GR 250523; (June, 2021) (Digest)
G.R. No. 250523 , June 28, 2021
ATCI OVERSEAS CORPORATION AND AMALIA G. IKDAL, PETITIONERS, VS. ASSET POOL A (SPV-AMC), INC., RESPONDENT.
FACTS
Respondent Asset Pool A (SPV-AMC), Inc. (APA) filed a complaint to recover US$1,000,000.00, the alleged unpaid balance of a loan extended by its predecessor-in-interest, United Coconut Planters Bank (UCPB), to petitioner ATCI Overseas Corporation (ATCI). The loan was evidenced by a Loan Agreement and Promissory Note signed by petitioner Amalia G. Ikdal as ATCI’s representative and secured by a Surety Agreement binding her jointly and severally liable. UCPB assigned its rights to APA via a Deed of Absolute Sale. Petitioners denied the loan, claiming it was a simulated transaction. They alleged that UCPB, prohibited from directly operating a dollar remittance business in Kuwait, used ATCI as a front. UCPB prepared the loan documents as a cover to release funds for its venture, Viking International Exchange Company (VIEC), in Kuwait. Petitioners argued the loan was simulated because it was a “clean loan” without collateral, ATCI’s poor financial condition could not merit such a loan, and UCPB took no legal action for payment for years. The Regional Trial Court (RTC) ruled in favor of APA, ordering petitioners to pay solidarily. The Court of Appeals (CA) affirmed the RTC decision.
ISSUE
Whether the contract between UCPB and ATCI is a valid and enforceable loan agreement or a simulated transaction intended to circumvent banking laws.
RULING
The Supreme Court REVERSED the CA decision. It ruled that the Loan Agreement dated July 2, 1993, was an absolutely simulated contract, void and inexistent under Article 1409(2) of the Civil Code. The Court found the transaction was a scheme where UCPB used ATCI as a conduit to fund its dollar remittance business in Kuwait, which foreign banks were prohibited from directly operating. The intention was not to grant a loan but to provide UCPB a vehicle to release funds. This was supported by the following: the loan was a “clean loan” without collateral despite the amount; ATCI’s unsatisfactory financial statements showed it was unqualified for such a loan; UCPB never demanded payment or imposed interest for years; and the partial refund of US$500,000.00 corresponded to a reduction in Kuwait’s deposit requirement for the remittance business, not a loan payment. The Court held the parties were in pari delicto, and thus, neither could obtain relief. APA’s complaint was dismissed for lack of merit.