The non-impairment clause and government contracts

Section 10, Article III of the Constitution provides:

"SECTION 10. NO LAW IMPAIRING THE OBLIGATION OF CONTRACTS SHALL BE PASSED."

According to a ruling of the Supreme Court, the purpose of the non-impairment clause is to safeguard the integrity of contracts against unwarranted interference by the State. As a rule, contracts should not be tampered with by subsequent laws that would change or modify the rights and obligations of the parties. 

It includes statutes enacted by the national legislature, executive orders and administrative regulations promulgated under a valid delegation of power, and municipal ordinances passed by the local legislative bodies.

There is impairment if a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the parties. It is anything that diminishes the efficacy of the contract.

However, it applies only to previously perfected contracts and is limited in application to laws that derogate from prior acts or contracts by enlarging, abridging or in any manner changing the intention of the parties.

Interestingly, Republic Act No. 3019 considers as a corrupt practice and unlawful the act by any public officer, “Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence.”


It behooves all concerned officers of government agencies and instrumentalities then, especially those bestowed with rule-making powers, to observe and be mindful of this section of the Bill of Rights when entering into contracts and subsequently crafting rules and regulations affecting the former, to avert and avoid any legal bind.