PEDRO R.

PALTING, petitioner

Versus
VS SANJOSE PETROLEUM INCORPORATED, respondent

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

Facts:

On September 7, 1956, 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 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. 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

Decision:

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.