VOL.
183, MARCH 15, 171
1990
Javier vs. Court of Appeals
G.R. No. 48194. March 15, 1990. *
JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners, vs. COURT OF APPEALS
and LEONARDO TIRO, respondents.
Civil Procedure; Pleadings and Practice; Litigations should as much as possible be
decided on their merits and not on technicalities.The one (1) day delay in the filing of the
said motion for extension can justifiably be excused, considering that aside from the change
of counsel, the last day for filing the said motion fell on a holiday following another holiday,
hence, under such circumstances, an outright dismissal of the petition would be too harsh.
Litigations should, as much as possible, be decided on their merits and not on technicalities.
In a number of cases, this Court, in the exercise of equity jurisdiction, has relaxed the
stringent application of technical rules in order to resolve the case on its merits. Rules of
procedure are intended to promote, not to defeat, substantial justice and, therefore, they
should not be applied in a very rigid and technical sense.
Civil Law; Contracts; It is settled that the previous and simultaneous and subsequent
acts of the parties are properly cognizable indicia of their true intention.The aforesaid
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 indicia of their true
intention. Where the parties to a contract have given it a practical construction by their
conduct as
________________
* SECOND DIVISION
172
172 SUPREME
COURT REPORTS
ANNOTATED
Javier vs. Court of
Appeals
by acts in partial performance, such construction may be considered by the court in
construing the contract, determining its meaning and ascertaining the mutual intention of
the parties at the time for contracting. The parties practical construction of their contract
has been characterized as a clue or index to, or as evidence of, their intention or meaning and
as an important, significant, convincing, persuasive, or influential factor in determining the
proper construction of the agreement.
Same; Same; A contract with a false consideration is null and void per se.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.
Same; Same; 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.As to the alleged nullity of the agreement dated February 28, 1966, we agree with
petitioners that they cannot be held liable thereon. 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. If the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never existed.
PETITION to review the decision of the Court of Appeals. Pascual, J.
The facts are stated in the opinion of the Court.
Eddie Tamondong for petitioners.
Lope Adriano and Emmanuel Pelaez, Jr. for private respondent.
REGALADO, J.:
Petitioners pray for the reversal of the decision of respondent
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Javier vs. Court of Appeals
Court of Appeals in CA-G.R. No. 52296-R, dated March 6, 1978, the dispositive1
portion whereof decrees:
WHEREFORE, the judgment appealed from is hereby set aside and another one entered
ordering the defendants-appellees, jointly and solidarily, to pay plaintiff-appellant the sum
of P79,338.15 with legal interest thereon from the filing of the complaint, plus attorneys fees
in the amount of P8,000.00. Costs against defendants-appellees. 2
As found by respondent court or disclosed by the records, this case was generated by
3
the following antecedent facts. Private respondent is a holder of an ordinary timber
license issued by the Bureau of Forestry covering 2,535 hectares in the town of
Medina, Misamis Oriental. On February 15, 1966 he executed a Deed of
Assignment in favor of herein petitioners the material parts of which read as
4
follows:
xxx
I, LEONARDO A. TIRO, of legal age, married and a resident of Medina, Misamis
Oriental, for and in consideration of the sum of ONE HUNDRED TWENTY THOUSAND
PESOS (P120,000.00), Philippine Currency, do by these presents, ASSIGN, TRANSFER
AND CONVEY, absolutely and forever unto JOSE M. JAVIER and ESTRELLA F. JAVIER,
spouses, of legal age and a resident (sic) of 2897 F.B. Harrison, Pasay City, my shares of
stocks in the TIMBERWEALTH CORPORATION in the total amount of P120,000.00,
payment of which shall be made in the following manner:
1. 1.Twenty thousand (P20,000.00) Pesos upon signing of this contract;
2. 2.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.
That I hereby agree to sign and endorse the stock certificate in favor of Mr. & Mrs. Jose
M. Javier, as soon as stock certificates are issued.
xxx
________________
1 Penned by Justice Crisolito Pascual, with Justices Samuel F. Reyes and Rafael C. Climaco concurring.
2 Rollo, 60.
3 Ibid., 49-55.
4 Ibid., 49-55.
174
174 SUPREME COURT
REPORTS
ANNOTATED
Javier vs. Court of Appeals
At the time the said deed of assignment was executed, private respondent had a
pending application, dated October 21, 1965, for an additional forest concession
covering an area of 2,000 hectares southwest of and adjoining the area of the
concession subject of the deed of assignment. Hence, on February 28, 1966, private
respondent and petitioners entered into another Agreement with the following 5
stipulations:
xxx
1. 1.That LEONARDO TIRO hereby agrees and binds himself to transfer, cede and
convey whatever rights he may acquire, absolutely and forever, to
TIMBERWEALTH CORPORATION, a corporation duly organized and existing
under the laws of the Philippines, over a forest concession which is now pending
application and approval as additional area to his existing licensed area under O.T.
License No. 391-103166, situated at Medina, Misamis Oriental;
2. 2.That for and in consideration of the aforementioned transfer of rights over said
additional area to TIMBERWEALTH CORPORATION, ESTRELLA F. JAVIER and
JOSE M. JAVIER, both directors and stockholders of said corporation, do hereby
undertake to pay LEONARDO TIRO, as soon as said additional area is approved and
transferred to TIMBERWEALTH CORPORATION the sum of THIRTY THOUSAND
PESOS (P30,000.00), which amount of money shall form part of their paid up capital
stock in TIMBERWEALTH CORPORATION;
3. 3.That this Agreement is subject to the approval of the members of the Board of
Directors of the TIMBERWEALTH CORPORATION.
xxx
On November 18, 1966, the Acting Director of Forestry wrote private respondent that
his forest concession was renewed up to May 12, 1967 under O.T.L. No. 391-51267,
but since the concession consisted of only 2,535 hectares, he was therein informed
that:
In pursuance of the Presidential directive of May 13, 1966, you are hereby given until May
12, 1967 to form an organization such as a cooperative, partnership or corporation with other
adjoining licensees so as to have a total holding area of not less than 20,000 hectares of
________________
5 Ibid. , 16-17.
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VOL. 183, MARCH 15, 175
1990
Javier vs. Court of Appeals
contiguous and compact territory and an aggregate allowable annual cut of not less than
25,000 cubic meters, otherwise, your license will not be further renewed.6
Consequently, petitioners, now acting as timber license holders by virtue of the deed
of assignment executed by private respondent in their favor, entered into a Forest
Consolidation Agreement on April 10, 1967 with other ordinary timber license
7
holders in Misamis Oriental, namely, Vicente L. De Lara, Jr., Salustiano R. Oca and
Sanggaya Logging Company. Under this consolidation agreement, they all agreed to
pool together and merge their respective forest concessions into a working unit, as
envisioned by the aforementioned directives. This consolidation agreement was
approved by the Director of Forestry on May 10, 1967. The working unit was
8
subsequently incorporated as the North Mindanao Timber Corporation, with the
petitioners and the other signatories of the aforesaid Forest Consolidation Agreement
as incorporators. 9
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, based on
the said contracts, for the payment of the amount of P83,138.15 with interest at 6%
per annum from April 10, 1967 until full payment, plus P12,000.00 for attorneys fees
and costs.
On September 23, 1968, petitioners filed their answer admitting the due execution
of the contracts but interposing the special defense of nullity thereof since private
respondent failed to comply with his contractual obligations and, further, that the
conditions for the enforceability of the obligations of the parties failed to materialize.
As a counterclaim, petitioners sought the return of P55,586.00 which private
respondent had received from them pursuant to an alleged management agreement,
plus attorneys fees and costs.
On October 7, 1968, private respondent filed his reply refuting the defense of
nullity of the contracts in this wise:
________________
6 Folder of Original Exhibits for Plaintiff, Exh. A.
7 Id. , Exh. D, D-1 to D-2.
8 Id. , Exh. D-3.
9 Folder of Original Exhibits for Defendants, Exh. 18.
176
176 SUPREME COURT
REPORTS
ANNOTATED
Javier vs. Court of Appeals
What were actually transferred and assigned to the defendants were plaintiffs rights and
interest in a logging concession described in the deed of assignment, attached to the
complaint and marked as Annex A, and agreement Annex E; that the shares of stocks
referred to in paragraph II of the complaint are terms used therein merely to designate or
identify those rights and interests in said logging concession. The defendants actually made
use of or enjoyed not the shares of stocks but the logging concession itself; that since the
proposed Timberwealth Corporation was owned solely and entirely by defendants, the
personalities of the former and the latter are one and the same. Besides, before the logging
concession of the plaintiff or the latters rights and interests therein were assigned or
transferred to defendants, they never became the property or assets of the Timberwealth
Corporation which is at most only an association of persons composed of the defendants. 10
and contending that the counterclaim of petitioners in the amount of P55,586.39 is
actually only a part of the sum of P69,661.85 paid by the latter to the former in partial
satisfaction of the latters claim. 11
After trial, the lower court rendered judgment dismissing private respondents
complaint and ordering him to pay petitioners the sum of P33,161.85 with legal
interest at six percent per annum from the date of the filing of the answer until
complete payment. 12
As earlier stated, an appeal was interposed by private respondent to the Court of
Appeals which reversed the decision of the court of a quo.
On March 28, 1978, petitioners filed a motion in respondent court for extension of
time to file a motion for reconsideration, for the reason that they needed to change
counsel. Respondent court, in its resolution dated March 31, 1978, gave petitioners
13
fifteen (15) days from March 28, 1978 within which to file said motion for
reconsideration, provided that the subject motion for extension was filed on time. On 14
April 11, 1978,
________________
10 Rollo, 73; Record on Appeal, CA-G.R. No. 52296-R, 35-36.
11 Ibid., id., id., 36-37.
12 Ibid., id., id., 103-114.
13 Rollo, CA-G.R. No. 52296-R, 73-74.
14 Ibid., id., 75.
177
VOL. 183, MARCH 15, 177
1990
Javier vs. Court of Appeals
petitioners filed their motion for reconsideration in the Court of Appeals. On April
15
21, 1978, private respondent filed a consolidated opposition to said motion for
reconsideration on the ground that the decision of respondent court had become final
on March 27, 1978, hence the motion for extension filed on March 28, 1978 was filed
out of time and there was no more period to extend. However, this was not acted upon
by the Court of Appeals for the reason that on April 20, 1978, prior to its receipt of
said opposition, a resolution was issued denying petitioners motion for
reconsideration, thus:
The motion for reconsideration filed on April 11, 1978 by counsel for defendants-appellees is
denied. They did not file any brief in this case. As a matter of fact this case was submitted
for decision without appellees brief. In their said motion, they merely tried to refute the
rationale of the Court in deciding to reverse the appealed judgment. 16
Petitioners then sought relief in this Court in the present petition for review on
certiorari. Private respondent filed his comment, reiterating his stand that the
decision of the Court of Appeals under review is already final and executory.
Petitioners countered in their reply that their petition for review presents
substantive and fundamental questions of law that fully merit judicial determination,
instead of being suppressed on technical and insubstantial reasons. Moreover, the
aforesaid one (1) day delay in the filing of their motion for extension is excusable,
considering that petitioners had to change their former counsel who failed to file their
brief in the appellate court, which substitution of counsel took place at a time when
there were many successive intervening holidays.
On July 26, 1978, we resolved to give due course to the petition.
The one (1) day delay in the filing of the said motion for extension can justifiably
be excused, considering that aside from the change of counsel, the last day for filing
the said motion fell on a holiday following another holiday, hence, under such
circumstances, an outright dismissal of the petition would
________________
15 Ibid., id. , 76-86.
16 Ibid., id. , 87.
178
178 SUPREME COURT
REPORTS
ANNOTATED
Javier vs. Court of Appeals
be too harsh. Litigations should, as much as possible, be decided on their merits and
not on technicalities. In a number of cases, this Court, in the exercise of equity
jurisdiction, has relaxed the stringent application of technical rules in order to resolve
the case on its merits. Rules of procedure are intended to promote, not to defeat,
17
substantial justice and, therefore, they should not be applied in a very rigid and
technical sense.
We now proceed to the resolution of this case on the merits.
The assignment of errors of petitioners hinges on the central issue of whether the
deed of assignment dated February 15, 1966 and the agreement of February 28, 1966
are null and void, the former for total absence of consideration and the latter for non-
fulfillment of the conditions stated therein.
Petitioners contend that the deed of assignment conveyed to them the shares of
stocks of private respondent in Timberwealth Corporation, as stated in the deed
itself. Since said corporation never came into existence, no share of stocks was ever
transferred to them, hence the said deed is null and void for lack of cause or
consideration.
We do not agree. As found by the Court of Appeals, the true cause or consideration
of said deed was the transfer of the forest concession of private respondent to
petitioners for P120,000.00. This finding is supported by the following considerations,
viz:
1. 1.Both parties, at the time of the execution of the deed of assignment knew
that the Timberwealth Corporation stated therein was non-existent. 18
2. 2.In their subsequent agreement, private respondent conveyed to petitioners
his inchoate right over a forest concession covering an additional area for his
existing forest concession, which area he had applied for, and his application
was then pending in the Bureau of Forestry for approval.
3. 3.Petitioners, after the execution of the deed of assignment, assumed the
operation of the logging concessions of private
_______________
17 Helmuth, Jr. vs. People of the Philippines, et al., 112 SCRA 573 (1982); St. Peter Memorial Park, Inc.,
et al. vs. Cleofas, et al., 121 SCRA 287 (1983); Serrano vs. Court of Appeals, et al., 139 SCRA 179 (1985).
18 Rollo, 34.
179
VOL. 183, MARCH 15, 179
1990
Javier vs. Court of Appeals
1. respondent. 19
2. 4.The statement of advances to respondent prepared by petitioners stated:
P55,186.39 advances to L.A. Tiro be applied to succeeding shipments. Based
on the agreement, we pay P10,000.00 every after (sic) shipment. We had only
2 shipments. 20
3. 5.Petitioners entered into a Forest Consolidation Agreement with other
holders of forest concessions on the strength of the questioned deed of
assignment. 21
The aforesaid 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 indicia of their true intention. Where the parties to a
22
contract have given it a practical construction by their conduct as by acts in partial
performance, such construction may be considered by the court in construing the
contract, determining its meaning and ascertaining the mutual intention of the
parties at the time of contracting. The parties practical construction of their contract
23
has been characterized as a clue or index to, or as evidence of, their intention or
meaning and as an important, significant, convincing, persuasive, or influential
factor in determining the proper construction of the agreement. 24
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
25
se. Under Article 1346 of the Civil Code, a relatively simulated contract, when it
26
does not prejudice a third person and is not
________________
19 Ibid., 54.
20 Folder of Original Exhibits for Defendants, Exh. 9.
21 Folder of Original Exhibits for Plaintiff, Exh. D.
22 Velasquez, et al. vs. Teodoro, et al., 16 Phil. 757 (1923); Bacordo vs. Alcantara, et al., 14 SCRA
730(1965).
23 17A C.J.S. 228.
24 Op. cit., 233-231.
25 Art. 1345, Civil Code.
26 Concepcion vs. Sta. Ana, 87 Phil. 787 (1950).
180
180 SUPREME COURT
REPORTS
ANNOTATED
Javier vs. Court of Appeals
intended for any purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement.
The Court of Appeals, therefore, did not err in holding petitioners liable under the
said deed and in ruling that
x x x In view of the analysis of the first and second assignment of errors, the defendants-
appellees are liable to the plaintiff-appellant for the sale and transfer in their favor of the
latters forest concessions. Under the terms of the contract, the parties agreed on a
consideration of P120,000.00. P20,000.00 of which was paid, upon the signing of the contract
and the balance of P100,000.00 to be paid at the rate of P10,000.00 for every shipment of
export logs actually produced from the forest concessions of the appellant sold to the
appellees. Since plaintiff-appellants forest concessions were consolidated or merged with
those of the other timber license holders by appellees voluntary act under the Forest
Consolidation Agreement (Exhibit D), approved by the Bureau of Forestry (Exhibit D-3), then
the unpaid balance of P49,338.15 (the amount of P70,661.85 having been received by the
plaintiff-appellant from the defendants-appellees) became due and demandable. 27
As to the alleged nullity of the agreement dated February 28, 1966, we agree with
petitioners that they cannot be held liable thereon. 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. If 28
the suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed. 29
The said agreement is a bilateral contract which gave rise to reciprocal obligations,
that is, the obligation of private respon-
________________
27 Rollo , 58-59.
28 Art. 1181, Civil Code; Araneta vs. Rural Progress Administration, 92 Phil. 98 (1952).
29 Gaite vs. Fonacier, et al., 2 SCRA 830 (1961).
181
VOL. 183, MARCH 15, 181
1990
Javier vs. Court of Appeals
dent to transfer his rights in the forest concession over the additional area and, on
the other hand, the obligation of petitioners to pay P30,000.00. The demandability of
the obligation of one party depends upon the fulfillment of the obligation of the other.
In this case, the failure of private respondent to comply with his obligation negates
his right to demand performance from petitioners. Delivery and payment in a contract
of sale, are so interrelated and intertwined with each other that without delivery of
the goods there is no corresponding obligation to pay. The two complement each
other. 30
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.
WHEREFORE, the decision of respondent Court of Appeals is hereby MODIFIED.
The agreement of the parties dated February 28, 1966 is declared without force and
effect and the amount of P30,000.00 is hereby ordered to be deducted from the sum
awarded by respondent court to private respondent. In all other respects, said
decision of respondent court is affirmed.
SO ORDERED.
Melencio-Herrera(Chairman), Paras, Padillaand Sarmiento, JJ., concur.
Decision modified.
Note.Defect or inexistence of a contract is permanent and cannot be cured by
ratification or by prescription. (Teja Marketing vs. Intermediate Appellate Court, 148
SCRA 347.)
o0o
________________
30 Pio Barretto Sons, Inc. vs. Compania Maritima, 62 SCRA 147(1975).
182
