Conflict of Laws August 4, 2016

Group 1 Atty. Layug

CONTRACTS

I.

II.

A factual situation that cuts across territorial lines and is thus affected
by the diverse laws of two or more states is said to contain a foreign
element. The forms in which this foreign element may appear are
many. The foreign element may simply consist in the fact that one of
the parties to a contract is an alien or has a foreign domicile, or that a
contract between nationals of one State involves properties situated
in another State or that status, condition or capacity of one person is
involved in case. In other cases, the foreign element may assume a
complex form.
The presence of a foreign element is inevitable since social and
economic affairs of individuals and associations are rarely confined to
the geographic limits of their birth or conception.
A contract of employment as well as the contracts of carriage usually
contains foreign elements in cases where the parties thereof are
residence of different countries, and the place where the contract is
celebrated, consummated or executed. It is settled in the rule that
presence of the foreign element in a case determines the existence of
conflict of laws situation.

What if there is no foreign element? No conflict of laws exists. Thus,

the forum must apply the proper municipal. On the other hand,
whenever the contract involves a foreign element, the connecting
factors or points of contacts between the foreign elements must be
evaluate.
 III.

From the meeting of the minds of the parties to the consummation of

a contract, various foreign elements may occur which may cause a
cloud or a question as to which law shall apply in case any legal
questions arise. In some cases, the parties provide for an effective
choice of law which shall form part of and govern the contract
between them.

The parties to a contract may select the law by which it is to be

governed. In such a case, the foreign law is adopted as a "system" to
regulate relations of the parties, including questions of their capacity
to enter into the contract, the formalities to be observed by them,
matters of performance and so forth. The parties may agree that
specific provisions of a foreign statute shall be deemed incorporated
into their contract "as a set of terms." By such reference to the
provisions of the foreign law, the contract does not become a foreign
contract to be governed by the foreign law.

This liberty is however not without exception. It is provided that such

agreement shall be invalid in the following cases:

1. Where the foreign law chosen is contrary to peremptory

provisions dealing wit i matters impressed with public interest,
the chosen law cannot be applied.
2. Where the relationship of the contracting parties affects public
interest in the country of one of the parties, or the substantial
contacts arising there from point to the law of another country
as applicable law, such law will be applied, notwithstanding the
fact that the parties have agreed that a specific foreign law as
the applicable law.1

However, an agreement as to the choice of law is not always

provided for by contracting parties.
In the absence of an effective choice of law by the parties, "points of
contact" or "tests" are employed to allow for the characterization and
determination of the law applicable to a certain issue.

For the case of contracts, the following "points of contact" or "tests"

are considered:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicile, residence, nationality, place of incorporation and

place of business of the parties.

These contacts are to be evaluated according to the their relative

importance with respect to the particular issue. 2

In the field of contracts, issues may arise particularly from a contract's

extrinsic validity, intrinsic validity or the capacity of the contracting
parties and in most these cases, there is more than one point of
contact involved. The choice of law in these instances, depending on
the issue, is governed by a state's conflicts rules. Philippine Law
provides the following conflicts rules for these issues:

Extrinsic validity of contracts - As to issues surrounding the

extrinsic validity of contracts it shall be governed flowing the rule of
lex loci celebrationis or the laws of the country in which they are
executed. This is as provided for in Art. 17 of our Civil Code.

Intrinsic validity of contracts - For intrinsic validity, no specific

provision of law answers the question of conflicts. However, the policy
of our law is to give effect to the intention of the parties.
Capacity of contracting parties - The New Civil Code provides that
capacity of a Filipino is governed by Philippine Law and this is so
because we follow the nationality theory.3

IV.

For there to be a conflicts case, there must be:

(1) Two or more conflicting laws;
(2) Between a local law and a foreign law;
(3) Involving a foreign element.
[Agpalo Notes, p. 1]

Take the [Government v. Frank, G.R. No. L-2935] case for example.

The respondent claimed that he did not have the Capacity to enter
into a contract.

A contract of employment was executed in Chicago, in the state

of Illinois between a resident thereof and the Government of the
Philippines. But he left the service and was thus sued by the
Government. He posed as a special defense that under Philippine
laws, he was a minor and had no capacity to contract. It was ruled in
this case that since the contract was executed in Illinois, wherein he
was under its laws a full-fledged adult.

There are foreign elements here, one party in this case, Frank, is a
US citizen the other being the Government of the Philippines. The
contract was also executed in the US.

The conflicting laws would then be that of the US, specifically the
state of Illinois and that of the Philippines. Which arose because
Frank, in his defense raised that he was a minor under Philippine law
despite having been at the age of majority under the laws of the state
of Illinois.

The issues may be like in the case of [EDI-STAFFBUILDERS, INC, v.

NLRC, G.R. No. 145587].
The contract of employment here contained an Agreement on the
Applicable Law.

A Filipino was hired by a foreign corporation. But when he was

terminated, he filed a case for illegal dismissal here in the Philippines.
The foreign corporation countered that since Saudi Laws was agreed
upon in the employment contract, he was validly dismissed as
provided in their Labor laws. But the court denied their contention in
this manner:

In cases involving OFWs, the rights and obligations among

and between the OFW, the local recruiter/agent, and the foreign
employer/principal are governed by the employment contract. A
contract freely entered into is considered law between the parties;
and hence, should be respected. In formulating the contract, the
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.

However, In international law, the party who wants to have a foreign

law applied to a dispute or case has the burden of proving the foreign
law. The foreign law is treated as a question of fact to be properly
pleaded and proved as the judge or labor arbiter cannot take judicial
notice of a foreign law.

And since the foreign corporation failed to plead and prove the
foreign law, under the doctrine of processual presumption it is
deemed to be the same as Philippine law.

A different scenario would be the [Manila Hotel Corp. v. NLRC, G.R.

No. 120077] case.

There was no agreement to the choice of applicable law and the case
was filed in the NLRC of the NCR despite in being an Inconvenient
Forum.

An OFW while abroad is directly hired by a foreign corporation.

And when said OFW was terminated, he filed a case for illegal
dismissal with the NLRC of NCR. The NLRC was declared as a
seriously inconvenient forum. The only link wherein the Philippines
had in this case is that private respondent was a Filipino citizen. The
events occurred outside the Philippines, the defendants in the case
with the NLRC were foreign corporations which were not doing
business in the Philippines, the main witnesses were not Filipinos,
and the contract was perfected in foreign soil.

Here, despite the employee being a Filipino the contract was

executed in Oman and the employer was a foreign corporation. There
are foreign elements, if anything, most events happened abroad and
the only link to Philippine jurisdiction was the OFWs citizenship. The
court in this ruled that the NLRC of NCR was an inconvenient forum.

But, what if despite foreign elements, there are no conflicts issues

presented? What then is to be done?

This is what happened in the case of [King Mau Wu v. Francisco

Sycip, G.R. No. L-5897].

The case presented before the court was for the collection of a sum
of money.

A foreign national and a Filipino entered into a contract of

agency abroad, wherein for any amount sold through the efforts of
the agent, he would receive a commission. Upon the Filipinos refusal
to pay the commission meant for the foreign national, the latter sued
for the collection of a sum of money in the CFI of Manila. The Filipino
opposed it claiming that since the contract was executed in New York,
the CFI of Manila has no jurisdiction. But the court disagreed with him
and ruled that, 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 the case of a favorable, final and executory
judgment. It is a personal action for the collection of a sum of money
which the Courts of First Instance have jurisdiction to try and decide.
There is no conflict of laws involved in the case, because it is only a
question of enforcing an obligation created by or arising from
contract; and unless the enforcement of the contract be against public
policy of the forum, it must be enforced.
In this case it was decided that if there is no conflicts issue, then the
appropriate Municipal law is to be applied.

V.

The existence of a foreign element in contracts cases does not

deprive Philippine Courts the jurisdiction they possess. In fact, in
private international law cases, the general rules regarding
jurisdiction of courts applies. Rudimentary is the rule that, jurisdiction
is conferred by law and it cannot be stipulated upon by agreement.
Thus, for a court to have jurisdiction over a case, it has to have
jurisdiction either over the subject matter, over the person, or over the
res.

Jurisdiction is the power or capacity conferred by the Constitution or

by law to a court or tribunal to entertain, hear and determine certain
controversies, and render judgment thereon. Jurisdiction over the
subject matter is the power to hear and determine cases of the
general class to which the proceedings in question belong and is
conferred by the sovereign authority which organizes the court and
defines its powers. Jurisdiction over the person is the legal power of
the court to render a personal judgment against a party to an action
or proceeding. Jurisdiction over the res refers to the courts
jurisdiction over the thing or the property which is the subject of the
action.

Thus, if a court has jurisdiction over the conflict of laws case there are
3 possible scenarios: (1) the Court might refuse to hear the case and
dismiss it on ground of lack of jurisdiction or forum non conveniens;
(2) the Court might decide the case by its own local law; and (3) the
Court might decide the case by special rules formulated to address
the problem.

Basically, even if the court has jurisdiction it may refuse to take

cognizance of the case due to forum non conveniens. The rule of
forum non conveniens has developed that a court, even though it has
jurisdiction, will not entertain the suit if it believes itself to be a
seriously inconvenient forum provided that a more appropriate forum
is available to the plaintiff. Another situation wherein even though the
court has jurisdiction it cannot take cognizance of the case if it
involves contracts of international carriage by air. This is because the
Warsaw Convention fixes the jurisdiction of such cases. This will be
further discussed in the succeeding parts of this paper.

After determining that the court has jurisdiction over the contracts
case with a conflict of laws, and after the court decide to take
cognizance of it, it now then has to decide what law or laws to apply.

VI.

The main issue on how the court hears and decides conflict of law
cases is essential in disputes relating to contracts that involves
foreign element. No conflicts rule on essential validity of contracts is
expressly provided for in our laws. The rule followed by most legal
systems, however, is that the intrinsic validity of a contract must be
governed by the lex contractus or proper law of the contract. This is
the law voluntarily agreed upon by the parties (lex loci voluntatis) or
the law intended by them either expressly of implicitly (the lex loci
intentionis). The law selected may be implied from such factors as
substantial connection with the transaction, or the nationality or
domicile of the parties. Philippines courts would do well to adopt the
first and most basic rule of legal system, namely, to allow the parties
to select the law applicable to their contract, subject to limitation that
it is not against the law, morals, or public policy of the forum and that
the chosen law must bear a substantive relationship to the
transaction. In Pakistan International Airlines vs. Ople, the Court held
that the principle of party autonomy in contracts is not, however, an
absolute principle. The rule in Article 1306, of our Civil Code is that
the contracting parties may establish such stipulations as they may
deem convenient, provided they are not contrary to laws, morals,
good customs, public order and public policy. Thus, counter-
balancing the principle of autonomy of contracting parties is the
equally general rule that provisions of applicable law, especially
provisions relating to matter affected with public policy, are deemed
written into the contract.
Where the parties have not stipulated in their contract which
law should be made applicable in case of breach thereof, the courts
of the forum apply the different rues determinative of the applicable
law. Under the Center of Gravity Doctrine choice of law problems in
conflict of law are resolved by the application of the law of the
jurisdiction which has the most significant relationship to or contact
with the event and the parties to litigation and the issue therein. In
applying the principle, the following contacts are to be taken into
account and evaluated according to their relative importance with
respect to the particular issue: (a) the place where the injury
occurred; (b) the place where the conduct causing the injury
occurred; (c) the domicile, residence, nationality, place of
incorporation, and place of business of the parties; (d) the place
where the relationship, if any, between the parties is centered.

VII.

The Convention for the Unification of Certain Rules Relating to

International Carriage by Air, Signed at Warsaw on 12 October 1929
otherwise known as the Warsaw Convention, was voluntarily
assumed by the Philippine government. As such, contracts relating to
airline transportation are generally governed by the Warsaw
Convention.

The Warsaw Convention applies to all international transportation

of persons, baggage or goods performed by any aircraft for hire.
Under the convention and its amendments, an international air carrier
shall be made liable for the deaths or injuries of passengers;
destruction or loss, or damage, to any registered luggage or goods;
and delay in transportation by air passengers, baggage or goods.

One of the main purposes of the Warsaw Convention has been

to limit the importance of conflict of laws regarding the liability of the
carrier vis--vis the passenger and his survivors. In order to achieve
this aim, the Convention unifies some of the substantive provisions of
law in this field. However, the unification is not total.

Jurisprudence set by the Supreme Court of the Philippines is

that the Warsaw Convention does not operate as an exclusive
enumeration of the instances of airline liability. In other words, the
convention is used as a limit of liability only in those cases where the
cause of death or injury to passenger or destruction or loss or
damages, or delay in transport is not attributable to or attended by
any wilful misconduct, bad faith or recklessness or otherwise
improper conduct on the part of any airline official or employee. 2

In Santos III vs. Northwest Orient Airlines, it was held that an

intermediate place where the carriage may be broken is not a place
of destination but a mere stopping place and therefore has no
jurisdiction over the case.

In Sabena Belgian World Airlines vs. CA, Philippine Law was

used. It was held that the Warsaw Conventions rule on limited liability
of international carriers does not apply when there is malice, gross
negligence, bad faith or improper discrimination on the part of the
carrier or its agents. To invoke the limited liability of Airlines under the
Warsaw Convention despite the gross negligence would be contrary
to its purpose and injurious to the plaintiff.

The Philippine Laws served as the basis of award for damages in the
case of Northwest Airlines vs. CA, the Supreme Court ruled that the
Warsaw Convention does not operate as an exclusive enumeration of
the instances of an airlines liability, or as an absolute limit of the
extent of an airlines liability where a Philippine Law properly applies
in the case.

Although the general rule is that a party is not liable if the

non-performance is due to force majeure, the Philippine Courts
awarded payment of nominal damages to private respondents in the
case of Japan Airlines vs. CA, and held that while JAL was no longer
required to defray private respondents living expenses during their
stay in Narita on account of the fortuitous event, it is not excused
from the obligation to make the necessary arrangements to transport
private respondents on its first available flight to Manila.

Since the tickets were sold and issued in the Philippines, the
applicable law in Zalamea vs. CA would be Philippine law. The
overbooking of flight constitutes bad faith thus entitling plaintiff to an
award for moral damages.
 Bibliography

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Group Members:
Yu, Stevenson Visabella, Joule Timog, Febbie
Amolato, Regine Beja, Nielgen Ty, John Henry
Buctuan, Faisal Sea, Eileen Pacamalan, Dirika