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NESTLE PHILIPPINES v. CA

FACTS:

Nestle Philippines Inc., a corporation with an authorized capital stock of P600 million, has two principal stockholders, San Miguel Corporation and Nestle S.A. On December 16, 1983, the Board of Directors and stockholders of Nestle approved resolutions authorizing the issuance of 344,500 shares to San Miguel Corporation and Nestle S.A. San Miguel Corporation subscribed to and paid up 168,800 shares, while Nestle S.A. subscribed to and paid up the remaining 175,700 shares.

Nestle sought exemption from the registration requirement of Section 4 of the Revised Securities Act and payment of the fee referred to in Section 6(c) of the Act for the proposed issuance of additional shares to its existing principal shareholders. The Securities and Exchange Commission (SEC) denied Nestle's request, ruling that the proposed issuance did not fall under Section 6(a)(4) of the Act, but could be considered under Section 6(b) of the Act.

Nestle sought reconsideration and later filed a Petition for Review with the Court of Appeals, which sustained the ruling of the SEC. Dissatisfied with the decision, Nestle filed a Petition for Review before the Supreme Court.

ISSUES:

  1. Whether the phrase "issuance of additional capital stock" in Section 6(a)(4) of the Revised Securities Act refers to the issuance of capital stock as part of increasing the authorized capital stock or to the issuance of already authorized but unissued capital stock.

  2. Whether the phrase "increased capital stock" at the end of Section 6(a)(4) refers to newly authorized capital stock or to previously authorized but unissued capital stock.

  3. Whether the issuance of previously authorized but unissued capital stock is exempt from SEC requirements.

  4. Whether the petitioner is exempt from paying the fee provided for in Section 6(c) of the Revised Securities Act.

RULING:

  1. The SEC and the Court of Appeals ruled that the phrase "issuance of additional capital stock" in Section 6(a)(4) of the Revised Securities Act refers to the issuance of capital stock as part of increasing the authorized capital stock of a corporation. They also ruled that the phrase "increased capital stock" refers to newly authorized capital stock. Therefore, since the proposed issuance of capital stock in the case is from already authorized but unissued capital stock and the authorized capital stock is not proposed to be increased, the petition was rejected.

  2. The issuance of previously authorized but unissued capital stock is not automatically exempt from SEC requirements. The SEC has the authority to determine whether the requirements of registration under the Revised Securities Act are necessary for the public interest and the protection of investors. The SEC may find an issuance of previously authorized but unissued capital stock to be an exempt transaction under Section 6(b) if it finds that the stock is being offered in small amounts or to limited buyers who are capable of protecting themselves.

  3. The petitioner is not exempt from paying the fee provided for in Section 6(c) of the Revised Securities Act. The fee collected by the SEC for the examination and approval of the certificate of increase of authorized capital stock is separate from the fee required for an exemption from registration requirements. The fee for exemption is reasonable and authorized by the Revised Securities Act.

PRINCIPLES:

  • The construction given to a statute by an administrative agency charged with its interpretation and application is entitled to great respect and should be accorded great weight by the courts, unless it conflicts with the governing statute or the Constitution and other laws.

  • Contemporaneous construction of a statute by executive officers of the government, whose duty is to execute it, is entitled to great respect and should ordinarily control the court's construction of the statute.

  • The courts give weight to contemporaneous construction by executive officials due to their competence, expertness, experience, informed judgment, and their role as drafters of the law they interpret.

  • Consideration of the statutory purpose of a provision may help determine the correct interpretation, and in this case, the SEC's interpretation allows for greater protection of the investing public by requiring issuers to inform the public of the true financial conditions and prospects of the corporation.

  • The SEC can examine issuances of previously authorized but unissued capital stock on a case-to-case basis and grant or withhold exemptions from normal registration requirements based on the level of protection needed by the investing public.

  • The SEC has the authority to determine whether the requirements of registration under the Revised Securities Act are necessary for the public interest and the protection of investors.

  • The fee for an exemption from registration requirements under the Revised Securities Act is separate from the fee for the examination and approval of a certificate of increase of authorized capital stock.