[Answer/discuss the question below, or see 2016 bar exam Mercantile Law Instructions; 2016 Mercantile Law Questions: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, and 20; See also 2016 Bar Exam: Information, Discussions, Tips, Questions and Results]
In 2015, R Corp., a domestic company that is wholly owned by Filipinos, filed its opposition to the applications for Mineral Production Sharing Agreements (MPSA) of O Corp., P Corp., and Q Corp. which were pending before the Panel of Arbitrators (POA) of the Department of Environment and Natural Resources (DENR). The three corporations wanted to undertake exploration and mining activities in the province of Isabela. The oppositor alleged that at least 60% of the capital shareholdings of the applicants are owned by B Corp., a 100% Chinese corporation, in violation of Sec. 2, Art. XII of the Constitution. The applicants countered that they are qualified corporations as defined under the Philippine Mining Act of 1995 and the Foreign Investments Act of 1991 since B Corp. holds only 40% of the capital stocks in each of them and not 60% as alleged by R Corp.
The Summary of Significant Accounting Policies statement of B Corp. reveals that the joint venture agreements of B Corp. with Sigma Corp. and Delta Corp. involve the O Corp., P Corp., and Q Corp. The ownership of the layered corporations and joint venture agreements show that B Corp. practically exercises control over the O, P and Q corporations. O, P and Q corporations contend that the control test should be applied and its MPSA applications granted. On the other hand, R Corp. argues that the “grandfather rule” should be applied. Decide with reasons. (5%)