The Supreme Court clarified that in determining if a quorum exists for a Philippine corporation’s stockholder meeting, all outstanding capital stock must be considered, regardless of whether some shares are under dispute. This ruling emphasizes the importance of adhering to the Corporation Code’s definition of outstanding capital stock, which makes no distinction between disputed and undisputed shares. It also underscores the need to properly record stock transfers in the corporation’s books to ensure that shareholders can exercise their rights, including voting. This decision impacts how Philippine corporations conduct their meetings and determine quorum requirements, ensuring adherence to established legal principles.

Family Feuds & Corporate Votes: Who Decides at Phil-Ville?

The case of Carolina Que Villongco, et al. v. Cecilia Que Yabut, et al. revolves around a family-owned real estate corporation, Phil-Ville Development and Housing Corporation (Phil-Ville). The central issue arose from a dispute among the heirs of the company’s founder, Geronima Gallego Que, regarding the distribution of shares and the validity of an annual stockholders’ meeting. This led to questions about the legal basis for determining quorum and the consequences of holding a meeting without one.

The core of the dispute lies in whether the annual stockholders’ meeting held by Cecilia Que Yabut, Eumir Carlo Que Camara, and Ma. Corazon Que Garcia (Cecilia Que, et al.) on January 25, 2014, was valid. Carolina Que Villongco, Ana Maria Que Tan, Angelica Que Gonzales, Elaine Victoria Que Tan, and Edison Williams Que Tan (Carolina, et al.) challenged the meeting, arguing that it lacked a quorum. The Regional Trial Court (RTC) initially ruled in their favor, declaring the meeting and all resulting actions void. However, the Court of Appeals (CA) set aside the RTC decision due to a constitutional violation, while still concluding that the meeting was invalid for lack of quorum. This led to the Supreme Court review.

At the heart of the legal discussion is **Section 52 of the Corporation Code**, which stipulates:

Section 52. Quorum in meetings. – Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations.

Complementing this, **Section 137** defines “outstanding capital stock”:

Section 137. Outstanding capital stock defined. – The term “outstanding capital stock”, as used in this Code, means the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares.

Carolina, et al. contended that the basis for determining the quorum should be the total number of undisputed shares, arguing that certain shares were subject to a separate legal dispute. However, the Supreme Court rejected this argument, emphasizing that the law does not distinguish between disputed and undisputed shares when determining quorum. The Court underscored the principle of Ubi lex non distinguit nec nos distinguere debemus, meaning where the law does not distinguish, neither should we.

Moreover, the Court addressed the issue of unrecorded stock transfers. The 3,140 shares of Geronima, which were allegedly transferred, were not recorded in the corporation’s stock and transfer book. The Court referenced **Section 63 of the Corporation Code** which states:

Section 63. Certificate of stock and transfer of shares. – The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

The Supreme Court, citing Interport Resources Corporation v. Securities Specialist, Inc., reiterated that a transfer of shares not recorded in the stock and transfer book is non-existent as far as the corporation is concerned. As such, the transferees of these unrecorded shares cannot exercise the rights of stockholders, including the right to vote.

The procedural aspects of the case also merit attention. Cecilia Que, et al., argued that the CA erred in considering their Motion for Extension of Time to file Answer as a voluntary appearance. The Supreme Court disagreed, citing established jurisprudence that filing such a motion constitutes voluntary submission to the court’s jurisdiction. This is a critical point, as it cured any potential defects in the service of summons.

Another significant point of contention was whether the RTC decision complied with **Section 14, Article VIII of the Constitution**, which mandates that court decisions clearly state the facts and law on which they are based. The CA found that the RTC decision failed to meet this standard, as it merely adopted the allegations of Carolina, et al. without providing sufficient reasoning. The Supreme Court concurred, holding that the RTC decision was indeed void for violating this constitutional provision.

The ruling underscores several important principles in Philippine corporate law. Firstly, the determination of a quorum must be based on the total outstanding capital stock, without any distinction between disputed and undisputed shares. Secondly, the recording of stock transfers in the corporation’s books is essential for the validity of such transfers with respect to the corporation and third parties. Finally, court decisions must clearly and distinctly state the facts and law on which they are based to ensure due process and fairness.

In summary, the Supreme Court’s decision in this case reinforces the statutory requirements for determining quorum and validating stock transfers. It highlights the importance of adhering to these requirements to ensure the proper functioning of corporate governance and protect the rights of stockholders. The ruling serves as a reminder of the need for meticulous record-keeping and clear legal reasoning in court decisions involving corporate matters.

FAQs

What was the key issue in this case?	The key issue was whether the annual stockholders’ meeting was valid, specifically if a quorum was present, and whether disputed shares should be considered when determining the quorum.
What does “outstanding capital stock” mean?	“Outstanding capital stock” refers to the total shares of stock issued under binding subscription agreements, whether fully or partially paid, excluding treasury shares. This is the basis for determining quorum in stockholder meetings.
Does the law distinguish between disputed and undisputed shares for quorum?	No, the Corporation Code does not distinguish between disputed and undisputed shares when determining the presence of a quorum. All outstanding capital stock is considered.
Why was the RTC decision declared void by the Court of Appeals?	The Court of Appeals declared the RTC decision void because it failed to clearly state the facts and the law on which it was based, violating Section 14, Article VIII of the Constitution.
What is the effect of not recording stock transfers in the corporation’s books?	If a stock transfer is not recorded in the corporation’s books, it is considered non-existent as far as the corporation is concerned. The transferee cannot exercise the rights of a stockholder until the transfer is recorded.
What is a quorum in a stockholders’ meeting?	A quorum in a stockholders’ meeting, as defined by Section 52 of the Corporation Code, is the presence of stockholders representing a majority of the outstanding capital stock.
What was the Supreme Court’s ruling on the Motion for Extension of Time?	The Supreme Court held that filing a Motion for Extension of Time to file an Answer constitutes voluntary submission to the court’s jurisdiction, curing any defects in the service of summons.
What recourse does a stockholder have if denied access to corporate books?	If a stockholder is refused access to corporate books, they can file a case in accordance with Section 144 of the Corporation Code, which addresses violations of the Code.

The Supreme Court’s decision provides clarity on key aspects of Philippine corporate law, especially concerning quorum requirements and stock transfers. Corporations must ensure their practices align with these standards to maintain proper governance and protect shareholder rights. Understanding these principles is crucial for corporations and their stakeholders to ensure compliance and avoid potential disputes.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Carolina Que Villongco, et al. v. Cecilia Que Yabut, et al., G.R. No. 225024, February 5, 2018