LAND TITLES AND DEEDS| B2015CASE DIGESTS

Consolidated Bank v CAApril 19, 2001

Ynares-Santiago, J.Gabe Ruaro

SUMMARY:. Continetal cement obtained a LOC for the importation of fuel. Continental claimed that it overpaid. The Lower Court and the Supreme court agreed that it did, becauset the marginal deposit made by Continental should be deducted outright from the amount of the letter of credit.

DOCTRINE:While a marginal deposit, a collateral security, earns no interest in favor of the applicant, the bank is not only able to use the same for its own purposes, interest-free, but it is also able to earn interest on the money loaned to the applicant. The buyer/importer's marginal deposit should then be set off against his debt, for it would be onerous to compute interest and other charges on the face value of the letter of credit which the bank issued, without first crediting or setting off the marginal deposit which the importer paid to the bank.

FACTS: Continental Cement Corporation and Gregory Lim obtained a letter of credit from Consolidated Bank for P1.068M. Consolidated then made a marginal deposit of P320k to Consolidated. The LOC was used to buy 500,000 liters of bunker fuel oil from Petrophil Coproration, which was delivered to Continental’s Bulacan plant. A trust receipt was issued to cover the same same transaction, with Lim as signatory.

Claiming that Continental and Lim failed to turn over the goods covered by the trust receipt or the proceeds thereof, Consolidated filed a complaint for sum of money before the RTC of Manila. At the pre-trial conference, the parties agreed on the following issues:

The RTC dismissed the case, ordering Consolidated to pay P490k to Continental and Lim as overpayment by them. CA modified by deleting the award of attorney’s fees in favor of respondents and, instead ordered the Corporation to pay the Bank P37,469.22 as attorney’s fees and litigation expenses.

Hence this petition for review.ISSUE: 1.            WON there was overpayment. (Yes)2.            WON the marginal deposit was properly computed. (No)3.            WON the agreement as to floating of interest rate is valid. (No)4.            WON this is a trust receipt transaction. (No)5.            WON the Lims are liable under this transaction. (No) RATIO:

1. The SC was bound by such findings of the lower court. While there was no computation, the finding of overpayment was correct.

2. Pertinent rulingConsolidated’s contention that the marginal deposit made by Continental should not be deducted outright from the amount of the letter of credit is untenable.  To consider the marginal deposit only after computing the principal plus accrued interests and other charges, would be a clear case of unjust enrichment, for while a marginal deposit earns no interest in favor of the debtor-depositor, the bank is not only able to use the same for its own purposes, interest-free, but is also able to earn interest on the money loaned to respondent Corporation.  Indeed, it would be onerous to compute interest and other charges on the face value of the letter of credit which the petitioner issued, without first crediting or setting off the marginal deposit which the respondent Corporation paid to it.  Compensation is proper and should take effect by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount.

Hence, the interests and other charges on the subject letter of credit should be computed only on the balance of P681,075.93, which was the portion actually loaned by the bank to respondent Corporation.

*****end****3. The floating rate of interest is invalid. Because, there being no

reference rate set either by it or by the Central Bank, the rate is left at the determination at the sole will and control of the bank.

4. This is merely a simple loan, not a trust receipt transaction.Inasmuch as the debtor received the goods subject of the trust

receipt before the trust receipt itself was entered into, the transaction in question was a simple loan and not a trust receipt agreement.  Prior

LAND TITLES AND DEEDS| B2015CASE DIGESTS

to the date of execution of the trust receipt, ownership over the goods was already transferred to the debtor.  This situation is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only released to the importer in trust after the loan is granted.

5. Since it’s not a trust receipt transaction, they can’t be held liable under it.

Petition denied. CA affirmed.