Short answer. No, it is void. Article 2018 of the Civil Code makes this kind of arrangement — a contract that looks like a delivery of shares but is really just a bet on the price difference — null and void from the start. Neither party can enforce it, and the loser may recover what was paid.
What the law says
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.
Civil Code, Article 2018 — Futures/Difference Contracts Void. Read the full provision →
What the law targets: difference contracts
Article 2018 targets a specific type of transaction sometimes called a 'difference contract' or 'wagering contract on prices.' It looks like a sale — one party promises to deliver shares at a fixed price — but both sides know from the start that no actual delivery will happen. Instead, whoever is on the losing side of the price movement pays the other the difference between the agreed price and the market price on the settlement date. The contract uses the form of a sale to disguise what is essentially a bet on price movement.
Why the Civil Code voids it
The law treats this as a form of gambling rather than a legitimate commercial transaction. The transaction is null and void because neither party ever intends actual delivery of the shares. The form is a pretence. The Civil Code refuses to enforce a purported sale where neither party has any intention of transferring title — the 'delivery' at a 'price' is just the mechanism for calculating who owes whom a cash settlement. Voiding the transaction prevents courts from being used to enforce what are essentially wagers on market prices.
Recovery by the losing party
Article 2018 goes further than simply refusing to enforce the contract. It expressly provides that the loser may recover what he has paid. This means that if one party already settled the difference — paid the cash that was owed under the arrangement — that payment is recoverable. The void nature of the contract means neither party is entitled to keep what they received under it. The loser who paid can bring an action to get it back.
The line between a void difference contract and a legitimate trade
Not every transaction involving shares and a price difference is void. Legitimate forward contracts, options, and futures traded on regulated markets are different creatures. The key distinction under Article 2018 is the parties' intention at the time of contracting. If actual delivery of the shares is genuinely contemplated — even if some cash settlement mechanism exists for default — the transaction does not automatically fall under this article. The prohibition is specifically aimed at arrangements where, by mutual understanding from the start, no delivery will ever occur and the sole purpose is settling the price difference. Where you fall depends on your specific agreement's terms and the parties' true intent.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Safic Alcan & Cie vs. Imperial Vegetable Oil Co., Inc, G.R. No. 126751, March 28, 2001 — read the decision on LawPhil →
- NM Rothschild and Sons (Australia) Limited vs. Lepanto Consolidated Mining Company, G.R. No. 175799, November 28, 2011 — read the decision on LawPhil →