CHAPTER II CONTRACTS Conflict of Laws in Contractual Relations A contract is : ie involving t. In the establishment of a contract, the parties are free to stipulate the terms and conditions of their relationship. These terms and conditions become the law of the contract which the parties are pound to observe. For a contractual relation to induce a conflict of laws scenario, it is imperative that the contract involve a foreign element. This foreign element could take the form of an alien individual becoming a party to the contract or the parties choosing a foreign law as their choice of,law. It could also happen that the places of execution and performance are different from each other. A conflicts situation usually involve international contracts where the parties have their establishments in different states.* Otherwise, the contract is only local when the relationship of the parties and all other relevant elements, regardless of the chosen Jaw, are connected only with that State.’ ‘Contracts are subject to the law stipulated by the parties to be their choice of law. In the absence of a stipulation, the default law js the law of the place where the contract is executed or the lex loci contractus. Even if there is a choice of law stipulated in the contract, the law of the place. of performance will always find applicability to ensure that local laws thereof are not violated or public policy infringed by the execution of the contract. ‘on Choice of Law in International Commercial 'See The Hague Principles r 0 ‘Hague Conference on Private International Law. Contracts, Art. 1(2) (19 March 2015), 4d. 87 Scanned with CamScannerie ties to a cont, e par 0 a cont Civil Cote A110 re conditions as 4h ® ofthe CHF" auses, terme Crtrary to law, mona Hoch See they are ae artis are frees convenient, P) mr jublic policy are is ron bli pa that will gover® thede Contract uustiyo cerms and CON" ise the agreement of the pani, J the fe tipulations Corry relations. ‘These a es ations, ; hem their contract. eonatitute the law betwec, ms and oo ‘of dispute. The parties to 4 g and no derogation sh, to law, good ordey 8 e these term! xpected to follow hay contact af pc anly when those are co allowed © or public policy: eas Corporation v. Commission 1985 ili Overs| Bagong Filipinas ‘ National Labor Relations G.R. No. L-66006, February 28, dinto a shipboard employment -based firm Bagong Filipinas hired to work as an 12 months with a Facts: Pancho entere contract with Hong Kong: Overseas Corporation. Pancho was oiler in the M/V Olivines for a period of gross monthly wage of US $195. During the term of the contract, Pancho had a cerebral stroke necessitating his repatriation to the Philippines, where he eventually died. The National Seamen Board awarded his widow, Proserfina, P20,000 as disability compensation benefits. Upon appeal, the National Labor Relations Commission NLRC’) awarded her $621 times 86 months or its i in Philippine currency by applying Hong Kong law in the computation of benefits, Issue: ‘ssue: Whether Hong Kong law or the shipboard employment contr: Pancho’s wife? ‘act governs the award of benefits to Held: The shipboa: ® award of benefits, rd employment contract governs Scanned with CamScannerCONTRACTS co) We hold that the shipboard employment contract is controlling in this case. 'The contract provides that the beneficiaries of the seaman are entitled to P20,000 “over and above the benefits’ for which the Philippine Government is liable under Philippine law.” Hong Kong law on workmen’s compensation is not the applicable law. ‘The case of Norse Management Co. us. National Seamen Board, G.R. No. 54204, September 30, 1982, 117 SCRA 486 cannot be a precedent because it was expressly stipulated in the employment contract in that case that the workmen's compensation payable to the employee should be in accordance with Philippine Law or the Workmen's Insurance Law of the country where the vessel is registered “whichever is greater.” Atienza v. Philimare Shipping 176 SCRA 325 (1989) Facts: Joseph B. Atienza worked as Third Mate on board the MV Tibati for the stipulated compensation of US $850 a month from January 20, 1981 to January 20, 1982. His employment was covered under the Crew Agreement, which provided for insurance benefits “as per NSB Standard Format” and was validated and approved by the National Seamen Board on January 14, 1981. Atienza died while working on the vessel in Bombay, India. His father claimed for death benefits in the amount of $30,600, which was computed at the rate of 36 months times the seaman's monthly salary plus 10% thereof pursuant to the Workmen's Compensation Law of Singapore. Philimare disputed the amount and argued that the death benefits were limited to P40,000 pursuant to Section D(1) of the NSB Standard Format. The Philippine Overseas Employment Administration (‘POEA’) ruled in favor of Philimare and held Philippine law to be the applicable law. Issue: Whether Atienza’s death benefits should be computed based on Singapore or Philippine law? Scanned with CamScanner‘A CONFLICT OF Laws Held: It should be computed based on Phi, inp: Ping law, 1, Our ruling is that Norse tk ae “DPlicaby, he present petition. The reason is hat in that cage the p ifically stipulated by the Parties in the Crit Aessnen that ‘compensation shall be paid to emer Agreomen ce with and subject to the Timitationg Wicker Coe a Act of the Phitipni Wenn Insurance Law of the registry of the Yesse) whichever She facie ct 88 Why the higher be Nefits Prescribed by the foreign law were awarded, B, ontrase, no such stipulation appears in the Crew oy trary, it wag Plainly provided that insurance benefits would be determined According to the NSB Standard F; ‘at then in fo, ‘orm; iy The consequence is that the Petitioner cannot now claim a hj mami ‘now igher award tion prescribed in the Said format. Facts: Petitioner Pakistan Thternati PIA”) entered into two's er Scanned with CamScanniCONTRACTS, 5. DURATION oF EMPLOYMENT AND PENALTY This agreement is for a period of three (8) years, but can be extended by the mutual consent of the parties, XXXXRNAAK 6, TERMINATION OOK Notwithstanding anything to contrary a herein Provided, PIA reserves the right to rminate this agreement at any time by givin, the EMPLOYEE notice in writing in pivaned one month before the intended termination or in lieu thereof, by paying the EMPLOYEE wages equivalent to one month’s salary. sooconOKK, 10. APPLICABLE LAW: This agreement shall be construed and governed under and by the laws of Pakistan, and only the Courts of Karachi, Pakistan shall have the jurisdiction to consider any matter arising out of or under this agreement. Respondents trained in Pakistan and began working as flight attendants for PIA, with base station in Manila and flying assignments to different parts of the Middle East and Europe. With one (1) year and four (4) months remaining in their contracts of employment, PIA terminated the services of private respondents “effective 1 September 1980, conformably to clause 6 (b) of the employment agreement [they had] executed with [PIA].” Private respondents subsequently instituted a complaint for illegal dismissal and non-payment of benefits and bonuses against PIA with the Ministry of Labor and Employment (“MOLE"). Acting on the complaint, MOLE Regional Director Francisco L. Estrella ordered their reinstatement with full back wages or, in the alternative, the payment to them of the amounts equivalent to their salaries for the remainder of the fixed three-year period ir employment contracts. The MOLE held that Scanned with CamScanner 91CONFLICT OF LAWS had attained the status of regula, he stipulation Tee the periog » employment contract to three (3) years was nul) a lars of the provisions of the Labor Code and its implementing rules and regulations appeal, MOLE Deputy Minister Vicente Leogar I om adopted the findings of fact and conclusions of the Regional Director and affirmed the latter’s award. private respondents employees and that t Issues: 1, Whether the principle of party autonomy in contracts is absolute? 2, Whether Pakistani law is the applicable law? Held: Both no. The terms and conditions of the contract are subject to public policy ' considerations, Pakistani law cannot be applied as it violates the labor laws of the Philippines. 1. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of employment with private respondents Farrales and Mamasig, arguing that its relationship with them was governed by the provisions of its contract rather than by the general provisions of the Labor Code. Paragraph 5 of that contract set a term of three (8) years for that relationship, extendible by agreement between the parties; while paragraph 6 provided that, notwithstanding any other provision in the Contract, PIA had the right to terminate the employment agreement at any time by giving one-month’s notice to the employee or, in lieu of such notice, one-month’s salary. 2. A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law between the parties. The principle of party autonomy in contracts is not, however, an absolute principle. The rule in Article 1806 of our Civil Code is that the contracting parties may establish such stipulations as they may deem convenient, “provided they are not contrary to law, morals, good customs, public order or public policy.” Thus, counter-balancing the principle of autonomy of contracting parties is the equally general rule that provisions of Scanned with CamScannerCONTRACTS 93, applicable law, especially provisions relating to matters affected with public policy, are deemed written into the contract. Put a little differently, the governing principle is that parties may not contract away applicable provisions i peremptory provisions dealing with impressed with public interest, The law relating to labor and employment is clearly such an area, and parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other. It is, thus, necessary to appraise the contractual provisions invoked by petitioner PIA in terms of their consistency with applicable Philippine law and regulations. 3. Examining the provisions of paragraphs 5 and 6 of the employment agreement between petitioner PIA and private respondents, we consider that those provisions must be read together and when so read, the fixed period of three (3) years specified in paragraph 5 will be seen to have been effectively neutralized by the provisions of paragraph 6 of that agreement. Paragraph 6 in effect took back from the employee the fixed three (8-year period ostensibly granted by paragraph 5 by rendering such period in effect a facultative one at the option of the employer PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and for any cause satisfactory to itself, to a one-month period, or even less, by simply paying the employee a month’s salary. Because the net effect of paragraphs 5 and 6 of the agreement here involved is to render the employment of private respondents Farrales and Mamasig basically employment at the pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended to prevent any security of tenure from accruing in favor of private respondents even during the limited period of three (3) years, and thus to escape completely the thrust of Articles 280 and 281 of the Labor Code. 4. Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies, firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of any dispute arising out of or in connection with the agreement “only [in] courts of Karachi, Pakistan.” The Scanned with CamScannerconruscr FES «yoked to prevent + be inva ia 19 cannot be WP nd regulations javse of PSHE i Ido" IST “the employer. first 100 on of PRIDE is ome DTA and private the applica matter © sotitioner PI ject, matte) pween POH ad out that the to the § , pointe employee b wht ¥ fi inter at aoat ponent jraffected Wi, Jaws an! regulations relationshiP applicable Palir parties agreeing upon the otherwise illusory PY Tt tionsbip- Neither may of paragraph 10, anno! io govern thei ar la¥ use her I » second a sole venue for the mtracting parties, Ut dispute; be the rt circumstances of settlement of disDh ofthe He ‘antive contacts Ewen a cursors Itiple and § es show the n1ul Philippine courts, on the n the parties, e will of law @ petween Philippine jonship betwee! one hand, and the relationsbP 7. only executed in _ was no upon the other: ae . » Karachi specifying . between the contr ; d here, at least he other: the Tr also performed here, 2 a Sate eupandents are Philippine citizens Sen mile petitioner, although 8 foreign (and actually doing and respondents, ~ Tioensed to do business . is license ‘nt in the Philippines; lastly, e reside! : N es were based in the Philippines in between their assigned flights to the Middle East and Burope. All the above contacts point to the Philippine courts and administrative agencies as 2 Prope” forum for the resolution of contractual disputes between the parties. Under these circumstances, paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction vested upon them by Philippine law. Finally, and in an; sek a y event, the petitioner PIA did not undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be presumed that the applicable provisions of the law of Pakistan are the same as the applicable provisions of Philippine law. In Fran i Canin cf Aponte Stolt Achievement MT the United States ppeals refused to entertain i net d employer of a Filipino crowmemb, a suit against the US-base' 29 ofthe crew member's con ee er on the ground that paragraph arising from this employment” provided that “claims and disputes are subject to arbitration in the corporation, business) an' private respo! 7293 F. Scanned with CamScannerCONTRACTS 96 Philippines. The appeals court junked Francis i et ‘anicisco's it si ii contract of employment, he agreed to Erie CL slain if ia NLRC instead of resorting to court action for the settlement thereof. Inaddition, existing laws and those passed by Congross, as well as regulations promulgated by administrative agencies, are deemed incorporated in the contract. They, too, form part of the contract, ‘as additional terms and conditions thereof. And the incorporation of the law as another term of the agreement will not violate the non-impairment clause of the Constitution. While new laws may impose additional burden on the parties, they eannot be labeled as | qnimpairment to bring it within the scope of the protection provided by the Constitution, The non-impairment clause of the Constitution operates only in limited instances and this situation is not one of them. Choice of Law Stipulations The principle of autonomy of contracts allows the parties to stipulate the law that shall govern their contractual relations. A choice of law stipulation will greatly aid in the achievement of the objectives of the parties in entering into a contract. Parties may provide a foreign law, ora local law, for this purpose, depending on what suits their interest. In addition, the parties may also provide that two or more foreign laws govern their relationship, aes hat a foreign law/s and local law/s be made applicable to their stipulated law may have contract. The parties may provide that th general or limited applicability. If the parties do not specify their chosen law, the chosen law wi concerns:® (a) interpretation; (b) rights and obligations arising from the contract (©) performance erformance, including the assessment of damages: (@ the various ways of extinguishing obligations, and prescription and limitation periods; the extent of the applicability of {ll normally apply to the following and the consequences of non-p Tolentino v. Seeretary of Finance, 285 SCRA 630. “Supra, n. 1, at Article 9. (acini Scanned with CamScanner—_— od CONFLICT OF LAWS invalidity (©) validity and the consequences of invalidity of the Hing burden of proof and legal presumptions; and (®)_pre-contractual obligations. Waiver of Renvoi v plications, parties may even waiy, spencer en eS This simply means that rules of private Sotorna onal la no application once a foreign law is chosen by the parties, Roni a complicated doctrine sine it usually mandates the Bartes fo pt to the TOTALITY of foreign law in determining their righio a obligations. Hence, the need to exclude rules of private interne, Jaw and just focus on a segment of the foreign law in question, 4) held in Orbus Neich Med. Co. v. Boston Scientific Corp., 694 F Supp, 2d 106, 114 (D. Mass. 2010): lan, fing This court, however, is not at liberty to disregarg the parties’ addition of the phrase “without regard to the conflicts of law provisions” as BSC has done, “1, isa canon in the interpretation of contracts that every word and phrase must be presumed to have been employed with a purpose, and must be given a meaning and effect whenever reasonably possible.” And this court, finds that the phrase “without regard for the conflicts of laws provisions” unambiguously expresses the parties! intention to exclude consideration of all conflicts of law Provisions in determining which law to apply to various aspects of a dispute arising under the CDA. To begin with, the Plain language of the phrase “without regard for the conflicts of law provisions” does not confine itself to only those conflicts of law provisions Pertaining to the choice of substantive law. If the parties had intended to s0 confine the phrase, they easily could have done so, Instead, they chose language which, on its face, sweepingly excludes, in the plural, consideration of all conficts of law Provisions in deciding any issue as to governing law, This, in and of itself, indicates to this court that the parties have Selected Massachusetts law Scanned with CamScannerCONTRACTS 97 to nei a aspects of their dispute, without regard to Q hat sul Banc or procedural nature, Any othe conclusion contr: e plai ‘hoi ae radiets the plain language of the choice of Moreover, the contrary conelusion—that “wi regard to the conflicts of law provisions” cae ee consideration of the choice of Jaw rules pertaining to substantive law—would render the phrase a meaningless redundancy. Had the choice of law provision merely said “this agreementis governed by the laws of Massachusetts,” it clearly would have conveyed to this court that the parties intended for Massachusetts’ substantive law to apply to disputes arising under the contract. The parties needed go no further to express such an intention. But, importantly, the language of the CDA did go further. And this court must give meaning and effect to that additional language. It can fathom no other way to do so, but to interpret it as a statement of the parties’ intention that this court disregard all conflicts of law provisions that might otherwise apply, in favor of straightforwardly applying Massachusetts law to all issues arising out of the contractual dispute, whether procedural or substantive. There is a growing trend also of excluding conflict of law provisions in choice of law stipulations in contracts. For example, ‘Article 8 of The Hague Principles on Choice of Law in International Commercial Contracts specifically provides that “[a] choice of law does not refer to rules of private international law of the law chosen by the parties unless the parties expressly provide otherwise.” The reason for this is to avoid the complexity of the application of conflicts of law rules that point to another law ‘when the parties specifically intended a particular law to govern their contractual relations. A choice of law stipulation is not, however, mandatory. Most agreements, especially those that a to be performed locally, do not specify the law applicable since the mindset of the parties are ww. Otherwise stated, the parties’ the law of their choice. This is but ¢ the parties would be thinking of tract in a particular jurisdiction. already focused on the local la minds are fixed on the local law as natural, since it will a foreign law if they ex | be absurd tha ecuted a cont Scanned with CamScannerCONFLICT OF LAWS % verned by the nationay is generally Coe eee of the Philip, @w Capito conta ip ofthe Civil Cate ofthe Philp ties. Unde . ies, OF 7 ditioy of the pen mmily rights and de upon citizens op a “Jaws relating to fa ios ity of pers Thus, there is a need and legal eapacity ot ring abroad: Oe ee Nk Philippines. sai lew of a person in setae peers reat, {t the national Jaw ‘an Thiet ns, — capacity to enter into 2 mont ing party ia oul srhen the nation’ Thien case the party's national law would beeps, loci contractus, inapplicable. Approaches to Contractual Conflicts of Law There are basically three principles addressing the issue o applicable law in contractual disputes. These three principles arg the following: 1. Lex loci contractus, or the law of the place where the contract is executed. The reason behind this approach is that the partiey mindsets are usually focused on the law of the place of execution when they enter into contracts. Without specifying any choice of Jaw, it is understood that the parties wanted the local law to govern their contractual relation. The law of the place of execution is the default law based on the presumption that the parties would have specified a particular law if they did not want local law to govern Pe P their contractual relationship. Erie Insurance Exchange v. Edmund D. Heffernan Il 925 A.2d 636 (Md. 2007) Joey, wee peseges i eterna and bie anne John McMahon, Jr. While driving in “he Stats at Sera with his two passengers, McMahon fell aid ans collided with a tractor-trailer. All of them Praha om ia collision, Heffernan’s parents held a Pa ve any Policy and a Personal Catastrophe dee fe neuranice which were issued, sold, and oliey includat land to Maryland residents. The auto oe of $300, 000;9enntre motorists coverage in the catastrophe Policy provided $1 nue O00 in ieee rel , ‘insure Scanned with CamScannerCONTRACTS 99 more anes Jt must be noted that the vehicle lriven yy Mr. McMahon was an underinsured motor vehicle with respect to the Brie policy. The ‘Parents of the minor Heffernan sued Erie in the Circuit Court for Baltimore City, Maryland, seeking damages pursuant to the underinsured motorists coverage. Erie subsequently removed the case to federal court. Brie contended that Maryland law should be applied, including Maryland's cap on non-economic damages which would drastically reduce the damages that the parents could recover. The Erie policies provided that Erie would pay damages “that the law entitles you” to recover from the owner or operator of an underinsured motor vehicle. Issue: Whether Maryland law or Delaware law governs the claim of the Heffernans? Held: Delaware law is applicable. 1, This case calls for the construction of two identical phrases within two separate insurance policies issued by Erie to the Heffernans. Specifically, the policies provide that Erie will pay damages “that the law entitles you” to recover from an uninsured/underinsured motorist. 2. Generally, in a conflict-of-laws situation, a court must determine at the outset the nature of the problem presented to it for solution, specifically, if it relates to forts, contracts, property, or some other field, or to a matter of substance or procedure. ‘Accordingly, we first address the nature of an ‘action by an insured against his own insurer for uninsured motorist benefits. The action by the insured against the insurer is a contract action. Recovery is based upon the element of tortious conduct, in this case, the negligence of a third party. Co. v. Hart, 327 Md. 526, 3. In Allstate Ins. 611 A.2d 100 (1992), the issue before the Court was whether the household exclusion provision in a Florida automobile insurance policy should be enforced in light of Maryland’s public policy against household exclusion clauses contained in such policies. We noted that [ijn deciding questions of interpretation and validity of Scanned with CamScannerconrLicT OF LAWS ¢ Maryland courts mead rovisions: et attoit wi ict renee the jurisdiction’ principle of lex loci cede that the the law of aca ae This is referred a ‘ind Brie con contro y igsed to the LE nate by automobile livered, and executed i ate and was isstted, deliver tact. To that end, for choice a Marylam 1d apply Maryland law Hy wou! and ie nrexpretatiOn and validity of bi s of the int ie Nod * oie to the Heffernans. asked to interpret the validity decide questions of coverage, licability of the appropriate Taw to resolve the issues of tort liability ana Jamages. Because the nature of the problem relates to fort, rather than contract principles, we Jook to tort choice iMaw principles, namely, the law of the place of the accident to answer the question. In that regard, Delaware js the place of the tort and the place of injury. 5. Maryland law is clear that in a conflict of law situation, such as the one presented in the case sub judice, “where the events giving rise to a tort action occur in more than one State, we apply the law of the State where the injury-the last event required to constitute the tort occurred.” Laboratory Corp. of America v. Hood, 395 Md, 608, 614, 911A.2d. 841, 845 (2006). This principle is lex loci delicti. Consistent with the principle of lex loci delicti, seeaise ie auiempbile collision occurred in Delaware, “fa cou t's appli law, a Maryland Depecage is defined as i oe ; choice of law i bys issue basic” Black's Law Dictionary ao eed ae ee urt would appl . ed. 1999), uld apply the substantive tort I to determine what the claimants are “entitle i Delaware inan acti 5 ‘entitled to ” ction for uninsured motorist benefits, recover” _ 6. We conclude, pursu: ay f Ween » Pursuant to Marylan phere against his ings a ae Principle ee enefits is a contract action. ‘Althot ch aa ee ei eenitacts apply to contract dij oe ielnies ee °C motorist statute and the i ses Corporation of the phrase “entitled to itled to we gene’ 4, Here, we are not or of a contractual term jon here is the app! substantive Scanned with CamScannerte ONTRACTS 101 recover,” reference tort law, th e » the substantive tort 1 where the accident occurred applies, gehotally aon issues of fault and damages 2 ie ner Government v. Frank G.R. No, 2935, March 23, 1909 Facts: Defendant Frank entered into a cont i plaintiff Insular Government of the Philippine ak e work as a stenographer in the Philippines. The contract was executed in the State of Ilinois, USA, and contained a provision that in case of a violation of the terms of the contract by the defendant, he will become liable to the plaintiff for the amount incurred by the plaintiff in transporting defendant from Chicago to Manila and the one-half salary paid to defendant, Before the expiration of the contract, the defendant left the service of the plaintiff and refused further compliance with the terms of the contract. Plaintiff sued the defendant for damages with the Court of First Instance of Manila. Defendant put up the special defense of minority by alleging that he was a minor under Philippine law at the time the contract was entered into. Issue: Whether the defendant can put up the defense of minority as against plaintiff's claims? Held: No. ‘The defendant alleged in his special defense that he was a minor and, therefore, the contract could not be enforced against him. The record discloses that, at the time the contract was entered into in the State of Illinois, he was an adult under the laws of that State and had full authority to contract. It is not disputed—upon the contrary the fact is admitted—that at the time and place of the making of the contract in question the defendant had full capacity to make the same. No rule is better settled in law than that matters bearing upon the execution, interpretation, and validity of a contract are determined by the law of the place where the contract is made. (Scudder v. Union National Bank, 91 U.S, 406.) Matters Scanned with CamScanner_ oo CONFLICT OF LAWS ith its performance are regulated by the tq, ee a fc dieolpedi cnet! Mattors respecih™ fa remedy, such as the bringing of suit, admissibility evidence, and statutes of limitations, ifepend upon tig Jaw of the place where the suit is brought (Idem), i i f the place w) 2. Lex loci celebrationis, or the law o} I Where contract is performed or celebrated. The reason behind thig inet is that since a contract is to be performed in a particular place, ok Dl it i 1 that the law of that state govern the relations, depute feist natural that the law of the place of verte governs contractual disputes since parties to a contract are ex e to follow and comply with the laws where they are operating “1 performing their obligations. Otherwise, there is a great. chanee an they will be in violation of the law of the place of performance, Whisk can also become a ground for invalidation of their contract or req ae performance of the contract impossible or very difficult, 3. State of the most significant relationship rule, o law of i, basically place with the most connection to the dispute. This is : matter of convenience and practicality as it seeks to apply the lac ot the place that has the most connecting factors to the contract. The © easier it more factors connecting the case to a particular state, th ties to the will be to determine the rights and obligations of the part contract. This approach is embodied in Section 188 of Restatement (Second) of Conflict of Laws which provides the following: Section 188. Law Governing In Absence Of Effective Choice By The Parties (1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in §6. : (2) In the absence of an effective choice of law by the Parties, the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include; (a) the place of. contracting, (b) the place of negotiation of the contract, (c) the place of performance, Scanned with CamScannerCONTRACTS 103 (a) the location of the ateackiaan subject matter of the (e) the domicil, residence, incorporation and place parties, ‘These contacts are to be relative importance with res) (8) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied i provided in §§ 189.99 and 203, Pt aS otherwise nationality, place of of business of the evaluated according to their ‘pect to the particular issue. As enunciated in Section 188, the connecting factors to be considered are the place of contracting, the place of negotiation of the contract, the place of performance, the location of the subject matter of the contract, and the domicil, residence, nationality, place of incorporation, and place of business of the parties. This approach, therefore, takes into account the previous two approaches of lex loci contractus and lex loci celebrationis. The drawback to this approach, however, is its complexity and tendency to create confusion as one will have to list and examine the connecting factors of a state to a pending contractual dispute. This approach is unlike the previous two approaches where one just applies the law of the place of performance or execution. In re KMH 169 P.3d 1025 (2007) Faets: Kansas resident SH, an unmarried female lawyer, wanted to become a parent through artificial insemination from a known donor. The donor, another Kansas resident named DH, agreed to provide the sperm for the insemination. The inseminations were performed on SH in Missouri, although they made and agreed on the insemination in Kansas. They did not enter into a written contract regarding the insemination. SH delivered two twins months after the inseminations were performed. SH then filed a CINC petition concerning the twins, seeking a determination that DH would have no parental rights. DH filed his (iii Scanned with CamScannerconFLICTOFLAWS i separate paternj me times fil a te ™ answer and, se his financial responsibility for rd action acknowocring parental Tg nis. Both C cane anions were pegolidaced by the cour 720 rt ty w aismise the pacernity suit, The Mabmit their memorandum ered the parties A stitutionality of K.S., sf rental rights and vaternity and paren” & ee rising oat of the motion to dismiss. KS.A, other is g8-1114(@) Prev ‘The donor reer Te sae, for use in artificial 1nS°™ f Phir than the donor’s wife is ee in nw as if he were not the pirth father of a child thereby conceived, unless agreed to in writing by the donor and the woman. noted that Missouri has no statute barring Itmustbe a presumption of paternity for a known sperm donor for pe unmarried woman and that paternity is proved by “consanguinity or genetic test.” ‘The judge then granted SH’s motion to dismiss, ruling that Kansas law governed and that DH had no egal or parental rights over the twins. ‘Issue: Whether Kansas law: orMissouri law governed the CINC and paternity suits between SH and DH? Held: Kansas law applied. 1. Various factors are relevant to a choice-of-law determination, including the procedural or substantive nature of the question involved, the residence of the parties involved, and the interest of the State in having its law applied. As long as Kansas has “significant contact or [a] significant aggregation of contacts...to ensure that the choice of Kansas law is not arbitrary or unfair, constitutional limits are not violated.” Also, to the extent this case is viewed as a contractual dispute, Kansas courts apply the Restatement (First) of Conflict of Laws ae cee and the doctrine of lex loci contractus, t-€ i SC ced ae ae goers the contract is made governs. where the last act necessary for its formation occurs. insemination of a physi _— Scanned with CamScannerCONTRACTS 105 2. In addition, we note that Kansas courts have often leaned toward a lex fori, or law of the forum, approach, opting to apply Kansas law absent a clear showing that another state’s law should apply. Moreover, our Court of Appeals has recognized in a ease focused on the legitimacy of a child that, “filn our current. mobile society, place of conception of child carries little weight [in choice of law determination].” Instead, “[w]hether a child is legitimate is determined by the local law of the state which, with respect to the particular issue, has the most significant relationship to the child and the parent”; considerations include “the relative interests of those states in the determination of the particular issue,” “the protection of justified expectations,” “the basic policies underlying the particular field of law,” and the “certainty, predictability and uniformity of result.” Restatement (Second) of Conflict of Laws § 6, § 287(1) & comment d (1969). 3. Here, the parties are Kansas residents. Whatever agreement that existed between the parties was arrived at in Kansas, where they exchanged promises supported by consideration, and DH literally delivered on his promise by giving his sperm to SH. The twins were born in Kansas and reside in Kansas. The only fact tying any of the participants to Missouri is the location of the clinic where the insemination was performed. 4. Under these circumstances, we hold that Kansas law applies and that significant contacts and a significant aggregation of contacts with Kansas make application of our law to the parties’ claims not only appropriate but also constitutional. This choice is neither arbitrary nor unfair; neither party would have been justified in expecting Missouri to have a controlling interest as to any dispute between them. Depecage In Buchanan v. Doe,’ the concept of depecage has been explained to be: 14, 1998)(quoting Robert A. Leflar, American Conflicts Law § Scanned with CamScannerconrrscT oR LAWS as recently acquired the new fers to the process whereby © arising out of a single pi different issues na sin rding tO the laws of fiver of facts may De decide eo rdinprocess when procedural ~~ beon synod by foram Taw and some othor Jaw, even when d as procedural had substantial toome- " Tt has always been souderat stantive issues coul also sul e ld ancestor’ “ecided under the laws of different states, Fen the choice-influencing, considerations differ as they ly to the different issues. The new development in this area is the currently increased discussion and analysis of the old technique. ». Edmund D. Heffernan I? the In Grie Insurance Exchange concert of depeoage was once more reiterated and applied, The eo oo soked at Maryland law in interpreting the policy's gontiderial provisions but applied Delaware law in determining tort liability ‘Thus, the court utilized the doctrine of lex loci contractus in holding that Maryland Jaw governed the contractual provisions, but a iss ter loi delict, or Delaware law, in determining the tort Feb rl ofthe insurer, The eourt in Brie first determined the aeiity Se ee ee ee viles alates i fusions Maryland law to be the applicable law, it looke eee approach o determining Lalit in tort te ee Maryland's faryland followed the theory of I t cases. It so happened that eventiatt wy of lex loci delicti in torts ly, Delaware law was applied since i cases that, place whee’ the delict applied since it was the law of the ace whore the delict oeomred, Pursuant to de of the an application of the la i ppecage, there the dispute betwe ws of different states in th: = was een the Heffernans and Erie. e resolution of Philippi 'ppines Follows Lex Loci Contractus Flerida Ruth Ro declared that “ lex loc verns in le th Romero, icra r¢ 4 lex loci contract d ‘actus i governs ii equivocal declaration means maa 636 (Mad, 200: “H-No, 129584, December 3, 1999 Scanned with CamScannerCONTRACTS 107 that our courts are obliged to apply the law of the place of execution of the contract in case a conflict of laws dispute concerning contracts js brought to the courts. It cannot. be otherwise, na applying lex loci celebrationis or state of the most significant relationship will result in the application of the law of a different state, Hence, if a contract is executed in the Philippines, and the contract specifies no choice of Jaw, the governing law will be Philippine law, Triple Eight Integrated Services, Inc. v. NLRC G.R. No. 129584, December 3, 1998 Facts: Private respondent Osdana was recruited by petitioner for employment with the latter's principal, Gulf Catering Company (“GCC”). Petitioner and private respondent signed a Contractor-Employee Agreement, which provided that she would be employed as a waitress for twelve (12) months with a salary of two hundred eighty US dollars ($280). Osdana left. for Riyadh, Saudi Arabia, commenced working for GCC, and was assigned to the College of Public Administration of the Oleysha University. She was made to wash dishes, cook pots and utensils, and perform janitorial work and other tasks which were unrelated to her job designation as waitress. Osdana suffered from numbness and pain in her arms that led to her confinement at the Ladies Villa, a housing facility of GCC. Osdana later resumed work, this time as Food Server and Cook at the Hota Bani Tameem Hospital until she was again confined at the Ladies Villa for no apparent reason. When she returned to work, she was, re-assigned to the Oleysha University where she was made to work long hours and under harsh conditions. This caused her to develop Bilateral Carpal Tunnel Syndrome that led to her hospitalization. She underwent two surgical operations and was later discharged from the hospital. However, she was subsequently dismissed from work and was not given her separation pay nor was she paid her salaries. When she returned to the Philippines, Osdana filed a complaint with the POEA against the petitioner for unpaid and underpaid salaries, salaries for the unexpired portion of the employment contract, moral and Scanned with CamScannerfoes, a5 Well as the — sas a dior impositio, | damages 2" sion, 2! n of exemplar ae ation, ee petitioner: ‘The case wag ned neh of the NLRG it tion bra res, who ruled in a bo ved the decision of the Arbiter to lan ERC affien and assign f favor of Osdan®- NI ie What aw governs private respondent’, Issue? 0 sail from employment” : ne law applies, Held: Philippi" i 1. Petitioner. attributes good ie Part of its principal, claiming that it was the ae for of i dare. and physical well being (sic) of private ae dent that drove her employ =? to take the painful sespron of terminating her from the seovic® and having feciSpatriated to the Philippines at its expense. The employer did not want to risk the aggravation of the dinese of private respondent, which could have been the logical consequence were private respondent allowed to continue with her job. The Court notes, however, that aside from these bare allegations, petitioner has not presented an} i e 18, P PI ly medica] certificate or similar document from a competent public health authority in support of its claims. On the medical certificate requii iti i quirement, petitioner ee ie ny ee respondent was employed ia and not here in the Philippin ere was a physical impossibility to dowe ene ne ic . a cartifete that vupias eoeuttrity the alluded medical a respondent’s i i cured within a period of six Hants illness will not be Petitioner entirely misse the point, as counsel ’S the point, as counsel > ns simply prescribes ry t Ic cl 4 certification by a compet ent public health authori Beth au thority and not a Philino: i i ilippine public health If, indeed, ¢, ', Osdang ler employment, Scana was physical nt, her employer could te unfit to continue lat eff ‘ave easily obtained 4 certification to tl that fect from a competent ent public Pa Scanned with CamScanner109 health authority in Saudi Arabi complaint for illegal dismiggn), ” “M°*°PY heading off any The requiremen Article 284 of the La otherwise, it would t for a me bor Code cai anction the dical certificate under ae be dispensed with; ise, it unilateral and arbitra; ce by the employer of the gravity or eter of the emp] ‘oyee’s illness and thus defeat the public oli the protection of labor, aa et Again, petitioner’s argument is without merit, First, established is the rule that lex loci contractus (the law of the Defenses to Jurisdiction and Choice of Law Conflict of laws involves choice of law, three phases three phases and they are jurisdiction, and recognition and enforeement of judgment, These are separate from each other that a defense in one Phase is not a defense in other phases. For example, the doctrines of lex loci celebrationis and lex loci contractus are not grounds to question the jurisdiction of the court. In like manner, the defense of forum non conveniens cannot be used as a defense to choice of law disputes. Thus, it is important to analyze the real issues in a conflicts Problem for the purpose of utilizing the appropriate approach to a contractual dispute. Otherwise, the use of certain theories in conflict of laws may be deemed improper. Scanned with CamScanner_ 110 ra Hasegawa V- Ke 10. 149177. November 23 " rnginooring Consultants cts: Petition Nippon oc te Nippon”? Sioa") with respondent "Mion Contractor Ne ae national perma ly residing in ae a ceithe agreement PVCS! Nippon for a Philippines. cement Dre ! oes to extend engi! ae dare fs eyo Ae 3 088 erg in vat é jespondent to work a! * ii Philippines. projects in the er’s general manager, etition’ On February 28,2000 0od_ respondent that the Kazuhiro Hasegawa, ing his ICA a company would 0 Tonge? be ere at, ve services would be utilized only u : that his corvadent requested @ negotiation conference, per nioien ‘insisted that his contract was for a fixed term that had already expired. dent subsequently sued petitioners for seine edbemies and damages with the Regional Trial Court of Lipa City. Petitioners moved to dismiss the complaint for lack of jurisdiction, asserting that the claim for improper pre-termination of respondent’s ICA could only be heard and ventilated in the proper courts of Japan following the principles of lex loci celebrationis and lex loci contractus. The lower court denied the motion to dismiss, a decision which was affirmed by the Court of Appeals (‘CA”). The CA held that the principle of lex loci celebrationis was not applicable to the case because eget ie the pleadings was the validity of the written application of the vane, ihe CA upheld the lower court's Principle of lex loci solutionis, conruicT OF LAWS 2007 GR. N' Fai Co, ld. non conveniens, Held:No, They arei jymadie. Jey areimproper er e juris Philippine conn nds for questioning Scanned with CamScannerCONTRACTS mi 1. To elucidate, in the judicial resolution of conflicts problems, three consecutive phases are involved: jurisdiction, choice of law, and recognition and enforcement of judgments. Corresponding to these phases are the following questions: (1) Where can or should litigation be initiated? (2) Which law will the court apply? and (3) Where can the resulting judgment be enforced? 2. Analytically, jurisdiction and choice of law are two distinct concepts. Jurisdiction considers whether it is fair to cause a defendant to travel to this state; choice of law asks the further question whether the application of a substantive law which will determine the merits of the case is fair to both parties. The power to exercise jurisdiction does not automatically givea state constitutional authority to apply forum law. While jurisdiction and the choice of the lex fori will often coincide, the minimum contacts for one do not always provide the necessary significant contacts for the other. The question of whether the law of a state can be applied to a transaction is different from the question of whether the courts of that state have jurisdiction to enter a judgment. 8. In this case, only the first phase is at issue: jurisdiction. Jurisdiction, however, has various aspects. For a court to validly exercise its power to adjudicate a controversy, it must have jurisdiction over the plaintiff or the petitioner, over the defendant or the respondent, over the subject matter, over the issues of the case and, in cases involving property, over the res or the thing which is the subject of the litigation. In assailing the trial court’s jurisdiction herein, petitioners are actually referring to subject matter jurisdiction. 4. Jurisdiction over the subject matter in a judicial proceeding is conferred by the sovereign authority which establishes and organizes the court. To succeed in its motion for the dismissal of an action for lack of jurisdiction over the subject matter of the claim, the movant must. show that the court or tribunal cannot act on the matter submitted to it because no law grants it the power to adjudicate the claims. 5. In the instant case, petitioners, in their motion to dismiss, do not claim that the trial court is not properly Scanned with CamScanneroN as] CONFLICT OF LAWS vested by law with jurisdiction to hear the subj, aye 1 Case No. 00-0264 for speci controversy for, indeed, Ci performance and damages is one not capable of pecuninry, éstimation and is properly cognizable by the RTC of Lipa City. What they rather raise as grounds to question subject matter jurisdiction are the principles of lex tog} cclebracionis and lex contractus, and the state of the most significant relationship rule. ‘The Court finds the invocation of these grounds unsound. Lex loci celebrationis relates to the law of the place of the ceremony or the law of the place where a contract is made. The doctrine of lex contractus or lex loci contractus means the law of the place where a contract is executed or to be performed. It controls the nature, construction, and validity of the contract and it may pertain to the Jaw voluntarily agreed upon by the parties or the law intended by them either expressly or implicitly. Under the state of the most significant relationship rule, to ascertain what state law to apply toa dispute, the court should determine which state has the most substantial connection to the occurrence and the parties. In a case involving a contract, the court should consider where the contract was made, was negotiated, was to be performed, and the domicile, place of business, or place of incorporation of the parties. This rule takes into account several contacts and evaluates them according to their relative importance with respect to the particular issue to be resolved. 6. Since these three principles in conflict of laws make reference to the law applicable to a dispute, they are rules proper for the second phase, the choice of law. They determine which state's law is to be applied in resolving the substantive issues of a conflicts problem. Necessarily, as the only issue in this case is that of jurisdiction, choice-of-law rules are not only inapplicable but also not yet called for. 7. Further, petitioners’ premature invocation of choice-of-law rules is exposed by the fact that they have not yet pointed out any conflict between the laws of Japan and ours. Before determining which law should apply, first, there should exist a conflict of laws situation Scanned with CamScanner —CONTRACTS 113 requiring the application of the conflict of laws rules. Also, when the law of a foreign country is invoked to provide the proper rules for the solution of a case, the existence of such law must be pleaded and proved, 8. It should be noted that when a conflicts case, one involving a foreign element, is brought before a court or administrative agency, there are three alternatives open to the latter in disposing of it: (1) dismiss the case, either because of lack of jurisdiction or refusal to assume jurisdiction over the case; (2) assume jurisdiction over the case and apply the internal law of the forum; or (3) assume jurisdiction over the case and take into account or apply the law of some other State or States, The court’s power to hear cases and controversies is derived from the Constitution and the laws. While it may choose to recognize laws of foreign nations, the court is not limited by foreign sovereign law short of treaties or other formal agreements, even in matters regarding rights provided by foreign sovereigns. Neither can the other ground raised, forum non conveniens, be used to deprive the trial court of its jurisdiction herein. First, it is not a proper basis for a motion to dismiss because Section 1, Rule 16 of the Rules of Court does not include it as a ground. Second, whether a suit should be entertained or dismissed on the basis of the said doctrine depends largely upon the facts of the particular case and is addressed to the sound discretion of the trial court. In this case, the RTC decided to assume jurisdiction. Third, the propriety of dismissing a case based on this principle requires a factual determination; hence, this conflicts principle is more properly considered a matter of defense. Accordingly, since the RTC is vested by law with the’ power to entertain and hear the civil case filed by respondent and the grounds raised by petitioners to assail that jurisdiction are inappropriate, the trial and appellate courts correctly denied the petitioner’s motion to dismiss. Scanned with CamScanner