G.R. No. 131394, 28 March 2005
The Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700) founders’ shares and seventy-six (76) common shares as its initial capital stock subscription reflected in the articles of incorporation. However, private respondents and their predecessors who were in control of PMMSI registered the company’s stock and transfer book for the first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI. Sometime in 1979, a special stockholders’ meeting was called and held on the basis of what was considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3) of the common shares issued and outstanding.
On 06 May 1992, a special stockholders’ meeting was held to elect a new set of directors. Private respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992 stockholders’ meeting, alleging that the quorum for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation.
Whether or not the quorum should be based on the outstanding capital stock as indicated in the Articles of Incorporation.
Yes. The articles of incorporation has been described as one that defines the charter of the corporation and the contractual relationships between the State and the corporation, the stockholders and the State, and between the corporation and its stockholders. When PMMSI was incorporated, the prevailing law was Act No. 1459, otherwise known as “The Corporation Law.”
A quorum is based on the totality of the shares which have been subscribed and issued, whether it be founders’ shares or common shares. In the instant case, two figures are being pitted against each other — those contained in the articles of incorporation, and those listed in the stock and transfer book.
To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/or successors in interest of the said shares. This case is one instance where resort to documents other than the stock and transfer books is necessary. The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger amount of shares issued and outstanding as compared to that listed in the stock and transfer book.
*Case Digest by Lowel Dave D. Manuel, JD-4, Andres Bonifacio Law School, S.Y. 2019-2020