NON-IMPAIRMENT OF OBLIGATION

OF CONTRACTS
Section 10
Article III
1987 Constitution
“ SEC. 10. No law impairing the obligation of
contracts shall be passed.

”
 Meaning of obligation of contract.
The obligation of a contract is the law or duty
which binds the parties to perform their
agreement according to its terms or intent if it is
not contrary to law, morals, good customs, public
order, or public policy.
 Scope of terms “law” and “contract”.
 The law, the enactment of which is prohibited, includes executive
and administrative orders of the President, administrative orders
issued by heads of departments, and ordinances enacted by local
governments.
 The guarantee is not violated by court decisions or by acts of boards
or officers acting in a judicial or quasi-judicial capacity which have
the effect of altering the obligations of a contract.
 The contract, the obligation of which is secured against impairment
under the Constitution, includes contracts entered into by the
government.
 Purpose of non-impairment prohibition.
 The prohibition is intended to protect creditors, to assure
the fulfilment of lawful promises, and to guard the integrity
of contractual obligations against unwarranted interference
by the State in the form of laws. Business problems would
arise if contracts were not stable and binding and if the
legislature can pass a law impairing an obligation entered
into legally.
 The provision implements the constitutional right to
freedom of contract.
 When obligation of contract impaired.
 Change or modification of terms and conditions – The
obligation of an existing contract is impaired when its terms
or conditions, either on the time or mode of performance,
are changed or modified by law, ordinance, or any issuance
having the force of law, thereby weakening the position or
diminishing the rights or obligations of a party to the
contract
 When obligation of contract impaired.
More specifically, a law which
 Takes from a party a right to which he is entitled under the contract;
 Deprives him of the means of enforcing such right;
 Imposes conditions not expressed in the contract, or dispenses with those
which are expressed in the contract;
 Diminishes the consideration agreed upon by the parties, as to diminish the
value of the contract; or
 Authorizes for its satisfaction different from that provided in its terms; or
enlarges, abridges or in any manner changes, directly or indirectly, the
intention of the parties, is void as impairing the obligation of the contract
within the meaning of the Constitution.
Impairment depends upon the circumstances.
In order to determine whether legislation unconstitutionally
impairs obligations of contracts, no unchanging yardstick,
applicable at all times and under all circumstance, by which
the validity of each statute may be measured or determined,
has been fashioned, but every case must be determined upon
its own circumstances.
 End sought and means adopted legitimate
 Interference free from unreasonableness
 Limits on freedom to contract.
The freedom to contract, under our system of government, is not
meant to be absolute. Equally fundamental with the private right is that
of the public to regulate it in the common interest.
1. Police power
2. Power of taxation
3. Power of eminent domain
4. Freedom of religion
5. Reservation clause in the Constitution.
 Prohibition against impairment not absolute.
The prohibition against impairment of obligation of contracts cannot
be absolute and unqualified. Even where an impairment is found, the
impairment might nevertheless be constitutional.
1. Prohibition signifies unreasonable impairment only
2. Prohibition subject to exercise of police power
a) Regulation of matters involving public rights and public welfare
b) Protection of public interests
c) Balancing of conflicting interests
 Prohibition against impairment not absolute.
3. Prohibition not applicable to particular
remedies or mode of procedure
4. Prohibition not applicable to judicial decisions
5. Prohibition not applicable where there is
waiver