Termination vs Expiration of Contracts

In the Philippines, the words “termination” and “expiration” are commonly used in contractual agreements. These legal concepts, though not specifically defined by statute or jurisprudence, must not be used recklessly in contracts so as not to leave the matter open to questions and conflicting interpretations as the terms are not the same.

The definition of “termination” in Black’s Law Dictionary contains a link to Corpus Juris Secundum which states that it “generally refers to an ending, usually before the end of the anticipated term of the contract.” On the other hand, “expiration” as also defined in Black’s is: “a coming to an end or a formal termination on a closing date.”

The two very different concepts can have substantially the same plain, ordinary and popular meaning when used in the “broad sense.” However, in light of the legal distinctions of the two terms, the same must be used with caution if there is a possibility of confusion as to its meaning.

In determining whether or not the two terms are used in the strict “narrow sense” or liberally in the “broad sense” in contractual fellester.blogspot.com agreements, American jurisprudence in the case of Scattered Corporation vs. Allied Waste, No. 08 L 11349, March 25, 2011 enlightens:

“Accordingly, we find we must focus our analysis on the parties’ intent in forming the Consent Agreement in order to determine whether the term “terminated” was apparently used in the “broad sense” in paragraph 1(e), which would include the expiration of the original Project Agreement, or in the “narrow sense,” which would exclude an expiration of the agreement. see Perfection Oil Co., 264 F.2d at 839.

“Because words derive their meanings from the context in which they are used, a contract must be fellester.blogspot.com construed as a whole, viewing each part in light of the others.’ ”Intersport, Inc. v. National Collegiate Athletic Association, 381 Ill. App. 3d 312,319 (2008), quoting Gallagher v. Lenart, 226 Ill. 2d 208, 232 (2007).

The court must also place itself in the position of the parties at the time they entered into the agreement. Intersport, Inc., 381 Ill. App. 3d at 319. The parties’ intent is not to be determined solely from detached portions of a contract or from any clause or provision standing by itself. Gallagher, 226 Ill. 2d at 232. “To that end, the language in the contract may be enlarged or limited by the attendant circumstances of the contract and its purpose.” Intersport, Inc., 381 Ill. App. 3d at 319. (Emphasis supplied)

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After carefully considering the parties’ intent in forming the Consent Agreement, we find the word “terminated” as used by the parties in paragraph 1(e) of the Consent Agreement can reasonably be interpreted to encompass an “expiration”-- or in other words a termination “by lapse of time”--of the Project Agreement “as a result of any bankruptcy or insolvency proceeding affecting RTC.” Such an interpretation is clearly consistent with the plain, ordinary, and popular meanings of the words “expiration” and “terminated.” See Chapman, 372 Ill. App. 3d at 88. (Emphasis supplied)

Similarly, under Philippine jurisdiction, the Honorable Supreme Court in Bautista v. Court of Appeals (cited in Benguet Corporation et. al. vs Cabildo, G.R. No. 151402) in discussing the cardinal rules in the interpretation of contracts highlighted:

“Courts cannot make for the parties better or more equitable agreements than they themselves have been satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or impose on him those which he did not.” (Emphasis supplied)