GR 42735; (January, 1990) (Digest)
G.R. No. 42735 ; January 22, 1990
RAMON L. ABAD, petitioner, vs. HON. COURT OF APPEALS & THE PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, respondents.
FACTS
Petitioner Ramon L. Abad, as surety, and TOMCO, Inc. were sued by respondent Philippine Commercial and Industrial Bank (PCIB) for non-payment of an obligation under a letter of credit-trust receipt arrangement. On October 31, 1963, PCIB granted TOMCO a letter of credit for P80,000 to import machinery. TOMCO made a required cash marginal deposit of P28,000 with the bank and subsequently executed a trust receipt over the merchandise. Abad signed a Continuing Guaranty, binding himself solidarily with TOMCO. Except for the marginal deposit, no payments were made.
PCIB filed a collection suit. The bank’s computation of the total obligation as of August 26, 1970, amounting to P125,766.13, was based on the full P80,000 principal, plus accrued interest and charges. TOMCO and Abad contended that the P28,000 marginal deposit should first be deducted from the principal obligation before computing interest, leaving a balance of only P52,000. Both the trial court and the Court of Appeals ruled in favor of PCIB, ordering solidary payment of the full computed amount without deducting the marginal deposit.
ISSUE
Whether the debtor’s cash marginal deposit should be deducted from the principal obligation under the letter of credit before computing the interest and other charges due to the bank.
RULING
Yes. The Supreme Court granted the petition and modified the appellate court’s decision. The Court explained that a letter of credit-trust receipt arrangement involves a loan feature (the letter of credit) and a security feature (the trust receipt). The marginal deposit is not part of the bank’s investment but is a collateral security given by the debtor, traditionally required by Central Bank policy to mitigate currency risks. It is to be returned upon compliance with the obligation and does not earn interest for the depositor.
Legally, compensation takes place by operation of law under Article 1279 of the Civil Code. The requisites are present: both parties are principal debtors and creditors of each other; both debts consist in a sum of money; both are due and demandable; and there is no retention or controversy. The bank’s obligation to return the marginal deposit is extinguished to the concurrent amount of the debtor’s obligation to pay the loan. As a surety, Abad could rightfully invoke this compensation under Article 1280. It would be unjust enrichment for the bank to earn interest on the entire P80,000 while holding and using the debtor’s P28,000 deposit interest-free. Therefore, the marginal deposit must be deducted from the principal, and interest should be computed only on the net loaned amount of P52,000.