Diokno v. Rehabilitation Finance Corporation August 30, 1948.

August 30, 1948. On or about November 10, 1950, when this meaning or when addressed to public officials, or where a
G.R. No. L-4712 (July 11, 1952) action was brought, he had an outstanding loan with the public interest is involved, or where the public or persons have
Chapter VIII, Page 336, Footnote No. 32 Rehabilitation Finance Corporation, contracted therewith on rights which ought to be exercised or enforced, unless a
January 27, 1950, in the total sum of P50,000, covered by a contrary intent appears. People vs. O'Rourke, 13 P. 2d. 989,
mortgage on his property situated at 44 Alhambra, Ermita, 992, 124 Cal. App. 752. (39 Words and Phrases, Permanent Ed.,
FACTS: Manila, with interest at 4 per cent per annum, of which p. 90.)
Petitioner, the holder of a back pay certificate of indebtedness P47,355.28 was still unpaid. In this action he seeks to compel
issued under RA 304, sought to compel Respondent company the defendant corporation to accept payment of the balance of The presumption is that the word "shall" in a statute is used in
to accept his back pay certificate as payment of his loan from his indebtedness with his backpay certificate. The defendant an imperative, and not in a directory, sense. If a different
the latter. His basis was Sec. 2 of RA 304, which provides that resists the suit on the ground that plaintiff's demand is not interpretation is sought, it must rest upon something in the
“investment funds or banks or other financial institutions only not authorized by Section 2 of Republic Act No. 304 but character of the legislation or in the context which will justify a
owned or controlled by the government shall subject to contrary to the provisions thereof, and furthermore because different meaning. Haythorn vs. Van Keuren & Son, 74 A. 502,
availability of loanable funds … accept or discount at not more plaintiff's loan was obtained on January 27, 1950, much after 504, 79 N. J. L. 101; Board of Finance of School City of Aurora
than two per centum per annum for ten years such the passage of Republic Act No. 304, and because the law vs. People's Nat. Bank of Lawrenceburg, 89 N. E. 904, 905, 44
certificate” for certain specified purposes. Respondent permits only "acceptance or discount of backpay certificates," Ind. App. 578. (39 Words and Phrases, Permanent Ed., p. 93.)
company contended however that the word “shall” used in not the repayment of loans. The court a quo held that Section 2 However, the rule is not absolute; it may be construed as "may",
this particular section of the law is merely directory. The of Republic Act No. 304 is permissive merely, and that even if it when so required by the context or by the intention of the
lower court sustained Respondent company. were mandatory, plaintiff's case cannot fall thereunder because statute.
he is not acquiring property for a home or constructing a
residential house, but compelling the acceptance of his backpay In its ordinary signification, "shall" is imperative, and not
ISSUE: certificate to pay a debt he contracted after the enactment of permissive, though it may have the latter meaning when
W/N Petitioner can use his back pay certificate to pay for Republic Act No. 304. It, therefore, dismissed the complaint required by the context. Town of Milton vs. Cook, 138 N. E. 589,
his loan to Respondent company. with costs. 590, 244 Mass. 93. (39 Words and Phrases, Permanent Ed., p.
89.)
The appeal involves the interpretation of section 2 of Republic
HELD: Act No. 304, which provides: "Must" or "shall" in a statute is not always imperative, but may
No. It is true that in its ordinary signification, the word be consistent with an exercise of discretion. In re O'Hara, 82 N.
“shall” is imperative. However, the rule is not absolute; it may * * * And provided, also, That investment funds or banks or Y. S. 293, 296, 40 Misc. 355, citing In re Thurber's Estate, 162 N.
be construed as “may” when required by the context or by the other financial institutions owned or controlled by the Y. 244, 252, 56 N. E. 638, 639. (Ibid. p. 92.)
intention of the statute. The modifier, “at not more than two Government shall, subject to availability of loanable funds, and
per centum per annum for ten years.”, the interest to be any provision of their charters, articles of incorporation, by- The word "shall" is generally regarded as imperative, but in
charged, that the verb phrase is mandatory because not only laws, or rules and regulations to the contrary notwithstanding, some contexts it is given a permissive meaning, the intended
the law uses “at not more” but the legislative purpose and accept or discount at not more than two per centum per annum meaning being determined by what is intended by the statute.
intent, to conserve the value of the back pay certificate for the for ten years such certificate for the following purposes only: National Transit Co. vs. Boardman, 197 A. 239, 241, 328 Pa.
benefit of the holders, for whose benefit the same have been (1) the acquisition of real property for use as the applicant's 450.
issued, can be carried out by fixing a maximum limit for home, or (2) the building or construction or reconstruction of
discounts. But as to when the discounting or acceptance shall the residential house of the payee of said certificate: * * * The word "shall" is to be construed as merely permissive,
be made, the context and the sense demand a contrary where no public benefit or private right requires it to be given
interpretation. If the acceptance or discount of the certificate is It is first contended by the appellant that the above provision is an imperative meaning. Sheldon vs. Sheldon, 134 A. 904, 905,
to be “subject” to the condition of the availability of loanable mandatory, not only because it employs the word "shall", which 100 N. J. Ex. 24.
funds, it is evident the legislature intended that the in its ordinary signification is mandatory, not permissive, but
acceptance shall be allowed on the condition that there are also because the provision is applicable to institutions of credit Presumption is that word "shall," in ordinance, is mandatory;
“available loanable funds.” In other words, acceptance or under the control of the Government, and because otherwise but, where it is necessary to give effect to legislative intent, the
discount is to be permitted only if there are loanable funds. the phrases "subject to availability of loanable funds" and "any word will be construed as "may." City of Colorado Springs vs.
provisions of this charter, * * * and regulations to the contrary Street, 254 p. 440, 441, 81 Colo. 181.
91 Phil. 608 notwithstanding" would be superfluous.
The word "shall" does not necessarily indicate a mandatory
[ G.R. No. L-4712, July 11, 1952 ] It is true that in its ordinary signification the word "shall" is behest. Grimsrud vs. Johnson, 202 N. W. 72, 73, 162 Minn. 98.
RAMON DIOKNO, PLAINTIFF AND APPELLANT, VS. imperative.
REHABILITATION FINANCE CORPORATION, DEFENDANT AND Words like "may," "must," "shall," etc., are constantly used in
APPELLEE. In common or ordinary parlance, and ifi its ordinary statutes without intending that they shall be taken literally, and
signification, the term "shall" is a word of command, and one in their construction the object evidently designed to be
DECISION which has always or which must be given a compulsory reached limits and controls the literal import of the terms and
LABRADOR, J.: meaning; as denoting obligation. It has a peremptory meaning, phrases employed. Fields vs. United States, 27 App. D. C. 433,
Plaintiff is the holder of a backpay certificate of indebtedness and it is generally imperative or mandatory. It has the 440. {39 Words and Phrases, Permanent Ed., pp. 89, 92).
issued by the Treasurer of the Philippines under the provisions invariable significance of operating to impose a duty which
of Republic Act No. 304 of a face value of P75,857.14 dated may be enforced, particularly if public policy is in favor of this
In this jurisdiction the tendency has been to interpret the word (section 1), and to achieve the above aims it was granted the
"shall" as the context or a reasonable construction of the following powers: As of February 2, 1951, the corporation had accepted in
statute in which it is used demands or requires. Thus the payment of loans granted before June 18, 1948, the total
provision of Section 11 of Rule 4 of the Rules requiring a SEC. 2. Corporate powers. The Rehabilitation Finance amount of P8,225,299.96, as required by Section 2 of the
municipal judge or a justice of the peace to render judgment at Corporation shall have power: Backpay Law. (See Exhibit 11, p. 4.)
the conclusion of the trial has been held to be directory.
(Alejandro vs. Judge of First Instance [1] 40 Off. Gaz., 9th Supp., (a) To grant loans for home building and for the rehabilitation, The third anniversary report of the Rehabilitation Finance
261). In like manner section 178 of the Election Law, in so far establishment or development of any agricultural, commercial Corporation dated January 2, 1950 (Exhibit 1), shows that the
as it requires that appeals shall be decided in three months, has or industrial enterprise, including public utilities; funds originally available to the corporation came from the
been held to be directory for the Court of Appeals. (Querubin following sources:
vs. The Court of Appeals,[2] 46 Off. Gaz., 155). (b) To grant loans to provincial, city and municipal
governments for the rehabilitation, construction or Funds made available:
In the provision subject of controversy, it is to be noted that the reconstruction of public markets, waterworks, toll bridges, Initial cash capital P50,000,000.00
verb-phrase "shall accept or discount" has two modifiers, slaughterhouses, and other self-liquidating or income- Cash transferred from
namely, "subject to availability of loanable funds" and "at not producing services; Financial Rehabilitation 2,423,079.74
more than two per centum per annum for ten years." As to the Funds
second modifier, the interest to be charged, there seems to be (c) To grant loans to agencies and corporations owned or Cash received from Surplus
no question that the verb phrase is mandatory, because not controlled by the Government of the Republic of the 26,350,000.00
Property Commission
only does the law use "at not more" but the legislative purpose Philippines for the production and distribution of electrical Cash received from Phil.
and intent, to conserve the value of the backpay certificate for power, for the purchase and subdivision of rural and urban 3,700,000.00
Shipping Adm.
the benefit of the holders, for whose benefit the same have estates, for housing projects, for irrigation and waterworks Cash payment of capital 82,473,079.74
been issued, can be carried out by fixing a maximum limit for systems, and for other essential industrial and agricultural Proceeds of bond issues 58,909,148.18
discounts. But as to when the discounting or acceptance shall enterprises; Advances from the Central
be made, the context and the sense demand a contrary 10,000,000.00
Bank
interpretation. The phrase "subject" means "being under the (d) To grant loans to cooperative associations to facilitate
contingency of" (Webster's Int. Dict.), a condition. If the production, the marketing of crops, and the acquisition of
There was also collectible from loans the total amount of
acceptance or discount of the certificates is to be "subject" to essential commodities;
P28,659,442.12, so that the total cash available to the
the condition of the availability of loanable funds, it is evident
corporation from January 2, 1947, to November 30, 1949, was
that the Legislature intended that the acceptance shall be (e) To underwrite, purchase, own, sell, mortgage or otherwise
P180,041,670.04. But the total amount of loans already
allowed on the condition that there are "available loanable dispose of stocks, bonds, debentures, securities and other
approved as of the last date was P203,667,403.78 and the total
funds." In other words, acceptance or discount is to be evidences of indebtedness issued for or in connection with any
of approved loans pending release was P25,342,020.78, and
permitted only if there are loanable funds. project or enterprise referred to in the preceding paragraphs;
the only cash balance available in November, 1949 to meet
these approved loans was P1,716,286.71.
Let us now consider the reaning of the condition imposed for (f) To issue bonds, debentures, securities, collaterals, and other
accepting or discounting certificates, the "availability of obligations with the approval of the President, but in no case to
It may readily be seen from the above data that were we to
loanable funds." On this issue the appellant contends that the exceed at any one time an aggregate amount equivalent to one
follow appellant's theory and contention that the law is
mere fact that P50,000 was loaned to him ard that the hundred per centum of its subscribed capital and surplus. * * *
mandatory, the loan he had applied for, as well as that of any
Rehabilitation Finance Corporation has been granting loans up If the Rehabilitation Finance Corporation is to carry out the
holder of a backpay certificate, would have to be paid out of
to the time plaintiff offered to pay the loan with his certificate aims and purposes for which it was created, it must evolve a
this available cash, pursuant to the alleged mandate of section
these prove that there are "available loanable funds". As the definite plan of the industries or activities which it should
2 of the Backpay Law. The compulsory acceptance and discount
court a quo did not pass on such availability, he also contends rehabilitate, establish or develop, and apportion its available
of certificates will bring about, as a direct and necessary
that this is a question of fact to be determined by the courts. funds and resources among these, consistent with the policies
consequence, the suspension of all, if not of most, of the
The defendant denies the existence of "available loanable outlined in its charter.
activities of the Rehabilitation Finance Corporation; and no
funds." The gict of plaintiff's contention is that any and all
agricultural or industrial loans, or loans to financial institutions
funds of the Rehabilitation Finance Corporation are subject to As of May 31, 1948, immediately prior to the passage of the
and local governments for their markets, water works, etc.,
the provision for the discount or acceptance of the certificates; Backpay Law, it had granted the following classes of loans:
would be granted, until all the backpay certificates (amounting
that of defendant-appelle is that only funds made available for
to some hundred millions of pesos) shall have been accepted or
the purpose of discounting backpay certificates may be used Agricultural loans P23,610,350.74 discounted. And as the defendant-appellant forcefully argues,
for such purpose and that at the time the action was filed there Industrial loans 22,717,565.87 even funds obtained by the Rehabilitation Finance Corporation
were no such funds. Real Estate loans 34,601,258.29 by the issue of bonds, at rates of interest of more than 2 per
Loans for purchase, Subdivision cent, the rate fixed for the discount of backpay certificates, will
The Rehabilitation Finance Corporation was created by 7,271,258.78
and Resale of Landed Estates have to be loaned to holders of backpay certificates at a loss, to
Republic Act No. 85, which was approved on October 29, 1946. Loans to Provinces, Cities, and the prejudice of the corporation, there would be loans for
The corporation was created "to provide credit facilities for the Municipalities for Self-liquidating 1,889,763.00 holders of backpay certificates, but none for rehabilitation or
rehabilitation and development of agriculture, commerce and Projects reconstruction, or development of industries, or of the national
industry, the reconstruction of property damaged by war, and Total Loans P90,090,077.68 economy; there would be funds for employees' loans, but none
the broadening and diversification of the national economy" (Exhibit 2)
for those engaged in agriculture and industry, none for the Having come to the conclusion that Section 2 of the Backpay
improvements of public services, etc., as all Rehabilitation Law is directory merely, we now address ourselves to the For all the foregoing considerations, we are constrained to
Finance Corporation funds will be necessary to meet the propriety of the action, which the plaintiff-appellant labels as dismiss the appeal, with costs against the appellant.
demands of holders of backpay certificates. And if it be specific performance. As the action is not based on any
remembered that the provision is intended for all financial contractual relation between the plaintiff-appellant and the Paras, C. J., Feria, Pablo, Padilla, Tuason, Montemayor, and
institutions controlled by the Government, the consequences defendant-appellee, it may not be one for specific performance; Bautista Angelo, JJ., concur.
would be felt by all industries and activities, and the whole it is in effect predicated on a supposed legal duty imposed by
scheme of national financial organization and development law and is properly designated as a special civil action of
disrupted. It seems evident that the legislature never could mandamus, because the appellant seeks to compel the appellee
have intended such absurd consequences, even with all the to accept his backpay certifcate in payment of his outstanding
sympathy that it is showing for holders of backpay certificates. obligation. We are not impressed by the defense, technical in a
sense, that the Rehabilitation Finance Corporation is not
But while we agree with the appellee that it could not have expressly authorized to accept certificates in payment of
been the intention of Congress to disrupt the whole scheme of outstanding loans. There is no provision expressly authorizing
rehabilitation, reconstruction, and development envisioned in this procedure or system; but neither is there one prohibiting
the Rehabilitation Act, by its passage of Section 2 of the it. The legislature had once ordered it; the Rehabilitation
Backpay Law, neither are we prepared to follow appellee's Finance Corporation has once authorized it. We believe the
insinuation that the section is impracticable or impossible of legislature could not have intended to discriminate against
execution by the Rehabilitation Finance Corporation in the those who have already built their houses, who have contracted
situation in which its funds and resources were at the time of obligations in so doing. We prefer to predicate our ruling that
the trial. In our opinion, what the Legislature intended by the this special action does not lie on the ground that the duty
provision in dispute is that the Rehabilitation Finance imposed by the Backpay Law upon the appellee as to the
Corporation, through its Board of Directors, should from time acceptance or discount of backpay certificates is neither clear
to time set aside some reasonable amount for the discount of nor ministerial, but discretionary merely and that mandamus
backpay certificates, when this can be done without unduly does not issue to control the exercise of discretion of a public
taxing its resources, or unduly prejudicing the plan of officer. (Viuda e Hijos de Crispulo Zamora vs. Wright and
rehabilitation and development that it has mapped out, or that Segado, 53 Phil., 613, 621; Blanco vs. Board of Medical
which the corresponding authority has laid down as a policy. Examiners, 46 Phil., 190, 192, citing Lamb vs. Phipps, 22 Phil.,
This legislative intention can be inferred from the fact that 456; Gonzales vs. Board of Pharmacy, 20 Phil., 367, etc.) It is,
Congress itself expressly ordered that all financial institutions however, argued on behalf of the appellant that inasmuch as
accept or discount backpay certificates in payment of those the Board of Directors of the Rehabilitation Finance
loans, evidently laying down an example to be followed by Corporation has seen fit to approve a resolution accepting
financial institutions under its control. The loans granted backpay certificates amounting to P151,000 (Exhibit H), law
under Section 2 of the law by the Rehabilitation Finance and equity demand that the same privilege should be accorded
Corporation amounted to P8,225,299.96. It is not shown or him. The trial court held that the above resolution was illegal
even pretended that the payment of this considerable amount and that its unauthorized enactment (which he called a
has impaired or disrupted the activities of the Rehabilitation "wrong") does not justify its repetition for the benefit of
Finance Corporation. It is not claimed, either, that at the time of appellant. As we have indicated above, we believe that its
the filing of appellants action the Rehabilitation Finance approval (not any supposed discrimination on behalf of some
Corporation was in no position to set aside a modest sura, in a special holders) can be defended under the law, but that the
manner similar to the creation of a sinking fund, for the passage of a similar resolution cannot be enjoined by an action
discount of backpay certificates to help the Government of mandamus
comply with its financial commitments. We are convinced that
the Rehabilitation Finance Corporation may, without
impairment of its activities, set aside from time to time, say, We must admit, however, that appellant's case is not entirely
half a million pesos or a considerable part thereof, for the without any merit or justification; similar situations have
payment of backpay certificates. But these circumstances already been favorably acted upon by the Congress, when it
notwithstanding, we are of the opinion that the law in question orderpd that certificates be accepted in payment of
(Section 2 of the Backpay Law), in so far as the discount and outstanding obligations, and by the Rehabilitation Finance
acceptance of backpay certificates are concerned, should be Corporation in its above-mentioned resolution. But we feel we
interpreted to be directory merely, not mandatory, as claimed are powerless to enforce his claim, as the acceptance and
by plaintiff-appellant, the same to be construed as a directive discount of backpay certificates has been placed within the
for the Rehabilitation Finance Corporation to invest a sound discretion of the Rehabilitation Finance Corporation,
reasonable portion of its funds for the discount of backpay and subject to the availability of loanable funds, and said
certificates, from time to time and in its sound discretion, as discretion may not be reviewed or controlled by us. It is clear
circumstances and its resources may warrant. that his remedy must be available in other quarters, not in the
courts of justice.