TITLE: GAITE V FONACIER

GR Nos. and Date:

G.R. No. L-11827 July 31, 1961

Topic: Obligations with a Period

FACTS:
 Defendant was the owner of 11 iron lode mineral claims
 By “Deed of Assignment” he constituted and appointed Gaite as
his attorney-in-fact to enter into a contract with any individual or
juridical person for the exploration and development of the
mining claims.
 Gaite executed a general assignment in favor of Larp Iron Mines
a singe proprietorship which he owns on the same royalty basis;
the development and exploitation yields 24,000 metric tons if
iron ore;
 Fonacier decided to revoke the authority given to Gaite resulting
in a “Revocation of Power of Attorney and Contract” which
included the stipulation that petitioner would transfer all his
rights and interests over the 24,000 tons of iron ore for the sum
of P75, 000; P10, 000 was paid upon the signing of the
agreement;
 Two bonds were put up to secure the P65, 000 balance, the
second of which was executed with Far Eastern Surety and
Insurance Co as additional surety and provided that (1) liability
of the surety company would only attach when there had been
an actual sale of the iron ore for not less than P65, 000 and (2)
the liability of said company would automatically expire 1 year
after presentation of the bond;
 When the second bond expired, the sale of the approximately
24,000 tons had not been made nor had the balance been paid;
 Petitioner demanded his sureties payment claiming that
defendant had lost every right to make use of the period when
their bond automatically expired;
 Petitioner filed a complaint for the payment of P65, 000,
consequential damages and attorney’s fees defendants.

ISSUE:
Whether or not the Obligation sued upon was subject to a condition
that the amount 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 sale.
RULING and Application:

 Due and demandable sale of the ore to defendant was a sale on

credit and not an aleatory contract and the previous sale or
shipment of the ore was not a suspensive condition for the
payment of the balance but was intended merely to fix the future
date of payment.
 Gaite acted within his rights in demanding payment and
instituting this action one year from and after execution of the
contract as defendants forfeited any further time within which to
pay or because the term of the payment was originally of no
more than 1 year
 No sale had been made, thus condition had not yet been fulfilled
and the obligation was not yet due and demandable.
 This was a suspensive term not condition: shipment or local sale
of the iron ore to the payment would be paid upon the sale of
sufficient iron ore to be effected within one year.
 Words of the contract contained no contingency in the obligation
to pay “the balance of P65, 000 will be paid.
 The existence of the obligation to pay is recognized only its
maturity or demandability is deferred.
 Subordinating the payment to the sale or shipment is
tantamount to leaving the payment at the discretion of the
debtor thus defendants would be able to postpone payment
indefinitely.
 Defendants forfeited the right to compel petitioner to wait for the
sale before receiving payment because of their failure to renew
the bond or replace it with an equivalent guarantee, failure to
renew of replace plainly impaired the securities given to
petitioner
 Gaite is not deemed to have waived renewal due to acceptance
of the surety bond knowing it would automatically expire as
petitioner would then have stood to lose and gain nothing.