Nielson & Co., Inc. v. Lepanto Consolidated Mining Co. G.R.

L-21601, December 28, 1968

FACTS
● In 1937, Lepanto and Nielson entered into a contract for the management, operation, and
development of the mine and operation of the mill of Lepanto for a period of five years,
with the right to renew for a like period.
○ Said contract was renewed with expiration in 1947.
● In January 1942, however, the operation of the mining properties was disrupted because
of a war, wherein the Japanese occupied the mines to prevent its utilization by the
enemies.
● This continued for years and the Japanese were ousted from the mining property only in
August 1945.
● After the mining properties were liberated from the Japanese, Lepanto took possession
thereof. Lepanto rebuilded and reconstructed the mines and mills. Such restoration
lasted until June of 1948.
● After the continuance of operation, Nielsen and Lepanto argued over the status of the
contract, which as renewed, should have expired in 1947.

● Lepanto argued that what transpired was a contract of agency. As such, it has the right to
revoke and terminate the contract under the law of agency (ART 1920 in the New Civil Code)
○ NOTE: ARTICLE 1920. The principal may revoke the agency at will, and compel the agent to
return the document evidencing the agency. Such revocation may be express or implied.
(1733a).
● Thus, Lepanto had terminated the management contract in 1945, following the
liberation of the mines from Japanese control.

ISSUE/S: W/N there is a contract of agency between Lepanto and Nielson. (NO, only a contract of
lease for services)

RULING

The Court ruled in the NEGATIVE.

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 a lease of services in that the basis of
agency is representation, while in the lease of work or services the basis is employment.
Another distinction between an agency and a lease of service is that the agent has the power to
bring about relations between his principal and third person. An agent has the power to
execute juridical acts, unlike in lease of service, the employee can contemplate only material or
non-juridical acts.

In this case, in the examination of the contract, it was found that the principal and paramount
undertaking of Nielson was the operation and development of mine and operation of mill and
in the performance of this principal undertaking, Nielson was not in any way executing
juridical acts for Lepanto. He was not acting as an agent of Lepanto but as one who was
performing material acts for an employer, for compensation. Such is evidenced in a stipulation on
the contract where Nielson may also act as purchasing agent of supplies and enter into contracts
regarding sale of minerals, but with prior approval from Lepanto. Such acts do not represent that of an
agent but only as intermediary.

Moreover, with regards to Lepanto’s contention that it had the right to terminate the contract, the Court
found that a proviso in the contract which provides that 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.

Defendant could not terminate the agreement if plaintiff 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 plaintiff. It is, therefore, by express stipulation of the parties, the management contract in
question is not revocable at will of defendant. This management contract is not a contract of agency
as defined in Article 1700 of the Old Civil Code, but a contract of lease of service as defined in Article
1544 of the same code. This contract can not be unilaterally revoked by defendant.