Can a Contract Be Changed Unilaterally Under Philippine Law?

(A comprehensive doctrinal and jurisprudential survey)

1. The Starting Point: Mutuality of Contracts

Article 1308 of the Civil Code captures the bedrock rule: “The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.” In Philippine doctrine this is called the principle of mutuality, and it bars any party from altering a perfected contract on its own say‑so.

Article 1159 adds that obligations arising from contracts “have the force of law.”
Article 1306 on autonomy of contracts allows parties wide freedom—but only if the terms do not contravene law, morals, good customs, public order, or public policy.

Practical consequence: any clause empowering one party to revise price, terms, or obligations without the other’s consent is prima facie void unless it falls under an accepted exception.

2. Exceptions Recognised by the Civil Code

Civil‑Code Provision	Effect	Safeguard
Art. 1309 – Unilateral Determination of Performance	Parties may agree that one shall “determine the performance” (e.g., fix quantity, quality, or price after the contract is perfected).	The determination “shall not be obligatory if it is evidently inequitable.” Courts may reduce or strike it down.
Art. 1310 – Court Intervention	If the parties disagree on the determination above, the courts will decide what is equitable.	Judicial control prevents abuse.
Arts. 1182–1183 – Potestative Conditions	A condition dependent solely on one party’s will annuls the obligation it affects.	Parties may use “mixed” or “casual” conditions instead.

Key insight: The Code allows certain unilateral implementation choices, but never unilateral alteration of the contract’s essential terms once fixed.

3. Jurisprudence: How the Supreme Court Polices Unilateral Changes

Escalation & de‑escalation clauses in loans
- Philippine National Bank v. Court of Appeals (G.R. L‑12122, 1993) and its progeny (Spouses Laudico v. R. Bank, Diaz v. Swire) invalidate rate‑escalation clauses that let the lender raise interest “at its sole discretion” without the borrower’s conformity.
- A clause becomes valid only if it requires (a) subsequent written conformity by the borrower or (b) acceptance through continued loan availment after notice.
Price‑variation clauses in construction
- Polytrade Corporation v. Blanco (G.R. L‑27066, 1978) upheld a clause allowing the contractor to adjust price if an independent price index (set by government) moved, because the change was not “left solely to the will of one party.”
Credit‑card unilaterally revised fees
- In Solidbank v. CA (G.R. 144635, 2004), the Court struck down fee increases imposed without cardholder approval, branding the clause “one‑sided and violative of mutuality.”
Labor contracts
- Management may issue workplace policies, but PAL v. NLRC (G.R. 132805, 1999) stresses that changes that diminish benefits breach Art. 100, Labor Code and the contract of employment.

4. Statutory Regimes Allowing Limited One‑Sided Adjustments

Sector	Governing Law/Regulation	Scope of Unilateral Power	Control Mechanism
Banking & Lending	BSP Circular 835 (2014) & succeeding rules	Banks may align interest rates with BSP ceilings.	Must give written or electronic notice to borrower who may pre‑pay without penalty if rates are unacceptable.
Utilities	Electric Power Industry Reform Act (EPIRA); Water Code; ERC and LWUA rules	Concessionaires may adjust tariffs per rate‑setting formulae.	Regulatory approval & public hearings ensure fairness.
Insurance	Insurance Code (as amended)	Insurers may amend renewal terms to reflect risk changes.	Must notify insured; insured may refuse and seek other cover.
Consumer Sales	Consumer Act (RA 7394)	Sellers cannot impose surprise fees; any change must be “clearly communicated” and not unconscionable.	DTI may void abusive provisions.

Take‑away: Where special laws grant unilateral adjustment powers, those powers are narrowly tailored and subject to notice, regulatory, or judicial review.

5. Novation, Amendment, and Ratification

Conventional novation (Arts. 1291–1293) requires agreement of all parties.
Objective or subjective novation may occur tacitly if the new terms are “incompatible in all points” with the old; unilateral acts rarely fulfil this test.
Ratification: The innocent party may expressly or implicitly accept the other’s unilateral change (e.g., by continuing to perform under the revised terms). This transforms an initially void change into a valid amendment.

6. Remedies Against Invalid Unilateral Changes

Action for declaration of nullity or annulment of the offending clause.
Specific performance on the original terms (Art. 1191 for reciprocal obligations).
Rescission if the unilateral change causes lesion or breach.
Reformation where true mutual intent is proven but badly drafted.
Damages and attorney’s fees under Arts. 1170–1174.

The aggrieved party may also file administrative complaints (e.g., with BSP, DTI, ERC) when the modifier is a regulated entity.

7. Drafting & Compliance Tips

Escalation clauses: Tie adjustments to external, public indices (CPI, LIBOR replacement) and require prior written notice and acceptance.
Option‑to‑renew clauses: Specify mechanics, timeframes, and consideration to avoid potestative defects.
Standard‑form contracts (adhesion): Highlight any modifiable terms in bold or in a separate agreement; offer a cooling‑off period.
Severability clause: Preserve the rest of the contract if a unilateral‑change clause is voided.
Alternative dispute resolution: Provide mediation/ arbitration to handle challenges swiftly.

8. Conclusion

Under Philippine law, unilateral alteration of an existing contract is generally prohibited by the principle of mutuality (Art. 1308). Limited exceptions exist—either (a) expressly allowed but tempered by equity (Arts. 1309–1310) or (b) created by special statutes under regulatory oversight. Courts consistently strike down clauses that leave price, interest, or essential obligations to “the sole will” of one party.

Bottom line: If you wish to build flexibility into a contract, structure the mechanism so that (1) the formula or standard is objective or externally verifiable, and (2) the other party retains the right to consent, reject, or terminate. Anything short of that risks being void, unenforceable, or a source of damages.

(This article provides general legal information and is not a substitute for individualized advice. Consult counsel for specific transactions.)