SRC Case #9 Nestle Phil vs CA 203 SCRA 504 (1991)

Ponente: Justice Feliciano

Doctrine: Sec 6(a)(4) of the Revised Securities Act (RSA) permits greater
opportunity for the Securities and Exchange Commission (SEC) to
implement the statutory objective of protecting the investing public by
requiring proposed issuers of capital stock to inform public of true
financial conditions and prospects of the corporation. By limiting the case
of exempt transactions contemplated by the last clause of Sec 6(a)(4) to
issuance of stock done in the cause of and or part of the process of
increasing the authorized capital stock of a corporation, SEC is enabled to
examine issuances by a corporation of previously authorized but unissued
capital stock on a case-to-case basis, under Sec 6(b) and thereunder, to
grant or withhold exemption from the normal registration requirements
depending upon the perceived level of need for protection by the
investing public in particular cases. Sec 6(c) fee equivalent to 1/10 of 1%
of max aggregate price of issued value of the securities is fair and not
onerous or burdensome.
The construction of a statute by the executive officers of the government
is entitled to great respect and should be accorded great weight by the
courts.
Facts:
February 1983- Nestle Phil increased its authorized capital stock to P600M
divided into 6m shares with P100/share par value from P300M divided into
3m shares with P100/ share par value. It underwent necessary procedures
involving Board of Directors (BOD) and SEC approvals. It also effected the
necessary filing to secure approval of SEC.
SEC framed increase of authorized capital stock by Nestle. Nestle paid
SEC P50k filing fee in accordance with the schedule of fees and charges
being implemented by SEC under the Corporation Code.
Nestle has 2 principal stockholders, San Miguel Corporation (SMC) and
Nestle S.A. Other stockholders are individual natural persons.
16 December 1983- BOD and stockholders of Nestle approved resolutions
authorizing issuance of 344,500 shares out of the previously authorized
but unissued capital stock of Nestle, exclusively to SMC and Nestle S.A.
SMC subscribed and paid 168,800 shares; Nestle S.A. subscribed and paid
175,700 shares.
28 March 1985- Nestle filed a letter with SEC seeking exemption of its
proposed issuance of additional shares to its existing principal
shareholders via Sec 4 and Sec 6(c) of RSA.

26 June 1986- SEC denied. Sec 6(a)(4) of RSA only applicable where there
is an increase in the authorized capital stock of a corporation. Nestles
transaction, however can be exempt under Sec 6(b), i.e. transactions
exempt other than those in 6(a). It further advised Nestle to file it
under6(b) and pay fee under 6(c) stating fee equivalent to 1/10 of 1% of
max aggregate price of issued value of the securities shall be collected by
the Commission for granting a general or particular exempt.
Nestle filed MR which was also denied by SEC.
CA affirmed SEC decision. Hence this case.
Issues: Whether or not Nestle is entitled to exemption?
Ruling: No.
Sec 6(a)(4) of RSA states issuance of additional capital stock.
This may refer either to 1) issuance of capital stock or part of and in the
cause of increasing the authorized capital stock of a corporation or 2)
issuance of already authorized but still unissued capital stock.
Sec 38 of the Corporation Code of the Philippines states that a corporation
increasing its authorized capital stock, with required vote of its Board of
Directors (BOD) and stockholders, must file soon statement of the
treasurer of the corporation, showing that at 25% of such increased
capital stock has been subscribed and that at least 25% of the amount
subscribed has been paid either in actual cash or in property transferred
to the corporation. After such approval by the SEC, the corporation by
BOD vote and without stockholder and SEC approval, may issue and sell
shares of its already authorized but still unissued capital stock to existing
shareholders or to members of the general public.
SEC and CA resolved the ambiguity in Sec 6(a)(4) as referring only to the
issuance of shares of stock as part of and in the course of increasing the
authorized capital stock of Nestle. Since 344,500 shares of Nestle capital
stock are proposed to be issued from already authorized but still unissued
capital stock and since the present authorized capital stock of 6M shares
with P100/share par value is not proposed to be further increased, SEC
and CA rejected Nestles petition, which is justified in this case.
Sec 6(a)(4) of the RSA 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
public of true financial conditions and prospects of the
corporation. By limiting the case of exempt transactions
contemplated by the last clause of Sec 6(a)(4) to issuance of
stock done in the cause of and or part of the process of
increasing the authorized capital stock of a corporation, SEC is

enabled to examine issuances by a corporation of previously

authorized but unissued capital stock on a case-to-case basis,
under Sec 6(b) and thereunder, to grant or withhold exemption
from the normal registration requirements depending upon the
perceived level of need for protection by the investing public in
particular cases. Sec 6(c) fee equivalent to 1/10 of 1% of max
aggregate price of issued value of the securities is fair and not
onerous or burdensome.
The construction of a statute by the executive officers of the
government is entitled to great respect and should be accorded
great weight by the courts.
Dispositive: WHEREFORE, for all the foregoing, the Petition for Review
on Certiorari is hereby DENIED for lack of merit and the Decision of the
Court of Appeals dated 13 January 1989 in C.A.-G.R. No. SP-13522, is
hereby AFFIRMED. Costs against petitioner.