091 Nielson and Company v Lepanto Consolidated Mining

GR L-21601
December 17, 1966

Topic: Power to declare dividends

Facts
Action: Nielson and Company (Nielson) action against Lepanto Consolidated
Mining (Lepanto) to recover claims of sums of money
Nielson-Lepanto Operating Agreement (Agreement) was executed before
World War II
o Nielson to operate and manage the mining properties of Lepanto for a
management fee of P2500/month and 10% net profits from mining
operations
o Force majeure clause: Fortuitous events beyond Nielson control would
result in suspension of Agreement
1940 Lepanto Board of Directors had a meeting and modified the agreement
(Modification)
o Nielson shall receive
10% dividends declared and paid
10% of any depletion reserve that may be set up
10% out of surplus earnings for capital account
Agreement renewed in latter part of 1941 for another period of five years
o However, in December 1941, Pacific War broke out
January February 1942: Mining properties operation disrupted; mines, mill and
equipment destroyed; Japanese occupied properties
June 1948: Mining operations resumed under exclusive management of Lepanto
Period of suspension: February 1942 June 1948 (60 months)
Nielson wanted to resume operations, but Lepanto refused and unilaterally took
over operations after rehabilitation
Nielson now claiming for money it is entitled to during effectivity of Agreement

1. W/N suspension of contract meant extension of period of operation

2. W/N grant Nielsons claims, as per Modification of Agreement

1. YES
Testimonies of witnesses working for both Nielson and Lepanto, as well as
statements given before Board of Directors, show that it was the true intent of
the parties to allow for extension of Nielson operations, in the event of
suspension
 Nielson continued to have a right to operate and manage the mining properties
of Lepanto, and Lepanto was under an obligation to pay Nielson management
fees

2. YES.
Claim 1: 10% of dividends
o Nielson claims:
10% of P14M cash dividends OR P1.4M
FYI. Cash dividends are cash distributions from the
company given to shareholders.
10% of stock dividends declared:
Lepanto declared two stock dividends: 50% or worth of
P1M AND 66.66% or worth of P2M
FYI. Stock dividends are often in the form of percentages
because what is being distributed is not cash, but
additional share of stocks. For example, if X owns 100
shares and ABC Corp declares 50% dividend, the number
of shares of X will become 150 shares (100 shares x 150%)
o Cash dividend granted. Nielson entitled to P1.4M
o Stock dividend cannot be granted in the form of cash. Nielson is entitled
to 10% of stock dividends and the fruits accruing to said stock dividends.
Hence, P100,000 and P200,000 worth of stocks is due Nielson. If shares of
stock are insufficient, Lepanto must pay Nielson cash equivalent.
Claim 2: 10% in depletion reserves
o Total of P539k, hence Nielson entitled to P53.9k
Claim 3: 10% of increase in value of assets
o Total of P6.94M, hence Nielson entitled to P694k
Claim 4: Management fees
o P2,500 x 60 months = P150,000
o Despite Nielson not being able to continue operations, as it was
prevented by Lepanto, there is constructive fulfillment of its obligation
(non-performance was attributable to Lepantos refusal), and hence it is
entitled to its claims