FIRST DIVISION

[G.R. No. 114286. April 19, 2001.]

THE CONSOLIDATED BANK AND TRUST CORPORATION

(SOLIDBANK), petitioner, vs. THE COURT OF APPEALS,
CONTINENTAL CEMENT CORPORATION, GREGORY T.. LIM
and SPOUSE, respondents.

DECISION

YNARES-SANTIAGO, J : p

The instant petition for review seeks to partially set aside the July 26,
1993 Decision 1 of respondent Court of Appeals in CA-G.R. CV No. 29950,
insofar as it orders petitioner to reimburse respondent Continental Cement
Corporation the amount of P490,228.90 with interest thereon at the legal rate
from July 26, 1988 until fully paid. The petition also seeks to set aside the
March 8, 1994 Resolution 2 of respondent Court of Appeals denying its Motion
for Reconsideration.

The facts are as follows:

On July 13, 1982, respondents Continental Cement Corporation

(hereinafter, respondent Corporation) and Gregory T. Lim (hereinafter,
respondent Lim) obtained from petitioner Consolidated Bank and Trust
Corporation Letter of Credit No. DOM-23277 in the amount of P1,068,150.00 On
the same date, respondent Corporation paid a marginal deposit of P320,445.00
to petitioner. The letter of credit was used to purchase around five hundred
thousand liters of bunker fuel oil from Petrophil Corporation, which the latter
delivered directly to respondent Corporation in its Bulacan plant. In relation to
the same transaction, a trust receipt for the amount of P1,001,520.93 was
executed by respondent Corporation, with respondent Lim as signatory.
Claiming that respondents failed to turn over the goods covered by the
trust receipt or the proceeds thereof, petitioner filed a complaint for sum of
money with application for preliminary attachment 3 before the Regional Trial
Court of Manila. In answer to the complaint, respondents averred that the
transaction between them was a simple loan and not a trust receipt
transaction, and that the amount claimed by petitioner did not take into
account payments already made by them. Respondent Lim also denied any
personal liability in the subject transactions. In a Supplemental Answer,
respondents prayed for reimbursement of alleged overpayment to petitioner of
the amount of P490,228.90.

At the pre-trial conference, the parties agreed on the following issues:

1) Whether or not the transaction involved is a loan
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 transaction or a trust receipt transaction;

2) Whether or not the interest rates charged against the

defendants by the plaintiff are proper under the letter of credit, trust
receipt and under existing rules or regulations of the Central Bank;

3) Whether or not the plaintiff properly applied the previous

payment of P300,456.27 by the defendant corporation on July 13, 1982
as payment for the latter's account; and

4) Whether or not the defendants are personally liable under

the transaction sued for in this case. 4

On September 17, 1990, the trial court rendered its Decision, 5 dismissing
the Complaint and ordering petitioner to pay respondents the following
amounts under their counterclaim: P490,228.90 representing overpayment of
respondent Corporation, with interest thereon at the legal rate from July 26,
1988 until fully paid; P10,000.00 as attorney's fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified
the Decision by deleting the award of attorney's fees in favor of respondents
and, instead, ordering respondent Corporation to pay petitioner P37,469.22 as
and for attorney's fees and litigation expenses.
Hence, the instant petition raising the following issues:
1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED
INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING
THAT THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO
THE PETITIONER IN THE AMOUNT OF P490,228.90 DESPITE THE
ABSENCE OF ANY COMPUTATION MADE IN THE DECISION AND
THE ERRONEOUS APPLICATION OF PAYMENTS WHICH IS IN
VIOLATION OF THE NEW CIVIL CODE.

2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE

MARGINAL DEPOSIT BY THE RESPONDENT APPELLATE COURT IS
IN ACCORDANCE WITH BANKING PRACTICE.

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO

THE FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE
JURISPRUDENCE AND THE RULES AND REGULATIONS OF THE
CENTRAL BANK.
4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT
GRIEVOUSLY ERRED IN NOT CONSIDERING THE TRANSACTION AT
BAR AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF THE
JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR
WHICH RESPONDENTS ARE LIABLE THEREFOR.

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT

GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT
SPOUSES LIABLE UNDER THE TRUST RECEIPT TRANSACTION. 6

The petition must be denied.

On the first issue respecting the fact of overpayment found by both the
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 lower court and respondent Court of Appeals, we stress the time-honored rule
that findings of fact by the Court of Appeals especially if they affirm factual
findings of the trial court will not be disturbed by this Court, unless these
findings are not supported by evidence. 7

Petitioner decries the lack of computation by the lower court as basis for
its ruling that there was an overpayment made. While such a computation may
not have appeared in the Decision itself, we note that the trial court's finding of
overpayment is supported by evidence presented before it. At any rate, we
painstakingly reviewed and computed the payments together with the interest
and penalty charges due thereon and found that the amount of overpayment
made by respondent Bank to petitioner, i.e., P563,070.13, was more than what
was ordered reimbursed by the lower court. However, since respondents did
not file an appeal in this case, the amount ordered reimbursed by the lower
court should stand.
Moreover, petitioner's contention that the marginal deposit made by
respondent Corporation should not be deducted outright from the amount of
the letter of credit is untenable. Petitioner argues that the marginal deposit
should be considered only after computing the principal plus accrued interests
and other charges. However, to sustain petitioner on this score 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 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. 8

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.
Neither do we find error when the lower court and the Court of Appeals
set aside as invalid the floating rate of interest exhorted by petitioner to be
applicable. The pertinent provision in the trust receipt agreement of the parties
fixing the interest rate states:
I, WE jointly and severally agree to any increase or decrease in
the interest rate which may occur after July 1, 1981, when the Central
Bank floated the interest rate, and to pay additionally the penalty of
1% per month until the amount/s or installment/s due and unpaid
under the trust receipt on the reverse side hereof is/are fully paid. 9

We agree with respondent Court of Appeals that the foregoing stipulation

is invalid, there being no reference rate set either by it or by the Central Bank,
leaving the determination thereof at the sole will and control of petitioner.

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 While it may be acceptable, for practical reasons given the 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. An example of such a valid variable interest rate was found in Polotan,
Sr. v. Court of Appeals . 10 In that case, the contractual provision stating that "if
there occurs any change in the prevailing market rates, the new interest rate
shall be the guiding rate in computing the interest due on the outstanding
obligation without need of serving notice to the Cardholder other than the
required posting on the monthly statement served to the Cardholder" 11 was
considered valid. The aforequoted provision was upheld notwithstanding that it
may partake of the nature of an escalation clause, because at the same time it
provides for the decrease in the interest rate in case the prevailing market
rates dictate its reduction. In other words, unlike the stipulation subject of the
instant case, the interest rate involved in the Polotan case is designed to be
based on the prevailing market rate. On the other hand, a stipulation ostensibly
signifying an agreement to "any increase or decrease in the interest rate,"
without more, cannot be accepted by this Court as valid for it leaves solely to
the creditor the determination of what interest rate to charge against an
outstanding loan.

Petitioner has also failed to convince us that its transaction with

respondent Corporation is really a trust receipt transaction instead of merely a
simple loan, as found by the lower court and the Court of Appeals.

The recent case of Colinares v. Court of Appeals 12 appears to be

foursquare with the facts obtaining in the case at bar. There, we 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 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.

In the case at bar, as in Colinares, the delivery to respondent Corporation

of the goods subject of the trust receipt occurred long before the trust receipt
itself was executed. More specifically, delivery of the bunker fuel oil to
respondent Corporation's Bulacan plant commenced on July 7, 1982 and was
completed by July 19, 1982. 13 Further, the oil was used up by respondent
Corporation in its normal operations by August, 1982. 14 On the other hand, the
subject trust receipt was only executed nearly two months after full delivery of
the oil was made to respondent Corporation, or on September 2, 1982.

The danger in characterizing a simple loan as a trust receipt transaction

was explained in Colinares, to wit:
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 regardless of
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 whether the latter is the owner. Here, it is crystal clear that on the part
of Petitioners there was neither dishonesty nor abuse of confidence in
the handling of money to the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by several receipts
issued by PBC acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and

misappropriating the money for their personal use. The mala prohibita
nature of the alleged offense notwithstanding, intent as a state of mind
was not proved to be present in Petitioners' situation. Petitioners
employed no artifice in dealing with PBC and never did they evade
payment of their obligation nor attempt to abscond. Instead, Petitioners
sought favorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers

acquiring the goods for re-sale, contrary to the express provision
embodied in the trust receipt. They are contractors who obtained the
fungible goods for their construction project. At no time did title over
the construction materials pass to the bank, but directly to the
Petitioners from CM Builders Centre. This impresses upon the trust
receipt in question vagueness and ambiguity, which should not be the
basis for criminal prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to
facilitate collection of loans and place them under the threats of
criminal prosecution should they be unable to pay it may be unjust and
inequitable, if not reprehensible. Such agreements are contracts of
adhesion which borrowers have no option but to sign lest their loan be
disapproved. The resort to this scheme leaves poor and hapless
borrowers at the mercy of banks, and is prone to misinterpretation, as
had happened in this case. Eventually, PBC showed its true colors and
admitted that it was only after collection of the money, as manifested
by its Affidavit of Desistance.

Similarly, respondent Corporation cannot be said to have been dishonest

in its dealings with petitioner. Neither has it been shown that it has evaded
payment of its obligations. Indeed, it continually endeavored to meet the same,
as shown by the various receipts issued by petitioner acknowledging payment
on the loan. Certainly, the payment of the sum of P1,832,158.38 on a loan with
a principal amount of only P681,075.93 negates any badge of dishonesty,
abuse of confidence or mishandling of funds on the part of respondent
Corporation, which are the gravamen of a trust receipt violation. Furthermore,
respondent Corporation is not an importer which acquired the bunker fuel oil
for re-sale; it needed the oil for its own operations. More importantly, at no time
did title over the oil pass to petitioner, but directly to respondent Corporation to
which the oil was directly delivered long before the trust receipt was executed.
The fact that ownership of the oil belonged to respondent Corporation, through
its President, Gregory Lim, was acknowledged by petitioner's own account
officer on the witness stand, to wit:
Q After the bank opened a letter of credit in favor of Petrophil Corp.
for the account of the defendants thereby paying the value of the
bunker fuel oil what transpired next after that?
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 A Upon purchase of the bunker fuel oil and upon the requests of the
defendant possession of the bunker fuel oil were transferred to
them.
Q You mentioned them to whom are you referring to?

A To the Continental Cement Corp. upon the execution of the trust

receipt acknowledging the ownership of the bunker fuel oil this
should be acceptable for whatever disposition he may make.
Q You mentioned about acknowledging ownership of the bunker
fuel oil to whom by whom?
A By the Continental Cement Corp.
Q So by your statement who really owns the bunker fuel oil?
ATTY. RACHON:

Objection already answered.

COURT:
Give time to the other counsel to object.
ATTY. RACHON:

He has testified that ownership was acknowledged in favor of

Continental Cement Corp. so that question has already been
answered.
ATTY. BAÑAGA:
That is why I made a follow up question asking ownership of the
bunker fuel oil.
COURT:

Proceed.
ATTY. BAÑAGA:
Q Who owns the bunker fuel oil after purchase from Petrophil
Corp.?
A Gregory Lim. 15

By all indications, then, it is apparent that there was really no trust

receipt transaction that took place. Evidently, respondent Corporation was
required to sign the trust receipt simply to facilitate collection by petitioner of
the loan it had extended to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his
spouse should be personally liable under the subject trust receipt. Petitioner's
argument that respondent Corporation and respondent Lim and his spouse are
one and the same cannot be sustained. The transactions sued upon were
clearly entered into by respondent Lim in his capacity as Executive Vice
President of respondent Corporation. We stress the hornbook law that
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 corporate personality is a shield against personal liability of its officers. Thus,
we agree that respondents Gregory T. Lim and his spouse cannot be made
personally liable since respondent Lim entered into and signed the contract
clearly in his official capacity as Executive Vice-President. The personality of
the corporation is separate and distinct from the persons composing it. 16
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.

SO ORDERED.
Davide, Jr., C.J., Puno and Kapunan, JJ., concur.
Pardo, J., took no part.

Footnotes
1. Penned by Associate Justice Cezar D. Francisco and concurred in by
Associate Justices Gloria C. Paras and Buenaventura J. Guerrero; Petition for
Review, Annex "B"; Rollo , pp. 76-93.

2. Petition for Review, Annex "C"; Rollo , p. 95.

3. Docketed as Civil Case No. 86-38396; Record, pp. 1-11.
4. Pre-Trial Order, p. 3; Record, p. 236.
5. Penned by then Presiding Judge Bernardo P. Pardo, now Associate Justice of
this Court; Record, pp. 435-438.
6. Petition for Review, pp. 10-11; Rollo , pp. 17-18.
7. Bañas, Jr. v. Court of Appeals, G.R. No. 102967, 10 February 2000, citing
Guerrero v. Court of Appeals, 285 SCRA 670 [1998] and Sta. Maria v. Court of
Appeals, 285 SCRA 351 [1998].
8. Civil Code, Art. 1290; Abad v. Court of Appeals, 181 SCRA 191 [1990].
9. Exhibit "A".
10. 296 SCRA 247 [1998].

11. Emphasis ours.

12. G.R. No. 90828, 5 September 2000.
13. TSN, 19 April 1989, p. 9; Exhibits "9" and "10"; Record, pp. 301-302.
14. Ibid., p. 12.
15. TSN, 12 April 1989, pp. 4-5.
16. FCY Construction Group, Inc. v. Court of Appeals, 324 SCRA 270 [2000],
citing Rustan Pulp and Paper Mills, Inc. vs. Intermediate Appellate Court, 214
SCRA 665, 672 [1992].

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