Facts:

On  August  25, 1976,  petitioner Ortigas  & Company sold to Emilia Hermoso, a parcel of land with an area of 1,508 square meters, located in Greenhills Subdivision IV,  San Juan, Metro Manila. The contract of sale provided that the lot be used exclusively for residential purposes only, and not  more than one single-family residential building will be constructed thereon; the BUYER shall not erect any sign or billboard  on the roof for advertising purposes; no single-family residential building shall be erected until the building plans, specification have been approved by the SELLER; restrictions  shall run with the land and shall be construed as real covenants until December 31, 2025 when they shall cease and terminate.These and the other conditions  were duly annotated on the certificate of title issued to Emilia.

In  1981,  the Metropolitan  Manila Commission (now  Metropolitan Manila Development Authority) enacted MMC Ordinance No. 81-01, also known as the Comprehensive  Zoning Area for the National Capital Region. The ordinance reclassified as a commercial area a portion  of Ortigas Avenue from Madison to Roosevelt Streets of Greenhills Subdivision where the lot is located. On June 8, 1984, private respondent Ismael Mathay III  leased the lot from Emilia Hermoso and J.P. Hermoso Realty Corp.. The lease contract did not specify the purposes of the lease. Thereupon, private respondent  constructed a single story commercial building for Greenhills Autohaus, Inc., a car sales company.

Thereafter,  petitioner filed  a complaint against  Emilia Hermoso with the RTC of Pasig. The complaint sought the demolition of the said commercial structure for having violated the terms and conditions of the Deed of Sale. Petitioner  asked for the issuance of a TRO and a writ of preliminary injunction.

RTC-granted  the writ of  preliminary injunction  in favor of Ortigas. CA ruled in favor of Mathay. It held that MMC Ordinance No. 81-01 effectively nullified the  restrictions allowing only residential use of the property in question. CA-

denied Ortigas’ motion for reconsideration.

Issue:

Whether or not CA erred in ruling that a contractual right is automatically discarded once it conflicts with police power (MMC Ordinance No. 81-01)

Ruling:

The  SC noted  that in issuing  the disputed writ  of preliminary injunction, the  trial court observed that the contract  of sale was entered into in August 1976, while the zoning ordinance was enacted only in March 1981.The  trial court reasoned that since private respondent had failed to show that MMCOrdinance No. 81-01  had retroactive effect, said ordinance should be given prospective application only, citing Co vs. Intermediate Appellate Court, 162 SCRA 390 (1988).

In  general,  we 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 andnot 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. Nonimpairment 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 hAealth,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.Following  the SC ruling in Ortigas & Co., Ltd. vs. Feati Bank & Trust Co., 94 SCRA 533(1979), 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. Respondent court correctly found that the trial court committed in this case a grave abuse of discretion amounting to want of or excess of jurisdiction in refusing to treat Ordinance No. 81-01 as applicable to Civil Case No. 64931

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