G.R. No.

L-3708

May 18, 1953

ROYAL L. RUTTER, plaintiff-appellant,

vs.
PLACIDO J. ESTEBAN, defendant-appellee.
This is an appeal filed by Royal L. Rutter of the ruling of the Court of First Instance on his action for recovery of
the balance due against Placido J. Esteban for the remaining payment for the sale of two parcels of land sold by
the Rutter to the latter.
Facts:
On August 20, 1941, Royal L. Rutter sold to Placido J.Esteban two parcels of land for the sum of P9,600 Of the
P9,600, P4,800 was paid outright, and the balance of P4,800 was made payable in two installments of P2,400 on
August 1942 and another P2,400 on August 1943, with interest at the rate of 7 percent per annum.
To secure the payment of said balance of P4,800, a first mortgage over the same parcels of land has been
constituted in favor of the plaintiff. The deed of sale having been registered, a new title was issued in favor of
Esteban with a mortgage duly annotated on the back thereof.
Then, the Japanese came and invaded the Philippines on December 8, 1941. After the war, Rutter filed an action
to claim to recover the balance due to him against Esteban. On August 2, 1949, Rutter filed with the Court of
First Instance (CFI) of Manila an action for recovery of the balance due, the interest due thereon, and the
attorney's fees stipulated in the contract. Esteban admitted the allegations of the complaint. However, he set up
the defense of moratorium clause embodied in Republic Act No. 342, otherwise known as the Debt Moratorium
Law, specifically Section 2 thereof, which reads in part:
Section 2. All debts and other monetary obligations payable by private parties within the Philippines originally
incurred or contracted before December 8, 1941, and still remaining unpaid, x x x shall not be due and
demandable for a period of eight (8) years from and after settlement of the war damage claim of the debtor by
the United States Philippine War Damage Commission, x x x.
The CFI dismissed the case upholding the moratorium of 8 years had not yet lapsed. In Rutters motion, he
raised the constitutionality issue for the first time, but said motion was denied. Hence, Rutters appeal with the
Supreme Court.
Issue:
Whether or not Republic Act No. 342 is unconstitutional being violative of the constitutional provision forbidding
the impairment of the obligation of contracts (Article III, section 1, Constitution of the Philippines).
Ruling/Decision:
The dispositive portion of the Supreme Courts ruling reads:
Wherefore, the decision appealed from will be reversed, without pronouncement as to costs.
Judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P4,800 with interest thereon
at the rate of 7 per cent annum from August 27, 1942, until its full payment, plus 12 per cent as attorney's fees.
Failure to pay this judgment as stated, the properties mortgaged will be sold at public auction and the proceeds
applied to its payment in accordance with law. So ordered.
Consistent with what [the Supreme Court] believe to be as the only course dictated by justice, fairness and
righteousness, [the Supreme Court] 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 x x x 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.