ORTIGAS & COMPANY LTD vs FEATI BANK & TRUST CO.

Shortly after the sale was finalised, defendant-appellee began

G.R. NO. L-24670 laying the foundation and commenced the construction of a
14 DECEMBER 1979 building on the lots acquired to be devoted to banking purposes,
which was intended for the exclusive use of the subdivision’s
DOCTRINE: residents. Plaintiff-appellant demanded in writing that defendant-
The non-impairment of contracts clause in the Constitution should appellee halt the construction, invoking the stipulations indicated in
be reconciled with the State’s exercise of police power. So long as a the deed of sale. The latter refused to comply to the demand,
certain law is imposed as a legitimate response to a felt public contending that the building was being constructed in accordance
need, and is not otherwise whimsical or oppressive, the non- with the zoning regulations, defendant-appellee having filed
impairment of contracts clause of the Constitution shall nor bar the building and planning permit applications, and building and
government’s proper exercise of power. planning permits to proceed with the construction. Defendant-
appellee also raise Resolution No. 27 issued by the Municipal
FACTS: Council of Mandaluyong, Rizal declaring the area along the western
The case is an appeal filed by Ortigas & Company Ltd (plaintiff- part of EDSA from Shaw Boulevard to Pasig River as commercial
appellant) for the RTC’s dismissal of the case against Feati Bank & and industrial zones.
Trust Co. (defendant) for lack of merit.
In deciding the case, the trial court upheld that the defendant-
Plaintiff is a limited partnership engaged in the business of real appellee’s right, predicating its conclusion on the exercise of police
estate, developing and selling lots to the public particularly the power of the said municipality and stressed that private interest
Highway Hills Subdivision along EDSA. Defendant is a corporation should “bow down to general interest and welfare.”
duly organised and existing in accordance with the laws of the
Philippines. ISSUES:
1. WON the resolution made by the municipal council is a valid
Defendant-appellee acquired pieces of land along EDSA from a exercise of police power
private seller. There were two restrictions that were included in the 2. WON the resolution is unconstitutional for impairing obligations
deed of sale, the more important being the stipulation that the of contracts
parcel of land shall be used by the buyer exclusively for residential
purposes. The same were annotated and filed to Register of Deeds HELD:
of Rizal. 1. YES, the resolution made by the municipal council is a valid
exercise of police power.
 2. NO, the resolution is a valid exercise of police power which
The Court noted that in the first place, the validity of the resolution makes the impairment of the obligations of the contract legitimate
was never questioned by the plaintiff-appellant prior to the appeal. and reasonable.
The rule is that the question of law or fact which may be included in
the appellant’s assignment of errors must be those which have It should be stressed that while impairment of contracts is
been raised in the court below, and are within the issues framed by constitutionally guaranteed, the rule is not absolute since it has to
the parties. In this case, the validity of the resolution was admitted be reconciled with the legitimate exercise of police power, i.e. “the
impliedly in the stipulation of facts, when plaintiff-appellant did not power to prescribe regulations to promote the health, morals,
dispute the same during the case’s hearing in the trial court. peace, education, good order or safety and general welfare of the
people.” Being as it may, the exercise of said power “may be
But assuming arguendo that it is not yet too late in the day for judicially inquired into and corrected only if it is capricious,
plaintiff-appellant to raise the issue of the invalidity of the ‘whimsical, unjust or unreasonable, there having been a denial of
municipal resolution in question, the Court is of the opinion that its due process or a violation of any other applicable constitutional
posture is unsustainable. Sec. 3 of RA No. 2264 (Local Autonomy guarantee.”
Act) empowers a Municipal Council “to adopt zoning and
subdivision ordinances or regulations” for the municipality. Clearly, Existing laws and the reservation of essential attributes of sovereign
the law does not restrict the exercise of the power through an power are read into contracts as postulates of the legal order. The
ordinance. An examination of Sec. 12 of the same law reveals that law forms part of, and is read into, every contract unless clearly
the implied power of municipality should be “liberally construed in excluded therefrom in those cases where such exclusion is allowed.
its favour.” The same section further mandates that the general
welfare clause be liberally interpreted in case of doubt, so as to give Provided that the surrounding area of the lots in contention have
more power to local governments in promoting the economic changed over time, the Court holds that sustaining the residential
conditions, social welfare, and material progress of the people in classification of said lots is a hazard to the health and comfort of
the community. The only exceptions under Sec. 12 are existing those who would choose to reside on it. As such, the Court upholds
vested rights arising out of a contract between “a province, city or the strength of the resolution promulgated under the police power
municipality on one hand and a third party on the other,” in which of the Municipality to use the same for commercial purposes.
case the original terms and provisions of the contract should
govern. The exceptions, clearly, do not apply in the case at bar.
 THE PROVINCIAL BUS OPERATORS ASSOC. vs DOLE 1. WON said issuances are violative of petitioners’ rights to
G.R. NO. 202275 non-impairment of obligation of contracts, particularly the
17 JULY 2018 petitioners’ obligations under their existing collective
DOCTRINE: bargaining agreements where they agreed with their bus
Contracts whose subject matters are so related to the public drivers and conductors on a commission or boundary basis.
welfare are subject to the police power of the State and, therefore, 2. WON said issuance are unconstitutional for depriving
some of its terms may be changed or the whole contract even set petitioners of their right to due process
aside without offending the Constitution.
HELD:
Likewise, contracts which relate to rights not considered property, 1. NO, LTFRB and DOLE’s issuances are not violative of
such as a franchise or permit, are also not protected by the non- petitioners’ rights to non-impairment of obligation of contracts.
impairment clause.
The purpose of the non-impairment clause is to protect purely
FACTS: private agreements from State interference. This is to
Government created a policy based on the finding that the encourage trade and credit by promoting confidence in the
boundary payment scheme that has since determined the take- stability of contractual relations. Aside from its traditional
home pay of bus drivers and conductors has been proven purpose of prohibiting State interference in purely private
inadequate in providing said workers a decent and living wage. transactions, the non-impairment clause serves as a guarantee
Furthermore, said system encourages risk-taking behaviour of of the separation of powers between the judicial and legislative
drivers. As such, the LTFB and DOLE released new guidelines and branches of the government. It serves as a check on the
additional requirements for the bus transport industry to follow. legislature “to act only through generally applicable laws
Non-compliance with the guidelines issued could lead to a prescribing rules of conduct that operate prospectively.”
revocation of franchise to operate.
This approach is called the institutional regularity approach,
Petitioners contend that DOLE’s Department Order as well as which holds that the laws in force at the time the contract was
LTFRB’s Memorandum violate the constitutional rights of public made must govern its interpretation and application. If a
utility bus operators to due process of law, equal protection of the contract is legal at its inception, it cannot be rendered illegal by
laws, and non-impairment of obligation of contracts. any subsequent legislation. With the non-impairment clause,
the legislature cannot enact “retroactive laws, selective laws,
ISSUES: and laws not supported by a public purpose.”
 First. Certificates of public convenience are not property and
So long as the non-impairment clause appears in the are always subject to amendment, alteration, or repeal.
Constitution, it may be invoked to question the constitutionality Therefore, public utility bus operators cannot argue that they
of State actions. were deprived of their property without due process of law
when the LTFRB required further compliance with said
An impairment happens when: (1) either by statute or any memorandum for bus operators to retain their franchises.
administrative rule issued in the exercise of the agency's quasi-
legislative power, the terms of the contracts are changed either Second. Certificates of public convenience are franchises always
in the time or mode of the performance of the obligation; (2) subject to amendment, repeal, or cancellation. Additional
when new conditions are imposed or existing conditions are requirements may be added for their issuance, and there can be
dispensed with. no violation of due process when a franchise is cancelled for
non-compliance with the new requirement.
However, not all contracts are protected under the non-
impairment clause. Contracts whose subject matters are so Third. The DOLE department order and the LTFRB
related to the public welfare are subject to the police power of memorandum are in the nature of social legislations to enhance
the State and, therefore, some of its terms may be changed or the economic status of bus drivers and conductors, and to
the whole contract even set aside without offending the promote the general welfare of the riding public. They are
Constitution. reasonable and are not violative of due process.

Likewise, contracts which relate to rights not considered

property, such as a franchise or permit, are also not protected
by the non-impairment clause.

These issuances are social legislations and police power

measures to which petitioners’ right against impairment of
obligation of contracts must yield.

2. NO, said issuances do not deprive petitioners of their right to

due process.
 SPOUSES ALGURA vs LGU OF NAGA
G.R. NO. 150135
30 OCT 2006 The Court traced the history of the Rules of Court on suits in forma
FACTS: pauperis (pauper litigant). A summary of the pertinent rules are as
The case at bar is a petition for review on certiorari seeking to follows:
annul the RTC order in Civil Case Algura vs LGU of the City of Naga
dismissing the case for failure of the petitioners to pay the required SEC. 19, RULE 141: When an application to litigate as an indigent
filing fees. The factual antecedents of the case are as follows: party is filed, the court shall scrutinize the affidavits and supporting
documents submitted, in order to determine if the income and
Spouses Antonio Algura and Lorencita Algura filed a verified property standards prescribed in the present Section 19 of Rule 141
complaint for damages against the Naga City Government and its have been met.
officers, arising from the alleged illegal demolition of their
residence and boarding house and for payment of lost income The court must determine if: (1) the applicant’s gross income and
derived from fees paid by their boarders. Simultaneously, that of the immediate family do not exceed an amount double the
petitioners filed an ex-parte motion to litigate as indigent litigants. monthly minimum wage of an employee; and (2) the applicant does
Finding the petitioners’ motion meritorious, the Executive Judge of not own real property with a fair market value of more than
the RTC granted petitioners’ plea from exemption from filing fees. P300,000. If the trial court finds that these income and property
requirements have been met, it automatically grants the applicant
Respondents filed a motion to disqualify the plaintiffs for non- the authority to litigate as an indigent litigant, and the grant is a
payment of fees, asserting that petitioners were not indigent matter of right.
litigants because the spouses’ income exceeded the amount
specified in Rule 141 Sec 18 of the Revised Rules of Court allowing If the trial court finds that one or both requirements have not been
for exemption from payment of legal fees. met, it shall set a hearing to enable the presentation of proof that
the applicant has “no money or property sufficient and available for
ISSUE: food, shelter and basic necessities for himself and his family.” In
WON petition for reconsideration regarding the qualification of the that hearing, the adverse party may adduce countervailing
petitioners indigent litigants is meritorious evidence to disprove the evidence presented by the applicant.
Afterwards, the trial court will rule on the application, depending
HELD: on these presentations.
YES, the case is meritorious.
SEC. 21, RULE 3: the adverse party may still contest the grant of the The question now then becomes whether or not a trial court has to
authority later, at any time before judgment is rendered by the trial apply both Rule 141, Sec. 16 and Rule 3, Sec. 21 on such
court. This challenge may be based on newly discovered evidence applications or should the court apply only the former rule and
not obtained at the time the application was heard. If the court disregard the latter as having been superseded by Rule 141, Sec. 15
determines after hearing that the party declared as an indigent is in on Legal Fees.
fact a person with sufficient income or property, the proper docket The Court ruled that Rule 3, Sec. 21 and Rule 141, Sec. 16 (later
and other lawful fees shall be assessed and collected by the clerk of amended as Rule 141, Sec. 18 on 1 Mar 200 and subsequently
court. If payment is not made within the time fixed by the court, amended by Rule 141, Sec. 19 on 16 Aug 2003, which is now the
execution shall issue or the payment of prescribed fees shall be present rule) are still valid and enforceable rules on indigent
made, without prejudice to other sanctions the court may impose. litigants.

The Naga City RTC incorrectly applied Rule 141, Sec. 18 on Legal First. An examination of the history of the two seemingly conflicting
Fees when the applicable rules at that time were Rule 3, Sec. 21 on rules reveals that it was not the intent of the Court to consider the
Indigent Party (which took effect on 1 Jul 1997) and Rule 141, Sec. old rule to have been amended and superseded by the new rule.
16 on Pauper Litigants (which was effective from 19 Jul 1984 up to This intent is evidenced by the fact that the Supreme Court
28 Feb 2000). retained said rule instead of just deleting said section when it
amended and approved the 1997 Rules of Civil Procedure.
In the case at bar, petitioners Alguras submitted the affidavits of Moreover, the amended version even strengthened the pre-
petitioner Lorencita Algura and neighbour Erlinda Bangate, the pay existing rule on indigent litigant through an elaboration on the
slip of petitioner Antonio F. Algura whosing a gross monthly income meaning of an indigent party and an addition of a third paragraph
of P10,474.00, and a Certification of the Naga City assessor stating on the right to contest the grand of authority to litigate. These
that petitioners do not have property declared in their names for actions of the Court show that there was no intent at all to consider
taxation. In terms of the property requirement, the petitioners the said rule as expunged from the 1997 Rules of Civil Procedure.
certainly qualified under the terms indicated in the said rules.
However, the combined monthly income of the spouses is well Second. The Court opined that Rule 3, Sec 21 and Rule 141, Sec. 19
beyond the income requirement. Hence, the RTC was correct in should be reconciled with each other because it is a settled
disqualifying the petitioners from being indigent litigants. However, principle that when conflicts are seen between two provisions, all
the combined monthly income of the spouses well exceeds the efforts must be made to harmonize them.
specified income requirement in the said rule.
The Court concedes that Rule 141, Sec. 19 provides specific
standards while Rule 3, Sec. 21 does not clearly draw the limits of
the entitlement to the exemption. Knowing that there is room for
abuse on the part of the litigants, the trial court must use sound
discretion and scrutinize evidence strictly in granting exemptions.

In the present case, the trial court should have Rule 3, Sec. 21 to
the application of the Alguras’ after their affidavits and supporting
documents showed that petitioners did not satisfy the
requirements on gross monthly income under Rule 141. Instead of
disqualifying the petitioners as indigent litigants, the RTC should
have called a hearing as required by Rule 3, Sec. 21 to enable
petitioners to adduce evidence to show that they didn’t have
property listed in their names, and that their monthly income,
albeit exceeding the amount which is specified in Rule 141, is not
sufficient to provide for the family’s basic necessities. In that
hearing, the respondents would have had the right to also present
evidence to refute the allegations and evidence in support of the
application of the petitioners to litigate as indigent litigants. Since
the Court is not a trier of facts, it will have to remand the case to
the RTC of Naga to resolve the issue.