Generally, Police Power is defined as the power to promote the general welfare

and public interest; to enact such laws in relation to persons and property as may
promote public health, public morals, public safety and the general welfare of each
inhabitant; to preserve public order and to prevent offenses against the state and to
establish for the intercourse of citizen with citizen those rules of good manners and
good neighborhood calculated to prevent conflict of rights.1

In the words of Chief Justice Taney, the famous successor of Chief Justice
Marshal, Police Power is nothing more or less than the powers of government
inherent in every sovereignty to the extent of its dominions. And whether a State
passes a quarantine law, or a law to punish offenses, or to establish courts of justice,
or requiring certain instruments to be recorded, or to regulate commerce within its
own limits, in every case it exercises the same power; that is to say, the power of
sovereignty, the power to govern men and things within the limits of its domain.2

From the foregoing, it could be safely concluded that the Police Power of the
state is not only all encompassing but also serves as a limitation to all powers of the
State, whether inherent or residual.

In more than one occasions, the Supreme Court of the Philippines ruled, based
on the abovementioned reasons, that the Police Power of the State is an exception to
the Bill of Rights, more particularly Article III, Section 10 of the 1987 Philippine
Constitution, which provides that no law impairing the obligation of contracts shall
be passed.

As early as 1968, the Supreme Court already recognized that the Police Power
of the State is superior and thus can be considered as an exception to the above-
quoted provision.

In the case of The Philippine America Life Insurance Company vs. The
Auditor General3 the Supreme Court was confronted with the issue on the
correctness of the Auditor General's ruling that remittance of premia on insurance
policies issued or renewed on or after July 16, 1959, or even if issued or renewed
before the said date, but their reinsurance was effected, only thereafter, are not
exempt from the margin fee, even if the reinsurance treaty under which they are
reinsured was approved by the Central Bank before July 16, 1959. So stated, the case
calls into question the applicability of Section 3 of the Margin Law (Republic Act 2609,
approved on July 16, 1959) which exempts certain obligations from payment of the
margin fee. The Petitioner argued that the Margin Law impairs the obligations of
contract — constitutionally proscribed — under the reinsurance treaty, carry the day
for petitioner.

1
Jesus P. Morfe vs. Amelito R. Mutuc as Execuive Secretary, et.al., G.R. No. L-20387, January 31, 1968
2
Ibid.
3
G.R. No. L-19255, January 18, 1968
 In this case, the Supreme Court ruled that there cannot be an impairment of
the obligation of contracts. For, the State may, through its police power, adopt
whatever economic policy may reasonably be deemed to promote public welfare, and
to enforce that policy by legislation adapted to its purpose. The Supreme Court also
reiterated that the freedom of contract, under our system of government, is not meant
to be absolute. The same is understood to be subject to reasonable legislative
regulation aimed at the promotion of publicity health, morals, safety and welfare. In
other words, the constitutional guaranty of non-impairment of obligations of contract
is limited by the exercise of the police power of the State, in the interest of public
health, safety, morals and general welfare. It has been said, and we believe correctly,
that the economic interests of the State may justify the exercise of its continuing and
dominant protective power notwithstanding interference with contracts. It bears
repetition to state at this point that the Margin Law is part of the economic
"Stabilization Program" of the country.

Tersely put then, the constitutional obligation of contracts provision does not
bar a proper exercise of the state's police power. Under our form of government the
use of property and the making of contracts are normally matters of private and not
of public concern. The general rule is that both shall be free of governmental
interference. But neither property rights nor contract rights are absolute; for
government cannot exist if the citizen may at will use his property to the detriment
of his fellows, or exercise his freedom of contract to work them harm. Equally
fundamental with the private right is that of the public to regulate it in the common
interest. Contracts, however express, cannot fetter the constitutional authority of the
Congress. The policy of protecting contracts against impairment presupposes the
maintenance of a government by virtue of which contractual relations are worthwhile
— a government which retains adequate authority to secure the peace and good order
of society.

In the more recent case of Republic of the Philippines vs. Rosemoor

Mining and Development Corporation, et.al.4, the Supreme Court was once again
faced with the same issue. In this case, the validity of Proclamation No. 84 was
questioned as it was alleged to be violative of the constitutional provision on the non-
impairment of contracts.

The Supreme Court ruled in this case that the license subject of the case merely
evidences a privilege granted by the State, which may be amended, modified or
rescinded when the national interest so requires. This is necessarily so since the
exploration, development and utilization of the countrys natural mineral resources
are matters impressed with great public interest. Like timber permits, mining
exploration permits do not vest in the grantee any permanent or irrevocable right
within the purview of the non-impairment of contract and due process clauses of the

4
G.R. No. 149927, March 30, 2004
Constitution, since the State, under its all-encompassing police power, may alter,
modify or amend the same, in accordance with the demands of the general welfare.

Therefore, even if the licenses subject of the case were valid it can still be validly
revoked by the State in the exercise of police power. The exercise of such power
through Proclamation No. 84 is clearly in accord with jura regalia, which reserves to
the State ownership of all natural resources. This Regalian doctrine is an exercise of
its sovereign power as owner of lands of the public domain and of the patrimony of
the nation, the mineral deposits of which are a valuable asset.
Proclamation No. 84 cannot be stigmatized as a violation of the non-impairment
clause. As pointed out earlier, respondents license is not a contract to which the
protection accorded by the non-impairment clause may extend. Even if the license
were, it is settled that provisions of existing laws and a reservation of police power
are deemed read into it, because it concerns a subject impressed with public welfare.
As it is, the non-impairment clause must yield to the police power of the state.