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In the latter part of 1941, the parties agreed to renew the contract for another period of 5 years, but in the
mean time, the Pacific War broke out in December 1941.
In January 1942 operation of the mining properties was disrupted on account of the war. The mill, power plant,
supplies on hand, equipment, concentrates on hand and mines, were destroyed. The Japanese forces
thereafter occupied the mining properties, operated the mines during the continuance of the war.
After the mining properties were liberated from the Japanese forces, LEPANTO took possession thereof and
embarked in rebuilding and reconstructing the mines and mill. On 26 June 1948 the mines resumed operation
under the exclusive management of LEPANTO.
Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement arose between
NIELSON and LEPANTO over the status of the operating contract which as renewed expired in 1947. Under
the terms thereof, the management contract shall remain in suspense in case fortuitous event or force
majeure, such as war or civil commotion, adversely affects the work of mining and milling.
On 6 February 1958, NIELSON brought an action against LEPANTO to recover certain sums of money
representing damages allegedly suffered by the former in view of the refusal of the latter to comply with the
terms of a management contract.
The SC reversed the decision. It held 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 advances a new theory. It now 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: WON the management contract is a contract of agency or a contract of lease of services.
HELD: Contract of lease of services
Contract of Agency v Contract of Lease of Services:
Article 1709 of the Old Civil Code, defining
contract of agency, provides
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."
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."
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.