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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.