The intrinsic validity of contracts is governed by the law intended by the parties or lex loci intentionis. This intention may be expressed in the choice-of-law or governing law provision in the contract. Art. 1306 of the civil code provides that “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”
In Philippine Export and Foreign Loan Guarantee v. V.P. Eusebio Construction, Inc., G.R. No. 140047, 13 July 2004, the Supreme Court manifested preference for allowing the parties to select the law applicable to their contract:
“The rule followed by most legal systems, however, is that the intrinsic validity of a contract must be governed by the lex contractus or “proper law of the contract.” This is the law voluntarily agreed upon by the parties (the lex loci voluntatis) or the law intended by them either expressly or implicitly (the lex loci intentionis). The law selected may be implied from such factors as substantial connection with the transaction, or the nationality or domicile of the parties. Philippine courts would do well to adopt the first and most basic rule in most legal systems, namely, to allow the parties to select the law applicable to their contract, subject to the limitation that it is not against the law, morals, or public policy of the forum and that the chosen law must bear a substantive relationship to the transaction.”
Similarly, in Cuartocruz vs. Active Works,G.R. No. 209072, 27 July 2019, the Court highlighted that the governing law of a contract can be different from the jurisdiction where disputes are resolved, provided that the foreign law is properly proven and does not contravene local laws. Further, it ruled that:
“Although the employment contract is punctuated with provisions referring to Hong Kong law as the applicable law that governs the various aspects of employment, Hong Kong law was not proved. Indeed, a contract freely entered into is considered the law between the parties who can establish stipulations, clauses, terms and conditions as they may deem convenient, including the laws which they wish to govern their respective obligations, as long as they are not contrary to law, morals, good customs, public order or public policy. The foreign law is treated as a question of fact to be properly pleaded and proved as the judge or labor arbiter cannot take judicial notice of it. He is presumed to know only domestic or forum law.” (Emphasis supplied.)
In essence, the choice-of-law issue in a conflict-of-laws case seeks to answer the following important questions: (1) What legal system should control a given situation where some of the significant facts occurred in two or more states; and (2) to what extent should the chosen legal system regulate the situation. These questions are entirely different from the question of jurisdiction that only seeks to answer whether the courts of a state where the case is initiated have jurisdiction to enter a judgment. As such, the power to exercise jurisdiction does not automatically give a state constitutional authority to apply forum law.
As to the exclusivity of the venue, in Hong Kong and Shanghai Banking Corporation v Sherman, G.R. No. 72494, 11 August 1989, where the contract in issue provided that “the Courts of Singapore shall have jurisdiction over all disputes arising under the contract”, the Supreme Court similarly held that ”the parties did not thereby stipulate that only the courts of Singapore, to the exclusion of all the rest, has jurisdiction” and that the clause should be read as referring to venue and not jurisdiction. The Supreme Court further held that the language of the clause did not make Singapore courts the exclusive venue, which seems to imply that, had the wording been more restrictive then the exclusive nature of the choice might have been upheld. Thus, it could be argued that while parties cannot, by contract, remove a Philippine court’s jurisdiction where it would otherwise apply, they may still designate a Philippine court as the venue and through the use of restrictive language, make that venue exclusive.
