METROPOLITAN BANK AND TRUST COMPANY, Petitioner, v RURAL BANK OF GERONA, INC., Respondent.

G.R. No. 159097

July 5, 2010
BRION, J.

FACTS:
Central Bank
Farmers RBG Metrobank (depositary bank of RBG) =
Petitioner
 Rural Bank of Gerona (RBG) is a rural bank located in Tarlac.
 In the 1970s - the Central Bank and RBG entered into agreement where RBG shall facilitate the loan applications of farmers under the
“Reconstruction and Development Rural Credit Project (IBRD Project).”
o The agreement required RBG to open a separate bank account where IBRD loan proceeds shall be deposited.
 RBG accordingly opened a special savings account with Metrobank.
 As depository bank of RBG, Metrobank was designated to receive credit advice released by Central Bank representing the proceeds of
the IBRD loan of farmers; Metrobank, in turn, credited the amounts to RBG’s special savings account for RBG’s release to farmers.

 In 1978 - Central Bank released a credit advice, and accordingly credited (deposited?) Metrobank with the ff amounts for the savings
account of RBG ---
o P178,652, represented approved loan application of farmer de Jesus.
o P189,052, for farmer Panopio
o P220,000, for farmer Lagman

o RBG withdrew the first two amounts.

o For the 3rd amount, RBG only withdrew P75,375 out of the P220,000.
 Now, more than a month after RBG had made the above withdrawals, the Central Bank issued debit advices, reversing all the
approved loans. Central Bank debited from Metrobank’s demand deposit account the amount corresponding to all three loans.
 Metrobank, in turn, debited the following amounts from RBG’s special savings account: P189,052, P115,000, and P8,000.
Metrobank, however, claimed that these amounts were insufficient to cover all the credit advices that were reversed by Central Bank. It
demanded payment from RBG. Metrobank claimed that RBG still had an outstanding balance of P334,220.

 To collect this amount, Metrobank filed complaint for collection of money against RBG.
 RTC: ruled for Metrobank, finding that legal subrogation had ensued; ordered RBG to pay Metrobank the sum of P334,200, plus interest
at 14% per annum.
Metrobank’s demand deposit reserves diminished correspondingly, Metrobank suffers prejudice in which case legal subrogation
has ensued.
(ELAM: There is legal subrogation > ergo, RBG has to pay Metrobank)
 CA: noted that this was not a case of legal subrogation under Art 1302 of Civil Code. Nevertheless, CA recognized that Metrobank had
right to be reimbursed of what it paid and failed to recover. It clarified, however, that a determination still had to be made on who
should reimburse Metrobank. CA declared that the Central Bank should be impleaded as a necessary party so it could shed light
on the IBRD loan reversals; remanded case to RTC after the Central Bank is impleaded as a necessary party.
(ELAM: There is NO legal subrogation > ergo, Metrobank cannot debit from RBG; Central Bank has to be impleaded to know who is
liable to reimburse Metrobank)
 Metrobank elevated case with SC thru petition for review under Rule 45 ---
1 - Metrobank disagrees with the CA’s ruling to implead the Central Bank. It argues that inclusion of the Central Bank as party to the
case is unnecessary since RBG has already admitted its liability for the amount Metrobank failed to recover.
2 - Metrobank contends that a remand would delay proceedings. Transactions took place in 1978, and case was commenced more than
20 years ago.
(ELAM: Metrobank is saying that no need to implead Central Bank; and that there is legal subrogation.)

ISSUE: WON Metrobank was subrogated to the rights of Central Bank after Central Bank pulled from its demand deposit account. –YES
(ELAM: Is this a novation in terms of change in creditor?)

RULING:
Court ruled (with ):
The petition is impressed with merit.
 The first step in resolving case is to determine who the liable parties are on the IBRD loans that Central Bank extended. The Terms and
Conditions of the Credit Project shows that the farmers to whom credits have been extended, are primarily liable for payment of
borrowed amounts. The loans were extended through RBG which handles collection and remittance. While the farmers were the
principal debtors, RBG assumed liability under the Project Terms and Conditions by solidarily binding itself with principal debtors to
fulfill obligation.
 As per the Terms and Conditions, if RBG delays in remitting, Central Bank imposed a 14% per annum penalty on RBG until amount is
actually remitted. Central Bank was further authorized to deduct the amount due from RBG’s demand deposit reserve should the latter
become delinquent in payment. This are reflected in Par5 and 6 of the Project Terms and Conditions read:
 Based on these arrangements, Central Bank’s immediate recourse, therefore should have been against the farmers-borrowers
and RBG; thus, it erred when it deducted the amounts from Metrobank’s demand deposit account.
 Metrobank had no responsibility over proceeds of IBRD loans other than serving as a conduit for their transfer from the
Central Bank to RBG once credit advice has been issued. (ELAM: Central Bank is such a bitch!)
o Metrobank was an outsider to the agreement.

 However, Court disagrees with CA in its conclusion that no legal subrogation took place. The present case, in fact, exemplifies
the legal subrogation as contemplated in Par 2 of Art 1302 of Civil Code which provides:
Art. 1302. 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.
(ELAM: Meaning that because of item2 MetroB can claim rmbursmnt from RBG; subrogated to rights of Central Bank)
o In this case, Metrobank was a 3rd party to Central Bank-RBG agreement, had no interest except as a conduit, and was not legally
answerable for loans.
o Was there express or tacit approval by RBG of payment enforced against Metrobank? YES--- After Metrobank received the Central
Bank’s debit advices, Metrobank accordingly debited the amounts from RBG’s special savings account W/O OBJECTION from
RBG. RBG’s Pres and Mngr even wrote Metrobank regarding possible means of settling amounts debited by Central Bank from
Metrobank’s demand deposit account. These are indicative of RBG’s approval of Metrobank’s payment of the IBRD loans.
o Also, fact that RBG’s tacit approval came after payment does not completely negate the legal subrogation that had taken place.
 Art 1303 states that subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the
debtor or against third persons. As the entity against which the collection was enforced, Metrobank was subrogated to the rights of
Central Bank and has a cause of action to recover from RBG the amounts it paid to the Central Bank, plus 14% per annum interest.
 Ergo, because of this subrogation thingy impleading Central Bank as party is unnecessary.

 As this Court is not a trier of facts, we deem it proper to remand the factual issue to RTC for computation of actual amount RBG owes to
Metrobank.
o Metrobank contends that it credited RBG’s account with 3 amounts P178,652.00 for Dominador de Jesus; the P189,052.00 for
Basilio Panopio; and the P220,000.00 for Ponciano Lagman. Metrobank claims that all of the three credit advices were
subsequently reversed by the Central Bank, evidenced by three debit advices. The records, however, contained only the credit and
debit advices for the amounts set aside for de Jesus and Lagman. Nothing in findings referred to amount set aside for Panopio.
o Thus, what were proven as credited and debited from Metrobank’s demand deposit account were only the amounts of P178,652.00
and P189,052.00. With these amounts combined, RBG’s liability would amount to P398,652.00 – the same amount RBG
acknowledged as due to Metrobank.
o RBG asserts that it made partial payments amounting to P145,197.40, but neither the RTC nor the CA made a conclusive finding as
to the accuracy of this claim. Although Metrobank admitted that RBG indeed made partial payments, it never mentioned the actual
amount paid; neither did it state that the P145,197.40 was part of theP312,052.41 that, it admitted, it debited from RBG’s special
savings account. Deducting P312,052 (representing the amounts debited from RBG’s special savings account, as admitted by
Metrobank) from P398,652.00 amount due to Metrobank from RBG, the difference would only be P86,599.59. We are, therefore, at
a loss on how Metrobank computed the amount of P334,220.00 it claims as the balance of RBG’s loan.
(ELAM: In short – there is discrepancy in amounts claimed for reimbursement by Metrobank, and amount owed claim by RBG.
Proper recourse is remand despite lengthy case.)

DISPOSITION:
WHEREFORE, we GRANT the petition for review on certiorari, and REVERSE the decision and the resolution of the Court of Appeals, in CA-
G.R. CV No. 46777, promulgated on December 17, 2002 and July 14, 2003, respectively. We AFFIRM the decision of the Regional Trial Court,
Branch 65, Tarlac, promulgated on July 7, 1994, insofar as it found respondent liable to the petitioner Metropolitan Bank and Trust
Company, but order the REMAND of the case to the trial court to determine the actual amounts due to the petitioner. Costs against
respondent Rural Bank of Gerona, Inc.
SO ORDERED.