#art1302

Metropolitan Bank and Trust Company vs. Rural Bank of Gerona, Inc.

Facts: In the 1970s, RBG agreed with the Central Bank to facilitate loan applications for farmers under the Central Bank-IBRD’s project, necessitating the opening of a special savings account with Metrobank for IBRD loan proceeds. Loans approved for various farmers were credited by the Central Bank to Metrobank’s demand deposit account for RBG’s account; RBG would then withdraw the amounts from its special savings account to disburse the loans. Unexpectedly, on November 3, 1978, the Central Bank issued debit advices, reversing all approved IBRD loans and consequently debiting the equivalent amounts from Metrobank’s demand deposit account.

Metrobank, finding RBG’s special savings account deficient, demanded payment to recover the shortfall, leading to filing a complaint for collection of the sum of money against RBG before the RTC Tarlac in 1980. The RTC in 1994 ruled in favor of Metrobank, deciding on legal subrogation, but this decision was challenged and set aside by the CA, which demanded the remanding of the case to include the Central Bank as a necessary party for a comprehensive resolution.

Issues: The key legal issues revolved around the appropriateness of legal subrogation, the necessity of including the Central Bank as a party to the proceedings, and the determination of actual amounts owed by RBG to Metrobank considering the partial payments made and the amounts debited from RBG’s savings account.

It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor’s knowledge;

(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;

(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter’s share. (1210a)

Subrogation means the substitution of one claim for another, especially the transfer of the right to receive payment of a debt to somebody other than the original. Based on article 1302 the third person may pay the amount the obligation of a debtor to the creditor even without his knowledge, in the Case of Gaysano vs. North American Insurance, Gaysano declined to pay his debt to Levis International due to fortuitous event, but the Levis international supported his claim on the obligation of Gaysano based on the legal subrogation aside from the Article 1302.

Case cited under Art 1302

Metropolitan Bank and Trust Company vs. Rural Bank of Gerona, Inc.

Facts: In the 1970s, RBG agreed with the Central Bank to facilitate loan applications for farmers under the Central Bank-IBRD’s project, necessitating the opening of a special savings account with Metrobank for IBRD loan proceeds. Loans approved for various farmers were credited by the Central Bank to Metrobank’s demand deposit account for RBG’s account; RBG would then withdraw the amounts from its special savings account to disburse the loans. Unexpectedly, on November 3, 1978, the Central Bank issued debit advices, reversing all approved IBRD loans and consequently debiting the equivalent amounts from Metrobank’s demand deposit account.

Metrobank, finding RBG’s special savings account deficient, demanded payment to recover the shortfall, leading to filing a complaint for collection of the sum of money against RBG before the RTC Tarlac in 1980. The RTC in 1994 ruled in favor of Metrobank, deciding on legal subrogation, but this decision was challenged and set aside by the CA, which demanded the remanding of the case to include the Central Bank as a necessary party for a comprehensive resolution.

Issues: The key legal issues revolved around the appropriateness of legal subrogation, the necessity of including the Central Bank as a party to the proceedings, and the determination of actual amounts owed by RBG to Metrobank considering the partial payments made and the amounts debited from RBG’s savings account.

Held: The Supreme Court granted Metrobank’s petition, finding merit in its complaints and arguments: It clarified that RBG and the actual borrowers were primarily liable under the Project Terms and Conditions, and that Metrobank was improperly debited for the reversals of IBRD loans by the Central Bank. The Court acknowledged legal subrogation had occurred when Metrobank’s deposits were used to cover the reversed loans without its consent but with RBG’s tacit approval. It ruled against the necessity of including the Central Bank as a party in the case, stating that the main concern is between Metrobank and RBG after subrogation had been established. However, the Court remanded the case to the RTC for accurate computation of amounts owed by RBG, acknowledging procedural errors in omitting critical financial documentation and the need for precise calculation post-partial payments.