1. PALTING VS SAN JOSE PETROLEUM INC.
 Respondent’s shares of stock were allowed registration for sale in the PH, was incorporated
GR NO. L-14441
DECEMBER 17, 1966
Topic: SRC; SRC-IRR; SECURITIES
Petitioners: PEDRO PALTING
Respondents: SAN JOSE PETROLEUM INC.
Ponente: BARRERA, J.
FACTS:
 Respondent, a Panamanian corporation, filed w/ the SEC a sworn registration statement for
the registration and licensing for sale in the PH Voting Trust Certs representing 2M shares
of its capital stock of a par value $0.35/share at P1/share. Allegedly, the entire proceeds of
the sale of said securities will be devoted to finance the San Jose Oil Co., a domestic mining
corp., w/c has exploration concessions in different parts of PH.
o Condition of the sale: Every purchaser of the securities shall not receive a stock
certificate but a registered or bearer-voting-trust certificate from the voting trustees
named James Buckley and Austin Taylor, both US residents.
o Pending this application for registration, respondent filed an amended statement for the
same registration but was increased from 2M to 5M w/ a reduced offer price from
P1/share to P0.7/share. At that time, the par value has also been reduced from
$0.35/share to $0.01/share.
 Palting, a prospective investor in the respondent’s shares, opposed the registration and
licensing w/ the SEC on the ground that:
o The tie up between San Jose Petroleum (Issuer) and San Jose Oil violates the
Constitution, Corp. Law and Petroleum Act;
o Respondent is not licensed to do business in PH;
o The sale of shares is fraudulent against PH purchasers;
o Respondent exercised unsound business principles.
 Respondent claimed that it enjoyed parity rights under the Ordinance appended to the
Constitution, w/ respect to mineral resources in PH may be exercised pursuant to the
Laurel-Langley Agreement, only via the medium of a corporation organized under PH laws;
hence, registrant is qualified to exercise rights under the Parity Amendment had to do via
San Jose Oil as its medium.
o No violation of Sec. 13 of the Corp. Law as it only applies to foreign corps. operating in
PH but respondent was not such corp.. Respondent was a holding company of San Jose
Oil and that respondent’s financing and technical assistance cannot be considered as
doing business in PH. There was no fraud in the sale.
 The SEC granted the registration and licensing sale of respondent hence this case.
MAIN ISSUE - WoN the sale respondent’s securities is fraudulent and would work to
defraud PH purchasers - YES
SIDE ISSUES:
 WoN Palting has the personality to file the petition before the SEC - YES
 WoN issue is moot and academic - NO
 WoN the tie up between respondent, a foreign corp., and San Jose Oil, a PH corp.,
violated the Constitution and other laws
HELD/RATIO: MAIN ISSUE (WARNING: SHITLOAD OF NUMBERS; SORRY I JUST COPIED THE
FIRST FEW PARTS BECAUSE I COULD NOT UNDERSTAND)
Sale of Securities Would Tend to Defraud PH Purchasers
under the laws of Panama with an authorized capital stock of $500k divided into 50M
shares at par value of $0.01/share. By virtue of a 3-party Agreement respondent was
supposed to have received from OIL INVESTMENT INC.S 8M shares of the capital stock of
San Jose Oil (at par value of $0.01/share), plus a note for $250k due in 6 mos., for which
respondent issued in favor of OIL INVESTMENT INC.S 16M shares of its capital stock, at
$0.01/share or with a value of $160k, plus a note for $230k maturing in 2 yrs at 6% /annum
interest, and the assumption of payment of the unpaid price of 7.5M (of the 8Mshares of
San Jose Oil)
 The respondent’s capitalization was increased from $500k to $17.5M by increasing the par
value of the same 50M shares, from $0.01 to $0.35. W/o any addt’l consideration, the
16Mshares of $0.01 previously issued to OIL INVESTMENT INC.S with a total value of $160k
were changed with 16M shares of the recapitalized stock at $0.35/share, or valued at
$5.6M. And, to make it appear that cash was received for these re-issued 16M shares, the
BoD of San Jose Petroleum placed a valuation of $5.9M on the 8M shares of San Jose Oil
(still having par value of $0.10/share) which were received from OIL INVESTMENT INC.S as
part-consideration for the 16Mshares at $0.01/share.
 In respondent’s Balance Sheet, from the $5.9M supposedly the value of the 8M shares of
San Jose Oil, the sum of $5.1M was deducted, corresponding to the alleged difference
between the "value" of the said shares and the subscription price thereof which is $800k
(at $0.10/share). From this $800k, the subscription price of the San Jose Oil shares, the
amount of $319k was deducted, as allegedly unpaid subscription price, thereby giving a
difference of $480k, which was placed as the amount allegedly paid in on the subscription
price of the 8M San Jose Oil shares. Then, by adding thereto the note receivable from OIL
INVESTMENT INC.S, for $250k(part-consideration for the 16M respondent’s shares), and
the sum of $6,516.21, as deferred expenses, respondent appeared to have assets in the
sum of $736k.
 Said figures are questionable. For example, the $5.9M valuation placed on the 8M shares
of San Jose Oil. There seems to be no basis for such valuation other than by the BoD’s of
San Jose Petroleum belief that should San Jose Oil be granted the concessions it applied
for, that it would have a reasonable value of approx. $10M. Of this amount, the
subscription price of $800k was deducted and was called the difference between the
aforesaid valuation and the subscription price of the 8M shares. Of the $800k subscription
price, they deducted $480k and the difference was places as the unpaid portion of the
subscription price.
o In other words, it seemed that they paid in $480k for the 8M shares of San Jose Oil. Such
amount was supposedly that $250k by OIL INVESTMENT INC.S for 7.5M shares of San
Jose Oil and a sum of $230k, the amount advanced by OIL INVESTMENT INC.S to San Jose
Oil. Yet, there is still a liability for $230k appearing as note payable to OIL INVESTMENT
INC. maturing in 2yrs at 6%/annum.
o Per records, the 16M shares at $0.35/share issued to OIL INVESTMENT INC.S, respondent
received from said investments only the note for $250k plus the 8M shares of San Jose
Oil w/ a par value of $0.10/share or a total of $1.05M – the only assets of the
corporation. In short, respondent lost $4.55M w/c was received by Oil Investment Inc.s.
 Respondent’s Arts. Of Inc. provided:
(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.
 Such provisions are illegal as they would outlaw any corporation to do business in PH. For
example, provision no. 3 has an impact on the judiciary relationship between the directors
and SHs is too obvious an escape notice by those called upon to protect investors’ interest.
This means that the officers can do anything, in short of actual fraud, even to benefit
themselves or other persons and w/ immunity because of the advance relief from
responsibility of such acts. This provision and first 2 provisions completely cuts off the SHs
from the gov’t and mgmt. of the business w/c they have invested.
 To assure the continuity of the mgmt. of San Jose Petroleum Oil Investment Inc.s, as holder
of the only subscribed stock of the former corporation and actin on behalf of all future
holders of voting trust certs entered into a VTA w/ Buckley and Taylor whereby said
trustees have the authority to vote the represented by the outstanding trust certificates in
the ff. manner:
o (a) At all elections of directors, the Trustees will designate a suitable proxy or proxies to
vote for the election of directors designated by 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;
o (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;
o (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.
 Also provided in the said agreement shall be binding upon the parties, their successors and
their holders such certs. and these certs. offered to investors as authorized by the SEC can
be said to work to defraud PH investors.
Palting’s Legal Personality
 The Sec. 7(c), SRC requires publication and notice of the registration statement w/c was
caused by the SEC w/c reads: Any person who is opposed w/ this petition must file his
written opposition within 2 weeks.
 Thus, any person, whether aggrieved or not, may oppose said registration. This is in
consonance w/ the principles under the Blue Sky Laws to protect investors and purchasers
and to prevent fraud and preclude the sale of securities w/c may be worthless hence this
petition by Patling and the opposition filed by respondent. Said pleas were set for hearing
and trial making him a party to the proceeding.
 Under the RoC, such a party may appeal from a SEC final order. It removed the word
“aggrieved” and in view of the provision of Rule 144 w/c states it shall govern not only
cases brought after it took effect but also all further proceedings in pending cases, except if
it amount to an injustice in w/c event the old RoC will apply but the SC held that this case
was within its jurisdiction.
 The SEC order that allowed the registration and sale of respondent’s securities is
appealable. The fact that 7 days after its publication, said securities were deemed
registered points to its finality. This was further strengthened by the OSG’s intervention
under Sec. 23, Rule 3 as well as the constitutional issues that may affect the validity of Sec.
13 of the Corp. Law w/c allegedly contravenes w/ the Parity Ordinance and the Laurel-
Langley Agreement.
Not Moot and Academic
 Since the SEC final order is appealable notwithstanding the registration of the said sale
does not render the case as moot and academic. But the fact it has the power to sell the
securities and in all probability is still being traded in the open market hence the issue
survives WoN respondent’s securities should be a subject of a sale.
 The purpose of this inquiry has yet to be ventilated since the securities had passed from
the issuer to its dealers. As long as the securities are outstanding and are in the course of
trade, the investing public has the right to dispute the legality of the securities. The crux of
this issue would call for the construction of the constitutional provisions governing the
disposition of our natural resources.
Tie Up between San Jose Petroleum and San Jose Oil
 San Jose Oil’s OCS is owned 90% owned by respondent, while respondent’s majority
interest is owned by Oil Investment Inc, another Panamanian company. This is then wholly
owned by Pantepec Oil Co. and Pancoastal Petroleum Co, both Venezuelan companies.
 Currently, there were 9,976 SHs of Pancoastal Petroleum found in the US w/c hold more
than 3.4M shares while Pantepec Oil Co. has 3M shares owned by 12,373 SH in the US. In
the 2 lists of SH, no indication of citizenship of such SHs for the purpose to determine the
corresponding percentage of these listed SHs in relation to the respective capital stock of
said corporation.
 Art XIII, Sec. 1 of the 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.
 In the Ordinance appended, this right was extended to US citizens:
Notwithstanding the provisions of Sec. 1, Art XII, and Sec. 8, Art. XIV, 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 July 14 1900
and 46, pursuant to the provisions of Commonwealth Act No. 732, but in no case to extend
beyond July 3, 1974, the disposition, exploitation, development, and utilization of 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, 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 enterprises
 owned or controlled, directly or indirectly, by citizens of the United States in the same a copy of this decision be furnished the Solicitor General for whatever action he may deem
manner as to, and under the same conditions imposed upon, citizens of the Philippines or advisable to take in the premises. So ordered.
corporations or associations owned or controlled by citizens of the Philippines
 In the Laurel-Langley Agreement, it provides:
Art. VI
1. The disposition, exploitation, development and utilization of all agricultural, timber, and
mineral lands of the public domain, waters, minerals, coal, petroleum and other mineral
oils, all forces and sources of 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 owned or controlled by
citizens of the Party granting the right.
2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of citizens of the
US, 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 US.
3. The USA reserves the rights of the several States of the US 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
 In short, the privilege to utilize the resources was granted by Art. XIII to PH citizens or to
corporations 60% of the capital is owned by PH citizens and by virtue of the Parity
Agreement, such right was extended to US citizens. However, such right is inapplicable to
respondent.
o 1st: It is not directly owned by US citizens because it is owned by Oil Investments Co., a
Panamanian Corporation.
o 2nd: It cannot be also be said that it is indirectly owned by US citizens via Oil Investments
Co., as it is owned by 2 Venezuelan corporations, Pantepec and Pancoastal.
o 3rd: Although it is claimed that the aforesaid companies are controlled by SHs in the US,
there is no certification from respondent that said SHs are US citizens.
o 4th: Even arguendo are US citizens, it is needed to establish that the different states of
w/c they are citizens, allow PH citizens/corporations owned by PH citizens to engage in
the exploitation of our natural resources of these states. No proof was presented.
o 5th: Even if the requirements were satisfied, nevertheless to hold that the current set-up
comes within the purview of the Parity Agreement is to unduly stretch the intent of the
law. To what extent must the word “indirect” mean? This cannot be traced ad infinitum.
It was also admitted that said shares of the 2 Venezuelan companies are controlled by US
citizens and are traded in the NYSE w/c makes it impossible to determine the citizenship
of the controlling stock.
FALLO: FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this
appeal, is denied and the orders of the SEC, allowing the registration of Respondent's
securities and licensing their sale in the Philippines are hereby set aside. The case is
remanded to the SEC for appropriate action in consonance with this decision. With costs. Let