CONSTITUTIONAL

LAW 2
THE IMPAIRMENT CLAUSE

Based on the 2007 edition of Constitutional Law by Isagani Cruz

Art. III, Sec. 10

No law impairing the obligation of
contracts shall be passed.

PURPOSE:
To safeguard the integrity of valid
contractual
agreements
against
unwarranted interference by the State.
Should not be tampered by subsequent
laws that will change the intention of
the parties OR modify their rights and
obligations.
Protection is not absolute because a
contract may be valid at the time of
conclusion but may become invalid by
virtue of supervening legislation.

CONTRACT
Definition: It is a lawful agreement on
property or property rights, whether
real or personal, tangible or intangible.
It may be executed or executory.
Parties may be private persons only,
natural or artificial or private persons
and the government.
It includes franchises or charters
granted to private persons or entities.
It does not cover licenses, marriage
contracts and public offices.

LAW
Statutes enacted by the national
legislature
Executive orders
Administrative regulations promulgated
under a valid delegation of power
Municipal ordinances passed by local
legislative bodies.
Judicial decisions and adjudications by
administrative bodies are not included.
Ivan Chris T. Luzuriaga, 1-O

HOW IMPAIRED: Retroactivity.

OBLIGATION
It is the vinculum juris (tie that binds the
parties to each other) of the contract so
that parties perform their undertaking
or agreement according to its term and
intent.

IMPAIRMENT
Anything that diminishes the efficacy of
the contract.
As long as the original rights of either
parties are changed to his prejudice,
there is impairment.
In case of REMEDIES: Impairment only if
all remedies are withdrawn resulting to
parties unable to enforce their rights
under the original agreement.
There is NO IMPAIRMENT as long as a
substantial and efficacious remedy
remains.

LIMITATIONS:
If the law is a proper exercise of the
police power, it will prevail over the
contract.
A contract is said to suffer a congenital
infirmity if the agreement deals with a
matter affecting public welfare.
The legislature cannot bargain away the
police power through the medium of a
contract.
Parties may not restrain the legislative
authority by contract on matters that
are within their lawmaking powers to
regulate.
Norman v. Baltimore (Gold Clause
Cases): Currency is within the exclusive
power of the legislature to control so
the agreement of repayment of loan,
despite the change in legal tender from

CONSTITUTIONAL LAW 2
THE IMPAIRMENT CLAUSE

Based on the 2007 edition of Constitutional Law by Isagani Cruz

gold to silver, was subject to

modification by the State in the exercise
of the police power.
Lozano v. Martinez (Challenge to the
constitutionality of BP No. 22): It is
constitutional because checks cannot be
categorized as mere contracts. It is a
commercial instruments which is a
convenient substitute for money; it
forms part of the banking system and
therefore not entirely free from the
regulatory powers of the state.
A lawful tax on a new subject or an
increased tax on an old one DOES NOT
interfere with a contract or impair its
obligation within the meaning of the
Constitution.
Where a law grants a tax exemption in
exchange for valuable consideration,
such exemption is a CONTRACT and
cannot be repealed because of the
impairment clause.
ALL OTHER tax exemptions are NOT
CONTRACTUAL and so may be revoked
at will by the legislature.


*NOT ALL DOCTRINES/CASES ARE INCLUDED*

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Ivan Chris T. Luzuriaga, 1-O