G.R. No. L-21601 December 17, 1966
NIELSON & COMPANY, INC., plaintiff-appellant, vs. LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.

FACTS

On January 30, 1937, Nielson & Company, Inc. (Nielson) and Lepanto Consolidated Mining Company (Lepanto) entered into a management contract for Nielson to operate Lepanto’s mining properties for five years, with a monthly fee and a 10% share in net profits. The contract was renewed for another five years in late 1941. Clause II of the contract provided that in the event of force majeure, including war, which adversely affects the mining and milling work and is beyond Nielson’s control, the agreement “shall remain in suspense” during the period of such inability. In December 1941, the Pacific War broke out. In February 1942, the mining properties, including the mill and power plant, were destroyed upon orders of the U.S. Army. The Japanese forces occupied and operated the mines until liberation in August 1945. Lepanto then undertook rehabilitation and reconstruction, officially resuming operations only on June 26, 1948. A disagreement arose: Nielson contended the contract was suspended during the war and its aftermath, thus extending its life, while Lepanto argued it expired as originally agreed in 1947. Nielson filed an action on February 6, 1958, to recover damages for Lepanto’s refusal to comply with the contract terms.

ISSUE

The primary issue is whether the supervening war and its aftermath suspended the management contract and, if so, whether the period of suspension operated to extend the life of the contract. A corollary issue is whether Nielson’s action is barred by prescription or laches.

RULING

The Supreme Court ruled in favor of Nielson. The contract was suspended from February 1942 until June 26, 1948, due to force majeure (war and destruction of facilities) that was beyond Nielson’s control and adversely affected mining work, as stipulated in Clause II. This suspension had the effect of extending the contract’s term for an equivalent period. The Court found that the parties’ intention, as gleaned from the contract language and the testimony of Nielson’s witness involved in the negotiations, was to extend the contract period by the time lost due to force majeure. The defense of prescription and laches was rejected. The action, filed within ten years from the accrual of the cause of action (from the end of the extended contract period and Lepanto’s refusal to account), was not barred. Lepanto was ordered to pay Nielson the 10% share of net profits from June 26, 1948, to the end of the extended contract, plus stock dividends, attorney’s fees, and costs.