Chapter 14 - CHOICE OF LAW IN CONTRACTS - COQUIA NOTES k

A contract is defined as the meeting of the minds between two person whereby one binds himself, with respect to
the other , to give something or render some service.

As a general rule, unless provided by law or in the agreement,a contract is obligatory i whatever form it may have
been entered into provided that all the essential requisites for its validity are present.

A. CONTRACTS INVOLVING A FOREIGN ELEMENT

States, in their municipal laws, have different rules on the formalities of a contract, the capacity of parties, the
essential requisites for the intrinsic validity of contracts, interpretation of contracts and the law governing execution
thereof.

By reason of these different rules, the forum court presented with a contracts case involving a foreign elements must
be aware of the likelihood that the parties may have entered into the contract with a particular State law in mind,
expecting it to govern questions that may arise form the contract.

Moreover, many specific provisions in contracts, interpretations of contracts, are merely designed to carry out the
general policies of contract law common to all states , and are applied only when the lex loci intentionis cannot be
ascertained.

B. EXTRINSIC VALIDITY OF CONTRACTS

The lex loci celebrationis governs the formal or extrinsic validity of contracts.
A contract is valid as to form if in accordance with any form recognized as valid by the law of the country where
made, and that no contracts is valid which is not made in accordance with the local form.

If the contact does not comply with the requirement of the lex loci celebrationis then it does not come into existence.

The forms and solemnities for contracts, wills, and other public instruments shall be governed by the laws of the
country in which they are executed.

these principles are derived form a broader proposition that their place governs the act - locus regit actum.

Acceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge.

C. INTRINSIC VALIDITY OF CONTRACTS.

The intrinsic or essential validity refers to the nature, content and effects of the agreement.
Article 1318 of CCThe following requisites must concur for there to be a contract:1. consent of the contracting
parties;2. Object certain which is the subject matter of th contract; and3. Cause of the obligation which is established
Learned commentators proposed three possible laws that could govern the questions relating to the intrinsic validity
of contracts:
1. The law of the place of making - lex loci contractus
2. The law of the place of performance - lex loci solutionis
3. The law intended by the parties - lex loci intentionis
1. LEX LOCI CONTRCTUS
The law of the place of making or lex loci contractus refers to the law of the place where the contract is made.
To determine where the contract is made, we look to the place where the last act is domne which is necessary to
bring the binding agreement into being so far as the acts of tech parties are concerned.
The mechanical application of the lex loci contractus has however led to unjust rsult when the place of making is
entirely incidental or casual and has no significant relationship with the contract or its performance.
2. LEX LOCI SOLUTIONIS
The law of the place of performance calls for the reference to a law other than the place where the acts of offer and
acceptance took place.
The law governing performance is lex loci solutionis.
All matters relating to the time, place and manner of performance, sufficiency of performance and valid excuses for
non-performance are determined by lex loci solutionis which is useful because it is undoubtedly always connected to
the contract5 in a significant way.
Likewise, this approach is not helpful when the contract should b performed in two or more states with conflicting
laws on validity of contracts.
3 LEX LCI INTENTIONISW
Conflict of laws experts, Dicy and Cheshire, have articulate the view tha5t the intrinsic validity of a contract should be
governed by the law intended by the parties or lex loci intentionis.
This intention may be expressed in a choice of law provision in the contract.
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.
When the parties stipulate that the contract be governed by a specific law,such will be recognized unless there are
cogent reasons for not doing so the choice of law provision is contrary to a fundamental policy of the forum.
Questions of construction and interpretation of contracts are within the contractual capacity of the parties.
Civil Code provides that if the terms of the contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.
If the words appea4r to be contrary to the evident intention of the parties, the latter shall prevail over the former
and that the intentions of the contracting parties are judged by their contemporaneous subsequent acts.
The issue of intent does not always involve the actual mental operations of the parties.
Nevertheless, the law looks at the acts of the parties and the surrounding circumstances which may possibly have
exerted some influence upon their actions, and then assumes that their intentions are in harmony with such acts and
circumstances.
The court before which the intrinsic validity of the contract is put in question should apply the law of hte place that
would sustain the contract.
D. CAPACITY TO ENTER INTO CONTRACTS
In the countries which follow the nationality law principle, the capacity to enter into a contract is governed by their
national laws.
in countries that follow the domiciliary law theory, the law of their domicile shall govern.
The court would have arrived at the same result had it applied lex nationalii which was also the lex loci celebrationis.
E. CHOICE OF LAW ISSUES IN CONFLICTS CONTRACT CASES
Under the principle of freedom of contract, parties may stipulate on the law to govern their contract agreement.
2. CONTRACTS WITH ARBITRATION CLAUSE
A multistate or multinational contract that consists an arbitration clause gives rise to the issue of whether one of the
parties can compel the other to submit to arbitration.
The New York court declared the arbitration clause identifying the Chief Engineer as arbiter to decide all matters in
dispute arising out of the contract and declaring such decisions as "final and conclusive between the parties thereto,
and each and every of said party hereby waives all rights of actions" as contrary to the declared policy of the courts.
3. ADHESION CONTRACTS
An adhesion contract is one that is not negotiated by the parties, having been drafted by the dominant party and
usually embodied in a standardized form.
It is a contract of adhesion because the only participation of the other party is in affixing her signature or adhering
thereto.