In the 1910 case of Chantangco v. Abaroa, a dispute arose over an employment contract between Mr. Chantangco and Mr. Abaroa in Manila, Philippines which was then under U.S jurisdiction following the Spanish-American War. The contract stipulated that if Chantangco left his job before five years had passed without just cause or consent from Abaroa, he would have to pay a penalty equivalent to six months' wages. When Chantangco quit after three years without obtaining permission from his employer, Abaroa sued him for breach of contract and won in lower courts. The Supreme Court overturned these rulings on appeal by arguing that such contracts were essentially "contracts of peonage," which are illegal under U.S law as they bind workers to their employers indefinitely unless they can afford hefty penalties for leaving early - effectively creating conditions akin to slavery or indentured servitude.

In the dissenting opinion for Chantangco v. Abaroa, it was argued that the majority's decision failed to properly consider Philippine law and customs. The dissent emphasized that under local custom, a contract of employment could be terminated at any time by either party without liability beyond wages earned up until termination. This understanding was widely accepted among both employers and employees in the Philippines, making it an integral part of their legal system. Therefore, according to this view, Mr. Chantangco should not have been held liable for damages when he ended his employment with Mr. Abaroa prematurely as per their agreement terms since such contracts were understood locally to be terminable at will without further obligations.