Facts: In 1981, the Metropolitan Manila Commission (now MMDA) enacted an Ordinance reclassified as a commercial area a portion of Ortigas Avenue from Madison to Roosevelt Streets of Greenhills Subdivision where the lot is located. In 1984, private respondent leased the lot and constructed a single story commercial building for Greenhills Autohaus, Inc., a car sales company. In 1995, petitioner filed a complaint against the owner of the lot with the RTC, the complaint sought the demolition of the said commercial structure for having violated the terms and conditions of the Deed of Sale. Complainant prayed for the issuance of a TRO and injunction to prohibit petitioner from in engaging a commercial activity on the lot while the trial court issued and denied the MR of the private Respondent. Private Respondent filed with the CA a special civil action for certiorari, ascribing to the trial court grave abuse of discretion which the appellate court granted. Complainant seasonably moved for reconsideration, but the appellate court denied it, hence this petition.
Issue: Whether the retroactive effect of the assailed ordinance violates the Right to Non-Impairment of Contracts of the complainants?
Held: No, In general, the court agree that laws are to be construed as having only prospective operation. Lex prospicit, non respicit. Equally settled, only laws existing at the time of the execution of a contract are applicable thereto and not later statutes, unless the latter are specifically intended to have retroactive effect. A later law which enlarges, abridges, or in any manner changes the intent of the parties to the contract necessarily impairs the contract itself and cannot be given retroactive effect without violating the constitutional prohibition against impairment of contracts.
But, the foregoing principles do admit of certain exceptions. One involves police power. A law enacted in the exercise of police power to regulate or govern certain activities or transactions could be given retroactive effect and may reasonably impair vested rights or contracts. Police power legislation is applicable not only to future contracts, but equally to those already in existence. Non-impairment of contracts or vested rights clauses will have to yield to the superior and legitimate exercise by the State of police power to promote the health, morals, peace, education, good order, safety, and general welfare of the people. Moreover, statutes in exercise of valid police power must be read into every contract. The contractual stipulations annotated on the Torrens Title, on which Ortigas relies, must yield to the ordinance. When that stretch of Ortigas Avenue from Roosevelt Street to Madison Street was reclassified as a commercial zone by the Metropolitan Manila Commission in March 1981, the restrictions in the contract of sale between Ortigas and Hermoso, limiting all construction on the disputed lot to single-family residential buildings, were deemed extinguished by the retroactive operation of the zoning ordinance and could no longer be enforced. While our legal system upholds the sanctity of contract so that a contract is deemed law between the contracting parties, nonetheless, stipulations in a contract cannot contravene “law, morals, good customs, public order, or public policy.” Otherwise such stipulations would be deemed null and void.