Case Summary (G.R. No. L-21601)
Key Dates
- August 11, 1936 – Nielson offers to underwrite new corporation and operate the mines
- January 30, 1937 – Formal management contract executed
- February 1942 – U.S. Army destroys mine installations to deny enemy use
- August 1945 – Mines liberated but remain in ruins
- June 26, 1948 – Operations resume; contract suspension ends
- February 6, 1958 – Complaint filed by Nielson
Applicable Law
- Old Civil Code of the Philippines (Act No. 33) Articles 1709 (agency), 1544 (lease of services), 1733 (revocation of agency)
- New Civil Code (R.A. 386) Articles 1868 (agency definition), 1920 (revocation)
- Rules of Court (prescription) and debt moratorium: Executive Order No. 32 (1945) and Republic Act No. 342 (1948)
Nature of the Contract
Although Lepanto claimed it was an agency revocable at will under Article 1733, the Court held the contract was a lease of services (Art. 1544). Nielson performed material mining and milling tasks under Lepanto’s constant board control and could not bind Lepanto in purchases or sales without prior approval. Paragraph XI limited cancellation to cases of Nielson’s bad faith or failure to follow approved mining practice, precluding unilateral revocation at will.
Suspension and Extension by Force Majeure
Paragraph II provided that war and other force-majeure events “adversely affect[ing] the work of mining and milling” suspend the entire agreement for as long as those adverse effects persist. The Court found suspension ran from February 1942 (destruction of installations) until June 26, 1948 (resumption of operations). By express stipulation, the contract term was extended by the six-year suspension, leaving five years of the original term to run from June 26, 1948.
Prescription of Claims
- Claims based on written agreement prescribe in ten years.
- Claims for 10% of December 1941 dividends (P17,500) and January 1942 management fee (P2,500) accrued prewar. Their prescription was tolled by the 1945–1953 moratorium (E.O. 32; R.A. 342), so they remained actionable when suit was filed in 1958.
- Claims for rights arising during the extended five-year period (June 1948–June 1953) accrued no earlier than June 1948 and thus also lay within the ten-year period by February 1958.
Damages and Compensation Awarded
- P 17,500 – 10% of December 1941 cash dividends
- P 2,500 – January 1942 management fee
- P 150,000 – management fees for the 60-month extension
- P 1,400,000 – 10% of cash dividends declared during extension
- P 300,000 – cash equivalent of 10% of stock dividends decla
Case Syllabus (G.R. No. L-21601)
Case Citation and Procedural Posture
- G.R. No. L-21601, 135 Phil. 532 (Dec. 28, 1968), Resolution by Justice Zaldivar
- Plaintiff-Appellant: Nielson & Company, Inc.; Defendant-Appellee: Lepanto Consolidated Mining Company
- Lepanto moved for reconsideration of this Court’s December 17, 1966 decision, advancing four principal and five alternative grounds
Grounds of the Motion for Reconsideration
- Principal grounds:
• Alleged misapplication of the law on agency (Art. 1733 Old Civil Code/Art. 1920 New Civil Code) and purported termination of the contract in 1945
• Erroneous interpretation of paragraph II (force majeure suspension) of the management contract
• Improper reversal of trial court’s finding of mere suspension (not extension) of the agreement due to war
• Failure to consider prescription of all claims, addressing only the first claim’s prescriptibility - Alternative grounds:
• Dispute over duration of war-related suspension (Feb 1942–Jun 26, 1948)
• Challenge to damages awarded for dividends, January 1942 management fee, and extended contract price
• Objection to stock issuance as damages
• Claim that award for shares/cash is unascertainable
• Contestation of attorney’s fees award
Nature and Terminology of the Management Contract
- Contract entered Jan. 30, 1937: five-year term with renewal option, for exploration, development, operation and marketing of Lepanto’s mining properties
- Key obligations of Nielson:
• Render mining and milling services, submit technical reports, develop mill, employ staff and laborers
• Act as “purchasing agent” and enter contracts for sales only with Lepanto’s prior approval (no commissions) - Distinction between agency (Art. 1709 Old CC) and lease of services (Art. 1544 Old CC):
• Agency: representation, juridical acts binding principal; revocable at will (Art. 1733 Old CC)
• Lease of services: employment to render services for a price, no representation of employer - Court’s conclusion: a contract of lease of services, not agency; paragraph XI limited cancellation to 90-day notice upon bad-faith or unpracticed mining, excluding force majeure