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2.

Whether or not the transaction should be considered as a simple loan or a


Topic: Interest and the Usury Law trust receipt transaction.
Case No.: G.R. No. 114286. April 19, 2001
Case Name: Consolidated Bank and Trust Corporation vs. Court of Appeals RATIO DECIDENDI
Full Case Name: THE CONSOLIDATED BANK AND TRUST CORPORATION
(SOLIDBANK), petitioner, vs. THE COURT OF APPEALS, CONTINENTAL 1. Whether or not the Bank was correct in computing the amount to be paid
CEMENT CORPORATION, GREGORY T. LIM and SPOUSE, respondents. by the debtors for the letter of credit granted?
Ponente: YNARES-SANTIAGO, J.
Digest Writer: Rean No. The Bank was incorrect in applying interest in the entire principal before
Nature: PETITION for review on certiorari of a decision of the Court of Appeals. deducting the marginal deposit of the petitioner.

RELEVANT FACTS Digester’s comment: Banks would either grant loans on “ordinary annuity” or
“annuity due”. In an “annuity due” loan, the first payment is made on the inception
July 13, 1982 – Continental Cement Corporation (Continental Cement) represented of the loan contract. In this case, the debtor was required to make a first payment
by its Executive Vice President, Gregory Lim, obtained a letter of credit from on the same day the letter of credit was granted.
Consolidated Bank in the amount of P1,068,150. On the same date, respondent
Corporation paid a marginal deposit of P320,445.00 to petitioner. The Court held that 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
The letter of credit was used to purchase bunker fuel oil from Petrophil Corporation crediting or setting off the marginal deposit which the respondent Corporation paid
for P1,001,520.93. Delivery of the bunker fuel oil to Continenta Cement’s Bulacan to it. Compensation is proper and should take effect by operation of law because
plant commenced on July 7, 1982 and was completed by July 19, 1982. The oil was the requisites in Article 1279 of the Civil Code are present and should extinguish
used up by respondent Corporation in its normal operations by August, 1982. A both debts to the concurrent amount.
trust receipt1 was executed nearly two months after full delivery of the oil, or on
September 2, 1982, with respondent Lim as signatory. The bank computed interest based on P1,001,520.93 when it should have computed
based on P681,075.93 (1,001,520.93 - 320,445).
Petitioner’s claim: Based on the trust receipt transaction Continental Bank
demanded the turn over the goods covered by the trust receipt or the proceeds Moreover, the Floating Rates of Interest in the contract was held invalid. Floating
thereof. It claimed that the debtors are in default of payment of the letter of credit interest rates are pegged on an underlying and is usually used to mirror the changes
based on their computation of the amount of the loan at maturity. in market rates. The stipulation of the contract on hand, however, did not have a
reference rate, hence declared void.
Respondent’s claim: Continental Cement claim that they are actually overpaid for
the maturity of the loan. It insists that the transaction involved is a simple loan and 2. Whether or not the transaction should be considered as a simple loan or a
not a trust receipt transaction. trust receipt transaction.

ISSUES The transaction is a SIMPLE LOAN. The recent case of Colinares v. Court of Appeals
appears to be foursquare with the facts obtaining in the case at bar. There, the
1. Whether or not the Bank was correct in computing the amount to be paid Court found that inasmuch as the debtor received the goods subject of the trust
by the debtors for the letter of credit granted? 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
1 In a pure trust receipt transaction, the goods belong in ownership to the bank and debtor. This situation is inconsistent with what normally obtains in a pure trust
are only released to the importer in trust after the loan is granted.
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.

DISPOSITIVE

WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED.
The Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is
AFFIRMED.

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