LAND TITLES AND DEEDS| B2015

CASE DIGESTS

ISSUE:
1.
WON there was overpayment. (Yes)
April 19, 2001
2.
WON the marginal deposit was properly computed.
Ynares-Santiago, J.
(No)
Gabe Ruaro
3.
WON the agreement as to floating of interest rate
is valid. (No)
SUMMARY:
4.
WON this is a trust receipt transaction. (No)
. Continetal cement obtained a LOC for the importation of fuel.5.Continental
that
it liable
overpaid.
Thethis
Lower
Court and the
WONclaimed
the Lims
are
under
transaction.
Supreme court agreed that it did, becauset the marginal deposit made
by
Continental
should
be
deducted
outright
from
the amount
(No)
of the letter of credit.

Consolidated Bank v CA

RATIO:
DOCTRINE:
1. The SC was bound by such findings of the lower
While a marginal deposit, a collateral security, earns no interest in favor ofcourt.
the applicant,
thewas
bank
not only ablethe
to use
the same
for
While there
noiscomputation,
finding
of
its own purposes, interest-free, but it is also able to earn interest on the
money
loaned
to
the
applicant.
The
buyer/importer's
overpayment was correct.
marginal deposit should then be set off against his debt, for it would 2.
be Pertinent
onerous to ruling
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
whichdeposit
the importer
Consolidateds contention
that the
marginal
madepaid to
the bank.
by Continental should not be deducted outright from the
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 Continentals 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 attorneys fees in favor
of respondents and, instead ordered the Corporation to pay
the Bank P37,469.22 as attorneys fees and litigation
expenses.
Hence this petition for review.

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

LAND TITLES AND DEEDS| B2015

CASE DIGESTS

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 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 its not a trust receipt transaction, they cant
be held liable under it.
Petition denied. CA affirmed.