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G.R. No. L-11827 July 31, 1961 FERNANDO A. GAITE, plaintiff-appellee,
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC.,
SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance because the claims involved
aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a
representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the
municipality of Jose Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and
appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a
contract with any individual or juridical person for the exploration and development of the mining
claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be
extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on
Appeal, pp. 17-19) conveying the development and exploitation of said mining claims into the Larap
Iron Mines, a single proprietorship owned solely by and belonging to him, on the same royalty basis
provided for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the
mining claims in question, opening and paving roads within and outside their boundaries, making
other improvements and installing facilities therein for use in the development of the mines, and in
time extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron
For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to
Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject to
certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract"
was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the
consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining
claims, all his rights and interests on all the roads, improvements, and facilities in or outside said
claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records
and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his
rights and interests over the "24,000 tons of iron ore, more or less" that the former had already
extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which
was paid upon the signing of the agreement, and b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out
of the first letter of credit covering the first shipment of iron ores and of the first amount
derived from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its
assigns, administrators, or successors in interests.
To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of
Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated
December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its
stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and
Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented
to him by Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on
December 8, 1954, he refused to sign said Exhibit "A" unless another bond under written by a
bonding company was put up by defendants to secure the payment of the P65,000.00 balance of
their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated
December 8, 1954 (Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with
the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the
surety company would attach only when there had been an actual sale of iron ore by the Larap
Mines & Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability
of said surety company would automatically expire on December 8, 1955. Both bonds were attached
to the "Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two
executed and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier
entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap
Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question,
together with the improvements therein and the use of the name "Larap Iron Mines" and its good will,
in consideration of certain royalties. Fonacier likewise transferred, in the same document, the
complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the
Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the
surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety
and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the
Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid
to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right
to make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C"
to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed
the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for
the payment of the P65,000.00 balance of the price of the ore, consequential damages, and
All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon
by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first
letter of credit covering the first shipment of iron ore and/or the first amount derived from the local
sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the
complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and
that consequently, the obligation was not yet due and demandable. Defendant Fonacier also
contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was
actually delivered, and counterclaimed for more than P200,000.00 damages.
At the trial of the case, the parties agreed to limit the presentation of evidence to two issues: (1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due
and demandable when the defendants failed to renew the surety bond underwritten by the Far
Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were
actually in existence in the mining claims when these parties executed the "Revocation of Power of
Attorney and Contract", Exhibit "A."
On the first question, the lower court held that the obligation of the defendants to pay plaintiff the
P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term:
i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected
within one year or before December 8, 1955; that the giving of security was a condition precedent to
Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient
security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the
obligation became due and demandable under Article 1198 of the New Civil Code.
As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000
tons of iron ore at the mining claims in question at the time of the execution of the contract Exhibit
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly
and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus
costs. From this judgment, defendants jointly appealed to this Court.
During the pendency of this appeal, several incidental motions were presented for resolution: a
motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in
contempt, filed by appellant Fonacier, and two motions to dismiss the appeal as having become
academic and a motion for new trial and/or to take judicial notice of certain documents, filed by
appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein that
the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is "property in litigation", has not been substantiated; and even if true, does
not make these appellants guilty of contempt, because what is under litigation in this appeal is
appellee Gaite's right to the payment of the balance of the price of the ore, and not the iron ore itself.
As for the several motions presented by appellee Gaite, it is unnecessary to resolve these motions in
view of the results that we have reached in this case, which we shall hereafter discuss.
The main issues presented by appellants in this appeal are:
(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee
Gaite the P65,000.00 (balance of the price of the iron ore in question)is one with a period or term
and not one with a suspensive condition, and that the term expired on December 8, 1955; and
(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of
iron ore sold by appellee Gaite to appellant Fonacier.
The first issue involves an interpretation of the following provision in the contract Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his
rights and interests over the 24,000 tons of iron ore, more or less, above-referred to together
with all his rights and interests to operate the mine in consideration of the sum of SEVENTYFIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows: a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of
the first letter of credit covering the first shipment of iron ore made by the Larap Mines &
Smelting Co., Inc., its assigns, administrators, or successors in interest.
We find the court below to be legally correct in holding that the shipment or local sale of the iron ore
is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was
only a suspensive period or term. What characterizes a conditional obligation is the fact that its
efficacy or obligatory force (as distinguished from its demandability) is subordinated to the
happening of a future and uncertain event; so that if the suspensive condition does not take place,
the parties would stand as if the conditional obligation had never existed. That the parties to the
contract Exhibit "A" did not intend any such state of things to prevail is supported by several
1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of
Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first
shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner
or later; what is undetermined is merely the exact date at which it will be made. By the very terms of
the contract, therefore, the existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.
2) A contract of sale is normally commutative and onerous: not only does each one of the parties
assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the
buyer to pay the price),but each party anticipates performance by the other from the very start. While
in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the
other understands that he assumes the risk of receiving nothing for what he gives (as in the case of
a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly appear. Nothing is found in the record
to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without
getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by
the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a
bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one
by a surety company; and the fact that appellants did put up such bonds indicates that they admitted
the definite existence of their obligation to pay the balance of P65,000.00.
3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore
as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor,
for the sale or shipment could not be made unless the appellants took steps to sell the ore.
Appellants would thus be able to postpone payment indefinitely. The desireability of avoiding such a
construction of the contract Exhibit "A" needs no stressing.
4) Assuming that there could be doubt whether by the wording of the contract the parties indented a
suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the
rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since
sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine,
If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interests. and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be
actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were
viewed as non-existent or not binding until the ore was sold.
The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit,
and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at
all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment
of the balance of the agreed price, but was intended merely to fix the future date of the payment.
This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have
the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment;
or, in other words, whether or not they are entitled to take full advantage of the period granted them
for making the payment.
We agree with the court below that the appellant have forfeited the right court below that the
appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving
payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern
Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding
company's undertaking on December 8, 1955 substantially reduced the security of the vendor's
rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon
which he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The
case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:
"ART. 1198. The debtor shall lose every right to make use of the period:
(1) . . .
(2) When he does not furnish to the creditor the guaranties or securities which he has
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired
the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced.
There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with
full knowledge that on its face it would automatically expire within one year was a waiver of its
renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose
and had nothing to gain barely; and if there was any, it could be rationally explained only if the
appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on
December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became
absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding
payment and instituting this action one year from and after the contract (Exhibit "A") was executed,
either because the appellant debtors had impaired the securities originally given and thereby
forfeited any further time within which to pay; or because the term of payment was originally of no
more than one year, and the balance of P65,000.00 became due and payable thereafter. Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of
iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had
been a short-delivery as claimed by appellants, they are entitled to the payment of damages, we
must, at the outset, stress two things: first, that this is a case of a sale of a specific mass of fungible
goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less," stated
in the contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the
mass; and second, that the evidence shows that neither of the parties had actually measured of
weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the
volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic
The sale between the parties is a sale of a specific mass or iron ore because no provision was made
in their contract for the measuring or weighing of the ore sold in order to complete or perfect the
sale, nor was the price of P75,000,00 agreed upon by the parties based upon any such
measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the sale is,
therefore, a determinate object, the mass, and not the actual number of units or tons contained
therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of
the ore found in the mass, notwithstanding that the quantity delivered is less than the amount
estimated by them (Mobile Machinery & Supply Co., Inc. vs. Yor...
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