Republic of the Philippines

SUPREME COURT
Baguio City

FIRST DIVISION

G.R. No. 126751       March 28, 2001

SAFIC ALCAN & CIE, petitioner, 

vs.
IMPERIAL VEGETABLE OIL CO., INC., respondent.

YNARES-SANTIAGO, J.:

Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French corporation engaged in the international
purchase, sale and trading of coconut oil. It filed with the Regional Trial Court of Manila, Branch XXV, a
complaint dated February 26, 1987 against private respondent Imperial Vegetable Oil Co., Inc.
(hereinafter, "IVO"), docketed as Civil Case No. 87- 39597. Petitioner Safic alleged that on July 1, 1986
and September 25, 1986, it placed purchase orders with IVO for 2,000 long tons of crude coconut oil,
valued at US$222.50 per ton, covered by Purchase Contract Nos. A601446 and A601655, respectively, to
be delivered within the month of January 1987. Private respondent, however, failed to deliver the said
coconut oil and, instead, offered a "wash out" settlement, whereby the coconut oil subject of the
purchase contracts were to be "sold back" to IVO at the prevailing price in the international market at
the time of wash out. Thus, IVO bound itself to pay to Safic the difference between the said prevailing
price and the contract price of the 2,000 long tons of crude coconut oil, which amounted to
US$293,500.00. IVO failed to pay this amount despite repeated oral and written demands.

Under its second cause of action, Safic alleged that on eight occasions between April 24, 1986 and
October 31, 1986, it placed purchase orders with IVO for a total of 4,750 tons of crude coconut oil,
covered by Purchase Contract Nos. A601297A/B, A601384, A601385, A601391, A601415, A601681,
A601683 and A601770A/B/C/. When IVO failed to honor its obligation under the wash out settlement
narrated above, Safic demanded that IVO make marginal deposits within forty-eight hours on the eight
purchase contracts in amounts equivalent to the difference between the contract price and the market
price of the coconut oil, to compensate it for the damages it suffered when it was forced to acquire
coconut oil at a higher price. IVO failed to make the prescribed marginal deposits on the eight contracts,
in the aggregate amount of US$391,593.62, despite written demand therefor.

The demand for marginal deposits was based on the customs of the trade, as governed by the provisions
of the standard N.I.O.P. Contract arid the FOSFA Contract, to wit:

N.I.O.P. Contract, Rule 54 - If the financial condition of either party to a contract subject to these
rules becomes so impaired as to create a reasonable doubt as to the ability of such party to
perform its obligations under the contract, the other party may from time to time demand
marginal deposits to be made within forty-eight (48) hours after receipt of such demand, such
deposits not to exceed the difference between the contract price and the market price of the
goods covered by the contract on the day upon which such demand is made, such deposit to
bear interest at the prime rate plus one percent (1%) per annum. Failure to make such deposit
 within the time specified shall constitute a breach of contract by the party upon whom demand
for deposit is made, and all losses and expenses resulting from such breach shall be for the
account of the party upon whom such demand is made. (Underscoring ours.) 1

FOSFA Contract, Rule 54 - BANKRUPTCY/INSOLVENCY: If before the fulfillment of this contract

either party shall suspend payment, commit an act of bankruptcy, notify any of his creditors that
he is unable to meet his debts or that he has suspended payment or that he is about to suspend
payment of his debts, convene, call or hold a meeting either of his creditors or to pass a
resolution to go into liquidation (except for a voluntary winding up of a solvent company for the
purpose of reconstruction or amalgamation) or shall apply for an official moratorium, have a
petition presented for winding up or shal1i have a Receiver appointed, the contract shall
forthwith be closed either at the market price then current for similar goods or, at the option of
the other party at a price to be ascertained by repurchase or resale and the difference between
the contract price and such closing-out price shall be the amount which the other party shall be
entitled to claim shall be liable to account for under this contract (sic). Should either party be
dissatisfied with the price, the matter shall be referred to arbitration. Where no such resale or
repurchase takes place, the closing-out price shall be fixed by a Price Settlement Committee
appointed by the Federation. (Underscoring ours.) 2

Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and US$391,593.62, plus
attorney's fees and litigation expenses. The complaint also included an application for a writ of
preliminary attachment against the properties of IVO.

Upon Safic's posting of the requisite bond, the trial court issued a writ of preliminary attachment.
Subsequently, the trial court ordered that the assets of IVO be placed under receivership, in order to
ensure the preservation of the same.

In its answer, IVO raised the following special affirmative defenses: Safic had no legal capacity to sue
because it was doing business in the Philippines without the requisite license or authority; the subject
contracts were speculative contracts entered into by IVO's then President, Dominador Monteverde, in
contravention of the prohibition by the Board of Directors against engaging in speculative paper trading,
and despite IVO's lack of the necessary license from Central Bank to engage in such kind of trading
activity; and that under Article 2018 of the Civil Code, if a contract which purports to be for the delivery
of goods, securities or shares of stock is entered into with the intention that the difference between the
price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by
the loser to the winner, the transaction is null and void.1âwphi1.nêt

IVO set up counterclaims anchored on harassment, paralyzation of business, financial losses, rumor-
mongering and oppressive action. Later, IVO filed a supplemental counterclaim alleging that it was
unable to operate its business normally because of the arrest of most of its physical assets; that its
suppliers were driven away; and that its major creditors have inundated it with claims for immediate
payment of its debts, and China Banking Corporation had foreclosed its chattel and real estate
mortgages.

During the trial, the lower court found that in 1985, prior to the date of the contracts sued upon, the
parties had entered into and consummated a number of contracts for the sale of crude coconut oil. In
those transactions, Safic placed several orders and IVO faithfully filled up those orders by shipping out
the required crude coconut oil to Safic, totaling 3,500 metric tons. Anent the 1986 contracts being sued
upon, the trial court refused to declare the same as gambling transactions, as defined in Article 2018 of
the Civil Code, although they involved some degree of speculation. After all, the court noted, every
business enterprise carries with it a certain measure of speculation or risk. However, the contracts
performed in 1985, on one hand, and the 1986 contracts subject of this case, on the other hand, differed
in that under the 1985 contracts, deliveries were to be made within two months. This, as alleged by
Safic, was the time needed for milling and building up oil inventory. Meanwhile, the 1986 contracts
stipulated that the coconut oil were to be delivered within period ranging from eight months to eleven
to twelve months after the placing of orders. The coconuts that were supposed to be milled were in all
likelihood not yet growing when Dominador Monteverde sold the crude coconut oil. As such, the 1986
contracts constituted trading in futures or in mere expectations.

The lower court further held that the subject contracts were ultra vires and were entered into by
Dominador Monteverde without authority from the Board of Directors. It distinguished between the
1985 contracts, where Safic likewise dealt with Dominador Monteverde, who was presumably
authorized to bind IVO, and the 1986 contracts, which were highly speculative in character. Moreover,
the 1985 contracts were covered by letters of credit, while the 1986 contracts were payable by
telegraphic transfers, which were nothing more than mere promises to pay once the shipments became
ready. For these reasons, the lower court held that Safic cannot invoke the 1985 contracts as an implied
corporate sanction for the high-risk 1986 contracts, which were evidently entered into by Monteverde
for his personal benefit.

The trial court ruled that Safic failed to substantiate its claim for actual damages. Likewise, it rejected
IVO's counterclaim and supplemental counterclaim.

Thus, on August 28, 1992, the trial court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff Safic Alcan &
Cie, without prejudice to any action it might subsequently institute against Dominador
Monteverde, the former President of Imperial Vegetable Oil Co., Inc., arising from the subject
matter of this case. The counterclaim and supplemental counterclaim of the latter defendant are
likewise hereby dismissed for lack of merit. No pronouncement as to costs.

The writ of preliminary attachment issued in this case as well as the order placing Imperial
Vegetable Oil Co., Inc. under receivership are hereby dissolved and set aside. 3

Both IVO and Safic appealed to the Court of Appeals, jointly docketed as CA-G.R. CV No.40820.

IVO raised only one assignment of error, viz:

THE TRIAL COURT ERRED IN HOLDING 'I'HAT THE ISSUANCE OF THE WRIT OF PRELIMINARY
ATTACHMENT WAS NOT THE MAIN CAUSE OF THE DAMAGES SUFFERED BY DEFENDANT AND IN
NOT AWARDING DEFENDANT-APPELLANT SUCH DAMAGES.

For its part, Safic argued that:

 THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT, DOMINADOR MONTEVERDE,
ENTERED INTO CONTRACTS WHICH WERE ULTRA VIRES AND WHICH DID NOT BIND OR MAKE
IVO LIABLE.

THE TRIAL COURT ERRED IN HOLDING THA SAFIC WAS UNABLE TO PROVE THE DAMAGES
SUFFERED BY IT AND IN NOT AWARDING SUCH DAMAGES.

THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER THE WASH OUT
CONTRACTS.

On September 12, 1996, the Court of Appeals rendered the assailed Decision dismissing the, appeals and
affirming the judgment appealed from in toto. 4

Hence, Safic filed the instant petition for review with this Court, substantially reiterating the errors it
raised before the Court of Appeals and maintaining that the Court of Appeals grievously erred when:

a. it declared that the 1986 forward contracts (i.e., Contracts Nos. A601446 and A60155 (sic)
involving 2,000 long tons of crude coconut oil, and Contracts Nos. A60l297A/B, A601385,
A60l39l, A60l4l5, A601681. A601683 and A60l770A/B/C involving 4,500 tons of crude coconut
oil) were unauthorized acts of Dominador Monteverde which do not bind IVO in whose name
they were entered into. In this connection, the Court of Appeals erred when (i) it ignored its own
finding that (a) Dominador Monteverde, as IVO's President, had "an implied authority to make
any contract necessary or appropriate to the contract of the ordinary business of the company";
and (b) Dominador Monteverde had validly entered into similar forward contracts for and on
behalf of IVO in 1985; (ii) it distinguished between the 1986 forward contracts despite the fact
that the Manila RTC has struck down IVO's objection to the 1986 forward contracts (i.e. that
they were highly speculative paper trading which the IVO Board of Directors had prohibited
Dominador Monteverde from engaging in because it is a form of gambling where the parties do
not intend actual delivery of the coconut oil sold) and instead found that the 1986 forward
contracts were not gambling; (iii) it relied on the testimony of Mr. Rodrigo Monteverde in
concluding that the IVO Board of Directors did not authorize its President, Dominador
Monteverde, to enter into the 1986 forward contracts; and (iv) it did not find IVO, in any case,
estopped from denying responsibility for, and liability under, the 1986 forward contracts
because IVO had recognized itself bound to similar forward contracts which Dominador
Monteverde entered into (for and on behalf of IVO) with Safic in 1985 notwithstanding that
Dominador Monteverde was (like in the 1986 forward contracts) not expressly authorized by the
IVO Board of Directors to enter into such forward contracts;

b. it declared that Safic was not able, to prove damages suffered by it, despite the fact that Safic
had presented not only testimonial, but also documentary, evidence which proved the higher
amount it had to pay for crude coconut oil (vis-à-vis the contract price it was to pay to IVO)
when IVO refused to deliver the crude coconut oil bought by Safic under the 1986 forward
contracts; and

c. it failed to resolve the issue of whether or not IVO is liable to Safic under the wash out
contracts involving Contracts Nos. A601446 and A60155 (sic), despite the fact that Safic had
 properly raised the issue on its appeal, and the evidence and the law support Safic's position
that IVO is so liable to Safic.

In fine, Safic insists that the appellate court grievously erred when it did not declare that IVO's President,
Dominador Monteverde, validly entered into the 1986 contracts for and on behalf of IVO.

We disagree.

Article III, Section 3 [g] of the By-Laws5 of IVO provides, among others, that –

Section 3. Powers and Duties of the President. - The President shall be elected by the Board of
Directors from their own number .

He shall have the following duties:

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[g] Have direct and active management of the business and operation of the corporation,
conducting the same according to, the orders, resolutions and instruction of the Board of
Directors and according to his own discretion whenever and wherever the same is not expressly
limited by such orders, resolutions and instructions.

It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde had no blanket
authority to bind IVO to any contract. He must act according to the instructions of the Board of
Directors. Even in instances when he was authorized to act according to his discretion, that discretion
must not conflict with prior Board orders, resolutions and instructions. The evidence shows that the
IVO Board knew nothing of the 1986 contracts6 and that “it did not authorize” Monteverde to enter
into speculative contracts.7 In fact, Monteverde had earlier proposed that the company engage in such
transactions but the IVO Board rejected his proposal.8 Since the 1986 contracts marked a sharp
departure from past IVO transactions, Safic should have obtained from Monteverde the prior
authorization of the IVO Board. Safic can not rely on the doctrine of implied agency because before the
controversial 1986 contracts, IVO did not enter into identical contracts with Safic. The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must discover upon his peril
the authority of the agent.9 In the case of Bacaltos Coal Mines v. Court of Appeals,10 we elucidated the
rule on dealing with an agent thus:

Every person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the
agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing
with an assumed agent, whether the assumed agency be a general or special one, are bound at
their peril, if they would hold the principal, to ascertain not only the fact of the agency but also
the nature and extent of the authority, and in case either is controverted, the burden of proof is
upon them to establish it.11

The most prudent thing petitioner should have done was to ascertain the extent of the authority of
Dominador Monteverde. Being remiss in this regard, petitioner can not seek relief on the basis of a
supposed agency.
Under Article 189812 of the Civil Code, the acts of an agent beyond the scope of his authority do not bind
the principal unless the latter ratifies the same expressly or impliedly. It also bears emphasizing that
when the third person knows that the agent was acting beyond his power or authority, the principal can
not be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he
is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure
the principal's ratification.13

There was no such ratification in this case. When Monteverde entered into the speculative contracts
with Safic, he did not secure the Board's approval.14 He also did not submit the contracts to the Board
after their consummation so there was, in fact, no occasion at all for ratification. The contracts were not
reported in IVO's export sales book and turn-out book.15 Neither were they reflected in other books and
records of the corporation.16 It must be pointed out that the Board of Directors, not Monteverde,
exercises corporate power.17 Clearly, Monteverde's speculative contracts with Safic never bound IVO
and Safic can not therefore enforce those contracts against IVO.

To bolster its cause, Safic raises the novel point that the IVO Board of Directors did not set limitations on
the extent of Monteverde's authority to sell coconut oil. It must be borne in mind in this regard that a
question that was never raised in the courts below can not be allowed to be raised for the first time on
appeal without offending basic rules of fair play, justice and due process. 18 Such an issue was not
brought to the fore either in the trial court or the appellate court, and would have been disregarded by
the latter tribunal for the reasons previously stated. With more reason, the same does not deserve
consideration by this Court.

Be that as it may, Safic's belated contention that the IVO Board of Directors did not set limitations on
Monteverde's authority to sell coconut oil is belied by what appears on the record. Rodrigo Monteverde,
who succeeded Dominador Monteverde as IVO President, testified that the IVO Board had set down the
policy of engaging in purely physical trading thus:

Q. Now you said that IVO is engaged in trading. With whom does, it usually trade its oil?

A. I am not too familiar with trading because as of March 1987, I was not yet an officer of the
corporation, although I was at the time already a stockholder, I think IVO is engaged in trading
oil.

Q. As far as you know, what kind of trading was IVO engaged with?

A. It was purely on physical trading.

Q. How did you know this?

A. As a stockholder, rather as member of [the] Board of Directors, I frequently visited the plant
and from my observation, as I have to supervise and monitor purchases of copras and also the
sale of the same, I observed that the policy of the corporation is for the company to engaged
(sic) or to purely engaged (sic) in physical trading.

Q. What do you mean by physical trading?

A. Physical Trading means - we buy and sell copras that are only available to us. We only have to
sell the available stocks in our inventory.

Q. And what is the other form of trading?

Atty. Fernando

No basis, your Honor.

Atty. Abad

Well, the witness said they are engaged in physical trading and what I am saying [is] if
there are any other kind or form of trading.

Court

Witness may answer if he knows.

Witness

A. Trading future[s] contracts wherein the trader commits a price and to deliver coconut
oil in the future in which he is yet to acquire the stocks in the future.

Atty. Abad

Q. Who established the so-called physical trading in IVO?

A. The Board of Directors, sir.

Atty. Abad.

Q. How did you know that?

A. There was a meeting held in the office at the factory and it was brought out and suggested by
our former president, Dominador Monteverde, that the company should engaged (sic) in
future[s] contract[s] but it was rejected by the Board of Directors. It was only Ador Monteverde
who then wanted to engaged (sic) in this future[s] contract[s].

Q. Do you know where this meeting took place?

A. As far as I know it was sometime in 1985.

Q. Do you know why the Board of Directors rejected the proposal of Dominador Monteverde
that the company should engaged (sic) in future[s] contracts?

Atty. Fernando
 Objection, your Honor, no basis.

Court

Why don't you lay the basis?

Atty. Abad

Q. Were you a member of the board at the time?

A. In 1975, I am already a stockholder and a member.

Q. Then would [you] now answer my question?

Atty. Fernando

No basis, your Honor. What we are talking is about 1985.

Atty. Abad

Q. When you mentioned about the meeting in 1985 wherein the Board of Directors rejected the
future[s] contract[s], were you already a member of the Board of Directors at that time?

A. Yes, sir.

Q. Do you know the reason why the said proposal of Mr. Dominador Monteverde to engage in
future[s] contract[s] was rejected by the Board of Directors?

A. Because this future[s] contract is too risky and it partakes of gambling.

Q. Do you keep records of the Board meetings of the company?

A. Yes, sir.

Q. Do you have a copy of the minutes of your meeting in 1985?

A. Incidentally our Secretary of the Board of Directors, Mr. Elfren Sarte, died in 1987 or 1988,
and despite [the] request of our office for us to be furnished a copy he was not able to furnish us
a copy.19

xxxxxxxxx

Atty. Abad

Q. You said the Board of Directors were against the company engaging in future[s] contracts. As
far as you know, has this policy of the Board of Directors been observed or followed?
 Witness

A. Yes, sir.

Q. How far has this Dominador Monteverde been using the name of I.V.0. in selling future
contracts without the proper authority and consent of the company's Board of Directors?

A. Dominador Monteverde never records those transactions he entered into in connection with
these future[s] contracts in the company's books of accounts.

Atty. Abad

Q. What do you mean by that the future[s] contracts were not entered into the books of
accounts of the company?

Witness

A. Those were not recorded at all in the books of accounts of the company, sir. 20

xxxxxxxxx

Q. What did you do when you discovered these transactions?

A. There was again a meeting by the Board of Directors of the corporation and that we agreed to
remove the president and then I was made to replace him as president.

Q. What else?

A. And a resolution was passed disowning the illegal activities of the former president. 21

Petitioner next argues that there was actually no difference between the 1985 physical contracts and
the 1986 futures contracts.

The contention is unpersuasive for, as aptly pointed out by the trial court and sustained by the appellate
court –

Rejecting IVO's position, SAFIC claims that there is no distinction between the 1985 and 1986
contracts, both of which groups of contracts were signed or authorized by IVO's President,
Dominador Monteverde. The 1986 contracts, SAFIC would bewail, were similarly with their 1985
predecessors, forward sales contracts in which IVO had undertaken to deliver the crude coconut
oil months after such contracts were entered into. The lead time between the closing of the deal
and the delivery of the oil supposedly allowed the seller to accumulate enough copra to mill and
to build up its inventory and so meet its delivery commitment to its foreign buyers. SAFIC
concludes that the 1986 contracts were equally binding, as the 1985 contracts were, on IVO.

Subjecting the evidence on both sides to close scrutiny, the Court has found some remarkable
distinctions between the 1985 and 1986 contracts. x x x
 1. The 1985 contracts were performed within an average of two months from the date of the
sale. On the other hand, the 1986 contracts were to be performed within an average of eight
and a half months from the dates of the sale. All the supposed performances fell in 1987.
Indeed, the contract covered by Exhibit J was to be performed 11 to 12 months from the
execution of the contract. These pattern (sic) belies plaintiffs contention that the lead time
merely allowed for milling and building up of oil inventory. It is evident that the 1986 contracts
constituted trading in futures or in mere expectations. In all likelihood, the coconuts that were
supposed to be milled for oil were not yet on their trees when Dominador Monteverde sold the
crude oil to SAFIC.

2. The mode of payment agreed on by the parties in their 1985 contracts was uniformly thru the
opening of a letter of credit LC by SAFIC in favor of IVO. Since the buyer's letter of credit
guarantees payment to the seller as soon as the latter is able to present the shipping documents
covering the cargo, its opening usually mark[s] the fact that the transaction would be
consummated. On the other hand, seven out of the ten 1986 contracts were to be paid by
telegraphic transfer upon presentation of the shipping documents. Unlike the letter of credit, a
mere promise to pay by telegraphic transfer gives no assurance of [the] buyer's compliance with
its contracts. This fact lends an uncertain element in the 1986 contracts.1âwphi1.nêt

3. Apart from the above, it is not disputed that with respect to the 1985 contracts, IVO faithfully
complied with Central Bank Circular No. 151 dated April 1, 1963, requiring a coconut oil exporter
to submit a Report of Foreign Sales within twenty-four (24) hours "after the closing of the
relative sales contract" with a foreign buyer of coconut oil. But with respect to the disputed
1986 contracts, the parties stipulated during the hearing that none of these contracts were ever
reported to the Central Bank, in violation of its above requirement. (See Stipulation of Facts
dated June 13, 1990). The 1986 sales were, therefore suspect.

4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts were never recorded
either in the 1986 accounting books of IVO or in its annual financial statement for 1986, a
document that was prepared prior to the controversy. (Exhibits 6 to 6-0 and 7 to 7-1). Emelita
Ortega, formerly an assistant of Dominador Monteverde, testified that they were strange
goings-on about the 1986 contract. They were neither recorded in the books nor reported to the
Central Bank. What is more, in those unreported cases where profits were made, such profits
were ordered remitted to unknown accounts in California, U.S.A., by Dominador Monteverde.

xxxxxxxxx

Evidently, Dominador Monteverde made business or himself, using the name of IVO but
concealing from it his speculative transactions.

Petitioner further contends that both the trial and appellate courts erred in concluding that Safic was
not able to prove its claim for damages. Petitioner first points out that its wash out agreements with
Monteverde where IVO allegedly agreed to pay US$293,500.00 for some of the failed contracts was
proof enough and, second, that it presented purchases of coconut oil it made from others during the
period of IVO's default.
We remain unconvinced. The so-called "wash out" agreements are clearly ultra vires and not binding on
IVO. Furthermore, such agreements did not prove Safic's actual losses in the transactions in question.
The fact is that Safic did not pay for the coconut oil that it supposedly ordered from IVO through
Monteverede. Safic only claims that, since it was ready to pay when IVO was not ready to deliver, Safic
suffered damages to the extent that they had to buy the same commodity from others at higher prices.

The foregoing claim of petitioner is not, however, substantiated by the evidence and only raises several
questions, to wit: 1.] Did Safic commit to deliver the quantity of oil covered by the 1986 contracts to its
own buyers? Who were these buyers? What were the terms of those contracts with respect to quantity,
price and date of delivery? 2.] Did Safic pay damages to its buyers? Where were the receipts? Did Safic
have to procure the equivalent oil from other sources? If so, who were these sources? Where were their
contracts and what were the terms of these contracts as to quantity, price and date of delivery?

The records disclose that during the course of the proceedings in the trial court, IVO filed an amended
motion22for production and inspection of the following documents: a.] contracts of resale of coconut oil
that Safic bought from IVO; b.] the records of the pooling and sales contracts covering the oil from such
pooling, if the coconut oil has been pooled and sold as general oil; c.] the contracts of the purchase of oil
that, according to Safic, it had to resort to in order to fill up alleged undelivered commitments of IVO; d.]
all other contracts, confirmations, invoices, wash out agreements and other documents of sale related
to (a), (b) and (c). This amended motion was opposed by Safic. 23 The trial court, however, in its
September 16, 1988 Order ,24 ruled that:

From the analysis of the parties' respective positions, conclusion can easily be drawn therefrom
that there is materiality in the defendant's move: firstly, plaintiff seeks to recover damages from
the defendant and these are intimately related to plaintiffs alleged losses which it attributes to
the default of the defendant in its contractual commitments; secondly, the documents are
specified in the amended motion. As such, plaintiff would entertain no confusion as to what,
which documents to locate and produce considering plaintiff to be (without doubt) a reputable
going concern in the management of the affairs which is serviced by competent, industrious,
hardworking and diligent personnel; thirdly, the desired production and inspection of the
documents was precipitated by the testimony of plaintiffs witness (Donald O'Meara) who
admitted, in open court, that they are available. If the said witness represented that the
documents, as generally described, are available, reason there would be none for the same
witness to say later that they could not be produced, even after they have been clearly
described.

Besides, if the Court may additionally dwell on the issue of damages, the production and
inspection of the desired documents would be of tremendous help in the ultimate resolution
thereof. Plaintiff claims for the award of liquidated or actual damages to the tune of
US$391,593.62 which, certainly, is a huge amount in terms of pesos, and which defendant
disputes. As the defendant cannot be precluded in taking exceptions to the correctness and
validity of such claim which plaintiffs witness (Donald O'Meara) testified to, and as, by this
nature of the plaintiffs claim for damages, proof thereof is a must which can be better served, if
not amply ascertained by examining the records of the related sales admitted to be in plaintiffs
possession, the amended motion for production and inspection of the defendant is in order.
 The interest of justice will be served best, if there would be a full disclosure by the parties on
both sides of all documents related to the transactions in litigation.

Notwithstanding the foregoing ruling of the trial court, Safic did not produce the required documents,
prompting the court a quo to assume that if produced, the documents would have been adverse to
Safic's cause. In its efforts to bolster its claim for damages it purportedly sustained, Safic suggests a
substitute mode of computing its damages by getting the average price it paid for certain quantities of
coconut oil that it allegedly bought in 1987 and deducting this from the average price of the 1986
contracts. But this mode of computation if flawed .because: 1.] it is conjectural since it rests on average
prices not on actual prices multiplied by the actual volume of coconut oil per contract; and 2.] it is based
on the unproven assumption that the 1987 contracts of purchase provided the coconut oil needed to
make up for the failed 1986 contracts. There is also no evidence that Safic had contracted to supply third
parties with coconut oil from the 1986 contracts and that Safic had to buy such oil from others to meet
the requirement.

Along the same vein, it is worthy to note that the quantities of oil covered by its 1987 contracts with
third parties do not match the quantities of oil provided under the 1986 contracts. Had Safic produced
the documents that the trial court required, a substantially correct determination of its actual damages
would have been possible. This, unfortunately, was not the case. Suffice it to state in this regard that
"[T]he power of the courts to grant damages and attorney's fees demands factual, legal and equitable
justification; its basis cannot be left to speculation and conjecture." 25

WHEREFORE, in view of all the foregoing, the petition is DENIED for lack of merit.

SO ORDERED.

Davide, Jr., Puno*, Kapunan, and Pardo, JJ., concur.