CHOICE OF LAW ISSUES 3

OBLIGATIONS AND
CONTRACTS
Definition of Contract

• meeting of the minds between 2 persons whereby one binds himself,

with respect to the other, to give something or render some service.
Effects of a Contract
• Parties are bound not only to those expressly stipulated but also to all
the consequences which according to their nature, may be in keeping
with good faith, usage and law.

• As a gen. rule, unless provided by law or in the agreement, a contract is

obligatory in whatever form it may have been entered into provided that
all the essential requisites for validity are present.

• Unlike family law, contract law does not reflect strong state policies or
values.
Conflict rules on Contracts

• Capacity of the parties

• Intrinsic Validity
• Extrinsic Validity
Extrinsic Validity

• Lex loci celebrationis governs the formal or extrinsic validity of contracts.

• A contract is valid as to form if in accordance with any form recognized as

valid by the law of the country where it is made
• No contract is valid which is not made in accordance with the local form.

• Art 17, CC
• 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.
Contracts entered into by cablegram,
telex or fax

• Art. 1319, CC states that acceptance made by letter or telegram does

not bind the offeror except from the time it came to his knowledge. The
contract is presumed to have been entered into the place where the
offer was made.
Intrinsic Validity

• Intrinsic validity refers to nature, contents and effects of the

agreement.
Art. 1318, CC: Requisites of a
Contract

• Consent
• Cause
• Consideration
3 possible laws that will govern
intrinsic validity of contracts

• Lex loci Contractus

• Lex loci Solutionis
• Lex loci Intentionis
Lex loci Contractus

• law of the place where the contract is made.

• 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.

• May 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 Solutionis

• law of the place of the performance.

• Rationale: determined by lex loci solutionis because it is undoubtedly
related to the contract in a significant way.
Lex loci Intentionis

• law intended by the parties.

• When the parties stipulate that the contract be governed by a specific law,
such will be recognized unless there are cogent reasons for not doing so
• Example:
• the choice-of-law provision is contrary to a fundamental policy of the
forum.
• Parties are presumed to contemplate to enter into a valid contract. The court
should apply the law that will sustain the contract.
• Art 1306, CC
• The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided that they are not contrary
to law, morals, good customs, public order or public policy

• Art, 1370, CC
• If the terms of the contract are clear and leave no doubt upon the intention
of the contractingparties, the literal meaning of the stipulations shall control.
Compagnie de Commerce et de Navigation D’Extreme Orient
v. Hamburg-Amerika Packetfacht Actien Gesellschaft, G.R.
No. L-10986 / 36 Phil 590, 31 March 1917

Compagnie (French) and Hamburg (Germany) entered into a charter

party to transport Compagnie’s goods from Saigon to Europe. Because
of the impending war between France & Germany, the ship went to
Manila because Saigon is a French port. Compagnie filed for breach of
contract. Hamburg contested the jurisdiction of Phil courts to try the
case because the contract had a clause directing the settlement of
disputes first to a Board of Arbitration in England.
Compagnie de Commerce et de Navigation D’Extreme Orient
v. Hamburg-Amerika Packetfacht Actien Gesellschaft, G.R.
No. L-10986 / 36 Phil 590, 31 March 1917
Phil. courts have jurisdiction. The parties are free to waive the stipulation if they so
desired.

Phil courts cannot be ousted of their jurisdiction by the contractual stipulation in the
absence of averment and proof that under the law of England (place of contracting),
compliance with, or an offer to comply with such a stipulation constitutes a condition
precedent to the institution of judicial proceeding for the enforcement of the contract.

Moreover, Hamburg appeared and answered without objecting to the court’s jurisdiction;
it also sought affirmative relief.
King Mau Wu v. Francisco Sycip, G.R No.
L-5897 / 94 Phil 784, 23 April 1954

King Mau entered into an agency agreement with Sycip in New York. King
Mau was able to sell 1,000 tons of coconut oil. KM brought an action to collect
commission from the sale. Sycip claimed that the Phil court has no jurisdiction
as the contract was entered in New York.
Phil court has jurisdiction. A non-resident may sue a resident in the courts of
this country where the defendant may be summoned and his property leviable
upon execution in case of a favorable, if final and executory judgment.
It is a personal action for the collection of a sum of money which the CFIs have
jurisdiction to try and decide.
Issues on Conflicts Contracts
Cases

• Adhesion Contracts
• Special Contracts
• Limitation on the Application of Conflict Rules on Contracts
Adhesion Contracts

• Adhesion contract is one that is not negotiated by the parties having

been drafted by the dominant party and usually embodied in a
standardized form. It is called a contract of adhesion because the
participation of 1 party is limited to affixing her signature.
Specific Instances where court disregarded the
adhesion contract:

• when the party is not literate in the language of the contract with knowledge of what was intended

• when there is undue advantage made by a dominant party usually a huge corporation or a business
monopoly

• when there is ambiguity in the adhesion contract, it must be resolved contra preferentum and in
favor of the party impugning it

• when it is subversive of public policy when the weaker party is imposed upon in dealing with the
dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal footing
Special Contracts

• In sales or barter of goods, the law of the place where the property is
located will govern (lex situs).

• A simple loan granted by financial institutions is governed by the law of

the permanent place of business. But if granted by a private individual, it is
governed by the law of the place where the loan was obtained.

• In contracts of pledge, chattel mortgage and antichresis, the extrinsic and

intrinsic validity of the contracts are governed by lex situs.
Air Transportation

• The Warsaw Convention and amendments to the same regulate and

establish uniform rules and regulations on the liability of international
airline carriers in cases of death, injuries of passengers or loss or
damage of cargo. The Phils. became a member thereof in 1951.

• The Montreal Convention has superseded parts of this.

2 types of Air
Transportation
• Domestic

• International
• Chicago Convention
• Warsaw Convention
• Montreal Convention
Applicability
• The Warsaw Convention applies
to:
a. All international carriage of
persons, baggage, or cargo
performed by aircraft for reward;
b. Gratuitous carriage by aircraft
performed by an air transport
undertaking [Art. 1(1), Warsaw
Convention].
International air carriage, definition

• Transportation by air between points of contact of two high contracting parties, or

those countries that have acceded to the Warsaw Convention, wherein the place of
departure and the place of destination are situated:
a. Within the territories of two high contracting parties, regardless of whether or
not there be a break in the transportation or a transshipment; or
b. Within the territory of a single high contracting party, if there is an agreed
stopping place within a territory subject to the sovereignty, mandate or
authority of another power, even though the power is not a party to the
Convention [Art. 1(2), WC].
Liabilities under the Warsaw Convention as
amended by the Montreal Convention

The carrier is liable for damages sustained in the event of

• the death or wounding of a passenger or any other bodily injury suffered by a passenger, if
the accident which caused the damage so sustained took place on board the aircraft or in
the course of any of the operations of embarking or disembarking (Art 17 MC)
• the destruction or loss of, or of damage to, any registered baggage or any cargo, if the
occurrence which caused the damage so sustained took place during the carriage by air (Art
17 & 18 MC)
• occasioned by delay in the carriage by air of passengers, baggage or cargo. (Art 19)
Liability to Passengers

• General rule: In the carriage of passengers, the liability of the carrier for each passenger is
limited to 250,000 francs passenger in the Warsaw Convention.
• Changed to “non exceeding 100,000 Special Drawing Rights (SDRs in Montreal Convention)
•
• Exception: By special contract, the carrier and the passenger may agree to a higher limit
[Art. 22(1), WC].

• In case of damage because of delay the limit is 4,150 SDR per passenger
Liability for Checked Baggage

• General rule: In the carriage of baggage and goods, the liability of the carrier is
limited to 250 francs per kilogram under the Warsaw Convention 17 SDRs / kg

• Exception: The limit does not apply when the consignor has made, at the time when
the package was handed over to the carrier, a special declaration of the value at
delivery and has paid a supplementary sum if the case so requires. In that case the
carrier will be liable to pay a sum not exceeding the declared sum, unless he proves
that that sum is greater than the actual value to the consignor at delivery [Art.
22(2), WC].
Liability for Hand-Carried Baggage

• As regards hand-carried baggage, the liability of the carrier is limited to 5,000

francs per passenger [Art. 22(3), WC] or 1000 SDRs in the MC

• The Guatemala Protocol of 1971 increased the limit for passengers to

$100,000 and to $1,000 for baggage. However, the Supreme Court noted in
[Santos III v. Northwest Orient Airlines, G.R. No. 101538(1992)], that the
Guatemala Protocol is still ineffective.
•
Limitations on Liability

• The Warsaw Convention should be deemed a limit of liability only in those cases where the cause of death or
injury to person, or destruction, loss or damage to property or delay in its transport is not attributable to or
attended by any willful misconduct, bad faith, recklessness, or otherwise improper conduct on the part of
any official or employee for which the carrier is responsible; and there is otherwise no special or
extraordinary form of resulting injury [Alitalia v. IAC, G.R. No. 71929 (1990)]

• With respect to the following limitations of liability, Art. 23, Warsaw Convention provides that any provision
tending to relieve the carrier of liability or to fix a lower limit than that which is laid down shall be null and
void, but the nullity of any such provision does not involve the nullity of the whole contract.
Limitation on the Application of Conflict Rules on
Contracts

• if the law selected has no connection at all with the transaction or the parties

• if it ousts the jurisdiction which the court has already acquired over the parties and
the subject matter

• if it affects a public policy or the matter is heavily impressed with public interest

• in case of confession-of-judgment clauses (waives the debtors right to receive notice

or authorizes entry of judgment)
TORTS AND CRIMES
Differences

Tort Crime

Transitory in character; hence liability is deemed personal to Local in character; the perpetrator of the wrong can be sued
the tortfeasor and make him amenable to suit in whatever only in the state wherein he commits the crime
JD he is found

An injury to an individual who may be situated in any place An injury to the state where it is committed

Liability is attached to the perpetrator to indemnify the Promulgated to punish and reform the perpetrators and
victim for injuries he sustained deter them and others from violating the law
Torts

• Tort: derived from the French word tortus or “twisted”.

• It is an act or omission producing an injury to another without any
previous existing lawful relation of which the act or omission may be
said to be a natural outgrowth or incident.
State Policy on Torts

2 Important Policies underlying substantive tort law:

• to deter socially undesirable or wrongful conduct

• to rectify the consequences of the tortuous act by distributing the losses that
result from accident and products liability

• In view of these, the policy behind tort law will most likely be a strongly held
policy of the state and as result, that state will not easily displace its own law
with the law of another state.
Lex loci delicti commissi

• the law of the place where the alleged tort was committed. It
determines the tort liability in matters affecting conduct and safety.
Differences in Common and Civil Law
Approaches
• Common law concept of place of wrong: place where the last event necessary to make an actor
liable for an alleged tort occurs.
• It adheres to the vested rights theory, so that if harm does not take place then the tort is not
completed. Negligence or omission is not in itself actionable unless it results in injury to another.

• Civil law concept of place of wrong: place where the tortious conduct was committed. This is
premised on the principle that the legality or illegality of a person’s act should be determined by the
law of the state where he is at the time he does such act.

• The traditional view (whether the situs of the tort is the place of conduct or injury) is that an actor
liable by the lex loci delicti is liable everywhere. Damages arising from torts committed in one state
are actionable in another state.
Modern theories on foreign tort
liability

• Most Significant Relationship

• Interest Analysis
• Caver‘s principle of preference
Most Significant Relationship

• This theory considers the state’s contacts with the occurrence and the
parties.

• the court localizes the state of the most significant relation and
assesses the event or transaction in the light of the relevant policy
considerations of the interested states and these underlying policies.
Interest Analysis

• considers the relevant concerns the state may have in the case and its
interest in having its law applied on that issue.

• Problem with Interest Analysis approach is the policies of the law are
not always discernible?
Caver‘s principle of preference

• deals with rules that sanction some kinds of conduct engaged in by a

defendant in one state and extends the benefit of this higher standard of
conduct and financial protection to the plaintiff even if the state of injury does
not create analogous liabilities.

• Since both states consider that a tort has been committed, the law of the
state which places a higher standard of conduct should apply.

• This is true even if this is the place of tortious conduct and not the place of
injury.
Foreign Tort Claims / Alien
Tort Act

• Tortious liability is transitory

• Means that the liability resulting from the tort is deemed personal to
the perpetrator of the wrong, which follows him wherever he goes.
• Compensations may be exacted from him in any proper tribunal; the
right to sue is not confined to the place where the cause of action
arises.
Requisites for the enforcement
of tort claims

• the foreign tort is based on a civil action and not on a crime

• the foreign tort is not contrary to the public policy of the forum

• the judicial machinery of the forum is adequate to satisfy the claim

The Alien Tort Statute

The Alien Tort Statute granted US district courts original JD over any
civil action by an alien for a tort committed in violation of the law of
nations or a treaty of the US.
Hilao v. Estate of Ferdinand Marcos, No.
No. 95-15779 O.C. No. MDL-00840, 1996

A class suit was brought against Marcos by parties seeking damages for
human-rights abuses committed against them or their decedents. The Hawaii
district court found for Hilao and ordered a verdict of almost $2 billion in
damages. The Estate in its appeal, argues that the Alien Tort Claims Act does
not apply to conduct that occurs abroad, and since the acts complained of all
occurred in the Phils., the court has no jurisdiction.
The court has jurisdiction. In a prior appeal it has been held that subject-matter
jurisdiction was not inappropriately exercised even though the actions xxx
occurred outside the US.
Filartiga v. Pena-Irala, 630 F. 2d 876 (2d Cir,
1980)

• Plaintiffs brought an action in the US against Pena-Irala for wrongfully causing the
death of Dr. Filartiga’s son in Paraguay.
• The US federal court has jurisdiction, on the basis of the Alien Tort Statute. This
action is undeniably an action by an alien, for a tort only, committed in violation of
the law of nations. A wrong is recognized as a violation of the law of nations where
the nations of the world have demonstrated that the wrong is of mutual, and not
merely several, concern.
• The concept of accountability, if considered the core of the Alien Torts Act (as
espoused by the US Justice Department in Trajano vs Marcos), would be a significant
setback to the advancement of international law.
Lex Loci Delicti

Under the territoriality principle, crimes committed within the Philippines by all
persons, whether Filipino citizens or aliens, are prosecuted and penalized
under Philippine law. As a rule, criminal laws of a state are effective only upon
persons who actually commit the crime within the state’s territory.
The lex loci delicti or the law of the place where the crime was committed is
the controlling law since it determines the specific law by which the criminal is
to be penalized, and designates the state that has the jurisdiction to punish
him.
Exceptions

• crimes committed by state officials, diplomatic representatives and

officials of recognized international organizations (based on doctrine of
state immunity)
• crimes committed on board a foreign vessel even if it is within the
territorial waters of the coastal state
• crimes which, although committed by Philippine nationals abroad, are
punishable under Philippine law
People of the Philippines v. Wong Cheng, G.R.
No. L-18924 / 46 Phil. 729, 19 October 1922

• Wong was charged for having illegally smoked opium on board an English
vessel Changsa while anchored in Manila Bay.
• Under the English rule which is applicable here (it is the prevailing theory in
the US), to smoke opium within our territorial limits, even though aboard a
foreign merchant ship, is certainly a breach of the public order here
established.
• It causes such drug to produce its pernicious effects within our territory. It
seriously contravenes the purpose that our Legislature had in mind in
enacting the repressive statute, and is therefore triable in our courts.
CORPORATIONS AND
OTHER JURIDICAL
ENTITIES
Definition of Corporation

• A corporation is an artificial being created by operation of law, having the

right of succession and the powers, attributes and properties expressly
authorized by law or incident to its existence.

• Foreign corporation – formed under the laws of a state other than the Phils;
such laws allowing Filipino citizens and corporations to do business there. It
shall have a right to do business here only after obtaining a license and a
certificate of authority from the appropriate government agency.
Personal Law of Corporation

• the law of the state where it is incorporated.

• Nationality of Corporation
• Grandfather Test
• Control Test
• Classification made under the Philippine Investment Law
Personal Law of Corporation

• Domicile of Corporation
• Art. 51, CC
• When the law creating or recognizing them, or any other provision,
does not fix the domicile of juridical persons, it is understood to be
a. the place where legal representation is established
b. where they exercise their principal functions

• A foreign corp. granted license to do business here acquires a domicile

in the Phils.
Scope of Transacting or Doing Business (License
Requirements)

• A foreign corporation may do business, state consent being presumed,

except:
1. where it is prohibited by express statutory authority or constitutional
enactment
2. where it is seeking to perform acts which are contrary to public policy
3. where it is seeking to exercise extraordinary and special franchises
4. where it is seeking to perform acts which are not authorized by the
law of the state of its incorporation
Doing Business under the Foreign Investments Act

- soliciting orders,
- service contracts,
- opening offices whether called “liaison” offices,
- appointing representatives if the latter stays for at least 180 days,
- participating in the management, supervision or control of any domestic
business
- and any other act that imply a continuity of commercial dealings
- and contemplate in the performance of acts or works
- the progressive prosecution of commercial gain or of the purpose/object of
the business organization
Not Doing Business

1. mere investment as a shareholder

2. exercising of rights as investor
3. having a nominee director or officer to represent interests
4. appointing a representative or distributor in the Phils which transacts
business in its own name and for its own accounts
Doing Business without a License

• May not sue but may be sued

Rights of a Foreign Corporations
• Acquisition of a license by a foreign corporation is an essential prerequisite for filing
of suit before our courts.
• Exceptions:
• Isolated Transactions
• Action to Protect Trademark, Trade Name, Goodwill, Patent or for Unfair
Competition
• Agreements Fully Transacted Outside the Philippines
• Petition Filed is Merely a Corollary Defense in a Suit against it
Thank you for your
Attention!