Principle of Autonomy, A1306 Civil Code

1. Concept

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)

1) Under the principle of autonomy of contracts, parties to an agreement are allowed to establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided that these are not contrary to law, morals, good customs, public order, or public policy. (Manila Credit Corporation v. Viroomal, G.R. No. 258526, January 11, 2023, Per Lopez, M., J.)

2) [T]he contracting parties are accorded the liberality and freedom to establish such stipulations, clauses, terms and conditions as they may deem convenient, provided the same are not contrary to law, morals, good custom, public order or public policy. In the law on contracts, such fundamental principle is known as the autonomy of contracts. (Gomez v. CA, G.R. No. 120747, September 21, 2000, Per Buena, J.)

3) The autonomy of contracts allows the parties to establish such stipulations, clauses, terms and conditions as they may deem appropriate provided only that they are not contrary to law, morals, good customs, public order or public policy. The standard norm in the performance of their respective covenants in the contract, as well as in the exercise of their rights thereunder, is expressed in the cardinal principle that the parties in that juridical relation must act with justice, honesty and good faith. (Bricktown Development Corp. v. Amor Tierra Development Corporation, G.R. No. 112182, December 12, 1994, Per Vitug, J.)

a. Limitations

1) The principle of party autonomy in contracts is not an absolute principle. The rule in Article 1306 of our Civil Code is that the contracting parties may establish such stipulations as they may deem convenient provided they are not contrary to law, morals, good customs, public order or public policy. Thus, counter-balancing the principle of autonomy of contracting parties is the equally general rule that provisions of applicable laws, especially provisions relating to matters affected with public policy, are deemed written into the contract. Put a little differently, the governing principle is that parties may not contract away applicable provisions of law, especially peremptory provisions dealing with matters heavily impressed with public interest. (PSALM v. Pozzolanic Philippines Incorporated, G.R. No. 183789, August 24, 2011, Per Perez, J.)

LRTA v. Joy Mart Consolidated, Inc., G.R. Nos. 211281, 212602, February 15, 2022, Per Caguioa, J.:

• [C]ertain limitations attend the autonomy of the will of the parties in contracts. It is not a blanket license for the parties to stipulate anything that they desire into the contract at the expense of limiting positive laws.

In this case, the requirement of public biddings for government contracts — which, it should be added, is considered as having been written into the contracts themselves — is such a limitation.

Manila Credit Corporation v. Viroomal, G.R. No. 258526, January 11, 2023, Per Lopez, M., J.:

• A contract that is freely executed has the force of law between the parties. This time-honored principle of autonomy in contracts is, however, not absolute. It is balanced by the governing rule in Article 1306 of the Civil Code which declares that parties may not stipulate on matters which are contrary to law, morals, good customs, public order, or public policy. Guided by this premise, the parties’ principal loan of PHP 467,600.00, payable for five years at PHP 16,895.77 per month, inclusive of interests, which, later on condemned the debtors to pay the sum of PHP 1,175,638.12, yet still leaving more unpaid balance, cannot be upheld. The interests and penalties charged by the creditor are patently exorbitant and unconscionable; hence void.

Pakistan International Airlines Corporation v. Ople, G.R. No. 61594, September 28, 1990, Per Feliciano, J.:

• A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law between the parties.  The principle of party autonomy in contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil Code is that the contracting parties may establish such stipulations as they may deem convenient, “provided they are not contrary to law, morals, good customs, public order or public policy.” Thus, counter-balancing the principle of autonomy of contracting parties is the equally general rule that provisions of applicable law, especially provisions relating to matters affected with public policy, are deemed written into the contract. Put a little differently, the governing principle is that parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The law relating to labor and employment is clearly such an area and parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other. It is thus necessary to appraise the contractual provisions invoked by petitioner PIA in terms of their consistency with applicable Philippine law and regulations.

Limpo v. CA, G.R. No. 144732, February 13, 2006, Per Azcuna, J.:

• What happens then if the court approves a compromise agreement that fails to include all of the defendants? In approving a compromise agreement, no court can impose upon the parties a judgment different from their real agreement or against the very terms and conditions of the amicable settlement entered into. The principle of autonomy of contracts must be respected. These being said, considering that the Compromise Agreement imposed no obligation upon Limpo, it follows that the judgment rendered by the Regional Trial Court (RTC) of Pasig, based on the Compromise Agreement, could likewise not impose any obligation upon him. The duty of the court is confined to the interpretation of the agreement that the contracting parties have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain.6 Consequently, the contention of Limpo is correct. The terms and conditions set forth in the Compromise Agreement, as approved by the court, are controlling and, therefore, there is no basis to include him in reviving the judgment.