MACTAN-CEBU INTL AIRPORT V LOZADA, G.R.

176625
FACTS: Subject of this case is a lot (Lot No. 88) located in Lahug, Cebu City. Its
original owner was Anastacio Deiparine when the same was subject to expropriation
proceedings, initiated by Republic, represented by the then Civil Aeronautics
Administration (CAA), for the expansion and improvement of the Lahug Airport.
During the pendency of the expropriation proceedings, respondent Bernardo L.
Lozada, Sr. acquired Lot No. 88 from Deiparine. The trial court ruled for the Republic
and ordered the latter to pay Lozada the fair market value of the lot. However, the
projected improvement and expansion plan of the old Lahug Airport, however, was
not pursued. The plaintiff-respondents initiated a complaint for the recovery of
possession and reconveyance of ownership the subject lot. On the other hand, the
petitioners asked for the immediate dismissal of the complaint. They specifically
denied that the Government had made assurances to reconvey Lot No. 88 to
respondents in the event that the property would no longer be needed for airport
operations. Petitioners instead asserted that the judgment of condemnation was
unconditional, and respondents were, therefore, not entitled to recover the
expropriated property notwithstanding non-use or abandonment thereof. The lower
court ruled for herein plaintiff-respondents, which decision was affirmed by the
Court of Appeals. In this petition, the petitioners argued that the judgment in Civil
Case No. R-1881 was absolute and unconditional, giving title in fee simple to the
Republic.
ISSUE: Whether or not a constructive trust was constituted in this case, and as
such, the respondents herein are entitled to the restitution of the expropriated
property which was not used for a public purpose.
HELD: YES. Art. 1454 of the Civil Code provides: If an absolute conveyance of
property is made in order to secure the performance of an obligation of the grantor
toward the grantee, a trust by virtue of law is established. If the fulfillment of the
obligation is offered by the grantor when it becomes due, he may demand the
reconveyance of the property to him.
Constructive trusts are fictions of equity which are bound by no unyielding formula
when they are used by courts as devices to remedy any situation in which the
holder of legal title may not in good conscience retain the beneficial interest.
In constructive trusts, the arrangement is temporary and passive in which the
trustees sole duty is to transfer the title and possession over the property to the
plaintiff-beneficiary. Of course, the wronged party seeking the aid of a court of
equity in establishing a constructive trust must himself do equity. Accordingly, the
court will exercise its discretion in deciding what acts are required of the plaintiffbeneficiary as conditions precedent to obtaining such decree and has the obligation
to reimburse the trustee the consideration received from the latter just as the
plaintiff-beneficiary would if he proceeded on the theory of rescission. In the good
judgment of the court, the trustee may also be paid the necessary expenses he may
have incurred in sustaining the property, his fixed costs for improvements thereon,
and the monetary value of his services in managing the property to the extent that

plaintiff-beneficiary will secure a benefit from his acts.

The rights and obligations between the constructive trustee and the beneficiary, in
this case, respondent MCIAA and petitioners over Lots Nos. 916 and 920, are
echoed in Art. 1190 of the Civil Code, When the conditions have for their purpose
the extinguishment of an obligation to give, the parties, upon the fulfillment of said
conditions, shall return to each other what they have received x x x In case of the
loss, deterioration or improvement of the thing, the provisions which, with respect
to the debtor, are laid down in the preceding article shall be applied to the party
who is bound to return x x x.
DE OANO V REPUBLIC, G.R. 168770
Facts: Petitioners Anunciacion vda. de Ouano, Mario Ouano, Leticia Ouano Arnaiz
and Cielo Ouano Martinez (the Ouanos) seek to nullify the Decision[1] dated
September 3, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 78027, affirming
the Order dated December 9, 2002 of the Regional Trial Court (RTC), Branch 57 in
Cebu City, in Civil Case No. CEB-20743, a suit to compel the Republic of the
Philippines and/or the Mactan-Cebu International Airport Authority (MCIAA) to
reconvey to the Ouanos a parcel of land.
Issue: Whether abandonment of the public use for which the subject properties
were expropriated entitles petitioners to reacquire them
Ruling: If, for example, land is expropriated for a particular purpose, with the
condition that when that purpose is ended or abandoned the property shall return to
its former owner, then of course, when the purpose is terminated or abandoned, the
former owner reacquires the property so expropriated. If, upon the contrary,
however the decree of expropriation gives to the entity a fee simple title, then, of
course, the land becomes the absolute property of the expropriator and in that
case the non-user does not have the effect of defeating the title acquired by the
expropriation proceedings.

CHAPTER XI - THE NON-IMPAIRMENT CLAUSE

Section 10. No law impairing the obligation of contracts shall be passed.
1. Read:
1. Kabiling, et al., vs. NHA, December 18,l987
Facts:
Petitioners' are among the landowners whose title to their respective lots
have already been transferred to respondent NHA pursuant to the provisions of P.D.
No. 1808. Wherein said petitioners assailed the constitutionality of P.D . No. 1808.
Alleging that said P.D . No. 1808 1) it deprives them of their property without due
process of law and without just compensation and of their right to equal protection

of the law; and 2) it violates the constitutional prohibition against impairment of the
obligation of contracts.
The stated objective of the decree, namely, to resolve the land tenure
problem in the Agno-Leveriza area to allow the implementation of the
comprehensive development plans for this depressed community, provides the
justification for the exercise of the police power of the State. The police power of the
State has been described as "the most essential, insistent and illimitable of powers.
The objection raised by petitioners that P.D. No. 1808 impairs the obligations
of contract is without merit. The constitutional guaranty of non-impairment of
obligations of contract is limited by and subject to the exercise of the police power
of the State in the interest of public health, safety, morals and general welfare. 3 For
the same reason, petitioners can not complain that they are being deprived of their
property without due process of law.
Nor can petitioners claim that their properties are being expropriated without
just compensation, since Sec. 3 of P.D. No. 1808 provides for just compensation to
lot owners who have fully paid their obligations to the City of Manila under their
respective contracts before the issuance of the decree. However, in accordance with
our decision in Export Processing Zone Authority vs. Hon. Ceferino Dulay, etc., et al.,
G.R. No. 59603, April 29, 1987, which declared P.D. No. 1533 unconstitutional, those
lot owners who have not yet received compensation under the decree are entitled
to a judicial determination of the just compensation for their lots.
2. Clemons vs. Nolting, 42 Phil. 702
3. Co vs. PNB, 114 SCRA 842
On November 10, 1961, the Standard Parts Manufacturing Corporation,
hereinafter to be referred to simply as STANDARD, executed a real estate mortgage
in favor of herein defendant-appellant Philippine National Bank, hereinafter to be
referred to simply as PNB, over properties covered by Transfer Certificates of Title
Nos. T-5108 and T-5320, both situated in Baguio City, as collateral for a loan
consideration of P500,000.00. On February 20, 1963, the same debtor corporation
executed an amended real estate mortgage to include as collateral for the increase
of the above loan to P1,000,000.00 a property located at Pasong Tamo Extension
within the Municipality of Makati (then part of Rizal Province and now of Metro
Manila) covered by Transfer Certificate of Title No. 54474. Additionally, on February
20, 1963, the same corporation executed in favor of PNB a chattel mortgage of its
personal properties listed on pages 96 to 108 of the Record on Appeal. On pages 6-7
of appellant's brief it is stated that as of July 19, 1974, the "borrowed loan" of
STANDARD totalled P4,296,803.56, and that the said obligation was secured, as
aforementioned, by the mortgages on the Baguio and Makati real estates of
STANDARD and the chattel mortgage on its personal properties above referred to.
When STANDARD failed to pay its obligation, PNB extrajudicially foreclosed
the mortgage on the Baguio properties as well as the chattel mortgage on July 19,
1974, with PNB as the highest bidder for P1,514,305.00. Subsequently, on August 8,
1974, PNB also foreclosed the mortgage on the Makati property and purchased the
same, as highest bidder, for P1,363,000.00.
How about the amount needed for such redemption?

On this score, PNB insists on p. 9 et. seq. of its brief on the applicability to
this case of "Section 25 of Presidential Decree No. 694, otherwise known as the new
PNB Charter" which provides:
Section 25. Right of Redemption of Foreclosed Property Right of
Possession During Redemption Period Within one year from the registration of the
foreclosure sale of real estate, the mortgagor shall have the right to redeem the
property by paying all claims of the Bank against him on the date of the sale
including all the costs and other expenses incurred by reason of the foreclosure sale
and custody of the property, as well as charges and accrued interests.
But P.D. 694 took effect only on May 8, 1975. PNB's counsel himself has, as
already mentioned above, taken the position that it was the old PNB Charter,
Republic Act 1300, that was expressly made part of the contract. In other words, it
was by virtue of such contractual stipulation and not ex propio vigore that the
provisions of the bank's then current charter bound the mortgagor STANDARD. But
prescinding from possible legal flaw in such pose and that all provisions of the
charter are enforceable and must be read into all mortgages with the PNB as
integral parts thereof, in this instant case, the Court finds its hands inert and
shackled in the face of the constitutional proscription against the impairment of
contracts. (Sec. 11, Art. IV, New Constitution) Stated otherwise, since the contract of
mortgage herein was entered into under a specific law, Republic Act 1300, even the
principle that no law is unamendable nor unrepealable cannot hold, when the
subsequent legislative enactment, P.D. 694, would alter and modify to the prejudice
of any of the parties the terms of the contract under the aegis of the prior law.
Indisputably, the application of P.D. 694 to the mortgage herein involved would
violate the Constitution. Hence, it simply cannot apply.
Stated otherwise, by virtue of the provision of the mortgage contract
precisely cited by PNB, namely, its paragraph (g), quoted earlier, PNB had the
contractually acquired option to resort either to its Charter, Republic Act 1300 or to
Act 3135. When it foreclosed the mortgage at issue, it chose Act 3135. That was an
option it freely exercised without the least intervention of appellee. And it was
exercised before P.D. 694 came into being. In fact, the foreclosure sales took place
in 1974 yet. And so, to make the redemption subject to a subsequent law would be
obviously prejudicial to the party exercising the right to redeem. Without
considering the date the loan was secured and the date of the mortgage contract,
and taking into account only the dates of the foreclosures and auction sales, it is
quite obvious that any change in the law governing redemption that would make it
more difficult than under the law at the time of the sale cannot be given retroactive
effect. Under the terms of the mortgage contract, the terms and conditions under
which redemption may be exercised are deemed part and parcel thereof whether
the same be merely conventional or imposed by law. To alter those terms in a
manner prejudicial to the mortgagor or the person redeeming the property as his
successor-in-interest after the foreclosures and sales would definitely come within
the constitutional proscription against impairment of the obligations of contracts.
4. Lozano vs. Martinez,146 SCRA 323
5. Rutter vs. Esteban,93 Phil. 68

Facts: On 20 August 1941, Royal L. Rutter sold to Placido J. Esteban 2 parcels of

land situated in the City of Manila. To secure the payment of said balance of P4,800,
a first mortgage over the same parcels of land has been constituted in favor of
Rutter. The deed of sale having been registered, a new title was issued in favor of
Placido J. Esteban with the mortgage duly annotated on the back thereof. Esteban
failed to pay the two installments as agreed upon, as well as the interest that had
accrued thereon, and so on 2 August 1949, Rutter instituted an action in the Court
of First Instance (CFI) Manila to recover the balance due, the interest due thereon,
and the attorney's fees stipulated in the contract. The complaint also contains a
prayer for the sale of the properties mortgaged in accordance with law. Esteban
admitted averments of the complaint but set up defense on the moratorium clause
embodied in RA 342 (approved 26 July 1948), allowing a war sufferer 8 years from
the settlement of his claim by the Philippine War Damage Commission. After a
motion for summary judgment has been presented by Esteban, and the requisite
evidence submitted covering the relevant facts, the court rendered judgment
dismissing the complaint holding that the obligation which Rutter seeks to enforce is
not yet demandable under the moratorium law. Rutter filed a motion for
reconsideration wherein he raised for the first time the constitutionality of the
moratorium law, but the motion was denied. Rutter appealed.
Issue: Whether Republic Act 342 is unconstitutional for being violative of the
constitutional provision forbidding the impairment of the obligation of contracts.
Held: Statutes declaring a moratorium on the enforcement of monetary obligations
are not of recent enactment. These moratorium laws are not new. Moratorium laws
have been adopted "during times of financial distress, especially when incident to,
or caused by, a war." The Moratorium Law is a valid exercise by the State of its
police power, being an emergency measure. Although conceding that the
obligations of the contract were impaired, the impairment was within the police
power of the State as that power was called into exercise by the public economic
emergency which the legislature had found to exist. Not only is the constitutional
provision (contract clause) qualified by the measure of control which the State
retains over remedial processes, but the State also continues to possess authority
to safeguard the vital interest of its people. It does not matter that legislation
appropriate to that end "has the result of modifying or abrogating contracts already
in effect." Not only are existing laws read into contracts in order to fix obligations as
between the parties, but the reservation of essential attributes of sovereign power
is also read into contracts as a postulate of the legal order. The policy of protecting
contracts against impairment presupposes the maintenance of a government by
virtue of which contractual relations are worth while, a government which retains
adequate authority to secure the peace and good order of society. Some of these
laws, however, have also been declared "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. Herein, obligations had been pending since 1945 as a result of the
issuance of Executive Orders 25 and 32 and at present their enforcement is still
inhibited because of the enactment of Republic Act 342 and would continue to be

unenforceable during the 8-year period granted to prewar debtors to afford them an
opportunity to rehabilitate themselves, which in plain language means that the
creditors would have to observe a vigil of at least 12 years before they could effect
a liquidation of their investment dating as far back as 1941. This period seems to be
unreasonable, if not oppressive. While the purpose of Congress is plausible, and
should be commended, the relief accorded works injustice to creditors who are
practically left at the mercy of the debtors. Their hope to effect collection becomes
extremely remote, more so if the credits are unsecured. And the injustice is more
patent when, under the law, the debtor is not even required to pay interest during
the operation of the relief. Thus, the Court declared that the continued operation
and enforcement of Republic Act 342 at the present time is unreasonable and
oppressive, and should not be prolonged a minute longer, and the same should be
declared null and void and without effect. This also holds true as regards Executive
Orders 25 and 32, considering that said Orders contain no limitation whatsoever in
point of time as regards the suspension of the enforcement and effectivity of
monetary obligations. This pronouncement is most especially needed in view of the
revival clause embodied in said Act if and when it is declared unconstitutional or
invalid.
6. Ilusorio vs. CAR, 17 SCRA 25
Petitioners, charged with Batas Pambansa Bilang 22 (BP 22 for short), popularly
known as the Bouncing Check Law, assail the law's constitutionality.
BP 22 punishes a person "who makes or draws and issues any check on account or
for value, knowing at the time of issue that he does not have sufficient funds in or
credit with the draweebank for the payment of said check in full upon presentment,
which check is subsequently dishonored by the drawee bank for insufficiency of
funds or 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 penalty
prescribed for the offense is imprisonment of not less than 30 days nor more than
one year or a fine or not less than the amount of the check nor more than double
said amount, but in no case to exceed P200,000.00, or both such fine and
imprisonment at the discretion of the court.
The statute likewise imposes the same penalty on "any person who, having
sufficient funds in or credit with the drawee bank when he makes or draws and
issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the
full amount of the check if presented within a period of ninety (90) days from the
date appearing thereon, for which reason it is dishonored by the drawee bank.
An essential element of the offense is "knowledge" on the part of the maker or
drawer of the check of the insufficiency of his funds in or credit with the bank to
cover the check upon its presentment. Since this involves a state of mind difficult to
establish, the statute itself creates aprima facie presumption of such knowledge
where payment of the check "is refused by thedrawee because of insufficient funds
in or credit with such bank when presented within ninety (90) days from the date of
the check. To mitigate the harshness of the law in its application, the statute

provides that such presumption shall not arise if within five (5) banking days from
receipt of the notice of dishonor, the maker or drawer makes arrangements for
payment of the check by the bank or pays the holder the amount of the check.
Another provision of the statute, also in the nature of a rule of evidence, provides
that the introduction in evidence of the unpaid and dishonored check with
the drawee bank's refusal to pay "stamped or written thereon or attached thereto,
giving the reason therefor, "shall constitute primafacie proof of "the making or
issuance of said check, and the due presentment to the drawee for payment and
the dishonor thereof ... for the reason written, stamped or attached by
the drawee on such dishonored check."
The presumptions being merely prima facie, it is open to the accused of course to
present proof to the contrary to overcome the said presumptions.
ISSUE: Whether or not (W/N) BP 22 violates the constitutional provision forbidding
imprisonment for debt.
HELD: No.
The gravamen of the offense punished by BP 22 is the act of making and issuing a
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 or designed to coerce a debtor to pay his debt. The thrust of the law is to
prohibit, under pain 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 by the law. The law punishes the act not as an offense against
property, but an offense against public order.
The effects of the issuance of a worthless check transcends the private interests of
the parties directly involved in the transaction and touches the interests of the
community at large. The mischief it creates is not only a wrong to the payee or
holder, but also an injury to the public. The harmful practice of putting valueless
commercial papers in circulation, multiplied a thousand fold, can very wen pollute
the channels of trade and commerce, injure the banking system and eventually hurt
the welfare of society and the public interest.
The enactment of BP 22 is a declaration by the legislature that, as a matter of public
policy, the making and issuance of a worthless check is deemed public nuisance to
be abated by the imposition of penal sanctions.
ISSUE: W/N BP 22 impairs the freedom to contract.
HELD: No. 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 modem 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.

7. Ortigas vs. Feati Bank, 94 SCRA 533

Facts: Ortigas, Madrigal & Sia is a limited partnership and Feati Bank and Trust Co.,
is a corporation duly organized and existing in accordance with the laws of the
Philippines. Ortigas is engaged in real estate business, developing and selling lots to
the public, particularly the Highway Hills Subdivision along EDSA, Mandaluyong. On
4 March 1952, Ortigas, as vendor, and Augusto Padilla and Natividad Angeles, as
vendees, entered in separate agreements of sale on installments over two parcels
of land. On 19 July 1962, the vendees transferred their rights and interests over the
lots in favor of Emma Chavez. Both agreements contained stipulations or
restrictions as to the removal of soil, the materials of the buildings, and sanitary
installations, which were annotated in the TCTs with the Rizal Registry of Deeds.
Feati Bank eventually acquired said lots on 23 July 1962, one bought directly from
Chavez, and the other from Republic Flour Mills (to whom Chavez sold it previously).
On 5 May 1963, Feati Bank began laying the foundation and commenced the
construction of a building to be devoted to banking purposes, but which could also
be devoted to, and used exclusively for, residential purposes. The following day,
Ortigas demanded that Feati Bank stop the construction of the commercial building
on the lots, claiming that the restrictions annotated were imposed as part of its
general building scheme designated for the beautification and development of
Highway Hills Subdivision. Feati Bank refused to comply with the demand,
contending that the building was being constructed in accordance with the zoning
regulations (Resolution 27, dated 4 February 1960 by Municipal Council of
Mandaluyong), that it has filed building and planning permit applications with the
municipality of Mandaluyong, and that it had accordingly obtained building and
planning permits to proceed with the construction. Ortigas filed the complaint with
the lower court (Civil Case 7706), seeking the issuance of "a writ of preliminary
injunction to prevent the construction of a commercial bank building in the premises
in view of the building restrictions annotated in the Feati Bank's TCTs. The trial court
dismissed the complaint holding that the restrictions were subordinate to Municipal
Resolution 27, rendering the restrictions ineffective and unenforceable. On 2 March
1965, Ortigas filed a motion for reconsideration. The trial court denied the motion
for reconsideration in its order of 26 March 1965. On 2 April 1965 Ortigas filed its
notice of appeal, its record on appeal, and a cash appeal bond. On 14 April 1965,
the appeal was given due course by the appellate court and the records of the case
were elevated directly to the Supreme Court, since only questions of law were
raised.
Issue: Whether the constitutional guarantee of non-impairment of contracts is
absolute.
Held: While non-impairment of contracts is constitutionally guaranteed, 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."
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. Public welfare when clashing with the
individual right to property should prevail through the state's exercise of its police
power. Herein, the municipality of Mandaluyong exercised police power to safeguard
or promote the health, safety, peace, good order and general welfare of the people
in the locality. EDSA, a main traffic artery which runs through several cities and
municipalities in the Metro Manila area, supports an endless stream of traffic and
the resulting activity, noise and pollution are hardly conducive to the health, safety
or welfare of the residents in its route.
Having been expressly granted the power to adopt zoning and subdivision
ordinances or regulations, the Municipal Council of Mandaluyong was reasonably
justified under the circumstances in passing the subject resolution. The motives
behind the passage of the questioned resolution being reasonable, and it being a
"legitimate response to a felt public need," not whimsical or oppressive, the nonimpairment of contracts clause of the Constitution will not bar the municipality's
proper exercise of the power. Further, laws and reservation of essential attributes of
sovereign power are read into contracts agreed upon by the parties. Not only are
existing laws read into contracts in order to fix obligations as between the parties,
but the reservation of essential attributes of sovereign power is also read into
contracts as a postulate of the legal order. The policy of protecting contracts against
impairments presupposes the maintenance of a government by virtue of which
contractual relations are worthwhile, a government which retains adequate
authority to secure the peace and good order of society. The law forms part of, and
is read into, every contract, unless clearly excluded therefrom in those cases where
such exclusion is allowed.
8. Ganzon vs. Insierto, 123 SCRA 713
9. Del Rosario vs. De los Santos, March 21, 1968
10. Abella vs. NLRC, 152 SCRA 140
11. PVBEU vs. PVB, 189 SCRA 14