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CONTRACTS
A. POLICY CONSIDERATIONS:
Dean Roscoe Pound, one of the most cited legal scholars of the 20 th century states
that: In a civilized society, men must be able to assume that those with whom they
deal will act in good faith.
Parties entering into a contract upon equal terms intend their agreement to be
binding under any law whose application the parties can reasonably be assumed
to have taken into account.
The importance of upholding agreements freely entered into between the parties is
recognized in almost all legal systems.
KEY POLICY CONSIDERATION IN CONFLICT OF LAWS:
As embodied in our Civil Code: Obligations arising from contracts have the force of law
between the contracting parties and must be complied with in good faith.
One basic policy in contracts:
PROTECTION OF THE EXPECTATIONS OF THE PARTIES
But protecting these expectations cannot be achieved unless choice of law rules lead to
certainty, uniformity, and predictability in the business world.
Illustration:
A contract is executed in San Francisco, California between X of that city and Y, a
Filipino resident in Manila. Their contract states that Y is to manage Xs business
in Manila for a term of 5 years. Y returns to Manila and managed the business,
however, in less than a year, a disagreement arises between them regarding the
quality of services rendered by Y. X comes to Manila, ousted Y and took over the
business. Y sued X for damages arising from the alleged breach of contract.
For many years the answers used to be neat and simple. The law of the place
where the contract was made -LEX LOCI CONTRACTUS - the law of the place where the contract was made,
governs questions of formal and intrinsic validity. In this case, California law.
LEX LOCI SOLUTIONIS the law of the place of performance governs questions
involving performance, including damages for the alleged breach. In this case,
Philippine law.
With the variety of agreements today and the phenomenal advances in communication
and transportation as a result of what has been described as the information age,
business transactions have become more and more complicated.
C. CONCEPT AND ELEMENTS OF A CONTRACT
In Conflict of Laws, a contract refers to an agreement between two or more
parties, which, in accordance with their intention, gives rise to an obligation on at
least one of them, the promissor, and creates for the promisee a right to claim
fulfillment of the promise.
Elements
Form the external side of the making of the contract, the means of signifying
consent, the expression as opposed to the content of legal declarations.
Performance
FORM
Law Governing Formalities
This proposition is followed by many States, including Philippine codes and laws.
There are two theories in support of loci contractus. The first is premised on the theory
of sovereignty, whereas the second is premised on the concept of voluntary submission.
Both theories have given way toa more practical consideration that of business
expediency and convenience.
One of advantages of the lex loci contractus is the relative ease in
voluntary submission that the parties in entering into a contract are deemed
to have voluntarily submitted themselves to the law of the place where the
contract was formally executed.
While there is a general adherence to the lex loci contractus rule, there is a
certain degree of submission to it:
compulsory, imperative
permissive or optional
The only question is: does the Philippine law follow the compulsory or the
optional approach?
As to whether or not the Philippines follows the optional or compulsory approach, there
are diverse views, however, the optional approach seems to be more prevalent.
On the other hand, in the case of Insular Government vs. Frank:
FACTS:
In 1903 in the state of Illinois, Mr. Frank, a US citizen and a representative of the Insular
Government of the Philippines entered into a contract whereby the former shall serve as
into a contract is the lex loci celebrationis. According to Conflict of Laws writer Edgardo
Paras, Franks capacity should be judged by his national law and not by the law of the
place where the contract was entered into. In the instant case whether it is
the place where the contract was made or Franks nationality, the result
would be the same. However, as suggested by the mentioned author, for the conflicts
rule in capacity in general, national law of the parties is controlling.
approach.
Matters bearing upon the execution, the interpretation, and the validity of a
contract are determined by the law where the contract is made.
General Rule: Capacity to enter into contracts is determined by the personal laws of
the contracting parties, either nationality or domiciliary.
3) Lex loci intentionis- Law intended by the parties. If the selected law changes, the
new law should apply except when the change is so revolutionary that it could not have
been contemplated by the parties.
MILLIKEN V. PRATT
Facts:
- Pratt and his wife were life long residents of Masachusetts. He obtained a loan from a
Maine partnership.
- The partnership agreed provided that Mrs. Pratt guaranteed repayment of debts
- Mr. Pratt secured this guarantee in writing from his wife and mailed it from
Masachusetts to plaintiffs in Portland, Maine
- There was a change in Masachusetts Law at the time of the suit
- The wife did not have the capacity to sue under the Masachussets law to contract as
surety, although she had such capacity under the Maine law
Issue: What law shall govern?
Held: It was held by the Masachusetts court that the law of Maine should apply because
that was the place where the contract was made. The personal law of Mrs. Pratt was
inapplicable.
Art. 1306 The contracting parties may establish such stipulations such stipulations,
clauses, terms, conditions as they may deem convenient provided that they are not
contrary to law, morals, good customs, public order, or public policy.
Center of Gravity Approach - In the absence of an effective choice of law, the issue
arising from or related to the contract will be governed by the law with the closest and
most substantial connection with the transaction and the parties.
CASE STUDY:
PAKISTAN INTERNATIONAL AIRLINES V. OPLE
Facts:
2) ARBITRATION CLAUSE
In favor of settling controversies by a method more expeditious, less expensive and with
greater chance in some cases for substantial justice
3) ADHESION CONTRACTS
General Rule: Not entirely prohibited. It is valid in the absence of proof of arbitrariness,
abuse of power or gross negligence and if it is fairly and freely agreed upon, reasonable
and jut under the circumstances.
Exception: When there is an oppressive use of superior bargaining power
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SHEWARAM V. PAL
read
This would not warrant the presumption Passenger is bound by the terms
that the airline passenger was aware of
those conditions such that he had
fairly and freely agreed to those
conditions
H. PARTICULAR/SPECIAL CONTRACTS
Certain types of contracts should be given special attention since the peculiar
characteristics play an important part in determination of the applicable law.
I. MONEY DEPOSITS
Rule: A deposit of money is naturally bound to the place of the banking or
financing institution to which it is entrusted. The law of that place governs
the deposit.
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Reasons:
1.The money is brought to that place to be conserved
and repaid there.
2.The transaction is one of a mass of a similar
transactions by the institution.
I.
CONTRACTS
WITH
ARBITRATION
&
CHOICE-OF-FORUM
CLAUSES
A. Arbitration Clause
In the Philippines, the NCC and the arbitration law (RA 876) embody a
clear legislative policy in favor of settling controversies by a method
considered more expeditious, less expensive and with greater chance in
some cases for substantial justice.
B. Choice-of-Forum Clause
General Rule: Stipulation on the venue of suit for litigation concerning the
contract. Litigation in forum stipulated takes place only if parties specifies
the choice of forum as the only venue.
Exception: When made with fraud or said clause would be unreasonable
and unjust.
J. TRANSPORTATION
A.
TRANSPORTATION BY SEA
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TRANSPORTATION BY AIR
Governed by the Warsaw Convention.
Pertinent provisions: Chapter III, Articles 17, 22, 25.
PERTINENT CONCEPT
FORUM NON CONVENIENS
- Is a discretionary power that allows courts to dismiss a case
where another court or forum is much better suited to hear the
case.
- This is pertinent in cases where the forum or court that possesses
jurisdiction over the enforcement of a contract deems it best to
allow another forum to handle the same since it is better suited for
it.
NOTE: This is without prejudice to the re-filing of the suit.
Reference: Salonga, J., Private international law, 1995 ed., Quezon City, Philippines:
Rex Printing Company.
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