ARTICLE III SECTION 10

Section 10
There are two types of contracts;
1. Private contract: entered into by any two private parties
2. Public contract: e.g. a franchise, the Constitution provides
for its modification by law
t is the !"#T$ of the C%&T!'CT&" P'!T($ that must be
affected by the law impairing the obligation. f a right of a third
party is affected then it is not included in the scope of the
provision.

' law impairs a contract when it changes the terms between the
parties regarding:
1. time and mode of performance
2. imposing a new condition
). dispensing with those e*pressed
+. authori,ing something different from that provided for it
satisfaction
The protection is &%T absolute
- Police power is superior to the obligation in contracts; thus
in e*ercising its police power validly, it may create a law that
impairs the obligations of contracts
Those &%T included in the scope of the provisions are:
1. -icenses: these are privileges granted by the government to
some that allows him to do something which would
otherwise be illegal. $ince it is merely a privilege, they are
revocable at any time sub.ect to the discretion of the
government.
2. /arriage contracts
). Public office: it is a property right and cannot be the sub.ect
of a contract between the incumbent and government. The
office, if created by statute, may be modified or even
abolished or any of its incidents changed.
Home Building and Loan Assn. V. Baisell
20 !S "#
The Minnesota Mortgage Moratorium Law was passed granting the
district courts to extend the period of redemption from foreclosure
sales. It simple required that the debtors pay the income or
reasonable rental value of the property for taxes, insurance, interest,
and mortgage indebtedness. The Blaisells mortgage their land to
petitioner, wc in turn eventually tried to foreclose on the property.
!espondents invo"e the mentioned law and were granted relief.
Held$
#$ The law may validly impair obligations thru police power. %olice
power is read into every contract.
&$ 'n emergency existed in Minnesota(the )reat *epression of
the #+,-.s(wc lead to the law to protect the vital property of the
poor
,$ It was in line w the answer to a legitimate public need
/$ 0ot arbitrary for the law was only a temporary measure and
shall not forever be read in future contracts
Rutte% &. Este'an
" (HIL )#
In 'ugust of #+/#, !utter sold to 1steban & parcels of land(to wc he
mortgage another land in favor of the former. 1steban failed to pay.
2owever in #+/3 !' ,/& was passed providing that all debts
contracted before *ecember 3, #+/# shall not be due and
demandable for a period of 3 years from settlement of war damage
claim of the debtor by the %hil. 4ar *amage 5ommission.
Held$
CLASS I-C CONSTITUTIONAL LAW 2 REVIEWER
ARTICLE III SECTION 10
#$ The law ta"en together extended the term to #& years. It is
unreasonable, if not oppressive for the 5ourt too" notice of the
improving economic situation and that the 6ustification that the 7tate
used no longer prevailed. The peso was one of the currencies most
stable at that time.
*el Rosa%io &. de Los Santos
22 SCRA 110
7ec. #/ of the 'gricultural Tenancy 'ct of #+88 empowers a tenant
9to change the tenancy contract from one of share tenancy to the
leasehold tenancy and vice(versa and from one crop(sharing
arrangement to another of share tenancy. In an attempt to ta"e
advantage of the benefits provided by the law, de los 7antos filed
two petitions.
Held$
The law was a valid exercise of police power and obligations must
yield to this when it is exercised to promote the security and welfare
of the 7tate and the means adopted are reasonably adapted to the
accomplishment of that end. In this case, the law was a remedial
legislation promulgated pursuant to the social 6ustice precepts of the
5onstitution, The purpose of the law was to establish agricultural
tenancy relations between landholders and tenants upon the
principle of social 6ustice: to afford adequate protection to the rights
of both tenants and landlords: and to insure an equitable division of
the produce and income derived from the land.
A'ella &. NLRC
1+2 SCRA 1,0
%etitioner leased land for #- years, and eventually renewed for
another #- years. *uring her lease, she employed & wor"ers whom
she dismissed upon the termination of the lease. The wor"ers filed
for illegal dismissal and reinstatement, due to 'rt. &3/ of the Labor
5ode 0L!5 granted separation pay.
Held$
The prohibition to impair the obligation of contracts is not absolute
and unqualified. The 7tate continues to possess authority to
safeguard the vital interests of its people. Legislation impairing the
obligation of contracts can be sustained when it is enacted for the
promotion of the general good of the people. 'rt. &3/ are for the
protection of the wor"ers whose employment is terminated because
of the closure of the establishment and reduction of personnel.
(-ili..ine Vete%ans Ban/ Em.lo0ees &. (-il. Vet. Ban/
1# SCRA 1,
%;B was created in #+<, with war veterans as stoc"holders. In
#+3,, the ban" was placed under receivership = ordered liquidated
by the 5entral Ban".
Held$
The contract is protected by the guaranty only if it does not affect
public interest, but there is hardly any contract now that does not
somehow or another affect public interest as not to come under the
power of the 7tate. %art of the understanding is that the contract
may be altered validly if it involves the public interest, to which
private interests must yield 9as a postulate of the existing social
order.>
(%esle0 &. Bel1ai% Village Assn.
201 SCRA 1"
%etitioner was ordered to close down the pan de sal store being
operated at her home on ?upiter 7t. as it was stipulated in the deed
restrictions that such property was only for residential use.
Held$
?upiter 7t. was re(@oned as a high(density commercial @one. *eed
restriction provisions are in the nature of contractual obligations
CLASS I-C CONSTITUTIONAL LAW 2 REVIEWER
ARTICLE III SECTION 10
freely entered into by the parties. 2owever, they may be impaired if
necessary to reconcile w the legitimate exercise of police power.
Tolentino &. Sec. O2 3inance
2"+ SCRA )"0
The chamber of !eal 1state and Builders 'ssociation A5!1B'$, the
petitioner in one of the cases, alleges that the imposition of ;'T on
the sales and leases of real estate will impair the obligation of
contracts, contrary to the non(impairment clause of the 5onstitution.
Held$
The parties to a contract cannot tether the exercise of the taxing
power of the state. 0ot only are existing laws read into contracts to
fix obligations as between parties, but the reservation of essential
attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts
against impairment presupposes the maintenance of a government
that attains adequate authority to secure the peace and good of
society. The non(impairment clause has never been a limitation on
the exercise of the 7tate.s power of taxation.
Sis/a &. O22ice o2 t-e (%esident
2"1 SCRA )4,
%etitioner 7is"a rescinded the contract to sell entered into with the
7ering spouses, for failure to pay the monthly amorti@ations, without
prior notice. Later, !' <88& Athe Maceda Law$ was passed,
requiring a notice of cancellation to the buyer.
Held$
'lthough the contract was entered into long before the passage of
!' <88&, there was no impairment of the contract. There is an
impairment of the contract, imposes new conditions, or dispenses
those agreed upon. The notice required under !' <88& does not
change the time or mode of performance, or impose new conditions.
't most, it merely provides for a procedure in aid of the remedy of
rescission.
Sis/a *e&5t Co. &. O22ice o2 t-e (%esident
2"1 SCRA )4,
7is"a entered into a contract to sell with involving a lot. 7ering
defaulted in the payment of their monthly obligations, but 7is"a still
accepted the late payments. Later on, 7ering again defaulted
payment but 7is"a did not ant to accept it. 7is"a claims that the
Maceda Law, requiring notice of rescission by a notarial act, would
impair their 5ontract to 7ell, also, the contract was ratified before
the Maceda Law was enacted.
Held$
The Maceda Law does not impair the contract entered into. It merely
provides for a procedure in aid of the remedy of rescission. The
requirement of notice of the rescission under the Maceda Law does
not change the time or mode of performance or impose new
conditions or dispense with the stipulations regarding the binding
effect of the contract.
(-ilconsa &. En%i6ue7
2"" SCRA +0)
The )eneral 'ppropriation 'ct of #++/ included a provision
prohibiting the use of the funds to pay for trainer planes and
armored personnel carriers. The %resident vetoed this provision
since the purchase of the trainer planes and '%5.s had already
been contracted for.
HeldB
The veto is valid. The provision violates the constitutional guarantee
against the impairment of obligations and contracts.
Lim &s. (ac6uing
2,0 SCRA ),
CLASS I-C CONSTITUTIONAL LAW 2 REVIEWER
ARTICLE III SECTION 10
'ssociated *evelopment 5orporation A'*5$ was granted a
franchise to operate ?ai 'lai in the city of Manila by virtue of
Crdinance D-<8 that was passed by the Municipal Board of Manila.
%ursuant to %.*. 0o. DD#, which revo"ed all powers and authority of
local governments to grant franchises, licenses, and permits, Mayor
Lim revo"ed the permit of '*5.
Held$
The 75 held that there was no impairment of contract in this case
because a franchise, is not in a strict sense, a simple contract:
rather, it is a privilege and is thus sub6ect to the exercise of police
power.
O%tigas &s. 3EATI Ban/
+/ 75!' 8,,
Crtigas = 5o., owners of 2ighway 2ills 7ubdivision in Mandaluyong,
and the 'ngeles spouses entered into a contract of sale of a lot in
the said subdivision. The deed contained building restrictions such
as that the land shall be used only for residential purposes. E1'TI
Ban" bought this land and built a ban" thereon.
Held$
The 75 held that there was no impairment of obligation in this case
because of the Municipal !esolution passed by Mandaluyong
declaring the @one to be commercial and industrial sites. The said
resolution, which was a valid exercise of police power, prevailed
over the building restrictions.
8ua%e7 V. CA
21, SCRA ,4+
' lot located at Fue@on Boulevard, Manila was leased to the
Ccampos, who thereafter subleased it to a certain 5apuchino.
Cwner 5etus *evelopment now files for e6ectment, contending that
the sub lessee leased the property without its consent pursuant to
B% Blg. 3DD Asection 8(grounds for e6ectment$. The petitioners
contend that said B% is inapplicable in this case because to give it
retroactive effect would violate the non(impairment clause of the
5onstitution Athe lease contract was entered into before the B%.s
effectivity date$
Held$
The impairment clause is no longer inviolate. It was quite useful
before in protecting private agreements from government meddling,
but that was when agreements did not affect the community in
general. Today, the interests of the public have become involved in
what are supposed to be still private agreements, which have a
result been removed from the protection of the impairment clause.
These agreements have come under the scope of police power. In
this case, the law see"s to prevent the unconscionable practices of
lessees that have pre6udiced the lessor Ain this case the lessee only
pays a small amount to the lessor but charges ten times that
amount to the sub lessee$. The purpose of the law in interfering w
such contracts is to protect both landlord and tenant from their
mutual impositions that cause detriment to society as a whole.
3(IB V. CA
2+2 SCRA 2+
This case involves < parcels of land owned by the %roducers Ban".
?anolo of ?%M% )utiere@ 1nterprises offers to buy the lots. Manager
Manolo !ivera of %B% accepts letter of ?anolo and refers this offer
to %B% 5onservator 1ncarnacion A%B% was placed under
conservatorship by the B7%$. 1ncarnacion repudiates the sale, and
?anolo now files for specific performance claiming that the sale was
already a perfected contract.
Held$
The issue in this case is whether a ban".s conservator extends to
repudiating validly existing obligations. It cannot. 'ccording to the
powers of a conservator under the 5entral Ban" 'ct, a conservator
ta"es the place of the ban".s Board of *irectors, and is therefore
CLASS I-C CONSTITUTIONAL LAW 2 REVIEWER
ARTICLE III SECTION 10
given the power to only revo"e contracts that are defective under
the law G i.e. void, voidable, unenforceable, rescissible Asection &3(
', 5entral Ban" 'ct$. ' conservator cannot unilaterally revo"e
existing obligations of the ban". To do so would be violative of the
non(impairment clause.
A7I*1 I77H1B The 75 ruled that there was a meeting of the minds
between the parties, hence creating a valid contract. This is where
the argument of the conservator.s repudiation arose from$
C99A &. (OEA
2," SCRA )))
%etitioner manning agencies see" to annul %C1' resolutions
increasingad6usting compensation benefits to Eilipino seafarers.
Held$
The resolutions are valid. The %C1' was created to further
implement the social 6ustice provisions of the 5onstitution. In line
with this, the non(impairment clause yields to valid exercises of
police power. In this case, the 55 Aarticle #D--$ expressly places
contracts of labor under the police power of the 7tate, being
impressed with public interest. 2ence, they are valid impairments of
the contract clause.
(NB V. O33ICE O3 THE (RES.
2+2 SCRA +
!espondents bought lots from Mari"ina ;illage, Inc. *espite this,
M;I leased the lots to %0B. M;I defaults, unaware that the
respondents had already complied w their obligations and
constructed their houses on the lots. The court ruled that %0B could
collect only the remaining amorti@ations from the respondents. The
Cffice of the %res. concurred, citing %* +8D. The issue is wn %*
+8D could be applied considering the law was enacted in #+D< while
the mortgage was executed in #+D8.
Held$
The 75 ruled that %* +8D A7ubdivision = 5ondominium Buyers
%rotective *ecree$ could be applied retroactively. It was specifically
enacted to protect buyers from scheming developers. I f it were not
applied so, it would be a feeble police power statute. *espite the
impairment clause, a contract valid at the time of its execution may
be invalidated by a subsequent law, if it a valid exercise of police
power and the agreements are a concern of public welfare. 's the
law.s purpose is valid Ato protect buyers$, the law doesn.t violate the
contract clause.
Eugenio &s. *%ilon
2+2 SCRA 10
%almiano bought & lots in 1 = 7 *elta ;illage which belongs to the
petitioner, 1ugenio. 'cting on complaints for non(dev.t. against the
petitioner, 02' ordered petitioner to cease and desist from ma"ing
any further sales of the lots. 4hile the case was pending in 02',
%almiano file with the C''L' of the 2!75, because 1ugenio had
resold one of %almiano.s lots to !elevo by reason of %almiano.s
non(payment of his amorti@ation. %almiano suspended his
payments precisely because 1ugenio had failed to develop it. Cn
appeal, 2!75 ruled that %* +8D should apply and 1ugenio must
reinstate %almiano.s contract.
Held$
'lthough %* +8D too" effect on #+D<, and the land purchases was
entered into in #+D&, it must be given retroactive effect because it
can be plainly inferred from the intent of the law. 'lso there is no
impairment of obligation because the application of %* +8D to the
contracts in question would be consistent with paragraph / of the
contracts themselves. This states that the developers will be bound
to comply with all laws respecting the subdivision and development
of lots for residential purposes as may be presently in force or
hereafter be required by the laws which may be passed.
899 (%omotions and 9gt. V. CA
2)0 SCRA "1
CLASS I-C CONSTITUTIONAL LAW 2 REVIEWER
ARTICLE III SECTION 10
Eollowing the much publici@ed death of Maricris 7ioson and the
problems with Eilipino performing artists abroad. The government
created the 1ntertainment Industry 'dvisory 5ouncil. It issued *C
0o. , which establishes various procedures and requirements for
screening performing artists under a new system of training, testing,
certification and deployment of the former. %erforming artists
successfully hurdling the test, training and certification requirement
were to be issued an 'rtist.s !ecord Boo", a necessary prerequisite
to processing of any contract of employment of %C1'.
Held$
*C no. , does not impair the obligations of contracts. ' thorough
review of the facts and circumstances leading to the issuance of the
assailed orders compels us to rule that the '!B requirement and
the questioned *C no. , related to its issuance were issued by the
7ecretary of Labor pursuant to a valid exercise of police power. It is
a futile gesture on the part of petitioners to invo"e the non(
impairment clause of the constitution. Into every contract is read
provisions of existing law, and always, a reservation of the police
power for so long as the agreement deals with a sub6ect impressed
with public welfare.
C : 9 Tim'e% Co%.. &s. Alcala
24" SCRA ,0"
Maceda had suspended TL' 0o. ,<- which granted Eilipinas
Loggers *evelopment 5orp. a timber concession in the 'urora and
Fue@on %rovinces. The suspension was for EL*5.s gross violation
of the terms and conditions. Cn May &, #+33 *10! declared
petitioner.s TL' has no more force and effect and consequently
denied the petition for its restoration. 2e also denied the motion of
reconsideration of the cancellation of TL' ,<-. *10! ruled that the
petitioner was barred by reason of laches. *id TL' ,<- impair the
obligations of contractsI
Held$
0C. The 75 reiterated it.s ruling in 0elipe 1smael, 2r. 3 Co. v.
4eputy (*ec. $ec. 9 Timber licenses, permits, and license
agreements are the principal instrument by which the 7tate
regulates the utili@ation and disposition of forest resources to the
end that public welfare is promoted. 'nd it can hardly be gainsaid
that they merely evidence a privilege granted by the 7tate to
qualified entities, and do not vest in the latter a permanent or
irrevocable right to the particular concession area and forest
products. They may be validly amended, modified, replaced or
rescinded by the 51 when national interest so requires. They are
0CT deemed contracts within the purview of the due process
clause.

Re.. (lante%s Ban/ &. A;ANA
2) SCRA 1
!obes(Erancisco !ealty = *evelopment 5orp. secured a loan from
!epublic %lanters Ban" in the amount of %#&-, ---. Instead of
giving the legal tender totaling the full amount, petitioner lent such
amount partially in the form of money and partially in the form of
stoc" certificates numbered ,&-+ = ,&-8, each for /-- shares with
a par value of %#- per share. 7aid stoc"s may be redeemed at any
time after years from issuance and shall receive a quarterly dividend
of #J. %rivate respondents filed a complaint to have petitioner
redeem such shares. ?udge 'gana ruled for the private
respondents saying to allow !%B not to redeem said shares by
mere invocation of a 5entral Ban" prohibition is tantamount to an
impairment of the obligation of contracts.
Held$
5B made a finding that said petitioner has been suffering from
chronic reserve deficiency. ' directive was sent to the ban".s
president prohibiting redemption of any preferred share, on the
ground that such redemption would reduce the assets of the ban" to
the pre6udice of its depositors and creditors. The directive was
meant to preserve the status quo and prevent financial ruin. The
directive may thus be considered as an exercise of police power.
The directive does not constitute an impairment of obligation of
contracts. It has been settled that the constitutional guaranty of
CLASS I-C CONSTITUTIONAL LAW 2 REVIEWER
ARTICLE III SECTION 10
non(impairment of the obligations of contracts is limited by the
exercise of the police power of the state, the reason being that
public welfare is superior to private rights.
(%oduce%s Ban/ o2 t-e (-ili..ines &s. NLRC
2# SCRA +14
%etitioner ban" was placed under a conservator. 1mployees of
ban" sought implementation of 5B' regarding retirement plan and
uniform allowance that the conservator refused to do.
Held$
There was an impairment of the contract, the 5B'. 5onservator
has no power to repudiate perfected transactions. 7ince the
legislature itself cannot revo"e an existing and valid contract, how
can it delegate such non(existent powers to the conservator. The
conservator merely ta"es the place of the Board of *irectors,
therefore, what said board cannot do, the conservator cannot do
either.
Bla6ue%a &s. Alacala
2+ SCRA ,1
%res. 'quino issued '.C. &<3 that granted government employees
productivity incentive benefits. 'C also carried a prohibition on
granting said benefits for calendar year #++& and future years
pending the result of a comprehensive study being underta"en by
the Cffice of the %resident. %resident !amos issued 'C &+ in #++,,
en6oining the grant and directing departments to return the excess of
said benefits.
Held$
The forcible refund of the incentive does not violate the non(
impairment clause. The incentive pay or benefit is in the nature of a
bonus that is not a dependable or enforceable obligation.
Cit0 ;o&5t o2 San (a'lo< Laguna &s. Re0es
"0+ SCRA "++
1scudero was granted a franchise to operate an electric light and
power system. 7uch franchise provided that the company pay a tax
equal to &J of gross earnings. The 7angguniang %anglungsod
enacted an ordinance imposing a tax on business en6oying a
franchise at the rate of 8-J of #J of the gross annual receipts.
Held$
7aid ordinance does not infringe the non(impairment of contract
clause because the right to operate originated from a legislative
franchise which is sub6ect to alterations through a reasonable
exercise of the police power: they are also sub6ect to the power to
tax, which li"e police power, cannot be contracted away.
CLASS I-C CONSTITUTIONAL LAW 2 REVIEWER