Rutter vs. Esteban G.R. No. L-3708, May 18, 1953 93 Phil. 68 (1953)

Facts: On August 20, 1941, Complainant sold to Respondent two parcels of land which P4,800 were paid outright, and the balance of P4,800 was made in installment payment with interest at the rate of 7 percent per annum. Respondent failed to pay the two installments as agreed upon, as well as the interest that had accrued there-on, and so Complainant instituted this action in the Court of First Instance to recover the balance due, the interest due thereon, and the attorney’s fees stipulated in the contract. The complaint also contains a prayer for sale of the properties mortgaged in accordance with law. Respondent 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. After a motion for summary judgment has been presented by the defendant, and the requisite evidence submitted covering the relevant facts, the court rendered judgment dismissing the complaint holding that the obligation which plaintiff seeks to enforce is not yet demandable under the moratorium law. Plaintiff filed a motion for reconsideration wherein he raised for the first time the constitutionality of the moratorium law, but the motion was denied. Hence this appeal.

Issue: Whether Republic Act No. 342 violates the Non-Impairment Clause and therefore null and void?

Held: Yes, Republic Act No. 342 is unreasonable and oppressive, and, therefore, the same should be declared null and void and without effect. Although the reservation of state power appropriate to such extraordinary conditions may be deemed to be as much a part of all contracts, as is the reservation of state power to protect the public interest in the other situation to which we have referred. And if state power exists to give temporary relief from the enforcement of contracts in the present of disasters due to physical causes such as fire, flood or earthquake, that power cannot be said to be nonexistent when the urgent public need demanding such relief is produced by other and economic causes. but these said cause is no longer present in our country therefore the said exercise of the state’s police power is unnecessary.