Quijano vs. Development Bank of the Philippines

A loan obligation is not "subsisting" at the time of the approval of Republic Act No. 897 where the mortgage contract was executed and the loan amounts were released only after the date of the law's approval, even if the loan application had been approved beforehand; the obligation to pay arises only upon actual release of the loan, not upon mere approval of the application.

Petitioners Gedeon G. Quijano and Eugenia T. Quijano were spouses who had applied for an urban estate loan with the Rehabilitation Finance Corporation (RFC), the predecessor-in-interest of the Development Bank of the Philippines (DBP). Republic Act No. 304, the original Back Pay Law, and its amendatory act, Republic Act No. 897, approved on June 20, 1953, authorized holders of back pay certificates to use them for the payment of obligations "subsisting at the time of the approval of this Amendatory Act" owed to the government or its instrumentalities. The statutory framework thus hinged the acceptability of back pay certificates on the existence of the obligation at a specific date — June 20, 1953 — creating the central legal question of when a loan obligation is deemed to "subsist."

Petitioners Gedeon G. Quijano and Eugenia T. Quijano applied for an urban estate loan with the Rehabilitation Finance Corporation (RFC), the predecessor-in-interest of the Development Bank of the Philippines (DBP), in the amount of ₱19,500.00. The loan application was approved by RFC Board Resolution No. 2533 on April 30, 1953. However, the mortgage contract was not executed until March 23, 1954, nearly nine months after the approval of Republic Act No. 897 on June 20, 1953.

The loan of ₱19,500.00 was to be released in installments, subject to several conditions, including the execution and registration of the mortgage contract, presentation of a duly approved building permit, commencement of construction with work valued at ₱6,500.00, submission of a certificate of title free from encumbrance, evidence of full payment of current estate taxes, and the availability of funds. The first release of ₱4,200.00 was made on April 29, 1954, and subsequent releases followed thereafter. As of July 31, 1965, the petitioners' outstanding obligation with the bank, including interest, amounted to ₱13,983.59.

On July 27, 1965, Gedeon Quijano, as holder of Acknowledgment No. 10181, wrote to the DBP offering to pay ₱14,000.00 for his outstanding obligation using the proceeds of his back pay pursuant to Republic Act No. 897. The bank, through its Ozamis Branch, declined the offer on the ground that the loan was not incurred before or subsisting on June 20, 1953, when Republic Act No. 897 was approved. On October 14, 1965, the bank filed an application for foreclosure of the real estate mortgage, and the Provincial Sheriff scheduled the public auction sale for January 18, 1966, later moved to February 18, 1966 by agreement of the parties.

Petitioners then filed a petition for mandamus with prayer for a writ of preliminary injunction in the Court of First Instance of Misamis Occidental to compel the DBP to accept their back pay certificate as payment and to restrain the sheriff from proceeding with the foreclosure sale. The case was submitted on a stipulation of facts, with the sole issue being whether the obligation of the petitioners was subsisting at the time of the approval of Republic Act No. 897. The trial court dismissed the petition and directed the sheriff to proceed with the auction sale.

• Subsistence of Obligation: Petitioners argued that when their loan application was approved by the bank on April 30, 1953, an agreement was perfected between them and the bank, such that the obligation was already subsisting before June 20, 1953, the date of approval of Republic Act No. 897.
• Liberal Construction: Petitioners appealed for a more liberal construction of the Back Pay Law, contending that such interpretation would enable many crippled or disabled veterans, their wives and orphans, and those who had sacrificed for the cause of the last war to take advantage of their back pay certificates, consistent with the avowed purposes of the law.

• Non-Subsistence of Obligation: Respondent bank countered that the loan was not incurred before or subsisting on June 20, 1953, when Republic Act No. 897 was approved, because the mortgage contract was executed only on March 23, 1954, and the loan amounts were released only thereafter.

• Subsistence of Obligation: Whether the loan obligation of the petitioners was subsisting at the time of the approval of Republic Act No. 897 on June 20, 1953, such that the DBP could be compelled to accept back pay certificates as payment.

• Subsistence of Obligation: No. The obligation to pay the loan arose only upon the actual release of the loan amounts after March 23, 1954, and was not subsisting on June 20, 1953, the date of approval of Republic Act No. 897; the bank therefore could not be compelled to accept back pay certificates.

• Subsistence of Obligation: Section 2 of Republic Act No. 897 expressly requires that obligations for which back pay certificates may be accepted as payment must be "subsisting at the time of the approval of this Amendatory Act." While the loan application was approved on April 30, 1953, the mortgage contract was not executed until March 23, 1954, and the first release of ₱4,200.00 was made on April 29, 1954. The loan was to be received in several releases, each subject to compliance with specified conditions, including the availability of funds. The approval of the loan application created an enforceable obligation only on the part of the bank to grant the loan; the petitioners' obligation to pay could not have arisen until the loan amounts were actually released to them. Since all releases occurred after June 20, 1953, the obligation was not subsisting on that date. The Court found the case of Rodriguez vs. Development Bank of the Philippines controlling, where it was held that amounts released after June 20, 1953 cannot be considered obligations subsisting in June 1953. Petitioners' situation was even less favorable than Rodriguez's, as they availed of their approved loan only about nine months after the enactment of Republic Act No. 897. The Court rejected the plea for liberal construction, holding that the language of the statute was clear and unambiguous, and that the judiciary's first and fundamental duty is to apply the law according to its express terms, interpretation being called for only when literal application is impossible.

• Subsistence of Obligation under the Back Pay Law — For purposes of accepting back pay certificates as payment under Republic Act No. 897, an obligation is "subsisting at the time of the approval of this Amendatory Act" (June 20, 1953) only if the debtor's liability to pay had already attached on that date. A loan approved before but released after the law's approval does not qualify, because the obligation to pay arises only upon actual release of the loan amounts, not upon mere approval of the loan application. The approval of the application creates an obligation on the bank to grant the loan, but not yet an obligation on the borrower to pay.

• Literal Application of Clear Statutory Language — Where a statutory provision is explicit and unambiguous, courts must apply it according to its express terms; interpretation or construction is called for only when literal application is impossible. No discretion is left to the judiciary where a requirement or condition is made in explicit and unambiguous terms.

• "Undoubtedly, notwithstanding the approval by the appellee Development Bank of the Philippines (RFC) of appellants' loan application on April 30, 1953, appellants did not thereby incur any obligation to pay the same; only after the corresponding amounts were released to appellants after March 23, 1954 did such obligation attach; and it cannot, therefore, be said that the said loan was an obligation subsisting at the time of the approval of Republic Act No. 897 on June 20, 1953." — This passage states the ratio decidendi: the obligation to pay arises only upon actual release of loan proceeds, not upon approval of the loan application.

• "It may be truly said, as contended by appellants, that when their application for the loan was approved by the appellee Bank on April 30, 1953, an agreement was perfected between them and said Bank, but it should be noted that under such agreement the only enforceable obligation that was created was that of the Bank to grant the loan applied for, whereas the obligation of appellants to pay the same could not have arisen until after the amount of the loan has been actually released to them." — This passage distinguishes between the bank's obligation to grant the loan and the borrower's obligation to repay, pinpointing when the latter attaches.

• "We cannot see any room for interpretation or construction in the clear and unambiguous language of the above-quoted provision of law. This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law according to its express terms, interpretation being called for only when such literal application is impossible." — This passage articulates the doctrine of literal statutory construction applied to reject petitioners' plea for liberal interpretation.

• Rodriguez vs. Development Bank of the Philippines, L-19771, February 27, 1964 — Controlling precedent. The Court held that amounts released after June 20, 1953 cannot be considered obligations subsisting in June 1953, and the bank may not be compelled to accept back pay certificates for those amounts. Petitioners' case was found to be on all fours with, and even weaker than, Rodriguez.

• Sabelino vs. RFC, G.R. No. L-11790, September 30, 1958 — Distinguished. Petitioners relied on this case, but the Court found it irrelevant because the mortgage indebtedness therein had subsisted prior to the approval of Republic Act No. 897, unlike in the present case.

• Tirona vs. City Treasurer of Manila, L-24607, January 29, 1968 — Cited for the proposition that the government or its agencies have no discretion in accepting back pay certificates when used by the applicants or original holders themselves for settlement of obligations specifically enumerated in the law.

• Florentino vs. PNB, 98 Phil. 959 — Cited both for the proposition on non-discretionary acceptance and for the avowed purposes of the Back Pay Law, as quoted from the Congressional Record.

• PNB vs. Ruperto, 108 Phil. 810 — Cited for the pre-amendment ruling that obligations contracted after June 18, 1948, the date of approval of Republic Act No. 304, cannot come within the purview of the original Back Pay Law.

• Section 2, Republic Act No. 897 (approved June 20, 1953) — The amendatory Back Pay Law providing that certificates of indebtedness may be issued covering salaries and wages acknowledged under the law, provided that the face value shall not exceed the amount the applicant may need for the payment of "obligations subsisting at the time of the approval of this Amendatory Act." The Court applied this provision to hold that petitioners' loan obligation, having arisen only after March 23, 1954, was not subsisting on June 20, 1953.

• Section 2, Republic Act No. 304 (original Back Pay Law, approved June 18, 1948) — The original Back Pay Law, which similarly limited the applicability of back pay certificates to "obligations subsisting at the time of the approval of this Act." Cited to show consistent legislative intent restricting back pay certificate usage to obligations existing at the time of the law's enactment.

Reyes, J.B.L. (Act. C.J.), Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Villamor, and Makasiar, JJ., concurred.