CHAPTER 21: CONTRACTS
PRINCIPLES AND CASES IN PRIVATE INTERNATIONAL LAW:
A PROCEDURAL APPROACH
-oOo-
MARK ANGELO S. DELA PEÑA
To cite this online book, please use the following:
Dela Peña. 2023. "Principles and Cases in Private International Law: A Procedural Approach." Published by Project Jurisprudence - Philippines. Published: September 17, 2023. Link: [Insert link] Last accessed: [Insert date of access].
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CHAPTER 21:
CONTRACTS
A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.[1] If the contract is reduced into writing, it is considered as containing all the terms agreed upon and is presumed to set out the true covenant of the parties.[2] Nonetheless, a contract need not be in writing because obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.[3] Whether written or oral, but most especially if written, it must reflect the true intention of the parties.[4]
There is no contract, or there is no valid contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; and(c) cause of the obligation which is established.[5]
A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.[6] Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[7]
The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.[8] However, the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.[9]
Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.[10]
TWO KINDS OF VALIDITY OF
CONTRACTS, INSTRUMENTS
In the study of contracts law vis-a-vis private international law, the student must keep in mind that there are two kinds of validity: (a) intrinsic and (b) extrinsic.
Extrinsic validity refers to formalities and solemnities surrounding the execution of a contract or instrument such as but not limited to the number of witnesses, the condition of the paper, the color of the ink, pagination, signature of the party or parties, attestation or verification, location of signatures, the language used, notarization and others that are extraneous to the meaning and substance of its provisions or stipulations. On the other hand, intrinsic validity refers to the meaning and substance of its provisions or stipulations, including the consequences, effects and the results of such meaning and substance.
That a contract is notarized or that it is signed in the presence of three witnesses, for example, refers only to its extrinsic validity. That the contract results in the transfer of property from one person to another, however, or that it has the effect of a waiver of a right refers to its intrinsic validity.
EXTRINSIC VALIDITY OF CONTRACT,
ITS FORMS, AND SOLEMNITIES
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. When the acts referred to are executed before the diplomatic or consular officials of the Republic of the Philippines in a foreign country, the solemnities established by Philippine laws shall be observed in their execution. Prohibitive laws concerning persons, their acts or property, and those which have for their object public order, public policy and good customs shall not be rendered ineffective by laws or judgments promulgated, or by determinations or conventions agreed upon in a foreign country.[11]
In the Philippines, there is no form required for the validity of contracts, i.e., extrinsic validity. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.[12] More importantly, contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present.[13]
What Article 17 refers to is extrinsic validity. A foreign country, for example, may require certain formalities and solemnities for the extrinsic validity of a contract. If the same is executed in that foreign country, such formalities must be complied with because extrinsic validity is governed by the law of the place where the contract was celebrated – lex loci celebrationis.
If, in South Africa, for the validity of a contract, it is required that the instrument be subjected to the burning carcass of a goat, such solemnity must be complied with; otherwise, the contract is extrinsically void. If in another foreign country, for the validity of a contract, it is required that the instrument be subjected to the sneeze of a pregnant cow, such solemnity must be complied with; otherwise, the contract is extrinsically void. For emphasis, if, in China, for the validity of a contract, the ink to be used by the contracting parties must be the blood of their next of kin, such solemnity must be complied with; otherwise, the contract is extrinsically void.
The law student’s next question will probably be this. If Philippine law does not provide for a form for the extrinsic validity of a contract, would it not be correct to say that Philippine courts are concerned only about intrinsic validity and not extrinsic validity? The answer is the negative. While Philippine law does not require a form for validity, as a general rule, it does mandate that the forms and solemnities of contracts, wills, and other public instruments shall be governed by the laws of the country in which they are executed. The term “shall” was used by the law and this indicates its mandatory nature. If Philippine law requires that a foreign country’s laws be complied with in regard to said formalities, non-compliance with the solemnities required by that foreign law is tantamount to non-compliance with Philippine law. Hence, in a conflicts case involving contracts, wills and other public instruments, failure to comply with the lex locis celebrationis form will prevent the courts from looking into the substantive provisions of such instrument. In a manner of speaking, if the form is already void, its substance – not matter how valid – becomes secondary.
COURT’S EQUITY JURISDICTION
RE CONTRACTUAL RELATIONS
In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.[14]
Article 24 as quoted above refers to the equity jurisdiction of courts and the statutory policy to protect the weak. The provision is also known as “the court’s protection for the underdog.”[15] In relation to conflict of laws, even if the national law of a contracting party who is a foreigner does not provide for the same protection given by Article 24, the Philippine forum is bound by this statutory policy. In fact, in the case of Cadalin v. POEA,[16] the Supreme Court said: “The courts of the forum will not enforce any foreign claim obnoxious to the forum's public policy.”[17]
In the Cadalin case,[18] the issue was whether or not to enforce the one-year prescriptive period of the Amiri Decree No. 23 of 1976,[19] a foreign law, as regards the claim of the employee, instead of three years[20] as provided by the Labor Code or ten years[21] as provided by the New Civil Code of the Philippines. In resolving this, the Supreme Court explained in the manner shown in the following paragraphs:
“As a general rule, a foreign procedural law will not be applied in the forum. Procedural matters, such as service of process, joinder of actions, period and requisites for appeal, and so forth, are governed by the laws of the forum. This is true even if the action is based upon a foreign substantive law.[22]
“A law on prescription of actions is sui generis in conflict of laws in the sense that it may be viewed either as procedural or substantive, depending on the characterization given such a law.
“However, the characterization of a statute into a procedural or substantive law becomes irrelevant when the country of the forum has a borrowing statute. Said statute has the practical effect of treating the foreign statute of limitation as one of substance.[23] A borrowing statute directs the state of the forum to apply the foreign statute of limitations to the pending claims based on a foreign law.[24] While there are several kinds of “borrowing statutes,” one form provides that an action barred by the laws of the place where it accrued, will not be enforced in the forum even though the local statute has not run against it.[25] Section 48 of our Code of Civil Procedure is of this kind. Said Section provides [that if] by the laws of the state or country where the cause of action arose, the action is barred, it is also barred in the Philippine[s].
“Section 48 has not been repealed or amended by the Civil Code of the Philippines. Article 2270 of said Code repealed only those provisions of the Code of Civil Procedure as to which were inconsistent with it. There is no provision in the Civil Code of the Philippines, which is inconsistent with or contradictory to Section 48 of the Code of Civil Procedure.[26]
“In the light of the 1987 Constitution [of the Philippines], however, Section 48 cannot be enforced ex proprio vigore insofar as it ordains the application in this jurisdiction of Section 156 of the Amiri Decree No. 23 of 1976.
“The courts of the forum will not enforce any foreign claim obnoxious to the forum's public policy.[27] To enforce the one-year prescriptive period of the Amiri Decree No. 23 of 1976 as regards the claims in question would contravene the public policy on the protection to labor.”
Another case, in Rural Bank of Caloocan, Inc. v. Court of Appeals, the Supreme Court ruled that a contract may be annulled on the ground of vitiated consent, even if the act complained of is committed by a third party without the connivance or complicity of one of the contracting parties. It found that a substantial mistake arose from the employment of fraud or misrepresentation. The plaintiff in that case was a 70-year old unschooled and unlettered woman who signed an unauthorized loan obtained by a third party on her behalf. The Court annulled the contract due to a substantial mistake which invalidated her consent.[28]
In Remalante v. Tibe, the Supreme Court ruled that misrepresentation to an illiterate woman who did not know how to read and write, nor understand English, is fraudulent. Thus, the deed of sale was considered vitiated with substantial error and fraud.[29]
BASIC CONCEPTS RELATING
TO OBLIGATIONS LAW
An obligation is a juridical necessity to give, to do or not to do.[30] It arises from: (a) law; (b) contracts; (c) quasi-contracts; (d) acts or omissions punished by law; and (e) quasi-delicts.[31]
An obligation, in whatever way it arises, creates an legal tie or vinculum juris between two or more persons or between the State and private persons. Insofar as contracts are concerned, the legal tie is between the contracting parties. As to citizenship, for example, the legal tie is between the State and the person, thereby creating rights and obligations between one and the other. For example, when a person is born, s/he acquires juridical capacity, i.e., the fitness to be the subject of legal relations such as citizenship, residence, civil status, use of name and others. On the other hand, if a contract is created between a seller and a buyer, the parties acquire the right to demand performance or payment from the other.
LEVEL OF CARE OR THE
DILEGENCE REQUIRED
Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care.[32]
Insofar as Philippine laws are concerned, the general rule is that persons under an obligation must perform such an obligation with what is known as “ordinary diligence.” Other parts of the law require a higher level of care such as those for common carriers.[33]
A foreign country may require a higher level of care for certain contracts or even ordinary contracts. For example, Japanese laws may require extraordinary diligence as the minimum level of care for the delivery of cars bought from a car company. Also, the contracting parties may require in their contractual stipulations extraordinary diligence in the performance of the contract.
If a Filipino and a Japanese who are in Japan entered into a contract of sale of a dog and Japanese laws require that extraordinary diligence be observed, the parties are bound thereby. An analysis of this should start from the principle of lex contractus or lex loci contractus.
INTRINSIC VALIDITY VIS-A-VIS
LEX LOCI CELEBRATIONIS,
CONTRACTUS & SOLUTIONIS
The doctrine of lex contractus or lex loci contractus means the law of the place where a contract is executed or to be performed.[34] It controls the nature, construction, and validity of the contract[35] and it may pertain to the law voluntarily agreed upon by the parties or the law intended by them either expressly or implicitly.[36] Some authors use lex loci solutionis and lex loci contractus interchageably but, technically speaking, lex loci solutionis is the law applied in the place of an event,[37] the law of the place where the contract was intended to be performed,[38] or the law of the place where relevant performance occurs.[39]
To clarify, lex loci celebrationis refers to the law of the place of execution or celebration in relation to the forms and solemnities of the contract, will or other public instruments, otherwise known as extrinsic validity.[40] Whereas, lex loci contractus refers to the law of the place where a contract is executed or to be performed in relation to the meaning, substance, and consequences of its intrinsic provisions, i.e., intrinsic validity. On the other hand, lex loci solutionis may refer to the law of the place of performance or the intended place of performance of the parties, also referring to intrinsic validity. Thus, while lex loci contractus refers to the place of perfection, lex loci solutionis refers to the place of performance.
If a Filipino and a South African enters into a written contract of loan while in South African territory, the forms and solemnities of contracts under South African laws should be complied with; this is lex loci celebrationis. Insofar as the validity of the intrinsic provisions of the contract is concerned, the starting point is lex loci contractus, i.e., whether or not the contract is intrinsically valid in the place where they perfected the contract, i.e., South Africa. If the place of performance or the intended place of performance is different from the place of perfection, lex loci solutionis will govern.
Online, Mr. Canadian and Ms. Filipina agreed that, upon the latter’s arrival in Canada, she would buy one kilogram of marijuana (which is legal in Canada) from the former. This contract was perfected while the contracting parties were in their respective countries, merely done through online technology. Insofar as Philippine laws are concerned, the contract is void because the object thereof is illicit, i.e., prohibited by Philippine anti-drugs laws. Insofar as Canadian laws are concerned, marijuana is a licit substance and nothing prevents the validity of the contract. Although the place of perfection (loci contractus) is different for both parties, the intended place of performance (loci solutionis) is clear – Canada where marijuana is legally allowed. If an action for damages arising from the contract is filed in Canada, there would be no problem in terms of contractual validity. If, however, the same is filed in the Philippines, the forum would be confronted by important questions: whether or not lex loci contractus should be applied, thereby rendering the contract void because part of its perfection was in the Philpipines, and whether or not lex loci solutionis should be applied, thereby allowing the contract’s validity because the place of intended performance is Canada.
MINIMUM AND SIGNIFICANT
CONTACT OR FACTOR
Parties are free to stipulate in their contract whatever terms and conditions they wish to include.[41] This is known as freedom to contract or the autonomy of contracts.[42]
A contract, once perfected, has the force of law between the parties with which they are bound to comply in good faith and from which neither one may renege without the consent of the other.[43] The autonomy of contracts allows the parties to establish such stipulations, clauses, terms and conditions as they may deem appropriate provided only that they are not contrary to law, morals, good customs, public order or public policy.[44] The standard norm in the performance of their respective covenants in the contract, as well as in the exercise of their rights thereunder, is expressed in the cardinal principle that the parties in that juridical relation must act with justice, honesty and good faith.[45]
In conflict of laws, as in contracts law, parties to a contract are free to stipulate not only the venue of the court where filing should be made in case of disputes arising therefrom but also their choice of law. Parties, for example, may stipulate that the laws of Japan should govern the rights and obligations under the contract. This is legally possible, and permissible, because contracts are the law between the contracting parties.[46] However, there is a view, which has gained quite an attention in the legal community, that parties must ensure that there is minimum relation or reasonable nexus between the contract or the parties and the choice of law.
Two Filipinos, for example, who have never been to Australia, provide in their contract of loan that the law that must be applied – their choice of law – is Australian credit transactions law. The question are: first, whether the law indicated by the parties should be otherwise related to the transaction; second, whether more than one law can be chosen; and third, what law is to determine any divergence in these respects.[47] Primarily, of course, the intention of the courts is to the effect of express provisions in contracts prescribing the law intended to govern. While the intention of the parties obviously has wider significance as a criterion for the solution of conflicts of laws, the question is how far can the parties can actually go insofar as choosing the law that will apply in their contract.[48]
Contractual choice of law that points to the application of a foreign and unrelated[49] is generally acceptable. However, critics of this point out that such a choice of law, without any minimum relation or reasonable nexus to the contract or to the parties, should be viewed as against public policy because it completely disregards without any justification the application of most significant law to their relationship, i.e., either the law of the place of perfection or the law of the place of intended performance.
To avoid arbitrary choice of law of an unrelated state, it has been proposed that there be meaningful or minimum controls or limits on contractual choice of law.[50] One author called this “local contact,”[51] i.e., at least on of the parties or at least an aspect of the contract – the property involved, the place of performance, the place of payment, etc. – should have a local contact to the foreign law specified in the choice of law clause of the parties.
CENTER OF GRAVITY RE
VALIDITY OF CONTRACT[52]
The Philippine forum may also opt to apply the modern theory of center of gravity or the center of gravity doctrine in resolving this choice-of-law problem. The forum will consider – in fact, count – the significant factors that lean toward one law or the other. The factors to be considered in the above-cited problem are: (a) the nationality of the seller; (b) the nationality of the buyer; (c) the place of perfection; (d) place or location of the thing sold; and, (e) the place of intended performance. If the court is inclined to visualize the center of gravity, it may choose to approach the problem using a table, thus:
|
TABLE NO. 001 |
|
|
CANADA |
PHILIPPINES |
|
|
|
2. Place of perfection |
|
3. [Null] |
|
4. [Null] |
Notice from Table No. 001 above that the gravity of factors gravitate or have a tendency toward Canada. Properly applied, the doctrine of center of gravity may be found by the forum to favor the application of Canadian laws in the case of Mr. Canadian and Ms. Filipina over their contract to sell or buy marijuana.
In Auten v. Auten,[53] the Supreme Court of New York, speaking about the use of a center of gravity theory, said:
Many cases appear to treat these rules as conclusive. Others consider controlling the intention of the parties and treat the general rules merely as presumptions or guideposts, to be considered along with all the other circumstances.[54] And still other decisions, including the most recent one in this court, have resorted to a method — first employed to rationalize the results achieved by the courts in decided cases[55] — which has come to be called the “center of gravity” or the “grouping of contacts” theory of the conflict of laws. Under this theory, the courts, instead of regarding as conclusive the parties' intention or the place of making or performance, lay emphasis rather upon the law of the place “which has the most significant contacts with the matter in dispute.”[56]
Although this “grouping of contacts” theory may, perhaps, afford less certainty and predictability than the rigid general rules, the merit of its approach is that it gives to the place “having the most interest in the problem” paramount control over the legal issues arising out of a particular factual context, thus allowing the forum to apply the policy of the jurisdiction “most intimately concerned with the outcome of [the] particular litigation.”[57] Moreover, by stressing the significant contacts, it enables the court, not only to reflect the relative interests of the several jurisdictions involved,[58] but also to give effect to the probable intention of the parties and consideration to “whether one rule or the other produces the best practical result.”[59]
CONTRACTUAL CHOICE OF LAW
WHETHER TOTAL OR PARTIAL
The parties having the freedom to stipulate on their choice of law, it is possible for them choose that a foreign law will apply to the total provisions of their contract or partially to only selection portions or aspets thereof. Anent this, Cavalieri & Salvatore (2018) said: “Of course, the more extensively the parties have dealt with the respective duties, rights and consequences of breaches when agreeing the content of their contract, the less important the law that they choose as applicable to their contract will be. In other words, as has been correctly noted, the governing law operates as a “gap filler,” since it will be applicable to settle legal issues that have not been completely addressed by the contract. This latter fact is also particularly relevant when the parties make a partial choice of law, for the remainder of the contract, i.e. that part not covered by such choice, will be governed by the law otherwise applicable in the absence of choice.”[60]
EXTINGUISHMENT OF
AN OBLIGATION
Obligations are extinguished: (a) by payment or performance; (b) by the loss of the thing due; (c) by the condonation or remission of the debt; (d) by the confusion or merger of the rights of creditor and debtor; (e) by compensation; (f) By novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in the New Civil Code of the Philippines.[61]
A foreign state may provide for different ways of extinguishing an obligation. For example, Alabama laws may provide that loss of the thing due – whether specific or generic – does not extinguish the obligation. Again, these things, being incidents[62] and consequences of a contract, are properly approached using the conflict of laws rules discussed above.
“In approaching some of the problems with which the courts have had to deal [in regard to the discharge of obligations vis-a-vis conflict of laws], it is helpful to restate four principles of the English conflict of laws which have the somewhat rare distinction of not being open to much doubt.”[63] They are: (a) the validity of the discharge of the obligations of a contract is governed by the proper law of the contract;[64] (b) the method of performance of a contract is governed by the law of the place of performance;[65] (c) the interpretation of a contract is governed by the proper law of the contract;[66] and (d) judgment for a sum of money in the a forum court can only be given in the currency of the forum.[67]
From the above, discharge of obligations (known in the Philippines as extinguishment of obligations) is a matter that may raise conflict of laws problems. For example, as stated in (d), the proper law of the contract with an obligation to pay may provide that the obligation is only extinguished via payment through the currency of said proper law. However, the parties may, at the time of payment, be located in a different state in which payment through another currency is not only convenient but also required by the laws of the place of payment (lex loci solutionis). Graveson (1951) gave another example, viz:
“Again, if A in Michigan sold to B in New York a consignment of cars to be delivered in England, payment to be made in the common dollar currency of A and B, it would be unreasonable for English courts, hearing an action for breach of contract for failure to deliver, to regard the transaction as other than breach of a contract of sale. If, on the other hand, the currency in question is regarded by the parties themselves, being reasonable business-men, as a commodity to be bought and sold with money which is legal tender in the place of payment, the subjectmatter of the contract is clearly in a different category, as when G in London asks his bankers to obtain for him a quantity of U.S. dollars for the purpose of visiting America.”
Graveson (1951) in the same book gave a solution to the problem stated above, writing: “The answer can, I think, only be, in whatever currency is legal tender in the place in which the indebtedness is dischargeable. It is not a question what amount of coins or other currency has the debtor contracted to pay. A debt is not incurred in terms of currency, but in terms of units of account. The unit of account is no more than a symbol or denomination connoting the appropriate currency.”[68] Note that, in the Philippines, under Bangko Sentral ng Pilipinas (BSP) Circular No. 1162, Series of 2022, the legal tender limit of Philippine coins for single transactions has been increased. Centavo coins are now legal tender up to Php200.00 while peso coins (including Php20.00-coins) are now up to Php2,000.00.
Other complications may arise from government actions that prevent the performance of an obligation. For example, in the place of intended performance, if the government declares a moratorium, the question is whether the debtor may avail thereof as against the creditor who is not bound by such moratorium, being a resident of another country. Other than this, the interrelationships of the exclusive currency of payment, exchange control, the act of state doctrine and the provisions of a contract may affect the analysis.[69]
If an exclusive currency of payment is mandated by the proper law, the problem is that the defendant, for example, may be exposed to a court order to make him/her pay twice. Insofar as the Philippines is concerned, there is a policy against double indemnity.[70]
Also in the Philippines, contractual stipulation on exclusive currency is allowed. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in the abeyance.[71] In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.[72]
Joseph Gold[73] has made an attempt to summarize the principles involved in exclusive currency of payment, exchange control, the act of state doctrine and the provisions of a contract. Paraphrasing Gold, the summary of principles are: (a) governmental obstruction of the discharge of a contractual obligation in accordance with its terms is not necessarily exchange control. A distinction should be observed between the transformation of an obligation or the postponement of its discharge and the divestiture of assets or rights; (b) a state’s direction regarding the use of a particular currency must be examined if it is legal tender, or stipulated tender, or whether the stipulated tender is allowed to override the legal tender; (c) the act of state doctrine should be balanced with the policy of the forum; (d) the starting point should be the contractual stipulations of the parties and the next in hierarchy in this analysis is the act of state doctrine; (e) and, if the obligation cannot be performed under the defense of an act of state, the court must look into whether the act of a foreign state constitutes divestiture or “taking of property.”[74]
Warsaw Convention &
CONTRACT OF CARRIAGE
In a 2000 case involving American Airlines,[75]
the sole issue raised was the jurisdiction of the Regional Trial Court of Cebu to take cognizance of the action for damages filed by Democrito Mendoza against American Airlines in view of Article 28 (1) of the Warsaw Convention.[76] Mendoza purchased from Singapore Airlines in Manila some conjunction tickets for Manila - Singapore - Athens - Larnaca - Rome - Turin - Zurich - Geneva - Copenhagen - New York. American Airlines was not a participating airline in any of the segments in the itinerary under the said conjunction tickets. In Geneva, American Airlines decided to forego his trip to Copenhagen and to go straight to New York and in the absence of a direct flight under his conjunction tickets from Geneva to New York, he exchanged the unused portion of the conjunction ticket for a one-way ticket from Geneva to New York from American Airlines. American Airlines issued its own ticket to Mendoza in Geneva and claimed the value of the unused portion of the conjunction ticket from the International Air Transport Association clearing house in Geneva. Later, Mendoza filed an action for damages before the regional trial court of Cebu for the alleged embarrassment and mental anguish he suffered at the Geneva Airport when American Airlines’ security officers prevented him from boarding the plane, detained him for about an hour and allowed him to board the plane only after all the other passengers have boarded. American Airlines filed a motion to dismiss for lack of jurisdiction of Philippine courts to entertain the said proceedings under Article 28 (1) of the Warsaw Convention.
Ruling in favor of Mendoza, the Supreme Court explained that the Warsaw Convention to which the Republic of the Philippines is a party and which has the force and effect of law in this jurisdiction applies to all international transportation of persons, baggage or goods performed by an aircraft gratuitously or for hire. One of the objectives of the Convention is “to regulate in a uniform manner the conditions of international transportation by air.”[77]
The contract of carriage entered into by Mendoza with Singapore Airlines, and subsequently with American Airlines, to transport him to nine cities in different countries with New York as the final destination is a contract of international transportation and the provisions of the Convention automatically apply and exclusively govern the rights and liabilities of the airline and its passengers. This includes Article 28 (1) of the Convention which enumerates the four places where an action for damages may be brought, thus: an action for damages must be brought, at the option of the plaintiff, in the territory of one of the contracting states, either before the court of the (a) domicile of the carrier or of his/her/its (b) principal place of business, or where s/he/it has a (c) place of business through which the contract has been made, or before the court at the (d) place of destination. In short, the plaintiff has the option to file a case against an international air carrier where it holds domicile, where it conducts its principal business, where it has any business in which the contract was issued, or where the flight’s destination is.
American Airlines countered and raised the issue of whether the contract of transportation between it and Mendoza would be considered as a single operation and part of the contract of transportation entered into by the latter with Singapore Airlines in Manila. The Airlines’ main argument is that the issuance of a new ticket in Geneva created a contract of carriage separate and distinct from that entered by the private respondent in Manila. Repelling this argument, the Supreme Court cited Article 1 (2) of the Warsaw Convention which states: “Transportation to be performed by several successive carriers shall be deemed, for the purposes of this convention, to be one undivided transportation, if it has been regarded by the parties as a single operation, whether it has been agreed upon under the form of a single contract or a series of contracts, and it shall not lose its international character merely because one contract or series of contracts is to be performed entirely within the territory subject of the sovereignty, suzerainty, mandate or authority of the same High contracting Party.”
The contract of carriage between Mendoza and Singapore Airlines although performed by different carriers under a series of airline tickets, including that issued by petitioner, constitutes a single operation. Members of the International Air Transport Association are under a general pool partnership agreement wherein they act as agent of each other in the issuance of tickets[78]
to contracted passengers to boost ticket sales worldwide and at the same time provide passengers easy access to airlines which are otherwise inaccessible in some parts of the world. Booking and reservation among airline members are allowed even by telephone and it has become an accepted practice among them.[79] A member airline which enters into a contract of carriage consisting of a series of trips to be performed by different carriers is authorized to receive the fare for the whole trip and through the required process of interline settlement of accounts by way of the International Air Transport Association clearing house an airline is duly compensated for the segment of the trip serviced.[80]
Thus, when American Airlines accepted the unused portion of the conjunction tickets, entered it in the International Air Transport Association clearing house and undertook to transport the private respondent over the route covered by the unused portion of the conjunction tickets, i.e., Geneva to New York, it tacitly recognized its commitment under the International Air Transport Association pool arrangement to act as agent of the principal contracting airline, Singapore Airlines, as to the segment of the trip it agreed to undertake. As such, American Airlines assumed the obligation to take the place of the carrier originally designated in the original conjunction ticket. By constituting itself as an agent of the principal carrier, American Airlines took an undertaking as part of a single operation under the contract of carriage executed by Mendoza and Singapore Airlines in Manila.
BAGONG FILIPINAS V. NLRC
The case of Bagong Filipinas v. NLRC[81]
is so short that it ought to be reproduced here in full as shown below.
219 Phil. 790
SECOND DIVISION
[ G.R. No. 66006. February 28, 1985 ]
BAGONG FILIPINAS OVERSEAS CORPORATION AND GOLDEN STAR SHIPPING, LTD., PETITIONERS,
VS.
NATIONAL LABOR RELATIONS COMMISSION, PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION, DIRECTOR PATRICIA SANTO TOMAS AND PROSERFINA PANCHO, RESPONDENTS.
D E C I S I O N
AQUINO, J.:
The issue in this case is whether the shipboard employment contract or Hongkong law should govern the amount of death compensation due to the wife of Guillermo Pancho who was employed by Golden Star Shipping, Ltd. a Hongkong based firm.
The shipboard employment contract dated June 1, 1978 was executed in this country between Pancho and Bagong Filipinas Overseas Corporation, the local agent of Golden Star Shipping. It was approved by the defunct National Seamen Board. Pancho was hired as an oiler in the M/V Olivine for 12 months with a gross monthly wage of US$195.
In October, 1978, he had a cerebral stroke. He was rushed to the hospital while the vessel was docked at Gothenberg, Sweden. He was repatriated to the Philippines and confined at the San Juan de Dios Hospital. He died on December 13, 1979.
The National Seamen Board awarded his widow, Proserfina, P20,000 as disability compensation benefits pursuant to the above-mentioned employment contract plus P2,000 as attorney's fees. Proserfina appealed to the National Labor Relations Commission which awarded her $621 times 36 months or its equivalent in Philippine currency plus 10% of the benefits as attorney's fees. Golden Star Shipping assailed that decision by certiorari.
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.
Hongkong law on workmen's compensation is not the applicable law. The case of Norse Management Co. vs. 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".
The Solicitor General opines that the employment contract should be applied. For that reason, he refused to uphold the decision of the NLRC.
WHEREFORE, the judgment of the National Labor Relations Commission is reversed and set aside. The decision of the National Seamen Board dated February 26, 1981 is affirmed. No costs.
SO ORDERED.
Concepcion, Jr., Abad Santos, Escolin, and Cuevas, JJ., concur.
Makasiar, J., (Chairman), reserve his vote.
FILIPINAS COMPANIA V. CHRISTERN
The case of Filipinas Compania v. Christern[82]
was about a fire policy issued by petitioner to respondent, both corporations. The object of the fire policy was burned; hence, respondent claimed from petitioner. Petitioner refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United States declared war against Germany, the respondent corporation (though organized under and by virtue of the laws of the Philippines) being controlled by German subjects and the petitioner being a company under American jurisdiction when said policy was issued on October 1, 1941.
The counter-argument was that the nationality of a private corporation cannot determined by the character or citizenship of its controlling stockholders because a corporation is a citizen of the country or state by and under the laws of which it was created or organized.
According to the Supreme Court, there being no question that the majority of the stockholders of the respondent corporation were German subjects, said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany.[83]
In Haw Pia v. China Banking Corporation,[84] the Court earlier held that the China Banking Corporation came within the meaning of the word “enemy” as used in the Trading with the Enemy Acts of civilized countries not only because it was incorporated under the laws of an enemy country but because it was controlled by enemies. In the same way, the Philippine insurance law, which was the applicable statute at the time, provided that “anyone except a public enemy may be insured.” It stands to reason therefore that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.
HAAG V. BARNES
The case of Haag v. Barnes[85]
was about a contractual choice of law provision on state with most significant contacts.
Plaintiff Dorothy Haag alleged that, in 1947, she moved from Minnesota and took up residence in New York. Since the, she had been a resident of New York. Defendant Norman Barnes, on the other hand, during the period involved in this litigation, was a resident of Illinois.
She met defendant in 1954 in New York. She was a law secretary and had been hired by defendant through an agency to do work for him while he was in New York on one of his business trips. The relationship between the man and the woman soon “ripened into friendship” and, on the basis of representations that he loved her and planned to divorce his wife and marry her, she was “importuned” into having sexual relations with him. As a result of this, she became pregnant with defendant and that, upon being informed of this, he asked her to move to Illinois to be near him. She refused and, instead, went to live in California with her sister to await the birth of her child. Fearing that defendant was losing interest in her, however, she returned to Chicago before the child was born and, upon attempting to communicate with defendant, was referred to his attorney. The latter told Dorothy to choose a hospital in Chicago, which she did, and the baby was born there in 1955, defendant paying the expenses.
Shortly after the birth of the child, her attempts to see defendant in New York failed and she was advised by his attorney to return to Chicago, Illinois in order that an agreement might be made for the support of her and her child. Returning to that city, under advice of her own counsel, she signed an agreement on January 12, 1956.
Under the agreement, defendant would pay plaintiff $2,000.00 from September 1955 to January 1956, with the willingness to support her child in the future under the condition that such support shall not constitute an admission that he was the child’s father. The written agreement included a quitclaim in favor of defendant from all manner of actions, present and future, including the support of the child. It also include a choice of law provision, saying that the agreement “shall in all respects be interpreted, construed and governed by the laws of the State of Illinois.”
Plaintiff later sued defendant. The question was whether New York law – the forum law – or Illinois law – the contractual choice of law – should apply.
Complications arose in this case because the agreement was not court-approved; hence, it may not be held to be a bar to her suit under New York internal law. On the other hand, it was clear that the agreement was considered a bar under the internal law of Illinois.
The traditional view is that the law governing a contract is to be determined by the intention of the parties.[86]
The more modern view is that “the courts, instead of regarding as conclusive the parties’ intention or the place of making or performance, lay emphasis rather upon the law of the place which has the most significant contacts with the matter in dispute.”[87] The Supreme Court of New York, however, said that whichever of these views applied in this case, the answer would be the same, namely, that Illinois law applies.
The agreement, in so many words, recites that it “shall in all respects be interpreted, construed and governed by the laws of the State of Illinois.” Also, considering that it was also drawn and signed by the parties in Illinois, the traditional conflicts rule would, without doubt, treat these factors as conclusive and result in applying Illinois law. Nevertheless, even if the intention of the parties and the place of the making of the contract were not given decisive effect, they would be given heavy weight in determining which jurisdiction had the most significant contacts with the matter in dispute.” And, when these important factors are taken together with other of the “significant contacts” in the case, they likewise would likewise point to Illinois law. Among these other Illinois contacts were held to be the following: (a) both parties were designated in the agreement as being “of Chicago, Illinois”; (b) the defendant's place of business was in Illinois; (c) the child was born in Illinois; (d) the persons designated to act as agents for the principals were Illinois residents, as are the attorneys for both parties who drew the agreement; and (e) all contributions for support were made from Chicago, Illinois.
To visually illustrate the above pronouncement of the New York Supreme Court, this author took the liberty of composing the following table.
|
TABLE NO. 002 |
|
|
ILLINOIS LAW |
NEW YORK LAW |
|
[Null] |
|
Residence of defendant |
|
[Null] |
|
[Null] |
|
[Null] |
|
[Null] |
|
[Null] |
|
Liaison transactions |
As illustrated in Table No. 002 above, the factors heavily gravitate toward Illinois law, in fact, overwhelmingly. Contrasted with these Illinois contacts, the New York contacts were of far less weight and significance, to say the least. Chief among these was the fact that child and the mother lived in New York at the time of the litigation and that part of the “liaison” took place in New York. When these contacts are measured against the parties’ clearly expressed intention to have their agreement governed by Illinois law and the more numerous and more substantial Illinois contacts, it may not be gainsaid that the “center of gravity” of the agreement was or is Illinois and that, absent compelling public policy to the contrary,[88]
Illinois law should apply.
The student of law must notice that, instead of applying only the traditional approach or only the modern approach, the New York Supreme Court, in deciding the Haag v. Barnes case, walked the extra mile to measure the case using both approaches. Because of this, it became crystal clear that, under any of the tests, Illinois law should be applied.
Unsatisfied, plaintiff invoked the public policy argument, saying that New York law should be applied in order to protect its policy. Answering this, the New York Supreme Court emphasized that the issue was not whether the New York statute reflected a different public policy from that of the Illinois statute, but rather whether enforcement of the particular agreement under Illinois law represents an affront to our public policy.[89]
It turned out that New York’s welfare-of-the-child policy required something more than the provision of “the bare necessities otherwise required to be supplied by the community,” In that Supreme Court’s judgment, enforcement of the support agreement in this case under Illinois law did not do violence to this policy. As matter of fact, the agreement was held to be providing beyond “indemnification of the community” and the provision of “bare necessities.” Whether read as a whole or merely through its financial provisions concerned, the agreement was fully protective of the welfare of the child. The public policy of New York having been satisfied, there would be no reason why its provisions should not be enforced under Illinois law, thereby constituting a bar to the action for support filed by plaintiff.
LILJEDAHL V. GLASSGOW
This case evades all attempts at online search and the only source that can be found is VLEX.[90] Another source is SCRIBD.[91] Other than these two, the full text of the case cannot be found elsewhere.
At any rate, it appears that the subject property in this case was a tract of land located in the State of Colorado, the mortgaged property that secured a loan amounting to $6,000.00. The instrument had in blank the name of the grantee. The mortgagor named Bailey contracted with the mortagee named Foskett. Foskett transferred mortgaged rights to Frank Glassgow who, in turn, conveyed the same to a certain Mr. Hiatt. Hiatt later conveyed to the defendant Joe Hilger. In all these transfers, Glassgow did not put his name in the blank. All the conveyances were made in Iowa although the property was located in Colorado.
All in all, the transferee argued that he should not be made liable on the instrument under the lex situs principles, i.e., the location of the property (Colorado). On the other hand, it was argued that the lex contractus principle should apply, i.e., the place where the contract was made (Iowa). Under the law of Colorado, a deed blank as to grantee should be considered a nullity, and would pass no interest whatsoever by mere delivery to a purchaser, until his/her name is written therein. S/he, however, has the implied authority to insert his name therein and, by doing so, acquires title.
It was held that instruments of conveyance primarily or directly relating to the tile follow the principle of lex rei sitae. On the other hand, personal covenants or agreements in instruments of conveyance follow law of the place where the same is executed or the place where the obligation is to be performed. Also, considering that the parties were residents of Iowa, that the obligation was payable in Iowa, and that the delivery of the instrument was made in Iowa, the parties may be presumed to have contracted with each other under the law of Iowa.
x---------------------------------------------x
[1] Article 1305 of the New Civil Code of the Philippines.
[2] BA Finance Corp. v. Intermediate Appellate Court, 291 Phil. 265, 280 (1993).
[3] Article 1159 of the New Civil Code of the Philippines.
[4] Banico v. Strager, G.R. No. 232825, September 16, 2020.
[5] Article 1318 of the New Civil Code of the Philippines.
[6] Article 1305 of the New Civil Code of the Philippines.
[7] Article 1315 of the New Civil Code of the Philippines.
[8] Article 1306 of the New Civil Code of the Philippines.
[9] Article 1308 of the New Civil Code of the Philippines.
[10] Article 1311 of the New Civil Code of the Philippines.
[11] Article 17 of the New Civil Code of the Philippines.
[12] Article 1159 of the New Civil Code of the Philippines.
[13] Article 1356 of the New Civil Code of the Philippines.
[14] Article 24 of the New Civil Code of the Phillippines.
[15] Project Jurisprudence (2020). Court's Protection for the Underdog (Article 24, Civil Code). https://www.projectjurisprudence.com/2020/10/courts-protection-for-underdog-article-24-civil-code.html. Last access: September 05, 2023m citing Paras.
[16] G.R. No. 104776. December 05, 1994, 308 Phil. 728.
[17] Canadian Northern Railway Co. v. Eggen, 252 U.S. 553, 40 S. Ct. 402, 64 L. ed. 713 [1920].
[18] Cadalin v. POEA, G.R. No. 104776. December 05, 1994, 308 Phil. 728.
[19] Article 156 of the Amiri Decree No. 23 of 1976,
[20] Article 290. Offenses. Offenses penalized under this Code and the rules and regulations issued pursuant thereto shall prescribe in three (3) years. All unfair labor practice arising from Book V shall be filed with the appropriate agency within one (1) year from accrual of such unfair labor practice; otherwise, they shall be forever barred. Article 291. Money claims. All money claims arising from employer-employee relations accruing during the effectivity of this Code shall be filed within three (3) years from the time the cause of action accrued; otherwise they shall be forever barred. (Labor Code of the Philippines)
[21] Article 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) upon a written contract; (2) upon an obligation created by law; (3) upon a judgment. (New Civil Code of the Philippines)
[22] Restatement of the Conflict of Laws, Sec. 685; Salonga, Private International Law 131 [1979].
[23] Goodrich, Conflict of Laws 152-153 [1938].
[24] Siegel, Conflicts 183 [1975],
[25] Goodrich and Scoles, Conflict of Laws 152-153 [1938].
[26] Paras, Philippine Conflict of Laws 104 [7th ed.].
[27] Canadian Northern Railway Co. v. Eggen, 252 U.S. 553, 40 S. Ct. 402, 64 L. ed. 713 [1920].
[28] Quoted and cited in Cruz v. Cruz, G.R. No. 211153, February 28, 2018.
[29] Quoted and cited in Cruz v. Cruz, G.R. No. 211153, February 28, 2018.
[30] Article 1156 of the New Civil Code of the Philippines.
[31] Article 1157 of the New Civil Code of the Philippines.
[32] Article 1163 of the New Civil Code of the Philippines.
[33] Article 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to all the circumstances of each case. (New Civil Code of the Philippines)
[34] Hasegawa v. Kitamura, G.R. No. 149177, November 23, 2007.
[35] Hasegawa v. Kitamura, G.R. No. 149177, November 23, 2007,
[36] Philippine Export and Foreign Loan Guarantee Corporation v. V.P. Eusebio Construction, Inc., G.R. No. 140047, July 13, 2004, 434 SCRA 202, 214-215.
[37] https://en.wikipedia.org/wiki/Lex_loci#Lex_loci_solutionis.
[38] https://en.wikipedia.org/wiki/Choice_of_law.
[39] https://dictionary.lawyerment.com/topic/lex_loci_solutionis.
[40] Article 17 of the New Civil Code of the Philippines.
[41] Article 1306 of the New Civil Code of the Philippines.
[42] See Article 1159 of the New Civil Code of the Philippines.
[43] Bricktown Development Corp. v. Amor Tierra Development Corporation, 309 Phil. 119, 120 (1994).
[44] Article 1306 of the New Civil Code of the Philippines.
[45] Article 19 of the New Civil Code of the Philippines.
[46] IP E-Game v. Tan, G.R. No. 239576, June 30, 2021.
[47] Yntema, H. E. (1952). Autonomy in choice of law. Am. J. Comp. L., 1, 341.
[48] Yntema, H. E. (1952). Autonomy in choice of law. Am. J. Comp. L., 1, 341.
[49] Max Rheinstein, Ulrich M. Drobnig, & Peter Hayh (Unspecified Date). “Choice of law.” www.britannica.com/topic/conflict-of-laws/International-criminal-law. Last accessed: September 06, 2023.
[50] Mattson, R. W. (1981). Allstate Insurance Company v. Hague: Abandonment of Meaningful Constitutional Controls on Choice of Law. Ky. LJ, 70, 131.
[51] Lando, O. (1984). The conflict of laws of contracts: general principles. Hague Academy of International Law.
[52] Also known as “grouping of contacts theory” or “property law doctrine.” See P. R. Webb, Conflict in Conflicts - Vested Rights versus Proper Law: An English Don Reads Babcock, 9 Vill. L. Rev. 193 (1964). Available at: https://digitalcommons.law.villanova.edu/vlr/vol9/iss2/1.
[53] 308 N.Y. 155, 160 (N.Y. 1954).
[54] See Wilson v. Lewiston Mill Co., 150 N.Y. 314, 322-323; Stumpf v. Hallahan, 101 App. Div. 383, 386, affd. 185 N.Y. 550; Grand v. Livingston, 4 App. Div. 589, affd. 158 N.Y. 688.
[55] See Barber Co. v. Hughes, 223 Ind. 570, 586.
[56] Rubin v. Irving Trust Co., 305 N.Y. 288, 305; see, also, Jones v. Metropolitan Life Ins. Co., 158 Misc. 466, 469-470; Jansson v. Swedish American Line, 185 F.2d 212; Barber Co. v. Hughes, 223 Ind. 570; Boissevain v. Weil, 1 K.B. 482, 490-492; Cook, “Contracts” and the Conflict of Laws: “Intention” of the Parties, 32 Ill. L. Rev. 899, 918-919; Harper, Policy Bases of the Conflict of Laws: Reflections on Rereading Professor Lorenzen's Essays, 56 Yale L.J. 1155, 1163-1168; Note, Choice of Law Problems in Direct Actions Against Indemnification Insurers, 3 Utah L. Rev. 490, 498-499.
[57] 3 Utah L. Rev., pp. 498-499.
[58] See Vanston Committee v. Green, 329 U.S. 156, 161-162.
[59] Swift Co. v. Bankers Trust Co., 280 N.Y. 135, 141; see Vanston Committee v. Green, 329 U.S. 156, 161-162.
[60] Cavalieri, R., & Salvatore, V. (2019). An Introduction to International Contract Law. 1ª edição, 7.
[61] Article 1231 of the New Civil Code of the Philippines.
[62] Conflict of Laws and the Discharge of Contracts: An Approach. (1957). Columbia Law Review, 57(5), 700–716. https://doi.org/10.2307/1119412.
[63] Graveson, R. H. (1951). The Discharge of Foreign Monetary Obligations in the English Courts. The Conflict of Laws and International Contracts (Ann Arbor, 1951), 122.
[64] Graveson, R. H. (1951), citing Gibbs v. Societe Industrielle des Metaux (1890) 25 Q. B. D. 399; Ralli v. Dennistoun (1851) 6 Ex. 483; Ellis v. M'Henry (1871) L. R. 6 C. P. 228; Swiss Bank Corporation v. Boehmische Industrial Bank [1923] 1 K. B. 673.
[65] Graveson, R. H. (1951), citing Di Ferdinando v. Simon, Smits & Co. [1920] 3 K. B. 409 (C. A.).
[66] Graveson, R. H. (1951), citing Chatenay v. Brazilian Submarine Telegraph Co. [1891) 1 Q. B. 79.
[67] Graveson, R. H. (1951), citing Manners v. Pearson [1898] 1 Ch. 581.
[68] Graveson, R. H. (1951). The Discharge of Foreign Monetary Obligations in the English Courts. The Conflict of Laws and International Contracts (Ann Arbor, 1951), 117.
[69] See Gold, J. 10 Exchange Control: Act of State, the Articles of Agreement, and Other Complications. In The Fund Agreement in the Courts, Vol. III. International Monetary Fund. https://www.elibrary.imf.org/display/book/9781475507324/ch010.xml. Last accessed: September 06, 2023.
[70] For example, Article 2177 of the New Civil Code.
[71] Article 1249 of the New Civil Code of the Philippines.
[72] Article 1250 of the New Civil Code of the Philippines.
[73] Gold, J. 10 Exchange Control: Act of State, the Articles of Agreement, and Other Complications. In The Fund Agreement in the Courts, Vol. III. International Monetary Fund. https://www.elibrary.imf.org/display/book/9781475507324/ch010.xml. Last accessed: September 06, 2023.
[74] Gold, J. 10 Exchange Control: Act of State, the Articles of Agreement, and Other Complications. In The Fund Agreement in the Courts, Vol. III. International Monetary Fund. https://www.elibrary.imf.org/display/book/9781475507324/ch010.xml. Last accessed: September 06, 2023.
