Espelita, Daryll Phoebe E.

12 and 43

12. Nielson & Co. Inc. vs. Lepanto Consolidated Mining Co.
G.R. No. L-21601

Facts:

Nielson & Co. Inc. and the Lepanto Consolidated Mining Co. executed an agreement
before World War II. It was agreed upon that Nielson & Co. Inc.will operate and manage
the properties fro mining which is owned by Lepanto in consideration of 2,500 per
month for a period of 5 years. It was also stipulated that Nielson shall share 10% in the
profits. Unfortunately, discrepancies arose regarding such share. The parties then
agreed to modify the contract and eventually, it was renewed for another 5 years.
However, the Pacific War broke out in December 1941. In January 1942 operation of
the mining properties was disrupted on account of the war. Because of this, the mining
properties were destroyed. After the mining properties were liberated from the Japanese
forces, Lepanto once again took possession thereof with the intention of rehabilitating
and reconstructing the same. Eventually, it resumed operation in 1948. Not so long after
the mines were liberated from the Japanese invaders, another disagreement arose
between Nielson and Lepanto with respect to the contract which expired in 1947. Under
its terms, the management contract shall remain in suspense in case fortuitous event or
force majeure, such as war or civil commotion, adversely affects the work of mining and
milling.

Nielson brought an action against Lepanto before the Court of First Instance of Manila
to recover certain sums of money representing damages allegedly suffered by the
former in view of the refusal of the latter to comply with the terms of a management
contract entered into between them on 30 January 1937, including attorney's fees and
costs. Lepanto in its answer denied the material allegations of the complaint and set up
certain special defenses, among them, prescription and laches, as bars against the
institution of the action.

The trial court dismissed the complaint but Nielson appealed and the Supreme Court
reversed the decision.

To satisfy this judgment, Lepanto shall pay Nielson an amount in cash equivalent to the
market value of said shares at the time of default, that is, all shares of stock that should
have been delivered to Nielson before the filing of the complaint must be paid at their
market value as of the date of the filing of the complaint; and all shares, if any, that
should have been delivered after the filing of the complaint at the market value of the
shares at the time Lepanto disposed of all its available shares, for it is only then that
Lepanto placed itself in condition of not being able to perform its obligation; the sum of
P50,000.00 as attorney's fees; and the costs. Lepanto seeks the reconsideration of the
decision.

Issue: Whether the management contract is a contract of agency or a contract of lease

of services.

Held:

No. The Civil Code defined the contract of agency in Article 1709 as "By the
contract of agency, one person binds himself to render some service or do something
for the account or at the request of another." On the other hand, Article 1544, defined a
contract of lease of service as "In a lease of work or services, one of the parties binds
himself to make or construct something or to render a service to the other for a price
certain."

In both agency and lease of services one of the parties binds himself to render
some service to the other party. Agency, however, is distinguished from lease of work or
services in that the basis of agency is representation, while in the lease of work or
services the basis is employment. The lessor of services does not represent his
employer, while the agent represents his principal. Further, agency is a preparatory
contract, as agency "does not stop with the agency because the purpose is to enter into
other contracts."

The most essential feature of an agency relationship is the agent's power to bring
about business relations between his principal and third persons. In the case at bar, the
principal and paramount undertaking of Nielson under the management contract was
the operation and development of the mine and the operation of the mill. All the other
undertakings mentioned in the contract are necessary or incidental to the principal
undertaking. In the performance of this principal undertaking Nielson was not in any way
executing juridical acts for Lepanto, destined to create, modify or extinguish business
relations between Lepanto and third persons. In other words, in performing its principal
undertaking Nielson was not acting as an agent of Lepanto, in the sense that the term
agent is interpreted under the law of agency, but as one who was performing material
acts for an employer, for a compensation.

While it is true that the management contract provides that Nielson would also
act as purchasing agent of supplies and enter into contracts regarding the sale of
mineral, but the contract also provides that Nielson could not make any purchase, or
sell the minerals, without the prior approval of Lepanto. It is clear, therefore, that even in
these cases Nielson could not execute juridical acts which would bind Lepanto without
first securing the approval of Lepanto. Nielson, then, was to act only as an intermediary,
not as an agent. Further, from the statements in the annual report for 1936, and from
the provision of the Management contract, that the employment by Lepanto of Nielson
to operate and manage its mines was principally in consideration of the know-how and
technical services that Nielson offered Lepanto. The agreement that Lepanto will
consider Nielson as its agent is nowhere to be found , same is true with the claim that
Lepanto terminated the management contract because it had lost its trust and
confidence in Nielson. The contract thus entered between them into pursuant to the
offer made by Nielson and accepted by Lepanto was merely a "detailed operating
contract" and not a contract of agency.