Restatement (Second) of Conflict of Laws s 186 (1969 Main Vol.)
Restatement of the Law Second
Conflict of Laws 2d
Chapter 8. Contracts
Topic 1. Validity of Contracts and Rights Created Thereby
Title A. General Principles
Copyright (c) 1971 The American Law Institute
s 186. APPLICABLE LAW
Issues in contract are determined by the law chosen by the parties in accordance with the rule of s 187 and otherwise by the law selected in accordance with the rule of s 188.
a. Scope of section. The rule of this Section states a principle applicable to all contracts and to all issues in contract. Sections 187-188 set forth general rules for determining the state of the applicable law. Title B (ss 189-197) discusses various types of contracts for which it is possible, on the basis of existing knowledge, to lay down more precise rules for determining the state of the applicable law. Title C (ss 198-207) deals separately with important issues involving contracts, namely, capacity to make a contract (s 198), formalities (s 199), substantial validity (s 200), misrepresentation, duress, undue influence and mistake (s 201), illegality (s 202), usury (s 203), construction (s 204), extent of contractual obligations (s 205), details of performance (s 206) and measure of recovery (s 207). It seems clear that the best way to bring precision into the field is by attempting to state special rules for particular contracts and for particular issues.
b. Reference is to "local law" of selected state. The reference, in the absence of a contrary indication of intention (see s 187, Comment b), is to the "local law" of the state of the applicable law and not to that state's "law " which means the totality of its law including its choice- of-law rules (see s 4). Values of certainty of result and of ease of application dictate that the forum should apply the local law of the selected state and not concern itself with the complications that might arise if the forum were to apply that state's choice-of-law rules. There is no basis for supposing that fairness requires the forum to apply the choice-of-law rules of the selected state. To the extent that they may give thought to choice-of-law problems before entering into a contract, persons would probably expect, in the absence of a contrary indication of intention, that the local law of the state selected by application of the rules stated in this Chapter would be applied.
On the other hand, in judging a state's interest in the application of one of its local law rules, the forum should concern itself with the question whether the courts of that state would have applied this rule in the decision of the case. The fact that these courts would have applied this rule may indicate that an important interest of that state would be served if the rule were applied by the forum. Conversely, the fact that these courts would not have applied this rule may indicate that no important interest of that state would be infringed if the rule were not applied by the forum (see s 8, Comment k). It should be reiterated that in the contracts area the forum, in the absence of a contrary indication of intention, will not apply the choice-of-law rules of another state. The forum will consult these rules, however, for whatever light these rules may shed upon the extent of the other state's interest in the application of its relevant local law rule.
1. In state X, A and B enter into a contract which is to be performed in state Y. B, who is domiciled in Y, brings suit against A in state Z for breach of contract. If the Z court determines that Y is the state of most significant relationship, the Z court will apply Y local law. In determining whether Y is the state of most significant relationship, the Z court may consider whether the Y courts would have applied their own local law or the local law of another state in deciding the particular issue.
c. When rule in two or more states is the same. When certain contacts involving a contract are located in two or more states with identical local law rules on the issue in question, the case will be treated for choice-of-law purposes as if these contacts were grouped in a single state.
2. In state X, A and B enter into a contract which is to be performed in state Y. X and Y have the same local law rules on the subject of consideration. As to the issue of consideration, the case will be treated for the purposes of this Section as if the contract was both made and to be performed in one state.