SEC. 10. No LAW IMPAIRING THE OBLIGATION OF CONTRACTS SHALL BE PASSED.

-demons v. Nolting:1322 ... [a] law which changes the terms of a legal contract between parties, either
in the time or mode of performance, or imposes new conditions, or dispenses with those expressed, or
authorizes for its satisfaction something different from that provided in its terms, is law which impairs
the obligation of a contract and is therefore null and void....

-US. v. Diaz Conde1323 said: "Any law which enlarges, abridges, or in any manner changes the intention
of the parties, necessarily impairs the contract itself." And even when the change in the contract is done
by indirection, there is impairment nonetheless.

-Thus, in Government of the Philippine Islands v. Frank,1324 which dealt with a situation where the
terms of a statute had been made a part of the contract between Frank and the Government, the Court
said that a subsequent amendment of the statute could not have the effect of amending the terms of
the contract.

-To come under the constitutional prohibition, however, the law must effect a change on the rights of
the parties with reference to each other and not with reference to non-parties. Thus, an additional tax
imposed upon goods already contracted to be sold does not impair the contract between buyer and
seller. Moreover, what the prohibition envisions are enactments passed by a governmental law-making
body. A change, therefore, in the Catholic Church's canon law which affects the contractual relation
between parties with reference to internal affairs of the church is not one covered by the constitutional
prohibition.

-Fletcher v. Peckm2 that the reach of the Contract Clause is not limited to private contracts was never
questioned. Both Government v. Frank"" and demons v. Nolting"1* involved public contracts. Moreover,
the clause was applied several times to mining grants and corporation charters which were considered

public contracts.

-Casanovas v. Hord-This decision extended the constitutional protection to a tax exemption embodied in
a Spanish royal decree of May 14, 1867, granting a mining concession. The decree was considered a
contract between plaintiff and the Spanish government and the law abolishing the tax exemption was
declared an unconstitutional impairment of the contract. As to the effect of the change of sovereignty
on the contract, the Court simply said: "The fact that this concession was made by the government of

Spain, and not by the government of the United States is not important."

-Lim v. Secretary of Agriculture: For it is well-settled that a law within the meaning of this constitutional
provision has reference primarily to statutes and ordinances of municipal corporations. Executive orders
issued by the President whether derived from his constitutional power or valid statutes may likewise be
considered as such. It does not cover, therefore, the exercise of the quasi-judicial power of a
department head even if affirmed by the President. The administrative process
in such a case partakes more of an adjudicatory character. It is bereft of any legislative significance. It
falls outside the scope of the non-impairment clause.

-In Government v. Visayan Surety and Insurance Corp.," answering a challenge to a statutory
requirement that all those entering into public works contracts must execute a bond in favor of third
persons who might have some claim by reason of the materials and labor employed in the construction,
the Court stressed that what the contract clause prohibited was retrospective impairment and not
prospective regulation of future contracts.

-Florentino v. Philippine National Bank"- that creditors could not be compelled to accept backpay
certificates as a "sort of promissory note at the rate very much lower than the current or even the legal
one.

-Manantan v. Municipality of Luna," the applicability of the contract clause to public contracts was
presumed.

Police power and contracts.

-PangasinanTransportation Co. v. Public Service Commission, said: "[S] tatutes enacted for the regulation
of public utilities, being a proper exercise by the state of police power, are applicable not only to those
public utilities coming into existence after its passage, but likewise to those already established and in
operation."

-Abe v. Foster Wheeler Corporation,nn in upholding a statute granting to workers rights which they did
not have under existing contracts, the Court said that "the constitutional guaranty of non-impairment ...
is limited by the exercise of the police power of the State, in the interest of public health, safety, morals
and general welfare.

-Alalayan v. National Power Corporation™ upheld a provision setting a ceiling to profits realizable by
certain types of public utilities even when applied to existing contracts.

-Primero v. Court of Agrarian Relations where the security of tenure guaranteed to an agricultural
tenant by a statute was challenged as impairing existing tenancy relations. The Court again ruled that
the law was "unquestionably a remedial legislation promulgated pursuant to the social justice precepts
of the Constitution and in the exercise of the police power of the State to promote the common weal."

-Constitutionality of Section 14 of Republic Act 1199 which gave tenants the option of unilaterally
converting existing contractual relationships from "share tenancy to leasehold tenancy." The series
began with Ramas v. Court of Agrarian Relations." The Court said: The right granted to the tenant to
change the contract from share tenancy to that of leasehold tenancy can not be considered
unreasonable or oppressive, because by the landlord's giving up 5% of the harvest (the change from
share to leasehold tenancy reduces the landlord's share from 30% to 25%), the tenant becomes more
responsible, more competent, and financially prepared to comply with his obligations under the lease,
to the ultimate benefit. of the landlord, with the consequent improvement of the lot of a big segment of
the population and thereby giving full meaning to the social justice directive contained in the
Constitution.

-The role of police power in relation to labor contracts other than agricultural tenancy contracts also
received some attention. A Blue Sunday Law, for instance, which in effect nullified existing contractual

provisions stipulating that either work or play would be provided on Sundays, was upheld as a legitimate
exercise of police power.

-It is not police power alone which can affect the terms of contracts. It has been said that the power to
tax, which is also a sovereign power, can cause the alteration of a contract. This, however, must be
carefully understood: generally, the imposition of a tax does not alter the relationship between the
parties but only the relationship between the parties and the state who may not be a party to the
contract.

-In China Banking Corporation v. ADB Holdings, the Court elaborated: Court reiterates that the SEC's
approval of the Rehabilitation Plan did not impair BPI's right to contract. As correctly contended by
private respondents, the non-impairment clause is a limit on the exercise of legislative power and not of
judicial or quasi- judicial 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.

-Laws prohibiting premature campaigning are intended to level the playing field for candidates to public
office, to equalize the situation between popular or rich candidates, on one hand, and lesser-known or
poorer candidates, on the other, by preventing the former from enjoying undue advantage in exposure
and publicity on account of their resources and popularity. Such laws might affect advertising contracts,

the non-impairment clause of the Constitution must yield to the loftierpurposes targeted by the
Government.

-The issue of the retroactive effect of R.A. No. 7641, a retirement law, on prior existing employment
contracts has long been settled. The early case of Enriquez Security Services, Inc. v. Cabotaje, said:

RA 7641 is undoubtedly a social legislation. The law has been enacted as a labor protection measure and
as a curative statute that — absent a retirement plan devised by, an agreement with, or a voluntary
grant from, an employer — can respond, in part at least, to the financial well-being of workers during
their twilight years soon following their life of labor. There should be little doubt about the fact that the
law can apply to labor contracts still existing at the time the statute has taken effect, and that its
benefits can be reckoned not only from the date of the law's enactment but retroactively to the time
said employment contracts have started. This doctrine has been repeatedly upheld and clarified in
several cases. Pursuant thereto, the Court has imposed two (2) essential requisites in order that R.A. No.
7641 may be given retroactive effect: (1) the claimant for retirement benefits must still be in the employ
of the employer at the time the statute took effect; and (2) the claimant must have complied with the
requirements for eligibility for such retirement benefits under the statute.
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