Louis Gabriel Espinosa

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

FACTS
In August 20, 1941, Rutter sold to Esteban 2 parcels of land in Manila. Esteban paid 3/4ths of the
purchase price and they constituted a mortgage over one of the parcels to secure the payment of the
balance.

Made payable as follows:

P2,400 on or before August 7, 1942
P2,400 on or before August 27, 1943
with interest at the rate of 7 percent per annum.

However, the war broke out and somehow, Esteban was not able to pay the balance of the purchase
price on the due date.

In August 20, 1941, Rutter sold to Esteban 2 parcels of land in Manila. Esteban paid 3/4ths of the
purchase price and they constituted a mortgage over one of the parcels to secure the payment of the
balance.

August 2, 1949
Rutter instituted an action to recover the balance with the CFI (Now called the Regional Trial Court).
The complaint also contains a prayer for sale of the properties mortgaged in accordance with law. Esteban
admitted the averments of the complaint but as a defense, he claimed that his obligation was a pre-war
obligation covered by the moratorium embodied in R.A. No. 342.

Section 2 of Republic Act No. 342 (Moratorium Law) approved by Congress on July 26, 1948.

“all debts and other monetary obligations contracted before December 8, 1941, any provision in the
contract creating the same or any subsequent agreement affecting such obligation to the contrary
notwithstanding, shall not due and demandable for a period of eight (8) years from and after settlement
of the war damage claim of the debtor by the Philippine War Damage Commission.”

Section 3 of Republic Act No. 342 (Moratorium Law)

Should the provision of section 2 be declared void and unenforceable, then as regards the obligation
affected thereby, the provisions of Executive Order No. 25 dated November 18, 1944, as amended by
Executive Order No. 32, dated March 10, 1945, relative to debt moratorium, shall continue to be in force
and effect, any contract affecting the same to the contrary notwithstanding, until subsequently repealed
or amended by a legislative enactment. It thus clearly appears in said Act that the nullification of its
provisions will have the effect of reviving the previous moratorium orders issued by the President of the
Philippines.

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.

ISSUES
Whether or not R.A. No. 342, which declared a moratorium on certain pre-war obligations, is
unconstitutional for violation of the Constitutional provision prohibiting the impairment of the obligation
of contracts.
(Article III, section 1, Constitution of the Philippines).
RULING
Yes. R.A. No. 342 is unconstitutional.
RULING
Statutes declaring a moratorium on obligations are generally constitutional
The moratorium is postponement of fulfillment of obligations decreed by the state through the
medium of the courts or the legislature. Its essence is the application of the sovereign power. Such laws
were often passed during or after times of financial distress such as wars and disasters. Similar laws were
passed in some US states after the civil war and they have been declared constitutional. Some laws
however, were declared unconstitutional where the period of moratorium prescribed is indefinite or
unreasonable.

The argument that moratorium laws impair the obligation of contracts does not hold water. It is
justified as a valid exercise of the state of its police power. Thus the “true test” of constitutionality of a
moratorium statute “lies in the determination of the period of a suspension of the remedy. It is required
that such suspension be definite and reasonable, otherwise it would be violative of the constitution.”

R.A. No. 342 is unconstitutional for being unreasonable

In the face of the foregoing observations, and consistent with what believed to be as the only course
dictated by justice, fairness and righteousness, the only way open 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. The court also noted that the
reconstruction is paying off and that the Philippines is headed to better times. Hence, null and void and
without effect

EO 25 and EO 32 is also null and void

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.

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 language 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.

DISPOSITION
Esteban was ordered to pay the balance of P4,800.00 with interest at the rate of 7% per annum with 12%
attorneys fees.

APPLICATION OF NATURAL LAW

The precepts of natural law on justice, righteousness, and fairness was applied in the ruling of the
case of Rutter vs. Esteban.

Justice - Esteban has to give the due payments to Rutter.

Righteousness - What is right is to not impede the enforcement of contractual obligations.

Fairness - The declaration of unconstitutionality of RA 342 and EO 25 & 32 results to no partiality,

prejudice or favoritism.

JUSTIFICATORY USE OF NATURAL LAW

In the case of Rutter vs. Esteban, the justificatory use of natural law was present because the
Supreme Court use another source of authority or reasoning (Principles of Natural Law) to support their
claim in the ruling of the case. To quote the Court: “. . .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. . .”
REGULATORY USE OF NATURAL LAW
In declaring RA 342 and EO 25 & 32 as unconstitutional, the Supreme Court supported their ruling by
stating that the aforementioned laws are oppressive and unreasonable in the time of the adjudication of
the case. They were considered as unreasonable and oppressive because the intention of the laws
concerned is no longer applicable to the case at bar.