Nielson & Co v. Lepanto Mining Corp. 1968 SC Resolution Zaldivar, J. You are probably familiar with the Nielson & Lepanto case in our Obligations and Contracts class. This is different however. The case that you are probably familiar with is the 1966 Decision of the Supreme Court in favor of Nielson. The case that I will discuss is the 1968 Resolution of the Court resolving the Motion for Reconsideration of Lepanto. But to give you a basic idea, I'll discuss very briefly the facts and ruling of the Court in the 1966 Decision. Nielson and Lepanto entered into an operating agreement in 1937 whereby Nielson will operate the mines owned by Lepanto for a management fee of P2,500 and 10% of the net profits. The contract was for a period of 5 years, so from 1937 - 1942. In 1941, before the contract expired, the parties renewed the contract for another 5 years, hence, from 1942 to 1947. However, in 1941, war broke out in the Pacific and the mine, equipment, everything was destroyed by order of the US army to proven the Japanese army from utilizing the mines. The Japanese forces then occupied the mines until 1945. It was only in 1948 when the mines again become operational but by then, Lepanto was already the one managing the mines and refused Nielson from operating it contending that the contract has already expired in 1947. Nielson argued that it was suspended by reason of the war and hence, the period in which Nielson was unable to operate the mines should not be included. The Court ruled in favor of Nielson in that the contract was suspended and hence, ran from 1948-1953, entitling Nielson to its management fee and 10% of the net profits. From this ruling of the Court, Lepanto filed a motion for reconsideration and for the first time on appeal, it raised the issue that the Court failed to apply the law on agency or management contract wherein the principal may revoke the agency at will. According to Lepanto, the Court had overlooked the real nature of the management contract between the parties as being a contract of agency and as such, it had the right to revoke and terminate the agency. Issue: Whether the operating agreement is a contract of agency Held: No. First the Court pointed out that it was the first time Lepanto brought the issue of agency and that as a rule, a party cannot advance a new theory or change his theory on appeal. Even if the court allows it, the theory would still fail. Lepanto argues that the management contract is one of agency because:

1) Nielson was to manage and operate the mining properties and mill on behalf and for the account of Lepanto. 2) Nielson was authorized to represent Lepanto in its behalf to enter into contracts. According to Lepanto, this only shows that Nielson was destined to execute juridical acts not on its own behalf but on behalf of Lepanto "all all times" Lease of Service - In a lease of work or services, one of the parties binds himself to make or construct something to render a service to the other for a price certain. While in both agency and lease of service, one of the parties binds himself to render some service to the other party. But the distinction is that in Agency, its basis is representation while in lease of service, its basis is employment. The lessor does not represent his employer while the agent represents his principal. Second, agency is a preparatory contract because its purpose is to enter into other contracts. It thus appears that 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 — these other undertakings being dependent upon the work on the development of the mine and the operation of the mill. 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. We can gather from the foregoing 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.

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