Non-Impairment Clause

Rutter vs. Esteban G.R. No. L- 3708 May 18, 1953

FACTS: On 20 August 1941, Royal L. Rutter sold to Placido J. Esteban two (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 was 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 eight (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: YES. Statutes declaring a moratorium on the enforcement of monetary obligations are not of recent enactment. 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.

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

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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.

Ortigas and Co. Ltd. Partnership vs. Feati Bank and Trust Co. GR 24670, Dec. 14, 1979

FACTS: Plaintiff Ortigas was engaged in the business of developing and selling residential lots in Highway Hills Subdivision, Mandaluyong. It sold to vendees Padilla and Angeles two lots (Lots 5 and 6) in installments under separate agreements of sale. The vendees transferred their rights to Chavez. Upon completion of payment, plaintiff executed the deeds of sale which contained a restriction, inter alia, that the lots shall be used by the buyer exclusively for residential purposes. The restriction was annotated in the titles of Chavez. Defendant Feati bought from her the lots and the building restrictions were also annotated in its titles. Feati maintains that the area along the western part of EDSA from Shaw Blvd. to Pasig River, where the lots were located, has been declared a commercial and industrial zone per Resolution 27 of the Municipal Council of Mandaluyong. So, it started constructing a bank on the lots. Plaintiff demanded that Feati stop its construction. The latter refused, arguing that the building was in accordance with the zoning regulations and it had obtained building and planning permits.

Plaintiff sought the help of the court to command Feati to comply with the restrictions annotated in its title. The trial court held that the restrictions were subordinate to the Resolution, which was a valid exercise of police power. It upheld the classification by the Municipal Council as having rendered ineffective the restrictions. But plaintiff, in a motion for reconsideration which was subsequently denied, argued that said Council had no power to nullify the contractual obligations assumed by Feati.

ISSUE: Whether the Municipal Resolution, declaring the lots as part of the commercial and industrial zone of the municipality, superseded the restrictions imposed by Ortigas, which was a contractual undertaking between the parties to the sale

HELD: YES! The Local Autonomy Act empowers a Municipal Council to adopt zoning and subdivision ordinances or regulations for the municipality. Granting that the Resolution is not an ordinance, it is a regulatory measure. The general welfare clause is liberally interpreted in case of doubt to give more power to local governments in promoting its economic conditions, the social welfare and material progress of the people in the community. The exceptions are “existing vested rights”

arising out of a contract between a province, city or municipality on one hand and a 3rd party on the other, in which case, the original terms and provisions of the contract should govern. While non-impairment of contracts is constitutionally guaranteed, it is not absolute since it has to be reconciled with the legitimate exercise of police power. The exercise of this 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 violation of applicable constitutional guarantees.

The Resolution was passed in the exercise of police power to safeguard or promote the health, safety, peace, good order and general welfare of the people in the locality. The lots in question not only front the highway; industrial and commercial complexes have flourished about the place. EDSA was a main traffic artery. The resulting activity, noise and pollution are hardly conducive to the health, safety or welfare of the residents in its route. The right to exercise the police power is a continuing one and a business lawful today may in the future, because of changed situation/ growth of population, become a menace to the public health and welfare, and be required to yield to the public good.

The State, to promote the general welfare, may interfere with personal liberty, property, business and occupations. The Resolution was reasonable, a legitimate response to a felt public need, not whimsical or oppressive. The non-impairment of contracts clause will not bar a police power legislation, which is not likely to succumb to the challenge that because of it, contractual rights are rendered nugatory.

Existing laws are read into contracts agreed upon by the parties to fix obligations between them. The reservation of essential attributes of sovereign power is also read intro 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 allowed.

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Equity will not enforce a restriction upon the use of property by injunction where the property has so changed in character and environment as to make it unfit or unprofitable for use should the restriction be enforced. Since it is now unprofitable and a health-and-comfort hazard to use lots 5 and 6 for strictly residential purposes, Feati should be permitted, on the strength of the Resolution, to use the same for commercial purposes. There is no proviso in the Resolution expressly declaring that the ordinance was not intended to interfere with the agreement between the parties. Thus, even if the restrictions where assumed by Feati, the contractual undertaking cannot be enforced as against the police power legislation.

LOZANO vs. THE HONORABLE ANTONIO M. MARTINEZ G.R. No. L-63419, December 18, 1986, YAP, J

Facts:

-supra-Issue: Whether or not BP 22 impairs freedom of contract?

Held: No. The gravamen of the offense punished by B.P. 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 sanctions, the making of worthless checks and putting them is 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 freedom of contract which is constitutionally protected is freedom to enter into "lawful" contracts . Contracts which contravene public policy are not lawful. We must bear in mind that checks can not 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 form part of the banking system and therefore not entirely free from the regulatory power of the state.

RODOLFO T. GANZON vs. THE HONORABLE SANCHO Y. INSERTO G.R.

No. L-56450. July 25, 1983, GUTIERREZ, JR., J

Facts: Petitioner Rodolfo Ganzon initiated proceedings to extra-judicially foreclose a real estate mortgage executed by the private respondents in his favor. The Deed of Real Estate Mortgage executed between Randolph Tajanlangit and Esteban Tajanlangit as mortgagors on one hand and Rodolfo Ganzon as mortgagee on the other hand was to secure the payment by the Tajanlangits of a promissory note amounting to P40,000.00 in favor of Ganzon.

Thereafter, petitioner Gregorio Lira, in his capacity as ex-oficio provincial sheriff of Iloilo served personal notice of the foreclosure proceedings on the private respondents. A day before the scheduled public auction, the private respondents filed a civil action for specific performance, damages, and prohibition with preliminary injunction against the petitioners with the respondent court. The action, sought to declare the extrajudicial foreclosure proceedings and all proceedings taken in connection therewith null and void. The trial court issued an order enjoining the provincial sheriff from proceeding with the scheduled auction sale.

Before actual trial, the private respondents filed a "Motion For Release Of Real Estate And For The Clerk Of Court To Accept Bond Or Cash In Lieu Thereof," to which the petitioners interposed an Opposition. The respondent court granted the respondents' motion.

Issue: Whether or not the trial court may order the cancellation of a mortgage lien annotated in a Torrens Certificate of Title to secure the payment of a promissory note and substitute such mortgage lien with a surety bond approved by the same court to secure the payment of the promissory note?

Held: No. The questioned court orders violate the non-impairment of contracts clause guaranteed under the Constitution. Substitution of the mortgage with a surely bond to secure the payment of the P40.000.00 note would in effect change the terms and conditions of the mortgage contract. Even before trial on the very issues affecting the contract, the respondent court has directed a deviation from its terms, diminished its efficiency and dispensed with a primary condition.

A mortgage is but an accessory contract. The consideration of the mortgage is the same consideration of the principal contract without which it cannot exist as an independent contract. The mortgage lien in favor of petitioner Rodolfo Ganzon is inseparable from the mortgaged property. It is a right in rem, a lien on the property. To substitute the mortgage with a surety bond would convert such lien from a right in rem, to a right in personam. This conversion can not be ordered for it would abridge the rights of the mortgagee under the mortgage contract .

Moreover, the questioned orders violate the non -impairment of contracts clause guaranteed under the Constitution. Substitution of the mortgage with a surety bond to secure the payment of the

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P40,000.00 note would in effect change the terms and conditions of the mortgage contract. Even before trial on the very issues affecting the contract, the respondent court has directed a deviation from its terms, diminished its efficiency, and dispensed with a primary condition

CRISTOPHER GAMBOA vs. HON. ALFREDO CRUZ G.R. No. L-56291. June 27, 1988,PADILLA, J

Facts: On July 19, 1979, he was arrested for vagrancy, without a warrant of arrest, by Patrolman Arturo Palencia. Thereafter, petitioner was brought to Precinct 2, Manila, where he was booked for vagrancy and then detained therein together with several others.The following day, July 20,1979, during the lineup of five (5) detainees, including petitioner, complainant Erlinda B. Bernal pointed to petitioner and said, "that one is a companion." After the identification, the other detainees were brought back to their cell but petitioner was ordered to stay on. While the complainant was being interrogated by the police investigator, petitioner was told to sit down in front of her.

On July 23, 1979, an information for robbery was filed against the petitioner.

On August 22, 1979, petitioner was arraigned. Thereafter, hearings were held. On April 2, 1980, the prosecution formally offered its evidence and then rested its case.

On July 14, 1980, petitioner, by counsel, instead of presenting his defense, manifested in open court that he was filing a Motion to Acquit or Demurrer to Evidence. On August 13, 1980, petitioner filed said Motion predicated on the ground that the conduct of the line-up, without notice to, and in the absence of, his counsel violated his constitutional rights to counsel and to due process.

Issue: Whether or not there was a violation of petitioner’s constitutional right to counsel?

Ruling: No. The right to counsel attaches upon the start of an investigation, i.e. when the investigating officer starts to ask questions to elicit information and/or confessions or admissions from the respondent/accused. At such point or stage, the person being interrogated must be assisted by counsel to avoid the pernicious practice of extorting false or coerced admissions or confessions from the lips of the person undergoing interrogation, for the commission of an offense.

The Court has consistently held that no custodial investigation shall be conducted unless it be in the presence of counsel, engaged by the person arrested, or by any person in his behalf, or appointed by the court upon petition either of the detainee himself or by anyone in his behalf, and that, while the right may be waived, the waiver shall not be valid unless made in writing and in the presence of counsel.

As aptly observed, however, by the Solicitor General, the police line-up was not part of the custodial inquest, hence, petitioner was not yet entitled, at such stage, to counsel. When the process had not yet shifted from the investigatory to the accusatory as when police investigation does not elicit a confession the accused may not yet avail of the services of his lawyer. Since petitioner in the course of his identification in the police line-up had not yet been held to answer for a criminal offense, he was, therefore, not deprived of his right to be assisted by counsel because the accusatory process had not yet set in. The police could not have violated petitioner's right to counsel and due process as the confrontation between the State and him had not begun.

People vs. Macam 238 SCRA 306,Quiason, J.

FACTS: The accused –appellant was charged with the crime of robbery with homicide. Accused and his brother was suddenly apprehended by the security guards and brought to the police headquarters in Quezon City.

They were also forced to admit certain things, after which, he together with all the accused were in handcuffs bore contusions caused by blows indicted on their faces during custodial investigation. Thereafter, they was brought to hospital before each surviving victims and made to line-up for identification.

ISSUE: Whether or not the right to counsel has been violated during custodial investigation.

RULING: Yes. It is appropriate to extend the counsel guarantee to critical stages of prosecution even before the trial. The law enforcement machinery at present involves critical confrontations of the accused by the prosecution at pre-trial proceedings "where the result might well settle the accused's fate and reduce the trial itself to a mere formality." A police line-up is considered a "critical" stage of the proceedings. After the start of the custodial investigation, any identification of an uncounseled accused made in a police line-up is inadmissible.

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People vs. Judge Ayson 175 SCRA 216, Narvasa, J.

Facts: Felipe Ramos was a ticket freight clerk of the Philippines Airlines assigned at its Baguio station. It was alleged that he was involved in irregularities in the sales of a plane tickets, The PAL notified him of an investigation to be conducted. The investigation was scheduled in accordance with PAL’s code of conduct. A letter was sent by Ramos stating his willingness to settle the amount. Two months after a crime of Estafa was charged against Ramos. Evidence was presented by the prosecution containing Ramos’ admission and statement, to which defendant’s argued that the confession was taken without the accused being represented by a lawyer and right to remain silent.

Issue: Whether or not right to custodial investigation has been violated.

Held: NO. The rights above specified, to repeat, exist only in "custodial

Held: NO. The rights above specified, to repeat, exist only in "custodial