Philippine National Bank v. Ereneta
REITERATIONFacts
The Antecedents: On June 11, 1952, defendants Ramon and Maria Paterno Ereneta executed a promissory note for P600.00 in favor of the Philippine National Bank (PNB), payable within 90 days with 9% annual interest. The note became due on September 9, 1952. Prior to the due date, the defendants offered to pay the indebtedness using certificate of indebtedness No. 16709 issued by the Insular Treasurer in the name of Ramon Ereneta. The PNB refused to accept the certificate, citing its policy against accepting such certificates for obligations subsisting at the time of the approval of Republic Act No. 897. Procedural History: As no payment was forthcoming, the PNB filed an action on August 5, 1954. The defendants claimed they had tendered payment with the backpay certificate, but the plaintiff refused to accept it. The Court of First Instance of Manila ruled that the acceptance of backpay certificates by government corporations is discretionary under Republic Act No. 897, and thus PNB could not be compelled to accept the defendants' certificate. The Petition: The defendants appealed the decision, arguing that Section 2 of Republic Act No. 897 permits the use of backpay certificates for obligations subsisting at the time of its approval, including those owed to government corporations.
Issue(s)
Whether the Philippine National Bank, as a government-controlled corporation, can be legally compelled to accept a backpay certificate of indebtedness in payment of a loan obligation under Republic Act No. 897.
Ruling
The Supreme Court set aside the judgment of the court below and ordered the plaintiff-appellee (Philippine National Bank) to accept the backpay certificate issued by the government in favor of the defendant-appellant Ramon Ereneta.
Ratio Decidendi
On Issue 1: Applying the precedent set in Florentino v. Philippine National Bank, the Court held that the qualifying phrase 'who may be willing to accept the same' in Section 2 of Republic Act No. 897 applies only to the immediate antecedents, which are private citizens, associations, or corporations. This interpretation is necessary because making the acceptance of backpay certificates obligatory for private creditors would result in an unconstitutional impairment of the obligation of contracts, as it forces them to accept long-term notes with lower interest rates. However, this constitutional restriction does not apply to the government or its instrumentalities, and Congressional Records clearly indicate a legislative intent to permit and require the use of these certificates for government debts. The Court further reasoned that the enactment of Republic Act No. 1576, which introduced a provision giving the Board of Directors discretion to accept securities, actually confirmed that the prior law (Republic Act No. 897) had made such acceptance mandatory for the Bank. By specifically stating in the new charter that the authority granted 'shall not be used as regards backpay certificates,' Congress recognized the existing obligation it sought to modify. Therefore, for the loan in question which subsisted at the time of the approval of Republic Act No. 897, PNB had no legal discretion to refuse the tender of the backpay certificate.
Main Doctrine
The acceptance of backpay certificates in payment of debts owed to government corporations is discretionary and not obligatory, unless explicitly mandated by law, and compelling private creditors to accept them would constitute an impairment of the obligation of contracts.