REST 2d CONFL s 189

Restatement (Second) of Conflict of Laws s 189 (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 B. Particular Contracts

Copyright (c) 1971 The American Law Institute

s 189. CONTRACTS FOR THE TRANSFER OF INTERESTS IN LAND

TEXT

The validity of a contract for the transfer of an interest in land and the rights created thereby are determined, in the absence of an effective choice of law by the parties, by the local law of the state where the land is situated unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in s 6 to the transaction and the parties, in which event the local law of the other state will be applied.

COMMENTS

Comment:

a. Distinction between contract and transfer. A distinction must here be drawn between a contract for the transfer of an interest in land and the actual transfer of such an interest. The validity of a contract for the transfer of an interest in land, and the rights created thereby, are determined by the local law of the state selected by application of the rule of this Section. On the other hand, whether the contract operates as an actual transfer of an interest in the land depends upon the law selected by application of the rule of s 223. A contract to transfer an interest in land may be valid as a contract but inoperative as a transfer, or, in the alternative, it may be invalid as a contract but operative as a transfer. As to equitable conversion see s 225.

b. Scope of section. The rule of this Section applies to issues involving contracts for the transfer by sale or lease of interests in land. By way of contrast, the rule does not apply to contracts in which one party agrees to lend the other money and the other promises to repay the loan and also to give a mortgage on his land as security. Here the debt is the principal thing in the minds of the parties, and the promise to give the mortgage is accessory to the debt.

The rule of this Section applies to such issues as whether the vendor must prove tender of good title in order to recover on the vendee's note for the balance due under the contract, whether there has been such mutual mistake as to constitute grounds for a rescission of the contract, whether a married woman has capacity to sell or lease her interests in land, what should be the measure of damages in the event of a breach of contract, whether one can validly provide that a contract for the sale of an interest in land shall become void upon any failure by the vendee to make payments at the exact time specified in the contract, what is the effect of a rent acceleration clause or of a clause providing for the payment of liquidated damages by the tenant in the event of his breach of the lease, whether a hold-over tenant must continue to pay the amount of rent stipulated in the lease and whether there was such an eviction as to excuse the tenant from the further payment of rent. On the other hand, the law selected by application of the rule of this Section does not determine details of performance which are determined by the local law of the state where, under the terms of the contract, the act in question is to be done (see s 206).

c. Rationale. In the absence of an effective choice of law by the parties (see s 187), the rule of this Section calls for application of the local law of the state where the land is situated unless, with respect to the particular issue, some other state has a more significant relationship to the contract and the parties. Whether there is such another state should be determined in the light of the choice-of-law principles stated in s 6. For a general discussion of the application of these principles to tte contracts area and of the principle favoring application of a law that would sustain the validity of the contract, see s 188, Comments b-d. What is said in these Comments is applicable here.

Several factors serve to explain the importance attributed by the rule to the location of the land. The state where the land is situated will have a natural interest in transactions affecting it, particularly in view of the fact that land by its nature is immovable. Also, since in the situations covered by the rule the land constitutes the subject matter of the contract, it can often be assumed that the parties, to the extent that they thought about the matter at all, would expect that the local law of the state where the land is situated would be applied to determine many of the issues arising under the contract. The rule furthers the choice-of-law values of certainty, predictability and uniformity of result and, since the state where the land is situated will be readily ascertainable, of ease in the determination of the applicable law.

d. When local law of state where land is situated will not be applied. On occasion, a state which is not the situs of the land will nevertheless, with respect to the particular issue, be the state of most significant relationship to the transaction and the parties and hence the state of the applicable law. This may be so, for example, when the contract would be invalid under the local law of the state where the land is situated but valid under the local law of another state with a close relation to the transaction and the parties. In such a situation, the local law of the other state should be applied unless the value of protecting the expectations of the parties is outweighed in the particular case by the interest of the state where the land is situated in having its invalidating rule applied. There will also be occasions when the local law of some state other than that where the land is situated should be applied in any event because of the intensity of the interest of that state in having its local law applied to determine the particular issue (see Illustration 2).

COMMENTS

Illustrations:

1. In state X, A and B, who are domiciled in that state, enter into a contract for the transfer by A to B of an interest in land located in state Y. The contract is invalid under Y local law because the memorandum evidencing the agreement was initialed but not subscribed by the party to be charged. The contract is valid under X local law. The contract should be upheld on the ground that any interest of Y in the application of its invalidating rule should be held to be outweighed by the countervailing interest of X and particularly by the value of protecting the justified expectations of the parties.

2. In state X, A and B, who are domiciled in that state, enter into a contract for the transfer by A to B of an interest in land located in state Y. The contract is invalid under X local law because of A's minority. It is valid under the local law of Y, under which law A has capacity to contract. A fails to complete the transfer, and B brings suit against A for breach of contract in a Z court. Among the questions for the Z court to decide is whether X's interest in the application of its rule of incapacity is outweighed in the particular case by the value of protecting the justified expectations of the parties by upholding the contract as buttressed by Y's interest in the application of its rule of capacity. The fact that A and B are both domiciled in X would lend support to the view that X is the state with the dominant interest in the issue of capacity and that accordingly its rule of incapacity should be applied. If, on the other hand, it were to appear that the X courts would not apply their rule of incapacity to the facts of the present case, there would be ground for the conclusion that no important interest of X would be affected if the Z court were to uphold the contract by application of Y local law (see s 8, Comment k).

3. In state X, H and W, husband and wife, who are domiciled in X, enter into a contract for the transfer from H to W of an interest in land located in state Y. The contract is invalid under Y local law because under that law spouses lack capacity to contract with each other. They do have such capacity under X local law. Strong support for the application of X local law to the issue of capacity is to be found (a) in the fact that X, being the state of matrimonial domicil, has a great interest in this issue and (b) in the value of protecting the justified expectations of the parties by upholding the contract. There would be further support for the application of the X rule of capacity if it were to appear that the Y courts would not apply their rule of incapacity to the facts of the present case.

e. For reasons stated in s 186, Comment b, the reference 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.

f. As to the situation where the local law rule of two or more states is the same, see s 186, Comment c. Particular issues are discussed in Title C (ss 198- 207).

NOTES

REPORTER'S NOTE

Comment b: See Union Savings Bank v. DeMarco, -- R.I. --, 254 A.2d 81 (1969) (quoting part of first paragraph of Comment a).

Several courts have stated explicitly that the law governing contracts for the transfer of an interest in land is usually the local law of the state where the land is. See, e.g., Consolidated Sun Ray, Inc. v. Oppenstein, 335 F.2d 801 (8th Cir. 1964); Coral Gables v. Hanley, 87 F.2d 780 (6th Cir. 1937); Hamilton v. Glassell, 57 F.2d 1032 (5th Cir. 1932); Hotel Woodward Co. v. Ford Motor Co., 258 Fed. 322 (2d Cir. 1919); Freeman v. Falconer, 201 Fed. 785 (6th Cir. 1913); Losson v. Blodgett, 1 Cal.App.2d 13, 36 P.2d 147 (1934); Kyle v. Kyle, 128 So.2d 427 (Fla.App. 1961); Bissell v. Terry, 69 Ill. 184 (1873); Meylink v. Rhea, 123 Iowa 310, 98 N.W. 779 (1904); Segal v. Greater Valley Terminal Corp., 83 N.J.Super. 120, 199 A.2d 48 (1964); Galland v. Shubert Theatrical Co., 105 Misc. 185, 172 N.Y.Supp. 775 (Sup.Ct.1918). On the other hand, the local law of the state where the land is was not applied in a situation where that State had no other contact with the transaction. Walsh v. Selover, Bates & Co., 109 Minn. 136, 123 N.W. 291 (1909), aff'd, 226 U.S. 112 (1912).

As to the view expressed in Comment b that the rule does not apply to a situation where one party agrees to make a loan to the other and the other promises to give a mortgage on his land as security, see British South Africa Co. v. De Beers Consolidated Mines, Ltd., [1910] 2 Ch. 502 (C. A.).

For a case giving effect to a choice-of-law clause, see In re Barnett, 12 F.2d 73 (2d Cir. 1926), cert. den. 273 U.S. 699 (1926).

As to Illustration 3, see Polson v. Stewart, 167 Mass. 211, 45 N.E. 737 (1897).

See generally 3 Rabel, Conflict of Laws 101-120 (1950); 4 Rabel, Conflict of Laws 38 (1958); cf. Beale, Conflict of Laws 1180-1181, 1183, 1218 (1935); Williams, Land Contracts in the Conflict of Laws--Lex Situs: Rule or Exception, 11 Hastings L.J. 159 (1959); Note, 111 U.Pa.L. Rev. 482 (1963).

REST 2d CONFL s 189

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