G.R. No. 48194 March 15, 1990
JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners, vs. COURT OF APPEALS and LEONARDO TIRO, respondents.

FACTS

Private respondent Leonardo Tiro held an ordinary timber license. On February 15, 1966, he executed a Deed of Assignment in favor of petitioners Jose and Estrella Javier, conveying his rights in the concession for P120,000.00, payable in installments tied to log shipments. Subsequently, on February 28, 1966, the parties entered into another Agreement concerning Tiro’s pending application for an additional 2,000-hectare concession. This second contract obligated Tiro to transfer his rights over this additional area to the Timberwealth Corporation, in which the Javiers were stockholders, in exchange for P30,000.00 to be paid upon the area’s approval and transfer.
The Bureau of Forestry later directed Tiro to consolidate his concession with others to meet a minimum area requirement. Acting under the first Deed of Assignment, the Javiers, representing the acquired rights, entered into a Forest Consolidation Agreement with other licensees, leading to the incorporation of the North Mindanao Timber Corporation. Tiro sued the Javiers for the unpaid balances under both contracts, claiming P83,138.15. The Javiers defended by arguing the contracts were unenforceable due to Tiro’s non-compliance and the failure of conditions.

ISSUE

The primary issue is whether the Javiers are liable to pay the balances under the two agreements executed with Tiro.

RULING

The Supreme Court affirmed the Court of Appeals’ decision regarding the first Deed of Assignment but modified it concerning the second Agreement. For the first contract, the Court upheld the Javiers’ liability. The deed effectively assigned Tiro’s rights and interests in the existing timber concession. The reference to “shares of stocks” was merely descriptive, as the Timberwealth Corporation was solely owned by the Javiers, making the corporation and the spouses one and the same personality. The Javiers exercised control over the concession, entered into the consolidation agreement, and benefited from it. Their obligation to pay the balance of P100,000.00, payable per shipment, became due and demandable as they operated the concession. The failure of subsequent log shipments was due to their own business decisions, not a condition imposed by the contract, so they could not evade payment.
However, for the second Agreement covering the additional area, the Court ruled it was unenforceable. The contract created reciprocal obligations: Tiro’s duty to transfer rights and the Javiers’ duty to pay P30,000.00. The demandability of the Javiers’ obligation was contingent upon Tiro fulfilling his. Tiro never acquired any right over the additional area, as his application was never approved by the Bureau of Forestry. Following Article 1181 of the Civil Code on conditional obligations and the principle under Article 1461 regarding the sale of a mere hope or expectancy, the agreement was subject to the condition that the right would come into existence. Since this condition failed, the contract never became effective. Thus, the Javiers had no obligation to pay the P30,000.00, and this amount was deducted from the total award.