Case Summary (G.R. No. 56705)
Procedural History
Gaite sued Fonacier and sureties for unpaid balance of ₱65,000 under a 1954 “Revocation of Power of Attorney and Contract” conveying 24,000 tons (more or less) of extracted ore. The trial court held payment became demandable upon expiration of a surety bond on December 8, 1955, and found that approximately 24,000 tons existed at contract date. Defendants appealed.
Key Dates
September 29, 1952: Power of attorney from Fonacier to Gaite
March 19, 1954: Assignment from Gaite to Larap Iron Mines
December 8, 1954: Revocation agreement (Exhibit A) and two surety bonds (Exhibits A-1, B) executed
December 8, 1955: Expiration of surety bond (Exhibit B)
Applicable Law
1935 Philippine Constitution; New Civil Code (Articles 1198, 1378; rules on obligations with term and sale of specific mass under Articles 1480, 1590)
Facts
- Gaite developed the Dawahan Group claims and extracted an estimated 24,000 tons of iron ore.
- Fonacier revoked the power of attorney and bought Gaite’s rights—including the ore stockpile—for ₱75,000: ₱10,000 paid upfront, ₱65,000 payable “out of the first letter of credit covering the first shipment of iron ores and/or the first amount derived from the local sale” under two surety bonds.
- No sale or shipment occurred by December 8, 1955, and the surety bond with Far Eastern Surety lapsed.
- Gaite demanded the ₱65,000 balance; defendants invoked non-fulfillment of the sale/shipment condition and counterclaimed on quantity.
Issue One: Nature of Payment Obligation
Whether the ₱65,000 balance was subject to a suspensive condition (sale or shipment) or merely a deferred term, and whether expiration of the bond forfeited the extended term.
Court’s Analysis on Condition Versus Term
• The contract’s language (“will be paid out of…”) presupposes the existence of an obligation, delaying only its maturity, not its formation.
• Sale on credit is a commutative onerous contract; a suspensive condition must be clearly expressed.
• Allowing a condition precedent would give the buyer discretion to postpone payment indefinitely.
• Ambiguities favor greatest reciprocity of interests (Art. 1378, par. 1); hence a term, not a condition.
Forfeiture of Deferred Payment Term
Under Article 1198(2) and (3), failure to renew or replace the surety bond on its expiry impaired the security and resulted in loss of the extended period. Gaite was entitled to demand payment from December 9, 1955.
Issue Two: Quantity of Iron Ore and Alleged Short-Delivery
Whether the stockpile contained the agreed “24,000 tons, more or less,” and if a short-delivery entitled defendants to damages.
Court’s Analysis on Specific Mass Sale
• The agreement involved a sale of a specific mass at a lump-sum price; no post-agreement weighing was
Case Syllabus (G.R. No. 56705)
Parties and Nature of the Action
- Plaintiff‐appellee: Fernando A. Gaite, assignee and developer of mineral claims.
- Defendant‐appellant: Isabelo F. Fonacier, original owner of the 11 iron lode claims (Dawahan Group).
- Co‐appellants: George Krakower, Larap Mines & Smelting Co., Inc., Segundina Vivas, Francisco Dante, Pacifico Escandor, Fernando Ty (sureties under bond).
- Subject: Recovery of ₱65,000 balance of the purchase price for approximately 24,000 tons of iron ore and related damages.
Contractual Background and Key Instruments
- Deed of Assignment (Sept. 29, 1952, Exh. 3): Fonacier grants Gaite power of attorney to contract exploration/development for royalties ≥₱0.50/ton.
- General Assignment (Mar. 19, 1954): Gaite conveys development rights to Larap Iron Mines (his proprietorship) on same royalty terms.
- Revocation of Power of Attorney and Contract (Dec. 8, 1954, Exh. A):
• Gaite transfers to Fonacier all improvements, goodwill, records, and rights in extracted ore.
• Consideration: ₱20,000 + 10% of future royalties; ₱75,000 for 24,000 tons ore (₱10,000 paid on signing; ₱65,000 payable from first shipment letter of credit or local sale). - Surety Bonds securing ₱65,000:
• Bond A-1 (Dec. 8, 1954): Fonacier + Larap Mines & Smelting Co. + stockholders as sureties.
• Bond B (Dec. 8, 1954): Same parties + Far Eastern Surety & Insurance Co.; liability attaches only after actual sale ≥₱65,000; expires Dec. 8, 1955.
Development of the Mining Claims
- Gaite’s improvements: opened roads, installed facilities, estimated extraction of ~24,000 metric tons iron ore.
- Post‐revocation mining contract (Dec. 8, 1954): Fonacier cedes to Larap Mines & Smelting Co. the right to exploit claims and title to the 24,000 tons ore, in exchange for royalty payments and execution of the surety bonds.
Procedural History
- No sale of ore or payment of ₱65,000 by Dec. 8, 1955