No law impairing the obligation of contracts shall be passed. (Section 10, Article III, 1987 Constitution)
a. Freedom to contract – not absolute
The freedom to contract is not absolute; all contracts and all rights are subject to the police power of the State and not only may regulations which affect them be established by the State, but all such regulations must be subject to change from time to time, as the general well-being of the community may require, or as the circumstances may change, or as experience may demonstrate the necessity. (Goldenway Merchandising Corporation v. Equitable PCI Bank, G.R. No. 195540, 13 March 2013)
1) Subject to reasonable legislative regulation
The freedom of contract, under our system of government, is not meant to be absolute. The same is understood to be subject to reasonable legislative regulation aimed at the promotion of publicity health, morals, safety and welfare. In other words, the constitutional guaranty of non-impairment of obligations of contract is limited by the exercise of the police power of the State, in the interest of public health, safety, morals and general welfare. (Abe vs. Foster Wheeler Corporation, En Banc, G.R. Nos. L-14785 and L-14923, 27 February 1961)
2) Contracts related to public welfare
Not all contracts are protected under the non-impairment clause. Contracts whose subject matters are so related to the public welfare are subject to the police power of the State and, therefore, ...
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