Gaite vs. Fonacier, [G.R. No.

L-11827, July 31, 1961] Facts: Defendant-appellant Fonacier was the owner/holder of 11 iron lode mineral claims, known as the Dawahan Group, situated in Camrines Norte. By Deed of Assignment, Respondent constituted and appointed plaintiff -appellee Gaite as attorney-in-fact to enter into contract for the exploration and development of the said mining claims on. On March 1954, petitioner executed a general assignment conveying the claims into the Larap Iron Mines, which owned solely and belonging to him. Thereafter, he underwent development and the exploitation for the mining claims which he estimates to be approximately 24 metric tons of iron ore. However, Fonacier decide to revoke the authority given to Gaite, whereas respondent assented subject to certain conditions. Consequently a revocation of Power of Attorney and Contract was executed transferring P20k plus royalties from the mining claims, all rights and interest on the road and other developments done, as well as , the right to use of the business name, goodwill, records, documents related to the mines. Furthermore, included in the transfer was the rights and interest over the 24K+ tons of iron ore that had been extracted. Lastly the balance of P65K was to be paid for covering the first shipment of iron ores. To secure the payment of P65k, respondent executed a surety bond with himself as principal, the Larap Mines and Smelting Co. and its stockholder as sureties. Yet, this was refused by petitioner. Appelle 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 petitioner by respondent. Thus such failure, prompted petitioner to file a complaint in the CFI of Manila for the payment of the balance and other damages. The Trial Court ruled in favor of plaintiff ordering defendant to pay the balance of P65k with interest. Afterwards an appeal was affected by the respondent where several motions were presented for resolution: a motion for contempt; two motions to dismiss the appeal for becoming moot and academic; motion for a new trial, filed by appellee Gaite. The motion for contempt was held unmeritorious, while the rest of the motions were held unnecessary to resolve Issue: Whether or not the Lower Court erred in holding the obligation of appellant Fonacier to pay appelle Gaite the balance of P65k, as one with a period or term and not one with a suspensive condition; and that the term expired on December 1955

Held: 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 P65k, 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 P65k, 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 defendantsappellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed, first bond.