Rutter v.

Esteban [GR L-3708, 18 May 1953]

En Banc, Bautista-Angelo (J): 6 concur, 1 concurs with dispositive part

Facts: On 20 August 1941, Royal L. Rutter sold to Placido J. Esteban 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 has been 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 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: Statutes declaring a moratorium on the enforcement of monetary obligations are not of
recent enactment. These moratorium laws are not new. 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. Not only is the
constitutional provision (contract clause) qualified by the measure of control which the State
retains over remedial processes, but the State also continues to possess authority to safeguard
the vital interest of its people. It does not matter that legislation appropriate to that end "has the
result of modifying or abrogating contracts already in effect." Not only are existing laws read
into contracts in order to fix obligations as between the parties, but the reservation of essential
attributes of sovereign power is also read into contracts as a postulate of the legal order. The
policy of protecting contracts against impairment presupposes the maintenance of a
government by virtue of which contractual relations are worth while, a government which
retains adequate authority to secure the peace and good order of society. Some of these laws,
however, have also been declared "void as to contracts made before their passage where the
suspension of remedies prescribed is indefinite or unreasonable in duration." 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 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 v. Feati [GR L-24670, 14 December 1979]

En Banc, Santos (J): 7 concur, 2 took no part

Facts: Ortigas, Madrigal & Sia is a limited partnership and Feati Bank and Trust Co., is a
corporation duly organized and existing in accordance with the laws of the Philippines. Ortigas
is engaged in real estate business, developing and selling lots to the public, particularly the
Highway Hills Subdivision along EDSA, Mandaluyong. On 4 March 1952, Ortigas, as vendor,
and Augusto Padilla and Natividad Angeles, as vendees, entered in separate agreements of sale
on installments over two parcels of land. On 19 July 1962, the vendees transferred their rights
and interests over the lots in favor of Emma Chavez. Both agreements contained stipulations or
restrictions as to the removal of soil, the materials of the buildings, and sanitary installations,
which were annotated in the TCTs with the Rizal Registry of Deeds. Feati Bank eventually
acquired said lots on 23 July 1962, one bought directly from Chavez, and the other from
Republic Flour Mills (to whom Chavez sold it previously). On 5 May 1963, Feati Bank began
laying the foundation and commenced the construction of a building to be devoted to banking
purposes, but which could also be devoted to, and used exclusively for, residential purposes.
The following day, Ortigas demanded that Feati Bank stop the construction of the commercial
building on the lots, claiming that the restrictions annotated were imposed as part of its general
building scheme designated for the beautification and development of Highway Hills
Subdivision. Feati Bank refused to comply with the demand, contending that the building was
being constructed in accordance with the zoning regulations (Resolution 27, dated 4 February
1960 by Municipal Council of Mandaluyong), that it has filed building and planning permit
applications with the municipality of Mandaluyong, and that it had accordingly obtained
building and planning permits to proceed with the construction. Ortigas filed the complaint
with the lower court (Civil Case 7706), seeking the issuance of "a writ of preliminary
injunction to prevent the construction of a commercial bank building in the premises in view of
the building restrictions annotated in the Feati Bank's TCTs. The trial court dismissed the
complaint holding that the restrictions were subordinate to Municipal Resolution 27, rendering
the restrictions ineffective and unenforceable. On 2 March 1965, Ortigas filed a motion for
reconsideration. The trial court denied the motion for reconsideration in its order of 26 March
1965. On 2 April 1965 Ortigas filed its notice of appeal, its record on appeal, and a cash appeal
bond. On 14 April 1965, the appeal was given due course by the appellate court and the records
of the case were elevated directly to the Supreme Court, since only questions of law were
raised.

Issue: Whether the constitutional guarantee of non-impairment of contracts is absolute.

Held: While non-impairment of contracts is constitutionally guaranteed, the rule is not

absolute, since it has to be reconciled with the legitimate exercise of police power, i.e., "the
power to prescribe regulations to promote the health, morals, peace, education, good order or
safety and general welfare of the people." Invariably described as "the most essential, insistent,
and illimitable of powers" and "in a sense, the greatest and most powerful attribute of
government," the exercise of the 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 a
violation of any other applicable constitutional guarantee. Police power "is elastic and must be
responsive to various social conditions; it is not confined within narrow circumscriptions of
precedents resting on past conditions; it must follow the legal progress of a democratic way of
life. Public welfare when clashing with the individual right to property should prevail through
the state's exercise of its police power. Herein, the municipality of Mandaluyong exercised
police power to safeguard or promote the health, safety, peace, good order and general welfare
of the people in the locality. EDSA, a main traffic artery which runs through several cities and
municipalities in the Metro Manila area, supports an endless stream of traffic and the resulting
activity, noise and pollution are hardly conducive to the health, safety or welfare of the
residents in its route.

Having been expressly granted the power to adopt zoning and subdivision ordinances or
regulations, the Municipal Council of Mandaluyong was reasonably justified under the
circumstances in passing the subject resolution. The motives behind the passage of the
questioned resolution being reasonable, and it being a "legitimate response to a felt public
need," not whimsical or oppressive, the non-impairment of contracts clause of the Constitution
will not bar the municipality's proper exercise of the power. Further, laws and reservation of
essential attributes of sovereign power are read into contracts agreed upon by the parties. Not
only are existing laws read into contracts in order to fix obligations as between the parties, but
the reservation of essential attributes of sovereign power is also read into 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 where such exclusion is allowed.

Tiro v. Hontanosas [GR L-32312, 25 November 1983]

Second Division, Abad Santos (J): 5 concur, 1 took no part

Facts: Zafra Financing Enterprise extended loans to public school teachers in Cebu City and
the teachers concerned executed promissory notes and special powers of attorney in favor of
Zafra to take and collect their salary checks from the Division Office in Cebu City of the
Bureau of Public Schools. Aurelio Tiro, Superintendent of Schools in Cebu City, forbade the
collection of checks by persons other than the employees concerned with Circular 21 (series of
1969, Memorandum Order 93 of the Executive Office dated 5 February 1968 was quoted) dated
5 December 1969. Zafra sued Tiro with the now defunct Court of First Instance (CFI) Cebu
(Civil Case 11616). Zafra sought to compel Tiro to honor the special powers of attorney, to
declare Circular 21 to be illegal, and to make Tiro pay attorneys fees and damages. The trial
court granted the prayer but the claim for money was disallowed on the ground that he acted in
good faith in implementing Circular 21. Tiro seeks in the petition for review before the
Supreme Court a reversal of the trial courts decision.

Issue: Whether Circular 21 impairs the obligations of contracts between Zafra Financing
Enterprise and the teachers.

Held: 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. The Circular, further, is
authorized by relevant statutes such as the Revised Administrative Code (Section 79b, Power to
regulate) and the Magna Carta for Teachers (RA 4670, Section 21, Deductive prohibited). The
Circular does not impair the obligation of contracts with the teachers as the Circular does not
prevent Zafra from collecting the loans but merely makes the Government a non-participant in
their collection.

Abella v. NLRC [GR 71813, 20 July 1987]

En Banc, Paras (J): 13 concur

Facts: On 27 June 1960, Rosalina Perez Abella leased a farm land in Ponteverde, Negros
Occidental (Hacienda Danao-Ramona) for a period of 10 years, renewable, at her option, for
another 10 years. On 13 August 1970, she opted to extend the lease contract for another 10
years. During the existence of the lease, she employed Ricardo Dionele Sr., a regular farm
worker since 1949 and promoted to Cabo in 1963, and Romeo Quitco, a regular employee since
1968 and promoted to Cabo in November of same year. Upon the expiration of her leasehold
rights, Abella dismissed Dionele and Quitco and turned over the hacienda to the owners thereof
on 5 October 1981, who continued the management, cultivation and operation of the farm. On
20 November 1981, Dionele and Quitco filed a complaint against the Abella at the Ministry of
Labor and Employment, Bacolod City District Office, for overtime pay, illegal dismissal and
reinstatement with

backwages. After the parties had presented their respective evidence, Labor Arbiter Lucas, in a
Decision dated 16 July 1982, ruled that the dismissal is warranted by the cessation of business,
but granted the two, separation pay, applying Article 284 of the Labor Code. On appeal on 11
August 1982, the National Labor Relations Commission (NLRC), in a Resolution dated 8 April
1985, affirmed the decision and dismissed the appeal for lack of merit. On 22 May 1985, Abella
filed a motion for reconsideration but the same was denied in a resolution dated 10 June 1985.
Abella filed the petition for review on certiorari before the Supreme Court.

Issue: Whether Article 284 of the Labor Code, providing for the rights of the employees under
the circumstances of termination, violate the constitutional guarantee against impairment of
obligations and contracts.

Held: Article 284 of the Labor Code, which provides for the rights of the employees under the
circumstances of termination, did not violate the constitutional guarantee against impairment of
obligations and contracts. The prohibition to impair the obligation of contracts is not absolute
and unqualified. The prohibition is general, affording a broad outline and requiring construction
to fill in the details. The prohibition is not to read with literal exactness like a mathematical
formula for it prohibits unreasonable impairment only. In spite of the constitutional prohibition
the State continues to possess authority to safeguard the vital interests of its people. Legislation
appropriate to safeguard said interest may modify or abrogate contracts already in effect. For
not only are existing laws read into contracts in order to fix the obligations as between the
parties but the reservation of essential attributes of sovereign power is also read into contracts
as a postulate of the legal order. All contracts made with reference to any matter that is subject
to regulation under the police power must be understood as made in reference to the possible
exercise of that power. Otherwise, important and valuable reforms may be precluded by the
simple device of entering into contracts for the purpose of doing that which otherwise may be
prohibited. In order to determine whether legislation unconstitutionally impairs contract of
obligations, no unchanging yardstick, applicable at all times and under all circumstances, by
which the validity of each statute may be measured or determined, has been fashioned, but
every case must be determined upon its own circumstances. Legislation impairing the
obligation of contracts can be sustained when it is enacted for the promotion of the general
good of the people, and when the means adopted must be legitimate, i.e. within the scope of the
reserved power of the state construed in harmony with the constitutional limitation of that
power. Moreover, to come under the constitutional prohibition, the law must effect a change in
the rights of the parties with reference to each other and not with reference to non-parties.

Sangalang v. Intermediate Appellate Court (IAC) [GR 71169, 22 December 1988]; also
Bel-Air Village Association Inc. (BAVA) vs. Intermediate Appellate Court [GR 74376],
Bel-Air Village Association Inc. (BAVA) vs. Court of Appeals [GR 76394], Bel-Air Village
Association Inc. (BAVA) vs. Court of Appeals [GR 78182], and , Bel-Air Village
Association Inc. (BAVA) vs. Court of Appeals [GR 82281]

En Banc, Sarmiento (J): 10 concur, 1 on leave, 3 took no part

Facts: [GR 71169] Bel-Air Village is located north of Buendia Avenue extension across a
stretch of commercial block from Reposo Street in the west up to Zodiac Street in the east.
When Bel-Air Village was planned, this block between Reposo and Zodiac Streets adjoining
Buendia Avenue in front of the village was designated as a commercial block. Bel-Air Village
was owned and developed into a residential subdivision in the 1950s by Makati Development
Corporation (MDC), which in 1968 was merged with Ayala Corporation. Spouses Sangalang
reside at 110 Jupiter St. between Makati Ave. and Reposo St.; Spouses Gaston reside at 64
Jupiter St. between Makati Ave. and Zodiac St.; Spouses Briones reside at 66 Jupiter St.; while
Bel-Air Village Association, Inc. (BAVA) is the homeowners' association in Bel-Air Village
which takes care of the sanitation, security, traffic regulations and general welfare of the
village. The lots which were acquired by the Sangalangs, the Gastons, the Brioneses in 1960,
1957 and 1958, respectively, all sold by MDC subject to certain conditions and easements
contained in Deed Restrictions which formed a part of each deed of sale (i.e. being automatic
members of Bel-Air Association who must abide by the rules and regulations laid down by the
Association [as per sanitation, security and general welfare of the community]; that lots cannot
be subdivided and only used for residential purposes; that single family house be constructed in
single lot; no commercial or advertising signs placed or erected on the lot; no farm animals
allowed, pets allowed; easement of 2 meters within lot; lot not used for immoral or illegal trade
or activity; grass always trimmed; Restrictions in force for 50 years starting 15 January 1957).
MDC constructed a fence on the commercial block along Jupiter Street in 1966, although it was
not part of the original plan. The fence was partially destroyed in 1970 due to a typhoon. The
fence was subsequently rebuilt by the Ayala. Jupiter Street was widened in 1972, and the fence
had to be destroyed. Upon request of BAVA, the wall was rebuilt inside the boundary of the
commercial block. Ayala finally decided to subdivide and sell the lots in the commercial block
between Buendia and Jupiter. BAVA requested confirmation of use of the commercial lots. On
30 June 1972, Ayala likewise informed BAVA that in a few months it shall subdivided and sell
the commercial lots bordering the north side of Buendia Avenue Extension from Reposo St. up
to Zodiac St. Deed restrictions (building having set back of 19 meters, and matters RE
entrances and exits) are imposed in such commercial lots to harmonize and blend with the
development and welfare of Bel-Air Village. Ayala further applied for special membership in
BAVA of the commercial lot owners, the application submitted to BAVAs board of governors
for decision. On 25 September 1972, height limitations for buildings were increased from 12.5
meters to 15 meters and Jupiter street is widened by 3.5 meters. The widening of the street
reduced the association dues to be remitted to BAVA, inasmuch that it now applies to 76,726
sq.m. rather than 81,590 sq.m. Due rates have increased from P0.5/sq.m in 1972 to P3/sq.m in
1980. On 4 April 1975, Makati enacted Ordinance 81, providing for the zonification of Makati,
which classified Bel-Air Village as a Class A Residential Zone, with its boundary in the south
extending to the center line of Jupiter Street (Chapter 3, Article 1, Section 3.03, paragraph F).
The Buendia Avenue extension area was classified as Administrative Office Zone with its
boundary in the North- North East Extending also up to the center line of Jupiter Street
(Chapter 3, Article 1, Section 3.05, paragraph C). The Residential Zone and the Administrative
Office Zone have a common boundary along the center line of Jupiter Street. The zoning was
later followed under the Comprehensive Zoning Ordinance for the National Capital Region
adopted by the Metro Manila Commission as Ordinance 81-01 on 14 March 1981, with
modification that Bel-Air Village is simply bounded in the South-Southeast by Jupiter Street,
and the block- deep strip along the northwest side of Buendia Avenue Extension from Reposo
to EDSA as High Intensity Commercial Zone. Under the zoning classification, Jupiter Street is
a common boundary of Bel-Air Village and the commercial zone. On 17 January 1977, the
Office of the Mayor of Makati directed BAVA, in the interest of public welfare and purpose of
easing traffic congestion, the opening of the Amapola (Estrella- Mercedes; Palma gate-Villena),
Mercedes (EDSA-Imelda/Amapola junction), Zodiac (Mercedes-Buendia), Jupiter (Zodiac-
Reposo, connecting Metropolitan avenue to Pasong Tamo and V. Cruz extension), Neptune
(Makati ave.-Reposo), Orbit (F.Zobel/ Candelaria intersection Jupiter Paseo de Roxas;
Mercedes-Buendia) streets of Bel-Air Village for public use. On 10 February, BAVA replied,
expressing concern of the residents about the opening of the streets to general public and
requesting the indefinite postponement of the plan to open Jupiter St. to public vehicles. BAVA,
however, voluntarily opened the other streets. On 12 August 1977, the municipal officials of
Makati allegedly opened, destroyed and removed the gates constructed at the corner of Reposo
St. and Jupiter St. as well as gates/fences constructed at Jupiter Street and Makati Avenue
forcibly; thereby opening Jupiter street to public traffic. Increased traffic was observed along
Jupiter Street after its opening to public use. Purchasers of the commercial lots started
constructing their respective buildings and demolished the fence or wall within the boundary of
their lots. Many owners constructed their own fences and walls and employed their own
security guards. On 27 January 1978, Ayala donated the entire Jupiter Street from Metropolitan
Avenue to Zodiac Street to BAVA. With the opening of the entire Jupiter street to public traffic,
the residential lots located in the northern side of Jupiter Street ceased to be used for purely
residential purposes, and became commercial in character. On 29 October 1979, spouses
Sangalang filed an action for damages against Ayala predicated on both breach of contract and
on tort or quasi-delict. A supplemental complaint was later filed by the Sangalangs to augment
the reliefs prayed for in the original complaint because of alleged supervening events which
occurred during the trial of the case. Claiming to be similarly situated, spouses Gaston,
Briones, and BAVA intervened in the case. The CFI Pasig rendered a decision in favor of the
Sangalangs awarding them P500,000 as actual and consequential damages, P2M as moral
damages, P500,000 as exemplary damages, P100,000 as attorneys fees, and the cost of suit.
The intervenors Gaston and Briones were awarded P400,000 as consequential damages,
P500,000 as moral damages, P500,000 as exemplary damages, P50,000 as attorneys fees, and
the cost of suit; each. Intervenor BAVA was awarded the same except for moral damages. The
damages awarded bear legal interest from the filing of the complaint. Ayala was also ordered to
restore/reconstruct the perimeter wall at the original position in 1966 at its own expense within
6 months from finality of judgment. On appeal, the Court of Appeals reversed and set aside the
decision for not being supported by facts and law on the matter; and entered another,
dismissing the case for lack of cause of action; without pronouncement as to costs. Sangalang
appealed.

[GR 74376] The Bel-Air Village Association (BAVA) filed and action to enforce the restrictions
stipulated in the deeds of sale executed by the Ayala Corporation. BAVA originally brought the
complaint in the RTC Makati, principally for specific performance, BAVA alleging that Rosario
de Jesus Tenorio allowed Cecilia Gonzalvez to occupy and convert the house at 60 Jupiter
Street into a restaurant, without its knowledge and consent, and in violation of the deed
restrictions which provide that the lot and building thereon must be used only for residential
purposes upon which the prayed-for main relief was for Tenorio and Gonzalves to permanently
refrain from using the premises as commercial and to comply with the terms of the Deed
Restrictions. The trial court dismissed the complaint on a procedural ground, i.e., pendency of
an identical action, Civil Case 32346 (BAVA v. Tenorio). The Court of Appeals affirmed, and
held, in addition, that Jupiter Street "is classified as High density commercial (C-3) zone as per
Comprehensive Zoning Ordinance 81-01 for NCR following its own ruling in AC-GR 66649
(BAVA v. Hy-Land Realty & Development Corp.). BAVA appealed.

[GR 76394] Spouses Eduardo Romualdez and Buena Tioseco are the owners of a house and lot
located at 108 Jupiter St (TCT 332394, Registry of Deeds Rizal).At the time they acquired the
subject house and lot, several restrictions were already annotated on the reverse side of their
title. The restriction(s) remain in force for 50 years from 15 January 1957, unless sooner
cancelled in its entirety by 2/3 vote of the members in good standing of the Bel-Air Village
Association (BAVA). However, the Association may from time to time, add new ones, amend
or abolish particular restrictions or parts thereof by majority rule. During the early part of 1979,
BAVA noted that certain renovations and constructions were being made by the spouses on the
premises. The latter failed to inform BAVA of the activity, even upon request, that prompted
BAVA to send its chief security officer to visit the premises on 23 March 1979 and found out
that the spouses were putting up a bake and coffee shop. The spouses were reminded that they
were violating the deed restriction, but the latter proceeded with the construction of the bake
shop. On 30 April 1979, BAVA wrote the spouses to desist from using the premises for
commercial purposes, with threat of suit. Despite the warning, the spouses proceeded with the
construction of their bake shop. The trial court adjudged in favor of BAVA. On appeal, the
Court of Appeals reversed the decision on the strength of its holding in AC-GR 66649. BAVA
elevated the matter to the Supreme Court by a petition for review on certiorari. The Court
initially denied the petition for lack of merit, for which BAVA sought a reconsideration.
Pending resolution, the case was referred to the Second Division and thereafter, to the Court En
Banc en consulta. Per Resolution, dated 29 April 1988, the case was consolidated with GR
74376 and 82281.

[GR 78182] Dolores Filley leased her building and lot situated at 205 Reposo Street to the
advertising firm J. Romero and Associates, in alleged violation of deed restrictions which
stipulated that Filley's lot could only be used for residential purposes. The Bel-Air Village
Association (BAVA) sought judgment from the lower court ordering the Filley and J.Romero to
permanently refrain from using the premises in question as commercial and to comply with the
terms of the deed restrictions. The trial court granted the relief sought for by BAVA with the a
additional imposition of exemplary damages of P50,000.00 and attorney's fees of P10,000.00.
The trial court gave emphasis to the restrictive clauses contained in Filley's deed of sale from
BAVA, which made the conversion of the building into a commercial one a violation. Appeal
was made claiming that the restrictions in the deed of sale are outmoded. BAVA on the other
hand relied on a rigid interpretation of the contractual stipulations agreed upon with Filley, in
effect arguing that the restrictions are valid ad infinitum. The Court of Appeals overturned the
lower court, observing that J. Romero & Associates had been given authority to open a
commercial office by the Human Settlements Regulatory Commission.

[GR 82281] Violeta Moncal, owner of a parcel of land with a residential house constructed
thereon situated at 104 Jupiter Street, leased her property to Majal Development Corporation,
without the consent of the Bel-Air Village Association (BAVA). She purchased the lot from
Makati Development Corporation. The lot in question is restricted to be used for residential
purposes only as part of the deed restrictions annotated on its title. It is on the same side of the
street where there are restaurants, clinics, placement or employment agencies and other
commercial or business establishments. These establishments, however, were sued by BAVA in
the proper court. The trial court dismissed the BAVA's complaint, a dismissal affirmed on
appeal. The appellate court declared that the opening of Jupiter Street to human and vehicular
traffic, and the commercialization of the Municipality of Makati in general, were circumstances
that had made compliance by Moncal with the aforesaid "deed restrictions" "extremely difficult
and unreasonable, a development that had excused compliance altogether under Article 1267 of
the Civil Code. BAVA appealed.

Short Facts: GR 74376, 76394, 78182, and 82281 are efforts to enforce the "deed restrictions"
against specific residents of Jupiter Street and, with respect to GR 78182, Reposo Street. The
residents have allegedly converted their residences into commercial establishments (a
restaurant in GR 74376, a bakery and coffee shop in GR 76394, an advertising firm in GR
78182; and a construction company, apparently, in GR 82281) in violation of the said
restrictions. Their mother case, GR 71169 is, on the other hand, a petition to hold the vendor
itself, Ayala Corporation (formerly Makati Development Corporation), liable for tearing down
the perimeter wall along Jupiter Street that had theretofore closed its commercial section from
the residences of Bel-Air Village and ushering in, as a consequence, the full
"commercialization" of Jupiter Street, in violation of the very restrictions it had authored. The
Court of Appeals dismissed all 5 appeals on the basis primarily of its ruling in AC-GR 66649,
"Bel-Air Village, Inc. v. Hy-Land Realty Development Corporation, et al.," in which the
appellate court explicitly rejected claims under the same "deed restrictions" as a result of
Ordinance 81 enacted by the Government of the Municipality of Makati, as well as
Comprehensive Zoning Ordinance 8101 promulgated by the Metropolitan Manila Commission,
which two ordinances allegedly allowed the use of Jupiter Street both for residential and
commercial purposes. It was likewise held that these twin measures were valid as a legitimate
exercise of police power.

Issue: Whether the constitutional guarantee on non-impairment of contracts can be raised as a

deterrent to the exercise of police power.

Held: All contracts are subject to the overriding demands, needs, and interests of the greater
number as the State may determine in the legitimate exercise of police power. The Court
guarantees sanctity of contract and is said to be the "law between the contracting parties," but
while it is so, it cannot contravene "law, morals, good customs, public order, or public policy."
Above all, it cannot be raised as a deterrent to police power, designed precisely to promote
health, safety, peace, and enhance the common good, at the expense of contractual rights,
whenever necessary. Police power is the power to prescribe regulations to promote the health,
morals, peace, education, good order or safety and general welfare of the people. Invariably
described as "the most essential, insistent, and illimitable of powers" and "in a sense, the
greatest and most powerful attribute of government," the exercise of the 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 a violation of any other applicable constitutional
guarantee. Police power is elastic and must be responsive to various social conditions; it is not
confined within narrow circumscriptions of precedents resting on past conditions; it must
follow the legal progress of a democratic way of life. Public welfare, when clashing with the
individual right to property, should be made to prevail through the state's exercise of its police
power. Herein, the MMC Ordinance represents a legitimate exercise of police power, as the
ordinance is neither capricious or arbitrary or unreasonable; but that it is based on compelling
interests of general welfare. The restrictive easements are similar to any other contract, and
should not deter the valid exercise of police power. The MMC has reclassified Jupiter Street
into a high density commercial zone, pursuant to Ordinance 81-01. Sangalang, BAVA, et. al.,
thus have no cause of action on the strength alone of said deed restrictions.