DIOKNO VS. REHABILITATION FINANCE CORP.

GR NO. L-4712
PONENTE: Labrador, J

FACTS

Plaintiff is the holder of a backpay certificate worth P75,857.14 that was issued
by the Treasurer of the Philippines under the provisions of Republic Act No. 304
(“Backpay Law”). As of November 1950, plaintiff had an outstanding loan of P47,355.28
with Rehabilitation Finance Corp. The loan was secured by a mortgage on the Plaintiff’s
property and had an annual interest rate of 4%. Plaintiff seeks to compel the Respondent
Corporation to accept his backpay certificate in lieu of payment for his outstanding loan.
Meanwhile, Respondent contends that such form of payment is contrary to the provisions
set forth by section 2 of R.A. No. 304:

Section 2, Republic Act No. 304

“. . . And provided, also, That investment funds or banks or other financial
institutions owned or controlled by the Government shall, subject to the
availability of loanable funds, and any provision of the their charters, articles of
incorporation's, by-laws, or rules and regulations to the contrary notwithstanding,
accept or discount at not more than two per centum per annum for ten years such
certificate for the following purposes only: (1) the acquisition of real property for
use as the applicant's home, or (2) the building or construction of the residential
house of the payee of said certificate: . . .”

ISSUE

Whether or not the Plaintiff can use his backpay certificate to pay off his
outstanding loan to Respondent Corporation

RULING

No. Despite usage of the phrase “shall … accept or discount” in section 2 of R.A.
No. 304, the provision is not mandatory. The condition imposed for accepting or
discounting certificates is the “availability of loanable funds.” Plaintiff contends that
Respondent Corporation has enough “available funds” and thus meets the condition
stipulated to accept his backpay certificate. However, it can be readily seen from the
financial data of Respondent Corporation that they did not have enough cash balance
available. If the word “shall” as used in section 2 of R.A. No. 304, were to make the
acceptance and discounting of certificates mandatory, such would bring about the
suspension of the activities of Respondent Corporation due to lack of available funds. It
could not have been the intention of Congress to disrupt the whole scheme of
rehabilitation envisioned by the Rehabilitation Act (law governing Respondent
Corporation) by its passage of Section 2 of the Backpay Law.

DOCTRINE

“It is true that in its ordinary signification, the word ‘shall’ be imperative.
However, the rule is not absolute. It may be construed as ‘may’ when so required by the
context or by the intention of the statute.”