19.

Gaite vs Fonacier 2SCRA 830 (1961)

FERNANDO A. GAITE
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC.,
SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY
G.R. No. L-11827

July 31, 1961

REYES, J.B.L., J.:

FACTS:
Fonacier was the owner and/or holder of 11 iron lode mineral claims, known as the
Dawahan Group. By a "Deed of Assignment" dated September 29, 1952, Fonacier
constituted and appointed 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. On March 19, 1954, Gaite in turn executed a general assignment 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 by
the Deed of Assignment".
For some reason or another, 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 "Revocation of Power of Attorney and Contract"
was executed on December 8, 1954, wherein Gaite transferred to Fonacier, all his rights and
interests on development and exploitation of said mining claims, in consideration of the sum
of P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and the
balance of 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 P65k, Fonacier executed a surety bond with himself as
principal, the Larap Mines and Smelting Co. and its stockholder as sureties. Yet, this was
refused by Gaite. He further required another bond underwritten by a bonding company to
secure the payment of the balance. Hence a second bond was produced with Far Eastern
Surety as an additional surety, provided the liability of Far Eastern would only prosper when
there had been an actual sale of the iron ores of not less than the agreed amount of P65k,
moreover, its liability was to automatically expire on December 1955.
On December 1955, the second bond had expired and no sale amounting to the
stipulation as prior agreed nor had the balance been paid to Gaite by Fonacier. Thus such
failure, prompted Gaite to file a complaint in the CFI of Manila for the payment of the
balance and other damages.
The lower court ruled the obligation was one with a term and that the obligation
became due and demandable under Article 1198 of the New Civil Code.
Hence, the defendants jointly filed an appeal.
ISSUE: Whether or not the Lower Court erred in holding the obligation of appellant Fonacier
to pay appelle Gaite the balance of P65,000, as one with a period or term and not one with a
suspensive condition; and that the term expired on December 1955
RULING: No error was found, affirming the decision of the lower court.

Gaite acted within his rights in demanding payment and instituting this action one
year from and after the contract 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, became due and payable thereafter.
The Lower Court was legally correct in holding the shipment or sale of the iron ore is
not a condition or suspensive to the payment of the balance of P65,000, 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.
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.
While as to the right of Fonacier 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. The
appellant had indeed 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 (first bond).
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: (2) When he does not
furnish to the creditor the guaranties or securities which he has promised. (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.
Nevertheless, 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, first bond.