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G.R.No.86738

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RepublicofthePhilippines
SUPREMECOURT
Manila
FIRSTDIVISION
G.R.No.86738November13,1991
NESTLEPHILIPPINES,INC.,petitioner,
vs.
COURTOFAPPEALSandSECURITIESANDEXCHANGECOMMISSION,respondents.
Nepomuceno,Hofilena&Guingonaforpetitioner.

FELICIANO,J.:p
Sometime in February 1983, the authorized capital stock of petitioner Nestle Philippines Inc. ("Nestle") was
increased from P300 million divided into 3 million shares with a par value of P100.00 per share, to P600 million
divided into 6 million shares with a par value of P100.00 per share. Nestle underwent the necessary procedures
involvingBoardandstockholdersapprovalsandeffectedthenecessaryfilingstosecuretheapprovaloftheincrease
ofauthorizedcapitalstockbyrespondentSecuritiesandExchangeCommission("SEC"),whichapprovalwasinfact
granted. Nestle also paid to the SEC the amount of P50,000.00 as filing fee in accordance with the Schedule of
FeesandChargesbeingimplementedbytheSECundertheCorporationCode.1
Nestlehasonlytwo(2)principalstockholders:SanMiguelCorporationandNestleS.A.Theotherstockholders,who
are individual natural persons, own only one (1) share each, for qualifying purposes, i.e., to qualify them as
membersoftheBoardofDirectorsbeingelectedtheretoonthestrengthofthevotesofoneortheotherprincipal
shareholder.
On 16 December 1983, the Board of Directors and stockholders of Nestle approved resolutions authorizing the
issuanceof344,500sharesoutofthepreviouslyauthorizedbutunissuedcapitalstockofNestle,exclusivelytoSan
Miguel Corporation and to Nestle S.A. San Miguel Corporation subscribed to and completely paid up 168,800
shares,whileNestleS.A.subscribedtoandpaidupthebalanceof175,700sharesofstock.
On 28 March 1985, petitioner Nestle filed a letter signed by its Corporate Secretary, M.L. Antonio, with the SEC
seeking exemption of its proposed issuance of additional shares to its existing principal shareholders, from the
registration requirement of Section 4 of the Revised Securities Act and from payment of the fee referred to in
Section6(c)ofthesameAct.Inthatletter,Nestlerequestedconfirmationofthecorrectnessoftwo(2)propositions
submittedbyit:
1.ThatthereisnoneedtofileapetitionforexemptionunderSection6(b)oftheRevisedSecuritiesAct
withrespecttotheissuanceofthesaid344,600additionalsharestoourexistingstockholdersoutof
ourunissuedcapitalstockand
2. That the fee provided in Section 6(c) of [the Revised Securities] Act is not applicable to the said
issuanceofadditionalshares.2
Theprincipal,indeedtheonly,argumentpresentedbyNestlewasthatSection6(a)(4)oftheRevisedSecuritiesAct
whichprovidesasfollows:
Sec.6.Exempttransactions.a)Therequirementofregistrationundersubsection(a)ofSectionfour
ofthisActshallnotapplytothesaleofanysecurityinanyofthefollowingtransactions:
xxxxxxxxx
(4) The distribution by a corporation, actively engaged in the business authorized by its articles of
incorporation, of securities to its stockholders or other security holders as a stock dividend or other
distribution out of surplus or the issuance of securities to the security holder or other creditors of a
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corporationintheprocessofabonafidereorganizationofsuchcorporationmadeingoodfaithandnot
for the purpose of avoiding the provisions of this Act, either in exchange for the securities of such
securityholdersorclaimsofsuchcreditorsorpartlyforcashandpartlyinexchangeforthesecurities
or claims of such security holders or creditors or the issuance of additional capital stock of a
corporationsoldordistributedbyitamongitsownstockholdersexclusively,wherenocommissionor
other remuneration is paid or given directly or indirectly in connection with the sale or distribution of
suchincreasedcapitalstock.(Emphasissupplied)
embraces"notonlyanincreaseintheauthorizedcapitalstockbutalsotheissuanceofadditionalsharestoexisting
stockholdersoftheunissuedportionoftheunissuedcapitalstock".3Nestleurgedthatinterpretationuponthefollowingargument.
Theuseoftheterm"increasedcapitalstock"shouldbeinterpretedtorefertoadditionalcapitalstockor
equity participation of the existing stockholders as a consequence of either an increase of the
authorizedcapitalstockortheissuanceofunissuedcapitalstock.Iftheintentionofthepertinentlegal
provision[were]tolimittheexemptiontosubscriptiontoproposedincreasesintheauthorizedcapital
stockofacorporation,weseenoreasonwhythelawshouldnothavebeenmorespecificoraccurate
aboutit.Itcertainlyshouldhavementioned"increaseintheauthorizedcapitalstockofthecorporation"
ratherthanmerelytheexpression"theissuanceofadditionalcapitalstock4(Emphasissupplied)
Nestleexpresslyrepresentedinthesameletterthatalltheadditionalsharesproposedtobeissuedwouldbeissued
only to San Miguel Corporation and Nestle S.A. and that no commission or other form of remuneration had been
given,directlyorindirectly,inconnectionwiththeissuanceordistributionofsuchadditionalsharesofstock.
InrespectofitsclaimedexemptionfromthefeeprovidedforinSection6(c)oftheRevisedSecuritiesAct,Nestle
contendedthatsinceSection6(a)(4)ofthestatutedeclares(inNestle'sview)theproposedissuanceof344,500
previously authorized but unissued shares of Nestle's capital stock to its existing shareholders as an exempt
transaction,theSECcouldnotcollectfeesfor"thesametransaction"twice.Nestleadvertedtoitspaymentbackin
21February1983oftheamountofP50,000.00asfilingfeestotheSECwhenitappliedforandeventuallyreceived
approvaloftheincreaseofitsauthorizedcapitalstockeffectedbyBoardandshareholderactionlast16December
1983.
In a letter dated 26 June 1986, the SEC through its then Chairman Julio A. Sulit, Jr. responded adversely to
petitioner's requests and ruled that the proposed issuance of shares did not fall under Section 6 (a) (4) of the
RevisedSecuritiesAct,sinceSection6(a)(4)isapplicableonlywherethereisanincreaseintheauthorizedcapital
stock of a corporation. Chairman Sulit held, however, that the proposed transaction could be considered by the
CommissionundertheprovisionsofSection6(b)oftheRevisedSecuritiesActwhichreadsasfollows:
(b) The Commission may, from time to time and subject to such terms and conditions as it may
prescribe,exempttransactionsotherthanthoseprovidedintheprecedingparagraph,ifitfindsthatthe
enforcementoftherequirementsofregistrationunderthisActwithrespecttosuchtransactionsisnot
necessaryinthepublicinterestandfortheprotectionoftheinvestorsbyreasonofthesmallamount
involvedorthelimitedcharacterofthepublicoffering.
The Commission then advised petitioner to file the appropriate request for exemption and to pay the fee required
underSection6(c)ofthestatute,whichprovides:
(c)Afeeequivalenttoonetenthofonepercentumofthemaximumaggregatepriceorissuedvalueof
thesecuritiesshallbecollectedbytheCommissionforgrantingageneralorparticularexemptionfrom
theregistrationrequirementsofthisAct.
PetitionermovedforreconsiderationoftheSECruling,withoutsuccess.
On3July1987,petitionersoughtreviewoftheSECrulingbeforethisCourtwhich,however,referredthepetitionto
theCourtofAppeals.
Inadecisiondated13January1989,theCourtofAppealssustainedtherulingoftheSEC.
Dissatisfied with the Decision of the Court of Appeals, Nestle is now before this Court on a Petition for Review,
raisingtheverysameissuesthatithadraisedbeforetheSECandtheCourtofAppeals.
ExaminingthewordsactuallyusedinSection6(a)(4)oftheRevisedSecuritiesAct,andbearinginmindcommon
corporateusageinthisjurisdiction,itwillbeseenthatthestatutoryphrase"issuanceofadditionalcapitalstock"is
indeedinfectedwithacertaindegreeofambiguity.Thisphrasemayrefereitherto:a)theissuanceofcapitalstock
aspartofandinthecourseofincreasingtheauthorizedcapitalstockofacorporationor(b)issuanceofalready
authorizedbutstillunissuedcapitalstock.Bythesametoken,thephrase"increasedcapitalstock"foundattheend
ofSection6(a)(4),mayrefereither:1)tonewlyorcontemporaneouslyauthorizedcapitalstockissuedinthecourse
ofincreasingtheauthorizedcapitalstockofacorporationor2)topreviouslyauthorizedbutunissuedcapitalstock.
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UnderSection38oftheCorporationCode,acorporationengagedinincreasingitsauthorizedcapitalstock,withthe
required vote of its Board of Directors and of its stockholders, must file a sworn statement of the treasurer of the
corporationshowingthatatleasttwentyfivepercent(25%)of"suchincreasedcapitalstock"hasbeensubscribed
and that at least twentyfive percent (25%) of the amount subscribed has been paid either in actual cash or in
propertytransferredtothecorporation.Inotherwords,thecorporationmustissueatleasttwentyfivepercent(25%)
ofthenewlyorcontemporaneouslyauthorizedcapitalstockinthecourseofcomplyingwiththerequirementsofthe
CorporationCodeforincreasingitsauthorizedcapitalstock.
Incontrast,afterapprovalbytheSECoftheincreaseofitsauthorizedcapitalstock,andfromtimetotimethereafter,
thecorporation,byavoteofitsBoardofDirectors,andwithoutneedofeitherstockholderorSECapproval,may
issueandsellsharesofitsalreadyauthorizedbutstillunissuedcapitalstocktoexistingshareholdersortomembers
ofthegeneralpublic.5
BoththeSECandtheCourtofAppealsresolvedtheambiguitybyconstruingSection6(a)(4)asreferringonlyto
theissuanceofsharesofstockaspartofandinthecourseofincreasingtheauthorizedcapitalstockofNestle.In
thecaseatbar,sincethe344,500sharesofNestlecapitalstockareproposedtobeissuedfromalreadyauthorized
butstillunissuedcapitalstockandsincethepresentauthorizedcapitalstockof6,000,000shareswithaparvalueof
P100.00 per share is not proposed to be further increased, the SEC and the Court of Appeals rejected Nestle's
petition.
WebelieveandsoholdthattheconstructionthusgivenbytheSECandtheCourtofAppealstoSection6(a)(4)of
theRevisedSecuritiesActmustbeupheld.
Inthefirstplace,itisaprincipletoowellestablishedtorequireextensivedocumentationthattheconstructiongiven
toastatutebyanadministrativeagencychargedwiththeinterpretationandapplicationofthatstatuteisentitledto
greatrespectandshouldbeaccordedgreatweightbythecourts,unlesssuchconstructionisclearlyshowntobein
sharpconflictwiththegoverningstatuteortheConstitutionandotherlaws.Aslongagoas1903,thisCourtsaidin
InreAllen6that
[t]he principle that the contemporaneous construction of a statute by the executive officers of the
government,whosedutyistoexecuteit,isentitledtogreatrespect,andshouldordinarilycontrolthe
construction of the statute by the courts, is so firmly embedded in our jurisdiction that no authorities
needbecitedtosupportit.7
Therationaleforthisrulerelatesnotonlytotheemergenceofthemultifariousneedsofamodernormodernizing
societyandtheestablishmentofdiverseadministrativeagenciesforaddressingandsatisfyingthoseneedsitalso
relatestoaccumulationofexperienceandgrowthofspecializedcapabilitiesbytheadministrativeagencycharged
withimplementingaparticularstatute. 8InAsturiasSugarCentral,Inc.v.CommissionerofCustoms9the Courtstressed that executive officials

arepresumedtohavefamiliarizedthemselveswithalltheconsiderationspertinenttothemeaningandpurposeofthelaw,andtohaveformedanindependent,
conscientiousandcompetentexpertopinionthereon.Thecourtsgivemuchweighttocontemporaneousconstructionbecauseoftherespectduethegovernment
agencyorofficialschargedwiththeimplementationofthelaw,theircompetence,expertness,experienceandinformedjudgment,andthefactthattheyfrequently
arethedraftersofthelawtheyinterpret.10

In the second place, and more importantly, consideration of the underlying statutory purpose of Section 6(a) (4)
compelsustosustaintheviewtakenbytheSECandtheCourtofAppeals.ThereadingbytheSECofthescopeof
application of Section 6(a) (4) permits greater opportunity for the SEC to implement the statutory objective of
protecting the investing public by requiring proposed issuers of capital stock to inform such public of the true
financialconditionsandprospectsofthecorporation.Bylimitingtheclassofexempttransactionscontemplatedby
the last clause of Section 6(a) (4) to issuances of stock done in the course of and as part of the process of
increasingtheauthorizedcapitalstockofacorporation,theSECisenabledtoexamineissuancesbyacorporation
of previously authorized but theretofore unissued capital stock, on a casetocase basis, under Section 6(b) and
thereunder,tograntorwithholdexemptionfromthenormalregistrationrequirementsdependingupontheperceived
levelofneedforprotectionbytheinvestingpublicinparticularcases.
Whencapitalstockisissuedinthecourseofandincompliancewiththerequirementsofincreasingitsauthorized
capital stock under Section 38 of the Corporation Code, the SEC as a matter of course examines the financial
condition of the corporation, and hence there is no real need for exercise of SEC authority under the Revised
SecuritiesAct.Thus,oneofthemultipledocumentationrequirementsunderthecurrentregulationsoftheSECin
respect of filing a certificate of increase of authorized capital stock, is submission of "a financial statement duly
certifiedbyanindependentCertifiedPublicAccountant(CPA)asofthelatestdatepossibleorasofthedateofthe
meetingwhenstockholdersapprovedtheincrease/decreaseincapitalstockorthereabouts. 11Whenallorpartofthenewly
authorizedcapitalstockisproposedtobeissuedasstockdividends,theSECrequirementsareevenmoreexactingtheyrequire,inadditiontotheregularaudited
financialstatements,thesubmissionbythecorporationofa"detailedorLongFormReportofthecertifyingAuditor."Moreover,sinceapprovalofanincreasein
authorized capital stock by the stockholders holding twothirds (2/3) of the outstanding capital stock is required by Section 38 of the Corporation Code, at a
stockholdersmeetingheldforthatpurpose,thedirectorsandofficersofthecorporationmaybeexpectedtotakepainstoinformtheshareholdersofthefinancial
conditionandprospectsofthecorporationandoftheproposedutilizationofthefreshcapitalsoughttoberaised.

Upontheotherhand,asalreadynoted,issuanceofpreviouslyauthorizedbuttheretoforeunissuedcapitalstockby
thecorporationrequiresonlyBoardofDirectorsapproval.Neithernoticetonorapprovalbytheshareholdersorthe
SEC is required for such issuance. There would, accordingly, under the view taken by petitioner Nestle, no
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opportunity for the SEC to see to it that shareholders (especially the small stockholders) have a reasonable
opportunitytoinformthemselvesabouttheveryfactofsuchissuanceandabouttheconditionofthecorporationand
thepotentialvalueofthesharesofstockbeingoffered.
Under the reading urged by petitioner Nestle of the reach and scope of the third clause of Section 6(a) (4), the
issuanceofpreviouslyauthorizedbutunissuedcapitalstockwouldautomaticallyconstituteanexempttransaction,
withoutregardtothelengthoftimewhichmayhaveintervenedbetweenthelastincreaseinauthorizedcapitalstock
andtheproposedissuanceduringwhichtimetheconditionofthecorporationmayhavesubstantiallychanged,and
without regard to whether the existing stockholders to whom the shares are proposed to be issued are only two
giantcorporationsasintheinstantcase,orareindividualsnumberinginthehundredsorthousands.
Incontrast,undertherulingissuedbytheSEC,anissuanceofpreviouslyauthorizedbutstillunissuedcapitalstock
may, in a particular instance, be held to be an exempt transaction by the SEC under Section 6(b) so long as the
SEC finds that the requirements of registration under the Revised Securities Act are "not necessary in the public
interestandfortheprotectionoftheinvestors"byreason,interalia,ofthesmallamountofstockthatisproposedto
beissuedorbecausethepotentialbuyersareverylimitedinnumberandareinapositiontoprotectthemselves.In
fine, petitioner Nestle's proposed construction of Section 6(a) (4) would establish an inflexible rule of automatic
exemption of issuances of additional, previously authorized but unissued, capital stock. We must reject an
interpretation which may disable the SEC from rendering protection to investors, in the public interest, precisely
whensuchprotectionmaybemostneeded.
Petitioner Nestle's second claim for exemption is from payment of the fee provided for in Section 6 (c) of the
Revised Securities Act, a claim based upon petitioner's contention that Section 6 (a) (4) coversboth issuance of
stockinthecourseofcomplyingwiththestatutoryrequirementsofincreaseofauthorizedcapitalstockandissuance
ofpreviouslyauthorizedandunissuedcapitalstock.Petitionerclaimsthattorequireitnowtopayonetenthofone
percent (1%) of the issued value of the 344,500 shares of stock proposed to be issued, is to require it to pay a
second time for the same service on the part of the SEC. Since we have above rejected petitioner's reading of
Section6(a)(4),lastclause,petitioner'sclaimabouttheadditionalfeeofonetenthofonepercent(1%)oftheissue
valueoftheproposedissuanceofstock(amountingtoP34,450plusP344.50forotherfeesoratotalofP37,794.50)
neednotdetainusforlong.Wethinkitclearthatthefeecollectedin21February1983bytheSECwasassessedin
connection with the examination and approval of the certificate of increase of authorized capital stock then
submittedbypetitioner.Thefee,upontheotherhand,providedforinSection6(c)whichpetitionerwillberequired
to pay if it does file an application for exemption under Section 6 (b), is quite different this is a fee specifically
authorizedbytheRevisedSecuritiesAct,(nottheCorporationCode)inconnectionwiththegrantofanexemption
from normal registration requirements imposed by that Act. We do not find such fee either unreasonable or
exorbitant.
WHEREFORE,foralltheforegoing,thePetitionforReviewonCertiorariisherebyDENIEDforlackofmeritandthe
DecisionoftheCourtofAppealsdated13January1989inC.A.G.R.No.SP13522,isherebyAFFIRMED.Costs
againstpetitioner.
SOORDERED.
Narvasa,CJ.,Cruz,GrioAquinoandMedialdea,JJ.,concur.

#Footnotes
1Section139.
2Record,pp.1213.
3Id.,p.11.
4Id.
5Seee.g.,SECRulingdated4November1968addressedtoMaremcoMineralCorporation
SecuritiesandExchangeCommissionFolio,p.354(19601976).
62Phil.630(1903).
72Phil.at640.
8E.g.,Abejo,etal.v.Hon.RafaeldelaCruz,etc.,etal.,149SCRA654,669670(1987).
929SCRA617(1969).
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10Id.,SeealsoRamosv.CourtofIndustrialRelations,21SCRA1282(1967)CagayanValley
Enterprisesv.CourtofAppeals,179SCRA218(1989)Santiagov.DeputyExecutiveSecretary,192
SCRA199(1990).
11SEC,"BasicRequirementsforfilingcertificateofincrease/decreaseofauthorizedcapitalstock."
TheLawphilProjectArellanoLawFoundation

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