Caleon vs. Agus Development Corp. G.R. No. 77365 April 7, 1992 207 SCRA 748 (1992)

Facts:  Private respondent Agus Development Corporation is the owner of a parcel of land leased to petitioner Petitioner for a monthly rental of P180.00. Petitioner constructed on the lot leased a 4-door apartment building. Without the consent of the private respondent, the petitioner sub-leased two of the four doors of the apartment to Rolando Guevarra and Felicisima Estrada for a monthly rental of P350.00 each. Upon learning of the sub-lease, private respondent through counsel demanded in writing that the petitioner vacate the leased premises. For failure of petitioner to comply with the demand, private respondent filed a complaint for ejectment with the MeTC against the petitioner citing as ground therefor the provisions of Batas Pambansa Blg. 25, Section 5, which is the unauthorized sub-leasing of part of the leased premises to third persons without securing the consent of the lessor within the required sixty (60)-day period from the promulgation of the new law (B.P. 25). After trial, the court a quo rendered its decision ordering petitioner and all persons claiming possession under her (a) to vacate the premises alluded to in the complaint; (b) to remove whatever improvement she introduced on the property; (c) to pay private respondent the amount of P2,000.00 as attorney’s fees; and (d) to pay the costs. Petitioner appealed the decision to the RTC who affirmed in toto the decision of the MeTC. The decision of the RTC was appealed to the CA who affirmed the decision. Hence, the petition for review on certiorari.

Issue: Whether Batas Pambansa Blg. 25 violated the right of the Petitioner to the Non-impairment Clause of the Constitution when she has a perfected contract with the Respondent?

Held: No, that 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. In fact, every contract affecting public interest suffers a congenital infirmity in that it contains an implied reservation of the police power as a postulate of the existing legal order. This power can be activated at anytime to change the provisions of the contract, or even abrogate it entirely, for the promotion or protection of the general welfare. Such an act will not militate against the impairment clause, which is subject to and limited by the paramount police power. Batas Pambansa Blg. 25, “An Act Regulating Rentals of Dwelling Units or of Land On Which Another’s Dwelling is Located and For Other Purposes” shows that the subject matter of the law is the regulation of rentals and is intended only for dwelling units with specified monthly rentals constructed before the law became effective. Batas Pambansa Blg. 25 is derived from P.D. No. 20 which has been declared by this Court as a police power legislation, applicable to leases entered into prior to July 14, 1971, so that the applicability thereof to existing contracts cannot be denied.