In 1961, the municipal council of San Fernando, Pampanga, through a resolution, allowed some market vendors, by way of lease contract, to sell in their public plaza. As a result, a talipapa was started at the plaza. This was questioned in court in the same year. In 1964, the municipal council issued a resolution revoking the 1961 resolution as they declared the plaza as “the parking place and as the public plaza of the municipality.” In 1968, the case where the 1961 resolution was questioned was decided and the judge declared that the 1961 resolution was not valid because the plaza cannot be leased to private individuals as it is a public plaza.
The decision and the 1964 resolution were never enforced because the vendors continued selling and their numbers even ballooned. In 1982, concerned residents of San Fernando sought the eviction of the vendors from the talipapa in the plaza. The office of the mayor then conducted an investigation and thereafter the municipal legal officer directed the municipal engineer to evict the vendors from the plaza. The vendors (Felicidad Villanueva et al) then filed in court a petition to restrain the municipal government from evicting them. Their petition was denied by Judge Mariano Castañeda, Jr.
The vendors are now questioning the decision as they alleged that they have a lease contract with the municipal government and in fact they had been paying rentals ever since.
ISSUE: Whether or not the lease contract between the vendors and the municipal government must be respected.
HELD: No. Firstly, there is no valid contract. Public plazas are beyond the commerce of man. Communal things that cannot be sold because they are by their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc. Secondly, even assuming there is a valid lease of the property in dispute, the 1964 resolution had effectively terminated the agreement for it is settled that the police power cannot be surrendered or bargained away through the medium of a contract. In fact, every contract affecting the 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 any time 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.
Further, the exercise of police power is an exemption to the doctrine of non-impairment of contracts. The doctrine is subject to and limited by the paramount police power.
