NIELSON & CO., INC. V. LEPANTO CONSOLIDATED MINING CO.

Facts:

 An operating agreement was executed on January 1937 between Neilson & Co.
and the Lepanto Consolidated Mining Co. whereby Lepanto operated and
managed the mining properties owned by the Neilson & Co. for a management
fee and a participation fee, initially for a period of 5 years, renewed in 1941 for
another 5 years.

 The war broke out on December 1941, disrupting the operation of the mining
properties, but after its liberation, LEPANTO took possession, rebuilt the mines
and mills, and resumed operations.

 In 1945, a disagreement arose between NIELSON and LEPANTO over the

status of the operating contract, which expires in 1947 indicating that the
management contract shall remain suspended in case fortuitous event or force
majeure.

 On February 1958, NIELSON brought an action against LEPANTO in view of

the refusal of the latter to comply with the terms of a management contract,
which was dismissed by the Trial Court, and later reversed by the SC holding
that the war suspended the contract by virtue of the force majeure clause, and
that the intention of the parties regarding the meaning and usage concerning
the force majeure clause meant the extension of the same for a period
equivalent to the suspension.

 In this motion for reconsideration, LEPANTO asserts that the management

contract in question is a contract of agency such that it has the right to revoke
and terminate the said contract, as it did terminate the same, under the law of
agency, and particularly pursuant to Article 1733 of the Old Civil Code (Article
1920 of the New Civil Code).

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

lease of services.
Held:

 Contract of Agency v Contract of Lease of Services:

Article 1709 of the Old Civil Code, defining contract of agency, provides that "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."

Article 1544, defining contract of lease of service, provides that "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 characteristic feature of an agency
relationship is the agent's power to bring about business relations between his
principal and third persons. "The agent is destined to execute juridical acts
(creation, modification or extinction of relations with third parties). Lease of
services contemplate only material (non-juridical) acts."

 Neilson not executing juridical acts:

Herein, 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.
 Prior approval of LEPANTO required:

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.

 Detailed operating contract:

The statements in the annual report for 1936, and from the provision of paragraph
XI 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 contract thus entered into
pursuant to the offer made by Nielson and accepted by Lepanto was a "detailed
operating contract". It was not a contract of agency. Nowhere in the record is it
shown that Lepanto considered Nielson as its agent and that Lepanto terminated
the management contract because it had lost its trust and confidence in Nielson.

 Contract cannot be revoked at will:

From the provision of paragraph XI of the management contract, Lepanto could

not terminate the agreement at will. Lepanto could terminate or cancel the
agreement by giving notice of termination ninety days in advance only in the event
that Nielson should prosecute in bad faith and not in accordance with approved
mining practice the operation and development of the mining properties of
Lepanto. Lepanto could not terminate the agreement if Nielson should cease to
prosecute the operation and development of the mining properties by reason of acts
of God, strike and other causes beyond the control of Nielson. The management
contract in question is not revocable at the will of Lepanto. It is not a contract of
agency as defined in Article 1709 of the old Civil Code, but a contract of lease of
services as defined in Article 1544 of the same Code. This contract can not be
unilaterally revoked by Lepanto.
Dispositive:

IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the

decision of the court a quo and enter in lieu thereof another, ordering the appellee
Lepanto to pay the appellant Nielson.
OLAGUER vs. PURUGGANAN, JR. and LOCSIN, G.R. No. 158907 February 12,
2007

FACTS:

• Petitioner Eduardo B. Olaguer who is an activist against the Marcos administration

was the owner of 60,000 shares of stock of Businessday Corporation with a total par
value of P600,000.00.

• Anticipating the possibility that petitioner would be arrested and detained by the
Marcos military, Locsin, Joaquin, and Hector Holifeña had an unwritten agreement
that, in the event that petitioner was arrested, they would support the petitioner’s
family by the continued payment of his salary.

• Olaguer executed a Special Power of Attorney (SPA), appointing as his attorneys-in-

fact Locsin, Joaquin and Hofileña for the purpose of selling or transferring petitioner’s
shares of stock with Businessday, which the parties acknowledged before respondent
Emilio Purugganan, Jr., who was then the Corporate Secretary of Businessday, and at
the same time, a notary public for Quezon City.

• On 24 December 1979, petitioner was arrested by the Marcos military for allegedly
committing arson. When petitioner was detained, respondent Locsin tried to sell
petitioner’s shares, but nobody wanted to buy them.

• Petitioner’s reputation as an oppositionist resulted in the poor financial condition of

Businessday and discouraged any buyers for the shares of stock, prompting Locsin to
buy the shares himself at par value.

• The RTC found that petitioner consented to have respondent Locsin buy the shares
himself, through his wife receiving P600,000.00 as payment for the shares of stock.

ISSUE: Whether respondent Locsin exceeded his authority under the SPA?

RULING:

It is a general rule that a power of attorney must be strictly construed; the instrument will
be held to grant only those powers that are specified, and the agent may neither go
beyond nor deviate from the power of attorney. However, the rule is not absolute and
should not be applied to the extent of destroying the very purpose of the power. If the
language will permit, the construction that should be adopted is that which will carry out
instead of defeat the purpose of the appointment. Clauses in a power of attorney that are
repugnant to each other should be reconciled so as to give effect to the instrument in
accordance with its general intent or predominant purpose. Furthermore, the instrument
should always be deemed to give such powers as essential or usual in effectuating the
express powers.

Secondly, petitioner argued that the records failed to show that he gave his consent to the
sale of the shares to respondent Locsin for the price of P600,000.00. This argument is
unsustainable. Petitioner received from respondent Locsin, through his wife and in-laws,
the installment payments for a total of P600,000.00 from 1980 to 1982, without any
protest or complaint. It was only four years after 1982 when petitioner demanded the
return of the shares. The petitioner's claim that he did not instruct respondent Locsin to
deposit the money to the bank accounts of his in-laws fails to prove that petitioner did not
give his consent to the sale since respondent Locsin was authorized, under the SPA, to
negotiate the terms and conditions of the sale including the manner of payment.
Moreover, had respondent Locsin given the proceeds directly to the petitioner, as the
latter suggested in this petition, the proceeds were likely to have been included among
petitioner's properties which were confiscated by the military. Instead, respondent Locsin
deposited the money in the bank accounts of petitioner's in-laws, and consequently,
assured that the petitioner's wife received these amounts. Article 1882 of the Civil Code
provides that the limits of an agent's authority shall not be considered exceeded should it
have been performed in a manner more advantageous to the principal than that specified
by him.

Petitioner alleges that the purported sale between himself and respondent Locsin of the
disputed shares of stock is void since it contravenes Article 1491 of the Civil Code,
which provides that:

ART. 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another:

x x x
(2) Agents, the property whose administration or sale may have been entrusted to them,
unless the consent of the principal has been given; x x x.

It is, indeed, a familiar and universally recognized doctrine that a person who undertakes
to act as agent for another cannot be permitted to deal in the agency matter on his own
account and for his own benefit without the consent of his principal, freely given, with
full knowledge of every detail known to the agent which might affect the
transaction. The prohibition against agents purchasing property in their hands for sale or
management is, however, clearly, not absolute. It does not apply where the principal
consents to the sale of the property in the hands of the agent or administrator.

In the present case, limiting the definitions of "absence" to that provided under Article
381 of the Civil Code and of "incapacity" under Article 38 of the same Code negates the
effect of the power of attorney by creating absurd, if not impossible, legal situations.
Article 381 provides the necessarily stringent standards that would justify the
appointment of a representative by a judge. Among the standards the said article
enumerates is that no agent has been appointed to administer the property. In the present
case, petitioner himself had already authorized agents to do specific acts of
administration and thus, no longer necessitated the appointment of one by the court.
Likewise, limiting the construction of "incapacity" to "minority, insanity, imbecility, the
state of being a deaf-mute, prodigality and civil interdiction," as provided under Article
38, would render the SPA ineffective.

Petitioner received from respondent Locsin, through his wife and in-laws, the installment
payments for a total of P600,000.00 from 1980 to 1982, without any protest or complaint.
It was only four years after 1982 when petitioner demanded the return of the shares. The
petitioner’s claim that he did not instruct respondent Locsin to deposit the money to the
bank accounts of his in-laws fails to prove that petitioner did not give his consent to the
sale since respondent Locsin was authorized, under the SPA, to negotiate the terms and
conditions of the sale including the manner of payment. Moreover, had respondent
Locsin given the proceeds directly to the petitioner, as the latter suggested in this petition,
the proceeds were likely to have been included among petitioner’s properties which were
confiscated by the military. Instead, respondent Locsin deposited the money in the bank
accounts of petitioner’s in-laws, and consequently, assured that the petitioner’s wife
received these amounts. Article 1882 of the Civil Code provides that the limits of an
agent’s authority shall not be considered exceeded should it have been performed in a
manner more advantageous to the principal than that specified by him.