1 GAITE VS FONACIER promised to execute in favor of Gaite a

surety bond, and pursuant to the

FACTS: Isabelo Fonacier owner of the
promise, Fonacier delivered to Gaite a
11 iron lode mineral claim known as the
surety bond with himself (Fonacier) as
Dawahan Group appointed plaintiff
principal and the Larap Mines and
Fernando Gaite as hi attorney in fact to
Smelting Co. and its stockholders. Gaite
enter into a contract with anyone for the
testified, however, that when this bond
exploration and development of the
was presented to him by Fonacier
mining claims on a rayalty basis of not
together with the “Revocation of Power
less than P0.50 per ton of ore that might
of Attorney and Contract” he refused to
be extracted therefrom. Gaite, owner of
sign unless another bond underwritten
Larap Iron Mines, embarked a
by a bonding company was put up by
development including paving roads and
defendants to secure the payment of the
installing facilities and exploitations of
P65,000.00 balance of the price of the
the mining claims. Gaite claimed he was
iron ore in the stockpiles in the mining
able to extract approximately 24,000
claims.
metric tons of iron ore.
A second bond was executed but it
Isabelo Fonacier for some reasons
provided that the liability of the surety
decided to revoke the authority granted
company would attach only when there
to Gaite and Gaiete in turn agreed to
had been an actual sale of iron ore by
certain conditions. As a result,
the Larap Mines & Smelting Co. for an
adocument entitled “Revocation of
amount of not less than 65000 and that
Power of Attorney and Contract” was
bonds will authomatically be expired on
executed wherein Gaite transferred to
Dec 8 1955. Fonacier then revoked the
Fonacier, for the consideration of
power of attorney and contract given to
P20,000.00, plus 10% of the royalties
Gaite and entered into a Contacting of
that Fonacier would receive from the
Mining operation
mining claims, all his rights and interests
on all the roads, improvements, and eding, transferring, and conveying unto
facilities in or outside said claims, the the Larap Mines and Smelting Co., Inc.
right to use the business name “Larap the right to develop, exploit, and explore
Iron Mines” and its goodwill, and all the the mining claims in question, together
records and documents relative to the with the improvements therein and the
mines. In the same document, Gaite use of the name “Larap Iron Mines” and
transferred to Fonacier all his rights and its goodwill, in consideration of certain
interests over the “24,000 tons of iron royalties. Fonacier likewise transferred,
ore, more or less” that the former had in the same document, the complete title
already extracted from the mineral to the approximately 24,000 tons of iron
claims, in consideration of the sum of ore which he acquired from Gaite, to the
P75,000.00, P10,-000.00 of which was Larap Mines & Smelting Co.
paid upon the signing of the agreement,
When the bond expired no sale of the
and To secure the payment of the said
approximately 24,000 tons of iron ore
balance of P65,000.00, Fonacier
had been made by the Larap Mines &
Smelting Co., Inc., nor had the
RULING: We find the court below to be
P65,000.00 balance of the price of said
legally correct in holding that the
ore been paid to Gaite by Fonacier and
shipment or local sale of the iron ore is
his sureties payment of said amount, on
not a condition precedent (or
the theory that they had lost right to
suspensive) to the payment of the
make use of the period given them when
balance of P65,000.00, but was only a
their bond automatically expired. And
suspensive period or term. What
when Fonacier and his sureties failed to
characterizes a conditional obligation is
pay as demanded by Gaite, the latter
the fact that its efficacy or obligatory
filed the present complaint against them
force (as distinguished from its
in the Court of First Instance of Manila
demandability) is subordinated to the
for the payment of the P65,000.00
happening of a future and uncertain
balance of the price of the ore,
event; so that if the suspensive condition
consequential damages, and attorney’s
does not take place, the parties would
fees.
stand as if the conditional obligation had
never existed.
LOWER COURT DECISION: The only rational view that can be taken
is that the sale of the ore to Fonacier
MTC that the obligation of the
was a sale on credit, and not an aleatory
defendants to pay plaintiff the
contract where the transferor, Gaite,
P65,000.00 balance of the price of the
would assume the risk of not being paid
approximately 24,000 tons of iron ore
at all; and that the previous sale or
was one with a term: i.e., that it would
shipment of the ore was not a
be paid upon the sale of sufficient iron
suspensive condition for the payment of
ore by defendants, such sale to be
the balance of the agreed price, but was
effected within one year or before
intended merely to fix the future date of
December 8, 1955; that the giving of
the payment.
security was a condition precedent to
Gaite’s giving of credit to defendants; There was, consequently, no short-
and that as the latter failed to put up a delivery in this case as would entitle
good and sufficient security in lieu of the appellants to the payment of damages,
Far Eastern Surety bond which expired nor could Gaite have been guilty of any
on December 8, 1955, the obligation fraud in making any misrepresentation
became due and demandable under to appellants as to the total quantity of
Article 1198 of the New Civil Code. ore in the stockpiles of the mining claims
in question, as charged by appellants,
ISSUES: Whether or not the obligation
since Gaite’s estimate appears to be
of Fonacier and his sureties to pay Gaite
substantially correct. WHEREFORE,
P65,000.00 become due and
finding no error in the decision appealed
demandable when the defendants failed
from, we hereby affirm the same, with
to renew the surety bond which expired
costs against appellants.
on December 8, 1955
2. SECURITY BANK & TRUST
COMPANY and ROSITO C. MANHIT,
petitioners, vs. COURT OF APPEALS
and YSMAEL C. FERRER,
respondents.
FACTS:Private respondent Ysmael
Ferrer was contracted by Security bank
and Trust Company (SBTC) to construct
the building of SBTC for a price of
P1.7M. The contract dated in Feb 1980
provided that Ferrer would finish the
construction in 200 working days. The
respondent was able to finish the
construction of the building on August
1980 within the contracted period but he
was compelled to increase the cost of
construction by P300,000 due to
increase of cost of materials. The
additional expenses to SBTC were
made known as early as March 1980.
Ferrer made timely demands supported
by receipts, invoices and other
documents.
In March 1981, SBTC thru Assistant
Vice-President Susan Guanio and a
representative of an architectural firm
consulted by SBTC, verified Ferrer’s
claims for additional cost. A
recommendation was then made to
settle Ferrer’s claim but only for
P200,000.00. SBTC, instead of paying
the recommended additional amount,
denied ever authorizing payment of any
amount beyond the original contract
price. SBTC likewise denied any liability
for the additional cost based on Article
IX of the building contract which states:
“If at any time prior to the completion of
the work to be performed hereunder,
increase in prices of construction
materials and/or labor shall supervene
through no fault on the part of the
contractor whatsoever or any act of the
government and its instrumentalities
which directly or indirectly affects the
increase of the cost of the project,
OWNER shall equitably make the
appropriate adjustment on mutual
agreement of both parties.”
Ysmael C. Ferrer then filed a complaint
for breach of contract with damages.
RTC RULING: The trial court ruled for
Ferrer and ordered defendants SBTC
and Rosito C. Manhit to pay
P259,417.23 for the increase in price of
labor and materials plus 12% interest
thereon per annum from 15 August 1980
until fully paid; P24,000.00 as actual
damages; P20,000.00 as moral
damages; P20,000.00 as exemplary
damages; attorney’s fees equivalent to
25% of the principal amount due; and
costs of suit
CA DECISION: the Court of Appeals
affirmed the trial court decision.
ISSUE: Whether or not THE LOWER
COURT VIOLATED DEFENDANTS-
APPELLANTS’ CONSTITUTIONAL
GUARANTY OF NON-IMPAIRMENT OF
THE OBLIGATION OF CONTRACT.
SC RULING: In the present case,
petitioners’ arguments to support
absence of liability for the cost of
construction beyond the original contract
price are not persuasive. Under the
previously quoted Article IX of the
construction contract, petitioners would
make the appropriate adjustment to the
contract price in case the cost of the
project increases through no fault of the
contractor (private respondent). Private
respondent informed petitioners of the
drastic increase in construction cost as
early as March 1980.

Under Article 1182 of the Civil Code, a

conditional obligation shall be void if its
fulfillment depends upon the sole will of
the debtor. In the present case, the
mutual agreement, the absence of which
petitioner bank relies upon to support its
non-liability for the increased
construction cost, is in effect a condition
dependent on petitioner bank’s sole will,
since private respondent would naturally
and logically give consent to such an
agreement which would allow him
recovery of the increased cost. Further,
it cannot be denied that petitioner bank
derived benefits when private
respondent completed the construction
even at an increased cost. Hence, to
allow petitioner bank to acquire the
constructed building at a price far below
its actual construction cost would
undoubtedly constitute unjust
enrichment for the bank to the prejudice
of private respondent. Such unjust
enrichment, as previously discussed, is
not allowed by law.
WHEREFORE, with the above
modification in respect of the amount of
attorney’s fees, the appealed decision of
the Court of Appeals in CA G.R. CV No.
40450 is AFFIRMED. SO ORDERED.