CHAPTER  14:  THE  IMPAIRMENT   Law  

 
CLAUSE  
As   used   in   the   impairment   clause,   "law"   includes  
 
statutes  enacted  by  the  national  legislature,  executive  
"No  law  impairing  the  obligation  of  contracts  shall  
orders   and   administrative   regulations   promulgated  
be  passed."  –  ART  III,  Sec.  10,  1987  Constitution  
under   a   valid   delegation   of   power,   and   municipal  
 
ordinances   passed   by   the   local   legislative   bodies.  
Purpose  of  the  Impairment  Clause:  “to  safeguard  the  
However,   it   does   not   include   judicial   decisions   or  
integrity   of   valid   contractual   agreements   against  
adjudications   made   by   administrative   bodies   in   the  
unwarranted   interference   by   the   State”   As   a   rule,  
exercise  of  their  quasi-­‐judicial  powers.    
they   should   be   respected   by   the   legislature   and   not  
tampered   with   by   subsequent   laws   that   will   change   To  impair,  the  law  must  retroact  so  as  to  affect  existing  
the  intention  of  the  parties  or  modify  their  rights  and   contracts  concluded  before  its  enactment.    
obligations.   The   will   of   the   obligor   and   the   obligee  
must   be   observed;   the   obligation   of   their   contract   There   will   be   no   impairment   if   the   law   is   made   to  
must  not  be  impaired.   operate  prospectively
only,  to  cover  contracts  entered  
  into  after  its  enactment.    
It  should  be  stressed  at  the  outset,  however,  that  the  
protection   of   the   impairment   clause   is   not   absolute.   Obligation  
There   are   instances,   as   will   appear   later,   when  
contracts   valid   at   the   time   of   their   conclusion   may   The  "obligation"  of  the  contract  is  the  vinculum  juris,  
become   invalid,   or   some   of   their   provisions   may   be   i.e.,  the  tie  that  binds  the  parties  to  each  other.  "The  
rendered   inoperative   or   illegal,   by   virtue   of   obligation  of  a  contract  is  the  law  or  duty  which  binds  
supervening  legislation.   the   parties   to   perform   their   undertaking   or   agreement  
  according  to  its  terms  and  intent."    
Contract  
  Impairment  
The  term  "contract"  as  used  in  the  impairment  clause  
refers  to  any  lawful  agreement  on  property  or  property   Impairment  is  anything  that  diminishes  the  efficacy  of  
rights,  whether  real  or  personal,  tangible  or  intangible.   the   contract.   The   degree   of   the   diminution   is  
The   agreement   may   be   executed   or   executory.   The   immaterial.   As   long   as   the   original   rights   of   either   of  
parties   may   be   private   persons   only,   natural   or   the   parties   are   changed   to   his   prejudice,   there   is   an  
artificial,  or  private  persons  on  the  one  hand  and  the   impairment  of  the  obligation  of  the  contract.    
government   or   its
agencies   on   the   other   hand.   It  
includes   franchises   or   charters   granted   to   private   Remedies:   There   will   be   impairment   only   if   all   of  
persons  or  entities,  like  an  authorization  to  operate  a   them  are  withdrawn,  with  the  result  that  either  of  the  
public  utility.   parties   will   be   unable   to   enforce   his   rights   under   the  
  original   agreement.   No   impairment   as   long   as  
But  it  does  not  cover  licenses  (Pedro  v.  Prov.  Board  of   substantial  and  efficacious  remedy  remains.  This  holds  
Rizal,   53   Phil.   123;   according   to   Tan   v.   Director   of   true  even  if  the  remedy  retained  is  the  most  difficult  to  
Forestry,  125  SCRA  302,  "a  license  is  merely  a  permit  or   employ.    
privilege  to  do  what  otherwise  would  be  unlawful  and  is  
not  a  contract  with  the  government."),  say  for  operation   Limitations:  
of  a  liquor  store  or  a  cockpit,  as  these  involve  grants  of  
Proper  exercise  of  the  police  power  will  prevail  over  
privileges  only  that  are  essentially  revocable.  Neither  
does   it   include   the   marriage   contract,   which,   more   the  contract.  Into  each  contract  are  read  the  provisions  
of  existing  law  and,  always,  a  reservation  of  the  police  
than   a   mere   agreement   between   the   spouses,   is  
power   as   long   as   the   agreement   deals  with   a   matter  
regarded  as  a  social  institution  subject  at  all  times  to  
regulation   by   the   legislature   and   to   change   of   the   affecting  the  public  welfare.  
original  conditions.  Thus,  a  subsequent  law  allowing  
Stone   vs.   Mississippi   -­‐   a   franchise   granted   by   the  
divorce  would  be  applicable  to  marriages  previously  
government   in   exchange   for   valuable   consideration,  
solemnized  under  a  law  prohibiting  their  dissolution.    
for  the  operation  of  a  lottery  by  a  private  corporation,  
 
was   in   effect   revoked   when   the   legislature  
 
subsequently   imposed   a   prohibition   on   all   kinds   of  
 
gambling  within  the  state.  The  measure  was  sustained  
 
although  the  term  of  the  franchise  had  not  yet  expired.    
 
 
Gold  Clause  Cases  -­‐  the  creditors  in  many  contracts  of   stipulated   condition   but   the   respondent   invoked   a  
loan,   anticipating   a   change   in   the   legal   tender   from   resolution   adopted   by   the   municipal   council   of  
gold  to  silver,  stipulated  with  the  borrowers  that  their   Mandaluyong   declaring   the   area   in   which   the   lots  
loans   would   be   repaid   in   gold   currency   even   if   the   were  located  a  commercial  and  industrial  zone.    
conversion   did   take   place.   As   expected,   the   United  
States  ultimately  converted  to  the  silver  standard,  the   The   Supreme   Court   upheld   the   respondent,   ruling  
law   providing   for   the   discharge   of   existing   money   that   the   zoning   resolution   had   been   adopted   in   the  
obligations  through  payment  in  the  new  legal  tender   exercise  of  the  police  power,  which  was  superior  to  the  
dollar   for   dollar.   The   creditors   objected,   claiming   an   impairment  clause  and  so  could  modify  the  provisions  
impairment   of   the   obligation   of   their   contracts.   The   of  the  contract  of  sale.    
U.S.  Supreme  Court  sustained  the  law,  holding  that  
the  subject  of  the  contract  being  currency,  which  was   Lozano  Case  –  Challenged  BP  22  on  the  ground  that  it  
within   the   exclusive   power   of   the   legislature   to   contravened   with   the   impairment   clause,   Supreme  
control,  the  agreement  was  subject  to  modification  by   Court  rejected  this  challenge.  
the  State  in  the  exercise  of  the  police  power.    
‘We  find  no  valid  ground  to  sustain  the  contention  that  BP  
Rutter   vs.   Esteban   -­‐   The   Philippine   government   22   impairs   freedom   of   contract.   The   freedom   of   contract  
which  is  constitutionally  protected  is  freedom  to  enter  into  
declared,  first  by  executive  order  of  the  President  and  
lawful'  con  tracts.  Contracts  which  contravene  public  policy  
later   by   congressional   enactment,   a   moratorium   on   are  not  lawful.  Besides,  we  must  bear  in  mind  that  checks  
the  payment  of  pre-­‐war  debts  until  after  eight  years   can  not  be  categorized  as  mere  contracts.  It  is  a  commercial  
from  the  settlement  of  the  war  damage  claims  of  the   instrument  which,  in  this  modern  day  and  age,  has  become  
debtors.   a   convenient   substitute   for   money,   it   forms   part   of   the  
banking   system   and   therefore   not   entirely   free   from   the  
The   law   was   annulled   by   the   Supreme   Court   as   regulatory  power  of  the  state.’  
violative  of  the  impairment  clause.  The  Court  declared  
that,  to  begin  with,  the  emergency  caused  by  the  war   Tiro  vs.  Hontanotas  -­‐  Supreme  Court  declared  that  a  
that   earlier   had   justified   the   moratorium   was   no   government   directive   which   in   effect   discontinued   the  
longer  existing.  Secondly,  the  period  was  oppressively   assignment   of   the   salaries   of   public   school   teachers   to  
long,  extending  over  a  period  of  four  years,  when  the   their   creditor   was   not   offensive   to   the   impairment  
executive  order  was  in  force,  and  another  eight  years   clause   because   the   latter   could   still   collect   its   loans  
as  provided  under  the  law,  during  which  the  creditor   after   the   salaries   had   been   drawn   by   the   employees  
could   not   enforce   his   claim.   Finally,   during   the   themselves.    
moratorium,   all   the   rights   of   the   creditors   were  
suspended,   including   the   right   to   collect   interest   on   Ganzon  vs.  Inserto  -­‐  it  was  held  that  the  clause  would  
the  principal  of  the  loan  as  long  as  it  remained  unpaid.   be   violated   by   the   substitution   of   a   mortgage   with   a  
The   Court   noted   that   in   the   United   States,   the   usual   surety   bond   as   security   for   the   payment   of   a   loan   as  
period   of   moratorium   did   not   extend   beyond   two   this   would   change   the   terms   and   conditions   of   the  
years   and   during   this   period   all   the   rights   of   the   original   mortgage   contract   over   the   mortgagee's  
creditor,  except  only  the  right  to  collect  the  principal   objection.   Remarkably,   the   change   was   made   by   a  
of  the  loan,  were  continued  in  force.     decision  of  the  trial  court,  which  is  not  supposed  to  be  
covered  by  the  term  "law"  as  used  in  the  impairment  
Ilusorio  v.  Court  of  Agrarian  Relations  -­‐  the  issue  was   clause.    
whether  a  pre-­‐existing  share  tenancy  contract  could  be  
validly  converted  by  the  tenants  into  leasehold  tenancy   Article   XII,   Section   11,   of   the   Constitution,   it   is  
in  accordance  with  the  provisions  of  a  subsequent  law.   provided  that  no  franchise  to  operate  a  public  utility  
The   Supreme   Court   held   this   was   allowed   because   –   shall   be   granted   except   under   the   condition   that   it  
“…By   enacting   regulations   reasonably   necessary   to   shall  be  subject  to  "amendment,  alteration  or  repeal  
secure  the  health,  safety,  morals,  comfort,  or  general   by   the   Congress   when   the   common   good   so  
welfare   of   the   community,   even   the   contracts   may   requires"    
thereby  be  affected;  for  such  matter  cannot  be  placed  
by  contract  beyond  the  power  of  the  State  to  regulate   Other  inherent  powers,  ED  &  T,  may  validly  limit  the  
and  control  them.”   impairment  clause.  

Ortigas  &  Co.  vs.  Feati  Bank  –  Petitioner  sold  two  lots.   Long   Island   Water   Supply   Co.   v.   Brooklyn   –   private  
On   a   condition   that   said   lots   be   used   for   residential   corporation  contracted  to  supply  a  town  with  water  for  
purposes   only.   Respondent   acquired   said   lot   and   25   years.   In   sustaining   the   expropriation,   the   U.S.  
erected  a  commercial  building.  The  petitioner  sought   Supreme  Court  declared  that  "a  contract  is  property  
to   restrain   such   construction   on   the   strength   of   the   and,  like  any  other  property,  may  be  taken  for  public  use  
.  .  .  subject  to  the  rule  of  just  compensation.  The  true   (5)  Every  law  which,  assuming  to  regulate  civil  rights  
view   is   that   the   condemnation   proceedings   do   not   and  remedies  only,  in  effect  imposes  a  penalty  or  the  
impair  the  contract,  do  not  break  its  obligations,  but   deprivation  of  a  right  for  something  which  when  done  
appropriate  it,  as  they  do  the  tangible  property  of  the   was  lawful.

company,  to  public  uses."    
(6)  Every  law  which  deprives  persons  accused  of  crime  
It   has   also   been   held   that   a   “lawful   tax”   on   a   new   of  some  lawful  protection  to  which  they  have  become  
subject,  or  an  increased  tax  on  an  old  one,  does  not   entitled,  such  as  the  protection  of  a  former  conviction  
interfere
with   a   contract   or   impair   its   obligation   or  acquittal,  or  of  a  proclamation  of  amnesty.    
within  the  meaning
of  the  Constitution.    
Characteristics  
On  the  other  hand,  where  a  law  grants  a  tax  exemption  
in  exchange  for  valuable  consideration,  such  exemption   It  will  appear  from  the  above  enumeration  that  to  be  
is   considered   a   contract   and   cannot   be   repealed   ex  post  facto,  the  law  must  (CRP):  (1)  refer  to  criminal  
because   of   the   impairment   clause.   All   other   tax   matters;  and  (2)  be  retroactive  in  its  application;  (3)  to  
exemptions   are   not   contractual   and   so   may   be   the  prejudice  of  the  accused.    
revoked  at  will  by  the  legislature.    
Republic   vs.   Fernandez   -­‐   the   War   Profits   Tax   Law  
CHAPTER  15:  EX-­‐POST  FACTO  LAWS   retroactively   imposing   taxes   on   properties   and   income  
acquired  during  the  Japanese  Occupation  was  not  an  ex  
  post   facto   law   as   "the   prohibition   applies   only   to  
"No  ex  post  facto  law  or  bill  of  attainder  shall  be  en   criminal   or   penal   matters   and   not   to   laws   which  
acted."  –  Art.  III,  Sec.  22,  1987  Constitution   concern   civil   matters   or   proceedings   generally,   or  
which  affect  or  regulate  civil  or  private  rights."    
Ex  Post  Facto  Law    
Bayot   vs.   Sandiganbayan   -­‐   Where   a   law   amending  
The   equivalent   of   impairment   clause   in   criminal   R.A.   3019   (Anti-­‐Graft   and   Corrupt   Practices   Act)  
matters  is  the  prohibition  against  the  passage  of  the   provided   for   the   suspension   pendente   lite   (‘pending  
ex  post  facto  law.  This  is  so  because  the  ex  post  facto   litigation’)  of  any  public  officer  or  employee  accused  of  
law,   like   the   law   impairing   the   obligation   of   the   offenses   involving   fraudulent   use   of   public   funds   or  
contract,  operates  retroactively  to  affect  antecedent   property,  including  those  charged  earlier,  it  was  held  
acts.  A  law  can  never  be  considered  ex  post  facto  as   that   the   amendment   was   not   ex   post   facto   even   if  
long   as   it   operates   prospectively   since   its   strictures   applied  retroactively  because  the  suspension  was  not  
would   cover   only   offenses   committed   after   and   not   punitive  but  merely  preventive.  P.D.  No.  1606  itself,  
before  its  enactment.  Basically,  an  ex  post  facto  law   creating   the   Sandiganbayan,   was   held   to   be   not   a  
is   one   that   would   make   a   previous   act   criminal   penal  law  and  therefore  not  ex  post  facto.    
although  it  was  not  so  at  the  time  it  was  committed.    
Similar  rulings   were   made  concerning   habeas  corpus  
Kinds   proceedings,   and   also   the   proclamation   suspending  
the  privilege  of  the  writ  of  habeas  corpus.    
More  specifically,  the  following  are  considered  ex  post  
facto  laws:  MACiARD   US   vs.   Gomez   Coronel   -­‐   an   information   for   adultery  
filed   by   the   prosecutor   was   dismissed   by   the  
(1)  Every  law  that  makes  criminal  an  act  done  before  
Supreme  Court  on  the  ground  that  at  the  time  of  the  
the  passage  of  the  law  and  which  was  innocent  when  
alleged  commission  of  the  offense,  prosecution  could  be  
done,  and  punishes  such  an  act.    
commenced  only  on  complaint  of  the  offended  spouse.  
It   was   held   that   the   amendatory   law   permitting   the  
(2)   Every   law   that   aggravates   a   crime,   or   makes   it  
prosecutor  to  initiate  the  charge  was  ex  post  facto.    
greater  than  it  was  when  committed.    
People   v.   Vilo   -­‐   the   Supreme   Court   sustained   the  
(3)  Every  law  that  changes  punishment,  and  inflicts  a  
retroactive   application   to   the   accused   of   an  
greater  punishment  than  the  law  annexed  to  the  crime  
amendatory   law   allowing   affirmation   of   the   death  
when  committed.    
sentence   by   only   eight   justices   although   unanimity  
(4)  Every  law  that  alters  the  legal  rules  of  evidence,   was   required   when   the   crime   was   committed   by   the  
and  receives  less  or  different  testimony  than  the  law   defendant.  The  majority  decided  that  the  amendment  
required  at  the  time  of  the  commission  of  the  offense,   was  merely  procedural  in  nature  and  so  did  not  partake  
in  order  to  convict  the  offender.     of  the  nature  of  an  ex  post  facto  law.    
Even  if  the  law  be  penal  and  retroactive,  it  will  still  not   Bill  of  Attainder  
be   ex   post   facto   if   it   does   not   operate   to   the  
disadvantage  of  the  accused     Characteristics  

Thus,   a   law   reducing   the   penalty   for   murder   from   A   bill   of   attainder   is   a   legislative   act   that   inflicts  
death  to  life  imprisonment,  applied  retroactively,  will   punishment   without   trial,   its   essence   being   the  
benefit  rather  than  prejudice  the  convict  and  so  will  be   substitution   of   legislative   fiat   for   a   judicial  
constitutional.     determination   of   guilt.   It   is   only   when   a   statute  
applies   either   to   named   individuals   or   to   easily  
People   vs.   Ferrer   -­‐   Supreme   Court   rejected   the   ascertainable  members  of  a  group  in  such  a  way  as  to  
argument   that   the   Anti-­‐Subversion   Act   was   inflict   punishment   on   them   without   a   judicial   trial  
unconstitutional   on   the   ground   inter   alia   that   it   that  it  becomes  a  bill  of  attainder.  
punished   past   membership   in   the   Communist   Party  
and  other  similarly-­‐  oriented  organizations.     US  vs.  Lovett  -­‐  a  law  contained  a  provision  prohibiting  
payment   from   public   funds   of   compensation   to   the  
It   declared   that   the   prohibition   applied   only   "to   acts   respondents,   who   were   individually   named   therein,  
committed   'after   the   approval   of   this   Act.'   Only   except   for   jury   or   military   service,   unless   they   were  
those   who   knowingly,   willfully   and   by   overt   acts   reappointed   by   the   President   with   the   advice   and  
affiliate  themselves  with,  become  or  remain  members   consent   of   the   Senate…   "Section   304   thus   clearly  
of   the   Communist   Party   of   the   Philippines   and/or   its   accomplished   the   punishment   of   named   individuals  
successors  or  of  any  subversive  association'  after  June   without  judicial  trial,"    
20,  1957,  are  punished.  Those  who  were  members  of  
the  Party  or  of  any  other  subversive  association  at  the   Garner  v.  Board  of  Public  Works  of  Los  Angeles  -­‐  an  
time   of   the   enactment   of   the   law   were   given   the   ordinance   prohibited   the   employment  by  the  City  of  
opportunity   of   purging   themselves   of   liability   by   Los   Angeles   of   any   person   who   during   the   past   five  
renouncing   in   writing   and   under   oath   their   years  "advised,  advocated  or  taught  the  overthrow  of  
membership  in  the  Party.  The  law  expressly  provides   the  government  of  the  United  States  or  of  California"  
that   such   renunciation   shall   operate   to   exempt   such   or  had  been  affiliated  with  any  group  doing  such  acts.    
persons  from  penal  liability."    
The   Act   also   required   every   incumbent   employee   to  
Rodriguez  v.  Sandiganbayan  -­‐  PD  1606  creating  this   execute   an   affidavit   stating   "whether   or   not   he   is   or  
court   was   held   not   to   be   an   ex   post   facto   law   ever   was   a   member   of   the   Communist   Party   of   the  
notwithstanding  the  petitioner's  claim  that  he  and  his   United   States   of   America   or   of   the   Communist  
witnesses,  who  were  living  in  Cagayan  de  Oro,  would   Political   Association,   and   if   he   is   or   ever   was   such   a  
be   incurring   tremendous   expenses   in   coming   to   and   member,   stating   the   date   when   he   became,   and   the  
from  his  trial  in  Manila  where  the  Sandiganbayan  was   period   during   which   he   was,   such   a   member."  
holding   its   hearings.   The   disadvantage   or   Challenged   by   seventeen   employees   who   were  
inconvenience   was   only   "limited   and   unsubstantial,"   discharged  for  refusal  to  comply  with  the  requirement,  
according  to  Justice  Escolin.     the   ordinance   was   sustained   by   the   U.S.   Supreme  
Court.  
Katigbak   vs.   Solicitor   General   –   “The   forfeiture   of   the  
property  provided  for  in  Republic  Act  No.  1379  being  in  the   “We   think   that   a   municipal   employer   is   not   disabled  
nature   of   a   penalty;   …   it   fol   lows   that   that   penalty   of   because   it   is   an   agency   of   the   State   from   inquiring   of   its  
forfeiture   prescribed   by   Republic   Act   No.   1379   cannot   be   employees  as  to  matters  that  may  prove  relevant  to  their  
applied   to   acquisitions   made   prior   to   its   passage   without   fitness  and  suitability  for  the  public  service.  Past  conduct  
running   afoul   of   the   Constitutional   provision   condemning   may  well  relate  to  present  fitness;  past  loyalty  may  have  a  
ex  post  facto  laws  or  bills  of  attainder.  But  this  is  precisely   reasonable  relationship  to  present  and  future  trust.  Both  are  
what  has  been  done  in  the  case  of  the  Katigbaks.  The  trial   commonly  inquired  into  a  determining  fitness  for  both  high  
court  declared  certain  of  their  acquisitions  in  1953,  1954  and   and   low   positions   in   private   industry   and   are   not   less  
1955   to   be   illegal   under   Republic   Act   1379   although   made   relevant  in  public  employment.  The  affidavit  requirement  
prior   to   the   enactment   of   the   law,   and   imposed   a   lien   is  valid.    
thereon  in  favor  of  the  government  in  the  sum  of  P100.000.  
Such  a  disposition  is  constitutionally  impermissible.  “   Bills   of   attainder   are   legislative   acts...   that   apply   either   to  
named  individuals  or  to  easily  ascertainable  members  of  a  
  group   in   such   a   way   as   to   inflict   punishment   on   them  
without   a   judicial   trial...   United   States   v.   Lovett,  
  Punishment   is   a   prerequisite.   We   are   unable   to   conclude  
that  punishment  is  imposed  by  a  general  regulation  which  
  merely  provides  standards  of  qualification  and  eligibility  for  
employment.”