Contract Clause Rutter V. Esteban Facts

CONTRACT CLAUSE
RUTTER V. ESTEBAN
FACTS:
Rutter sold to Placido a parcel of land through full payment of the half and two
installments of the other half of the agreed amount. The first half was paid then war
came through Japanese occupation. Rutter filed an action to claim to recover the
balance due to the CFI. Esteban set up the defense of moratorium clause embodied
in Republic Act No. 342. The CFI dismissed the case upholding the moratorium of 8
years had not yet lapsed. In Rutters motion, he raised the constitutionality issue for
the first time, but said motion was denied.
ISSUE:
Whether or not Republic Act No. 342 is unconstitutional being violative of the
constitutional provision forbidding the impairment of the obligation of contracts
(Article III, Section 1, 1935 Constitution).
HELD:
Yes. R.A. No. 342 was declared unconstitutional. Consistent with what [the Supreme
Court] believe to be as the only course dictated by justice, fairness and
righteousness, [the Supreme Court] feel that the only way open to us under the
present circumstances is to declare that the continued operation and enforcement
of Republic Act No. 342 x x x is unreasonable and oppressive, and should not be
prolonged a minute longer, and, therefore, the same should be declared null and
void and without effect.
ORTIGAS & CO. V. CA
FACTS:
Ortigas & Co. sold to Emilia Hermoso a parcel of land located in Greenhills
Subdivision, San Juan with several restrictions in the contract of sale that said lot be
used exclusively for residential purposes, among others, until December 31, 2025.
Later, a zoning ordinance was issued by MMC (now MMDA) reclassifying the area as
commercial. Private respondent (Ismael Mathay III) leased the subject lot from
Hermoso and built a single storey building for Greenhills Autohaus, Inc., a car sales
company. Ortigas & Co. filed a petition a complaint which sought the demolition of
the constructed car sales company to against Hermoso as it violated the terms and
conditions of the Deed of Sale. Trial court ruled in favor of Ortigas & Co. Mathay
raised the issue to the Court of Appeals from which he sought favorable ruling.
Hence, the instant petition.
ISSUE:
Whether or not the zoning ordinance may impair contracts entered prior to its
effectivity.
HELD:
Yes. The zoning ordinance, as a valid exercise of police power may be given effect
over any standing contract. Hence, petition is denied. A law enacted in the exercise
of police power to regulate or govern certain activities or transactions could be
given retroactive effect and may reasonably impair vested rights or contracts. Police
power legislation is applicable not only to future contracts, but equally to those
already in existence. Non-impairment of contracts or vested rights clauses will have
to yield to the superior and legitimate exercise by the State of police power to
promote the health, morals, peace, education, good order, safety, and general
welfare of the people. Moreover, statutes in exercise of valid police power must be
read into every contract. Noteworthy, in Sangalang vs. Intermediate Appellate
Court, the Supreme Court already upheld subject ordinance as a legitimate police
power measure.
TIRO V. JUDGE HONTANOSAS
FACTS:
Zafra Financing Enterprise sued Superintendent Tiro because the latter forbade the
formers collection of salary checks of school teacher from division office, following
the issuance of Circular No. 21 s. 1969 by the Director of Public Schools. Zafra
sought to compel Tiro to honor the special powers of attorney and to declare
Circular No. 21 as illegal. The trial court ruled in favor of Zafra. Tiro sought a petition
for review and reversal of trial courts decision.
ISSUE:
Whether or not Circular No. 21 s.1969 is invalid for being violative of the nonimpairment clause under the Constitution.
HELD:
No. The circular is valid and enforceable, and is never invasive of any contract.
Petition is granted. The salary check of a government officer or employee such as a
teacher does not belong to him before it is physically delivered to him. Until that
time the check belongs to the Government. Accordingly, before there is actual
delivery of the check, the payee has no power over it; he cannot assign it without
the consent of the Government. On this basis Circular No. 21 stands on firm legal
footing.
PRESLEY VS BEL-AIR VILLAGE ASSOCIATION, INC
FACTS:
A complaint for specific performance and damages with preliminary injunction was
filed by plaintiff-appellee, Bel-Air Village Association, Inc. (BAVA for short) against
Teofilo Almendras and Rollo Almendras (now both deceased and substituted by
defendant-appellant Enedina Presley) for violation of the Deed Restrictions of Bel-Air
Subdivision that the subject house and lot shall be used only for residential and not
for commercial purposes and for non-payment of association dues to plaintiff BAVA
amounting to P3,803.55. Presley, as lessee of the property, is the owner and
operator of 'Hot Pan de Sal Store' located in the same address. At the time the
Almendrases bought their property in question from Makati Development
Corporation, the Deed Restrictions (Exh. "C") was already annotated in their title
(Exh. "B") providing (among others) 'that the lot must be used only for residential
purpose' (Exh. "B-1" and "B-2"). Then BAVA came to know of the existence of the
'Pan de sal' store, it sent a letter to the defendants asking them to desist from
operating the store (Exh. "D"). Under the existing Deed OF Restrictions aforesaid,
the entire Bel-Air Subdivision is classified as a purely residential area, particularly

Jupiter Road which is owned by and registered in the name of BAVA. During the
pendency of the case with this Court, petitioner Enedina Fox Presley died on January
4, 1991. She was substituted by her two daughters as heirs, namely Olivia V. Pizzaro
and Consuelo V. Lacson. The issues raised in the instant petition have already been
dealt with in the consolidated cases decided by this Court promulgated on
December 22, 1988 entitled Sangalang Doctrine.
ISSUES:
Whether or not the Deed of Restrictions violates the non-impairment clause?
HELD:
The respondent court in the case at bar was not at all entirely wrong in upholding
the Deed of Restrictions annotated in the title of the petitioners. It held that the
provisions of the Deed of Restrictions are in the nature of contractual obligations
freely entered into by the parties. Undoubtedly, they are valid and can be enforced
against the petitioner. However, these contractual stipulations on the use of the
land even if said conditions are annotated on the Torrens title can be impaired if
necessary to reconcile with the legitimate exercise of police power. (Ortigas& Co.
Limited Partnership v. Feati Bank and Trust Co., 94 SCRA 533 [1979]).
CALEON V. AGUS DEVELOPMENT CORP.
FACTS:
Agus Development Corporation leased to Rita Caleon its lot for P180.00/month.
Caleon built a 4-door apartment and sub-leased it at P350.00/door/month without
Agus consent. Agus filed an ejectment suit under Batas Pambansa (B.P.) Blg. 25
after Caleon refused to vacate the lot. Caleon argued that B.P. Blg. 25 cannot be
applied because there is a perfected contract of lease without any express
prohibition on subleasing. The MTC ruled in favor of Agus. It was appealed to the
RTC but was dismissed outright. Hence this petition for review.
ISSUE:
Whether or not B.P. Blg. 25 is unconstitutional for being violative of non-impairment
clause on the ground that it impaired the lease contract.
HELD:
No. B.P. Blg. 25 is valid and constitutional. The lease contract is subordinate to the
police power of the state. Petition is denied. B.P. Blg. 25 is derived from P.D. No. 20
which has been declared by the Supreme Court as police power legislation so that
the applicability thereof to existing contracts cannot be denied. The constitutional
guaranty of non-impairment of obligations of contract is limited by and subject to
the exercise of police power of the state in the interest of public health, safety,
morals and general welfare. In spite of the constitutional prohibition, the State
continues to possess authority to safeguard the vital interests of its people.
Legislation appropriate to safeguarding said interest may modify or abrogate
contracts already in effect.
Manila Electric Company v. Province of Laguna
FACTS:
MERALCO was granted a franchise by several municipal councils and the National
Electrification Administration to operate an electric light and power service in the
Laguna. Upon enactment of Local Government Code, the provincial government
issued ordinance imposing franchise tax. MERALCO paid under protest and later
claims for refund because of the duplicity with Section 1 of P.D. No. 551. This was
denied by the governor (Joey Lina) relying on a more recent law (LGC). MERALCO
filed with the RTC a complaint for refund, but was dismissed. Hence, this petition.
ISSUE:
Whether or not the imposition of franchise tax under the provincial ordinance is
violative of the non-impairment clause of the Constitution and of P.D. 551.
HELD:
No. There is no violation of the non-impairment clause for the same must yield to
the inherent power of the state (taxation). The provincial ordinance is valid and
constitutional. The Local Government Code of 1991 has incorporated and adopted,
by and large, the provisions of the now repealed Local Tax Code. The 1991 Code
explicitly authorizes provincial governments, notwithstanding any exemption
granted by any law or other special law, . . . (to) impose a tax on businesses
enjoying a franchise. A franchise partakes the nature of a grant which is beyond
the purview of the non-impairment clause of the Constitution. Article XII, Section
11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973
Constitutions, is explicit that no franchise for the operation of a public utility shall be
granted except under the condition that such privilege shall be subject to
amendment, alteration or repeal by Congress as and when the common good so
requires.

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CONTRACT CLAUSE

the entire Bel-Air Subdivision is classified as a purely residential area, particularly

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