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NAUTICA CANNING CORPORATION v. ROBERTO C. YUMUL

FACTS:

The case involves a dispute over the ownership of shares in Nautica Canning Corporation (Nautica). Respondent Roberto Yumul was appointed as the Chief Operating Officer/General Manager of Nautica with an option to purchase up to 15% of the company's total stocks. A Deed of Trust and Assignment was executed between First Dominion Prime Holdings, Inc. (Nautica's parent company) and Yumul, wherein 14,999 of its subscribed shares in Nautica were assigned to him. Yumul received a cash dividend representing his 15% share. After Yumul resigned from Nautica, he requested the formalization of Dee's offer to buy his shares and the issuance of the corresponding certificate of shares. However, Nautica denied Yumul's request, claiming that he was not a stockholder. Yumul filed a petition for mandamus with damages before the Securities and Exchange Commission (SEC), which ruled in his favor. The Court of Appeals affirmed the SEC's decision. Petitioners, however, appealed the decision to the Supreme Court.

ISSUES:

  1. Whether Yumul is a stockholder of Nautica.

  2. Whether Yumul has the right to inspect the books and records of Nautica.

  3. Whether Yumul is the beneficial owner of the 14,999 shares of stocks of Nautica.

  4. Whether or not the Deed of Trust and Assignment is a simulated contract.

  5. Whether or not the SEC has jurisdiction over the issue of the validity of the Deed of Trust and Assignment.

RULING:

  1. Yumul is a stockholder of Nautica as indicated in the corporation's Articles of Incorporation, By-laws, and General Information Sheet filed with the SEC. The agreement between Yumul and Dee, if any, is binding only as between them. From the corporation's perspective, Yumul is the stockholder with one share.

  2. Yumul has the right to inspect the books and records of Nautica, pursuant to Section 74 of the Corporation Code, as he is an elected Director and President of the corporation.

  3. The SEC did not make a categorical finding on whether Yumul exercised his option to purchase the 14,999 shares of stocks. However, the SEC deemed petitioners' allegation to refute Yumul's claim over the shares as a ploy to deprive him of his rights, which should not be countenanced.

  4. The Court held that the requisites for simulation have not been proven in this case. Thus, it cannot be concluded that the Deed of Trust and Assignment is a simulated contract.

  5. The Court ruled that the SEC does not have jurisdiction over the issue of the validity of the Deed of Trust and Assignment. As the controversy involves matters purely civil in character, it falls within the jurisdiction of the regular courts.

PRINCIPLES:

  • A transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned; the corporation looks only to its books to determine its shareholders. The corporation may refuse the issuance of stock certificates without recording the transfer. (Ponce v. Alsons Cement Corp.)

  • The contents of the Articles of Incorporation bind the corporation and its stockholders. The Articles of Incorporation are the basic document that triggers the creation of the corporation.

  • Simulation is the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purposes of deception, the appearances of a judicial act which does not exist or is different from what was really executed.

  • The requisites for simulation are: (a) an outward declaration of will different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons.

  • Matters purely civil in character are within the competence of the regular courts, and not within the limited jurisdiction of the SEC.

  • The determination of whether a contract is simulated or not can be resolved by applying the pertinent provisions of the Civil Code, and disputes concerning the application of the Civil Code are properly cognizable by courts of general jurisdiction.

  • The jurisdiction over cases involving intra-corporate disputes was transferred from the SEC to the regional trial courts by the Securities Regulation Code.