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Digest Author: Alexi Calda

Palting v. San Jose Petroluem Inc (1966)


Petition: For Review of the Order of SEC
Petitioner: Pedro Palting
Respondent: San Jose Petroluem Inc
Ponencia: Barrera, J
DOCTRINE: Under the old Corporation Law, the three fold-duties of
directors, 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 Certificates
representing 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 operations
of San Jose Oil which (domestic mining corporation).
3. Express condition in the sale: every purchaser will receive a voting
trust certificate instead of a stock certificate from the voting trustees
Buckley and Taylor who were residing in the US.
4. Later on, the application was amended increasing the number of
stocks to be sold to 5,000,000 at a reduced price of P0.70 per share
and its par value to $0.01 per share.
5. Articles of Incorporation of San Jose Petroluem contains the
following 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 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.

6. Palting and other alleged prospective investors filed an opposition to the


registration with the SEC contending as one of its claims that the sale of the
shares of the issuer is fraudulent, and works or tends to work a fraud upon
Philippine purchasers.
7. SEC granted the application.
ISSUE: WoN the sale of the securities is fraudulent or would work or
tend to work fraud to purchasers in the Philippines (CASE ISSUE)
WoN the said provisions violate the three fold fiduciary duties of
directors, 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 countrys
corporation law and corporate practices.
The provisions allowing the directors of the corporation to do
anything short of actual fraud is against the fiduciary of the directors
to protect the interest of investors.
o Provisions allow directors to have interest in any contract or
transaction in other firms, associations or partnerships
o They are also relieved from any responsibility for the
transactions 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 have
invested.
The Voting Trust Agreement also allows proxies in the election of
directors, removal of directors and all other matters.
SC decided the by recognizing the common-law fiduciary duties of
directors, trustees and officers under the old code (had no
counterpart provisions for such unlike the present)
DISPOSITION: SEC order is set aside. Case is remanded to SEC for
appropriate action in consonance with the decision.