NIELSON & COMPANY, INC.

,
vs.
LEPANTO CONSOLIDATED MINING COMPANY
FACTS:
On January 30, 1937, Nielson & Co. executed an agreement with Lepanto Consolidated
Mining Co. Lepanto owned the mining properties. Nielson operated and maintained the
said properties for Php 2,500.00 / month as management fee plus 10% participation in
the net profits for 5 years.
In 1940, the 10% share was disputed. Lepantos Board of Directors authorized C.A. De
Witt, president to enter with an agreement with Nielson modifying same provisions
effective January 1, 1940 such that Nielson shall receive :
1. 10% of the dividends paid during the contract period and every end of the year;
2. 10% of any depletion reserve that may be set up;
3. 10% of any amount expended during the year out of surplus earnings for capital
account.

In 1941, the parties renewed their contract for another 5 years but the Pacific War broke
out in December 1941. In January 1942, the operation was disrupted. The U.S. Army
ordered that the mill, power plant, supplies, equipment, concentrates on hand and
mines be destroyed to prevent the Japanese from using. Thereafter, the Japanese army
occupied the mining properties and was ousted only in August 1945.
Lepanto then rebuilt the mines and mills including setting up new organizations, repairs,
clearings, salvages, etc. The reconstruction was completed until 1948. On June 26,
1948 the mines resumed the operation under the exclusive management of Lepanto.
However, after the mines were liberated in 1945, a disagreement arose between
Nielson and Lepanto over the status of the operating contract which expired in 1947.
Under the terms thereof the management contract shall remain in suspension in case
of fortuitous event or force majeure such as war, which adversely affects the work of the
mining and milling.
On February 6, 1958, Nielson brought an action against Lepanto before the Court of
First Instance (CFI) of Manila to recover damages suffered in view of the refusal of
Lepanto to comply with the terms of a management contract entered into between them
on January 30, 1937.

In its answer, Lepanto denied the allegations and set up certain defenses, prescription
and laches as bars against the institution of the action.
After trial, the court a quo rendered a decision dismissing the complaint with costs. The
court stated that it did not find sufficient evidence to establish the counterclaim of
Lepanto therefore, dismissed the same. Nielson appealed. The Supreme Court
reversed the decision of the trial court and ordered Lepanto to pay:
1. 10% Share of cash dividends of December 1941 in the amount of Php 17,500.00
with legal interest thereon from the date of the filling of the complaint;
2. Management fee for January 1942 in the amount of Php 2,500.00 with legal
interest thereon from the date of the filing of the complaint;
3. Management fees for the 60-month period of extension amounting to Php
150,000.00 with legal interest;
4. 10% Share in the cash dividends during the period of extension;
5. 10% of the depletion reserve amounting to Php 53,928.88 with legal interest;
6. 10% of the expenses of the capital account amounting to Php 694,364.76 with
legal interest;
7. To issue and deliver to Nielson shares of stock at a par value equivalent to the
total of Nielsons 10% share in the stock dividends declared on November 28,
1948 and August 22, 1950; and
8. The sum of Php 50,000.00 as attorneys fee and the cost that Lepanto seeks for
reconsideration.

ISSUE:
Whether or not the management contract is a contract of agency?
HELD:
NO. The Supreme Court ruled that the management contract is not a contract of agency
as defined in Article 1709 of the Old Civil Code, but as a contract of lease of services as
defined in Article 1544 of the same Code. Article 1709 defines the contract of agency as
one person binds himself to render some service or to do something for the account or
at the request of another. While Article 1544 defines 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. The court determined
the nature of the management contract in question wherein there was agreement for
Nielson for 5 years had the right to renew, to explore, to develop, and to operate the
mining claims of Lepanto. In the performance of this principal undertaking Nielson was

not acting as an agent but one as performing material acts for an employer, for a
compensation.