MADRIGAL, GENELLE MAE A.

BC School of Laws
LLB 3 - Conflict of Laws

Contract is an agreement among several parties involving the delivery of a product or the
performance of an act. There is always a conflict regarding either the place of contracting
or the place of performance as criteria in determining which law should be applied to the
problem related to a contract arising between parties. In the establishment of a contract,
the parties are free to stipulate the terms and conditions of their relationship which
become the law of the contract whereby the parties are bound to observe. This freedom
of choice is also subject to certain restrictions, because sometime such choice may mean
the exclusion of the operation of some law, which could be otherwise applicable. It means
this choice makes that applicable law, inapplicable in particular circumstances. The
contracting parties may provide that the stipulated law may have general or limited
applicability.

When contracting parties fails to specify the extent of the applicability of their chosen law,
the chosen law will normally apply to the following concerns: (1) Interpretation, (2) Rights
and obligations arising from the contract; (3) Performance and the consequences of non-
performance, including the assessment of damages; (4) The various ways of
extinguishing obligations and prescription and limitation periods; (5) Validity and the
consequences of invalidity of the contract; (6) Burden of proof and legal presumptions;
and (7) Pre- contractual obligations.

In order to prevent complications, parties may waive the application of renvoi doctrine.
This simply means that rules of private international law will find no application once
foreign law is chosen by the parties. In addition, the renvoi doctrine is a complicated, for
it mandates the parties to look to the totality of foreign law in determining their rights and
obligations.

There are three (3) principles in addressing the issue of applicable law in contractual
disputes – lex-loci contractus,

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(1) Lex- loci- contractus, means that the law of the place where the contract takes place.
If the parties to contract are from the same place, it means from the same country then
there is no difficulty regarding the enforceability of the contract and lex- loci- contractus
will be the governing law. Many times, the place of the contract is determined by where
the ‘meeting of the minds’ occurred. This is law will be applied to issues of validity. The
court will use the law of the place of performance where the issue arises out of an issue
of performance such as nonperformance, breach, damages, etc. The law of the place of
execution is the default law based on the presumption that the parties would have
specified a particular law if they did not want local law to govern their contractual
relationship.

(2) Lex loci celebrationis, means that the law of the place where the contract is performed
or celebrated. It is the law of the place of performance governs contractual disputes since
the parties to a contract are expected to follow and comply with the laws where they are
operating or performing their obligations.

(3) State of the most significant relationship rule, means that the law of the place with the
most connection to the dispute. The more factors connecting the case to a particular state,
the easier it will be to determine the rights and obligations of the parties to the contract.
This approach is embodied in Sec. 188 of Restatement (Second) of Conflict of Laws
entitled “Law Governing in Absence of Effective Choice by the Parties”. As enunciated in
Sec. 188, the connecting factors to be considered are the place of contracting, place of
negotiation of the contract, the place of performance, the location of the subject matter of
the contract, and the domicile, residence, nationality, place of incorporation, and place of
business of the parties.

Depecage is where a court applied different jurisdictions substantive law to different

issues in a particular court. This theory is also frequently rejected based on the fact its
application results in a decision that would not have been possible under any one state’s
law.

In Article 2176 of CC provides that whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is called a

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quasi-delict or tort. Problems as to the applicable law in torts cases usually arises when
a foreign element is involved. Conflict of laws usually occur in cases of cross-border torts
when the act or conduct causing the injury happens in one state while the resulting injury
is felt in another state.

Under the principle of lex loci delicti, a court determines the substantive rights of an injured
party according to the law of the state where the injury occurs. It is a recognized principle
of the law of the conflict of laws that the law of the state where an alleged tort is completed
controls the liability. Where a tort is committed in one state and sued on in another, the
lex loci delicti principle controls.

Another significant rule is governmental interest approach. It requires application of the

law of the state with the greatest interest in resolving the particular issue that is raised in
the underlying litigation. Under the governmental interest approach, the courts evaluate
the governmental policies underlying the applicable laws and determine which
jurisdiction’s policy would be more advanced by the application of its law to the facts of
the case under review.

Choice-influencing considerations are predictability of results, maintenance of reasonable

orderliness and good relationship among the states in the federal system, simplification
of the judicial task, advancement by the court of its own state’s governmental interests
rather than those of other states and the court’s preference for what it regards as the
sounder rule of law.

Although the substantive rights of the parties are determined by the law of the place of
the injury under the traditional rule of lex loci delicti, for procedural matters, the law of the
forum, or lex fori, applies. Also, law of the forum will be applied whenever the law of the
place of the wrong is contrary to an extraordinarily strong public policy of the forum state.

Under the most significant relationship rule, the most significant factors are the parties’
domicile and the location of the tort. A parties’ forum selection clause in any applicable
agreement is also a factor a court will consider. The rights and liabilities of the parties
with respect to an issue in tort are determined by the local law of the state which has the
most significant relationship to the occurrence and the parties.

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The general principles, which the forum should consider in determining which state has
the most significant relationship with the cause of action, are the rights and liabilities of
the parties with respect to an issue in tort; and contacts to be considered in applying the
principles of a particular section to determine the law applicable to an issue. The points
of contact, as enumerated in the Restatement (Second) of Conflict of Laws, are place
where the injury occurred, place where the conduct causing the injury occurred, domicile,
residence, nationality, place of incorporation and place of business of the parties, and
place where the relationship, if any, between the parties is centered. It must be noted that
one point of contact in most significant relationship is the “place where the injury occurred”

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