GR 126751; (March, 2001) (Digest)
G.R. No. 126751 March 28, 2001
SAFIC ALCAN & CIE, petitioner, vs. IMPERIAL VEGETABLE OIL CO., INC., respondent.
FACTS
Petitioner Safic Alcan & Cie, a French corporation, filed a complaint against respondent Imperial Vegetable Oil Co., Inc. (IVO) for breach of contract. Safic alleged two causes of action. First, IVO failed to deliver 2,000 long tons of crude coconut oil under two 1986 purchase contracts and subsequently defaulted on a “wash out” settlement agreement to pay the price difference of US$293,500. Second, based on trade customs under N.I.O.P. and FOSFA contracts, Safic demanded marginal deposits on eight other purchase contracts due to IVO’s impaired financial condition, which IVO also failed to pay, amounting to US$391,593.62. The trial court issued a writ of preliminary attachment and placed IVO’s assets under receivership.
In its defense, IVO contended that Safic had no legal capacity to sue for doing business without a license, that the contracts were speculative “paper trades” executed by its president without board approval and in violation of Central Bank rules, and that such contracts were void under Article 2018 of the Civil Code as gambling transactions. IVO also filed counterclaims for damages due to business paralysis caused by the attachment.
ISSUE
The primary issue is whether the contracts between Safic and IVO are valid and enforceable, or whether they are void as prohibited speculative or gambling transactions.
RULING
The Supreme Court affirmed the lower courts’ ruling that the contracts are void and unenforceable. The legal logic rests on the application of Article 2018 of the Civil Code, which voids contracts purporting to be for the delivery of goods but where the intention is merely to pay the difference in market prices. The Court found the transactions were “paper trades” or “wash sales,” not genuine contracts of sale intended for actual delivery. Evidence showed the parties had a prior course of dealing involving actual delivery, but the 1986 contracts in question were entered into with the mutual understanding that they would likely be settled by paying price differences, not by physical delivery. This intent, coupled with IVO’s lack of a Central Bank license to engage in such forward trading, rendered the contracts illegal and void. Consequently, Safic could not recover its claimed amounts. The Court also rejected Safic’s claim for actual damages due to lack of sufficient proof. The defense of Safic doing business without a license was rendered moot by the finding of the contracts’ nullity.