ROYAL L. RUTTER, vs. PLACIDO J. ESTEBAN, G.R. No. L-3708 May 18, 1953

Case Digest 

ROYAL L. RUTTER, vs. PLACIDO J. ESTEBAN, G.R. No. L-3708 May 18, 1953

Placido J. Esteban admitted the averments of the complaint, but set up a defense the moratorium clause embodied in Republic Act No. 342. He claims that this is a prewar obligation contracted on August 20, 1941; that he is a war sufferer, having filed his claim with the Philippine War Damage Commission for the losses he had suffered as a consequence of the last war; and that under section 2 of said Republic Act No. 342, payment of his obligation cannot be enforced until after the lapse of eight years from the settlement of his claim by the Philippine War Damage Commission, and this period has not yet expired.

Issue:One of the arguments advanced against the validity of the moratorium law is the fact that it impairs the obligation of contracts which is prohibited by the Constitution. This argument, however does not now hold water. While this may be conceded, it is however justified as a valid exercise by the State of its police power. 

Held: The economic interests of the State may justify the exercise of its continuing and dominant protective power notwithstanding interference with contracts. . . .

One of them is that the impairment should only refer to the remedy and not to a substantive right. The State may postpone the enforcement of the obligation but cannot destroy it by making the remedy futile (W.B. Worthen Co. vs. Kavanaugh, 79 L.ed. 1298, 1301-1303). Another limitation refers to the propriety of the remedy. The rule requires that the alteration or change that the new legislation desires to write into an existing contract must not be burdened with restrictions and conditions that would make the remedy hardly pursuing (Bronson vs. Kinziel, I How, 311, 317; 46 Har. Law Review, p. 1070). In other words, the Blaisdell case postulates that the protective power of the State, the police power, may only be invoked and justified by an emergency, temporary in nature, and can only be exercised upon reasonable conditions in order that it may not infringe the constitutional provision against impairment of contracts 

The question now to be determined is, is the period of eight (8) years which Republic Act No. 342 grants to debtors of a monetary obligation contracted before the last global war and who is a war sufferer with a claim duly approved by the Philippine War Damage Commission reasonable under the present circumstances? 

It should be noted that Republic Act No. 342 only extends relief to debtors of prewar obligations who suffered from the ravages of the last war and who filed a claim for their losses with the Philippine War Damage Commission. It is therein provided that said obligation shall not be due and demandable for a period of eight (8) years from and after settlement of the claim filed by the debtor with said Commission. The purpose of the law is to afford to prewar debtors an opportunity to rehabilitate themselves by giving them a reasonabled time within which to pay their prewar debts so as to prevent them from being victimized buy their creditors. While it is admitted in said law that since liberation conditions have gradually returned to normal, this is not so with regard to those who have suffered the ravages of war and so it was therein declared as a policy that as to them the debt moratorium should be continued in force (section 1). 

But we should not lost sight of the fact that these obligations had been pending since 1945 as a result of the issuance of Executive Orders Nos. 25 and 32 and at present their enforcement is still inhibited because of the enactment of Republic Act No. 342 and would continue to be unenforceable during the eight-year period granted to prewar debtors to afford them an opportunity to rehabilitate themselves, which in plain languaged means that the creditors would have to observe a vigil of at least twelve (12) years before they could effect a liquidation of their investment dating as far back as 1941. This period seems to us unreasonable, if not oppressive. while the purpose of Congress is plausible, and should be commended, the relief accorded works injustice to creditors who are practically left at the mercy of the debtors. Their hope to effect collection becomes extremely remote, more so if the credits are unsecured. And the injustice is more patent when, under the law, the debtor is not even required to pay interest during the operation of the relief, unlike similar statutes

\. . Our external finances have greatly improved, and . . . our pesos is one of the most stable currencies in the world today. (Applause.) I repeat, our pesos is one of the most stable currencies in the world today.

All these find grateful reflection in a better-sheltered, better-clothed, better-fed, and healthier population that has grown from 18 million to 20 million in a half dozen years, in a school enrollment that has doubled since the outbreak of the last war from less than 2 million to over 4 million young students in the public schools, and in democratic processes that are gaining in vigor and permanence with each passing year" (Address of his Excellency Quirino, President of the Philippines, on the occasion of the celebration of the sixth anniversary of the independence of the Philippines, July 4, 1952, Luneta, Manila, 48 Off. Gaz., pp. 3287-3289).

In the face of the foregoing observations, and consistent with what we believe to be as the only course dictated by justice, fairness and righteousness, we feel that the only way open to us under the present circumstances is to declare that the continued operation and enforcement of Republic Act No. 342 at the present time is unreasonable and oppressive, and should not be prolonged a minute longer, and, therefore, the same should be declared null and void and without effect. And what we say here with respect to said Act also holds true as regards Executive Orders Nos. 25 and 32, perhaps with greater force and reason as to the latter, considering that said Orders contain no limitation whatsoever in point of time as regards the suspension of the enforcement and effectivity of monetary obligations. And there is need to make this pronouncement in view of the revival clause embodied in said Act if and when it is declared unconstitutional or invalid.