8/10/2019 Palting v. San Jose Petroluem Incorporated

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Digest Author: Alexi Calda

Palting v. San Jose Petroluem Inc (1966)

Petition: For Review of the Order of SECPetitioner: Pedro PaltingRespondent: San Jose Petroluem IncPonencia: Barrera, J

DOCTRINE: Under the old Corporation Law, the three fold-duties ofdirectors, trustees and officers were well recognized through common law.

FACTS:1. San Jose Petroleum (Panamanian foreign corporation) applied with

the SEC, registration and licensing of sale of Voting Trust Certificatesrepresenting 2,000,000 shares of its capital stock with a par value of$0.35 per share, at P1.00 per share.

2. The proceeds of the sale were intended for financing the operationsof San Jose Oil which (domestic mining corporation).

3. Express condition in the sale: every purchaser will receive a votingtrust certificate instead of a stock certificate from the voting trusteesBuckley and Taylor who were residing in the US.

4. Later on, the application was amended increasing the number ofstocks to be sold to 5,000,000 at a reduced price of P0.70 per shareand its par value to $0.01 per share.

5. Articles of Incorporation of San Jose Petroluem contains thefollowing provisions:

(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 whoalso need not be a director or stockholder; and

(3) that no contract or transaction between the corporation andany other association or partnership will be affected, except incase of fraud, by the fact that any of the directors or officers ofthe corporation is interested in, or is a director or officer of, suchother association or partnership, and that no such contract ortransaction of the corporation with any other person or

persons, firm, association or partnership shall be affectedby 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 becomedirector or officer of the corporation shall be relieved from

all responsibility for which they may otherwise be liable byreason of any contract entered into with the corporation,

whether it be for his benefit or for the benefit of any otherperson, firm, association or partnership in which he may beinterested.

6. Palting and other alleged prospective investors filed an opposition to theregistration with the SEC contending as one of its claims that the sale of theshares of the issuer is fraudulent, and works or tends to work a fraud uponPhilippine purchasers.

7. SEC granted the application.

ISSUE: WoN the sale of the securities is fraudulent or would work ortend to work fraud to purchasers in the Philippines (CASE ISSUE)

WoN the said provisions violate the three fold fiduciary duties ofdirectors, trustees and officers (IN RELATION TO FIDUCIARY DUTIES)

PROVISION: See facts for Articles of Incorporation provisions

RULING + RATIO: YES.

The said provisions are in direct opposition to the countryscorporation law and corporate practices.

The provisions allowing the directors of the corporation to doanything short of actual fraud is against the fiduciary of the directorsto protect the interest of investors.

o Provisions allow directors to have interest in any contract ortransaction in other firms, associations or partnerships

o They are also relieved from any responsibility for thetransactions they enter into in behalf of the corporation

o Non-stockholders can also become directors These provisions completely disassociate the stockholders from the

government and management of the business in which they haveinvested.

The Voting Trust Agreement also allows proxies in the election ofdirectors, removal of directors and all other matters.

SC decided the by recognizing the common-law fiduciary duties ofdirectors, trustees and officers under the old code (had nocounterpart provisions for such unlike the present)

DISPOSITION:SEC order is set aside. Case is remanded to SEC forappropriate action in consonance with the decision.