c. Lex Contractus

Lex Contractus

Concept

Lex contractus refers here to the law applicable to the principal contract. In a dispute with foreign elements, the court must first characterize the issue and identify the relevant connecting factors before selecting the governing law. The law governing one agreement does not necessarily govern every related agreement or issue. (Standard Chartered Bank v. Philippine Investment Two (Spv-Amc), Inc., G.R. No. 216702-03, 26 April 2023)¹ (Continental Micronesia, Inc. v. Basso., G.R. No. 122191, 23 September 2015)²

Governing provisions

Article 17 of the Civil Code governs the forms and solemnities of contracts, wills, and other public instruments by the law of the country where they are executed. This is a rule about form; it does not, by itself, resolve every issue arising from a contract. (Art. 17, Civil Code)³

Article 16 separately subjects real and personal property to the law of the country where it is situated. Thus, when a contractual dispute concerns property, the court must identify whether the particular question is one about the contract or about property governed by that provision. (Art. 16, Civil Code)⁴ (Standard Chartered Bank v. Philippine Investment Two (Spv-Amc), Inc.)¹

Requisites / Rules

• Identify the foreign element. Its presence raises a conflict-of-laws issue requiring the court to determine the proper law, rather than simply assume that forum law applies. (Continental Micronesia, Inc. v. Basso.)² (Vda. De Alcañeses v. Alcañeses, G.R. No. 187847, 30 June 2021)⁵
• Characterize the issue. Determine the category to which the disputed matter belongs before choosing the applicable law. In particular, distinguish a question about the principal obligation from one about an accessory agreement. (Standard Chartered Bank v. Philippine Investment Two (Spv-Amc), Inc.)¹ (Vda. De Alcañeses v. Alcañeses)⁵
• Identify the relevant connections. The place of celebration, place of performance, and situs may be relevant connecting factors. Their significance depends on the issue being resolved. (Continental Micronesia, Inc. v. Basso.)²
• Apply the law governing the principal obligation to its extinguishment. Extinguishment is incidental to that obligation; the law of an accessory contract does not govern it merely because the accessory contract is involved in the dispute. (Standard Chartered Bank v. Philippine Investment Two (Spv-Amc), Inc.)¹ (G.R. Nos. 216608 & 216625, 26 April 2023)⁶

Distinctions

Form versus principal obligation. Article 17 supplies a place-of-execution rule for contractual forms and solemnities. By contrast, a question whether a principal obligation has been extinguished follows the law applicable to that principal obligation. Do not use a rule about formal validity as an answer to a distinct question about extinguishment. (Art. 17, Civil Code)³ (G.R. Nos. 216608 & 216625)⁶

Jurisdiction versus choice of law. A Philippine tribunal’s authority to hear a dispute does not automatically make Philippine substantive law applicable. Jurisdiction concerns bringing a defendant before the forum; choice of law concerns which substantive law fairly governs the issue. (Vda. De Alcañeses v. Alcañeses)⁵ (Saudi Arabian Airlines v. Rebesencio, G.R. No. 198587, 14 January 2015)⁷

Key doctrines

Characterization prevents the law of an accessory arrangement from being applied to an issue properly belonging to the principal contract. The Court applied this distinction to extinguishment of obligations arising from promissory notes. Whether extinguishment has in fact occurred may still require proof; it cannot be presumed from an amendatory stipulation alone. (Standard Chartered Bank v. Philippine Investment Two (Spv-Amc), Inc.)¹ (G.R. Nos. 216608 & 216625)⁶

Exceptions

Where an instrument is executed before Philippine diplomatic or consular officials abroad, Article 17 requires observance of Philippine solemnities. The same article also preserves prohibitive Philippine laws concerning persons, acts, or property, and laws protecting public order, public policy, and good customs, against being rendered ineffective by foreign laws, judgments, determinations, or conventions. (Art. 17, Civil Code)³

Bar tip

State the precise issue first: form, property, or extinguishment of the principal obligation. Then identify the rule and connecting factors appropriate to that issue; do not equate jurisdiction with the applicable law. (Art. 17, Civil Code)³ (Art. 16, Civil Code)⁴ (Vda. De Alcañeses v. Alcañeses)⁵ (G.R. Nos. 216608 & 216625)⁶