G.R. No.

L-42735, January 22, 1990

RAMON L. ABAD vs. CA

FACTS:

TOMCO, Inc., now known as Southeast Timber Co. (Phils.), Inc., applied for, and was granted
by the Philippine Commercial and Industrial Bank a domestic letter of credit for P 80,000 in
favor of its supplier, Oregon Industries, Inc., to pay for one Skagit Yarder with accessories. PCIB
paid to Oregon Industries the cost of the machinery against a bill of exchange for P 80,000, with
recourse, presentment and notice of dishonor waived.

After making the required marginal deposit of P28,000, TOMCO, Inc. signed and delivered to
the bank a trust receipt acknowledging receipt of the merchandise in trust for the bank, with the
obligation "to hold the same in storage" as property of PCIB, with a right to sell the same for
cash provided that the entire proceeds thereof are turned over to the bank, to be applied against
acceptance and any other indebtedness of TOMCO, Inc.

In consideration of the release to TOMCO, Inc. by PCIB of the machinery covered by the trust
receipt, petitioner Ramon Abad signed an undertaking entitled, "Deed of Continuing Guaranty"
appearing on the back of the trust receipt, whereby he promised to pay the obligation jointly and
severally with TOMCO, Inc.

Except for TOMCO's marginal deposit in the bank, no payment has been made to PCIB by either
TOMCO, Inc. or its surety, Abad, on the letter of credit. Consequently, the bank sued TOMCO,
Inc. and Abad the CFI Manila.

TOMCO alleged that inasmuch as it made a marginal deposit of P28,000, this amount should
have been deducted from its principal obligation, leaving a balance of P52,000 only, on which
the bank should have computed the interest, bank charges, and attorney's fees.

The trial court rendered judgment in favor of PCIB. The CA affirmed in toto the decision of the
trial court.

ISSUE:

Whether the debtor (or its surety) is entitled to deduct the debtor's cash marginal deposit from the
principal obligation under a letter of credit;

HELD:

The marginal deposit requirement is a Central Bank measure to cut off excess currency liquidity
which would create inflationary pressure. It is a collateral security given by the debtor, and is
supposed to be returned to him upon his compliance with his secured obligation. Consequently,
the bank pays no interest on the marginal deposit, unlike an ordinary bank deposit which earns
interest in the bank. As a matter of fact, the marginal deposit requirement for letters of credit has
been discontinued, except in those cases where the applicant for a letter of credit is not known to
the bank or does not maintain a good credit standing therein.

It is only fair then that the importer's marginal deposit should be set off against his debt, for
while the importer earns no interest on his marginal deposit, the bank, apart from being able to
use said deposit for its own purposes, also earns interest on the money it loaned to the importer.
It would be onerous to 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 which the
importer paid to the bank. 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 (Art. 1290, Civil Code). Although Abad is only a surety, he may
set up compensation as regards what the creditor owes the principal debtor, TOMCO (Art. 1280,
Civil Code).

It is not farfetched to assume that the bank used TOMCO's marginal deposit to partially fund the
P80,000 letter of credit it issued to TOMCO, hence, the interests and other charges on said letter
of credit should be levied only on the balance of P52,000 which was the portion that was actually
funded or loaned by the bank from its own funds. Requiring the importer to pay interest on the
entire letter of credit without deducting first him marginal deposit, would be a clear case of
unjust enrichment by the bank.
G.R. No. 73271 May 29, 1987

SPOUSES VINTOLA vs.INSULAR BANK OF ASIA AND AMERICA

FACTS:

The spouses Vintolas, engaged in the manufacture of raw sea shells into finished products,
applied for and were granted a domestic letter of credit by the Insular Bank of Asia and America,
Cebu City in the amount of P40,000.00, in consideration of the purchase of puka and olive
seashells. In consideration thereof, the Vintolas, jointly and severally, agreed to pay the bank.

Having received the merchandise, the Vintolas executed a Trust Receipt agreement with IBAA
where they agreed to hold the goods in trust for IBAA as the latter's property with liberty to sell
the same for its account, and in case of sale to turn over the proceeds as soon as received to
IBAA. Having defaulted on their obligation, IBAA demanded payment from the Vintolas, who,
on the other hand, were unable to dispose of the shells. Due to the continued refusal of the
Vintolas to make good their undertaking, IBAA charged them with Estafa. During the trial of the
criminal case, the Vintolas turned over the seashells to the custody of the Trial Court.

The CFI Cebu acquitted the spouses of the crime charged. Shortly thereafter, IBAA commenced
the present civil action to recover the value of the goods before the RTC, which ruled in the
bank’s favor.

The Vintolas, in this appeal, now maintains that their obligation to IBAA has been extinguished
inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and that
they have relinguished possession thereof to the IBAA, as owner of the goods, by depositing
them with the Court.

ISSUE:

Whether or not their obligation to IBAA has been extinguished;

HELD:

No.

A trust receipt is considered as a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through utilization,
as collateral of the merchandise imported or purchased.

Contrary to the allegation of the Vintolas, IBAA did not become the real owner of the goods. It
was merely the holder of a security title for the advances it had made to the Vintolas. The goods
the Vintolas had purchased through IBAA financing remain their own property and they hold it
at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the
latter remained a lender and creditor. If under the trust receipt, the bank is made to appear as the
owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were so, it
could dispose of the goods in any manner it wants, which it cannot do, just to give consistency
with the purpose of the trust receipt of giving a stronger security for the loan obtained by the
importer. To consider the bank as the true owner from the inception of the transaction would be
to disregard the loan feature thereof.

Since the IBAA is not the factual owner of the goods, the Vintolas cannot justifiably claim that
because they have surrendered the goods to IBAA and subsequently deposited them in the
custody of the court, they are absolutely relieved of their obligation to pay their loan because of
their inability to dispose of the goods. The fact that they were unable to sell the seashells in
question does not affect IBAA's right to recover the advances it had made under the Letter of
Credit, not to mention the express liability they obliged themselves under the same.
G.R. No. 170281, January 18, 2008

REPUBLIC OF THE PHILIPPINES vs. GLASGOW CREDIT AND COLLECTION

SERVICES, INC. and CITYSTATE SAVINGS BANK, INC.

FACTS:

In 2003, the Republic filed a complaint in the RTC Manila for civil forfeiture of assets against
the bank deposits in an account maintained by Glasgow in CSBI. The case was filed pursuant to
the Anti-Money Laundering Act of 2001. The RTC issued a 72-hour TRO and a writ of
preliminary injunction. Meanwhile, summons to Glasgow was returned "unserved" as it could no
longer be found at its last known address. After many attempts, the summons was remained
"unserved" as Glasgow was no longer holding office at the given address. Thus, the Republic
filed a manifestation and ex parte motion to resolve its motion for leave of court to serve
summons by publication.

In 2005, the OSG received a copy of Glasgow’s motion to dismiss alleging that that (1) the court
had no jurisdiction over its person as summons had not yet been served on it; (2) the complaint
was premature and stated no cause of action as there was still no conviction for estafa or other
criminal violations implicating Glasgow and (3) there was failure to prosecute on the part of the
Republic.

The trial court dismissed the case on the following grounds: (1) improper venue as it should have
been filed in the RTC of Pasig where CSBI, the depository bank of the account sought to be
forfeited, was located; (2) insufficiency of the complaint in form and substance and (3) failure to
prosecute. It lifted the writ of preliminary injunction and directed CSBI to release to Glasgow or
its authorized representative the funds in the subject account.

Raising questions of law, the Republic filed this petition.

ISSUE:

Whether the complaint for civil forfeiture was correctly dismissed;

HELD:

It was not correctly dismissed.

The Complaint Was Filed In The Proper Venue

Under the Rule of Procedure in Cases of Civil Forfeiture, the venue of civil forfeiture cases is
any RTC of the judicial region where the monetary instrument, property or proceeds
representing, involving, or relating to an unlawful activity or to a money laundering offense are
located. Pasig City, where the account sought to be forfeited in this case is situated, is within the
National Capital Judicial Region. Clearly, the complaint for civil forfeiture of the account may
be filed in any RTC of the NCJR. Since the RTC Manila is one of the RTCs of the NCJR, it was
a proper venue of the Republic’s complaint for civil forfeiture of Glasgow’s account.

The Complaint Was Sufficient In Form And Substance

The verified complaint of the Republic contained the the name and address of the primary
defendant, a description of the proceeds of Glasgow’s unlawful activities with particularity, as
well as the location thereof, account no. CA-005-10-000121-5 in the amount of P21,301,430.28
maintained with CSBI, the acts prohibited by and the specific provisions of RA 9160, as
amended, constituting the grounds for the forfeiture of the said proceeds. In particular, suspicious
transaction reports showed that Glasgow engaged in unlawful activities of estafa and violation of
the Securities Regulation Code, the proceeds of the unlawful activities were transacted and
deposited with CSBI in said account thereby making them appear to have originated from
legitimate sources; as such, Glasgow engaged in money laundering; and the AMLC subjected the
account to freeze order and reliefs prayed for, namely, the issuance of a TRO or writ of
preliminary injunction and the forfeiture of the account in favor of the government as well as
other reliefs just and equitable under the premises.

The form and substance of the Republic’s complaint thus substantially conformed with the Rule
of Procedure in Cases of Civil Forfeiture. Also, a finding of guilt for an unlawful activity is not
an essential element of civil forfeiture.

RA 9160, as amended, provides that any person may be charged with and convicted of both the
offense of money laundering and the unlawful activity as herein defined, and any proceeding
relating to the unlawful activity shall be given precedence over the prosecution of any offense or
violation under this Act without prejudice to the freezing and other remedies provided. The Rule
of Procedure in Cases of Civil Forfeiture also provides that no prior criminal charge, pendency of
or conviction for an unlawful activity or money laundering offense is necessary for the
commencement or the resolution of a petition for civil forfeiture.

Service Of Summons May Be By Publication

The same Rule of Procedure in Cases of Civil Forfeiture provides that where the respondent is
designated as an unknown owner or whenever his whereabouts are unknown and cannot be
ascertained by diligent inquiry, service may, by leave of court, be effected upon him by
publication of the notice of the petition in a newspaper of general circulation in such places and
for such time as the court may order.

The case is hereby remanded to the RTC Manila.