G.R. No. 14441. December 17, 1966
PEDRO R. PALTING, PETITIONER, VS. SAN JOSE PETROLEUM INCORPORATED, RESPONDENT.
BARRERA, J.:
This is a petition for review of the order of August 29, 1958, later
supplemented and amplified by another dated September 9, 1958, of the Securities
and Exchange Commissioner denying the opposition to, and instead, granting the
registration, and licensing the sale in the Philippines, of 5,000,000 shares of
the capital stock of the respondent-appellee San Jose Petroleum, Inc. (hereafter
referred to as SAN JOSE PETROLEUM), a corporation organized and existing in the
Republic of Panama.
On September 7, 1956, JOSE PETROLEUM filed with the Philippine Securities and
Exchange Commission a sworn registration statement, for the registration and
licensing for sale in the Philippines Voting Trust Certificates representing
2,000,000 shares of its capital stock of a par value of $0.35 a share, at P1.00
per share. It was alleged that the entire proceeds of the sale of said
securities will be devoted or used exclusively to finance the operations of San
Jose Oil Company, Inc. (a domestic mining corporation hereafter to be referred
to as SAN JOSE OIL) which has 14 petroleum exploration concessions covering an
area of a little less than 1,000,000 hectares, located in the provinces of
Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and Agusan.
It was the express condition of the sale that every purchaser of the securities
shall not receive a stock certificate, but a registered or bearer-voting-trust
certificate from the voting trustees named therein James L. Buckley and Austin
G.E. Taylor, the first residing in Connecticut, U.S.A., and the second in New
York City. While this application for registration was pending consideration by
the Securities and Exchange Commission, SAN JOSE PETROLEUM filed an amended
Statement on June 20, 1958, for registration of the sale in the Philippines of
its shares of capital stock, which was increased from 2,000,000 to 5,000,000, at
a reduced offering price of from P1.00 to P0.70 per share. At this time the par
value of the shares has also been reduced from $.35 to $.01 per share.[1]
Pedro R. Palting and others, allegedly prospective investors in the shares of
SAN JOSE PETROLEUM, filed with the Securities and Exchange Commission an
opposition to the registration and licensing of the securities on the grounds
that (1) the tie-up between the issuer, SAN JOSE PETROLEUM, a Panamanian
corporation, and SAN JOSE OIL, a domestic corporation, violates the Constitution
of the Philippines, the Corporation Law and the Petroleum Act of 1949; (2) the
issuer has not been licensed to transact business in the Philippines; (3) the
sale of the share of the issuer is fraudulent, and works or tends to work a
fraud upon Philippine purchasers; and (4) the issuer as an enterprise, as well
as its business, is based upon unsound business principles. Answering the
foregoing opposition if Palting, et al., the registrant SAN JOSE PETROLEUM
claimed that it was a “business enterprise” enjoying parity rights under the
Ordinance appended to the Constitution, which parity right, with respect to
mineral resources in the Philippines, may be exercised, pursuant to the
Laurel-Langley Agreement, only through the medium of a corporation organized
under the laws of the Philippines. Thus, registrant which is allegedly qualified
to exercise rights under the Parity Amendment, had to do so through the medium
of a domestic corporation, which is the SAN JOSE OIL. It refuted the contention
that the CorporationLaw was being violated, by alleging that Section V3 thereof
applies only to foreign corporations doing business in the Philippines, and
registrant was not doing business here. The mere fact that it was a holding
company of SAN JOSE OIL and that registrant undertook the financing of and
giving technical assistance to said corporation did not constitute transaction
of business in the Philippines. Registrant also denied that the offering for
sale in the Philippines of its shares of capital stock was fraudulent or would
work or tend to work fraud on the investors. On August 29, 1953, and on
September 9, 1958 the Securities and Exchange Commissioner issued the orders
object of the present appeal.
The issues raised by the parties in this appeal are as follows:
- Whether or not petitioner Pedro R. Palting, as a “prospective investor” in
respondent’s securities, has personality to file the present petition for review
of the order of the Securities and Exchange Commissioner; - Whether or not the issue raised herein is already moot and academic;
- Whether or not the “tie-up” between the respondent SAN JOSE PETROLEUM, a
foreign corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining
corporation, is violative of the Constitution, the Laurel-Langley Agreement, the
Petroleum Act of 1949, and the Corporation Law; and - Whether or not the sale of respondent’s securities is fraudulent, or would
work or tend to work fraud to purchasers of such securities in the
Philippines.
- In answer to the notice and order of the Securities and Exchange
Commissioner, published in 2 newspapers of general circulation in the
Philippines, for “any person who is opposed” to the petition for registration
and licensing of respondent’s securities, to file his opposition in 7 days,
herein petitioner so filed an opposition. And, the Commissioner, having denied
his opposition and instead, directed the registration of the securities to be
offered for sale, oppositor Parting instituted the present proceeding for review
of said order.
Respondent raises the question of the personality of
petitioner to bring this appeal, contending that as a mere “prospective
investor”, he is not an “aggrieved” or “interested” person who may properly
maintain the suit. Citing a 1931 ruling of Utah State supreme court,[2] it is claimed that the phrase “party
aggrieved” used in the Securities Act[3]
and the Rules of Court[4] as having the
right to appeal should refer only to issuers, dealers and salesmen of
securities.It is true that in the cited case, it was ruled that the phrase
“person aggrieved” is that party “aggrieved by the judgment or decree where it
operates on his rights of property or bears directly upon his interest”, that
the word “aggrieved” refers to “a substantial grievance, a denial of some
personal property right or the imposition upon a party of a burden or
obligation.” But a careful reading of the case would show that the appeal
therein was dismissed because the court held that an order of registration was
not final and therefore not appealable. The foregoing pronouncement relied upon
by herein respondent was made in construing the provision regarding an order of
revocation which the court held was the one appealable. And since the law
provides that in revoking the registration of any security, only the issuer and
every registered dealer of the security are notified, excluding any person or
group of persons having no such interest in the securities, said court concluded
that the phrase “interested person” refers only to issuers, dealers or salesmen
of securities.We cannot consider the foregoing ruling by the Utah State Court as
controlling on the issue in this case. Our Securities Act in Section 7(c)
thereof, requires the publication and notice of the registration statement.
Pursuant thereto, the Securities and Exchange Commissioner caused the
publication of an order in part reading as follows:“x x x Any person who is opposed to this petition must file his
written opposition with this Commission within said period (2 weeks). x x x
x.”In other words, as construed by the administrative office
entrusted with the enforcement of the Securities Act, any person (who may not be
“aggrieved” or “interested” within the legal acceptation of the word) is allowed
or permitted to file an opposition to the registration of securities for sale in
the Philippines. And this is in, consonance with the generally accepted
principle that Blue Sky Laws are enacted to protect investors and prospective
purchasers and to prevent fraud and preclude the sale of securities which are in
fact worthless or worth substantially less than the asking price. It is for this
purpose that herein petitioner duly filed his opposition giving grounds
therefor. Respondent SAN JOSE PETROLEUM was required to reply to the opposition.
Subsequently both the petition and the opposition were set for hearing during
which the petitioner was allowed to actively participate and did so by
cross-examining the respondent’s witnesses and filing his memorandum in support
of his opposition. He therefore to all intents and purposes became a party to
the proceedings. And under the New Rules of Court,[5] such a party can appeal from a final
order, ruling or decision of the Securities and Exchange Commission. This new
Rule eliminating the word “aggrieved” appearing in the old Rule, being
procedural in nature,[6] and in view of
the express provision of Rule 144 that the new rules made effective on January
1, 1964 shall govern not only cases brought after they took effect but all
further proceedings in cases then pending, except to the extent that in
the opinion of the Court their application would not be feasible or would work
injustice, in which event the former procedure shall apply, we hold that the
present appeal is properly within the appellate jurisdiction of this Court.The order allowing the registration and sale of respondent’s securities is
clearly a final order that is appealable. The mere fact that such authority may
be later suspended or revoked, depending on future developments, does not give
it the character of an interlocutory or provisional ruling. And the fact that
seven days after the publication of the order, the securities are deemed
registered (Sec. 7, Com. Act 83, as amended), points to the finality of the
order. Rights and obligations necessarily arise therefrom if not reviewed on
appeal.Our position on this procedural matter—that the order is appealable and the
appeal taken here is proper—is strengthened by the intervention of the Solicitor
General, under Section 23 of Rule 3 of the Rules of Court, as the constitutional
issues herein presented affect the validity of Section 13 of the Corporation
Law, which, according to the respondent, conflicts with the Parity Ordinance and
the Laurel-Langley Agreement recognizing, it is claimed, its right to exploit
our petroleum resources notwithstanding said provisions of the Corporation Law. - Respondent likewise contends that since the order of Registration/Licensing
dated September 9, 1958 took effect 30 days from September 3, 1958, and since no
stay order has been issued by the Supreme Court, respondent’s shares became
registered and licensed under the law as of October 3, 1950. Consequently; it is
asserted, the present appeal has become academic. Frankly we are unable to
follow respondent’s argumentation. First it claims that the order of August 29
and that of September 9, 1958 are not final orders and therefore are not
appealable. Then when these orders, according to its theory, became final and
were implemented, it argues that the orders can no longer be appealed as the
question of registration and licensing became moot and academic.But the
fact is that because of the authority to sell, the securities are, in all
probabilities, still being traded in the open market. Consequently the issue is
much alive as to whether respondent’s securities should continue to be the
subject of sale. The purpose of the inquiry on this matter is not fully seived
just because the securities had passed out of the hands of the issuer and its
dealers. Obviously, so long as the securities are outstanding and are placed in
the channels of trade and commerce, members of the investing public are entitled
to have the question of the worth or legality of the securities: resolved one
way or another.But more fundamental than this consideration, we agree
with the late Senator Glaro M. Recto, who appeared as amicus curiae in
this case, that while apparently the immediate issue in this appeal is the right
of respondent SAN JOSE PETROLEUM to dispose of and sell its securities to the
Filipino public, the real and ultimate controversy here would actually call for
the construction of the constitutional provisions governing the disposition,
utilization, exploitation and development of our natural resources. And
certainly this is neither moot nor academic. - We now come to the meat of the controversy—the “tie-up” between SAN JOSE OIL
on the one hand, and the respondent SAN JOSE PETROLEUM and its associates, on
the other. The relationship of these corporations involved or affected in this
case is admitted and established through the papers and documents which are
parts of the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the
outstanding capital stock of which is owned by respondent SAN JOSE PETROLEUM, a
foreign (Panamanian) corporation, the majority interest of which is owned by OIL
INVESTMENTS, Inc., another foreign (Panamanian) company. This latter corporation
in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL
PETROLEUM COMPANY, C.A., both organized and existing under the laws of
Venezuela. As of September 30, 1956, there were 9,979 stockholders of PANCOASTAL
PETROLEUM found in 49 American states and U.S. territories, holding 3,476,988
shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said
to have 3,077,916 shares held by 12,373 stockholders scattered in 49 American
states. In the two list of stockholders, there is no indication of the
citizenship of these stockholders,[7] or
of the total number of authorized stocks of each corporation, for the purpose of
determining the corresponding percentage of these listed stockholders in
relation to the respective capital stock af said corporation.Petitioner,
as well as the amicus curiae and the Solicitor General[8] contend that the relationship between
herein respondent SAN JOSE PETROLEUM and its subsidiary, SAN JOSE OIL, violates
the Petroleum Law of 1949, the Philippine Constitution, and Section 13 of the
Corporation Law, which inhibits a mining corporation from acquiring an interest
in another raining corporation. It is respondent’s theory, on the other hand,
that far from violating the Constitution, such relationship between the two
corporations is in accordance with the Laurel-Langley Agreement which
implemented the Ordinance Appended to the Constitution, and that Section 13 of
the Corporation law is not applicable because respondent is not licensed to do
business, as it is not doing business, in the Philippines.Article XIII,
Section 1 of the Philippine Constitution provides:“SEC. 1. All agricultural, timber, and mineral lands of the public
domain, waters, minerals, coal, petroleum,and other mineral oils, all forces of
potential energy, and other natural resources of the Philippines belong to the
State, and their disposition, exploitation, development, or utilization
shall be limited to citizens of the Philippines, or to corporations or
associations at least sixty per centum of the capital of which is owned by such
citizens, subject to any existing right, grant, lease or concession at the
time of the inauguration of this Government established under this Constitution,
x x x x.”(Italics supplied)In the 1946 Ordinance Appended to the Constitution, this
right (to utilize and exploit our natural resources) was extended to citizens of
the United States, thus:“Notwithstanding the provisions of Section one, Article Thirteen,
and section eight, Article Fourteen, of the foregoing Constitution, during the
effectivity of the Executive Agreement entered into by the President of the
Philippines with the President of the United States on the fourth of July,
nineteen hundred and forty-six, pursuant to the provisions of Commonwealth Act
numbered Seven Hundred and Thirty-Three, but in no case to extend beyond the
third of July, nineteen hundred and seventy-four, the disposition, exploitation,
development, and utilization of all agricultural, timber, and mineral lands of
the public d&main, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, and other natural resources of the
Philippines, and the operation of public utilities shall, if open to any
person, be open to citizens of the United States, and to all forms of business
enterprise owned or controlled, directly or indirectly, by citizens of the
United States in the same manner as to, and under the same conditions imposed
upon citizens of the Philippines or corporations “or association owned or
controlled by citizens of the Philippines. (Italics
supplied)In the 1954 Revised Trade Agreement concluded between the
United States and the Philippines, also known as Laurel-Langley Agreement,
embodied in Republic Act 1355, the following provisions appear:“ARTICLE VI
“1. The disposition, exploitation, development and utilization of
all agticultural, timber, and mineral iinds of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all forces and sources ot
potential energy, and other natural resources of either Party, and the operation
of public utilities, shall, if open to any person, be open to citizens of the
other Party and to all forms of business enterprise owned or controlled,
directly or indirectly, by citizens of such other Party in the same manner as to
and under the same conditions imposed upon citizens or corporations or
associations ownecfor controlled by citizens of the Party granting the
right.“2. The rights provided for in Paragraph 1 may be exercised, x x x in the
case of citizens of the United States. with respect to natural
resources in the public domain in the Philippines, only through the medium
of a corporation organized under the laws of the Philippines and at least 60% of
the capital stock of which is owned or controlled by citizens of the United
States. xxx. ““3. The United States of America reserves the rights of the several States of
the United States to limit the extent to which citizens or corporations or
associations owned or controlled by citizens of the Philippines may engage in
the activities specified in this Article. The Republic of the Philippines
reserves the power to deny any “of the rights specified in this Article to
citizens” of the United States who are citizens of States “or to corporations or
associations at least 60% of whose capital stock or capital is owned or
controlled by citizens of States, which deny like rights to citizens of the
Philippines, or to corporations or associations which are owned or controlled by
citizens of the Philippines. x x x.” (Italics supplied.)Re-stated, the privilege to utilize, exploit, and develop the
natural resources of this country was granted, by Article XIII of the
Constitution, to Filipino citizens or to corporation or associations
60% of the capital of which is owned by such citizens. With the Parity
Amendment to the Constitution, the same right was extended to citizens
of the United States and business enterprises owned or controlled, directly
or indirectly, by citizens of the United States.There could be no
serious doubt as to the meaning of the word “citizens” used in the
aforementioned provisions of the Constitution. The right was granted to 2 types
of persons: natural persons (Filipino or American citizens) and juridical
persons (corporations 60% of which capital is owned by Filipinos and business
enterprises owned or controlled directly or indirectly, by citizens of the
United States). In American law, “citizen” has been defined as “one who, under
the constitution and laws of the United States, has a right to vote for
representatives in congress and other public officers, and who is qualified to
fill offices in the gift of the people.” (1 Bouvier’s Law Dictionary, p. 490.) A
citizen is—“One of the sovereign people. A constituent member of the sovereignty,
synonymous with the people.” (Scott v. Sandford, 19 Ho. /U.S./ 404, 15 L. Ed.
691.)“A member of the civil state entitled to all its privileges. (Cooley, Const.
Lim. 77. See U.S. v. Cruikshank, 92 U.S. 542, 23 L. Ed. 588; Minor v.
Happersett, 21 Wall. /U.S./ 162, 22 L. Ed. 627.)These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American
business enterprise entitled to parity rights in the Philippines? The answer
must be in the negative, for the following reasons:Firstly,—It
is not owned or controlled directly by citizens of the United States,
because it is owned and controlled by a corporation, the OIL INVESTMENTS,
another foreign (Panamanian) corporation.Secondly—either can it
be said that it is indirectly owned and controlled by American citizens
through the OIL INVESTMENTS, for this latter corporation is in turn owned and
controlled, not by citizens of the United States, but still by two foreign
(Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL
PETROLEUM.Thirdly—Although it is claimed that these two last
corporations are owned and controlled respectively by 12,373 and 9,979
stockholders residing in the different American states, there is no showing in
the certification furnished by respondent that the stockholders of PANCOASTAL or
those of them holding the controlling stock, are citizens of the United
States.Fourthly—Granting that these individual stockholders are
American citizens, it is yet necessary to establish that the different states of
which they are citizens, allow Filipino citizens or corporations or associations
owned or controlled by Filipino citizens, to engage in the exploitation, etc. of
the natural resources of those states (see paragraph 3, Article VI of the
Laurel-Langley Agreement, supra). Respondent has presented no proof to
this effect.Fifthly—But even if the requirements mentioned in
the two immediately preceding paragraphs are satisfied, nevertheless to hold
that the set-up disclosed in this case, with a long chain of intervening foreign
corporations, comes within the purview of the Parity Amendment regarding
business enterprises indirectly owned or controlled by citizens of the United
States, is to unduly stretch and strain the language and intent of the law. For,
to what extent must ttie word “indirectly” be carried? Must we trace the
ownership or control of these various corporations ad infinitum for the
purpose of determining whether the American ownership-control-requirement is
satisfied? Add to this the admitted fact that the shares of stock of the
PANTEPEC and PANCOASTAL which are allegedly owned or controlled
directly by citizens of the United States, are traded in the stock
exchange in New York, and you have a situation where it becomes a practical
impossibility to determine at any given time, the citizenship of the controlling
stock required by the law. In the circumstances, we have to hold that the
respondent SAN JOSE PETROLEUM, as presently constituted, is not a business
enterprise that is authorized to exercise the parity privileges under the Parity
Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with
SAN JOSE OIL is, consequently, illegal.What, then, would be the status
of SAN JOSE OIL, about 90% of whose stock is owned by SAN JOSE PETROLEUM? This
is a query which we need not resolve in this case as SAN JOSE OIL is not a party
and it is not necessary to do so to dispose of the present controversy. But it
is a matter that probably the Solicitor General would want to look
into.There is another issue which has been discussed extensively by the
parties. This is whether or not an American mining corporation may lawfully “be
in anywise interested in any other corporation (domestic or foreign) organized
for the purpose of engaging in agriculture or in mining,” in the Philippines or
whether an American citizen owning stock in more than one corporation organized
for the purpose of engaging in agriculture or in mining, may ownmore than 15% of
the capital stock then outstanding and entitled to vote, of each of such
corporations, in view of the express prohibition contained in Section 13 of the
Philippine Corporation Law. The petitioner in this case contends that the
provisions of the Corporation Law must be applied to American citizens and
business enterprise otherwise entitled to exercise the parity privileges,
because both the Laurel-Langley Agreement (Art. VI, para. 1) and the Petroleum
Act of 1949 (Art. 31), specifically provide that the enjoyment by them of the
same rights and obligations granted under the provisions of both laws shall be
“in the same manner as to, and under the same conditions imposed upon, citizens
of the Philippines or corporations or associations owned or controlled by
citizens of the Philippines.” The petitioner further contends that, as the
enjoyment of the privilege of exploiting mineral resources in the Philippines by
Filipino citizens or corporations owned or controlled by citizens of the
Philippines (which corporation must necessarily be organized under the
Corporation Law), is made subject to the limitations provided in Section 13 of
the Corporation Law, so necessarily the exercise of the parity rights by
citizens of the United States or business enterprise owned or controlled,
directly or indirectly, by citizens of the United States, must equally be
subject to the same limitations contained in the aforesaid Section 13 of the
Corporation Law.In view of the conclusions we have already arrived at,
we deem it not indispensable for us to pass upon this legal question, especially
taking into account the statement of the respondent (SAN JOSE PETROLEUM) that it
is essentially a holding company, and as found by the Securities and Exchange
Commissioner, its principal activity is limited to the financing and giving
technical assistance to SAN JOSE OIL. - Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed
registration for sale in the Philippines, was incorporated under the laws of
Panama in April, 1956, with an authorized capital stock of $500,000.00, American
currency, divided into 50,000,000 shares at par value of $0.01 per share. By
virtue of a 3-party Agreement of June 14, 1956, respondent was supposed to have
received from OIL INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE
OIL (at par value of $0.01 per share), plus a note for $250,000.00 due in 6
months, for which respondent issued in favor of OIL INVESTMENTS 16,000,000
shares of its capital stock, at $0.01 per share or with a value of $160,000.00,
plus a note for $230,297.97 maturing in 2 years at 6% per annum interest,[9] and the assumption of payment of the
unpaid price of 7,500,000 (of the 8,000,000) shares of SAN JOSE OIL.
On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from
$500,000.00 to $17,500,000.00 by increasing the par value of the same 50,000,000
shares, from $0.01 to $0.35. Without any additional consideration, the
16,000,000 shares of $0.01 previously issued to OIL INVESTMENTS with a total
value of $160,000.00 were changed with 16,000,000 shares of the recapitalized
stock, at $0.35 per share, or valued at $5,600,000.00. And, to make it appear
that cash was received for these re-issued 16,000,000 shares, the board of
directors of respondent corporation placed a valuation of $5,900,000.00 on the
8,000,000 shares of SAN JOSE OIL (still having par value of $0.10 per share)
which were received from OIL INVESTMENTS as part-consideration for the
16,000,000 shares at $0.01 per share.
In the Balance Sheet of respondent, dated July 12, 1956, from the
$5,900,000.00, supposedly the value of the 8,000,000 shares of SAN JOSE OIL, the
sum of $5,100,000.00 was deducted, corresponding to the alleged difference
between the “value” of the said shares and the subscription price thereof which
is $300,000.00 (at $0.10 per share). From this $800,000.00, the subscription
price of the SAN JOSE OIL shares, the amount of $319,702.03 was deducted, as
allegedly unpaid subscription price, thereby giving a difference of $480,297.97,
which was placed as the amount allegedly paid in on the subscription price of
the 3,000,000 SAN JOSE OIL-shares. Then, by adding thereto the note receivable
from OIL INVESTMENTS, for $250,000.00 (part-consideration for the 16,000,000 SAN
JOSE PETROLEUM-shares) and the sum of $6,516.21, as deferred expenses, SAN JOSE
PETROLEUM appeared to have assets in the sum of $736,814.18.
These figures are highly questionable. Take the item $5,900,000.00 the
valuation placed on the 3,000,000 shares of SAN JOSE OIL. There appears no basis
for such valuation other than belief by the board of directors of respondent
that “should San Jose Oil Company ife granted the bulk of the concessions
applied for upon reasonable terms, that it would have a reasonable value of
approximately $10,000,000.”[10] Then, of
this amount, the subscription price of $800,000.00 was deducted and called it
“difference between the (above) valuation and the subscription price for the
8,000,000 shares.” Of this $800,000.00 subscription price, they deducted the sum
of $480,297.97 and the difference was placed as the unpaid portion of the
subscription price. In other woirds, it was made to appear that they paid in
$480,297.97 for the 8,000,000 shares of SAN JOSE OIL. This amount ($480,297.97)
was supposedly that $250,000.00 paid by OIL INVESTMENTS for 7,500,000 shares of
SAN JOSE OIL, embodied in the June 14-Agreement, and a sum of $230,297.97 the
amount expended or advanced by OIL INVESTMENTS to SAN JOSE OIL. And yet, there
is still an item among respondent’s liabilities, for $230,297.97 appearing as
note payable to Oil Investments, maturing in 2 years at 6% interest per
annum.[11] As far as it appears from the
records, for the 16,000,000 shares at $0.35 per share issued to OIL INVESTMENTS,
respondent SAN JOSE PETROLEUM received from OIL INVESTMENTS only the note for
$250,000.00 plus the 8,000,000 shares of SAN JOSE OIL, with par value of $0.10
per share or a total of $1,050,000.00—the only assets of the corporation. In
other words, respondent actually lost $4,550,000.00, which was received by OIL
INVESTMENTS.
But this is not all. Some of the provisions of the Articles of Incorporation
of respondent SAN JOSE PETROLEUM are noteworthy; viz:
(1) the directors
of the Company need not be share-holders;
(2) that in the meetings of the board of directors, any director may be
represented and may vote through a proxy who also need not be a director or
stockholder; and
(3) that no contract or transaction between the corporation and any other
association or partnership will be affected, except in case of fraud, by the
fact that any of the directors or officers of the corporation is interested in,
or is a director or officer of, such other association or partnership, and that
no such contract or transaction of the corporation with any other person or
persons, firm, association or partnership shall be affected by the fact that any
director or officer of the corporation is a party to or has an interest in, such
contract or transaction, or has in anyway connection with such other person or
persons, firm, association or partnership; and finally, that all and any of the
persons who may become director or officer of the corporation shall be relieved
from all responsibility for which they may otherwise be liable by reason of any
contract entered into with the corporation, whether it be for his benefit or for
the benefit of any other person, firm, association or partnership in which he
may be interested.
These provisions are in direct opposition to our corporation law and
corporate practices in this country. These provisions alone would outlaw any
corporation locally organized or doing business in this jurisdiction. Consider
the unique and unusual provision that no contract or transaction between the
company and any otner association or corporation shall be affected except in
case of fraud, by the fact that any of the directors or officers of the company
may be interested in or are directors or officers of such other association or
corporation; and that none of such contracts or transactions of this company
with any person or persons, firms, associations or corporations shall be
affected by the fact that any director or officer of this company is a party to
or has an interest in such contract or transaction or has any connection with
such person or persons, firms, associations or corporations; and that any and
all persons who may become directors or officers of this company are hereby
relieved of all responsibility which they would otherwise incur by reason of any
contract entered into which this company either for their own benefit, or for
the benefit of any person, firm, association or corporation in which they may be
interested.
The impact of these provisions upon the traditional fiduciary relationship
between the directors and the stockholders of a corporation is too obvious to
escape notice by those who are called upon to protect the interest of investors.
The directors and officers of the company can do anything, short of actual
fraud, with the affairs of the corporation even to benefit themselves directly
or other persons or entities in which they are interested, and with immunity
because of the advance condonation or relief from responsibility by reason of
such acts. This and the other provision which authorizes the election of
non-stockholders as directors, completely disassociate the stockholders from the
government and management of the business in which they have invested.
To cap it all on April 17, 1957, admittedly to assure continuity of the
management and stability of SAN JOSE PETROLEUM, OIL INVESTMENTS, as holder
of the only subscribed stock of the former corporation and acting “on
behalf of All future holders of voting trust certificates”, entered
into a voting trust agreement[12] with
James L. Buckley and Austin E. Taylor, whereby said Trustees were given
authority to vote the shares represented by the outstanding trust certificates
(including those that may henceforth be issued) in the following manner:
(a) At all elections of directors, the Trustees designate a suitable proxy or
proxies to vote for the election of directors designated bv the Trustees in
their own discretion, having in mind the best interests of the holders of the
voting trust certificates, it being understood that any and all of the
Trustees shall be eligible for election as directors;
(b) On any proposition for removal of a director, the Trustees shall
designate a suitable proxy or proxies to vote for or against such proposition
as the Trustees in their own discretion may determine, having in mind
the best interest of the holders of the voting trust certificates:
(c) With respect to all other matters arising at any meeting of
stockholders, the Trustees will instruct such proxy or proxies attending such
meetings to vote the shares of stock held by the Trustees in accordance with
the written instructions of each holder of voting trust certificates.
(Italics supplied.)
It was also therein provided that the said Agreement shall be binding upon
the parties thereto, their successors, and upon all holders of voting trust
certificates.
And these are the voting trust certificates that are offered to investors at
authorized by Security and Exchange Commissioner. It can not be doubted that the
sale of respondent’s securities would, to say the least, work or tend to work
fraud to Philippine investors.
FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to
dismiss this appeal, is denied, and the orders of the Securities and Exchange
Commissioner, allowing the registration of Respondent’s securities and licensing
their sale in the Philippines are hereby set aside. The case is remanded to the
Securities and Exchange Commission for appropriate action in consonance with
this decision. With costs. Let a copy of this decision be furnished the
Solicitor General for wnatever action he may deem advisable to take in the
premises.
SO ORDERED.
Concepcion, C.J, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P.,
Zaldivar and Sanchez, JJ., concur.
[1] At a special stockholders’ meeting
held on January 27, 1958, the Articles of Incorporation of SAN JOSE PETROLEUM
was amended so as to reduce the authorized capital from $17,500,000 to
$500,000.00 divided into 50,000,000 shares at 1¢ per share.
[2] Ogden Chamber of Commerce, et al.,
v. State Securities Commission, 78 Utah 393, 3 P (2nd) 267.
[3) “SEC. 35. Court review of
orders. – (a) Any person aggrieved by an order issued by the Commission in
a proceeding under this Act to which such person is a party or who may be
affected thereby may obtain a review of such order in the Supreme Court of the
Philippines by filing in such court, within thirty days after the entry of such
order, a written petition praying that the order of the Commission be modified
or set aaide in whole or in part, x x x.” (Com. Act 83).
[4] “SECTION 1. Petition for
review. — Within thirty (30) days-from notice of an order or decision
issued by the Public Service Commission or the Securities and Exchange
Commission, any party aggrieved thereby may file, in the Supreme Court,
a written petition for the review of such order or decision.” (Rule 43, of the
old Rules of Court).
[5] “Section 1. How appeal
taken. Any party may appeal from a final order, ruling or decision of the
Securities and Exchange Commission,—by filing with said bod(y)ies a notice of
appeal and with the Supreme Court twelve (12) printed or mimeographed copies of
a petition tor certiorari or review ot such order, ruling or decision, as the
corresponding statute may provide.” (Rule 43, New Rules of Court.)
[6] Casambar v. Sino Cruz, et al.,
L-6882, Dec. 29, 1955.
[7] Later the Acting Assistant
Secretary of Pantepec, who is a director of the San Jose Petroleum,certified,
according to the best of his belief and knowledge that more than 60% of the
stockholders are citizens of the United States and more than 60% of the stock is
held by citizens of the United States.
[8] The Republic of the Philippines
was allowed by this Court to intervene in this proceeding, in view of the
allegation that the Corporation Law and the Petroleum Act of 1949 have been
violated.
[9] Under the June 14, 1956 Agreement,
this amount corresponded to the expenditures advanced by Oil Investments, in
connection with the SAN JOSE OIL venture inthe Philippines.
[10] Board Meeting of June 27,
1956.
[11] In the June 14, 1956 Agreement,
it was stated that respondent “assumes the obligation of the Philippine company
(SAN JOSE.OIL) to repay the advances made to it by Oil Investments, including
the total amount of any direct expenditures made by Oil Investments in
connection with the San Jose venture in the Philippines. The amount of said
obligation shall be calculated as of the date hereof, and shall be represented
by a note to become payable in U.S. dollars two (2) years, from “the date of
this agreement, and to bear interest at six percent (6%) per annum.”
(12) The voting trust agreement will
expire April 7, 1967.