LANUZA vs. CA GR No. 131394 March 28, 2005

FACTS: The Philippine Merchant Marine School (PMMI) was incorporated in 1952 with 700 founders’ shares and 76 common shares as its initial stock subscription reflected in the articles of incorporation. it was only in 1978 when the company’s stock and transfer book was registered, recording 33 common shares as the only issued and outstanding shares of PMMI. In a dispute over the basis of a quorum in a stockholders’ meeting, private respondents contend that the same should be based on the initial subscribed capital stock as reflected in the 1052 articles of incorporation, and not on the number of issued and outstanding shares as recorded in 1978 in the compnany’s stock and transfer book. Petitioners contend otherwise. Both the SEC en banc and the Court of Appeals ruled in favor of private respondents. Hence, this petition seeking to nullify the assailed decision.

ISSUE: What should be the basis in determining the quorum in the stockholders’ meeting?

HELD: The initial subscribed capital stock as reflected in the articles of incorporation should be made the basis in the determination of a quorum. The articles of incorporation defines the charter of the corporation and its contractual relations with the state and the stockholders. The contents thereof are binding not only on the corporation but also on its shareholders. In the instant case, the articles of incorporation indicate that the company had 776 issued and outstanding shares. On the other hand, the stock and transfer book is not in any sense a public record and only constitutes prima facie evidence. Hence, it may be impeached by other competent evidence. Therefore, the same 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.