Contracts of adhesion and the fine print

By Atty. Eduardo T. Reyes III

 

On the heels of Brexit, it has been reported that Google and Facebook are relocating their legal responsibility for privacy matters to California from Europe. This means that these tech giants will only answer in California, USA, to any complaints, controversies or cases by their users arising from any breach of privacy on data gathered from them.

While the move seems unilateral in the sense that the users may not have expressly assented to or approved of the transfer, the users might need to look at the fine print of their electronic contracts again- and more closely.

This brings to the fore the legal efficacy of the so-called “contracts of adhesion”. The root word of adhesion being: “adhere”; it means “assent or consent”.

“In Philippine Commercial International Bank v. CA, the Court defined in detail the meaning of a contract of adhesion, to wit:

A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his “adhesion” thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.

Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.  (Citations omitted.)

It bears emphasis that in contracts of adhesion, “[ o ]ne party prepares the stipulation in the contract, while the other party merely affixes his signature or his ‘adhesion’ thereto[.]” Besides, “[t]he one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.”(Julius Q. Apelanio v. Arcany’s Inc. et al, G.R. No. 227098, November 14, 2018).

Contracts of adhesion had become ubiquitous and commonplace in everyday dealings such that parties to these contracts neglectfully agree to the terms and conditions stipulated therein without reading the fine print. Purchasing airplane tickets, booking hotel rooms, applying for a credit card, and as discussed above, signing-in to Google and/ or Facebook, are all presaged by some form of assent or consent to binding terms and conditions in a contract.

Pursuant to Art. 1319 of the New Civil Code, “Consent is manifested by the meeting of the offer and acceptance upon the thing and the cause which are to constitute the contract x x x”. The law does not require any formalistic consent for the same to be binding. Mere clicking of a button may constitute an electronic way of giving consent. Thus, for instance, when a social media app prompts a would-be user to click “I agree” at the bottom of a detailed and adumbrated set of provisions (which most people don’t bother to read), that already constitutes as an “offer” which invites the user’s “acceptance”. At this juncture, the user is getting nudged and by pressing the “I agree” button, presto, a contract is sealed.

Thus, “think before you click” would be a good cautionary reminder for internet users to avoid getting wound up with obligations in a contract of adhesion that he/ she had virtually “agreed to” without actually and consciously knowing what the stipulations embodying them, really are.

And yet jurisprudence is not unmindful of instances where one party was merely prevailed upon, unduly influenced, or did not stand on equal footing, with the one who drafted the contract. This partakes of the exception to the general rule that contracts of adhesion are perfectly valid contracts, ie., when the contract is so onerous or one-sided, that it does not bind both parties because its continuance or effectivity depends upon the will of only one of them, the contract may be declared void by the courts.   The exception is predicated on a principle which is known as “mutuality of contracts” which is enunciated in the Civil Code, thus: “Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them”.

The case of a readily printed and prepared loan document which the borrower signed that contained “hidden provisions” on a unilateral escalation clause of the interest rate without an accompanying de-escalation clause, was nullified by the Supreme Court for being violative of the mutuality of contracts principle.

A contract of adhesion is one wherein one party imposes a ready- made form of contract on the other in which almost all of the provisions are drafted by one party, thereby reducing the participation of the other to affixing its signature or to adhering to the contract. However, the contract of adhesion is not invalid per se but is as binding as any other contract. The only occasions in which the Court has struck down contracts of adhesion as void have happened only when the weaker party has been imposed upon in dealing with the dominant bargaining party as to be reduced to the alternative of taking it or leaving it, being completely deprived of the opportunity to bargain on equal footing. Thus, the validity or enforceability of the impugned contracts will have to be determined by the peculiar circumstances obtaining in each case and by the situation of the parties concerned.

We are aware of the ruling in Limso v. Philippine National Bank (Limso), which reiterates the essentiality of the long-standing dictum that the contract is void when there is no mutuality between the parties. The ruling stresses that mutuality is absent when the interest rate in a loan agreement is set at the sole discretion of one party; or when there is no reasonable means by which the other party can determine the applicable interest rate. This is because the parties are not then on equal footing when they negotiated and concluded the terms of the contract. X x x”

(Villa Crista Monte Realty & Development Corp. v Equitable PCI Bank (now known as Banco de Oro Unibank, Inc.), et al., G.R. No. 208336, November 21, 2018).

In sum, legal-speak can undergird a contract particularly one which is categorized as a “contract of adhesion” that was purposely crafted to give preferential treatment to the drafter. The lesson is not to be lazy in reading through the unnecessary verbiage. But more important, one must read along -as well as between- the lines. Because worryingly, there could be more (or less) to the contract, than meets the eye.

(The author is the senior partner of ET Reyes III & Associates- a law firm based in Iloilo City. He is a litigation attorney, a law professor and a law book author. His website is etriiilaw.com).