In the dynamic world of business, deals and contracts are the lifeblood of success. They are negotiated meticulously, with each party striving to secure the best terms for themselves. However, there are times when business people enter into contracts only to later realize that what seemed like a great bargain has turned into a less-than-ideal situation. In such cases, the temptation to seek changes in the contract terms can be strong. This phenomenon, often referred to as “buyer’s remorse” in the business world is both common and consequential.
Business people can sometimes overlook critical details or underestimate future market fluctuations, in the excitement of striking a deal. This leads them to commit to terms that, in hindsight, appear less favorable. Perhaps it was a long-term supply agreement with fixed prices that seemed like a steal at that time, but unforeseen economic changes have since impacted the deal’s profitability. Or maybe it was a partnership agreement that initially appeared mutually beneficial, but differing visions and goals have since strained the collaboration.
When the realization sets in that the contract terms are less advantageous than initially thought, it’s natural for business people to consider seeking changes. This often involves negotiations with the other party or parties involved, aiming to amend the contract to better align with their current circumstances. However, this is where things can get murky.
In practice, lawyers will often encounter clients who, upon realizing that the agreement they entered into is not as appealing as they thought it would be, seek to change the terms or cancel the agreement. Some clients would go as far as to claim that they did not understand the terms and conditions of the agreement, or that they simply relied on their advisors or lawyers when they agreed to enter into the agreement with the other party.
Oftentimes, these clients are not only experienced but also educated business people who have been in the business for years. On those times when the business deal goes in their favor or is successful, they would attribute the success of the venture to their own business savvy, with some even proclaiming “see I am correct 99 percent of the time.” On the other hand, when the transaction does not go the way they expected, they would disclaim responsibility.
In extreme cases, due to the change of heart by one party, a dispute arises and lands before the courts, whereby one party seeks to compel the other to comply with the terms of their agreement. Damages are sought, resulting from the other’s refusal to comply with their obligation.
The courts have consistently reminded litigants that they cannot follow one every step of their life and extricate then from bad bargains, protect them from unwise investments, relieve them from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate not because one person has been defeated or overcome by another, but because they have been defeated or overcome illegally. We may do foolish things, enter into ridiculous contracts, use miserable judgment, and lose money by these acts – indeed lose all we have in the world; but not for that alone can the law intervene and restore.
There must be, in addition, a violation of the law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it. (Sps. Domingo and Paguyo vs. Astorga and St. Andrew Realty, G.R. No. 130982, September 16, 2005)
There is this case where Mr. Rolando Dela Paz lent P350,000 to L&J Development Co and its president Atty. Esteban Salonga, which needed the money to complete its real estate project which is the Brentwood Subdivision in Antipolo. The loan was not covered by any written agreement, but the parties supposedly verbally agreed that the loan would earn 6 percent interest monthly.
From December 2000 to August 2003, L&J paid Rolando P21,000 monthly in interest payments which is equivalent to 6 percent of the P350,000 loan. In total, L&J paid Mr. Dela Paz P576,000. However, after that, L&J encountered financial difficulties and could no longer make further payments. Mr. Dela Paz then filed a collection case against L&J and Atty. Salonga.
In a reversal of fortunes, the Supreme Court eventually ruled that since the agreement to pay interest on the loan was not in writing, this was illegal. The Supreme Court ruled that Mr. Dela Paz was only entitled to the P350,000 principal loan amount, but was required to return to L&J the excess amounts paid in the amount of P226,000. In addition, Mr. Dela Paz was also ordered to pay interest amounting to 6 percent per annum on the P226,000 counting from the finality of the decision.
During the proceedings before the Supreme Court, Mr. Dela Paz asserted that his situation deserves an exception to Art. 1956 of the Civil Code, which provides that “[n]o interest shall be due unless it has been expressly stipulated in writing.” He claimed that Atty. Salonga should be blamed for the lack of a written document and that Atty. Salonga, being a lawyer, used his legal knowledge to dupe him.
However, the Supreme Court did not find any deception on the part of L&J and Atty. Salonga, as despite the lack of any document stipulating the payment of interest, L&J did pay interest on the loan. It only stopped when it suffered financial difficulties that prevented it from paying the 6 percent monthly rate.
Moreover, regardless of Atty. Salonga’s profession as a lawyer, the Supreme Court found that Mr. Dela Paz was himself an architect and an educated man, and he could have acted in a more prudent manner. As the creditor, Mr. Dela Paz should have requested or required that all the terms and conditions of the loan agreement, which include the payment of interest, be put down in writing to ensure that he and L&J were on the same page. Mr. Dela Paz had a choice of not acceding and to insist that their contract be put in written form as this will favor and safeguard him as a lender
Yet again, the Supreme Court stressed that “[c]ourts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent. (Rolando Dela Paz v. L&J Development Company, GR No. 183360, September 8, 2014)
These are harsh words by our Supreme Court, but this is the reality when entering into contracts. While it may seem self-explanatory that the courts will not step in to protect a party from a bad bargain or bad decision when there is no illegality, in practice, many litigants and parties have to be reminded of this fact by their lawyers and the courts.
(The author, Atty. John Philip C. Siao, is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, an Arbitrator of the Construction Industry Arbitration Commission of the Philippines, and teaches law at the De La Salle University Tañada-Diokno School of Law. He may be contacted at jcs@tiongcosiaobellolaw.com. The views expressed in this article belong to the author alone.)