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G.R. No. L-21601 December 28, 1968 NIELSON & CO vs.

LEPANO
NIELSON & CO!PAN", INC., plaintiff-appellant,
vs.
LEPANO CONSOLIDAED !INING CO!PAN", defendant-
appellee.
Lepanto seeks the reconsideration of the decision rendered on December
17, 1966. The motion for reconsideration is based on two sets of gronds
! the first set consisting of for principal gronds, and the second set
consisting of five alternative gronds, as follows"
Principal Grounds:
1. The cort erred in overlooking and failing to appl# the proper
law applicable to the agenc# or management contract in $estion,
namel#, %rticle 17&& of the 'ld (ivil (ode )%rticle 19*+ of the
new,, b# virte of which said agenc# was effectivel# revoked and
terminated in 19-. when, as stated in paragraph *+ of the
complaint, /defendant volntaril# ... prevented plaintiff from
resming management and operation of said mining properties./
*. The cort erred in holding that paragraph 00 of the management
contract )12hibit (, sspended the period of said contract.
&. The cort erred in reversing the rling of the trial 3dge, based
on well-settled 3risprdence of this 4preme (ort, that the
management agreement was onl# sspended bt not e2tended on
accont of the war.
-. The cort erred in reversing the finding of the trial 3dge that
5ielson6s action had prescribed, bt considering onl# the first
claim and ignoring the prescriptibilit# of the other claims.
Alternative Grounds:
.. The cort erred in holding that the period of sspension of the
contract on accont of the war lasted from 7ebrar# 19-* to 8ne
*6, 19-9.
6. %ssming argendo that 5ielson is entitled to an# relief, the
cort erred in awarding as damages )a, 1+: of the cash dividends
declared and paid in December, 19-1; )b, the management fee of
<*,.++.++ for the month of 8anar#, 19-*; and )c, the fll contract
price for the e2tended period of si2t# months, since these
damages were neither demanded nor proved and, in an# case, not
allowable nder the general law of damages.
7. %ssming argendo that appellant is entitled to an# relief, the
cort erred in ordering appellee to isse and deliver to appellant
shares of stock together with frits thereof.
9. The cort erred in awarding to appellant an ndetermined
amont of shares of stock and=or cash, which award cannot be
ascertained and e2ected withot frther litigation.
9. The cort erred in rendering 3dgment for attorne#6s fees.
>e are going to dwell on these gronds in the order the# are presented.
1. 0n its first principal grond Lepanto claims that its own consel and
this (ort had overlooked the real natre of the management contract
entered into b# and between Lepanto and 5ielson, and the law that is
applicable on said contract. Lepanto now asserts for the first time and this
is done in a motion for reconsideration - that the management contract in
$estion is a contract of agenc# sch that it has the right to revoke and
terminate the said contract, as it did terminate the same, nder the law of
agenc#, and particlarl# prsant to %rticle 17&& of the 'ld (ivil (ode
)%rticle 19*+ of the 5ew (ivil (ode,.
>e have taken note that Lepanto is advancing a new theor#. >e have
carefll# e2amined the pleadings filed b# Lepanto in the lower cort, its
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memorandm and its brief on appeal, and never did it assert the theor#
that it has the right to terminate the management contract becase that
contract is one of agenc# which it cold terminate at will. >hile it is tre
that in its ninth and tenth special affirmative defenses, in its answer in the
cort below, Lepanto pleaded that it had the right to terminate the
management contract in $estion, that plea of its right to terminate was
not based pon the grond that the relation between Lepanto and 5ielson
was that of principal and agent bt pon the grond that 5ielson had
allegedl# not complied with certain terms of the management contract. 0f
Lepanto had thoght of considering the management contract as one of
agenc# it cold have amended its answer b# stating e2actl# its position. 0t
cold have asserted its theor# of agenc# in its memorandm for the lower
cort and in its brief on appeal. This, Lepanto did not do. 0t is the rle,
and the settled doctrine of this (ort, that a part# cannot change his
theor# on appeal ! that is, that a part# cannot raise in the appellate cort
an# $estion of law or of fact that was not raised in the cort below or
which was not within the isse made b# the parties in their pleadings
)4ection 19, ?le -9 of the old ?les of (ort, and also 4ection 19 of the
new ?les of (ort; @atea vs. Aagallon, L-*+&-., 5ovember *9, 196-;
5orthern Aotors, 0nc. vs. <rince Line, L-1&99-, 7ebrar# *9, 196+;
%merican 12press (o. vs. 5atividad, -6 <hil. *+7; %goncillo vs. 8avier,
&9 <hil. -*- and Aolina vs. 4omes, *- <hil -9,.
%t an# rate, even if we allow Lepanto to assert its new theor# at this ver#
late stage of the proceedings, this (ort cannot sstain the same.
Lepanto contends that the management contract in $estion )12hibit (, is
one of agenc# becase" )1, 5ielson was to manage and operate the
mining properties and mill on behalf, and for the accont, of Lepanto;
and )*, 5ielson was athoriBed to represent Lepanto in entering, on
Lepanto6s behalf, into contracts for the hiring of laborers, prchase of
spplies, and the sale and marketing of the ores mined. %ll these, Lepanto
claims, show that 5ielson was, b# the terms of the contract, destined to
e2ecte 3ridical acts not on its own behalf bt on behalf of Lepanto
nder the control of the Coard of Directors of Lepanto /at all times/.
@ence Lepanto claims that the contract is one of agenc#. Lepanto then
maintains that an agenc# is revocable at the will of the principal )%rticle
17&& of the 'ld (ivil (ode,, regardless of an# term or period stiplated
in the contract, and it was in prsance of that right that Lepanto
terminated the contract in 19-. when it took over and assmed e2clsive
management of the work previosl# entrsted to 5ielson nder the
contract. Lepanto finall# maintains that 5ielson as an agent is not entitled
to damages since the law gives to the principal the right to terminate the
agenc# at will.
Cecase of Lepanto6s new theor# >e consider it necessar# to determine
the nature of the management contract ! whether it is a contract of
agenc# or a contract of lease of services. 0ncidentall#, we have noted that
the lower cort, in the decision appealed from, considered the
management contract as a contract of lease of services.
%rticle 17+9 of the 'ld (ivil (ode, defining contract of agenc#,
provides"
C# the contract of agenc#, one person binds himself to render
some service or do something for the accont or at the re$est of
another.
%rticle 1.--, defining contract of lease of service, provides"
0n a lease of work or services, one of the parties binds himself to
make or constrct something or to render a service to the other for
a price certain.
0n both agenc# and lease of services one of the parties binds himself to
render some service to the other part#. %genc#, however, is distingished
from lease of work or services in that the basis of agenc# is
representation, while in the lease of work or services the basis is
emplo#ment. The lessor of services does not represent his emplo#er,
while the agent represents his principal. Aanresa, in his /(ommentarios
al (odigo (ivil 1spaDol/ )19&1, Tomo 0E, pp. &7*-&7&,, points ot that
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the element of representation distingishes agenc# from lease of services,
as follows"
5estro art. 1.7+9 como el art. 1.99- del (odigo de 5apoleon #
cantos te2tos legales citamos en las concordancias, e2presan
claramente esta idea de la representacion, /hacer algna cosa por
centa o encargo de otra/ dice nestro (odigo; /poder de hacer
algna cosa para el mandante o en s nombre/ dice el (odigo de
5apoleon, # en tales palabras aparece vivo # lminoso el
concepto # la teoria de la representacion, tan fecnda en
ensenanBas, $e a s sola lB es como se e2plican las diferencias
$e separan el mandato del arrendamiento de servicios, de los
contratos inominados, del conse3o # de la gestion de negocios.
1n efecto, en el arrendamiento de servicios al obligarse para s
e3eccion, se traba3a, en verdad, para el deno $e remnera la
labor, pero ni se le representa ni se obra en s nombre....
'n the basis of the interpretation of %rticle 17+9 of the old (ivil (ode,
%rticle 1969 of the new (ivil (ode has defined the contract of agenc# in
more e2plicit terms, as follows"
C# the contract of agenc# a person binds himself to render some
service or to do something in representation or on behalf of
another, with the consent or athorit# of the latter.
There is another obvios distinction between agenc# and lease of
services. %genc# is a preparator# contract, as agenc# /does not stop with
the agenc# becase the prpose is to enter into other contracts./ The most
characteristic featre of an agenc# relationship is the agent6s power to
bring abot bsiness relations between his principal and third persons.
/The agent is destined to e2ecte 3ridical acts )creation, modification or
e2tinction of relations with third parties,. Lease of services contemplate
onl# material )non-3ridical, acts./ )?e#es and <no, /%n 'tline of
<hilippine (ivil Law,/ Fol. F, p. *77,.
0n the light of the interpretations we have mentioned in the foregoing
paragraphs let s now determine the natre of the management contract
in $estion. Gnder the contract, 5ielson had agreed, for a period of five
#ears, with the right to renew for a like period, to e2plore, develop and
operate the mining claims of Lepanto, and to mine, or mine and mill,
sch pa# ore as ma# be fond therein and to market the metallic prodcts
recovered therefrom which ma# prove to be marketable, as well as to
render for Lepanto other services specified in the contract. >e gather
from the contract that the work ndertaken b# 5ielson was to take
complete charge sb3ect at all times to the general control of the Coard of
Directors of Lepanto, of the e2ploration and development of the mining
claims, of the hiring of a sfficient and competent staff and of sfficient
and capable laborers, of the prospecting and development of the mine, of
the erection and operation of the mill, and of the benefication and
marketing of the minerals fond on the mining properties; and in carr#ing
ot said obligation 5ielson shold proceed diligentl# and in accordance
with the best mining practice. 0n connection with its work 5ielson was to
sbmit reports, maps, plans and recommendations with respect to the
operation and development of the mining properties, make
recommendations and plans on the erection or enlargement of an#
e2isting mill, dispatch mining engineers and technicians to the mining
properties as from time to time ma# reasonabl# be re$ired to investigate
and make recommendations withot cost or e2pense to Lepanto. 5ielson
was also to /act as prchasing agent of spplies, e$ipment and other
necessar# prchases b# Lepanto, provided, however, that no prchase
shall be made withot the prior approval of Lepanto; and provided
frther, that no commission shall be claimed or retained b# 5ielson on
sch prchase/; and /to sbmit all re$isition for spplies, all constricts
and arrangement with engineers, and staff and all matters re$iring the
e2penditres of mone#, present or ftre, for prior approval b# Lepanto;
and also to make contracts sb3ect to the prior approve of Lepanto for the
sale and marketing of the minerals mined from said properties, when said
prodcts are in a sitable condition for marketing./
1
0t ths appears that the principal and paramont ndertaking of 5ielson
nder the management contract was the operation and development of the
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mine and the operation of the mill. %ll the other ndertakings mentioned
in the contract are necessar# or incidental to the principal ndertaking !
these other ndertakings being dependent pon the work on the
development of the mine and the operation of the mill. 0n the
performance of this principal ndertaking 5ielson was not in an# wa#
e2ecting 3ridical acts for Lepanto, destined to create, modif# or
e2tingish bsiness relations between Lepanto and third persons. 0n other
words, in performing its principal ndertaking 5ielson was not acting as
an agent of Lepanto, in the sense that the term agent is interpreted nder
the law of agenc#, bt as one who was performing material acts for an
emplo#er, for a compensation.
0t is tre that the management contract provides that 5ielson wold also
act as prchasing agent of spplies and enter into contracts regarding the
sale of mineral, bt the contract also provides that 5ielson cold not
make an# prchase, or sell the minerals, withot the prior approval of
Lepanto. 0t is clear, therefore, that even in these cases 5ielson cold not
e2ecte 3ridical acts which wold bind Lepanto withot first secring
the approval of Lepanto. 5ielson, then, was to act onl# as an
intermediar#, not as an agent.
Lepanto contends that the management contract in $estion being one of
agenc# it had the right to terminate the contract at will prsant to the
provision of %rticle 17&& of the old (ivil (ode. >e find, however, a
proviso in the management contract which militates against this stand of
Lepanto. <aragraph E0 of the contract provides"
Coth parties to this agreement fll# recogniBe that the terms of
this %greement are made possible onl# becase of the faith or
confidence that the 'fficials of each compan# have in the other;
therefore, in order to assre that sch confidence and faith shall
abide and contine, 501L4'5 agrees that L1<%5T' ma# cancel
this %greement at an# time pon ninet# )9+, da#s written notice,
in the event that 501L4'5 for an# reason whatsoever, e2cept
acts of Hod, strike and other cases be#ond its control, shall cease
to prosecte the operation and development of the properties
herein described, in good faith and in accordance with approved
mining practice.
0t is ths seen, from the above-$oted provision of paragraph E0 of the
management contract, that Lepanto cold not terminate the agreement at
will. Lepanto cold terminate or cancel the agreement b# giving notice of
termination ninet# da#s in advance onl# in the event that 5ielson shold
prosecte in bad faith and not in accordance with approved mining
practice the operation and development of the mining properties of
Lepanto. Lepanto cold not terminate the agreement if 5ielson shold
cease to prosecte the operation and development of the mining
properties b# reason of acts of Hod, strike and other cases be#ond the
control of 5ielson.
The phrase /Coth parties to this agreement fll# recogniBe that the terms
of this agreement are made possible onl# becase of the faith and
confidence of the officials of each compan# have in the other/ in
paragraph E0 of the management contract does not $alif# the relation
between Lepanto and 5ielson as that of principal and agent based on trst
and confidence, sch that the contractal relation ma# be terminated b#
the principal at an# time that the principal loses trst and confidence in
the agent. ?ather, that phrase simpl# implies the circmstance that
broght abot the e2ection of the management contract. Ths, in the
annal report for 19&6
*
, sbmitted b# Ar. (. %. Dewit, <resident of
Lepanto, to its stockholders, nder date of Aarch 1., 19&7, we read the
following"
To the stockholders
222 222 222
The incorporation of or (ompan# was effected as a reslt of
negotiations with Aessrs. 5ielson I (o., 0nc., and an offer b#
these gentlemen to Aessrs. (. 0. (ookes and F. L. Lednick#,
dated %gst 11, 19&6, reading as follows"
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Aessrs. (ookes and Lednick#,
<resent
?e" Aanka#an (opper Aines
H15TL1A15"
%fter an e2amination of #or propert# b# or engineers,
we have decided to offer as we hereb# offer to nderwrite
the entire isse of stock of a corporation to be formed for
the prpose of taking over said properties, said corporation
to have an athoriBed capital of <1,7.+,+++.++, of which
<7++,+++.++ will be issed in escrow to the claim-owners
in e2change for their claims, and the balance of
<1,+.+,+++.++ we will sell to the pblic at par or take
orselves.
The arrangement will be nder the following conditions"
1. The sbscriptions for cash shall be pa#able .+: at time
of sbscription and the balance sb3ect to the call of the
Coard of Directors of the proposed corporation.
*. >e shall have an nderwriting and brokerage
commission of 1+: of the <1,+.+,+++.++ to be sold for
cash to the pblic, said commission to be pa#able from the
first pa#ment of .+: on each sbscription.
&. >e will bear the cost of preparing and mailing an#
prospects that ma# be re$ired, bt no sch prospects
will be sent ot ntil the te2t thereof has been first
approved b# the Coard of Directors of the proposed
corporation.
-. That after the organiBation of the corporation, all
operating contract be entered into between orselves and
said corporation, nder the terms which the propert# will
be developed and mined and a mill erected, nder or
spervision, or compensation to be <*,+++.++ per month
ntil the propert# is pt on a profitable basis and
<*,.++.++ per month pls 1+: of the net profits for a
period of five #ears thereafter.
.. That we shall have the option to renew said operating
contract for an additional period of five #ears, on the same
basis as the original contract, pon the e2piration thereof.
0t is nderstood that the development and mining
operations on said propert#, and the erection of the mill
thereon, and the e2penditres therefor shall be sb3ect to
the general control of the Coard of Directors of the
proposed corporation, and, in case #o accept this
proposition, that a detailed operating contract will be
entered into, covering the relationships between the
parties.
Jors ver# trl#,
)4gd., L. ?. 5ielson
<rsant to the provisions of paragraph * of this offer, Aessrs.
5ielson I (o., took sbscriptions for 'ne Aillion 7ift# Thosand
<esos )<1,+.+,+++.++, in shares of or (ompan# and their
nderwriting and brokerage commission has been paid. Aore than
fift# per cent of these sbscriptions have been paid to the
(ompan# in cash. The claim owners have transferred their claims
to the (orporation, bt the <7++,+++.++ in stock which the# are to
receive therefor, is as #et held in escrow.
0mmediatel# pon the formation of the (orporation Aessrs.
5ielson I (o., assmed the Aanagement of the propert# nder
the control of the Coard of Directors. % modification in the
Aanagement (ontract was made with the consent of all the then
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stockholders, in virte of which the compensation of Aessrs.
5ielson I (o., was increased to <*,.++.++ per month when mill
constrction began. The formal Aanagement (ontract was not
entered into ntil 8anar# &+, 19&7.
222 222 222
Aanila, Aarch 1., 19&7
)4gd., (. %. De>itt
<resident
>e can gather from the foregoing statements in the annal report for
19&6, and from the provision of paragraph E0 of the Aanagement
contract, that the emplo#ment b# Lepanto of 5ielson to operate and
manage its mines was principall# in consideration of the know-how and
technical services that 5ielson offered Lepanto. The contract ths entered
into prsant to the offer made b# 5ielson and accepted b# Lepanto was
a /detailed operating contract/. 0t was not a contract of agenc#. 5owhere
in the record is it shown that Lepanto considered 5ielson as its agent and
that Lepanto terminated the management contract becase it had lost its
trst and confidence in 5ielson.
The contention of Lepanto that it had terminated the management
contract in 19-., following the liberation of the mines from 8apanese
control, becase the relation between it and 5ielson was one of agenc#
and as sch it cold terminate the agenc# at will, is, therefore, ntenable.
'n the other hand, it can be said that, in asserting that it had terminated
or cancelled the management contract in 19-., Lepanto had thereb#
violated the e2press terms of the management contract. The management
contract was renewed to last ntil 8anar# &1, 19-7, so that the contract
had #et almost two #ears to go ! pon the liberation of the mines in
19-.. There is no showing that 5ielson had ceased to prosecte the
operation and development of the mines in good faith and in accordance
with approved mining practice which wold warrant the termination of
the contract pon ninet# da#s written notice. 0n fact there was no sch
written notice of termination. 0t is an admitted fact that 5ielson ceased to
operate and develop the mines becase of the war ! a case be#ond the
control of 5ielson. 0ndeed, if the management contract in $estion was
intended to create a relationship of principal and agent between Lepanto
and 5ielson, paragraph E0 of the contract shold not have been inserted
becase, as provided in %rticle 17&& of the old (ivil (ode, agenc# is
essentiall# revocable at the will of the principal ! that means, with or
withot case. Ct precisel# said paragraph E0 was inserted in the
management contract to provide for the case for its revocation. The
provision of paragraph E0 mst be given effect.
0n the constrction of an instrment where there are several provisions or
particlars, sch a constrction is, if possible, to be adopted as will give
effect to all,
&
and if some stiplation of an# contract shold admit of
several meanings, it shall be nderstood as bearing that import which is
most ade$ate to render it effectal.
-
0t is 'r considered view that b# e2press stiplation of the parties, the
management contract in $estion is not revocable at the will of Lepanto.
>e rle that this management contract is not a contract of agenc# as
defined in %rticle 17+9 of the old (ivil (ode, bt a contract of lease of
services as defined in %rticle 1.-- of the same (ode. This contract can
not be nilaterall# revoked b# Lepanto.
The first grond of the motion for reconsideration shold, therefore, be
brshed aside.
*. 0n the second, third and fifth gronds of its motion for reconsideration,
Lepanto maintains that this (ort erred, in holding that paragraph 11 of
the management contract sspended the period of said contract, in
holding that the agreement was not onl# sspended bt was e2tended on
accont of the war, and in holding that the period of sspension on
accont of the war lasted from 7ebrar#, 19-* to 8ne *6, 19-9. >e are
going to discss these three gronds together becase the# are
interrelated.
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0n or decision we have dwelt lengthil# on the points that the
management contract was sspended becase of the war, and that the
period of the contract was e2tended for a period e$ivalent to the time
when 5ielson was nable to perform the work of mining and milling
becase of the adverse effects of the war on the work of mining and
milling.
0t is the contention of Lepanto that the happening of those events, and the
effects of those events, simpl# sspended the performance of the
obligations b# either part# in the contract, bt did not sspend the period
of the contract, mch less e2tended the period of the contract.
>e have conscientiosl# considered the argments of Lepanto in spport
of these three gronds, bt >e are not persaded to reconsider the rlings
that >e made in 'r decision.
>e want to sa# a little more on these points, however. <aragraph 00 of the
management contract provides as follows"
0n the event of inndation, flooding of the mine, t#phoon,
earth$ake or an# other force ma3ere, war, insrrection, civil
commotion, organiBed strike, riot, fire, in3r# to the machiner# or
other event or case reasonabl# be#ond the control of 501L4'5
and which adversel# affects the work of mining and milling;
501L4'5 shall report sch fact to L1<%5T' and withot
liabilit# or breach of the terms of this %greement, the same shall
remain in sspense, wholl# or partiall# dring the terms of sch
inabilit#. )1mphasis spplied,
% reading of the above-$oted paragraph 00 cannot bt conve# the idea
that pon the happening of an# of the events enmerated therein, which
adversel# affects the work of mining and milling, the agreement is
deemed sspended for as long as 5ielson is nable to perform its work of
mining and milling becase of the adverse effects of the happening of the
event on the work of mining and milling. Dring the period when the
adverse effects on the work of mining and milling e2ist, neither part# in
the contract wold be held liable for non-compliance of its obligation
nder the contract. 0n other words, the operation of the contract is
sspended for as long as the adverse effects of the happening of an# of
those events had impeded or obstrcted the work of mining and milling.
%n anal#sis of the phraseolog# of the above-$oted paragraph 00 of the
management contract readil# spports the conclsion that it is the
agreement, or the contract, that is sspended. The phrase /the same/ can
refer to no other than the term /%greement/ which immediatel# precedes
it. The /%greement/ ma# be wholl# or partiall# sspended, and this
sitation will depend on whether the event wholl# or partiall# affected
adversel# the work of mining and milling. 0n the instant case, the war had
adversel# affected ! and wholl# at that ! the work of mining and
milling. >e have clearl# stated in 'r decision the circmstances
broght abot b# the war which cased the whole or total sspension of
the agreement or of the management contract.
L1<%5T' itself admits that the management contract was sspended.
>e $ote from the brief of L1<%5T'"
<robabl#, what 5ielson meant was, it was prevented b# Lepanto
to assme again the management of the mine in 19-., at the
precise time when defendant was at the feverish phase of
rehabilitation and althogh the contract had alread# been
sspended. )Lepanto6s Crief, p. 9,.
... it was impossible, as a reslt of the destrction of the mine, for
the plaintiff to manage and operate the same and becase, as
provided in the agreement, the contract was sspended b# reason
of the war )Lepanto6s Crief, pp. 9-1+,.
(lase 00, b# its terms, is clear that the contract is suspended in
case fortitos event or force ma3ere, sch as war, adversel#
affects the work of mining and milling. )Lepanto6s Crief, p. -9,.
Lepanto is correct when it said that the obligations nder the contract
were sspended pon the happening of an# of the events enmerated in
8
paragraph 00 of the management contract. 0ndeed, those obligations were
sspended becase the contract itself was sspended. >hen we talk of a
contract that has been sspended we certainl# mean that the contract
temporaril# ceased to be operative, and the contract becomes operative
again pon the happening of a condition ! or when a sitation obtains
! which warrants the termination of the sspension of the contract.
0n 'r decision >e pointed ot that the agreement in the management
contract wold be sspended when two conditions concr, namel#" )1,
the happening of the event constitting a force majeure that was
reasonabl# be#ond the control of 5ielson, and )*, that the event
constitting the force ma3ere adversel# affected the work of mining and
milling. The sspension, therefore, wold last not onl# while the event
constitting the force ma3ere contined to occr bt also for as long as
the adverse effects of the force ma3ere on the work of mining and
milling had not been eliminated. Gnder the management contract the
happening alone of the event constitting the force ma3ere which did not
affect adversel# the work of mining and milling wold not sspend the
period of the contract. 0t is onl# when the two conditions concr that the
period of the agreement is sspended.
0t is not denied that becase of the war, in 7ebrar# 19-*, the mine, the
original mill, the original power plant, the spplies and e$ipment, and
all installations at the Aanka#an mines of Lepanto, were destro#ed pon
order of the Gnited 4tates %rm#, to prevent their tiliBation b# the
enem#. 0t is not denied that for the dration of the war 5ielson cold not
ndertake the work of mining and milling. >hen the mines were
liberated from the enem# in %gst, 19-., the condition of the mines, the
mill, the power plant and other installations, was not the same as in
7ebrar# 19-* when the# were ordered destro#ed b# the G4 arm#.
(ertainl#, pon the liberation of the mines from the enem#, the work of
mining and milling cold not be ndertaken b# 5ielson nder the same
favorable circmstances that obtained before 7ebrar# 19-*. The work of
mining and milling, as ndertaken b# 5ielson in 8anar#, 19-*, cold not
be resmed b# 5ielson soon after liberation becase of the adverse
effects of the war, and this sitation contined ntil 8ne of 19-9. @ence,
the sspension of the management contract did not end pon the
liberation of the mines in %gst, 19-.. The mines and the mill and the
installations, laid waste b# the ravages of war, had to be reconstrcted
and rehabilitated, and it can be said that it was onl# on 8ne *6, 19-9 that
the adverse effects of the war on the work of mining and milling had
ended, becase it was on that date that the operation of the mines and the
mill was resmed. The period of sspension shold, therefore, be
reckoned from 7ebrar# 19-* ntil 8ne *6, 19-9, becase it was dring
this period that the war and the adverse effects of the war on the work of
mining and milling had lasted. The mines and the installations had to be
rehabilitated becase of the adverse effects of the war. The work of
rehabilitation started soon after the liberation of the mines in %gst,
19-. and lasted ntil 8ne *6, 19-9 when, as stated in Lepanto6s annal
report to its stockholders for the #ear 19-9, /8ne *9, 19-9 marked the
official retrn to operation of this compan# at its properties at Aanka#an,
Aontain <rovince, <hilippines/ )12h. 7-1,.
Lepanto wold arge that if the management contract was sspended at
all the sspension shold cease in %gst of 19-., contending that the
effects of the war shold cease pon the liberation of the mines from the
enem#. This contention cannot be sstained, becase the period of
rehabilitation was still a period when the ph#sical effects of the war !
the destrction of the mines and of all the mining installations !
adversel# affected, and made impossible, the work of mining and milling.
@ence, the period of the reconstrction and rehabilitation of the mines
and the installations mst be conted as part of the period of sspension
of the contract.
Lepanto claims that it wold not be nfair to end the period of sspension
pon the liberation of the mines becase soon after the liberation of the
mines 5ielson insisted to resme the management work, and that 5ielson
was nder obligation to reconstrct the mill in the same wa# that it was
nder obligation to constrct the mill in 19&7. This contention is
ntenable. 0t is tre that 5ielson insisted to resme its management work
after liberation, bt this was onl# for the prpose of restoring the mines,
the mill, and other installations to their operating and prodcing condition
9
as of 7ebrar# 19-* when the# were ordered destro#ed. 0t is not shown
b# an# evidence in the record, that 5ielson had agreed, or wold have
agreed, that the period of sspension of the contract wold end pon the
liberation of the mines. This is so becase, as fond b# this (ort, the
intention of the parties in the management contract, and as nderstood b#
them, the management contract was sspended for as long as the adverse
effects of the force ma3ere on the work of mining and milling had not
been removed, and the contract wold be e2tended for as long as it was
sspended. Gnder the management contract 5ielson had the obligation to
erect and operate the mill, bt not to erect or reconstrct the mill in case
of its destrction b# force majeure.
0t is the considered view of this cort that it wold not be fair to 5ielson
to consider the sspension of the contract as terminated pon the
liberation of the mines becase then 5ielson wold be placed in a
sitation whereb# it wold have to sffer the adverse effects of the war
on the work of mining and milling. The evidence shows that as of
8anar# 19-* the operation of the mines nder the management of
5ielson was alread# nder beneficial conditions, so mch so that
dividends were alread# declared b# Lepanto for the #ears 19&9, 19-+ and
19-1. To make the management contract immediatel# operative after the
liberation of the mines from the 8apanese, at the time when the mines and
all its installations were laid waste as a reslt of the war, wold be to
place 5ielson in a sitation whereb# it wold lose all the benefits of what
it had accomplished in placing the Lepanto mines in profitable operation
before the otbreak of the war in December, 19-1. The record shows that
5ielson started its management operation wa# back in 19&6, even before
the management contract was entered into. %s earl# as %gst 19&6
5ielson negotiated with Aessrs. (. 0. (ookes and F. L. Lednick# for the
operation of the Aanka#an mines and it was the reslt of those
negotiations that Lepanto was incorporated; that it was 5ielson that
helped to capitaliBe Lepanto, and that after the formation of the
corporation )Lepanto, 5ielson immediatel# assmed the management of
the mining properties of Lepanto. 0t was not ntil 8anar# &+, 19&7 when
the management contract in $estion was entered into between Lepanto
and 5ielson )12hibit %,.
% contract for the management and operation of mines calls for a
speclative and risk# ventre on the part of the manager-operator. The
manager-operator invests its technical know-how, ndertakes back-
breaking efforts and tremendos spade-work, so to sa#, in the first #ears
of its management and operation of the mines, in the e2pectation that the
investment and the efforts emplo#ed might be rewarded later with
sccess. This e2pected sccess ma# never come. This had happened in
the ver# case of the Aanka#an mines where, as reconted b# Ar.
Lednick# of Lepanto, varios persons and entities of different
nationalities, inclding Lednick# himself, invested all their mone# and
failed. The manager-operator ma# not strike sfficient ore in the first,
second, third, or forth #ear of the management contract, or he ma# not
strike ore even ntil the end of the fifth #ear. Gnless the manager-
operator strikes sfficient $antit# of ore he cannot e2pect profits or
reward for his investment and efforts. 0n the case of 5ielson, its corps of
competent engineers, geologists, and technicians begn working on the
Aanka#an mines of Lepanto since the latter part of 19&6, and contined
their work withot sccess and profit throgh 19&7, 19&9, and the earlier
part of 19&9. 0t was onl# in December of 19&9 when the efforts of
5ielson started to be rewarded when Lepanto realiBed profits and the first
dividends were declared. 7rom that time on 5ielson cold e2pect profit to
come to it ! as in fact Lepanto declared dividends for 19-+ and 19-1 !
if the development and operation of the mines and the mill wold
contine nhampered. The operation, and the e2pected profits, however,
wold still be sb3ect to haBards de to the occrrence of fortitos
events, fires, earth$akes, strikes, war, etc., constitting force ma3ere,
which wold reslt in the destrction of the mines and the mill. 'ne of
these diverse cases, or one after the other, ma# consme the whole
period of the contract, and if it shold happen that wa# the manager-
operator wold reap no profit to compensate for the first #ears of spade-
work and investment of efforts and know-how. @ence, in fairness to the
manager-operator, so that he ma# not be deprived of the benefits of the
work he had accomplished, the force ma3ere clase is incorporated as a
standard clase in contracts for the management and operation of mines.
10
The natre of the contract for the management and operation of mines
3stifies the interpretation of the force ma3ere clase, that a period e$al
to the period of sspension de to force ma3ere shold be added to the
original term of the contract b# wa# of an e2tension. >e, therefore,
reiterate the rling in 'r decision that the management contract in the
instant case was sspended from 7ebrar#, 19-* to 8ne *6, 19-9, and
that from the latter date the contract had #et five #ears to go.
&. 0n the forth grond of its motion for reconsideration, Lepanto
maintains that this (ort erred in reversing the finding of the trial cort
that 5ielson6s action has prescribed, b# considering onl# the first claim
and ignoring the prescriptibilit# of the other claims.
This grond of the motion for reconsideration has no merit.
0n 'r decision >e stated that the claims of 5ielson are based on a
written docment, and, as sch, the case of action prescribes in ten
#ears.
.
0nasmch as there are different claims which accred on different
dates the prescriptive periods for all the claims are not the same. The
claims of 5ielson that have been awarded b# this (ort are itemiBed in
the dispositive part of the decision.
The first item of the awards in 'r decision refers to 5ielson6s
compensation in the sm of <17,.++.++, which is e$ivalent to 1+: of
the cash dividends declared b# Lepanto in December, 19-1. %s we have
stated in 'r decision, this claim accred on December &1, 19-1, and the
right to commence an action thereon started on 8anar# 1, 19-*. >e
declared that the action on this claim did not prescribe althogh the
complaint was filed on 7ebrar# 6, 19.9 ! or after a lapse of 16 #ears, 1
month and . da#s ! becase of the operation of the moratorim law.
>e declared that nder the applicable decisions of this (ort
6
the
moratorim period of 9 #ears, * months and 9 da#s shold be dedcted
from the period that had elapsed since the accral of the case of action
to the date of the filing of the complaint, so that there is a period of less
than 9 #ears to be reckoned for the prpose of prescription.
This claim of 5ielson is covered b# 12ective 'rder 5o. &*, issed on
Aarch 1+, 19-., which provides as follows"
1nforcement of pa#ments of all debts and other monetary
obligations pa#able in the <hilippines, e2cept debts and other
monetar# obligations entered into in an# area after declaration b#
<residential <roclamation that sch area has been freed from
enem# occpation and control, is temporaril# sspended pending
action b# the (ommonwealth Hovernment. )-1 '.H. .6-.7;
1mphasis spplied,
12ective 'rder 5o. &* covered all debts and monetar# obligation
contracted before the war )or before December 9, 19-1, and those
contracted sbse$ent to December 9, 19-1 and dring the 8apanese
occpation. ?epblic %ct 5o. &-*, approved on 8l# *6, 19-9, lifted the
moratorim provided for in 12ective 'rder 5o. &* on pre-war )or pre-
December 9, 19-1, debts of debtors who had not filed war damage claims
with the Gnited 4tates >ar Damage (ommission. 0n other words, after
the effectivit# of ?epblic %ct 5o. &-*, the debt moratorim was limited"
)1, to debts and other monetar# obligations which were contracted after
December 9, 19-1 and dring the 8apanese occpation, and )*, to those
pre-war )or pre-December 9, 19-1, debts and other monetar# obligations
where the debtors filed war damage claims. That was the sitation p to
Aa# 19, 19.& when this (ort declared ?epblic %ct 5o. &-*
nconstittional.
7
0t has been held b# this (ort, however, that from
Aarch 1+, 19-. when 12ective 'rder 5o. &* was issed, to Aa# 19,
19.& when ?epblic %ct 5o. &-* was declared nconstittional ! or a
period of 9 #ears, * months and 9 da#s ! the debt moratorim was in
force, and had the effect of sspending the period of prescription.
9
Lepanto is wrong when in its motion for reconsideration it claims that the
moratorim provided for in 12ective 'rder 5o. &* was contined b#
?epblic %ct 5o. &-* /onl# with respect to debtors of pre-war
obligations or those incrred prior to December 9, 19-1,/ and that /the
moratorim was lifted and terminated with respect to obligations incrred
after December 9, 19-1./
9
11
This (ort has held that ?epblic %ct 5o. &-* does not appl# to debts
contracted dring the war and did not lift the moratorim in relations
thereto.
1+
0n the case of %braham, et al. vs. 0ntestate 1state of 8an (.
Jsmael, et al., L-167-1, 8an. &1, 196*, this (ort said"
?espondents, however, contend that ?epblic %ct 5o. &-*, which
took effect on 8l# *6, 19-9, lifted the moratorim on debts
contracted dring the 8apanese occpation. The cort has alread#
held that ?epblic %ct 5o. &-* did not lift the moratorim on
debts contracted dring the war )G# vs. Kalaw Katigbak, H.?.
5o. L-19&+, Dec. &1, 19-9, bt modified 12ective 'rder 5o. &*
as to pre-war debts, making the protection available onl# to
debtors who had war damage claims )4ison v. Airasol, H.?. 5o.
L--711, 'ct. &, 19.*,.
>e therefore reiterate the rling in 'r decision that the claim involved
in the first item awarded to 5ielson had not prescribed.
>hat we have stated herein regarding the non-prescription of the case of
action of the claim involved in the first item in the award also holds tre
with respect to the second item in the award, which refers to 5ielson6s
claim for management fee of <*,.++.++ for 8anar#, 19-*. Lepanto
admits that this second item, like the first, is a monetar# obligation. The
right of action of 5ielson regarding this claim accred on 8anar# &1,
19-*.
%s regards items &, -, ., 6 and 7 in the awards in the decision, the
moratorim law is not applicable. That is the reason wh# in 'r decision
>e did not discss the $estion of prescription regarding these items.
The claims of 5ielson involved in these items are based on the
management contract, and 5ielson6s case of action regarding these
claims prescribes in ten #ears. (orollar# to 'r rling that the
management contract was sspended from 7ebrar#, 19-* ntil 8ne *6,
19-9, and that the contract was e2tended for five #ears from 8ne *6,
19-9, the right of action of 5ielson to claim for what is de to it dring
that period of e2tension accred dring the period from 8ne *6, 19-9 till
the end of the five-#ear e2tension period or ntil 8ne *6, 19.&. %nd so,
even if >e reckon 8ne *6, 19-9 as the starting date of the ten-#ear
period in connection with the prescriptibilit# of the claims involved in
items &, -, ., 6 and 7 of the awards in the decision, it is obvios that
when the complaint was filed on 7ebrar# 6, 19.9 the ten-#ear
prescriptive period had not #et lapsed.
0n 'r decision >e have also rled that the right of action of 5ielson
against Lepanto had not prescribed becase of the arbitration clase in
the Aanagement contract. >e are satisfied that there is evidence that
5ielson had asked for arbitration, and an arbitration committee had been
constitted. The arbitration committee, however, failed to bring abot an#
settlement of the differences between 5ielson and Lepanto. 'n 8ne *.,
19.7 consel for Lepanto definitel# advised 5ielson that the# were not
entertaining an# claim of 5ielson. The complaint in this case was filed on
7ebrar# 6, 19.9.
-. 0n the si2th grond of its motion for reconsideration, Lepanto
maintains that this (ort /erred in awarding as damages )a, 1+: of the
cash dividends declared and paid in December, 19-1; )b, the
management fee of <*,.++.++ for the month of 8anar# 19-*; and )c, the
fll contract price for the e2tended period of 6+ months, since the
damages were never demanded nor proved and, in an# case, not
allowable nder the general law on damages./
>e have stated in 'r decision that the original agreement in the
management contract regarding the compensation of 5ielson was
modified, sch that instead of receiving a monthl# compensation of
<*,.++.++ pls 1+: of the net profits from the operation of the properties
for the preceding month,
11
5ielson wold receive a compensation of
<*,.++.++ a month, pls )1, 1+: of the dividends declared and paid,
when and as paid, dring the period of the contract, and at the end of each
#ear, )*, 1+: of an# depletion reserve that ma# be set p, and )&, 1+: of
an# amont e2pended dring the #ear ot of srpls earnings for capital
accont.
12
0t is shown that in December, 19-1, cash dividends amonting to
<17.,+++.++ was declared b# Lepanto.
1*
5ielson, therefore, shold
receive the e$ivalent of 1+: of this amont, or the sm of <17,.++.++.
>e have fond that this amont was not paid to 5ielson.
0n its motion for reconsideration, Lepanto inserted a photographic cop#
of page 1*7 of its cash disbrsement book, allegedl# for 19-1, in an
effort to show that this amont of <17,.++.++ had been paid to 5ielson. 0t
appears, however, in this photographic cop# of page 1*7 of the cash
disbrsement book that the sm of <17,.++.++ was entered on 'ctober *9
as /srpls a=c 5ielson I (o. 0nc./ The entr# does not make an#
reference to dividends or participation of 5ielson in the profits. 'n the
other hand, in the photographic cop# of page 99 of the 19-1 cash
disbrsement book, also attached to the motion for reconsideration, there
is an entr# for <17,.++.++ on %pril *&, 19-1 which states /%ccts. <a#.
<articip. 5ielson I (o. 0nc./ This entr# for %pril *&, 19-1 ma# reall# be
the participation of 5ielson in the profits based on dividends declared in
%pril 19-1 as shown in 12hibit L. Ct in the same 12hibit L it is not
stated that an# dividend was declared in 'ctober 19-1. 'n the contrar# it
is stated in 12hibit L that dividends were declared in December 19-1. >e
cannot entertain this piece of evidence for several reasons" )1, becase
this evidence was not presented dring the trial in the cort below; )*,
there is no showing that this piece of evidence is newl# discovered and
that Lepanto was not in possession of said evidence when this case was
being tried in the cort below; and )&, according to 12hibit L cash
dividends of <17.,+++.++ were declared in December, 19-1, and so the
sm of <17,.++.++ which appears to have been paid to 5ielson in
'ctober 19-1 cold not be pa#ment of the e$ivalent of 1+: of the cash
dividends that were later declared in December, 19-1.
%s regards the management fee of 5ielson corresponding to 8anar#,
19-*, in the sm of <*,.++.++, >e have also fond that 5ielson is
entitled to be paid this amont, and that this amont was not paid b#
Lepanto to 5ielson. >hereas, Lepanto was able to prove that it had paid
the management fees of 5ielson for 5ovember and December, 19-1,
1&
it
was not able to present an# evidence to show that the management fee of
<*,.++.++ for 8anar#, 19-* had been paid.
0t having been declared in 'r decision, as well as in this resoltion, that
the management contract had been e2tended for . #ears, or si2t# months,
from 8ne *7, 19-9 to 8ne *6, 19.&, and that the case of action of
5ielson to claim for its compensation dring that period of e2tension had
not prescribed, it follows that 5ielson shold be awarded the
management fees dring the whole period of e2tension, pls the 1+: of
the vale of the dividends declared dring the said period of e2tension,
the 1+: of the depletion reserve that was set p, and the 1+: of an#
amont e2pended ot of srpls earnings for capital accont.
.. 0n the seventh grond of its motion for reconsideration, Lepanto
maintains that this (ort erred in ordering Lepanto to isse and deliver to
5ielson shares of stock together with frits thereof.
0n 'r decision, >e declared that prsant to the modified agreement
regarding the compensation of 5ielson which provides, among others,
that 5ielson wold receive 1+: of an# dividends declared and paid,
when and as paid, 5ielson shold be paid 1+: of the stock dividends
declared b# Lepanto dring the period of e2tension of the contract.
0t is not denied that on 5ovember *9, 19-9, Lepanto declared stock
dividends worth <1,+++,+++.++; and on %gst **, 19.+, it declared
stock dividends worth <*,+++,+++.++,. 0n other words, dring the period
of e2tension Lepanto had declared stock dividends worth <&,+++,+++.++.
>e held in 'r decision that 5ielson is entitled to receive l+: of the
stock dividends declared, or shares of stock worth <&++,+++.++ at the par
vale of <+.1+ per share. >e ordered Lepanto to isse and deliver to
5ielson those shares of stocks as well as all the frits or dividends that
accred to said shares.
0n its motion for reconsideration, Lepanto contends that the pa#ment to
5ielson of stock dividends as compensation for its services nder the
management contract is a violation of the (orporation Law, and that it
13
was not, and it cold not be, the intention of Lepanto and 5ielson ! as
contracting parties ! that the services of 5ielson shold be paid in
shares of stock taken ot of stock dividends declared b# Lepanto. >e
have assidosl# considered the argments addced b# Lepanto in
spport of its contention, as well as the answer of 5ielson in this
connection, and >e have arrived at the conclsion that there is merit in
the contention of Lepanto.
4ection 16 of the (orporation Law, in part, provides as follows"
5o corporation organiBed nder this %ct shall create or isse bills,
notes or other evidence of debt, for circlation as mone#, and no
corporation shall isse stock or bonds e2cept in e2change for
actal cash paid to the corporation or for" )1, propert# actall#
received b# it at a fair valation e$al to the par or issed vale of
the stock or bonds so issed; and in case of disagreement as to
their vale, the same shall be presmed to be the assessed vale or
the vale appearing in invoices or other commercial docments,
as the case ma# be; and the brden or proof that the real present
vale of the propert# is greater than the assessed vale or vale
appearing in invoices or other commercial docments, as the case
ma# be, shall be pon the corporation, or for )*, profits earned by
it but not distributed among its stockholders or members;
Provided, however, That no stock or bond dividend shall be
issed withot the approval of stockholders representing not less
than two-thirds of all stock then otstanding and entitled to vote at
a general meeting of the corporation or at a special meeting dl#
called for the prpose.
222 222 222
No corporation shall make or declare any dividend except from
the surplus profits arising from its business, or divide or distribte
its capital stock or propert# other than actal profits among its
members or stockholders ntil after the pa#ment of its debts and
the termination of its e2istence b# limitation or lawfl dissoltion"
Provided, That banking, savings and loan, and trst corporations
ma# receive deposits and isse certificates of deposit, checks,
drafts, and bills of e2change, and the like in the transaction of the
ordinar# bsiness of banking, savings and loan, and trst
corporations. )%s amended b# %ct 5o. *79*, and %ct 5o. &.19;
1mphasis spplied.,
7rom the above-$oted provision of 4ection 16 of the (orporation Law,
the consideration for which shares of stock ma# be issed are" )1, cash;
)*, propert#; and )&, ndistribted profits. 4hares of stock are given the
special name /stock dividends/ onl# if the# are issed in lie of
ndistribted profits. 0f shares of stocks are issed in e2change of cash or
propert# then those shares do not fall nder the categor# of /stock
dividends/. % corporation ma# legall# isse shares of stock in
consideration of services rendered to it b# a person not a stockholder, or
in pa#ment of its indebtedness. % share of stock issed to pa# for services
rendered is e$ivalent to a stock issed in e2change of propert#, becase
services is e$ivalent to propert#.
1-
Likewise a share of stock issed in
pa#ment of indebtedness is e$ivalent to issing a stock in e2change for
cash. Ct a share of stock ths issed shold be part of the original
capital stock of the corporation pon its organiBation, or part of the stocks
issed when the increase of the capitaliBation of a corporation is properl#
athoriBed. 0n other words, it is the shares of stock that are originall#
issed b# the corporation and forming part of the capital that can be
e2changed for cash or services rendered, or propert#; that is, if the
corporation has original shares of stock nsold or nsbscribed, either
coming from the original capitaliBation or from the increased
capitaliBation. Those shares of stock ma# be issed to a person who is not
a stockholder, or to a person alread# a stockholder in e2change for
services rendered or for cash or propert#. Ct a share of stock coming
from stock dividends declared cannot be issed to one who is not a
stockholder of a corporation.
% /stock dividend/ is an# dividend pa#able in shares of stock of the
corporation declaring or athoriBing sch dividend. 0t is, what the term
itself implies, a distribtion of the shares of stock of the corporation
14
among the stockholders as dividends. % stock dividend of a corporation is
a dividend paid in shares of stock instead of cash, and is properl# pa#able
onl# ot of srpls profits.
1.
4o, a stock dividend is actall# two things"
)1, a dividend, and )*, the enforced se of the dividend mone# to
prchase additional shares of stock at par.
16
>hen a corporation isses
stock dividends, it shows that the corporation6s accmlated profits have
been capitaliBed instead of distribted to the stockholders or retained as
srpls available for distribtion, in mone# or kind, shold opportnit#
offer. 7ar from being a realiBation of profits for the stockholder, it tends
rather to postpone said realiBation, in that the fnd represented b# the
new stock has been transferred from srpls to assets and no longer
available for actal distribtion.
17
Ths, it is apparent that stock dividends
are issed onl# to stockholders. This is so becase onl# stockholders are
entitled to dividends. The# are the onl# ones who have a right to a
proportional share in that part of the srpls which is declared as
dividends. % stock dividend reall# adds nothing to the interest of the
stockholder; the proportional interest of each stockholder remains the
same.
19
0f a stockholder is deprived of his stock dividends - and this
happens if the shares of stock forming part of the stock dividends are
issed to a non-stockholder ! then the proportion of the stockholder6s
interest changes radicall#. 4tock dividends are civil frits of the original
investment, and to the owners of the shares belong the civil frits.
19
The term /dividend/ both in the technical sense and its ordinar#
acceptation, is that part or portion of the profits of the enterprise which
the corporation, b# its governing agents, sets apart for ratable division
among the holders of the capital stock. 0t means the fnd actall# set
aside, and declared b# the directors of the corporation as dividends and
dl# ordered b# the director, or b# the stockholders at a corporate
meeting, to be divided or distribted among the stockholders according to
their respective interests.
*+
0t is 'r considered view, therefore, that nder 4ection 16 of the
(orporation Law stock dividends can not be issed to a person who is not
a stockholder in pa#ment of services rendered. %nd so, in the case at bar
5ielson can not be paid in shares of stock which form part of the stock
dividends of Lepanto for services it rendered nder the management
contract. >e sstain the contention of Lepanto that the nderstanding
between Lepanto and 5ielson was simpl# to make the cash vale of the
stock dividends declared as the basis for determining the amont of
compensation that shold be paid to 5ielson, in the proportion of 1+: of
the cash vale of the stock dividends declared. %nd this conclsion of
'rs finds spport in the record.
>e had adverted to in 'r decision that in 19-+ there was some dispte
between Lepanto and 5ielson regarding the application and interpretation
of certain provisions of the original contract particlarl# with regard to
the 1+: participation of 5ielson in the net profits, so that some
ad3stments had to be made. 0n the mintes of the meeting of the Coard
of Directors of Lepanto on %gst *1, 19-+, >e read the following"
The (hairman stated that he believed that it wold be better to tie
the computation of the !" participation of Nielson # $ompany,
%nc& to the dividend, because Nielson will then be able to
definitely compute its net participation by the amount of the
dividends declared. 0n addition to the dividend, we have been
setting p a depletion reserve and it does not seem fair to brden
the 1+: participation of 5ielson with the depletion reserve, as the
depletion reserve shold not be considered as an operating
e2pense. %fter a prolonged discssion, pon motion dl# made
and seconded, it was !
?14'LF1D, That the <resident, be, and he hereb# is, athoriBed
to enter into an agreement with 5ielson I (ompan#, 0nc.,
modif#ing <aragraph F of management contract of 8anar# &+,
19&7, effective 8anar# 1, 19-+, in sch a wa# that 5ielson I
(ompan#, 0nc. shall receive 1+: of an# dividends declared and
paid, when and as paid dring the period of the contract and at the
end of each #ear, 1+: of an# depletion reserve that ma# be set p
and 1+: of an# amont e2pended dring the #ear ot of srpls
earnings for capital accont. )1mphasis spplied.,
15
7rom the sentence, /The (hairman stated that he believed that it wold
be better to tie the comptation of the 1+: participation of 5ielson I
(ompan#, 0nc., to the dividend, becase 5ielson will then be able to
definitel# compte its net participation b# the amont of the dividends
declared/ the idea is conve#ed that the intention of Lepanto, as e2pressed
b# its (hairman (. %. De>itt, was to make the vale of the dividends
declared ! whether the dividends were in cash or in stock ! as the basis
for determining the amont of compensation that shold be paid to
5ielson, in the proportion of 1+: of the cash vale of the dividends so
declared. 0t does not mean, however, that the compensation of 5ielson
wold be taken from the amont actall# declared as cash dividend to be
distribted to the stockholder, nor from the shares of stocks to be issed
to the stockholders as stock dividends, bt from the other assets or fnds
of the corporation which are not brdened b# the dividends ths declared.
0n other words, if, for e2ample, cash dividends of <&++,+++.++ are
declared, 5ielson wold be entitled to a compensation of <&+,+++.++, bt
this <&+,+++.++ shold not be taken from the <&++,+++.++ to be
distribted as cash dividends to the stockholders bt from some other
fnds or assets of the corporation which are not inclded in the amont to
answer for the cash dividends ths declared. This is so becase if the
<&+,+++.++ wold be taken ot from the <&++,+++.++ declared as cash
dividends, then the stockholders wold not be getting <&++,+++.++ as
dividends bt onl# <*7+,+++.++. There wold be a diltion of the
dividend that corresponds to each share of stock held b# the stockholders.
4imilarl#, if there were stock dividends worth one million pesos that were
declared, which means an issance of ten million shares at the par vale
of ten centavos per share, it does not mean that 5ielson wold be given
1++,+++ shares. 0t onl# means that 5ielson shold be given the e$ivalent
of 1+: of the aggregate cash vale of those shares issed as stock
dividends. That this was the nderstanding of 5ielson itself is borne ot
b# the fact that in its appeal brief 5ielson rged that it shold be paid
/<&++,+++.++ being 1+: of the <&,+++,+++.++ stock dividends declared
on 5ovember *9, 19-9 and %gst *+, 19.+..../
*1
>e, therefore, reconsider that part of 'r decision which declares that
5ielson is entitled to shares of stock worth <&++,+++.++ based on the
stock dividends declared on 5ovember *9, 19-9 and on %gst *+, 19.+,
together with all the frits accring thereto. 0nstead, >e declare that
5ielson is entitled to pa#ment b# Lepanto of <&++,+++.++ in cash, which
is e$ivalent to 1+: of the mone# vale of the stock dividends worth
<&,+++,+++.++ which were declared on 5ovember *9, 19-9 and on
%gst *+, 19.+, with interest thereon at the rate of 6: from 7ebrar# 6,
19.9.
6. 0n the eighth grond of its motion for reconsideration Lepanto
maintains that this (ort erred in awarding to 5ielson an ndetermined
amont of shares of stock and=or cash, which award can not be
ascertained and e2ected withot frther litigation.
0n view of 'r rling in this resoltion that 5ielson is not entitled to
receive shares of stock as stock dividends in pa#ment of its compensation
nder the management contract, >e do not consider it necessar# to
discss this grond of the motion for reconsideration. The awards in the
present case are all redced to specific sms of mone#.
7. 0n the ninth grond of its motion for reconsideration Lepanto maintains
that this (ort erred in rendering 3dgment or attorne#6s fees.
The matter of the award of attorne#6s fees is within the sond discretion
of this (ort. 0n 'r decision >e have stated the reason wh# the award
of <.+,+++.++ for attorne#6s fees is considered b# this (ort as
reasonable.
%ccordingl#, >e resolve to modif# the decision that >e rendered on
December 17, 1966, in the sense that instead of awarding 5ielson shares
of stock worth <&++,+++.++ at the par vale of ten centavos )<+.1+, per
share based on the stock dividends declared b# Lepanto on 5ovember *9,
19-9 and %gst *+, 19.+, together with their frits, 5ielson shold be
awarded the sm of <&++,+++.++ which is an amont e$ivalent to 1+:
of the cash vale of the stock dividends ths declared, as part of the
compensation de 5ielson nder the management contract. The
16
dispositive portion of the decision shold, therefore, be amended, to read
as follows"
05 F01> '7 T@1 7'?1H'05H ('540D1?%T0'54, >e hereb#
reverse the decision of the cort a 'uo and enter in lie thereof another,
ordering the appellee Lepanto to pa# the appellant 5ielson the different
amonts as specified hereinbelow"
)1, 4eventeen thosand five hndred pesos )<17,.++.++,, e$ivalent to
1+: of the cash dividends of December, 19-1, with legal interest thereon
from the date of the filing of the complaint;
)*, Two thosand five hndred pesos )<*,.++.++, as management fee for
8anar# 19-*, with legal interest thereon from the date of the filing of the
complaint;
)&, 'ne hndred fift# thosand pesos )<1.+,+++.++,, representing
management fees for the si2t#-month period of e2tension of the
management contract, with legal interest thereon from the date of the
filing of the complaint;
)-, 'ne million for hndred thosand pesos )<1,-++,+++.++,, e$ivalent
to 1+: of the cash dividends declared dring the period of e2tension of
the management contract, with legal interest thereon from the date of the
filing of the complaint;
)., Three hndred thosand pesos )<&++,+++.++,, e$ivalent to 1+: of
the cash vale of the stock dividends declared on 5ovember *9, 19-9 and
%gst *+, 19.+, with legal interest thereon from the date of the filing of
the complaint;
)6, 7ift# three thosand nine hndred twent# eight pesos and eight# eight
centavos )<.&,9*9.99,, e$ivalent to 1+: of the depletion reserve set p
dring the period of e2tension, with legal interest thereon from the date
of the filing of the complaint;
)7, 4i2 hndred ninet# for thosand three hndred si2t# for pesos and
sevent# si2 centavos )<69-,&6-.76,, e$ivalent to 1+: of the e2penses
for capital accont dring the period of e2tension, with legal interest
thereon from the date of the filing of the complaint;
)9, 7ift# thosand pesos )<.+,+++.++, as attorne#6s fees; and
)9, The costs.
0t is so ordered.