Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-11827 July 31, 1961
FERNANDO A. GATE, plaintiff-appellee,
vs.
SA!ELO FONACER, GEORGE "RA"O#ER, LARAP MNES $ SMELTNG CO.,
NC., SEGUNDNA %%AS, FRNACSCO DANTE, PACFCO ESCANDOR &'(
FERNANDO T), defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.
RE)ES, J.!.L., J.*
This appeal comes to us directl from the Court of !irst "nstance because the claims
involved a##re#ate more than P$%%,%%%.%%.
&efendant-appellant "sabelo !onacier 'as the o'ner and(or holder, either b himself or
in a representative capacit, of )) iron lode mineral claims, *no'n as the &a'ahan
+roup, situated in the municipalit of ,ose Pan#aniban, province of Camarines Norte.
B a -&eed of Assi#nment- dated .eptember $/, )/0$1E2hibit -3-4, !onacier
constituted and appointed plaintiff-appellee !ernando A. +aite as his true and la'ful
attorne-in-fact to enter into a contract 'ith an individual or 5uridical person for the
e2ploration and development of the minin# claims aforementioned on a roalt basis of
not less than P%.0% per ton of ore that mi#ht be e2tracted therefrom. 6n March )/,
)/07, +aite in turn e2ecuted a #eneral assi#nment 1Record on Appeal, pp. )8-)/4
convein# the development and e2ploitation of said minin# claims into the 9arap "ron
Mines, a sin#le proprietorship o'ned solel b and belon#in# to him, on the same
roalt basis provided for in E2hibit -3-. Thereafter, +aite embar*ed upon the
development and e2ploitation of the minin# claims in :uestion, openin# and pavin#
roads 'ithin and outside their boundaries, ma*in# other improvements and installin#
facilities therein for use in the development of the mines, and in time e2tracted
therefrom 'hat he claim and estimated to be appro2imatel $7,%%% metric tons of iron
ore.
!or some reason or another, "sabelo !onacier decided to revo*e the authorit #ranted
b him to +aite to e2ploit and develop the minin# claims in :uestion, and +aite
assented thereto sub5ect to certain conditions. As a result, a document entitled
-Revocation of Po'er of Attorne and Contract- 'as e2ecuted on &ecember ;, )/07
1E2hibit -A-4,'herein +aite transferred to !onacier, for the consideration of P$%,%%%.%%,
plus )%< of the roalties that !onacier 'ould receive from the minin# claims, all his
ri#hts and interests on all the roads, improvements, and facilities in or outside said
claims, the ri#ht to use the business name -9arap "ron Mines- and its #ood'ill, and all
the records and documents relative to the mines. "n the same document, +aite
transferred to !onacier all his ri#hts and interests over the -$7,%%% tons of iron ore,
more or less- that the former had alread e2tracted from the mineral claims, in
consideration of the sum of P80,%%%.%%, P)%,%%%.%% of 'hich 'as paid upon the
si#nin# of the a#reement, and
b. The balance of ."=T>-!"?E T@6A.AN& PE.6. 1PB0,%%%.%%4 'ill be paid from and
out of the first letter of credit coverin# the first shipment of iron ores and of the first
amount derived from the local sale of iron ore made b the 9arap Mines C .meltin# Co.
"nc., its assi#ns, administrators, or successors in interests.
To secure the pament of the said balance of PB0,%%%.%%, !onacier promised to
e2ecute in favor of +aite a suret bond, and pursuant to the promise, !onacier
delivered to +aite a suret bond dated &ecember ;, )/07 'ith himself 1!onacier4 as
principal and the 9arap Mines and .meltin# Co. and its stoc*holders +eor#e Dra*o'er,
.e#undina ?ivas, Pacifico Escandor, !rancisco &ante, and !ernando T as sureties
1E2hibit -A-)-4. +aite testified, ho'ever, that 'hen this bond 'as presented to him b
!onacier to#ether 'ith the -Revocation of Po'er of Attorne and Contract-, E2hibit -A-,
on &ecember ;, )/07, he refused to si#n said E2hibit -A- unless another bond under
'ritten b a bondin# compan 'as put up b defendants to secure the pament of the
PB0,%%%.%% balance of their price of the iron ore in the stoc*piles in the minin# claims.
@ence, a second bond, also dated &ecember ;, )/07 1E2hibit -B-4,'as e2ecuted b the
same parties to the first bond E2hibit -A-)-, 'ith the !ar Eastern .uret and "nsurance
Co. as additional suret, but it provided that the liabilit of the suret compan 'ould
attach onl 'hen there had been an actual sale of iron ore b the 9arap Mines C
.meltin# Co. for an amount of not less then PB0,%%%.%%, and that, furthermore, the
liabilit of said suret compan 'ould automaticall e2pire on &ecember ;, )/00. Both
bonds 'ere attached to the -Revocation of Po'er of Attorne and Contract-, E2hibit
-A-, and made inte#ral parts thereof.
6n the same da that !onacier revo*ed the po'er of attorne he #ave to +aite and the
t'o e2ecuted and si#ned the -Revocation of Po'er of Attorne and Contract-, E2hibit
-A-, !onacier entered into a -Contract of Minin# 6peration-, cedin#, transferrin#, and
convein# unto the 9arap Mines and .meltin# Co., "nc. the ri#ht to develop, e2ploit,
and e2plore the minin# claims in :uestion, to#ether 'ith the improvements therein and
the use of the name -9arap "ron Mines- and its #ood 'ill, in consideration of certain
1
roalties. !onacier li*e'ise transferred, in the same document, the complete title to the
appro2imatel $7,%%% tons of iron ore 'hich he ac:uired from +aite, to the 9arap C
.meltin# Co., in consideration for the si#nin# b the compan and its stoc*holders of
the suret bonds delivered b !onacier to +aite 1Record on Appeal, pp. ;$-/74.
Ap to &ecember ;, )/00, 'hen the bond E2hibit -B- e2pired 'ith respect to the !ar
Eastern .uret and "nsurance Compan, no sale of the appro2imatel $7,%%% tons of
iron ore had been made b the 9arap Mines C .meltin# Co., "nc., nor had the
PB0,%%%.%% balance of the price of said ore been paid to +aite b !onacier and his
sureties pament of said amount, on the theor that the had lost ri#ht to ma*e use of
the period #iven them 'hen their bond, E2hibit -B- automaticall e2pired 1E2hibits -C-
to -C-$7-4. And 'hen !onacier and his sureties failed to pa as demanded b +aite, the
latter filed the present complaint a#ainst them in the Court of !irst "nstance of Manila
1Civil Case No. $/3)%4 for the pament of the PB0,%%%.%% balance of the price of the
ore, conse:uential dama#es, and attorneEs fees.
All the defendants e2cept !rancisco &ante set up the uniform defense that the
obli#ation sued upon b +aite 'as sub5ect to a condition that the amount of PB0,%%%.%%
'ould be paable out of the first letter of credit coverin# the first shipment of iron ore
and(or the first amount derived from the local sale of the iron ore b the 9arap Mines C
.meltin# Co., "nc.F that up to the time of the filin# of the complaint, no sale of the iron
ore had been made, hence the condition had not et been fulfilledF and that
conse:uentl, the obli#ation 'as not et due and demandable. &efendant !onacier
also contended that onl 8,083 tons of the estimated $7,%%% tons of iron ore sold to him
b +aite 'as actuall delivered, and counterclaimed for more than P$%%,%%%.%%
dama#es.
At the trial of the case, the parties a#reed to limit the presentation of evidence to t'o
issuesG
1)4 Hhether or not the obli#ation of !onacier and his sureties to pa +aite PB0,%%%.%%
become due and demandable 'hen the defendants failed to rene' the suret bond
under'ritten b the !ar Eastern .uret and "nsurance Co., "nc. 1E2hibit -B-4, 'hich
e2pired on &ecember ;, )/00F and
1$4 Hhether the estimated $7,%%% tons of iron ore sold b plaintiff +aite to defendant
!onacier 'ere actuall in e2istence in the minin# claims 'hen these parties e2ecuted
the -Revocation of Po'er of Attorne and Contract-, E2hibit -A.-
6n the first :uestion, the lo'er court held that the obli#ation of the defendants to pa
plaintiff the PB0,%%%.%% balance of the price of the appro2imatel $7,%%% tons of iron
ore 'as one 'ith a termG i.e., that it 'ould be paid upon the sale of sufficient iron ore b
defendants, such sale to be effected 'ithin one ear or before &ecember ;, )/00F that
the #ivin# of securit 'as a condition precedent to +aitEs #ivin# of credit to defendantsF
and that as the latter failed to put up a #ood and sufficient securit in lieu of the !ar
Eastern .uret bond 1E2hibit -B-4 'hich e2pired on &ecember ;, )/00, the obli#ation
became due and demandable under Article ))/; of the Ne' Civil Code.
As to the second :uestion, the lo'er court found that plaintiff +aite did have
appro2imatel $7,%%% tons of iron ore at the minin# claims in :uestion at the time of the
e2ecution of the contract E2hibit -A.-
,ud#ment 'as, accordin#l, rendered in favor of plaintiff +aite orderin# defendants to
pa him, 5ointl and severall, PB0,%%%.%% 'ith interest at B< per annum from
&ecember /, )/00 until pament, plus costs. !rom this 5ud#ment, defendants 5ointl
appealed to this Court.
&urin# the pendenc of this appeal, several incidental motions 'ere presented for
resolutionG a motion to declare the appellants 9arap Mines C .meltin# Co., "nc. and
+eor#e Dra*o'er in contempt, filed b appellant !onacier, and t'o motions to dismiss
the appeal as havin# become academic and a motion for ne' trial and(or to ta*e
5udicial notice of certain documents, filed b appellee +aite. The motion for contempt is
unmeritorious because the main alle#ation therein that the appellants 9arap Mines C
.meltin# Co., "nc. and Dra*o'er had sold the iron ore here in :uestion, 'hich alle#edl
is -propert in liti#ation-, has not been substantiatedF and even if true, does not ma*e
these appellants #uilt of contempt, because 'hat is under liti#ation in this appeal is
appellee +aiteEs ri#ht to the pament of the balance of the price of the ore, and not the
iron ore itself. As for the several motions presented b appellee +aite, it is unnecessar
to resolve these motions in vie' of the results that 'e have reached in this case, 'hich
'e shall hereafter discuss.
The main issues presented b appellants in this appeal areG
1)4 that the lo'er court erred in holdin# that the obli#ation of appellant !onacier to pa
appellee +aite the PB0,%%%.%% 1balance of the price of the iron ore in :uestion4is one
'ith a period or term and not one 'ith a suspensive condition, and that the term
e2pired on &ecember ;, )/00F and
1$4 that the lo'er court erred in not holdin# that there 'ere onl )%,/07.0 tons in the
stoc*piles of iron ore sold b appellee +aite to appellant !onacier.
The first issue involves an interpretation of the follo'in# provision in the contract E2hibit
-A-G
2
8. That !ernando +aite or 9arap "ron Mines hereb transfers to "sabelo !. !onacier all
his ri#hts and interests over the $7,%%% tons of iron ore, more or less, above-referred to
to#ether 'ith all his ri#hts and interests to operate the mine in consideration of the sum
of .E?ENT>-!"?E T@6A.AN& PE.6. 1P80,%%%.%%4 'hich the latter binds to pa as
follo'sG
a. TEN T@6A.AN& PE.6. 1P)%,%%%.%%4 'ill be paid upon the si#nin# of this
a#reement.
b. The balance of ."=T>-!"?E T@6A.AN& PE.6. 1PB0,%%%.%%4'ill be paid from and
out of the first letter of credit coverin# the first shipment of iron ore made b the 9arap
Mines C .meltin# Co., "nc., its assi#ns, administrators, or successors in interest.
He find the court belo' to be le#all correct in holdin# that the shipment or local sale of
the iron ore is not a condition precedent 1or suspensive4 to the pament of the balance
of PB0,%%%.%%, but 'as onl a suspensive period or term. Hhat characteriIes a
conditional obli#ation is the fact that its efficac or obli#ator force 1as distin#uished
from its demandabilit4 is subordinated to the happenin# of a future and uncertain
eventF so that if the suspensive condition does not ta*e place, the parties 'ould stand
as if the conditional obli#ation had never e2isted. That the parties to the contract E2hibit
-A- did not intend an such state of thin#s to prevail is supported b several
circumstancesG
)4 The 'ords of the contract e2press no contin#enc in the buerEs obli#ation to paG
-The balance of .i2t-!ive Thousand Pesos 1PB0,%%%.%%4 ill be paid out of the first
letter of credit coverin# the first shipment of iron ores . . .- etc. There is no uncertaint
that the pament 'ill have to be made sooner or laterF 'hat is undetermined is merel
the e!act date at 'hich it 'ill be made. B the ver terms of the contract, therefore, the
e2istence of the obli#ation to pa is reco#niIedF onl its maturit" or demandabilit" is
deferred.
$4 A contract of sale is normall commutative and onerousG not onl does each one of
the parties assume a correlative obli#ation 1the seller to deliver and transfer o'nership
of the thin# sold and the buer to pa the price4,but each part anticipates performance
b the other from the ver start. Hhile in a sale the obli#ation of one part can be
la'full subordinated to an uncertain event, so that the other understands that he
assumes the ris* of receivin# nothin# for 'hat he #ives 1as in the case of a sale of
hopes or e2pectations, emptio spei4, it is not in the usual course of business to do soF
hence, the contin#ent character of the obli#ation must clearl appear. Nothin# is found
in the record to evidence that +aite desired or assumed to run the ris* of losin# his
ri#ht over the ore 'ithout #ettin# paid for it, or that !onacier understood that +aite
assumed an such ris*. This is proved b the fact that +aite insisted on a bond a to
#uarantee pament of the PB0,%%%.%%, an not onl upon a bond b !onacier, the 9arap
Mines C .meltin# Co., and the companEs stoc*holders, but also on one b a suret
companF and the fact that appellants did put up such bonds indicates that the
admitted the definite e2istence of their obli#ation to pa the balance of PB0,%%%.%%.
34 To subordinate the obli#ation to pa the remainin# PB0,%%%.%% to the sale or
shipment of the ore as a condition precedent, 'ould be tantamount to leavin# the
pament at the discretion of the debtor, for the sale or shipment could not be made
unless the appellants too* steps to sell the ore. Appellants 'ould thus be able to
postpone pament indefinitel. The desireabilit of avoidin# such a construction of the
contract E2hibit -A- needs no stressin#.
74 Assumin# that there could be doubt 'hether b the 'ordin# of the contract the
parties indented a suspensive condition or a suspensive period 1dies ad #uem4 for the
pament of the PB0,%%%.%%, the rules of interpretation 'ould incline the scales in favor
of -the #reater reciprocit of interests-, since sale is essentiall onerous. The Civil Code
of the Philippines, Article )38;, para#raph ), in fine, providesG
"f the contract is onerous, the doubt shall be settled in favor of the #reatest reciprocit
of interests.
and there can be no :uestion that #reater reciprocit obtains if the buerE obli#ation is
deemed to be actuall e2istin#, 'ith onl its maturit 1due date4 postponed or deferred,
that if such obli#ation 'ere vie'ed as non-e2istent or not bindin# until the ore 'as sold.
The onl rational vie' that can be ta*en is that the sale of the ore to !onacier 'as a
sale on credit, and not an aleator contract 'here the transferor, +aite, 'ould assume
the ris* of not bein# paid at allF and that the previous sale or shipment of the ore 'as
not a suspensive condition for the pament of the balance of the a#reed price, but 'as
intended merel to fi2 the future date of the pament.
This issue settled, the ne2t point of in:uir is 'hether appellants, !onacier and his
sureties, still have the ri#ht to insist that +aite should 'ait for the sale or shipment of
the ore before receivin# pamentF or, in other 'ords, 'hether or not the are entitled to
ta*e full advanta#e of the period #ranted them for ma*in# the pament.
He a#ree 'ith the court belo' that the appellant have forfeited the ri#ht court belo'
that the appellants have forfeited the ri#ht to compel +aite to 'ait for the sale of the ore
before receivin# pament of the balance of PB0,%%%.%%, because of their failure to
rene' the bond of the !ar Eastern .uret Compan or else replace it 'ith an
e:uivalent #uarantee. The e2piration of the bondin# companEs underta*in# on
&ecember ;, )/00 substantiall reduced the securit of the vendorEs ri#hts as creditor
for the unpaid PB0,%%%.%%, a securit that +aite considered essential and upon 'hich
3
he had insisted 'hen he e2ecuted the deed of sale of the ore to !onacier 1E2hibit -A-4.
The case s:uarel comes under para#raphs $ and 3 of Article ))/; of the Civil Code of
the PhilippinesG
-ART. ))/;. The debtor shall lose ever ri#ht to ma*e use of the periodG
1)4 . . .
1$4 Hhen he does not furnish to the creditor the #uaranties or securities 'hich he has
promised.
134 Hhen b his o'n acts he has impaired said #uaranties or securities after their
establishment, and 'hen throu#h fortuitous event the disappear, unless he
immediatel #ives ne' ones e:uall satisfactor.
AppellantsE failure to rene' or e2tend the suret companEs bond upon its e2piration
plainl impaired the securities #iven to the creditor 1appellee +aite4, unless immediatel
rene'ed or replaced.
There is no merit in appellantsE ar#ument that +aiteEs acceptance of the suret
companEs bond 'ith full *no'led#e that on its face it 'ould automaticall e2pire 'ithin
one ear 'as a 'aiver of its rene'al after the e2piration date. No such 'aiver could
have been intended, for +aite stood to lose and had nothin# to #ain barelF and if there
'as an, it could be rationall e2plained onl if the appellants had a#reed to sell the ore
and pa +aite before the suret companEs bond e2pired on &ecember ;, )/00. But in
the latter case the defendants-appellantsE obli#ation to pa became absolute after one
ear from the transfer of the ore to !onacier b virtue of the deed E2hibit -A.-.
All the alternatives, therefore, lead to the same resultG that +aite acted 'ithin his ri#hts
in demandin# pament and institutin# this action one ear from and after the contract
1E2hibit -A-4 'as e2ecuted, either because the appellant debtors had impaired the
securities ori#inall #iven and thereb forfeited an further time 'ithin 'hich to paF or
because the term of pament 'as ori#inall of no more than one ear, and the balance
of PB0,%%%.%% became due and paable thereafter.
Comin# no' to the second issue in this appeal, 'hich is 'hether there 'ere reall
$7,%%% tons of iron ore in the stoc*piles sold b appellee +aite to appellant !onacier,
and 'hether, if there had been a short-deliver as claimed b appellants, the are
entitled to the pament of dama#es, 'e must, at the outset, stress t'o thin#sG first, that
this is a case of a sale of a specific mass of fun#ible #oods for a sin#le price or a lump
sum, the :uantit of -$7,%%% tons of iron ore, more or less,- stated in the contract
E2hibit -A,- bein# a mere estimate b the parties of the total tonna#e 'ei#ht of the
massF and second, that the evidence sho's that neither of the parties had actuall
measured of 'ei#hed the mass, so that the both tried to arrive at the total :uantit b
ma*in# an estimate of the volume thereof in cubic meters and then multiplin# it b the
estimated 'ei#ht per ton of each cubic meter.
The sale bet'een the parties is a sale of a specific mass or iron ore because no
provision 'as made in their contract for the measurin# or 'ei#hin# of the ore sold in
order to complete or perfect the sale, nor 'as the price of P80,%%%,%% a#reed upon b
the parties based upon an such measurement.1see Art. )7;%, second par., Ne' Civil
Code4. The sub5ect matter of the sale is, therefore, a determinate ob5ect, the mass, and
not the actual number of units or tons contained therein, so that all that 'as re:uired of
the seller +aite 'as to deliver in #ood faith to his buer all of the ore found in the mass,
not'ithstandin# that the :uantit delivered is less than the amount estimated b them
1Mobile Machiner C .uppl Co., "nc. vs. >or* 6ilfield .alva#e Co., "nc. )8) .o. ;8$,
applin# art. $70/ of the 9ouisiana Civil Code4. There is no char#e in this case that
+aite did not deliver to appellants all the ore found in the stoc*piles in the minin#
claims in :uestionsF +aite had, therefore, complied 'ith his promise to deliver, and
appellants in turn are bound to pa the lump price.
But assumin# that plaintiff +aite undertoo* to sell and appellants undertoo* to bu, not
a definite mass, but appro2imatel $7,%%% tons of ore, so that an substantial difference
in this :uantit delivered 'ould entitle the buers to recover dama#es for the short-
deliver, 'as there reall a short-deliver in this caseJ
He thin* not. As alread stated, neither of the parties had actuall measured or
'ei#hed the 'hole mass of ore cubic meter b cubic meter, or ton b ton. Both parties
predicate their respective claims onl upon an estimated number of cubic meters of ore
multiplied b the avera#e tonna#e factor per cubic meter.
No', appellee +aite asserts that there 'as a total of 8,380 cubic meters in the
stoc*piles of ore that he sold to !onacier, 'hile appellants contend that b actual
measurement, their 'itness Cirpriano ManlaK#it found the total volume of ore in the
stoc*piles to be onl B.B%/ cubic meters. As to the avera#e 'ei#ht in tons per cubic
meter, the parties are a#ain in disa#reement, 'ith appellants claimin# the correct
tonna#e factor to be $.); tons to a cubic meter, 'hile appellee +aite claims that the
correct tonna#e factor is about 3.8.
"n the face of the conflict of evidence, 'e ta*e as the most reliable estimate of the
tonna#e factor of iron ore in this case to be that made b 9eopoldo !. Abad, chief of the
Mines and Metallur#ical &ivision of the Bureau of Mines, a #overnment pensionado to
the .tates and a minin# en#ineerin# #raduate of the Aniversities of Nevada and
California, 'ith almost $$ ears of e2perience in the Bureau of Mines. This 'itness
placed the tonna#e factor of ever cubic meter of iron ore at bet'een 3 metric tons as
4
minimum to 0 metric tons as ma2imum. This estimate, in turn, closel corresponds to
the avera#e tonna#e factor of 3.3 adopted in his corrected report 1E2hibits -!!- and !!-
)-4 b en#ineer Nemesio +amatero, 'ho 'as sent b the Bureau of Mines to the
minin# claims involved at the re:uest of appellant Dra*o'er, precisel to ma*e an
official estimate of the amount of iron ore in +aiteEs stoc*piles after the dispute arose.
Even #rantin#, then, that the estimate of B,B%/ cubic meters of ore in the stoc*piles
made b appellantEs 'itness Cipriano ManlaK#it is correct, if 'e multipl it b the
avera#e tonna#e factor of 3.3 tons to a cubic meter, the product is $),;%/.8 tons, 'hich
is not ver far from the estimate of $7,%%% tons made b appellee +aite, considerin#
that actual 'ei#hin# of each unit of the mass 'as practicall impossible, so that a
reasonable percenta#e of error should be allo'ed anone ma*in# an estimate of the
e2act :uantit in tons found in the mass. "t must not be for#otten that the contract
E2hibit -A- e2pressl stated the amount to be $7,%%% tons, more or less. 1ch. Pine River
9o##in# C "mprovement Co. vs A..., $8/, 7B 9. Ed. ))B74.
There 'as, conse:uentl, no short-deliver in this case as 'ould entitle appellants to
the pament of dama#es, nor could +aite have been #uilt of an fraud in ma*in# an
misrepresentation to appellants as to the total :uantit of ore in the stoc*piles of the
minin# claims in :uestion, as char#ed b appellants, since +aiteEs estimate appears to
be substantiall correct.
H@ERE!6RE, findin# no error in the decision appealed from, 'e hereb affirm the
same, 'ith costs a#ainst appellants.
5