Subjects Covered: Obligations and Contracts, Human Rights/Constitutional Law 2 Topic: Non-impairment of contracts (a!a non-impairment clause" Royal Rutter, plaintiff-appellant Rutter, plaintiff-appellant vs. vs. Placido Esteban, defendant-appellee Esteban, defendant-appellee (G.R. No. L-3708, 18 May 1953, 93 Phil 68 1 Doctrines Doctrines Upheld: Upheld: #he constitutionalit$ of a law granting moratorium (or relief from debts and obligations" lies in the period of the suspension determined in that law #he suspension must be definite and reasonable so that it will not %iolate the Constitution&s non-impairment clause #he 'tate ma$ postpone the enforcement of the obligation but cannot destro$ it b$ ma!ing the remed$ (for the obligation&s enforcement" futile Facts: Ro$al Rutter sold two parcels of land in the Cit$ of anila worth )h)*+ to )lacido steban, where )h). was alread$ paid outright and the remaining )h). to be gi%en in two separate pa$ments0 )h)2. on 1 ugust 3*.2 and )h)2. on 21 ugust 3*.4 Howe%er, Howe%er, steban failed to pa$ the remaining balance balance #hus, Rutter was forced to institute an action in the Court of the 5irst 6nstance (C56" anila to enforce the contract and reco%er the unpaid balance steban, admitted all a%erments of Rutter&s complaint, but he used as a defense the moratorium clause stated in the oratorium Law (Rep ct 4.2" He claimed that he is a 7766 sufferer and has filed claim with the )hilippine 7ar 8amage Commission for his losses during the said war #hus, under the sec 2 of R 4.2, the demand for him to pa$ his debt cannot be enforced
#he C56 anila upheld steban&s argument and dismissed Rutter&s claim, stating that the obligation to pa$ the debt is not $et due and demandable under R 4.2 Rutter, in his motion of reconsideration, appealed to the said trial court about its decision He also raised in his motion for the first time the constitutionalit$ of the said oratorium Law 9ut Rutter&s motion was denied and thus, he ele%ated his case to the 'upreme Court oratorium Law can be declared unconstitutional unconstitutional for %iolating the ssues: 7hether the oratorium constitutional pro%ision about non-impairment of contracts: !a"s Cited: 'ections 2 and 4 of the oratorium Law (R 4.2" 2 !"e#tion $ - %ll de&t' and othe )onetay o&li*ation' paya&le &y pi+ate patie' ithin the Philippine' oi*inally in#ed o #onta#ted &efoe e#e)&e 8, 19/1, and 'till 1 Ro$al
Rutter %s )lacido steban, ;R No L-41, 3 a$ 3*<4 #he Law)hil )ro=ect 7ebsite, http0//wwwlawphilnet/=ud=uris/=uri3*<4/ma$3*<4/gr>l-41>3*<4html (Last accessed on 3< ar 23<, 3304< pm" 2 R
4.2, secs 2-4 'een at the )hilippineLawinfo website, http0//philippinelawinfo/statutes/ra4.2-moratorium-lawhtml (last accessed on 3< arch 23< at 3031 pm"
e)ainin* npaid, any po+i'ion o po+i'ion' in the #onta#t #eatin* the 'a)e o in any '&'eent a*ee)ent affe#tin* '#h o&li*ation to the #ontay notith'tandin*, 'hal 'halll not not &e de de and and de)an de)anda& da&le le fo fo a peio peiod d of ei*ht ei*ht (8 yea' yea' fo) and afte afte 'ettle)ent of the a da)a*e #lai) of the de&to &y the nited "tate' Philippine 2a a)a*e o))i''ion, ithot pe4di#e, hoe+e, to any +olntay a*ee)ent hi#h the intee'ted intee'ted patie' )ay ente into afte the appo+al appo+al of thi' %#t fo the 'ettle)ent 'ettle)ent of 'aid o&li*ation'. "e#tion 3. itle , e&t Moatoi), e#ti+e :de No. $5, dated No+e)&e 18, 19//, a' a)ended &y e#ti+e :de No. 3$, dated Ma#h 10, 19/5, i' hee&y fthe a)ende a)ended d &y liftin liftin* * the )oatoi )oatoi) ) theei theein n de#la de#laed ed in 'o fa a' it affe#t affe#t' ' pea pea o&li*ation', e#ept that a' e*ad' tho'e pea o&li*ation' efeed to in 'e#tion $ heeof, heeof, the liftin* liftin* of 'aid )oatoi) 'hall &e '&4e#t to the #ondition' #ondition' po+ided in 'aid 'e#tion. "hold the po+i'ion of 'e#tion $ heeof &e in any ay de#laed +oid and nenfo#ea&le, then a' e*ad' the o&li*ation' affe#ted thee&y, the po+i'ion' of itle , e&t Moatoi), e#ti+e :de No. $5 dated No+e)&e 18, 19//, a' a)ended &y e#ti+e :de No. 3$ dated Ma#h 10, 19/5, 'hall #ontine to &e in fo#e and effe#t, any #onta#t o a*ee)ent affe#tin* the 'a)e to the #ontay notith'tandin*, ntil '&'eently epealed o a)ended &y fthe le*i'lati+e ena#t)ent.
'upreme Court Court re%erse re%ersed d the trial court&s court&s decision decision and it #eld by the Court: #he 'upreme ordered )lacido steban to pa$ the remaining balance of )h). with 1? interest per $ear until the debt is full$ paid, aside from attorne$&s fees representing 32? of that amoun amount t 6t also also uphel upheld d that that upon upon steb steban an&s &s failu failure re to pa$ his debt, debt, the the prope properti rties es mortgaged will be sold at a public auction and the proceeds from auction sale to be applied as pa$ment #he Court also declared the oratorium oratorium Law to be null and %oid (and without effect" effect" for %iolating the Constitution&s non-impairment clause Rationale o$ the Court Decision: #he Court stated that the purpose of oratorium Law is allow debtors who suffered from the last 'econd 7orld 7ar and filed a claim with the the )hili )hilippi ppine ne 7ar 7ar 8amag 8amage e Commi Commissi ssion on for their their losse losses, s, to be gi%en gi%en relie relieff and and reaso reasona nable ble time time to pa$ their their pre-w pre-war ar oblig obligati ation ons s and and not not to be %ictim %ictimi@e i@ed d b$ their their creditors Howe%er, due to the enforcement of the oratorium Law and the Aecuti%e Orders that it upheld to be in force and in effect, the creditors would ha%e to wait for at least twel%e (32" $ears before the$ can collect the pre-war obligations of their debtors which the Court deemed such waiting period to be unreasonable, if not oppressi%e lthough lthough the Court commended the Congress& Congress& purpose purpose for enacting the law, it said that relief granted is un=ust as creditors li!e Rutter are practicall$ left at the merc$ of their debtors
#he Court also said in its decision that since the countr$&s economic condition has alread$ alread$ normali@ normali@ed ed and financi financiall$ all$ stabili@ stabili@ed ed after after the 7766, 7766, the oratori oratorium um Law&s Law&s continued enforcement and operation is alread$ unreasonable and oppressi%e, thus ma!ing it reasonable to nullif$ the said law
