Redmont Consolidated Mines Corporation v.

McArthur Mining Corporation

FACTS

Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators (POA) of the
DENR separate petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro and Mining and
Development, Inc. (Tesoro), and Narra Nickel Mining and Development Corporation (Narra)
applications Mineral Production Sharing Agreement (MPSA) on the ground that they are not
“qualified persons” and thus disqualified from engaging in mining activities through MPSAs
reserved only for Filipino citizens.

McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino)
owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of
10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporation;

Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining,
Inc. (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning
3,998 out of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining,
Inc.;

Narra Nickel Mining and Development Corporation, is composed, among others, by Patricia
Louise Mining & Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and
MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,396
out of 10,000 shares of Patricia Louise Mining & Development Corporation;

ISSUES

(1) Is the Grandfather Rule applicable?

(2) Whether McArthur, Tesoro and Narra are Filipino nationals.

RULINGS

(1) YES.

The instant case presents a situation which exhibits a scheme employed by stockholders to
circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the
actual participation, direct or indirect, of MBMI, the grandfather rule must be used.

The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7 of the 1967 SEC
Rules which states, “but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage shall
be counted as of Philippine nationality.” Under the Strict Rule or Grandfather Rule Proper, the
combined totals in the Investing Corporation and the Investee Corporation must be traced (i.e.,
“grandfathered”) to determine the total percentage of Filipino ownership.
(2) NO.

[P]etitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. Such conclusion is derived from
grandfathering petitioners’ corporate owners. xxx Noticeably, the ownership of the “layered”
corporations boils down to xxx group wherein MBMI has joint venture agreements with,
practically exercising majority control over the corporations mentioned. In effect, whether
looking at the capital structure or the underlying relationships between and among the
corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60%
or more of their capital stocks or equity interests are owned by MBMI.

WPM International Trading, Inc. and Manlapaz v. Labayen

FACTS:

Respondent was employed by the petitioner and entered into a contract to manage and
rehabilitate one of its stores, however due to the lack of funds given the contractor
subsequently sued the respondent and the petitioner for the remainder. Judgement was given
in favor of the contractor and both petitioner and respondent were made liable. Respondent
now seeks reimbursement from the petitioner company and personally from petitioner
Manlapaz himself.

Petitioner Manlapaz counters that he cannot be held personally liable as the petitioner
company has a distinct and separate personality from himself. The RTC and the CA ruled in
favor of the respondent hence this petition.

ISSUE:

May the petitioner Manlapaz be held personally liable?

RULING:

No, he may not be held liable.

The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely:

a) when the separate and distinct corporate personality defeats public convenience, as when
the corporate fiction is used as a vehicle for the evasion of an existing obligation;
b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or
defend a crime; or
c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere
alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation.

Piercing the corporate veil based on the alter ego theory requires the concurrence of three
elements, namely:

(1) Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act
in contravention of plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of.

The mere ownership by a single stockholder of even all or nearly all of the capital stocks of a
corporation is not by itself a sufficient ground to disregard the separate corporate personality.
To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly
and convincingly established.

Here, the respondent failed to prove that Manlapaz, acting as president, had absolute control
over WPM. Even granting that he exercised a certain degree of control over the finances,
policies and practices of WPM, in view of his position as president, chairman and treasurer of
the corporation, such control does not necessarily warrant piercing the veil of corporate fiction
since there was not a single proof that WPM was formed to defraud CLN or the respondent, or
that Manlapaz was guilty of bad faith or fraud.

Heirs of Wilson P. Gamboa vs. Finance Secretary Margarito B. Teves, et al., G.R. No. 176579,
October 9, 2012
Issue:
PANGILINAN ET AL CONTEND THAT THE TERM “CAPITAL” IN SECTION 11, ARTICLE XII
OF THE CONSTITUTION HAS LONG BEEN SETTLED AND DEFINED TO REFER TO THE
TOTAL OUTSTANDING SHARES OF STOCK, WHETHER VOTING OR NON-VOTING. IS
THEIR CONTENTION CORRECT?
NO. THE SUPREME COURT HAS NEVER YET INTERPRETED THE MEANING OF
“CAPITAL” IN THE CONTEXT OF SECTION 11, ARTICLE XII OF THE CONSTITUTION.

RULING: WHAT WAS THE MAIN RULING IN THE 28 JUNE 2011 DECISION OF THE SC
REGARDING THIS CASE?
 THAT THE 60-40 OWNERSHIP REQUIREMENT IN FAVOR OF FILIPINO CITIZENS IN
THE CONSTITUTION TO ENGAGE IN CERTAIN ECONOMIC ACTIVITIES APPLIES NOT ONLY
TO VOTING CONTROL OF THE CORPORATION, BUT ALSO TO THE BENEFICIAL
OWNERSHIP OF THE CORPORATION. MERE LEGAL TITLE IS INSUFFICIENT TO MEET THE
60 PERCENT FILIPINO OWNED “CAPITAL” REQUIRED IN THE CONSTITUTION. FULL
BENEFICIAL OWNERSHIP OF 60 PERCENT OF THE OUTSTANDING CAPITAL STOCK,
COUPLED WITH 60 PERCENT OF THE VOTING RIGHTS, IS REQUIRED. THE LEGAL AND
BENEFICIAL OWNERSHIP OF 60 PERCENT OF THE OUTSTANDING CAPITAL STOCK MUST
REST IN THE HANDS OF FILIPINO NATIONALS IN ACCORDANCE WITH THE
CONSTITUTIONAL MANDATE. OTHERWISE, THE CORPORATION IS “CONSIDERED AS
NON-PHILIPPINE NATIONAL[S]. BOTH THE VOTING CONTROL TEST AND THE BENEFICIAL
OWNERSHIP TEST MUST BE APPLIED TO DETERMINE WHETHER A CORPORATION IS A
“PHILIPPINE NATIONAL.”

Carandang v. Desierto, G.R. Nos. 148076 & 153161, January 12, 2011

Facts: RPN-9 is a private corporation duly registered with the SEC. Benedicto, a stockholder
thereof, entered into a compromise agreement with the PCGG whereby he ceded to the
government his shares of stock in RPN with an outstanding capital of 72.4% (which was later
discovered to be only 32.4%). Meanwhile, the President appointed Carandang as a general
manager and chief operating officer of RPN. He was charged with grave misconduct before the
Ombudsman on the ground of him, as general manager of RPN, entered into contract with AF
Broadcasting, Inc. despite his being an incorporator, director and stockholder of this said
corporation; that he help financial and material interest in a contract that had required the
approval of his office; and that the transaction is prohibited under Section 7 (a) and Section 9 of
RA No. 6713, thereby rendering him administratively liable for grave misconduct. Carandang
sought the dismissal of the administrative complaint filed against him on the ground that the
Ombudsman had no jurisdiction over him because RPN was not a GOCC. Consequently, he
insists that he is not a public official, hence he is not subject to the administrative authority of
the Ombudsman and the criminal jurisdiction of the Sandiganbayan.

Issue: Whether or not RPN is a GOCC, which in turn renders Carandang subject to the
administrative authority of the Ombudsman and the criminal jurisdiction of the Sandiganbayan.

Ruling: No. RPN is not a GOCC. The law defines what GOCC are. Section 2 of PD 2029 states that
a GOCC is a stock or a non-stock corporation, whether performing governmental or proprietary
functions, which is directly chartered by a special law, or if organized under the general
corporation law is owned or controlled by the government directly or indirectly through a
parent corporation or subsidiary corporation, to the extent of at least a majority of its
outstanding capital stock or of its outstanding voting capital stock. Section2 (13) of EO 292 also
gives a definition of such corporations. Due to the inability to resolve the issue regarding the
actual shares owned by the PCGG, the conclusion that the government held majority shares
finds no factual or legal basis. Hence, Carandang is not subject to the administrative authority
of the Ombudsman and the criminal jurisdiction of the Sandiganbayan.

Gokongwei, Jr. v. SEC, G.R. No. L-45911, April 11, 1979

FACTS:

Petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and Exchange
Commission (SEC) a petition for “declaration of nullity of amendedby-laws, cancellation of certificate of filing
of amended by- laws, injunction and damages withprayer for a preliminary injunction” against the majority of
the members of the Board of Directorsand San Miguel Corporation as an unwilling petitioner.

Petitioners also wanted to inspect records and documents of SMC but the request was denied because the
request was said to have been made in bad faith.

Respondents filed their answer to the petition, denying the substantital allegations therein and stating by
way of affirmative defenses that “the action taken by the BODS resulting in the amendments is valid and legal
because the power to amend, modify, repeal or adopt new By-Laws delegated to said Board and long prior
thereto has never been revoked, withdrawn or otherwise nullified by the stockholders of SMC. Also said that
the power of the Board to amend the by-laws are broad, subject only to existing laws.

Augsut 1972, the URC began acquiring shares. The CFC likewise began acquiring shares in respondent
corporation. Petitioner who is president both in URC and CFC purchased shares of stock of respondent
corporation, and thereafter, in behald of himself, CFC and URC, “conducted malevolent and malicious
publicity campaign against SMC” to generate support from the stockholder “in his effort to secure for himself
and in representation of URC and CFC interests, a seat in the BODs of SMC.” Petitioner was rejected by the
stockholders in his bid to secure a sear in the BODs on the basic issue that petitioner was engaged in a
competitive business and his securing a seat would have subjected respondent corporation to grave
disadvantages.

SC issued a TRO restraining pvt respondents from disqualifying or preventing petitioner from running or from
being voted as director of respondent corporation and from submitting for ratification or confirmation or
from causing the ratification or confirmation of the amendment. SEC held that petitioner should be allowed
to run as a director but that he should not sit as such until SEC has decided on the validity of the by-laws in
dispute.

Respondents reason out that petitioner is engaged in businesses competitive and antagonistic to that of
respondent SMC and that the Board realized the clear and present danger in competitors being directors
because they would have easy and direct access to SMCs business and trade secrets.

ISSUE:

Whether the amended by-laws of SMC disqualifying a competitor from nomination or election to the BODs of
SMC are valid and reasonable.

RULING:
The validity or reasonableness of a by-law of a corporation in purely a question of law. Whether the by-law is
in conflict with the law of the land, or with the charter of the corporation, or is in alegal sense unreasonable
and therefore unlawful is a question of law. This rule is subject, however, to the limitation that where the
reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must
necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of
those who are authorized tomake by-laws and who have exercised their authority.

Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to
suppress the minority and prevent them from having representation in the Board”, atthe same time depriving
petitioner of his “vested right” to be voted for and to vote for a person of his choice as director.

Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a
vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of
the corporation If the amendment changes, diminishes or restricts the rights of the existing shareholders
then the disenting minority has only one right, viz.: “to object thereto in writing and demand payment for his
share.”

Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or
repeal any by-law or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be
elected director, in the face of the fact that the law at the time such right as stockholder was acquired
contained the prescription that the corporate charter and the by-law shall be subject to amendment,
alteration and modification.

The doctrine of “corporate opportunity” is precisely a recognition by the courts that the fiduciary standards
could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine
rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage
of an opportunity for his own personal profit when the interest of the corporation justly calls for protection.

It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation,
who is also the officer or owner of a competing corporation, from taking advantage of the information which
he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel
Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly, where
two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the
director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the
performance of his corporation duties above his personal concerns.

In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the
corporation in adopting measures to protect legitimate corporation interests. Thus, “where the
reasonableness of a by-law is a mere matter of judgment, and upon which reasonable minds must necessarily
differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are
authorized to make by-laws and who have expressed their authority.

Legaspi Towers 300, Inc. v. Amelia P. Muer, G.R. No. 170783, June 18, 2012

FACTS: Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners, the incumbent Board of
Directors, set the annual meeting of the members of the condominium corporation and the
election of the new Board of Directors at the lobby of Legaspi Towers 300, Inc. The Committee
on Elections of Legaspi Towers 300, Inc., however, found most of the proxy votes, at its face
value, irregular, thus, questionable; and for lack of time to authenticate the same, petitioners
adjourned the meeting for lack of quorum. However, the group of respondents challenged the
adjournment of the meeting. Despite petitioners’ insistence that no quorum was obtained
during the annual meeting held on April 2, 2004, respondents pushed through with the
scheduled election and were elected as the new Board of Directors and officers of Legaspi
Towers 300, Inc. and subsequently submitted a General Information Sheet to the Securities and
Exchange Commission (SEC). On plaintiffs’ motion to admit amended complaint to include
Legaspi Towers 300, Inc. as plaintiff),the RTC ruled denying the motion for being improper.
Then, petitioners filed with the Court of Appeals and held that Judge Antonio I. De Castro of the
Regional Trial Court (RTC) of Manila, did not commit grave abuse of discretion in issuing the
Orders denying petitioners’ Motion to Admit Second Amended Complaint and that petitioners
the justified the inclusion of Legaspi Towers 300, Inc. as plaintiff by invoking the doctrine of
derivative suit. Petitioners’ motion for reconsideration was denied by the Court of Appeals
thereafter. Hence this petition.

ISSUE: Whether or not Derivative Suit proper in this case?

RULING: The Supreme Court DENIED the petition and AFFIRMED the Decision of the Court of
Appeals. Derivative Suit is not applicable. Since it is the corporation that is the real party-in-
interest in a derivative suit, then the reliefs prayed for must be for the benefit or interest of the
corporation. When the reliefs prayed for do not pertain to the corporation, then it is an
improper derivative suit. The requisites for a derivative suit are as follows:

a) the party bringing suit should be a shareholder as of the time of the act or transaction
complained of, the number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the wrongdoing or harm having
been, or being caused to the corporation and not to the particular stockholder bringing the suit.
As stated by the Court of Appeals, petitioners’ complaint seek to nullify the said election, and to
protect and enforce their individual right to vote. The cause of action devolves on petitioners,
not the condominium corporation, which did not have the right to vote. Hence, the complaint
for nullification of the election is a direct action by petitioners, who were the members of the
Board of Directors of the corporation before the election, against respondents, who are the
newly-elected Board of Directors. Under the circumstances, the derivative suit filed by
petitioners in behalf of the condominium corporation in the Second Amended Complaint is
improper.