Ancan Mining Corporation

August 24, 1982 Ancan Mining Corporation c/o Mr. Angelino T. Ancheta P.O. Box 2086 Makati Commercial Center Makati, Metro Manila Gentlemen: This has reference to your letter dated August 5, 1982, inquiring whether there are any restrictions or limitations on the four (4) corporations, specifically, the Ancan Mining Corporation, Columbus Corporation, Ancan Management Corporation and the Ancan Trading Corporation, which are practically managed and controlled by the same group of persons, in the exploitation of mineral resources where their respective articles of incorporation allow them to acquire, explore and exploit mining claims in the Philippines. In this regard, please be informed that the present restrictions or limitations on mining corporations is found in Section 9, Article XIV of the New Constitution and P.D. No. 463, limiting the disposition, exploitation, development, exploration, or utilization of any of the natural resources of the Philippines to citizens of the Philippines, or to corporations or associations at least 60% of which is owned by such citizens. Foremost of the modifications made in the Corporation Code of the Philippines, which took effect on May 1, 1980, is the deletion of Section 13 (5-A) of the former law, which placed a limitation on the acquisition of shares by a mining corporation and its stockholders in other mining corporations. However, your attention is invited to the provisions of Section 140 of the Corporation Code of the Philippines regarding stock ownership in certain corporations which reads thus: " ...The National Economic and Development Authority, shall, from time to time, make a determination of whether the corporate vehicle has been used by any corporation or by business or industry to frustrate the provisions thereof or of applicable laws and shall submit to the Batasang Pambansa whenever deemed necessary, a report of its findings, including recommendations for their prevention and correction. Maximum limits may be set by the Batasang Pambansa for stockholdings in corporations declared by it to be vested with a public interest pursuant to the provisions of this Section, belonging to individuals related to each other by consanguinity or affinity or by close business interest, or whenever it is necessary to achieve national objectives, prevent illegal monopolies or combinations in restraint of trade, or to implement national economic policies declared in laws, rules and regulations designed to promote the general welfare and foster economic development. xxx xxx xxx." In the instant case, moreover, where a common directorate is created among the four mining corporations aforementioned, the prevailing rule on contracts by the interlocking directorate spelled out in Section 33 of the Corporation Code of the Philippines, in relation to Section 32 thereof, shall be observed. Section 33 of said Code provides thus: "(e) ...except in cases of fraud, and provided the contract is fair and reasonable under the circumstances, a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone: Provided that if the interest of the interlocking director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are concerned. Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for the purposes of interlocking directors." Thus, under the above-cited provisions of law, contracts by interlocking directors, that is, contracts between corporations having a majority of directors in common, although generally valid, is voidable and may be invalidated for being unfair and unreasonable. Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Associate Commissioner