CONTRACTS INVOLVING FOREIGN ELEMENTS

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.

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 questions arise

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.

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.

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.

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.

3 POSSIBLE LAWS THAT GOVERN INTRINSIC VALIDY

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

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

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

LEX LOCI SOLUTIONIS

Lex loci solutionis means 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 by lex loci solutionis which is useful because it is undoubtedly always connected to the contract in a significant way.

LEX LOCI CONTRACTUS

 Lex loci contractus refers 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.

LEX LOCI INTENTIONIS

 Lex loci intentionis refers to the view that the intrinsic validity of a contract should be governed by the law intended by the parties. This intention may be expressed 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.

CAPACITY TO ENTER INTO CONTRACTS

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.

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.

LIMITATIONS
(1) there must exist a potential conflict of laws;

(2) the chosen state or forum must have substantial relation to the party;

(3) it must not evade the operation of some mandatory provisions of law;

(4) there must be no fraud or undue influence.

ADHESION CONTRACTS


A contract of adhesion is one that is not negotiated by the

parties, having been drafted by the dominant party and usually embodied in a standardized form. The adhesion contracts are usually prepared by the companies wherein the other party has the choice of whether to take it or leave it after having read its contents.

SPECIAL CONTRACTS
 There are special types of contracts with special characteristics

which are governed by specific rules.  SALES OR BARTER 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 by lex 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.

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.

CONTRACTS FOR INTERNATIONAL AIR TRANSPORTATION

 The WARSAW CONVENTION, otherwise known as the Unification of Certain Rules Relating to International Transportation by Air was convened and concluded on October 12, 1929.

 On February 7, 1951, the Philippines adhered to the Convention and became a party thereto making it applicable in one jurisdiction.

CONTRACTS FOR INTERNATIONAL AIR TRANSPORTATION

 The Convention provides that its stipulations shall be applicable to all international transportation of persons, baggage or goods performed by aircraft for hire.  It also enumerates instances when the carrier is liable for fixing the maximum amount of damages to be included in its case.  However, the carrier and the passenger may agree to a special contract, to a higher content of the liability for loss or damage of luggage or cargo. The carrier may also be exonerated from liability, wholly or partially if the carrier proves that damage was caused by or contributed to by negligence of the passenger.

CONTRACTS FOR INTERNATIONAL AIR TRANSPORTATION

 The carrier shall assume responsibility in the event of death or wounding of any passenger on any bodily injury suffered by a passenger, if the accident took place on board the aircraft or in the course of the operation of embarking or disembarking.  The period of responsibility for the checked-in luggage includes the time during which the baggage or goods are in the charge of the carrier, whether in an airport or in any place whatsoever.

NON-APPLICABILITY OF THE LIMITS OF LIABILITY

 (1)the damage resulted from an act or omission of the carrier, his servants or agents done with the intent to cause damage or recklessly; and

 (2)with knowledge that damage would probably result

JURISDICTION
 Any action for damages may be brought either in the (1)court of the domicile of the carrier; (2) in his principal place of business; (3) where he has a place for business through which the contract has been made; (4)the court at the place of destination.

PRESCRIPTIVE PERIOD

 The action must be brought within 2 years from the date of arrival at the destination or from the date on which the aircraft flight have arrived or from the date on which the transportation stopped.

WARSAW CONVENTION DOES NOT APPLY

 The WARSAW CONVENTION does not apply to cases involving international air transportation which were due to malice, bad faith, discriminatory acts or otherwise improper orders of its employees.

THE APPLICABLE LAW IN THE ABSENCE OF AN EFFECTIVE CHOICE

 Section 332b of the Restatement Second, Conflict of Laws provides that in 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 significant relationship: (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 the validity of the contract, except in the case of usury.

LIMITATIONS TO CHOICE OF LAW

 Generally, the parties may not select a law to govern their contract if said law selected has no connection at all with the transaction or the parties.

 If the law selected should change, the law as changed will govern. An exception may be made if the change is so revolutionary that it was never contemplated by the parties.