In the case of Consolidated Bank and Trust Co vs.

Court of Appeals, the private respondents here

Continental Cement Corporation and Mr. Gregory Lim obtained a letter of credit from the petitioner
Consolidated Bank and Trust Co amounting to Php1,068,000+ on about July 1982. On the same day,
the respondent corporation paid the petitioner bank via marginal deposit amounting to
Php320,000.00. The letter of credit was used to purchase 5,000liters of bunker fuel oil from Petrophil
Corporation, which the latter delivered directly to the respondent bank’s plantation in Bulacan. In
relation to the same transaction, a trust receipt for the amount of Php1,000,000+ was executed by the
respondent corporation, having Mr. Gregory Lim signed as its EVP.

Claiming that the respondent corporation failed to turn over the goods subject of the trust receipt,
the petitioner bank filed a complaint for sum of money with preliminary attachment with the RTC of
Manila. In its response, the respondent corporation averred that the transaction it entered with the
petitioner bank was only a simple loan agreement and not of a trust receipt transaction. It further
averred that the petitioner bank failed to take into account the payment it made via the marginal
deposit thereby constituting overpayment from them.

The RTC, in this case, ruled in favor of the respondents and dismissed the case. The same was upheld
by the CA.

The issues interposed in this case are:

WON there was an overpayment from the respondents due to the failure of the petitioner bank in
acknowledging the marginal deposit.

WON the floating interest rate exhorted by the petitioner bank is valid.

WON the transaction entered into by and between the parties is of a simple loan or of a trust receipt
transaction.

As to the first issue respecting the fact of overpayment, the Court held that based on the evidence
adduced by the trial court, there was indeed an overpayment from the respondents. The petitioner’s
contention that the marginal deposit made by the respondent Corporation should not be deducted
outright from the amount of the letter of credit is untenable. The Court held further that to sustain the
petitioner’s arguments in this aspect would be to countenance 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 without first deducting the marginal deposit paid to
the petitioner bank.

As to the second issue, the Court found the floating interest rate invalid.

While it may be acceptable, for practical reasons due to our fluctuating economic conditions, for
banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon
prevailing market conditions, there should always be a reference rate upon which to peg such variable
interest rates. The stipulation exhorted by the petitioner bank on floating interest rate in this case
cannot be accepted as valid for it leaves solely to the creditor the determination of what interest rate
to charge against outstanding loan.

As to the last issue of WON the transaction is a trust receipt, the Court ruled based on the precedent
of Colinares vs. Court of Appeals as in this case, it was found that 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 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.

The Court held further that the Trust Receipts Law does not seek to enforce payment of the loan,
rather it punishes the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another. The Court also said that the payment made by the respondent Corporation
amounting to Php1,800,00.00+ on a loan with a principal amount of only Php681,000.00+ negates
any badge of dishonestly, abuse of confidence or mishandling of funds. Also, the Court said that the
respondent Corporation is not an importer, for it acquired the bunker fuel oil not for re-sale but for its
own operations. Furthermore, there was no time when the title over the oil pass to the petitioner
bank, but directly delivered to the respondent Corporation long before the trust receipt was executed.
By all indications then, it is apparent that there as really no trust receipt transaction that took place.