CHOICE OF LAW IN CONTRACTS States have different rules governing formalities of contracts, capacity of parties, intrinsic validity, interpretation and execution of the same. It is important therefore for the forum court to bear in mind that the parties may have a particular State law in mind when they entered the contract. To ignore such possibility would result in disregarding the reasonable expectations of the parties. This would go against the very nature of a contract which is essentially an agreement between parties. Unlike family law, contract law does not reflect strong state policies grounded on a particular societys values that will prevent supplanting forum law with another state law. Contracts in General The Civil Code defines a contract as 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. It is perfected by mere consent and from that moment, the parties are bound not only to the fulfillment of what has been agreed upon but also to all consequences of the same. Furthermore, a contract is obligatory in whatever form unless the law provides otherwise. Contracts give stability to transactions and provides for what parties can reasonably expect from each other. Extrinsic Validity Of Contracts A contract is valid as to its form if it is in accordance with the form recognized as valid by the law of the country where it was made. This is the principle of lex loci celebrationis. Article 17 of Philippine Civil Code provides that the forms and solemnities of contracts, wills and other public instruments shall be governed by the laws of the country where they are executed. The place governs the act or locus regitactum. Article 1319, paragraph 2 of the Civil Code covers contracts entered into by cablegram, telex or fax messages. Acceptance made through these modes of communication will not bind the offeror except from the time it came to his knowledge.in

such a case, the contract is presumed to have been entered into in the place where the offer was made. Intrinsic Validity of Contracts The intrinsic validity of a contract refers to the nature, content and effects of the agreement. According to Article 1318 of the Philippine Civil Code, Consent, Object and Cause are the essential requisites in order to have a valid contract. Questions concerning the intrinsic validity of a contract may be resolved by applying the law of the place of the making; the law of the place of performance; or the law intended by the parties. Lex Loci Contractus refers to the law of the place where the contract is made. For the purpose of determining where the contract was made, reference is made to the place where the last act is done which is necessary to bring the binding agreement into being so far as the acts of the parties are concerned. Application of this principle makes it easier to achieve stability and certainty in contracts. However, it is not without flaw. The mechanical application of lex loci contractus had also led to unjust results as when the place of the making of the contract was merely incidental or casual and had no significant relationship with the contract or its performance. Another way of resolving questions as to the intrinsic validity of contracts is by applying the law of the place of performance or lex loci solutionis. In this case, the reference is made to a law other than that of the place where the acts of offer and acceptance took place. This principle is useful because the law of the place where performance is to be effected always has some significant connection to the contract itself. However, the problem with the application of this principle is that it would give extraterritorial effects to the laws of the state where performance is to be made. Furthermore, more complications will arise especially when performance is to be made in two or more states with conflicting rules on the validity of contracts. The last manner of resolving issues as to the intrinsic validity of a contract is by determining the law intended by the parties or lex loci intentionis. This can be inferred

from a provision in the contract itself. Article 1306 of the Philippine Civil Code provides that the contracting parties may establish 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 parties have therefore stipulated that specific law will govern their contract, it will be respected so long as there are no cogent reasons for not doing so. Parties are free to give meaning and interpretations to their contracts and the Philippine Civil Code, specifically Article 1371 provides that if the contract is clear as to leave no doubt as to the intention of the parties, the literal meaning of the stipulations shall govern. Capacity of Parties Another issue that might arise in a contract is with respect to the capacity of parties. The Philippine Civil Code, specifically Article15 provides that legal capacity of a citizen of the Philippines is determined by Philippine laws. This follows the nationality principle. Choice of Law Issues in Conflicts Contracts Cases Parties to a contract are free to stipulate on the law to govern their contract agreement. The principle of freedom of contract gives the parties such liberty. If the contract has a choice of forum clause which specifically identifies a particular forum as an exclusive venue in case of litigation, such provision will govern. If the parties have agreed as to venue, it will be respected unless another court is required by statute to entertain the action; the plaintiff cannot secure effective relief in such venue for reasons other than delay in bringing the action; such state would be a substantially less convenient place for trial; the agreement as to venue was obtained through misrepresentation, duress, abuse of economic power or other unconscionable means; or that for some other reason it would be unfair or unreasonable. Contracts containing arbitration clauses also give rise to the issue of whether or not one party can compel the other to submit to arbitration. In one case, (MeachanvsJamertone) the court declared the arbitration clause to be contrary to public

policy. The rule is that unless the agreement is such as to absolutely close the doors of the courts against the parties, the court will look with favor upon an amicable arrangement (Purominesvs CA). Contracts of adhesion are another type of contracts which must be interpreted according to established rules. They are those prepared only by one party and where the other party merely affixes his signature and adheres thereto. These contracts must be interpreted strictly against the one who prepared the documents. An example would be an insurance contract. When an adhesion contract contains provisions as to choice of law or venue, the same must be liberally construed in favor of the party who impugns it or merely adhered thereto. There are also certain special types of contracts with special characteristics and which are governed by specific rules. In sales or barter of goods, the law of the place where the property is located will govern (lexsitus). Applicable law in the Absence of an effective Choice In the absence of an effective choice of law made by the parties, consideration will be given to the following matters: place of contracting; place of negotiation; place of performance; situs of the subject matter of the contract; domicile, residence, nationality, place of incorporation, and place of business of the parties; and the place under whose local law the contract will be most effective. The court should localize the contract by examining the factual contacts it had with the concerned state relative to the issue. Limitations to Choice of Law Generally, parties cannot choose a law to govern their contract if said law has no connection at all to their transaction. Another limitation is the use of cognovits clauses. In a cognovit clause, the debtor may agree to subject to the jurisdiction of a specific court in case he defaults. Such clause often waives the debtors right to receive notice or authorizes the entryof judgment against him. It is also called confession of judgment.