When is a contract provision onerous?
In the wake of the controversy over two water concession agreements in Metro Manila, the Duterte administration has served notice it will review contracts with private parties that have onerous provisions or are disadvantageous to taxpayers. Finance Secretary Carlos Dominguez III said this action “[s]hould be a signal to everybody that the private sector and the government are working together for the benefit of the nation, of all taxpayers.”
There is no question about the value or benefits of that planned review.
It is good management practice for companies to periodically go over their agreements with third parties to determine if they are still necessary, attuned with the times or should be updated.
Depending on the results of that action, the contracts may be renegotiated, preterminated if allowed to do so, or made to lapse when they reach their termination date.
In conducting the review, the administration’s reviewers should bear in mind that contracts are bilateral in nature, i.e., they are products of the mutual agreement of the parties.In the absence of fraud, violence or intimidation, a contract is presumed to have been voluntarily entered into by the parties and that they were fully aware of the effects or consequences of their action.
Whether or not a provision in a contract is onerous is a matter of opinion.
Since the contracting parties have individual interests to protect, a provision is considered advantageous or disadvantageous depending on its effect on the affected party.
When the parties agree to sign a contract, it is reasonable to assume they weighed the pros (advantages) and cons (disadvantages) of its provisions and decided it was in their best interests to enter into it.
In determining whether a provision in a contract is onerous or not, reference should be made to the time or circumstances under which it was signed.
For example, a 20-year lease agreement of P1,000 per month over a parcel of government-owned land in an insurgency-infested area would be considered reasonable at the time of its signing.
If after 10 years that place becomes a commercial area and the lease agreement does not have an escalation clause, the rental provision may look onerous or disadvantageous to the government.
But from the lessee’s point of view, the lease rentals are reasonable because it took a big risk on the property and invested a lot of money for its development.
If the parties fail to agree on a mutually acceptable arrangement on this issue, resort has to be made to the “resolution of disputes” provision of their agreement.
In case it has a provision on arbitration, that process should be observed by the parties. If it has none, they have to go to court to resolve the issue on whose opinion about lease rentals should prevail.
As a disinterested third party, the court can objectively look at the facts of the case and give a resolution on the rental issue.Neither party (in particular the government because of its superior standing) has the right to impose its will on the other or unilaterally cancel the agreement.
The law of the jungle—where might is considered right—does not apply in a country governed by the Rule of Law.
In light of President Duterte’s statements taking to task the lawyers who participated in the signing of the water concession agreements, there is a strong possibility that, in the review of government contracts with private parties, the government lawyers involved in them may be blamed for the supposedly onerous provisions.
Making scapegoats out of those lawyers would be grossly unfair. When a lawyer negotiates a contract on behalf of a government office or private entity, he or she acts as an agent of the latter. It is the principal, not the lawyer, who calls the shots on what are or what are not acceptable in a contract.
So if anything is found “wrong” in a contract, the head of the agency or private entity should be held responsible and accountable for it. INQ
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