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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.

Chavez vs. Gonzales: G.R. No. L-27454; April 30, 1970

Rosendo O. Chavez, plaintiff-appellant vs. Fructuoso Gonzales, defendant-appellee

REYES, J.B.L., J.:

FACTS: 

The plaintiff delivered to the defendant, who is a typewriter repairer, a portable typewriter for routine cleaning and servicing. The defendant was not able to finish the job after some time despite repeated reminders made by the plaintiff. In October, 1963, the defendant asked from the plaintiff the sum of P6.00 for the purchase of spare parts, which amount the plaintiff gave to the defendant.

After getting exasperated with the delay of the repair of the typewriter, the plaintiff went to the house of the defendant and asked for the return of the typewriter. The plaintiff found out that the typewriter was in shambles with some parts missing. Chaves demanded the return of the missing parts and the sum of P6.00, which Gonzales returned. Later on, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job cost him a total of P89.85, including labor and materials. 

Chavez then commenced this an action before the City Court of Manila, demanding from the Gonzales the payment of P90.00 as actual and compensatory damages.  The RTC granted the petition and ordered that the defendant pay the plaintiff the amount of P31.10 which is the total value of the missing parts.  Chavez contended that he should be awarded the whole cost of labor and materials as provided for in Article 1167 of the Civil Code. Thus, this petition.

ISSUE:  Whether or not Chavez is entitled to the whole cost of labor and materials that went into the repair of the typewriter?

RULING: YES. Article 1167 of the Civil Code states:  If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. 

The inferences derivable from these findings of fact are that the Chavez and the Gonzalez had a perfected contract for cleaning and servicing a typewriter, intended to be completed at some future time although such time was not specified, that such time had passed, and that the typewriter was returned cannibalized and unrepaired, which in itself is a breach of his obligation. The time for compliance had evidently expired and there was a breach of contract by non-performance. The Gonzales-appellee contravened the tenor of his obligation.

The cost of the execution of the obligation in this case should be the cost of the labor or service expended in the repair of the typewriter, which is in the amount of P58.75 because the obligation or contract was to repair it. In addition, Gonzales is likewise liable under Article 1170 of the Code for the cost of the missing parts for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in the same condition it was when he received it.