Gaite v.

Fonacier
G.R. No. L-11827 July 31, 1961 J. Reyes
SALES: Characteristics of a Sale Created by MAT
Petitioners Respondents
Fernando A. Gaite Isabelo Fonacier, George Krakower, Larap
Mines & Smelting Co., Inc., Segundida Vivas,
Francisco Dante, Pacifico Escandor, Fernando
Ty
Recit Ready Summary
FONACIER owned iron lode mining claims in Camarines Norte. He assigned GAITE as his
attorney-in-fact to contract with others for the exploration and development of the same on a royalty
basis of at least P0.50 per ton of ore. For this purpose, Gaite contracted with LARAP MINES, INC.,
which he solely owned. Thus began the exploitation and development of the mining claims.
Eventually, about 24,000 tons of ore were extracted.

Fonacier later REVOKED the authority he granted Gaite, who then SOLD to the former all
interests to the aforementioned ~24,000 tons of ore for P75,000 with a P10,000 downpayment, with
the remaining balance payable out of the first loan of credit covering the first shipment of iron ore
and the first amount derived from the local sale of the iron ore. Fonacier SECURED the sale with a
surety company — although it was PROVIDED that its liability would attach ONLY when there had
been an actual sale of iron ore by Larap Mines for an amount of not less then P65,000.00.

** By this point, Gaite had already DELIVERED the ore to Fonacier, but Fonacier still hasn’t fully
paid for them. This transaction has nothing to do with the bond secured by Fonacier.

The bond eventually expired, by which time the sale of the ~24,000 tons of ore HAD NOT
been completed BECAUSE the surety never became liable because the condition was not met (i.e.,
Fonacier was not able to pay at least P65,000). Because Fonacier failed to pay following Gaite’s
demands, the latter filed the PRESENT COMPLAINT against the respondents for the payment of
the remaining balance, consequential damages, and attorney’s fees.

The Court ruled that:

- Fonacier’s obligation to sell the iron ores was NOT a suspensive condition for paying Gaite.
The contract provided that the obligation to pay was indeed recognized, and that only its
DEMANDABILITY was deferred (i.e., it’s a suspensive period).
 Because a contract of sale is normally commutative and onerous, each party
anticipates performance by the other from the very start. There was nothing on
record to suggest that Gaite assumed to run the risk of losing his right over the ore
without getting paid for it. The rules of interpretation favor the greater reciprocity of
interests, given that a sale is essentially onerous.
- The ~24,000 tons of ore was a DETERMINABLE object since A) no provision was made for
the measuring of the ore, and B) the price of P75,000 was not agreed to be based upon
such measurement. All that was required of Gaite was to DELIVER in good faith all the ore
found in the mining claims, which he did. Since there was no charge that Gaite did not
deliver all the ore in the mining claims, he COMPLIED with his promise to deliver. Fonacier
is thus OBLIGED to pay the lump price.

The Court affirmed the CFI’s ruling in favor of GAITE.

Facts of the Case
FONACIER owned 11 iron lode mining claims (aka Dawahan Group) in Jose Panganiban
(municipality of Camarines Norte). He assigned GAITE as his attorney-in-fact to contract with others
for the exploration and development of the same on a royalty basis of at least P0.50 per ton of ore.
For this purpose, Gaite contracted with LARAP MINES, INC., which he solely owned. Thus began
the exploitation and development of the mining claims. Eventually, about 24,000 tons of ore were
extracted.

Fonacier soon decided to revoke the authority he granted Gaite, who then SOLD to the
former A) all rights and interests on improvements, etc., the right to use the business name “Larap
Iron Mines,”and all related records and documents for P20,000 + 10% royalties, and B) all interests
to the aforementioned 24,000 tons of ore for P75,000 with a P10,000 downpayment, with the
remaining balance payable out of the first loan of credit covering the first shipment of iron ore and
the first amount derived from the local sale of the iron ore.

To secure the payment of the remaining balance of P65,000, Fonacier promised to execute in
favor of Gaite a SURETY BOND with himself as principal and the Larap Mines stockowners (i.e.,
the other respondents) as sureties. Gaite REFUSED to sign the same unless another bond was
secured. Hence, the SECOND BOND with the Far Eastern Surety and Insurance Co. as additional
surety — it was provided that A) its liability would attach ONLY when there had been an actual sale
of iron ore by Larap Mines for an amount of not less then P65,000.00, and that B), such liability
would automatically EXPIRE on December 8, 1955. Both bonds became integral parts of the
contract revoking Gaite’s power of attorney. Coincidentally, Fonacier ceded unto Larap Mines the
right to develop and exploit the mining claims, as well as the title to the ~24,000 tons of ore that he
received from Gaite.

The second bond eventually expired, by which time A) the ~24,000 tons of ore had not been
sold, and B) the remaining P65,000 balance had not yet been paid to Gaite. Because Fonacier
failed to pay following Gaite’s demands, the latter filed the present complaint against the
respondents for the payment of the remaining balance, consequential damages, and attorney’s
fees.

The CFI ruled in favor of Gaite. The respondents appealed directly to the SC given the large amount
of money involved.

** A MINING CLAIM refers to a parcel of land which one claims possession over and becomes
entitled to whatever minerals he may discover in it (e.g., if you have one and you find diamonds
after mining it, they’re yours)

Issues/Rulings
1. Whether Fonacier’s obligation to sell the iron ores was a suspensive condition for
paying Gaite — NO
- If the selling of the ore were a suspensive condition, then the same would have been at the
discretion of Fonacier because he’d be able to postpone payment indefinitely by choosing
not to sell the ore  Potestative condition = VOID
- The contract provided that the obligation to pay was indeed recognized, and that only its
demandability was deferred  SUSPENSIVE PERIOD, not suspensive condition
- A contract of sale is normally commutative and onerous: each party anticipates
performance by the other from the very start
 - There was nothing on record to suggest that Gaite assumed to run the risk of losing his right
over the ore without getting paid for it (in fact, he even insisted on the second bond, and
with an actual surety company at that)
- The rules of interpretation favor the greater reciprocity of interests, given that a sale is
essentially onerous  … If the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests (Art. 1378)

2. Whether Fonacier, et al. still have the right to insist that Gaite wait for the sale or
shipment of the ore before receiving payment — NO
- They FORFEITED their right to a period when they failed to renew the second bond or
replace it with an equivalent guarantee  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, and (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 (Art. 1198)

3. Whether there were really ~24,000 tons of ore that Gaite sold to Fonacier — YES
- No provision was made for the measuring of the ore, not was the price of P75,000 agreed
upon to be based upon such measurement  Thus, the ore is a “determinate” (or rather,
DETERMINABLE) object (i.e., mass, not actual weight)
 The quantity is an ESTIMATE: Neither Gaite nor Fonacier actually measured the
ore — they only made an estimate of the volume in cubic meters and multiplied that
by the ESTIMATED weight per ton of each cubic meter
- All that was required of Gaite was to DELIVER in good faith to all the ore found in the
mining claims (I think this means that he had to give all the ore within the ~24,000 tons)
- Since there was no charge that Gaite did not deliver all the ore in the mining claims, he
COMPLIED with his promise to deliver  Fonacier is OBLIGED to pay the lump price
- Therefore, there was NO short-delivery that would entitle the respondents to the payment of
damages

Disposition
Decision AFFIRMED.
Separate Opinions
N/A