Lanuza v. CA

Lanuza v. CA, 454 S 54, G.R. No.
131394, March 28, 2005

Facts:
In 1952, 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.
In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the
Securities and Exchange Commission (SEC) for the registration of their property rights over one
hundred (120) founders’ shares and twelve (12) common shares owned by their father. The SEC
hearing officer held that the heirs of Acayan were entitled to the claimed shares and called for a
special stockholders’ meeting to elect a new set of officers. The SEC En Banc affirmed the
decision. As a result, the shares of Acayan were recorded in the stock and transfer book.
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. The petition was dismissed. Appeal was made to the SEC En Banc, which granted
said appeal, holding that the shares of the deceased incorporators should be duly represented by
their respective administrators or heirs concerned. The SEC directed the parties to call for a
stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation
for the purpose of electing a new set of officers for the corporation.
Issue:
What should be the basis of quorum for a stockholders’ meeting—the outstanding capital stock
as indicated in the articles of incorporation or that contained in the company’s stock and transfer
book?
Ruling:
Its 1952 Articles of Incorporation, which determines stockholders’ shareholdings, and provides
the basis for computing the quorum
When PMMSI was incorporated, the prevailing law was Act No. 1459, otherwise known as "The
Corporation Law."
(7) If it be a stock corporation, the amount of its capital stock, in lawful money of the
Philippines, and the number of shares into which it is divided, and if such stock be in whole or in
part without par value then such fact shall be stated; Provided, however, That as to stock without
par value the articles of incorporation need only state the number of shares into which said
capital stock is divided.
(8) If it be a stock corporation, the amount of capital stock or number of shares of no-par stock
actually subscribed, the amount or number of shares of no-par stock subscribed by each and the
sum paid by each on his subscription. . . .
A review of PMMSI’s articles of incorporation shows that the corporation complied with the
requirements laid down by Act No. 1459.
Thus, 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.
As aptly stated by the SEC in its Order dated 15 July 1996:
It is to be explained, that if at the onset of incorporation a corporation has 771 shares

subscribed, the Stock and Transfer Book should likewise reflect 771 shares. Any sale,
disposition or even reacquisition of the company of its own shares, in which it becomes
treasury shares, would not affect the total number of shares in the Stock and Transfer
Book. All that will change are the entries as to the owners of the shares but not as to the amount
of shares already subscribed.
This is precisely the reason why the Stock and Transfer Book was not given probative value. Did
the shares, which were not recorded in the Stock and Transfer Book, but were recorded in the
Articles of Incorporation just vanish into thin air? . . . .
As shown above, at the time the corporation was set-up, there were already seven hundred
seventy-six (776) issued and outstanding shares as reflected in the articles of incorporation. No
proof was adduced as to any transaction effected on these shares from the time PMMSI was
incorporated up to the time the instant petition was filed, except for the thirty-three (33) shares
which were recorded in the stock and transfer book in 1978, and the additional one hundred
thirty-two (132) in 1982. But obviously, the shares so ordered recorded in the stock and transfer
book are among the shares reflected in the articles of incorporation as the shares subscribed to by
the incorporators named therein.

Lanuza v. CA

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Lanuza v. CA

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Lanuza v. CA, 454 S 54, G.R. No.

131394, March 28, 2005

It is to be explained, that if at the onset of incorporation a corporation has 771 shares

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