CHAPTER 14: THE IMPAIRMENT CLAUSE

1. Article III, Section 10 of the 1987 Constitution

“No law impairing the obligation of contracts shall be passed.”

2. PURPOSE of the impairment clause: To safeguard the integrity of valid contractual agreements against unwarranted interference by the State.

- As a RULE: Should be respected by the legislature and not tampered with by the issuance of subsequent laws that will change the intention of the parties or modify their rights and obligations.

- The will of the obligor and the obligee must be observed for the obligation of their contract must not be impaired.

3. Protection of the impairment clause is NOT absolute—there are instances when the contracts are valid at the time of their conclusion MAY become invalid, or some of their provisions may be rendered inoperative or illegal, by virtue of a supervening legislation.

Contract.

1. Contract as used in the impairment clause refers to any lawful agreement on property or property rights, whether real or personal, tangible or intangible.

- Agreement may be EXECUTED or EXECUTORY.2. Parties may be private persons only, natural or artificial, or private persons on the one hand and the

government or its agencies on the other hand. Includes franchised or charters granted to private persons or entities, like authorization to operate public utility. [Dartmouth College v. Woodward]

3. Does not cover licenses as these involve grants of privileges ONLY that are essentially REVOCABLE.- [Tan v. Director of Forestry]—“A license is merely a permit or privilege to do what otherwise would

be unlawful and is not a contract with the government.”4. Neither does it include the marriage contract which, more than a mere agreement between the spouses, is

regarded as a social institution subject at all times to regulation by the legislature and to change of the original situation. [Maryland v. Hill]

5. A public office is not a property right and therefore cannot be the subject of a contract between the incumbent and the government.

- The office is created by statute and may be modified or even abolished or any of its incidents may be changed.

- EXCEPTION: Where salary has already been earned, in which case it will be deemed a vested property right that cannot be withdrawn or reduced by retroactive legislation. [Mississippi v. Miller]

Law.

1. Law includes statute enacted by the national legislature, executive orders and administrative regulations promulgated under a valid delegation of power, and municipal ordinances passed by the local legislative bodies. [Lim v. Register of Deeds]

- Judicial decisions or adjudications made by administrative bodies in the exercise of their quasi-judicial powers are NOT INCLUDED.

2. Law must RETROACT so as to affect existing concluded BEFORE its enactment in order to impair. Otherwise, if it operates PROSPECTIVELY and cover contracts entered into AFTER its enactment—NO IMPAIRMENT.

Obligation.

1. Obligation of the contract is the vinculum juris—that is the tie that binds the parties to each other, the law or duty which binds the parties to perform their undertaking or agreement according to its terms and intent.

Impairment.

1. Impairment is anything that diminishes the efficacy of the contract.2. The degree of diminution is immaterial as long as the original rights of either of the parties are changed to

his prejudice, THERE IS IMPAIRMENT OF THE CONTRACT.3. In case of REMEDIES—there will be impairment only if all of them are withdrawn, with result that either of

the parties will be unable to enforce his rights under the original agreement. There will be no impairment as long as a SUBSTANTIAL and EFFICACIOUS remedy remains.

- [Manila Trading Co. v. Reyes]—This rule holds true even if the remedy retained is the most difficult to employ and it is the easier ones that are withdrawn.

Limitations.

1. Despite the impairment clause, a contract which is valid at the time of its execution may be legally modified or even completely invalidated by a subsequent law, IF the law is a valid exercise of the POLICE POWER.

2. Into each contract are read the provisions of existing laws and always a reservation of the police power as long as the agreement deals with a matter affecting public interest—As held such contract suffers a congenital infirmity and this is its susceptibility to change by the legislature as a postulate of the legal order.

- The legislature cannot bargain away the police power through the medium of a contract.- Neither may the private parties bind the legislative authority by contracting on matters that are

essentially within the power of the lawmaking body to regulate.4. [Stone v. Mississippi] –A franchise granted the government in exchange for valuable consideration, 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

- Measure was SUSTAINED although the term of the franchise has yet to expire.5. [Norman v. Baltimore] –creditors in many contract of loan, anticipating a change in the legal tender fro

gold to silver, stipulated with the borrowers that their loans would be repaid in god currency even if conversion did take place. The U.S. ultimately converted to the silver standard, the law providing for the discharge of existing money obligations through payment in the new legal tender dollar for dollar. Creditors objected, claiming that an impairment of their contracts.

HELD: Sustained the law, holding that the subject of the contract being currency which was within the exclusive power of the legislature to control, the agreement was subject to modification by the State in the exercise of police power.

6. [Rutter v. Esteban] –The Philippine Government declared, first by executive order of the President and later by congressional enactment, a suspension on the payment of pre-war debts until after eight years from settlement of the war damage claims of the debtors.

HELD: Annulled by the Supreme Court as violative of the impairment clause. To begin with the court declared that the emergency caused by the war that earlier had justified the moratorium was no longer existing. Second, the period was oppressively long, extending over a period of four years, when the executive order was in force, and another eight years as provided under the law during which the creditor could not enforce his claim. Finally, all the rights of the creditor during the moratorium were suspended, including the right to collect interest on the principal of the loan as long as it remained unpaid.

NOTE: In the U.S.—during the period of moratorium ALL the rights of the creditor, EXCEPT only the right to collect the principal of the loan, were continued in force.

7. [Ilusorio v. Court of Agrarian Reform] –ISSUE: Whether a pre-existing share tenancy contract could be validly converted by the tenants into leasehold tenancy in accordance with the provisions of the subsequent law.

HELD: Allowed by the Supreme Court because the prohibition contained in constitutional provisions against impairing the obligation is not absolute. x x x The provision has no application to statutes relating to public subjects within the domain the general legislative powers of the State, and involving the public right and public welfare of the entire community affected by it. They do not prevent the proper exercise of the State of its police powers. BY enacting regulations reasonably necessary to secure the health, safety, morals, comfort, or general welfare of the community, even the contracts may be affected for such matter cannot be placed beyond the power of the State to regulate and control them

8. [Ortigas & Co. v. Feati Bank] –Two lots sold by the petitioners on the condition that they were to be used only for residential purposes were subsequently acquired by the respondent, which started an erection of a commercial building thereon. Petitioners sought to restrain such construction on the strength of the stipulated condition but the respondent invoked a resolution adopted by the municipal council of Mandaluyong declaring the area in which the lots were located a commercial and industrial zone.

HELD: The Supreme Court upheld the respondent ruling that the zoning resolution had been adopted in the exercise of the police power, which was superior to the impairment clause and so could modify the provisions of the contract of sale.

9. [Lozano v. Martinez] –Rejecting the challenge to B.P. 22 on the ground that it contravened the impairment clause the Supreme Court held that—

“We find no valid ground to sustain the contention that B.P. 22 impairs freedom of contract. 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 the checks cannot be categorized as mere contracts. It is a commercial instrument which, in this modern 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 powers of the State.

10. [Tiro v. Hontanosas]—Supreme Court declared that a government directive which in effect discontinued the assignment of the salaries of the public school teachers to their creditors was not offensive to the impairment clause because the latter could still collect its loans after the salaries had been drawn by the employees themselves.

11. [Ganzon v. Inserto] –The clause would be violative by the substitution of a mortgage with a surety bond as security for payment of a loan as this would change the terms and conditions of the original mortgage contract over the mortgagee’s objection. Remarkably, the change was made by a decision of the trial court, which is not supposed to be covered by the term “law” as used in the impairment clause.

12. Article XII, Section 11 of the Constitution provides that: No franchise to operate public utility shall be granted except under the condition that it shall be subject to “amendment, alteration or repeal by the Congress when the common good so requires.”

- Not necessary when the subject of the franchise is connected with the public welfare and so is embraced in the police power of the State.

- The other inherent powers of the State such as eminent domain and taxation may validly limit the impairment clause.

13. [Long Island Water Supply Co. v. Brooklyn] –A private corporation contracted to supply the town of New Jersey with water for a period of 25 years. The town was later annexed to the City of Brooklyn, which then sought to expropriate the properties and franchises of the plaintiff.

HELD: Sustained the expropriation. The U.S. Supreme Court declared that “a contract is property and, like any other property may be taken for public use…subject to the rule on just compensation. The true view is that the condemnation proceedings do not impair the contract, do not break its obligations, but appropriate it, as they do the tangible property of the company, to public uses.

14. It has also been held that a lawful tax on a new subject on an increased tax on an old one does not interfere with a contract or impair its obligation within the meaning of the Constitution. Even if such taxation affect particular contracts already established, still the tax imposed must be paid UNLESS prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense.

15. [Casanova v. Hord]—Law grants tax exemption in exchange for a valuable consideration, such exemption is considered a contract and cannot be repealed because of impairment clause.

- All other tax exemption is not contractual and so may be revoked at will by the legislature.

CHAPTER 15: EX POST FACTO LAWS

Article III, Section 22:No ex post facto law or bill of attainder shall be enacted.

EX POST FACTO LAW

→ The equivalent of the impairment clause in criminal matters is the prohibition against the passage of the ex post facto law.→ operates retroactively to affect antecedent acts→ one that would make a previous act criminal although it was not so at the time it was committed

Kinds

1. Every law that makes criminal an act done before the passage of the law and which was innocent when done, and punishes such an act.

Ex: a law passed in 2000 raising the age of seduction from 18 to 25 years, effective 1990

2. Every law that aggravates a crime, or makes it greater than it was when committed.Ex: a law passed in 2000 designating the crime of homicide through reckless imprudence as murder, effective 1990

3. Every law that changes punishment, and inflicts a greater punishment than the law annexed to the crime when committed.

Ex: a law passed in 2000 increasing the penalty for libel from prision correccional to prision mayor, effective 1990

4. Every law that alters the legal rules of evidence, and receives less or different testimony than the law required at the time of the commission of the offense, in order to convict the offender.

Ex: a law passed in 2000 requiring for conviction mere preponderance of evidence instead of proof beyond reasonable doubt, effective 1990

5. Every law which, assuming to regulate civil rights and remedies only, in effect imposes a penalty or the deprivation of a right for something which when done was lawful.

Ex: a law passed in 2000 depriving professionals of the right to practice for failure or refusal to vote, effective 1990

6. Every law which deprives persons accused of crime some lawful protection to which they have become entitled, such as the protection of a former conviction or acquittal, or of a proclamation of amnesty.

Ex: a law passed in 2000 lengthening the period for prescription of blackmail from 5 to 10 years, effective 1990

Characteristics

1. refer to criminal matters2. retroactive in its application3. to the prejudice of the accused

→ [Republic v. Fernandez] The War Profits Tax Law 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 criminal or penal matters.

→ [Bayot v. Sandiganbayan] A law amending R.A. 3019, which provided for the suspension pendente lite of any public officer or employee accused of offenses involving fraudulent use of public funds or property, including those charged earlier, was NOT an ex post facto law even if applied retroactively because the suspension was not punitive but merely preventive.

→ [U.S. v. Gomez Coronel] The SC dismissed an information for adultery filed by the prosecutor on the ground that at the time of the alleged commission of the offense, prosecution could be commenced only on complaint of the offended spouse. The amendatory law permitting the prosecutor to initiate the charge was ex post facto.

→ Even if the law be penal and retroactive, it will still NOT be an ex post facto if it does not operate to the disadvantage of the accused.

→ [People v. Ferrer] The SC rejected the argument that the Anti-Subversion Act was unconstitutional on the ground that it punished past membership in the Communist Party and other similarly-oriented organizations. It declared that the prohibition applied only to acts committed AFTER the approval of this Act. Only those who knowingly, willfully and by overt acts affiliate themselves with, become or remain members of the Party or of any other subversive association after 20 June 1957 are punished. Those who were members at the time of the enactment of the law were given the chance of purging themselves of liability by renouncing in writing and under oath their membership.

→ [Rodriguez v. Sandiganbayan] P.D. 1606 creating respondent court was held NOT to be an ex post facto law notwithstanding the petitioner’s claim that he and his witnesses, who were living in Cagayan de Oro, would be incurring tremendous expenses in coming to and from his trial in Manila. The disadvantage was only limited and substantial.

→ [Katigbak v. Solicitor General] The SC held that the forfeiture prescribed by R.A. No. 1379 cannot be applied to acquisitions made prior to its passage without running afoul of the Constitutional provision condemning ex post facto laws or bills of attainder.

BILL OF ATTAINDER

→ If a statute is a bill of attainder, it is ALSO an ex post facto law. BUT if it is not an ex post facto law, the reasons that establish that it is not are persuasive that it cannot be a bill of attainder.

Characteristics

→ It is a legislative act that inflicts punishment without trial, its essence being the substitution of legislative fiat for a judicial determination of guilt. It is only when a statute applies 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 that it becomes a bill of attainder.

→ [Ferrer Case] The SC held that the Act is NOT a bill of attainder because the term ‘Communist Party of the Phils.’ is used solely for definitional purposes. In fact, the Act applies not only to the Communist Party but also to any other organization having the same purpose and their successors. The focus is not on the individuals but on conduct.

→ [U.S. v. Lovett] A law contained a provision prohibiting payment from public funds of compensation to the respondents, who were individually named therein.

The U.S. SC held that the provision thus clearly accomplished the punishment of named individuals without judicial trial.

→ [Garner v. Board of Public Works of L.A.] An ordinance prohibited the employment by the City of L.A. of any person who during the past 5 years “advised, advocated or taught the overthrow of the government of the U.S. or of California” or had been affiliated with any group doing such acts. Every incumbent employee was required to execute an affidavit stating WON he is or ever was a member of the Communist Party, and if he is or ever was

such a member, stating the date when he became, and the period during which he was, such a member. Seventeen employees were discharged for refusal to comply with said requirement.

The ordinance was sustained by the U.S. SC, which held that a municipal employer is not disabled because it is an agency of the State from inquiring of its employees as to matters that may prove relevant to their fitness and suitability for the public service. Bills of attainders 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 judicial trial. Punishment is a prerequisite. In this case, the general regulation merely provides standards of qualification and eligibility for employment.

CHAPTER 16:NON-IMPRISONMENT FOR DEBT

Section 20. “No person shall be imprisoned for debt or non-payment of a poll tax.”

The motive is humanitarian. This compassionate rule is observed in most civilized jurisdictions as an added guaranty of the liberty of

persons against the incarceration for the enforcement of purely private debts because only of their misfortune of being poor.

Debt

1. The term “debt” as used in this provision refers to any obligation arising from contract, expressed or implied.2. [Ganaway v, Quillen]--it includes even debts obtained through fraud since no distinction is made in the

Constitution.3. As long as the obligation to pay arises ex contractu, it is considered a private matter between the creditor and

debtor and the punitive arm of the State cannot be employed in a criminal action to enforce the formers right. 4. The remedy in this case is a civil action only for the recovery of the unpaid debt on one hand and the

government or its agencies on the other hand.5. [Serafin v. Lindayag]—

FACTS: A criminal complaint was filed with respondent judge charging the accused who willfully, unlawfully and feloniously owe Php1,500 and that accused failed to pay her account in spite of due notice sent by registered mail and up to the present she failed to settle her obligation. Although no criminal offense was committed, the judge issued a warrant for the arrest of the defendant.

HELD: SC annulled his act, declaring it to be violative of the prohibition against imprisonment for debt.6. [Sura v. Martin]—

FACTS: The defendant in a civila ction was ordered arrested for contempt of court because of his failure, owing to his insolvency, to play the plaintiff pass and future support.

HELD: SC held that such arrest was invalid as it would in effect authorize his imprisonment for debt in violation of the Constitution.

Crime

1. Although the debtor cannot be imprisoned for his failure to pay his debt, he can be validly punished in a criminal action if he contracted his debt through fraud. In such a case, the act for which he is penalized is the deception he employed in securing the debt, not his default in paying it.

2. The responsibility of the debtor in this situation arises not from the contract of loan, but ex delicto, from the commission of a crime.

3. As his obligation does not arises ex contractu, it is not considered a debt under supervision.4. [Lozano Case]—

ISSUE: Has BP 22 transgressed the constitutional inhibition against imprisonment for debt? HELD: 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 to coerce a debtor to pay his debt. The thrust of the worthless checks and putting them in circulation because of its deleterious effect 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.

5. [People v. Merillo]-- FACTS: The accused was charged with violation of a law requiring employers to pay the salaries of

their employees to pay the salaries of their employees atleast once every 2 weeks and providing that failure to do so shall be considered prima facie evidence of fraud committed through false pretenses.

HELD: SC held the law to be valid, since what is being punished is the fraud or deceit of the employer who, being able to make payment shall abstain or refuse to do so without justification.

6. Where the debt was convicted for the fraud he exercised in obtaining the debt and made to refund the money illegally obtained by him, his failure to do so could be punished with subsidiary imprisonment. The subsidiary

imprisonment, according to our Sc, was part of the penalty imposed upon him for the crime he committed and not for his failure to pay his debt.7. [US v. Carao]—

FACTS: The accused was convicted of estafa and as part of his penalty ordered to return the money and property he had misappropriated.

HELD: SC held that the imposition of subsidiary imprisonment upon him in case of his failure to make the said reimbursement did not violate the prohibition against imprisonment for debt.

8. The imposition has been amended and imposes subsidiary imprisonment only for non-payment of fine (imprisonment not exceeding six years).

9. The suspension of a civil servant for failure to pay a just and admitted debt is an administrative sanction and does not violate the prohibition against imprisonment for debt.

Poll Tax

1. Since tax is not a debt but arises from the obligation to contribute in the maintenance of the government, failure to pay the same can be validly punished with imprisonment.

2. The only exception is failure to pay a poll tax, which is defined as a specific fixed sum levied upon every person belonging to a certain class without regard to his property or occupation.

3. This exception, adopted pursuant to the social justice policy, reflects the tender regard of the law for the millions of our impoverished masses who cannot afford even the nominal cost of a poll tax like the basic community tax certificate.

In was applied in the case of People v. Linsangan in favor of a person convicted of non-payment of the old cedula tax whose appeal was pending at the time of the inclusion of the above rule in the 1935 Constitution.