Nautica Canning Corporation (Nautica) was organized and incorporated on May 11, 1994 with an authorized capital stock of P40,000,000 divided into 400,000 shares with a par value of P100.00 per share. It had a subscribed capital stock of P10,000,000 with paid-in subscriptions from its incorporators.
Name No. of Shares Amount Subscribed Amount Paid
ALVIN Y. DEE 89,991 P8,999,100 P4,499,100
JONATHAN Y. DEE 2 200 200
JOANNA D. LAUREL 2 200 200
DARLENE EDSA MARIE
GONZALES 2 200 200
JENNIFER Y. DEE 2 200 200
ROBERTO C. YUMUL 1 100 100
JERRY ANGPING 10,000 1,000,000 500,000
On December 19, 1994, respondent Roberto C. Yumul was appointed Chief Operating Officer/General Manager of Nautica with a monthly compensation of P85,000 and an additional compensation equal to 5% of the company’s operating profit for the calendar year.
On the same date, First Dominion Prime Holdings, Inc., Nautica’s parent company, through its Chairman Alvin Y. Dee, granted Yumul an Option to Purchase up to 15% of the total stocks it subscribed from Nautica.
On June 22, 1995, a Deed of Trust and Assignment6 was executed between First Dominion Prime Holdings, Inc. and Yumul whereby the former assigned 14,999 of its subscribed shares in Nautica to the latter. The deed stated that the 14,999 "shares were acquired and paid for in the name of the ASSIGNOR only for convenience, but actually executed in behalf of and in trust for the ASSIGNEE."
In March 1996, Nautica declared a P35,000,000 cash dividend, P8,250,000 of which was paid to Yumul representing his 15% share.
After Yumul’s resignation from Nautica on August 5, 1996, he wrote a letter to Dee requesting the latter to formalize his offer to buy Yumul’s 15% share in Nautica on or before August 20, 1996; and demanding the issuance of the corresponding certificate of shares in his name should Dee refuse to buy the same.
Dee, through Atty. Fernando R. Arguelles, Jr., Nautica’s corporate secretary, denied the request claiming that Yumul was not a stockholder of Nautica.
Yumul requested that the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica, and that he, as a stockholder, be allowed to inspect its books and records.
Yumul’s requests were denied allegedly because he neither exercised the option to purchase the shares nor paid for the acquisition price of the 14,999 shares. Atty. Arguelles maintained that the cash dividend received by Yumul is held by him only in trust for First Dominion Prime Holdings, Inc.
Thus, Yumul filed on October 3, 1996, before the SEC a petition for mandamus with damages, with prayer that the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica and that the certificate of stocks corresponding thereto be issued in his name.
SEC En Banc Decision
Judgment is hereby rendered in favor of the petitioner and against the respondents.
1. Declaring petitioner as a stockholder of respondent Nautica;
2. Declaring petitioner as beneficial owner of 14,999 shares of Nautica under the Deed of Trust and Assignment dated June 22, 1995
3. Declaring petitioner to be entitled to the right of inspection of the books of the corporation pursuant to the pertinent provisions of the Corporation Code; and
4. Directing the Corporate Secretary of Nautica to recognize and register the Deed of Trust and Assignment dated June 22, 1995.
The Court of Appeals affirmed the decision of the SEC En Banc.
Issue:
Whether or not Yumul is a stockholder of Nautica.
Petitioners contend that Yumul was not a stockholder of Nautica; that he was just a nominal owner of one share as the beneficial ownership belonged to Dee who paid for said share when Nautica was incorporated.
Held:
It is possible for a business to be wholly owned by one individual. The validity of its incorporation is not affected when such individual gives nominal ownership of only one share of stock to each of the other four incorporators. This is not necessarily illegal.
But, this is valid only between or among the incorporators privy to the agreement. It does bind the corporation which, at the time the agreement is made, was non-existent. Thus, incorporators continue to be stockholders of a corporation unless, subsequent to the incorporation, they have validly transferred their subscriptions to the real parties in interest.
As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are.
In the case at bar, the SEC and the Court of Appeals correctly found Yumul to be a stockholder of Nautica, of one share of stock recorded in Yumul’s name, although allegedly held in trust for Dee.
Nautica’s Articles of Incorporation and By-laws, as well as the General Information Sheet filed with the SEC indicated that Yumul was an incorporator and subscriber of one share.
Even granting that there was an agreement between Yumul and Dee whereby the former is holding the share in trust for Dee, the same is binding only as between them. From the corporation’s vantage point, Yumul is its stockholder with one share, considering that there is no showing that Yumul transferred his subscription to Dee, the alleged real owner of the share, after Nautica’s incorporation.
Ponce v. Alsons Cement Corp
[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. As between the corporation on one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. It is only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize arises.
Hence, without such recording, the transferee may not be regarded by the corporation as one among its stockholders and the corporation may legally refuse the issuance of stock certificates.
Moreover, the contents of the articles of incorporation bind the corporation and its stockholders. Its contents cannot be disregarded considering that it was the basic document which legally triggered the creation of the corporation.
Besides, other than petitioners’ self-serving assertion that the beneficial ownership belongs to Dee, they failed to show that the subscription was transferred to Dee after Nautica’s incorporation.
The conduct of the parties also constitute sufficient proof of Yumul’s status as a stockholder. On April 4, 1995, Yumul was elected during the regular annual stockholders’ meeting as a Director of Nautica’s Board of Directors. Thereafter, he was elected as president of Nautica. Thus, Nautica and its stockholders knowingly held respondent out to the public as an officer and a stockholder of the corporation.
Section 23 of Batas Pambansa (BP) Blg. 68 or The Corporation Code of the Philippines requires that every director must own at least one share of the capital stock of the corporation of which he is a director. Before one may be elected president of the corporation, he must be a director.
Since Yumul was elected as Nautica’s Director and as President thereof, it follows that he must have owned at least one share of the corporation’s capital stock.
Thus, from the point of view of the corporation, Yumul was the owner of one share of stock.
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