Narratives (Berne Guerrero)

the transactions entered into by Tan on its behalf.

Issue [2]: Whether the foundation gave Tan an apparent authority to deal with the Bank.
Held [2]: Per its Secretarys Certificate, the Foundation had given its President, Tan, ostensible and apparent
authority to inter alia deal with the Bank. Accordingly, the Foundation is estopped from questioning Tans
authority to obtain the subject loans from the respondent Bank. It is a familiar doctrine that if a corporation
knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it
holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be estopped from denying the agents
authority.
35 Nielson & Co. Inc. vs. Lepanto Consolidated Mining Co. [GR L-21601, 28 December 1968]
En Banc, Zaldivar (J): 6 concur, 4 took no part
Facts: [GR L-21601, 17 December 1966; Zaldivar (J): 6 concur, 2 took no part] An operating agreement was
executed before World War II (on 30 January 1937) between Nielson & Co. Inc. and the Lepanto
Consolidated Mining Co. whereby the former operated and managed the mining properties owned by the
latter for a management fee of P2,500.00 a month and a 10% participation in the net profits resulting from the
operation of the mining properties, for a period of 5 years. In 1940, a dispute arose regarding the computation
of the 10% share of Nielson in the profits. The Board of Directors of Lepanto, realizing that the mechanics of
the contract was unfair to Nielson, authorized its President to enter into an agreement with Nielson modifying
the pertinent provision of the contract effective 1 January 1940 in such a way that Nielson shall receive (1)
10% of the dividends declared and paid, when and as paid, during the period of the contract and at the end of
each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of any amount expended during
the year out of surplus earnings for capital account. In the latter part of 1941, the parties agreed to renew the
contract for another period of 5 years, but in the meantime, the Pacific War broke out in December 1941. In
January 1942 operation of the mining properties was disrupted on account of the war. In February 1942, the
mill, power plant, supplies on hand, equipment, concentrates on hand and mines, were destroyed upon orders
of the United States Army, to prevent their utilization by the invading Japanese Army. The Japanese forces
thereafter occupied the mining properties, operated the mines during the continuance of the war, and who
were ousted from the mining properties only in August 1945. After the mining properties were liberated from
the Japanese forces, LEPANTO took possession thereof and embarked in rebuilding and reconstructing the
mines and mill; setting up new organization; clearing the mill site; repairing the mines; erecting staff quarters
and bodegas and repairing existing structures; installing new machinery and equipment; repairing roads and
maintaining the same; salvaging equipment and storing the same within the bodegas; doing police work
necessary to take care of the materials and equipment recovered; repairing and renewing the water system;
and retimbering. The rehabilitation and reconstruction of the mine and mill was not completed until 1948. 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 before the Court of First Instance of Manila 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 entered into between them on 30 January 1937, including attorney's
fees and costs. LEPANTO in its answer denied the material allegations of the complaint and set up certain
special defenses, among them, 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 LEPANTO's counterclaim and so it likewise dismissed the same. NIELSON
appealed. The Supreme Court reversed the decision of the trial court and enter in lieu thereof another,
Commercial Law - Corporation Law, 2005 ( 50 )

Narratives (Berne Guerrero)

ordering Lepanto to pay Nielson (1) 10% share of cash dividends of December, 1941 in the amount of
P17,500.00, with legal interest thereon from the date of the filing of the complaint; (2) management fee for
January, 1942 in the amount of P2,500.00, with legal interest thereon from the date of the filing of the
complaint; (3) management fees for the sixty-month period of extension of the management contract,
amounting to P150,000.00, with legal interest from the date of the filing of the complaint; (4) 10% share in
the cash dividends during the period of extension of the management contract, amounting to P1,400,000.00,
with legal interest thereon from the date of the filing of the complaint; (5) 10% of the depletion reserve set up
during the period of extension, amounting to P53,928.88, with legal interest thereon from the date of the filing
of the complaint; (6) 10% of the expenses for capital account during the period of extension, amounting to
P694,364.76, with legal interest thereon from the date of the filing of the complaint; (7) to issue and deliver to
Nielson and Co. Inc. shares of stock of Lepanto Consolidated Mining Co. at par value equivalent to the total
of Nielson's 10% share in the stock dividends declared on November 28, 1949 and August 22, 1950, together
with all cash and stock dividends, if any, as may have been declared and issued subsequent to November 28,
1949 and August 22, 1950, as fruits that accrued to said shares; provided that if sufficient shares of stock of
Lepanto's are not available to satisfy this judgment, Lepanto shall pay Nielson an amount in cash equivalent
to the market value of said shares at the time of default, that is, all shares of stock that should have been
delivered to Nielson before the filing of the complaint must be paid at their market value as of the date of the
filing of the complaint; and all shares, if any, that should have been delivered after the filing of the complaint
at the market value of the shares at the time Lepanto disposed of all its available shares, for it is only then that
Lepanto placed itself in condition of not being able to perform its obligation; (8) the sum of P50,000.00 as
attorney's fees; and (9) the costs.
Lepanto seeks the reconsideration of the decision rendered on 17 December 1966.
Issue: Whether the management contract is a contract of agency or a contract of lease of services.
Held: Article 1709 of the Old Civil Code, defining contract of agency, provides that "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." Article 1544, defining contract of lease of service, provides that "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." 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 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. It is true that the management contract provides that Nielson would also act as purchasing
agent of supplies and enter into contracts regarding the sale of mineral, but the contract also provides that
Nielson could not make any purchase, or sell the minerals, without the prior approval of Lepanto. It is clear,
therefore, that even in these cases Nielson could not execute juridical acts which would bind Lepanto without
first securing the approval of Lepanto. Nielson, then, was to act only as an intermediary, not as an agent.
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Narratives (Berne Guerrero)

Further, from the 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.
36 Islamic Directorate of the Philippines vs. Court of Appeals [GR 117897, 14 May 1997]
First Division, Hermosisima Jr. (J): 1 concurs, 1 concurs, 1 took no part, 1 on leave
Facts: Sometime in 1971, Islamic leaders of all Muslim major tribal groups in the Philippines headed by
Dean Cesar Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES
(IDP), the primary purpose of which is to establish an Islamic Center in Quezon City for, the construction of a
"Mosque (prayer place, Madrasah (Arabic School), and other religious infrastructures" so as to facilitate the
effective practice of Islamic faith in the area. Towards this end, that is, in the same year, the Libyan
government donated money to the IDP to purchase land at Culiat, Tandang Sora, Quezon City, to be used as a
Center for the Islamic populace. The land, with an area of 49,652 square meters, we covered by two titles:
TCTs RT-26520 (176616) and RT-26521 (170567), both registered in the name of IDP. In 1971, the Board of
Trustees of the IDP was composed of Senator Mamintal Tamano, Congressman Ali Dimaporo, Congressman
Salipada Pendatun, Dean Cesar Adib Majul, Sultan Harun Al-Rashid Lucman, Delegate Ahmad Alonto,
Commissioner Datu Mama Sinsuat and Mayor Aminkadra Abubakar. In 1972, after the purchase of the land
by the Libyan government in the name of IDP, Martial Law was declared by the late President Ferdinand
Marcos. Most of the members of the 1971 Board of Trustees like Senators Mamintal Tamano, Salipada
Pendatun, Ahmad Alonto, and Congressman Al-Rashid Lucman flew to the Middle East to escape political
persecution. Thereafter, two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo,
and the Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the
legitimate IDP. Significantly, on 3 October 1986, the SEC, in a suit between these two contending groups,
came out with a Decision in SEC Case 2687 declaring the election of both the Carpizo Group and the Abbas
Group as IDP board members to be null and void. Neither group, however, took the necessary steps
prescribed by the SEC in its 3 October 1986 Decision, and no valid election of the members of the Board of
Trustees of IDP was ever called. Although the Carpizo Group attempted to submit a set of by-laws, the SEC
found that, aside from that Engineer Farouk Carpizo and Atty. Musib Buat, those who prepared and adopted
the by-laws were not bona fide members of the IDP, thus rendering the adoption of the by-laws likewise null
and void. On 20 April 1989, without having been properly elected as new members of the Board of Trustees
of IDP, the Carpizo Group caused to be signed an alleged Board Resolution of the IDP, authorizing the sale of
the subject two parcels of land to the Iglesia ni Cristo (INC) for a consideration of P22,343,400.00, which sale
was evidenced by a Deed of Absolute Sale 12 dated 20 April 1989. On 30 May 1991, the 1971 IDP Board of
Trustees headed by former Senator Mamintal Tamano, or the Tamano Group, filed a petition before the SEC
(SEC Case 4012) seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and
the INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of the IDP. Meanwhile,
INC, pursuant to the Deed of Absolute Sale executed in its favor, filed an action for Specific Performance
with Damages against the vendor, Carpizo Group, before Branch 81 of the Regional Trial Court of Quezon
City (Civil Case Q-90-6937) to compel said group to clear the property of squatters and deliver complete and
full physical possession thereof to INC. Likewise, INC filed a motion in the same case to compel one Mrs.
Leticia P. Ligon to produce and surrender to the Register of Deeds of Quezon City the owner's duplicate copy
of TCTs RT-26521 and RT-26520 covering the two parcels of land, so that the sale in INC's favor may be
registered and new titles issued in the name of INC. Mrs. Ligon was alleged to be the mortgagee of the two
parcels of land executed in her favor by certain Abdulrahman R.T. Linzag and Rowaida Busran-Sampaco
claimed to be in behalf of the Carpizo Group. Judge Celia Lipana-Reyes of Branch 81, Regional Trial Court
of Quezon City, denied IDP's motion to intervene on the ground of lack of juridical personality of the IDPCommercial Law - Corporation Law, 2005 ( 52 )