Non-Impairment Clause Digests

Case 1 Rutter v Esteban

Facts:

 Rutter sold to Esteban 2 parcels of land. In order to secure payment of the second parcel (P4.8k), the payment was divided
into 2 installments (1st- payable on or before Aug. 7, 2nd – payable on or before Aug. 27). Hence, plaintiff instituted this action
to recover the balance due.
 Respondent set up the defense the moratorium clause of RA 342, that his debt is a prewar obligation and under RA
342, payment of his obligation cannot be enforced until after the lapse of 8 years from the settlement of his claim by
the Philippine War Damage Commission, and this period has not yet expired.
 CFI rules in a favour of respondent.
 Hence, petitioner appeals to SC, questioning the validity of the moratorium law

Issue: WON moratorium law is unconstitutional for violation of the non-impairment clause (Art. III, sec. 1)

SC: EO 342 is declared unconstitutional. SC orders defendant to pay debt.

 The moratorium is a postponement of fulfiIlment of obligations decreed by the state through the medium of the
courts or the legislature. Its essence is the application of the sovereign power"

 The moratorium law does not violate the constitutional prohibition of impairment of clauses. It is a valid exercise of
the State of its police power. SC states: “"The economic interests of the State may justify the exercise of its continuing
and dominant protective power notwithstanding interference with contracts. .” The question is whether the legislative is
addressed to a legitimate end and the measures taken are reasonable and appropriate to that send. . . .

 Laws altering existing contracts constitute an impairment within the meaning of the contract clause only if they are
unreasonable in the light of the circumstances occasioning their enactment . Application of this 'rule of reason' was
justified on the theory that all contracts are made subject to an implied reservation of the protective power of the state, and that
therefore statutes which validly exercise this reserved power, rather than impairing the obligations of an existing contract, are
comprehended within them"
 The question now, is whether or not the period of 8 years reasonable under the present circumstances? The purpose
of RA 342 is to afford to prewar debtors an opportunity to rehabilitate themselves by giving them a reasonable time within
which to pay their prewar debts so as to prevent them from being victimized by their creditors.
o Due previous Eos, creditors would have to observe a total of 12 years, before collecting the amount due to them.
The period is unreasonable, it leaves the creditors at the mercy of their debtors, moreover, the former are not even
required to pay the interests.
o According to SC, the Philippine economy has progressively started to recover from the economic damages
brought about by the war, hence, the continued operation of RA 342 is unreasonable and oppressive.

Additional:

 These laws were declared constitutional. However, some courts have also declared that "such statutes are void as to
contracts made before their passage where the suspension of remedies prescribed is indefinite or unreasonable in
duration. The true test, therefore, of the constitutionality of a moratorium statute lies in the determination of the period of
suspension of the remedy. It is required that such suspension be definite and reasonable, otherwise it would be violative
of the constitution.
 In Blaisdell case, the application of the reserved power of the State to protect the integrity of the government and the security
of the people should be limited to its proper bounds and must be addressed to a legitimate purpose.
o Limitations:
o impairment should only refer to the remedy and not to a substantive right.
o Propriety of the remedy: rule requires that the alteration or change that the new legislation desires to write into an
existing contract must not be burdened with restrictions and conditions that would make the remedy hardly pursuing
 In other words, the Blaisdell case postulates that the protective power of the State, the police power, may only be invoked and
justified by an emergency, temporary in nature, and can only be exercised upon reasonable conditions in order that it may
not infringe the constitutional provision against impairment of contracts

Case 2 Ortigas & Co. Ltd. Partnership vs. Feati Bank & Trust Co
Facts:

 Plaintiff was engaged in the real estate industry. It sold to Angeles 2 parcels of land, and subsequently, the latter transferred
the rights and interests in favour of Chavez. The agreements contained stipulations that: 1. The buyer shall use the
lands only for residential purposes and is not allowed to remove any soil, stones, etc. 2. The buildings and lots shall
not be at a distance of less than 2 metres from its boundary lines. The restrictions were annotated.
 Eventually, the parcels of land were acquired by Feati Bank & Trust Co., “free from all liens and encumberances,”
 Plaintiff avers the limitations were part of its plan of beautifying Highway Hill Subdivision, but defendant avers subject lots were
in the commercial and industrial zone.
 Defendant then constructed a building for banking purposes in the subject lot, and plaintiff ordered the former to
desist thereof. Defendant refused, on the grounds the building was being built in compliance with the zoning
regulations. Hence, plaintiff files a case with MTC, which ruled in favour of the latter
 The issue to be determined by the RTC is whether or not, the Municipal resolution declaring the lots were part of the
industrial zone, prevails over the restrictions imposed by plaintiff. RTC upholds the resolution of the Municipal. It
predicated its conclusion on the exercise of police power of the said municipality, and stressed that private interest should
"bow down to general interest and welfare."
 The plaintiff files an appeal directly with the SC, since a question of law was raised.

Issues:

 Whether Resolution No. 27 s-1960 is a valid exercise of police power;

 Whether the said Resolution can nullify or supersede the contractual obligations assumed by defendant-appellee.

SC: The restrictions imposed by plaintiff cannot supersede the Municipal Resolution. The non-impairment clause is not absolute.

 The constitutional grant of non-impairment of clauses is not an absolute right. The rule is not absolute, since it has
to be reconciled with the legitimate exercise of police power, i.e., "the power to prescribe regulations to promote the
health, morals, peace, education, good order or safety and general welfare of the people."

The resolution was passed in the exercise of police power to safeguard or promote the health, safety, peace, good
order and general welfare of the people in the locality. The subject lots were located in an area wherein pollution and
noise are prevalent, hence hardly conducive to the health of the residents. Therefore, the resolutions are deemed
reasonable.
 Invariably described as "the most essential, insistent, and illimitable of powers" and "in a sense, the greatest and most
powerful attribute of government," the exercise of the power may be judicially inquired into and corrected only if it is
capricious, whimsical, unjust or unreasonable, there having been a denial of due process or a violation of any other
applicable constitutional guarantee. Police power "is elastic and must be responsive to various social conditions; it is not
confined within narrow circumscriptions of precedents resting on past conditions; it must follow the legal progress of a
democratic way of life."

 The contention that the trial court erred in sustaining the validity of resolution as an exercise of police power is without merit
since it has been raised first time on appeal. The rule is that the question of law or of fact which may be included in the
appellant's assignment of errors must be those which have been raised in the court below, and are within the issues framed by
the parties. The object of requiring the parties to present all questions and issues to the lower court before they can be
presented to the appellate court is to enable the lower court to pass thereon, so that the appellate court upon appeal may
determine whether or not such ruling was erroneous.

Additional:

Laws and reservation of essential attributes of sovereign power are read into contracts agreed upon by the parties.

Cases 3 Lozano v Martinez

Facts:

 Petition questioning the constitutionality of the BP 22 law. BP 22 punishes a person "who makes or draws and issues any
check on accountor for value, knowing at the time of issue that he does not have suJcient funds in orcredit with the drawee
bank for the payment of said check in full upon presentment,which check is subsequently dishonored by the drawee bank for
insuJciency of fundsor credit or would have been dishonored for the same reason had not the drawer,without any valid reason,
ordered the bank to stop payment."
  The statute likewise imposes the same penalty on "any person who, havingsuJcient funds in or credit with the drawee bank
when he makes or draws and issues acheck, shall fail to keep suJcient funds or to maintain a credit to cover the full amountof
the check if presented within a period of ninety (90) days from the date appearingthereon, for which reason it is dishonored by
the drawee bank.
 The difference in estafa and BP 22 is that in estafa, the deceit causing the defraudation must be prior to or simultaneous with
thecommission of the fraud. In issuing a check as payment for a pre-existing debt, thedrawer does not derive any material
beneLt in return or as consideration for itsissuance. On the part of the payee, he had already parted with his money or
propertybefore the check is issued to him, hence, he is not defrauded by means of any "prior" or"simultaneous" deceit
perpetrated on him by the drawer of the check.

Issue: WON BP 22 is invalid on the grounds:

(1) it offends the constitutional provision forbidding imprisonment for debt;

(2) it impairs freedom of contract;
(3) it contravenes the equal protection clause;
(4) it unduly delegates legislative and executive powers; and
(5) its enactment is flawed in that during its passage the Interim Batasan violated the constitutional provision prohibiting amendments to
a bill on Third Reading.

SC Ruling:

 A statute is presumed to be valid. Every presumption must be indulged in favor of its constitutionality. This is not to say that
we approach our task with diligence or timidity. Where it is clear that the legislature has overstepped the limits of its authority
under the constitution, we should not hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute.
 Petitioners aver BP 22 is invalid since it violates constitutional provision against non-imprisonment of debt. The gravamen of
the offense punished by BP 22 is the act of making and issuinga worthless check or a check that is dishonored upon its
presentation for payment. It is not the non-payment of an obligation which the law punishes. The law is not intended
ordesigned to coerce a debtor to pay his debt. The thrust of the law is to prohibit, underpain of penal sanctions, the making of
worthless checks and putting them in circulation.Because of its deleterious effects on the public interest, the practice is
proscribed bythe law.
 We find no valid ground to sustain the contention that BP 22 impairs freedom of contract. The freedom of contract
which is constitutionally protected is freedom to enter into "lawful" contracts. Contracts which contravene public
policy are not lawful. Besides, we must bear in mind that checks can not be categorized as mere contracts. It is a
commercial instrument which, in this modern day and age, has become a convenient substitute for money; it forms
part of the banking system and therefore not entirely free from the regulatory power of the state
 Neither do we find substance in the claim that the statute in question denies equal protection of the laws or is discriminatory,
since it penalizes the drawer of the check, but not the payee. It is contended that the payee is just as responsible for the crime
as the drawer of the check, since without the indispensable participation of the payee by his acceptance of the check there
would be no crime. This argument is tantamount to saying that, to give equal protection, the law should punish both the
swindler and the swindled.

Case 4 Ganzon v Inserto

Facts:

 Ganzon initiated proceedings to extra-judicially foreclose a real estate mortgage executed by the private respondents in his
favor. The Deed of Real Estate Mortgage between Randolph Tajanlangit and Esteban Tajanlangit as mortgagors on onehand
and Rodolfo Ganzon as mortgagee on the other hand was to secure the payment by the Tajanlangits of a promissory note
amounting to P40,000.00 in favor of Ganzon
 Private respondents filed a civil action for specific performance against petitioners alleging the extrajudicial foreclosure was
null and void.

Issue: whether or not the trial court may order the cancellation of a mortgage lien annotated in a Torrens Certi-cate of Title tosecure the
payment of a promissory note and substitute such mortgage lien with asurety bond approved by the same court to secure the payment
of the promissory note.

SC:

 the questioned orders violate the non-impairment of contracts clause guaranteed under the Constitution. Substitution of the
mortgage with a surety bond to secure the payment of the P40,000.00 note would in effect change the terms and
conditions of the mortgage contract. Even before trial on the very issues affecting the contract, the respondent court has
directed a deviation from its terms, diminished its efficiency, and dispensed with a primary condition.