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Nielson v. Lepanto

The case involves a dispute over a mining operations management contract between Nielson and Lepanto that was renewed for 5 years in 1941. Operations were disrupted by the Pacific War in 1942 when the mining assets were destroyed on US military orders. The contract contained a force majeure clause stating suspensions would extend the contract duration. The Court ruled the war suspension from 1942-1948 did extend the contract, based on witness testimony that such clauses in mining contracts customarily provide for extensions. This overturned the lower court decision in favor of Lepanto's view that the contract expired in 1947 as originally agreed.

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157 views2 pages

Nielson v. Lepanto

The case involves a dispute over a mining operations management contract between Nielson and Lepanto that was renewed for 5 years in 1941. Operations were disrupted by the Pacific War in 1942 when the mining assets were destroyed on US military orders. The contract contained a force majeure clause stating suspensions would extend the contract duration. The Court ruled the war suspension from 1942-1948 did extend the contract, based on witness testimony that such clauses in mining contracts customarily provide for extensions. This overturned the lower court decision in favor of Lepanto's view that the contract expired in 1947 as originally agreed.

Uploaded by

Hazel P.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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G.R. No. L-21601. Dec 17, 1966.

Nielson v. Lepanto

MAIN TOPIC – Lease Service


FACTS
 This suit involves an operating agreement executed before World War II between Nielson and Lepanto, where the
former operated and managed the mining properties owned by the latter for a management fee of P2,500 a month
and a 10% participation in net profits from mining operations
 The management contract [or operating agreement] was effective for 5 years. In the latter part of 1941, the parties
agreed to renew the same for another 5 years, but in the meantime, the Pacific War broke out in Dec. 1941
 Jan. 1942 , mining operations was disrupted because of the war. The mill, power plant, supplies on hand,
equipment, concentrates on hand and mines, were destroyed upon orders of the US Army to prevent the Japanese
Army from utilizing the same. However, the Japanese forces still occupied the mining properties and operated the
same during the war.
 The Japanese were ousted from the mining properties only in 1945
 On June 26, 1948, the mines resumed operations under the exclusive management of Lepanto
 Shortly after the liberation of the mines from the Japanese in 1945, a disagreement arose between Nielson and
Lepanto over the status of the operating contract/agreement, which as renewed expired in 1947
 Under the terms of the said contract, it shall remain in suspense in case of fortuitous event or force majeure, such
as war, which adversely affects the work of mining and milling
 The opposing views: Nielson holds 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
ISSUE
 Whether or not the suspension had the effect of extending the period of the management contract for the period of
said suspension
HELD
 YES.
 The ‘force majeure clause’ in the operating contract provides that in order that the management contract may be
deemed suspended, two events must take place: (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 of the company.
 On Feb. 1942, the mill, power plant, supplies on hand, equipment and mines were destroyed on the orders of the
US Army to prevent their utilization by the enemy. Consequently, the mining operations of Lepanto were stopped
as a result of this destruction, which was clearly beyond the control of Nielson and that, as a consequence, it
adversely affected the work of mining and milling which the latter was called to undertake under the contract.
 Thus, by virtue of the terms of the contract, the period of suspension is from Feb 1942 to June 26 1948 [the latter
date is when mining operations resumed after reconstruction and rehabilitation of the mining properties]
 Two witnesses testified for appellant Nielson: Scholey and Nestle. Scholey testified to the effect that the standard
force majeure clause embodied in the management contract was taken from similar mining contracts and that 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
 Nestle also testified along a similar line. He testified that in the mining world, the force majeure clause is
interpreted to mean that when a calamity comes up and stops the work like war, 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 invested or accomplish his obligation to a third person
 The Court found these testimonial evidence to be supported by the very minutes of the meeting of the Board of
Directors of appellee Lepanto Company
 The Court also pointed out that the ruling in the cases cited by appellee Lepanto do not apply in the present case
because there is no analogy between the material facts
 Thus, in Rosario Vda. De Lacson v. Abelardo Diaz, the 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 7 years excluding years on which he
could not harvest sugar”. This ruling does not apply in the present case wherein there is evidence that the parties
understood the suspension clause by force majeure to mean the extension of the period of agreement
G.R. No. L-21601. Dec 17, 1966.

Nielson v. Lepanto

 In the case of Lo Ching y So Young Chong Co. v. CA, the lessee’s possession was interrupted when he was
ousted by the Japanese who turned the same over to Schulze, the latter occupying the same until arrival of the
liberation forces. The lessee contended that the period during which he did not enjoy the lease premises because of
his dispossession by the Japanese had to be deducted from the period of lease, but this was overruled by the Court
because this was merely a simple “perturbacion de mero hecho y de la cual no responde el arrendador”
[“disturbance of mere fact and of which the landlord does not respond” as per Google translate] under Article 1560
of the Civil Code (now Art. 1664). This ruling is also not applicable here 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 agreement

DISPOSITIVE PORTION
WHEREFORE, the Court reverses the decision of the court a quo.

DOCTRINE
[This is what’s related to the topic on lease service, though the main issue in the case itself is not connected hehe ]
 In the case of Rosario Vda. De Lacson v. Abelardo Diaz, the Court, held that the years in which the lessee could
not use the land because of the war could not be discounted from the period agreed upon in the lease agreement.
The Court categorically said: “Nowhere is there any insinuation that the defendant-lessee was to have possession
of lands for 7 years excluding years on which he could not harvest sugar”.
 The same doctrine is set forth in Lo Ching y So Young Chong Co. v. CA, wherein the Court ruled against the
lessee’s contention that the period during which he did not enjoy the lease premises due to being ousted by the
Japanese should be deducted from the agreed period of lease.

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