Contract Terms in the Philippines: Incorporation, Interpretation, Implication, and Unfair Terms

Abstract

This chapter examines the law of the Philippines on contractual interpretation and the regulation of unfair terms. With regard to the former, it discusses two closely connected issues in defining the contents of contracts: the approaches adopted in interpreting the meaning of agreed contractual terms, as well as to what extent additional terms are implied to supplement the express terms. It discusses the underlying philosophy of interpretation with regard to the dichotomy of ‘objective’ and ‘subjective’ approaches; it details the various interpretative aids, such as customs, usages, the commercial background, good faith, and the negotiations of the parties; and it shows how the law of the Philippines resolves the tension between literalist and contextualist approaches to interpretation. With regard to the latter, the chapter details the various responses available to tackle extremely one-sided, onerous, or otherwise unfair terms, such as exclusions or limitations of liability, penalty clauses, or restraint of trade clauses. It discusses the overt judicial control of such terms under specific legislation targeted at terms in consumer contracts. Attention is also paid to the enforcement mechanisms for measures of consumer protection. The chapter further analyses how the courts have exercised a more indirect control by employing traditional general contract law doctrines, including the rules on procedural unfairness, in order to protect parties against the imposition of unfair terms. A number of hypothetical scenarios illustrate how the courts in the Philippines deal with issues of contractual interpretation and gap-filling and how they regulate unfair terms in practice.