J. Non-impairment of Contracts

L. Non-Impairment of Contracts

1987 CONST., art. III, sec. 10

> art. III, sec. 10 SECTION 10. No law impairing the obligation of contracts shall be passed.

No law impairing the obligation of contracts shall be passed. (PHIL. CONST., art. 3, § 10)

The non-impairment clause is a limit on the exercise of legislative power and not of judicial or quasijudicial power. The SEC, through the hearing panel that heard the petition for approval of the Rehabilitation Plan, was acting as a quasi-judicial body and thus, its order approving the plan cannot constitute an impairment of the right and the freedom to contract. (BPI v. SEC, G.R. No. 164641, 2007)

Not absolute

Jurisprudence has established that a valid exercise of police power is superior to the obligation of contracts. (Bernas, The 1987 Philippine Constitution: A Comprehensive Reviewer, 2011)

Settled is the rule that the non-impairment clause of the Constitution must yield to the loftier purposes targeted by the Government. The right granted by this provision must submit to the demands and necessities of the State's power of regulation. Such authority to regulate businesses extends to the banking industry which, as this Court has time and again emphasized, is undeniably imbued with public interest. (Goldenway Merchandising Corporation v. Equitable PCI Bank, G.R. No. 195540, March 13, 2013)

Non-Impairment Clause Prevails:

• Against the removal of tax exemptions, where the consideration for the contract is the tax exemption itself
• Regulation on loans, if it impairs existing contracts and is not justified as a valid exercise of police power

What Constitutes Impairment

• If it changes the terms and conditions of a legal contract either as to the time or mode of performance.
• If it imposes new conditions or dispenses with those expressed
• If it authorizes for its satisfaction something different from that provided in its terms. (Bernas, The 1987 Philippine Constitution: A Comprehensive Reviewer, 2011) (Clemens v. Nolting, 42 Phil. 702, Jan. 24, 1922)