G.R. No. L-21601. December 17, 1966
NIELSON & COMPANY, INC., PLAINTIFF-APPELLANT, VS. LEPANTO CONSOLIDATED MINING COMPANY, DEFENDANT-APPELLEE.
ZALDIVAR. J.:
On February 6, 1958, plaintiff brought this action against defendant 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 manage ment contract entered into
between them on January 30, 1937, including attorney’s fees and costs.
Defendant 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 present action.
After trial, during which the parties presented testimonial and numerous
documentary evidence, the court a quo rendered a decision dismissing the
complaint with costs. The court stated that it did not find sufficient evidence
to establish defendant’s counterclaim and so it likewise dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in view
of the amount involved in the case.
The facts of this case, as stated in the decision appealed from, are
hereunder quoted for purposes of this decision:
“It appears that the suit involves an operating agreement executed before
World War II between the plaintiff and the defendant 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 brevity and convenience, hereafter the
plaintiff shall be referred to as NIELSON and the defendant, LEPANTO.“The antecedents of the case are: The contract in question (Exhibit ‘C’) was
made by the parties on January 30, 1937 for a period of five (5) years. In the
latter part of 1941,the parties agreed to renew the contract for another period
of five (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 of 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 of 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 (Exhibits ‘D’ and ‘E’). The
rehabilitation and reconstruction of the mine and mill was not completed until
1948 (Exhibit ‘F’). On June 26, 1948 the mines resumed operation under the
exclusive management of LEPANTO (Exhibit ‘F-1’).“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 in question 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.‘In the event of inundations, floodings of mine, typhoon, earthquake or any
other force majeure, war, insurrection, civil commotion, organized strike, riot,
injury to the machinery or other event or cause reasonably beyond the control of
NIELSON and which adversely affects the work of mining and milling; NIELSON
shall report such fact to LEPANTO and without liability or breach of the terms
of this Agreement, the same shall remain in suspense, wholly or partially during
the terms of such Inability.’ (Clause II of Exhibit ‘C’).NIELSON hold the view that, on account of the war, the contract was suspended
during the war; hence the life of the contract should be considered extended for
such time of the period of suspension. On the other hand, LEPANTO contended that
the contract should expire in 1947 as originally agreed upon because the period
of suspension accorded by virtue of the war did not operate to extend further
the life of the contract.“No understanding appeared from the record to have been had by the parties to
resolve the disagreement. In the meantime, LEPANTO rebuilt and reconstructed the
mines and was able to bring the property into operation only in June of 1948,
xxx.”
Appellant in its brief makes an alternative assignment of errors depending on
whether or not the management contract basis of the action has been extended for
a period equivalent to the period of suspension. If the agreement is suspended
our attention should be focused on the first set of errors claimed to have been
committed by the court a quo; but if the contrary is true, the discussion
will then be switched to the alternative set that is claimed to have been
committed. We will first take up the question whether the management agreement
has been extended as a result of the supervening war, and after this question
shall have been determined in the sense sustained by appellant, then the
discussion of the defense of laches and prescription will follow as a
consequence.
The pertinent portion of the management contract (Exh. C) which refers to
suspension should any event constituting force majeure happen appears in
Clause II thereof which we quote hereunder:
“In the event of inundations, floodings of the mine, typhoon, earthquake or
any other force majeure, war, insurrection, civil commotion, organized strike,
riot, injury to the machinery or other event or cause reasonably beyond the
control of NIELSON and which adversely affects the work of mining and milling;
NIELSON shall report such fact to LEPANTO and without liability or breach of the
terms of this Agreement, the same shall remain in suspense, wholly or partially
during the terms of such inability.”
A careful scrutiny of the clause above-quoted will at once reveal that in
order that the management contract may be deemed suspended two events must take
place which must be brought in a satisfactory manner to the attention of
defendant within reasonable time, to wit: (1) the event constituting the
force majeure must be reasonably beyond the control of Nielson, and (2)
it must adversely affect the work of mining and milling the company is called
upon to undertake. As long as these two conditions exist the agreement is deemed
suspended.
Does the evidence on record show that these two conditions had existed which
may justify the conclusion that the management agreement had been suspended in
the sense entertained by appellant? Let us go to the evidence.
It is a matter that this Court can take judicial notice of that war
supervened in our country and that the mines in the Philippines were either
destroyed or taken over by the occupation forces with a view to their operation.
The Lepanto mines were no exception for not only was the mine itself destroyed
but the mill, power plant, supplies on hand, equipment and the like that were
being used there were destroyed as well. Thus, the following is what appears in
the Lepanto Company Mining Report dated March 13, 1946 submitted by its
President C. A. DeWitt to the defendant:[1]
“In February of 1942, our mill, power plant, supplies on hand, equipment,
concentrates on hand, and mine, were destroyed upon orders of the U.S. Army to
prevent their utilization by the enemy. The report also mentions the report
submitted by Mr. Blessing, an official of Nlelson, that “the original mill was
destroyed in 1942” and “the original power plant and all the installed equipment
were destroyed in 1942.” It is then undeniable that beginning February, 1942 the
operation of the Lepanto mines stopped or became suspended as a result of the
destruction of the mill, power plant and other important equipment necessary for
such operation in view of a cause which was clearly beyond the control of
Nielson and that as a consequence such destruction adversely affected the work
of mining and milling which the latter was called upon to undertake under the
management contract. Consequently, by virtue of the very terms of said contract
the same may be deemed suspended from February, 1942 and as of that month the
contract still had 60 months to go.
On the other hand, the record shows that the defendant admitted that the
occupation forces operated its mining properties subject of the management
contract,[2] and from the very report
submitted by President DeWitt it appears that the date of the liberation of the
mine was August 1, 1945 although at the time there were still many booby
traps.[3] Similarly, in a report
submitted by the defendant to its stockholders dated August 25, 1948, the
following appears: “Your Directors take pleasure in reporting that June 26, 1948
marked the official return to operations of this Company of its properties in
Mankayan, Mountain Province, Philippines.[4]
It is, therefore, clear from the foregoing that the Lepanto mines were
liberated on August 1, 1945, but because of the period of rehabilitation and
reconstruction that had to be made as a result of the destruction of the mill,
power plant and other necessary equipment for its operation it cannot be said
that the suspension of the contract ended on that date. Hence, the contract must
still be deemed suspended during the succeeding years of reconstruction and
rehabilitation, and this period can only be said to have ended on June 26, 1948
when, as reported by the defendant, the company officially resumed the mining
operations of the Lepanto. It should here be stated that this period of
suspension from February, 1942 to June 26, 1948 is the one urged by
plaintiff.[5]
It having been shown that the operation of the Lepanto mines on the part of
Nielson had been suspended during the period set out above within the purview of
the management contract, the next question that needs to be determined is the
effect of such suspension. Stated in another way, the question now to be
determined is whether such suspension had the effect of extending the period of
the management contract for the period of said suspension. To elucidate this
matter, we again need to resort to the evidence.
For appellant Nielson two witnesses testified, declaring that the suspension
had the effect of extending the period of the contract, namely, George T.
Scholey and Mark Nestle. Scholey was a mining engineer since 1929, an
incorporator, general manager and director of Nielson and Company; and for some
time he was also the vice-president and director of the Lepanto Company during
the pre-war days and, as such, he was an officer of both appellant and appellee
companies. As vice-president of Lepanto and general manager of Nielson, Scholey
participated in the negotiation of the management contract to the extent that he
initialed the same bobh as a witness and as an officer of both corporations.
This witness testified in this case to the effect that the standard force
majeure clause embodied in the management contract was taken from similar
mining contracts regarding mining operations and the understanding regarding the
nature and effect of said clause was that when there is suspension of the
operation that suspension meant the extension of the contract. Thus, to the
question, “Before the war, what was the understanding of the people in the
particular trend of business with respect to the force majeure clause?”,
Scholey answered: “That was our understanding that the suspension meant the
extension of time lost.[6]
Mark Nestle, the other witness, testified along similar line. He had been
connected with Nielson since 1937 until the time he took the witness stand and
had been a director, manager, and president of the same company. When he was
propounded the question: “Do you know what was the custom or usage at that time
in connection with force majeure clause?”, Nestle answered, “In the
mining world the force majeure clause is generally considered. When a
calamity comes up and stops the work like in war, flood, inundation, or fire,
etc., the work is suspended for the duration of the calamity, and the period of
the contract is extended after the calamity is over to enable the person to do
the big work or recover his money which he has invested, or accomplish what his
obligation is to a third person.”[7]
And the above testimonial evidence finds support in the very minutes of the
special meeting of the Board of Directors of the Lepanto Company issued on March
10, 1945 which was then chairmaned by Atty. C. A. DeWitt. We read the following
from said report:
“The Chairman also stated that the contract with Nielson and Company would
soon expire if the obligations were not suspended, in which case we should have
to pay them the retaining fee of P2,500.00 a month. He believes however, that
there is a provision in the contract suspending the effects thereof in cases
like the present, and that even if it were not there, the law itself would
suspend the operations of the contract on account of the war. Anyhow, he stated,
we shall have no difficulty in solving satisfactorily any problem we may have
with Nielson and Company.”[8]
Thus, we can see from the above that even in the opinion of Mr. DeWitt
himself, who at the time was the chairman of the Board of Directors of the
Lepanto Company, the management contract would then expire unless the period
therein stated is suspended but that, however, he expressed the belief that the
period was extended because of the provision contained therein suspending the
effects thereof should any of the case of force majeure happen like in
the present case, and that even if such provision did not exist the law would
have the effect of suspending it on account of the war. In substance, Atty.
DeWitt expressed the opinion that as a result of the suspension of the mining
operation because of the effects of the war the period of the contract had been
extended.
Contrary to what appellant’s evidence reflects insofar as the interpretation
of the force majeure clause is concerned, however, appellee gives Us an
opposite interpretation invoking in support thereof not only a letter Atty.
DeWitt sent to Nielson on October 20, 1945,[9] wherein he expressed for the first time an
opinion contrary to what he reported to the Board of Directors of Lepanto
Company as stated in the portion of the minutes of its Board of Directors as
quoted above, but also the ruling laid down by our Supreme Court in some cases
decided sometime ago, to the effect that the war does not have the effect of
extending the term of a contract that the parties may enter into regarding a
particular transaction, citing infills connection the cases of Victorias
Planters Association v. Victorias Hilling Company, 51 0.G. 4010; Rosario S. Vda.
de Lacson, et al. v. Abelardo 6. Diaz, 87 Phil., 150; and Lo Ching y So Young
Chong Co. v. Court of Appeals, et al., 81 Phil., 601.
To bolster up its theory, appellee also contends that the evidence regarding
the alleged custom or usage in mining contract that appellant’s witnesses tried
to introduce was incompetent because (a) said custom was not specifically
pleaded; (b) Lepanto made timely and repeated objections to the introduction of
said evidence; (c) Nielson failed to show the essential elements of usage which
must be shown to exist before any proof thereof can be given to affect the
contract; and (d) the testimony of its witnesses cannot prevail over the very
terms of the management contract which, as a rule, is supposed to contain all
the terms and conditions by which the parties intended to be bound.
It is here necessary to analyze the contradictory evidence which the parties
have presented regarding the interpretation of the force majeure clause
in the management contract.
At the outset, it should be stated that, as a rule, in the construction and
interpretation of a document the intention of the parties must be sought (Rule
130, Section 10, Rules of Court). This is the basic rule in the interpretation
of contracts because all other rules are but ancillary to the ascertainment of
the meaning intended by the parties. And once this intention has been
ascertained it becomes an integral part of the contract as though it had been
originally expressed therein in unequivocal terms (Shoreline Oil Corp. v. Guy,
App. 189, So., 348, cited in 17A C.J.S. p. 47). How is this intention
determined?
One pattern is to ascertain the contemporaneous and subsequent acts of the
contracting parties in relation to the transaction under consideration (Article
1371, Civil Code). In this particular case, it is worthy of note what Atty. C.
A. DeWitt has stated in the special meeting of the Board of Directors of Lepanto
in the portion of the minutes already quoted above wherein, as already stated,
he expressed the opinion that the life of the contract, if not extended, would
last only until January, 1947 and yet he said that there is a provision in the
contract that the war has the effect of suspending the agreement and that the
effect of that suspension was that the agreement would have to continue with the
result that Lepanto would have to pay the monthly retaining fee of P2,500.00.
And this belief that the war suspended the agreement and that the suspension
meant its extension was so firm that he went to the extent of intimating that
even if there was no provision for suspension in the agreement the law Itself
would suspend it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October 20,
1945 wherein apparently he changed his mind because there he stated that the
con- tract was merely suspended, but not extended, by reason of the war,
contrary to the opinion he expressed in the meeting of the Board of Directors
already adverted to, but between the two opinions of Atty. DeWitt We are
inclined to give more weight and validity to the former not only because such
was given by him against his own interest but also because it was given before
the Board of Directors of Lepanto and in the presence of some Nielson
officials[10] who, on that occasion were
naturally led to believe that that was the true meaning of the suspension
clause, while the second opinion was merely self-serving and was given as a mere
afterthought.
Appellee also claims that the issue of true intent of the parties was not
brought out in the complaint, but anent this matter suffice it to state that in
paragraph No. 19 of the complaint appellant pleaded that the contract was
extended.[11] This is a sufficient
allegation considering that the rules on pleadings must as a rule be liberally
construed.
It is likewise noteworthy that in this issue of the intention of the parties
regarding the meaning and usage concerning the force majeure clause,the
testimony adduced by appellant is uncontradicted. If such were not true,
appellee should have at least attempted to offer contradictory evidence. This it
did not do. Not even Lepanto’s President, Mr. V. E. Lednicky, who took the
witness stand, contradicted said evidence.
In holding that the suspension of the agreement meant the extension of the
same for a period equivalent to the suspension, We do not have the least
intention of overruling the cases cited by appellee. We simply want to say that
the ruling laid down in said cases does not apply here because the material
facts involved therein are not the same as those obtaining in the present. The
rule of stare decisis cannot be invoked where there is no analogy
between the material facts of the decision relied upon and those of the instant
case.
Thus, in Victorias Planters Association v. Victorias Milling Company, 51 0.G.
4010, there was no evidence at all regarding the intention of the parties to
extend the contract equivalent to the period of suspension caused by the war.
Neither was there evidence that the parties understood the suspension to mean
extension; nor was there evidence of usage and custom in the industry that the
suspension meant the extension of the agreement. All these matters, however,
obtain in the instant case.
Again, in the case of Rosario S. Vda. de Lacson v. Abelardo G. Diaz, 87
Phil., 150, the issue referred to the interpretation of a pre-war contract of
lease of sugar cane lands and the liability of the lessee to pay rent during and
immediately following the Japanese occupation and where the defendant claimed
the right of an extension of the lease to make up for the time when no cane was
planted. This Court, in holding that the years which the lessee could not use
the land because of the war could not be discounted from the period agreed upon,
held that “Nowhere is there any insinuation that the defendant-lessee was to
have possession of lands for seven years excluding years on which he could not
harvest sugar.” Clearly, this ratio decidendi is not applicable to the
case at bar wherein there is evidence that the parties understood the
“suspension clause by force majeure” to mean the extension of the period of the
agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. v. Court of Appeals, et
al., 81 Phil., 601, appellant leased a building from appellee beginning
September 13, 1940 for three years, renewable for two years. The lessee’s
possession was interrupted in February, 1942 when he was ousted by the Japanese
who turned the same over to German Otto Schulze, the latter occupying the same
until January, 1945 upon the arrival of the liberation forces. Appellant
contended that the period during which he did not enjoy the leased premises
because of his dispossession by the Japanese had to be deducted from the period
of the lease, but this was overruled by this Court, reasoning, that such
dispossession was merely a simple “perturbacion de mero hecho y de la cual no
responde el arrendador” under Article 1560 of the old Civil Code (now Art.
1664). This ruling is also not applicable in the instant case because in that
case there was no evidence of the intention of the parties that any suspension
of the lease by force majeure would be understood to extend the period
of the agreement.
In resumé, there is sufficient justification for Us to conclude that
the cases cited by appellee are inapplicable because the facts therein involved
do not run parallel to those obtaining in the present case.
We shall now consider appellee’s defense of laches. Appellee is correct in
its contention that the defense of laches applies independently of prescription.
Laches is different from the statute of limitations. Prescription is concerned
with the fact of delay, whereas laches is concerned with the effect of delay.
Prescription is a matter of time; laches is principally a question of inequity
of permitting a claim to be enforced, this inequity being founded on some change
in the condition of the property or the relation of the parties. Prescription is
statutory; laches is not. Laches applies in equity, whereas prescription applies
at law. Prescription is based on fixed time, laches is not. (30 C.J.S., p. 522;
See also Pomeroy’s Equity Jurisprudence, Vol. 2, 5th ed., 177.)
The question to determine is whether appellant Nielson is guilty of laches
within the meaning contemplated by the authorities on the matter. In the leading
case of Go Chi Gun, et al. v. Go Cho, et al., 96 Phil., 622, this Court
enumerated the essential elements of laches as follows:
“(1) conduct on the part of the defendant, or of one under whom he claims,
giving rise to the situation of which complaint is made and for which the
complaint seeks a remedy; (2) delay in asserting the complainant’s rights, the
complainant having had knowledge or notice of the defendant’s conduct and having
been afforded an opportunity to institute a suit; (3) lack of knowledge or
notice on the part of the defendant that the complainant would assert the right
on which he bases his suit; and (4) injury or prejudice to the defendant in the
event relief is accorded to the complainant, or the suit is not held
barred.”
Are these requisites present in the case at bar?
The first element is conceded by appellant Nielson when it claimed that
defendant refused to pay its management fees, its percentage of profits and
refused to allow it to resume the management operation.
Anent the second element, while it is true that appellant Nielson knew since
1945 that appellee Lepanto has refused to permit it to resume management and
that since 1948 appellee has resumed operation of the mines and it filed its
complaint only on February 6, 1958, there being apparent delay in filing the
present action, We find the delay justified and as such cannot constitute
laches. It appears that appellant had not abandoned its right to operate the
mines for even before the termination of the suspension of the agreement as
early as January 20, 1946[12] and even
before March 10, 1945, it already claimed its right to the extension of the
contract[13] and it pressed its claim for
the balance of its share in the profits from the 1941 operation[14] by reason of which negotiations had taken
place for the settlement of the claim[15]
and it was only on June 25, 1957 that appellee finally denied the claim. There
is, therefore, only a period of less than one year that had elapsed from the
date of the final denial of the claim to the date of the filing of the
complaint, which certainly cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said that
appellee Lepanto did not know that appellant would assert its rights on which it
based its suit. The evidence shows that Niels on had been claiming for sometime
its rights under the contract, as already shown above.
Neither is the fourth element present, for if there has been some delay in
bringing the case to court it was mainly due to the attempts at arbitration and
negotiation made by both parties. If Lepanto’s documents were lost, it was not
caused by the delay of the filing of the suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches is that
the delay in the filing of the complaint in the present case was the inevitable
result of the protracted negotiations between the parties concerning the
settlement of their differences. It appears that Nielson asked for
arbitration[16] which was granted. A
committee consisting of Messrs. DeWitt, Farnell and Blessing was appointed to
act on said differences but Mr. DeWitt always tried to evade the issue[17] until he was taken ill and died. Mr.
Farnell offered to Nielson the sum of P13,000.58 by way of compromise of all its
claim arising from the management contract[18] but apparently the offer was refused.
Negotiations continued with the exchange of letters between the parties but with
no satisfactory result.[19] It can be
said that the delay due to protracted negotiations was caused by both parties.
Lepanto, therefore, cannot be permitted to take advantage of such delay or to
question the propriety of the action taken by Nielson. The defense of laches is
an equitable one and equity should be applied with an even hand. A person will
not be permitted to take advantage of, or to question the validity, or propriety
of, any act or omission of another which was committed or omitted upon his own
request or was caused by bis conduct (R. H. Stearns Co. v. United States, 291
U.S. 54, 78 L. Ed., 647, 54 S. Ct., 325; United States v. Henry Frentiss &
Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).
Had the action of Nielson prescribed? The court a quo held that the
action of Nielson is already barred by the statute of limitations, and that
ruling is now assailed by the appellant in this appeal. In urging that the court
a quo erred in reaching that conclusion the appellant has discussed the
issue with reference to particular claims.
The first claim is with regard to the 10% share in profits of 1941
operations. Inasmuch as appellee Lepanto alleges that the correct basis of the
computation of the sharing in the net profits shall be as provided for in Clause
V of the Management Contract, while appellant Nielson maintains that the basis
should be what is contained in the minutes of the special meeting of the Board
of Directors of Lepanto on August 21, 1940,[20] this question must first be elucidated
before the main issue is discussed.
The facts relative to the matter of profit sharing follow: In the management
contract entered into between the parties on January 30, 1937, which was renewed
for another five years, it was stipulated that Nielson would receive a
compensation of P2,500.00 a month plus 10% of the net profits from the operation
of the properties for the preceding month. 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 January 1, 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.[21] Counsel for the appellee admitted during
the trial that the extract of the minutes as found in Exhibit B is a faithful
copy from the original.[22] Mr. George
Scholey testified that the foregoing modification was duly agreed upon.[23]
Lepanto claims that this new basis of computation should be rejected (1)
because the contract was clear on the point of the 10% share and it was so
alleged by Nielson in its complaint, and (2) the minutes of the special meeting
held on August 21,1940 was not signed.
It appearing that the issue concerning the sharing of the profits had been
raised in appellant’s complaint and evidence on the matter was introduced[24] the same can be taken into account even
if no amendment of the pleading to make it conform to the evidence has been
made, for the same is authorized by Section 4, Rule 17, of the old Rules of
Court (now Section 5, Rule 10, of the new Rules of Court).
Coming now to the question of prescription raised by defendant Lepanto, it is
contended by the latter that the period to be considered for the prescription of
the claim regarding participation in the profits is only four years, because the
modification of the sharing embodied in the management contract is merely
verbal, no written document to that effect having been presented. This
contention is untenable. The modification appears in the minutes of the special
meeting of the Board of Directors of Lepanto held on August 21, 1940, it having
been made upon the authority of its President, and in said minutes the terms of
the modification had been specified. This is sufficient to have the agreement
considered, for the purpose of applying the statute of limitations, as a written
contract even if the minutes were not signed by the parties (3 A.L.R., 2d, p.
831). It has been held that a writing containing the terms of a contract if
adopted by two persons may constitute a contract in writing even if the same is
not signed by either of the parties (3 A.L. R., 2d, pp. 812-813). Another
authority says that an unsigned agreement the terms of which are embodied in a
document undonditionally accepted by both parties is a written contract (Corbin
on Contracts, Vol. I, p. 85)
The modification, therefore, made in the management contract relative to the
participation in the profits by appellant, as contained in the minutes of the
special meeting of the Board of Directors of Lepanto held on August 21, 1940,
should be considered as a written contract insofar as the application of the
statutes of limitations is concerned. Hence, the action thereon prescribes
within 10 years pursuant to Section 43 of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10%
participation in the 1941 operations accrued on December 31, 1941 and the right
to commence an action thereon began on January 1, 1942 so that the action may be
brought within 10 years from the latter date. It is true that the complaint was
filed only on February 6, 1958, that is 16 years, 1 month and 5 days after the
right of action accrued, but the action has not yet prescribed for various
reasons which We will hereafter discuss.
The first reason is the operation of the Moratorium Law, for appellant’s
claim is undeniably a claim for money. Said claim accrued on December 31, 1941,
and Lepanto is a war sufferer. Hence the claim was covered by Executive Order
No. 32 of March 10, 1945. It is well-settled that the operation of the
Moratorium Law suspends the running of the statute of limitations (Pacific
Commercial Co. v. Aquino, G. R. No. L-10274, February 27, 1957).
This Court has held that the Moratorium Law had been enforced for 8 years, 2
months and 8 days (Tioseco v. Day, et al., L-9944, April 30, 1957; Levy
Hermanos, Inc. v. Perez, L-14487, April 29, 1960), and deducting this
period from the time that had elapsed since the accrual of the right of action
to the date of the filing of the complaint, the extent of which is 16 years, 1
month and 5 days, we would have less than 8 years to be counted for purposes of
prescription. Hence appellant’s action on Its claim of 10% on the 1941 profits
has not yet prescribed.
Another reason that may be taken into account in support of the no-bar theory
of appellant is the arbitration clause embodied in the management contract which
requires that any disagreement as to any amount of profits before an action may
be taken to court shall be subject to arbitration.[25] This agreement to arbitrate is valid and
binding.[26] It cannot be ignored by
Lepanto. Hence Nielson could not bring an action on its participation in the
1941 operations-profits until the condition relative to arbitration had been
first complied with.[27] The evidence
shows that an arbitration committee was constituted but it failed to accomplish
its purpose on June 25, 1957.[28] From
this date to the filing of the complaint the required period for prescription
has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared in
1941, exclusive of interest, amounting to P17,500.00; (2) 10% in the depletion
reserves for 1941; and (3) 10% in the profits for years prior to 1948 anounting
to P19,764.70.
With regard to the first claim, the Lepanto’s report for the calendar year of
1954[29] shows that it declared a 10% cash
dividend in December, 1941, the amount of which is P175,000.00. The evidence in
this connection (Exhibits L and Q) was admitted without objection by counsel for
Lepanto.[30] Nielson claims 10% share in
said amount with interest thereon at 6% per annum. The document (Exhibit L) was
even recognized by Lepanto’s President V. L. Lednicky,[31] and this claim is predicated on the
provision of paragraph V of the management contract as modified pursuant to the
proposal of Lepanto at the special meeting of the Board of Directors on August
21, 1940 (Exh. B), whereby it was provided that Nielson would be entitled to 10%
of any dividends to be declared and paid during the period of the contract.
With regard to the second claim, Nielson admits that there is no evidence
regarding the amount set aside by Lepanto for depletion reserve for 1941[32] and so the 10% participation claimed thereon
cannot be assessed.
Anent the third claim relative to the 10% participation of Nielson on the sum
of P197,647.08, which appears in Lepanto’s annual report for 1948[33] and entered as profit for prior years in the
statement of income and surplus, which amount consisted “almost in its entirety
of proceeds of copper concentrates shipped to the United States during 1947”,
this claim should be denied because the amount is not “dividend declared and
paid” within the purview of the management contract.
The fifth assignment of error of appellant refers to the failure of the lower
court to order Lepanto to pay its management fees for January, 1942, and for the
full period of extension amounting to P150,000.00, or P2,500. 00 a month for
sixty (60) months, a total of P152,500.00 — with interest thereon from the date
of judicial demand.
It is true that the claim of management fee for January, 1942 was not among
the causes of action in the complaint, but inasmuch as the contract was
suspended in February, 1942 and the management fees asked for included that of
January, 1942, the fact that such claim was not included in a specific manner in
the complaint is of no moment because an appellate court may treat the pleading
as amended to conform to the evidence where the facts show that the plaintiff is
entitled to relief other than what is asked for in the complaint (Alonzo v.
Villamor, 16 Phil., 315). The evidence shows that the last payment made by
Lepanto for management fee was for November and and December, 1941.[34] If, as We have declared the management
contract was suspended beginning February 1942, it follows that Nielson is
entitled to the management fee for January, 1942.
Let us now come to the management fees claimed by Nielson for the period
of extension. In this respect, it has been shown that the managment
contract was extended from June 27, 1948 to June 26, 1953, or for a period of
sixty months. During this period Nielson had a right to continue in the
management of the mining properties of Lepanto and Lepanto was under obligation
to let Nielson do it and to pay the corresponding management fees. Appellant
Nielson insisted in performing its part of the contract but Lepanto prevented it
from doing so. Hence, by virtue of Article 1186 of the Civil Code, there was a
constructive fulfillment on the part of Nielson of its obligation to manage said
mining properties in accordance with the contract and Lepanto had the reciprocal
obligation to pay the corresponding management fees and other benefits that
would have accrued to Nielson if Lepanto allowed it (Nielson) to continue in the
management of the mines during the extended period of five years.
We find that the preponderance of evidence is to the effect that Nielson had
insisted in managing the mining properties soon after liberation. In the
report[35] of Lepanto, submitted to its
stockholders, for the period from 1941 to March 13, 1946, are stated the
activities of Nielson’s officials in relation to Nielson’s insistence in
continuing the management. This report was admitted in evidence without
objection. We find the following in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando
(La Union) to await the liberation of the mines. (Mr. Blessing was the Treasurer
and Metallurgist of Nielson), Blessing with Clark and Stanford went to the
property on July 16 and found that while the mill site had been cleared of the
enemy the latter was still holding the area around the staff houses and putting
up a strong defense. As a result, they returned to San Fernando and later went
back to the mines on July 26. Mr. Blessing made the report, dated August 6,
recommending a program of operation. Mr. Nielson himself spent a day in the mine
early in December, 1945 and reiterated the program which Mr. Blessing had
outlined. Two or three weeks before the date of the report, Mr. Coldren of the
Nielson organization also visited the mine and told President C. A. DeWitt of
Lepanto that he thought that the mine could be put in condition for the delivery
of the ore within 10 days. And according to Mark Nestle, a witness of appellant,
Nielson had several men including engineers to do the job in the mines and to
resume the work. These engineers were in fact sent to the mine site and
submitted reports of what they had done.[36]
On the other hand, appellee claims that Nielson was not ready and able to
resume the work in the mines, relying mainly on the testimony of Dr. Juan
Nabong, former secretary of both Nielson and Lepanto, given in the separate case
of Nancy Irving Romero v. Lepanto Consolidated Mining Company (Civil
Case No. 652, CFI, Baguio), to the effect that as far as he knew “Nielson and
Company had not attempted to operate the Lepanto Consolidated Mining Company
because Mr. Nielson was not here in the Philippines after the last war. He came
back later,” and that Nielson and Company had no money nor stocks with which to
start the operation. He was asked by counsel for the appellee if he had
testified that way in Civil Case No. 652 of the Court of First Instance of
Baguio, and he answered that he did not confirm it fully. When this witness was
asked later by the same counsel whether he confirmed that testimony, he said
that when he testified in that case he was not fully aware of what happened and
that after he learned more about the officials of the corporation it was only
then that he became aware that Nielson had really sent his men to the mines
along with Mr. Blessing and that he was aware of this fact personally. He
further said that Mr. Nielson was here in 1945 and “he was going out and
contacting his people.”[37]
Lepanto admits, in its own brief, that Nielson had really insisted in taking
over the management and operation of the mines but that it (Lepanto)
unequivocally refused to allow it. The following is what appears in the brief of
the appellee:
“It was while defendant was in the midst of the rehabilitation work which was
fully described earlier, still reeling under the terrible devastation and
destruction wrought by war on its mine that Nielson insisted in taking over the
management and operation of the mine. Nielson thus put Lepanto in a position
where defendant, under the circumstances, had to refuse, as in fact it did,
Nielson’s insistence in taking over the management and operation because, as was
obvious, it was impossible, as a result of the destruction of the mine, for the
plaintiff to manage and operate the same and because, as provided in the
agreement, the contract was suspended by reason of the war. The stand of Lepanto
in disallowing Nielson to assume again the management of the mine in 1945 was
unequivocal and cannot be misinterpreted, infra.”[38]
Based on the foregoing facts and circumstances, and Our conclusion that the
management contract was extended, We believe that Nielson is entitled to the
management fees for the period of extension. Nielson should be awarded on this
claim sixty times its monthly pay of P2,500.00, or a total of P150,000.00.
In its sixth assignment of error Nielson contends that the lower court erred
in not ordering Lepanto to pay it (Nielson) the 10% share in the profits of
operation realized during the period of five years from the resumption of its
post-war operations of the Mankayan mines,” in the total sum of P2,403,053.20
with interest thereon at the rate of 6% per annum from February 6, 1958 until
full payment.[39]
The above claim of Nielson refers to four categories, namely: (1) cash
dividends; (2) stock dividends; (3) depletion reserves; and (4) amount expended
on capital investment.
Anent the first category, Lepanto’s report for the calendar year 1954[40] contains a record of the cash dividends
it paid up to the date of said report, and the post-war dividends paid by it
corresponding to the years included in the period of extension of the management
contract are as follows:
“POST-WAR
November 1949 . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .July 1950 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.October 1950 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 1950 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 1951 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 1951 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.September 1951 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 1951 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 1952 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 1952 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July 1952 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.September 1952 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.December 1952 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.March 1953 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 1953 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
According to the terms of the management contract as modified,t appellant is
entitled to 10% of the P14,000,000.00 cash dividends that had been distributed,
as stated in the above-mentioned report, or the sum of P1,400,000.00.
With regard to the second category, the stock dividends declared by Lepanto
during the period of extension of the contract are: On November 28, 1949, the
stock dividend declared was 50% of the outstanding authorized capital of
P2,000,000.00 of the company, or stock dividends worth P1,000,000.00; and on
August 22, 1950, the dividend declared was 66-2/3% of the standing authorized
capital of P3,000,000,00 of the company, or stock dividends worth
P2,000,000.00.[41]
Appellant’s claim that it should be given 10% of the cash value of said stock
dividends with interest thereon at 6% from February 6, 1958 cannot be granted
for that would not be in accordance with the management contract which entitles
Nielson to 10% of any dividends declared paid, when and as
paid. Nielson, therefore, is entitled to 10% of the stock dividends and to the
fruits that may have accrued to said stock dividends pursuant to Article 1164 of
the Civil Code. Hence to Nielson is due shares of stock worth P100,000.00, as
per stock dividends declared on November 28, 1949 and all the fruits accruing to
said shares after said date; and also shares of stock worth P200,000.00 as per
stock dividends declared on August 20, 1950 and all fruits accruing thereto
after said date.
Anent the third category, the depletion reserve appearing in the statement of
income and surplus submitted by Lepanto corresponding to the years covered by
the period of extension of the contract, may be itemized as follows:
In 1948, as per Exh. F. p. 36 and Exh. Q, p. 5, the depletion reserve set up
was P11,602.80.
In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve set up
was P33,556.07.
In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the depletion
reserve set up was P84,963.30.
In 1951 as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the depletion
reserve set up was P129,089.88.
In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K, p. 41, the depletion
reserve was P147,141.54.
In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve set up
was P277,493.25.
Regarding the depletion reserve set up in 1948 it should be noted that the
amount given was for the whole year. Inasmuch as the contract was extended only
for the last half of the year 1948, said amount of P11,602.80 should be divided
by two, and so Nielson is only entitled to 10% of the half amounting to
P5,801.40.
Likewise, the amount of depletion reserve for the year 1953 was for the whole
year and since the contract was extended only until the first half of the year,
said amount of P277,493.25 should be divided by two, and so Nielson is only
entitled to 10% of the half amounting to — P138,746.62. Summing up the entire
depletion reserves, from the middle of 1948 to the middle of 1953, we would have
a total of P539,298.81, of which Nielson is entitled to 107.,or to the sum of
P53,928.88.
Finally, with regard to the fourth category, there is no figure in the record
representing the value of the fixed assets as of the beginning of the period of
extension on June 27, 1948. It is possible, however, to arrive at thi amount
needed by adding to the value of the fixed assets as of December 31, 1947
one-half of the amount spent for capital account in the year 1948. As of
December 31, 1947, the value of the fixed assets was P1,061,878.88[42] and as of December 31, 1948, the value of
the fixed assets was P3,270,408.07.[43]
Hence, the increase in the value of the fixed assets for the year 1948 was
P2,208,529.19, one-half of which is P1,104,264.59, which amount represents the
expenses for capital account for the first half of the year 1948. If to this
amount we add the fixed assets as of December 31, 1947 amounting to
P1,061,878.88, we would have a total of P2,166,143.47 which represents the fixed
assets at the begining of the second half of the year 1948.
There is also no figure representing the value of the fixed assets when the
contract, as extended, ended on June 26, 1953; but this may be computed
by getting one-half of the expenses for capital account made in 1953 and adding
the same to the value of the fixed assets as of December 31, 1952. The value of
the fixed assets as of December 31, 1953 is P9,755,840,41[44] while the value of the fixed assets as of
December 31, 1952 is P8,463,741.82, the difference being P1,292,098.69. One-half
of this amount is P646,049.34 which would represent the expenses for capital
account up to June, 1953. This amount added to the value of the fixed assets as
of December 31, 1952 would give a total of P9,109,791.16 which would be the
value of fixed assets at the end of June, 1953.
The increase, therefore, of the value of the fixed assets of Lepanto from
June, 1948 to June, 1953 is P6,943,647.69, which amount represents the
difference between the value of the fixed assets of Lepanto In the year 1948 and
in the year 1953, as stated above. On this amount Nielson is entitled to a share
of 10%, or to the amount of P694,364.76.
Considering that most of the claims of appellant have been entertained, as
pointed out in this decision, We believe that appellant is entitled to be
awarded attorney’s fees, especially when, according to the undisputed testimony
of Mr. Mark Nestle, Nielson obliged himself to pay attorney’s fees in connection
with the institution of the present case. In this respect, We believe,
considering the Intricate nature of the case, an award of fifty thousand
(P50,000.00) pesos for attorney’s fees would be reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the
decision of the court a quo and enter in lieu thereof another, ordering
the appellee Lepanto to pay appellant Nielson the different amounts as specified
herein below:
(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-months 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;
If sufficient shares of stock of Lepanto’s are not available to satisfy this
judgment, defendant-appellee shall pay plaintiff-appellant an amount in cash
equivalent to the market value of said shares at the time of default (12 C.J.S.,
p. 130), 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 (Article 1160, Civil Code);
(8) the sum of P50,000.00 as attorney’s fees; and
(9) the costs.
IT IS SO ORDERED.
Concepcion, C.J., Regala, Makalintal,
Bengzon, J.P., Sanchez and Ruiz Castro, JJ., concur.
[1] Exhibit D.
[2] Par. 15, Defendant’s Answer, pp. 63-64,
Record on Appeal.
[3] Page 7,
Exhibit D.
[4] Page 1, Exhibit
F-1.
[5] Appellant’s Brief, pp.
86-87.
[6] T.s.n., June 27, 1962,
p. 25.
[7] T.s.n., July 3, 1962,
pp. 24-25.
[8] Page 4, Exhibit
B.
[9] Exhibit O.
[10] Exh. B, p. 3; Exh. N, p. 4.
[11] Page 7, Record on Appeal.
[12] Exhibit P.
[13] Exhibit B, p. 4.
[14] Exhibit P.
[15] Exhibit U.
[16] T.s.n., July 3, 1962, p. 37.
[17] Exhibit 3, p. 3.
[18] Exhibit U.
[19] Exhibit V to V-5.
[20] Exhibit B, B-1, pp. 2-3.
[21] Exhibits B, B-1, pp. 2-3.
[22] T.s.n., July 3, 1962, p. 7.
[23] T.s.n., June 27, 1962, p. 14.
[24] Exhibit B is admitted as evidence without
objection by counsel for the appellee, t.s.n., October 24, 1962, p.
3.
[25] Clause XIII, Exh. C; See
Record on Appeal pp. 54-55.
[26]
Chong v. Assurance Corp., 8 Phil., 399.
[27] 13-A C.J.S., pp. 918, 919; Chitty on
Contracts, 22nd ed., 1961, Vol. I, pp. 315-316.
[28] Exhibit V-6.
[29] Exhibit L, p. 3; Exhibit Q, p.
7.
[30] T.s.n., October 24, 1962,
p. 3.
[31] T.s.n., July 6, 1962,
p. 34.
[32] Appellant’s Brief, p.
59.
[33] Exhibit F, p.
36.
[34] Lepanto’s Exhibit
1.
[35] Exhibit D, pp. 7, 11,
12.
[36] T.s.n., July 3, 1962, pp.
32-34.
[37] T.s.n., November 29,
1962, pp. 6-9.
[38] Appellee’s
Brief, pp. 9-10.
[39] Appellant’s
Brief, pp. 97, 98, 111.
[40]
Exhibit L, p. 3.
[41] Exhibit L,
p. 2.
[42] Exhibit E, p. 6.
[43] Exhibit E, p. 6.
[44] Exhibit K, p. 39.