Non-impairment clause - MAD
NON-IMPAIRMENT CLAUSE Moreover, the law must effect a change in the rights of the parties with
Sec. 10, Art. III: “No law impairing the obligation of contracts shall be
passed.”
May laws be enacted even if the result would be the impairment of
contracts?
 GR: Valid contracts should be respected by the legislature and not
tampered with by subsequent laws that will change the intention of the
parties or modify their rights and obligations. The will of the parties to
a contract must prevail. A later law which enlarges, abridges, or in
any manner changes the intent of the parties to the contract
necessarily impairs the contract itself and cannot be given
retroactive effect without violating the constitutional prohibition
against impairment of contracts. (Sangalang v. IAC, GR No. 71169,
December 22, 1988)
 XPN: Enactment of laws pursuant to the exercise of police power
because public welfare prevails over private rights. It is deemed
embedded in every contract a reservation of the State’s exercise of
police power, eminent domain and taxation, so long as it deals with a
matter affecting the public welfare. (PNB v Remigio, G.R. No 78508,
March 21, 1994)
What constitutes impairment?
 Any statute which introduces a change into the express terms of the
contract, or its legal construction, or its validity, or its discharge, or the
remedy for its enforcement, impairs the contract. (Black’s Law
Dictionary)
 Impairment is anything that diminishes the efficacy of the contract.
 There is substantial impairment when the law changes the terms of a
legal contract between the parties, either in the time or mode of
performance, or imposes new conditions, or dispenses with those
expressed, or authorizes for its satisfaction something different from
that provided in its terms [Clements v. Nolting, 42 Phil 702]
Note: To fall within the prohibition, the change must not only impair the
obligation of the existing contract, but the impairment must be substantial.
reference to each other, and not with respect to nonparties
Limitations
1. Police Power
 The reason for this is that public welfare is superior to private
rights
 In Ortigas v. FeatiBank, the Supreme Court said that a
municipal zoning ordinance is a police measure and prevails
over a restriction contained in the title to property.
 In Lozano v. Martinez, B.P 22 was sustained as not violative of
the non-impairment clause, and even if it were, the law was a
police measure and therefore superior to contracts.
o However, In Ganzon v. Inserto, 123 SCRA 713, it was
held that the clause would be violated by the
substitution of a mortgage with a security bond as
security for the payment of a loan, as this would
change the terms and conditions of the original
mortgage contract over the mortgagee’s objections.
2. Eminent Domain
3. Taxation
Article XII Section 11 of the Constitution is a reservation clause
 With or without reservation clause, franchises are subject to alterations
through a reasonable exercise of the police power. They are als subject
to alteration by the power to tax, which like police power cannot be
contracted away.
 A license or permit is not a contract between the sovereign and the
licensee or permitee, and is not a property in any constitutional sense.
A license is rather in the nature of special privilege or permission
or authority to do what is within its terms.
 A license granted by the State is always revocable. This power
to revoke can only be restrained by an explicit contract upon
good consideration to that effect.
1
Non-impairment clause - MAD
Case title
Ruter v. Esteban
Ortigas v. Feati Bank
Facts Held
Respondent bought land from petitioner where half of Constitutionality of moratorium laws depends on
the payment was made on installment. Petitioner determination of suspension period of the remedy.
claim to recover but respondent used RA 342 that Suspension should be definite and reasonable. 8 years
gave him right to delay his obligation for 8 years from after effectivity of RA 342 is unreasonable.
settlement of his claim by the Philippine War damage
Commission. Petitioner assailed constitutionality of
RA 342.
Petitioner sold properties to a third party who The resolution can supersede contractual obligation
eventually sold the same to respondent. It is as a valid exercise of police power.
annotated in the TCT that property that lands can only
be used for residential purposes. Municipal Council
Resolution reclassified area as commercial/
residential. Validity of said resolution is assailed and if
can supersede existing contractual obligation.
2
Non-impairment clause - MAD