contracts involving foreign elements

8/3/2019 Contracts Involving Foreign Elements

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CONTRACTSCONTRACTS

INVOLVING FOREIGNINVOLVING FOREIGN

ELEMENTSELEMENTS


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WHAT IS A CONTRACT?

A contract is defined under the New Civil Code as the meeting

of the minds between two persons whereby one binds himself,with respect to the other, to give something or to render some

service.

Contracts in the Philippines are valid in whatever form except

the contract of Donation.


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CONFLICT ON CONTRACTS

There is obviously no difficulty where the domicile of the parties,

the situs of the property involved, and the place of execution and

performance of the contract are all governed by just one jurisdiction.

The problem arises when such things are different from what the

law obtains as to some or all of its remaining incidents that questionsarise


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EXTRINSIC VALIDITY

Article 17 of the New Civil Code provides that The forms

and solemnities of contracts, wills, and other public instruments shall

be governed by the laws of the country in which they are executed.

This pronouncement simply means that the formality of the

contract is not governed by their nationality but rather, by

the place where the contract was executed.


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LEX LOCI CELEBRATIONIS

This latin term means that the contract is valid as

to form if the contract was made in accordance with

any form recognized as valid by the law of the

country where it was made, and that no contract is

valid which is not made in accordance with the local

form.


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IF BY MAIL, FAX, ETC.

For contracts entered into by letters, fax messages and the like, the place

of the execution of contract is the place where the offer was made. This is

in consonance with Article 1319 of the New Civil Code which provides that

acceptance made by letter or telegram does not bind the offeror except from the time it

came to his knowledge.This is the rule followed in the Philippines. It is also

important to note that the contract will not bind the parties unless the offer

was accepted by the other party without any counter-offer and such

acceptance came upon the knowledge of the offeror.


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INTRINSIC VALIDITY

For a contract to be valid, the following requisites must concur:

(1) consent of the contracting parties;

(2) object certain which is the subject matter of the contract; and

(3) the cause of the obligation which is established.

In order for a contract to be intrinsically valid, it must essentially be valid in

respect to its nature, content and effects.


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3 POSSIBLE LAWS THATGOVERN INTRINSIC VALIDY

(1) the law of the place of the making or the lex loci contractus;

(2) the law of performance as governed bylex loci solutionis; or

(3) the law intended by the parties or the lex loci intentionis.


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LEX LOCI SOLUTIONIS

Lex loci solutionismeans that the law of the place of performance

calls for the reference to a law other than the place where the acts

of offer and acceptance took place. All matter relating to the time,

place and manner of performance, sufficiency of performance and

valid excuses for non-performance are determined bylex loci

solutioniswhich is useful because it is undoubtedly always connected

to the contract in a significant way.


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LEX LOCI CONTRACTUS

Lex loci contractusrefers to the law of the place where the contract is made. To

determine where the contract is made, we look into the place where the last act

is done which is necessary to bring the binding agreement into being so far as the

acts of the parties are concerned. Its advantages are that (1) there will be

relative ease in establishing the place of the contract; and (2) certainty and

stability are achieved. Its disadvantage is that its application might lead to unjust

results when the place of making is entirely incidental or casual and has no

significant relationship with the contract or its performance.


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LEX LOCI INTENTIONIS

Lex loci intentionisrefers to the view that the intrinsic validity of a contract

should be governed by the law intended by the parties. This intention may beexpressed in a choice of law provision in the contract or in the statutes of the

country itself.

Article 1306 of the New Civil Code which provides that 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.


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CAPACITY TO ENTER INTOCONTRACTS

In countries which follow the nationality principle, the

capacity to enter into a contract is governed by the

national law of the contracting party.

In case of countries that follow the domiciliary law

theory, the law of their domicile shall govern.


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CHOICE OF FORUM CLAUSE

This clause allows the party to agree that any

litigation resulting from that contract will be

initiated in specified forums. The parties may

stipulate on the venue on the suit in case of

litigation concerning the contract.


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LIMITATIONS

(1) there mustexist a potential conflict of laws;

(2)the chosen state orforum musthave substantial relationto the party;

(3)it mustnotevadethe operation of some mandatory provisions of law;

(4)there must beno fraud or undueinfluence.


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ADHESION CONTRACTS

A contract of adhesionis onethatis notnegotiated bythe

parties, having been drafted bythe dominant party and

usuallyembodied in a standardized form. The adhesion

contracts are usually prepared bythe companies whereinthe

other partyhas the choice of whetherto takeit or leaveit

afterhavingread its contents.


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SPECIAL CONTRACTS There are special types of contracts with special characteristics

which aregoverned by specific rules.

SALES ORBARTER OR GOODS the law of the place where the

property is located will govern (lex situs).

Contracts of PLEDGE, CHATTEL MORTGAGE and ANTICHRESIS,

the intrinsic and extrinsic validity are governed bylex situs.

For SIMPLE LOANS granted by FINANCIAL INSTITUTIONS, they

are governed by the law of the permanent place of business. For PRIVATE

INDIVIDUALS or if the SUBJECT MATTER OR LOAN is personal, it is

governed by the law of the place where the loan is obtained.


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CARRIAGE OF GOODS ACT

Although Section 4(5) of the Carriage of Goods by Sea Act

states that the carrier shall not be liable in the amount

exceeding 500 dollars per package unless the value of the

goods had been declared by the shipper and inserted in the bill

of lading said section is merely suppletory to the provision of

the Civil Code.


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CONTRACTS FOR INTERNATIONALAIR TRANSPORTATION

The WARSAW CONVENTION, otherwise known as the

Unification of Certain Rules Relatingto International

Transportation by Air was convened and concluded on October12,

1929.

On February 7, 1951, the Philippines adhered to the Convention

and became a partythereto makingit applicablein one jurisdiction.


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CONTRACTS FOR INTERNATIONALAIR TRANSPORTATION

The Convention provides thatits stipulations shall be applicableto all

international transportation of persons, baggage orgoods performed by aircraftforhire.

It also enumerates instances whenthe carrieris liableforfixingthe maximum

amount of damages to beincluded inits case.

However, the carrier and the passenger may agreeto a special contract, to a

higher content ofthe liabilityfor loss or damage of luggage or cargo. The carrier

may also beexonerated from liability, wholly or partiallyifthe carrier proves that

damage was caused by or contributed to bynegligence ofthe passenger.


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CONTRACTS FOR INTERNATIONAL

AIR TRANSPORTATION

The carrier shall assumeresponsibilityintheevent of death or wounding

of any passenger on any bodilyinjury suffered by a passenger, ifthe

accidenttook place on board the aircraft orinthe course ofthe operation of

embarking or disembarking.

The period ofresponsibilityforthe checked-in luggageincludes thetime

during whichthe baggage orgoods areinthe charge ofthe carrier, whether

in an airport orin any place whatsoever.


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NON-APPLICABILITY OF

THE LIMITS OF LIABILITY

(1)the damageresulted from an act or omission ofthe

carrier, his servants or agents done withtheintentto

cause damage orrecklessly; and

(2)with knowledgethat damage would probablyresult


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JURISDICTION

Any actionfor damages may be broughteitherinthe

(1)court ofthe domicile ofthe carrier;

(2)inhis principal place of business;

(3) wherehehas a placefor business through whichthe contracthas

been made;

(4)the court atthe place of destination.


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PRESCRIPTIVE PERIOD

The action must be brought within2years from the date of arrival

atthe destination orfrom the date on whichthe aircraftflighthave

arrived orfrom the date on whichthetransportation stopped.


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WARSAW CONVENTION

DOES NOT APPLY

The WARSAW CONVENTION does not applyto cases

involvinginternational airtransportation which were dueto

malice, bad faith, discriminatory acts or otherwiseimproper

orders ofits employees.


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THE APPLICABLE LAW IN THEABSENCE OF AN EFFECTIVE CHOICE

Section332b ofthe Restatement Second, Conflict of Laws provides

thatin the absence of an effective choice of law by the parties, consideration will be given to the

following factors, among others, in determining the state with which the contract has its most significantrelationship: (a) the place of contracting; (b) the place of negotiating of the contract; (c) the place of

performance of the contract; (d) the situs or subject matter or the contract; (e) the domicile, residence,

nationality, place of incorporation and place of business of the parties; (f) the place under whose local

law the contract will be most effective. If the place of contracting, the place of negotiating of the contract

and the place of performance are in the same state, the local law of the state ordinarily determines thevalidity of the contract, except in the case of usury.


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LIMITATIONS TOCHOICE OF LAW

Generally, the parties maynot select a lawto governtheir contractif

said law selected has no connection at all withthetransaction ortheparties.

Ifthe law selected should change, the law as changed will govern. An

exception may be madeifthe changeis so revolutionarythatit was never

contemplated bythe parties.

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