Corporate Law Case Digest: Palting v. San Jose Petroleum (1966)

Palting v. San Jose Petroleum

G.R. No. L-14441      December 17, 1966

Lessons Applicable: 

• Up to what level do you apply the grandfather rule? (Corporation Law)
• Pre-Corporation Code (Corporation Law)

FACTS:

• September 7, 1956: San Jose Petroleum (SJP) 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. (Domestic Mining Oil Company)
• 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 James L. Buckley and Austin G.E. Taylor
• June 20, 1958: SJP amended Statement increasing 2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to P0.70 per share
• Pedro R. Palting together with other investors in the share of SJP filed with the SEC an opposing the registration and licensing of the securities on the grounds that:

1. tie-up between the issuer, SJP, a Panamanian corp. and San Jose Oil (SJO), a domestic corporation, violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949
2. issuer has not been licensed to transact business in the Philippines
3. sale of the shares of the issuer is fraudulent, and works or tends to work a fraud upon Philippine purchasers
4.  issuer as an enterprise, as well as its business, is based upon unsound business principles

 ISSUES: 

1. W/N Pedro R. Palting, as a "prospective investor" in SJP's securities, has personality to file -YES
2. W/N the tie-up violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949 (Up to what level do you apply the grandfather rule?) - YES

HELD: 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.

1. YES

• 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
• eliminating the word "aggrieved" appearing in the old Rule, being procedural in nature, 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

*amiscus curae -stranger to the case

    2.  YES

• SJO (domestic)- 90% owned by SJP (foreign) wholly owned by Pantepec Oil Co. and Pancoastel Petroleum, both organized and existing under the laws of Venezuela
• CANNOT go beyond the level of what is reasonable
• SJO is not a party and it is not necessary to do so to dispose of the present controversy. 
• SJP actually lost $4,550,000.00, which was received by SJO
• Articles of Incorporation of SJP is unlawful:

1. the directors of the Company need not be shareholders;
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 connected 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.