THE IMPAIRMENT CLAUSE PURPOSE OF THE IMPAIRMENT CLAUSE: CONTRACT Refers to any lawful agreement on property or property rights,

hts, whether real or personal, tangible or intangible. The agreement may be executed or executory. PARTIES TO A CONTRACT The parties may be private persons only (natural or artificial), or private persons on the one hand and the government or its agencies in the other. Includes franchises or charters granted to private persons or entities. LIMITATIONS TO THE SCOPE OF CONTRACTS INCLUDED IN SEC. 10 The impairment clause, however, does not cover licenses, marriage contracts and public offices. LAW As used in the impairment clause, law includes: Executive and administrative orders of the President; Administrative orders by Heads of Departments; and Ordinances executed by the local government. A law which: Takes from the party a right to which he is entitled to under the contract; Deprives him of enforcing such right; To safeguard the integrity of valid contractual obligations. To protect the intention, rights and obligations of the contracting parties. To assure fulfillment of lawful promises.

Imposes conditions which are/are not expressed in the contract; or Diminishes the consideration agreed upon by the parties Is VOID as impairing the obligations of the contract within the meaning of the Constitution. LIMITATIONS TO THE SCOPE OF LAWS INCLUDED IN SEC. 10 The impairment clause, however, does not include court decisions or acts of board officers acting in a quasi-judicial capacity. OBLIGATION The obligation of a contract is the law or duty which binds the parties to perform their agreement according to its terms and intent. IMPAIRMENT Impairment is anything that diminishes the efficacy of the contract. The obligation of a contract is impaired when its terms or conditions are changed by law or by a party without consent of the other, thus weakening the rights of the latter. LIMITATION OF THE CONTRACTING PARTIES The contracting parties may stipulate whatever they may deem convenient and/or necessary provided it is not contrary to laws, morals, good customs, public order and public policy . Freedom to contract is not absolute and is limited by police power in the interest of general welfare and social justice. LIMITATIONS OF THE IMPAIRMENT CLAUSE Limited only to valid contracts. Taxation laws may validly limit the impairment clause. Does not prevent the proper exercise by the State of it police powers. Does not apply to matters within the domain of the lawmaking body to regulate.