Government of the Philippine Islands vs. Frank

The validity and capacity to enter into a contract are governed by the law of the place where the contract is made, and subsequent legislative amendments to laws incorporated into a contract do not alter its terms or impair vested rights acquired thereunder.

The Insular Government of the Philippine Islands, through a representative in Chicago, Illinois, recruited stenographers and other personnel for service in Manila under contracts that expressly incorporated certain Philippine statutes — Acts No. 80 and No. 224 — as part of their terms. These Acts governed the conditions of government employment and were later amended by Acts No. 643 and No. 1040. The defendant, George I. Frank, was recruited under such a contract in Chicago and thereafter deployed to Manila, where Philippine law set the age of majority at twenty-three years for males at the relevant time, in contrast to the age of majority under Illinois law.

On or about April 17, 1903, in the city of Chicago, Illinois, the defendant George I. Frank, through a representative of the Insular Government of the Philippine Islands, entered into a contract for a period of two years with the plaintiff Government. Under the contract, the defendant was to serve as a stenographer at a salary of $1,200 per year, and in addition was to be paid in advance the expenses of traveling from Chicago to Manila, plus one-half salary during the period of travel. The contract contained a provision that in case of violation of its terms by the defendant, he would become liable to the plaintiff for the amount expended by the Government for travel expenses and the half-salary paid during the travel period. The parties expressly agreed that Acts No. 80 and No. 224 would constitute part of the contract.

The defendant commenced performance on April 30, 1903, and was paid half-salary from that date until June 4, 1903, the date of his arrival in the Philippine Islands. On February 11, 1904, the defendant left the service of the plaintiff and refused further compliance with the contract's terms.

On December 3, 1904, the plaintiff commenced an action in the Court of First Instance of Manila to recover $269.23, representing travel expenses and half-salary paid to the defendant. The defendant filed a general denial and a special defense alleging that the Government had amended Acts No. 80 and No. 224 — through Acts No. 643 and No. 1040 — thereby materially altering the contract, and further alleging that he was a minor at the time the contract was entered into and therefore not legally bound. The plaintiff demurred to the special defense, and the court sustained the demurrer.

After trial on the merits, the lower court rendered judgment against the defendant for $265.90, finding that $3.33 was due to the defendant at the time he quit the service, leaving a net balance of $265.90 in favor of the plaintiff. The defendant appealed, assigning as error the sustaining of the demurrer to his special defenses and the rendition of judgment against him on the facts.

N/A — The plaintiff-appellee (the Government) was the prevailing party below; the decision does not recount independent arguments pressed by the plaintiff beyond the demurrer and the complaint's allegations.

• Legislative Amendment of Contract Terms: The defendant argued that the Government's amendment of Acts No. 80 and No. 224 by Acts No. 643 and No. 1040 materially altered the terms of his employment contract, thereby affecting its enforceability.
• Minority as a Defense: The defendant maintained that because he was a minor under Philippine law — where males did not reach majority until age twenty-three — at the time the contract was entered into, he could not be held liable under the contract.

• Effect of Legislative Amendments on Contract: Whether the amendment of Acts No. 80 and No. 224 by subsequent legislation altered the terms of the defendant's employment contract and rendered it unenforceable.
• Capacity to Contract — Conflict of Laws: Whether the defendant's capacity to contract is governed by the law of the place where the contract was made (Illinois) or the law of the place where the contract is enforced (the Philippine Islands).

• Effect of Legislative Amendments on Contract: No. The amendments to Acts No. 80 and No. 224 did not alter the terms of the contract, the legislative department being expressly prohibited by Section 5 of the Act of Congress of 1902 from changing the terms of a contract.

• Capacity to Contract — Conflict of Laws: No, infancy cannot be pleaded. Capacity to contract is governed by the law of the place where the contract is made; the defendant was admittedly an adult under Illinois law at the time and place of execution.

• Effect of Legislative Amendments on Contract: The defendant's contract expressly incorporated Acts No. 80 and No. 224 as part of its terms. The subsequent amendment of those Acts by Acts No. 643 and No. 1040 did not operate to change the contract's terms, because Section 5 of the Act of Congress of 1902 expressly prohibited the legislative department of the Philippine Government from altering or changing the terms of a contract. The rights the defendant had acquired by virtue of Acts No. 80 and No. 224 remained unchanged and enforceable. The original Acts, constituting the terms of the contract, continued to form part of the contract notwithstanding their amendment.

• Capacity to Contract — Conflict of Laws: The defendant admitted that at the time and place of contracting in Chicago, Illinois, he had full capacity to enter into the contract under Illinois law. The settled rule, as articulated in Scudder vs. Union National Bank, 91 U.S. 406, is that matters bearing upon the execution, interpretation, and validity of a contract are determined by the law of the place where the contract is made. Matters connected with performance are regulated by the law of the place of performance, and matters respecting remedy depend on the law of the place where the suit is brought. Because the defendant was of full age under Illinois law when the contract was executed, he could not plead infancy as a defense in the Philippines, where the suit was brought. The defendant's contention that he was an adult when he left Chicago but a minor when he arrived in Manila was rejected as untenable, since capacity is fixed at the time and place of contracting.

• Lex Loci Contractus (Law of the Place of Contracting) — Matters bearing upon the execution, interpretation, and validity of a contract are determined by the law of the place where the contract is made. Matters connected with performance are regulated by the law prevailing at the place of performance. Matters respecting remedy — such as the bringing of suit, admissibility of evidence, and statutes of limitations — depend upon the law of the place where the suit is brought. The Court applied this doctrine to hold that the defendant's capacity to contract was governed by Illinois law, where he was admittedly of full age, and could not be defeated by Philippine law on minority.

• Impairment of Contractual Obligations — The legislative department is prohibited from altering or changing the terms of a contract, pursuant to Section 5 of the Act of Congress of 1902. The Court held that subsequent legislative amendments to statutes incorporated into a contract do not affect the rights acquired by the parties under the original version of those statutes at the time of contracting.

• "No rule is better settled in law than that matters bearing upon the execution, interpretation and validity of a contract are determined by the law of the place where the contract is made." — This passage articulates the canonical formulation of the lex loci contractus doctrine as applied in Philippine jurisprudence, establishing that contractual capacity is fixed by the law of the place of execution.

• "The legislative department of the Government is expressly prohibited by section 5 of the Act of Congress of 1902 from altering or changing the terms of the contract." — This passage states the ratio for rejecting the defendant's defense based on legislative amendment, anchoring the prohibition on impairment of contractual obligations in the Act of Congress of 1902.

• Scudder vs. Union National Bank, 91 U.S. 406 — Followed as authority for the rule that the execution, interpretation, and validity of a contract are governed by the law of the place where the contract is made, while performance is governed by the law of the place of performance and remedy by the law of the forum.

• Section 5, Act of Congress of 1902 (Philippine Bill of 1902) — Cited as the constitutional basis prohibiting the legislative department of the Philippine Government from altering or changing the terms of a contract. The Court relied on this provision to hold that amendments to Acts No. 80 and No. 224 did not affect the defendant's contractual obligations.

Arellano, C.J., Torres, Mapa, Carson, and Willard, JJ., concurred.