JOSE M. JAVIER and ESTRELLA F. JAVIER vs.

COURT OF APPEALS and LEONARDO TIRO

G.R. No. L-48194

Facts: Private respondent is a holder of an ordinary timber license issued by the Bureau of
Forestry. On February 15, 1966 he executed a "Deed of Assignment in favor of petitioners
JOSE M. JAVIER and ESTRELLA F. JAVIER to assign, transfer and convey his shares of stocks
in Timberwealth Corporation in consideration of the sum of P120,000.00 in which P20,000.00
shall be paid upon signing of the said contract and the balance of P100,000.00 shall be paid
P10,000.00 every shipment of export logs actually produced from the forest concession of
Timberwealth Corporation. At the time the said deed of assignment was executed, private
respondent had a pending application before the Bureau of Forestry of forest concession.
Hence, on February 28, 1966, private respondent and petitioners entered into another
Agreement that in the event that the respondents application will be approved, his rights to the
additional forest concession shall be transferred to petitioners in consideration of the sum of
P30,000.00.
On July 16, 1968, for failure of petitioners to pay the balance due under the two deeds of
assignment, private respondent filed an action against petitioners. On the other hand petitioners
filed their answer interposing the special defense of nullity since private respondent failed to
comply with his contractual obligations.

Issues: 1.) Whether or not the Deed of Assignment dated February 15, 1966 null and void.
2.) Whether or not the Agreement dated February 28, 1966 null and void.

Held: 1.) No, as found by the Court of Appeals the true cause or consideration of the said deed
was the transfer of the forest concession of respondent to the petitioners for P120,000.00. Also
the contemporaneous and subsequent acts of petitioners and private respondent reveal that the
cause stated in the questioned deed of assignment is false. It is settled that the previous and
simultaneous and subsequent acts of the parties are properly cognizable of their true intention
of Forest Concession and not the Transfer of Shares by the respondent. The deed of
assignment of February 15, 1966 is a relatively simulated contract which states a false cause or
consideration, or one where the parties conceal their true agreement. A contract with a false
consideration is not null and void per se. Under Article 1346 of the Civil Code, a relatively
simulated contract, when it does not prejudice a third person and is not intended for any
purpose contrary to law, morals, good customs, public order or public policy binds the parties to
their real agreement.

2.) Yes, The efficacy of said deed of assignment is subject to the condition that the application of
private respondent for an additional area for forest concession be approved by the Bureau of
Forestry. Since private respondent did not obtain that approval, said deed produces no effect.
When a contract is subject to a suspensive condition, its birth or effectivity can take place only if
and when the event which constitutes the condition happens or is fulfilled. In this case, the
failure of private respondent to comply with his obligation negates his right to demand
performance from petitioners. Moreover, under the second paragraph of Article 1461 of the Civil
Code, the efficacy of the sale of a mere hope or expectancy is deemed subject to the condition
that the thing will come into existence. In this case, since private respondent never acquired any
right over the additional area for failure to secure the approval of the Bureau of Forestry, the
agreement executed therefor, which had for its object the transfer of said right to petitioners,
never became effective or enforceable.

Applicable provisions in the decided case are:

Article 1346 - An absolutely simulated or fictitious contract
is void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary
to law, morals, good customs, public order, or public policy
There are two kinds of simulated contracts under the New Civil Code. The first kind of simulated
contract is Absolutely Simulated and the second is Relatively Simulated.
As to Absolutely Simulated or otherwise known as fictitious contracts, here, the parties do not
intend to be bound and to that effect the contract is VOID.
And as to Relatively Simulated or otherwise known as disguised contract, here, the parties
conceal their true agreement and to that effect the contract is NOT VOID because it is only
Relative except if the contract should prejudice a third person or if the purpose is contrary to
law, morals, good customs, public order, or public policy.
Article 1461 - Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that
the thing will come into existence.
The sale of a vain hope or expectancy is void.

The Sale of a thing having a potential existence is VALID and this is a future thing that may be
sold. In the Sale of an expected thing, if the thing does not materialize therefore it is VOID and
also it deals with future things.
The Sale of the hope itself, if the thing does not materialize it is VALID as long as HOPE existed
and it deals with present things.
In the Sale of Vain Hope or Expectancy - Sale is itself void. Be it noted that this is NOT an
aleatory contract for while in an aleatory contract there is an element of chance, here, there is
completely NO CHANCE.