Case Digest: Ortigas vs Feati Bank – 94 SCRA 533

                  Non-Impairment of Obligation of Contracts | Constitutional Law


Facts:

In 1952, Ortigas and Co, a real estate company, sold two lots of the Highway Hills Subdivision to Augusto Padilla and Natividad Angeles through installment sales. The vendees later transferred their rights to Emma Chavez. The agreements and deeds of sale included a restriction that the land should be used exclusively for residential purposes and prohibited the removal of soil, stones, or gravel from the property or any other lots owned by Ortigas and Co as part of its general building scheme for the beautification and development of the Highway Hills Subdivision.

Feati Bank and Trust Co. eventually acquired the lots from Emma Chavez and began constructing a building on the lots for banking purposes in 1963 . Feati Bank argues that the area where the lots are located has been declared a commercial and industrial zone by a resolution of the Municipal Council of Mandaluyong and that the bank has acquired the lots after the area had been declared as such.

Despite Ortigas and Co.'s demands to stop the construction, Feati Bank proceeded with building a banking facility on the lots. 

Issue:
WoN the said Resolution can nullify or supersede the contractual obligations assumed by defendant-appellee.

Held: 
The contractual obligations so assumed cannot prevail over Resolution No. 27, of the Municipality of Mandaluyong, which has validly exercised its police power through the said resolution.

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.  

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