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Impairment clause

Impairment clause................................................................................................................1
Source: Cruz, Constitutional Law, 2007 Ed., p.256 ...........................................................1
1.o law impairin! t"e o#li!ations o$ contracts s"all #e passed %art. III, sec. 10,
Constitution&........................................................................................................................2
2.'urpose..............................................................................................................................2
(.Contract.............................................................................................................................2
).Law...................................................................................................................................5
5.*#li!ation.........................................................................................................................6
6.Impairment........................................................................................................................7
7.Limitations........................................................................................................................+
Source: Cruz, Constitutional Law, 2007 Ed., p.256
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1. No law impairing the obligations of contracts shall be passed
[art. III, sec. 10, Constitution]
2. Purpose
2.1. to safeguard the integrit of !alid contractual agreements against
unwarranted interference b the "tate
2.2. Is the protection absolute#
2.2.1. No. In a !alid e$ercise of police power, the legislature b
enactment of a subse%uent law ma legall modif or in!alidate an
e$isting contract.
&. Contract
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&.1. 'efers to an lawful agreements affecting propert or propert
rights
&.1.1. real propert
&.1.2. personal propert
&.1.&. tangible propert
&.1.(. intangible propert
&.2. Parties to a contract
&.2.1. Natural
&.2.2. )rtificial
(
&.2.2.1. Pri!ate Corporations
&.2.2.2. *o!ernment
&.&. Includes franchises and charters granted to pri!ate persons or
entities
&.(. +oes not co!er
&.(.1. ,icenses
&.(.1.1. )re grants of pri!ileges onl that are essentiall re!ocable b
the "tate.
&.(.2. Public office
)
&.(.2.1. Not a propert right and cannot be sub-ect of contract
between the incumbent and the "tate. If created b law, it is sub-ect to
modification or abolishment e!en b retroacti!e legislation.
&.(.2.2. .$ception onl as to salaries alread earned b the
incumbent is deemed a !ested propert right and ma not be withheld
or reduced b retroacti!e legislation.
&.(.&. "ocial institutions, li/e marriages
&.(.&.1. "ub-ect to regulation b the "tate and to change of the
original conditions
(. ,aw
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(.1. Includes
(.1.1. "tatutes enacted b national legislature
(.1.2. .$ecuti!e orders or administrati!e regulation promulgated under
a !alid delegation of police power
(.1.&. ,ocal ordinances b ,*0s
(.2. +oes not include
(.2.1. 1udicial decisions or ad-udications made b administrati!e
bodies in the e$ercise of their %uasi -udicial powers
2. 3bligation
2.1. It is the !inculum -uris, the tie that binds the parties to a contract
2.2. It is the law or dut which binds the parties to perform their
respecti!e underta/ing according to its terms and intent
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4. Impairment
4.1. )s to contract
4.1.1. Is anthing that diminishes the efficac of the contract
4.1.2. 5hen the original rights of the parties are changed to his
pre-udice, there is impairment of the obligation of the contract.
4.2. )s to remedies
4.2.1. 6he remedies for enforcement are completel withdrawn.
4.2.2. .ither of the parties is unable to enforce their respecti!e rights
under the original agreement.
4.2.&. 6here is no impairment when there remain a substantial and
efficacious remed. 78anila 6rading !s. 'ees, 42 Phil. (41]
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9. ,imitations
9.1. 6he pro!isions of e$isting laws are deemed written in e!er
contract.
9.2. 5here a contract deals with matters affecting public interest, it is
alwas sub-ect to police power of the "tate.
9.&. It has been held that a contract dealing with matters affecting public
concern suffers a congenital infirmit that is susceptible to change b the
legislature as a postulate of the legal order. 7:ome ;ldg and ,oan )ssn.
!s. ;laisdell, 2<0 0" &<=]
9.(. ) franchise granted b the go!ernment for !aluable consideration
ma be re!o/ed at will, directl or indirectl, e!en if the term has not et
e$pired. 7"tone !s. 8ississippi>
+
9.2. 5here the sub-ect of the contract is currenc, such is within the
e$clusi!e power of legislature to control and ma be modified b the
"tate in the e$ercise of police power. 7Norman !s ;altimore 2<( 0" 2(0]
9.4. ) statute granting moratorium on pament of pre?war debts until
after = ears was annulled b the "C as !iolati!e of the impairment clause
holding that 71> 6he emergenc caused b the war was no longer e$isting
72> the period was oppressi!el long during which the creditor cannot
enforce his claim 7&> during the moratorium, all rights of creditors are
suspended, including right to collect interest. 7'utter !s. .steban, <& Phil
4=]
9.9. 6he issue whether a pre?e$isting tenanc contract ma be con!erted
b the tenants into leasehold tenanc in accordance with a subse%uent
law is !alid and not !iolati!e of the impairment clause on grounds that
the constitutional prohibition is not absolute, and the prohibition does
not appl to contracts affecting public interest which are thus within the
regulating powers of the legislature. 7Illusorio !s. Court of )grarian
'elations, 19 "C') 22>
9.=. ) @oning resolution adopted b the municipal council is in the
e$ercise of police power which was superior to the impairment clause
and could modif the pro!isions of the contract of sale [3rtigas A Co., !s.
Beati ;an/, <( "C') 2&&]
9.<. 6he issue that ;P 22 contra!enes the impairment clause, the "C
held that contracts that contra!ene public polic are not lawful and that
chec/s are not contracts but are commercial instruments forming part of
the ban/ing sstem and well within the regulator power of the "tate
7,o@ano Case>
9.10. ) go!ernment directi!e discontinuing assignment of salaries of
public school teachers to their creditors is not !iolati!e of the impairment
clause because the latter can still collect his loans after the salaries ha!e
,
been drawn b the emploees themsel!es [6iro !s. :ontanosas, 122
"C') 4<9]
9.11. 6he substitution of a mortgage with a suret bond as securit for
pament of a loan will !iolate the clause because the substitution will
change the conditions of the original mortgage contract. Peculiarl, the
change was made b the trial court which is not supposed to be co!ered
b the term CClawCC as used in the impairment clause. [*an@on !s.
Inserto, 12& scra 91&]
9.12. ,i/e police power, powers of eminent domain and ta$ation ma
!alidl limit the impairment clause. 6he condemnation proceedings do
not impair the contract but appropriate it to public uses [,ong Island
5ater "uppl !s. ;roo/ln, 144 0" 4=2]
9.1&. ) lawful ta$ does not interfere with a contract or impair its
obligations within the meaning of the Constitution because the ta$ must
be paid unless prohibited b the Constitution [,a Insular !. 8achuca, &<
Phil 249]
9.1(. 5here a law grants ta$ e$emptions in e$change for !aluable
consideration, such e$emption is considered a contract and cannot be
repealed because of the impairment clause. )ll other ta$ e$emptions are
not contractual and so ma be re!o/ed at will b the legislature
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