a decision affirmed by the Court of Appeals.
ISSUE
Whether the basis for determining the quorum at a stockholders’ meeting should be the outstanding capital stock as reflected in the corporation’s Articles of Incorporation or as recorded in its stock and transfer book.
RULING
The Supreme Court denied the petition and upheld the rulings of the SEC and the Court of Appeals. The legal logic is anchored on the nature and purpose of corporate records. The Articles of Incorporation is the fundamental charter that defines the corporation’s capital structure, including the number of shares into which its capital stock is divided. It is a public document filed with the SEC and constitutes the primary evidence of the corporation’s subscribed capital stock. In contrast, the stock and transfer book is a corporate record primarily for recording the names of stockholders and the transfer of shares; it is not the definitive source for determining the total number of shares that constitute the corporation’s capital stock for quorum purposes. The Court emphasized that the subscribed capital stock in the Articles of Incorporation represents the maximum number of shares that can be issued, and until fully issued, these shares remain part of the corporate structure. To base the quorum solely on the shares currently issued and recorded in the transfer book would disenfranchise subscribers whose shares, though not yet issued or formally recorded, are part of the subscribed capital. Therefore, for determining the quorum in a stockholders’ meeting, the basis is the outstanding capital stock as defined by the subscribed capital stock reflected in the Articles of Incorporation, not merely the shares currently entered in the stock and transfer book.