No. L-11827. July 31, 1961.

FERNANDO A. GAITE, plaintiff-appellee,  vs.  ISABELO FONACIER,GEORGE

KRAKOWER,LARAP MINES &SMELTING CO., INC., SEGUNDINA VIVAS,FRANCISCO
DANTE,PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants.

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Obligations and Contracts; Conditional Obligations; Efficacy subordinated to the happening of a future

and uncertain event.—What characterizes a conditional obligation is the fact that its efficacy or obligatory
force 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.

Sales;  Commutative and onerous nature of contract of sale;Contingent character of obligation must
clearly appear.—A contract of sale is normally commutative and onerous; not only does each of the parties
assume a correlative obligation, but each party anticipates performance by the other from the very start.
Although 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, it is not in the usual course of
business to do so; hence, the contingent character of the obligation must clearly appear.

Same;  How doubt in the intention of parties is resolved.—Sale is essentially onerous, and if there is
doubt whether the parties intended a suspensive condition or a suspensive period for the payment of the
agreed price, the doubt shall be settled in favor of the greatest reciprocity of interests, which will obtain if
the buyer’s obligation is deemed to be actually existing, with only its maturity postponed or deferred.

APPEAL from a decision of the Court of First Instance of Camarines Norte.

The facts are stated in the opinion of Court.

     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 at-
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Gaite vs. Fonacier
torney-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 claimed and estimated to be approximately 24,000 metric tons of iron ore.
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.”

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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
underwritten by a bonding company was put up by defendants to secure the payment of the
P65,000.00 balance of the 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 than
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 goodwill, 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 Mines & Smelting Co., in consideration for the signing by the company and
its stockholders of the
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Gaite vs. Fonacier

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 attorney’s fees.
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

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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 Gaite’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 “A”.
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 full 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
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Gaite vs. Fonacier

itself. As for the several motions presented by appellee Gaite, it is unnecessary to resolve these
motions in view of the result 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 SEVENTY-FIVE 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 ores and/or 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 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 in-
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Gaite vs. Fonacier

tend any such state of things to prevail is supported by several circumstances:

1) The words of the contract express no contingency in the buyer‘s obligation to pay: “The
balance of SixtyFive Thousand Pesos (P65,000.00)  will be paidout of the first letter of
credit covering the first shipment of iron ores x x x” 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 to guarantee payment of the
P65,000.00, and 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.

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Gaite vs. Fonacier
Appellants would thus be able to postpone payment indefinitely. The desirability 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
intended 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,provides:

“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’s 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 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
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Gaite vs. Fonacier

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:

(1) x x x
(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.
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,
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Gaite vs. 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 or 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 meter.
The sale between the parties is a sale of a specific mass of 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. York Oilfield Salvage Co.,
Inc., 171 So. 872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this case
that Gaite did not deliver to appellants all the ore found in the stockpiles in the mining claims in
question; Gaite had, therefore, complied with his promise to deliver, and appellants in turn are
bound to pay the lump price.
But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a
definite mass, but approximately 24,000 tons of ore, so that any substantial difference in this
quantity promised and the quantity delivered would entitle the buyers to recover damages for the
short-delivery, was there really a short-delivery in this case?
We think not. As already stated, neither of the parties had actually measured or weighed the
whole mass of ore
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 Gaite vs. Fonacier

cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims only upon
an estimated number of cubic meters of ore multiplied by the average tonnage factor per cubic
meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore
that he sold to Fonacier, while appellants contend that by actual measurement, their witness
Cipriano Manlangit found the total volume of ore in the stockpiles to be only 6.609 cubic meters.
As to the average weight in tons per cubic meter, the parties are again in disagreement, with
appellants claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee
Gaite claims that the correct tonnage factor is about 3.7.
In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage
factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and
Metallurgical Division of the Bureau of Mines, a government pensionado to the States and a
mining engineering graduate of the Universities of Nevada and California, with almost 22 years
of experience in the Bureau of Mines. This witness placed the tonnage factor of every cubic meter
of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This estimate, in
turn, closely corresponds to the average tonnage factor of 3.3 adopted in his corrected report
(Exhibits “FF” and “FF-1”) by engineer Nemesio Gamatero, who was sent by the Bureau of Mines
to the mining claims involved at the request of appellant Krakower, precisely to make an official
estimate of the amount of iron ore in Gaite’s stockpiles after the dispute arose.
Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by
appellants’ witness Cipriano Manlangit is correct, if we multiply it by the average tonnage factor
of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate
of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the mass
was practically impossible, so that a reasonable percentage of error should be allowed anyone
making an estimate of the exact quantity in tons found in the mass. It must
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Lazatin vs. Twaño

stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging & Improvement Co. vs.
U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would entitle appellants to the
payment of damages, nor could Gaite have been guilty of any fraud in making any
misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining
claims in question, as charged by appellants, since Gaite’s estimate appears to be substantially
correct.
WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same,
with costs against appellants.

          Bengzon, C.J.,  Padilla,  Labrador,  Concepcion,  Barrera,  Paredes,  Dizon,  De

Leon and Natividad, JJ.,concur.

Decision affirmed.

Notes.—A contract whereby a party obligates himself to sell for a price certain specified
quantity of sugar of a given quality, without designating any particular lot of sugar, is not
perfected until the quantity agreed upon has been selected and is capable of being physically
designated and distinguished from all other sugar. Until thus segregated or appropriated, the
vendee does not assume the risk of loss as provided in Article 1452 (now Art. 1480, N.C.C.) of the
Civil Code. (Yu Tek & Co. v. Gonzales, 29 Phil. 384).