G.R. No.

L-14441 Case Digest

G.R. No. L-14441, December 17, 1966
Pedro R. Palting
vs Sanjose Petroleum Inc.
Ponente: Barrera

Facts:
San Jose Petroleum a corporation organized and existing in the Republic of Panama, 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.

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. which is a domestic mining corporation. 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 registration and licensing of the securities on
the grounds that the tie-up between SAN JOSE PETROLEUM, and SAN JOSE OIL, violates the
Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949.

Issue:
Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, and SAN JOSE OIL
COMPANY, INC., is violative of the
Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949

Held:
Yes. In the 1946 Ordinance Appended to the Constitution, this right was extended to citizens of the United
States; states that to all forms of business enterprises 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 associations owned or controlled by citizens of the
Philippines, would have the privilege of disposition, exploitation, development, and utilization of all
Philippine natural resources. However, respondent is owned, controlled, directly and indirectly by
Panamanian Corporation.

The Laurel-Langley Agreement also states that 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.

Although it was claimed that the corporation has stockholders residing in United States, there was no
indication if they are all citizens of America, how much percentage do they occupy as stockholders, and if
they have the same rules that apply to the conditions mentioned. In the circumstances, the court ruled
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.

The parity rights agreement is not applicable to SJP. The parity rights are only granted to American
business enterprises or enterprises directly or indirectly controlled by US citizens. SJP is a Panamanian
corporate citizen. The other owners of SJO are Venezuelan corporations, not Americans. SJP was not
able to show contrary evidence. Further, the Supreme Court emphasized that the stocks of these
corporations are being traded in stocks exchanges abroad which renders their foreign ownership subject
to change from time to time. This fact renders a practical impossibility to meet the requirements under the
parity rights. Hence, the tie up between SJP and SJO is illegal, SJP not being a domestic corporation or
an American business enterprise contemplated under the Laurel-Langley Agreement.