REST 2d CONFL s 191

Restatement (Second) of Conflict of Laws s 191 (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 191. CONTRACTS TO SELL INTERESTS IN CHATTEL

TEXT

The validity of a contract for the sale of an interest in a chattel 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 under the terms of the contract the seller is to deliver the chattel 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 sale of an interest in a chattel and the actual transfer of such an interest. The validity of a contract to sell an interest in a chattel, 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 chattel depends upon the law selected by application of the rules of ss 244- 245. A contract to sell an interest in a chattel 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.

b. Scope of section. The law selected by application of the present rule determines such questions as whether the contract is void or voidable because of the illegality of the consideration, whether the contract can be rescinded because of the buyer's insolvency or of the seller's failure to comply with certain of the contract's provisions, whether the seller's nondelivery is excused by the buyer's failure to procure a proper letter of credit, whether the loss of goods in transit is at the risk of the seller or buyer, whether an option to buy has been effectively exercised by the buyer, whether the buyer can recover the profits he would have made if the seller had performed the contract, whether there has been a breach of warranty, express or implied, by the seller, and whether acceptance of the goods by the buyer is a bar to an action by him for breach of warranty.

On the other hand, the law selected by application of the present rule does not determine details of performance, such as the method which should be followed by the buyer in examining the chattel. Such questions 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. Uniform Commercial Code. Substantive rules applicable to the contracts dealt with in this Section are stated in Article 2 of the Uniform Commercial Code. On account of the well-nigh universal adoption of the Code by States of the United States, choice-of-law problems involving the contracts dealt with here will be unlikely to arise in the future in the interstate area except to the extent that the provisions of the Code are modified in some States or that a given provision of the Code is given different interpretations in different States. In any event, choice-of-law problems involving the contracts dealt with here will continue to arise in transactions involving this country's foreign commerce.

d. Place of delivery. The place of delivery is the place where, in the words of Section 2-401 of the Uniform Commercial Code, the seller "completes his performance with reference to the physical delivery" of the chattel. When delivery occurs in the course of a face-to-face encounter between the buyer and seller, such as when the buyer purchases the chattel in the seller's store, the place of delivery is the place where the parties deal with each other. Location of the place of delivery becomes more difficult when under the terms of the contract the seller is to send the chattel to the buyer.

In an f. o. b. contract, the place of delivery ordinarily is that where under the terms of the contract the seller is to deliver the goods to the carrier f. o. b. On rare occasions, the f. o. b. clause is meant only to fix the price, and the seller is required by the contract to deliver the goods to the carrier in some other state (see Illustration 3). Here the latter state, and not the f. o. b. place, is the place of delivery. In a c. i. f. contract, the place of delivery is ordinarily the place where under the terms of the contract the seller is to deliver the goods to the carrier for shipment to the c. i. f. place.

A mere loss of possession, or an intentional yielding of possession without more, does not constitute a delivery within the meaning of the present rule. To amount to such a delivery, it is essential that possession be relinquished by the seller under the terms of the contract. So, if a contract provides for shipment f. o. b. Chicago, it is immaterial that the seller delivers the goods to a common carrier in California. Chicago is the place of delivery, since it is there that the seller is required by the contract to yield possession of the goods.

In probably the majority of instances, the place of delivery will be in the state where the seller is domiciled or does business. The rule of this Section will therefore frequently lead to the application of what may be termed the seller's law. On the other hand, the local law of the buyer's domicil or place of business will usually be applied, in the absence of an effective choice of law by the parties, if delivery under the contract is to take place in that state.

COMMENTS

Illustrations:

1. In state X, A purchases a hat at B's store and takes the hat with him. X is the place of delivery.

2. A contract between a Chicago seller and a New York buyer provides for the sale of certain goods "f. o. b. Chicago." Chicago is the place of delivery.

3. A contract between a Chicago seller and a New York buyer provides that the seller shall deliver the goods to a carrier in Chicago but for purposes of fixing the price states that the sale is "f. o. b. Pittsburgh." Chicago, rather than Pittsburgh, is the place of delivery.

4. A contract between a Chicago seller and a French buyer provides that the sale is "c. i. f. Cherbourg" with shipment from New York. New York, rather than Cherbourg, is the place of delivery.

COMMENTS

Comment:

e. 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 under the terms of the contract the seller is to deliver the chattel unless, with respect to the particular issue, some other state has a more significant relationship to the transaction and the parties. Whether there is such other 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 the 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 place of delivery. Delivery is the most significant stage of the sales transaction. It marks the point where the seller has fulfilled at least his major obligations under the contract. Delivery is also the point where, in the case of fungible or generally described goods, the actual subject matter of the transfer will usually first become identified. So in the case of a contract for the sale of one thousand bushels of wheat, the specific grains of wheat with which the seller intends to fulfill his obligation under the contract do not become identified until they have been produced by the seller at the place of surrender. The rule also furthers the values of certainty, predictability and uniformity of result and, since the state where the delivery of the chattel is to be made will usually be readily ascertainable, of ease in the determination of the applicable law.

f. When local law of state of delivery will not be applied. On occasion, a state which is not the place of delivery will nevertheless, with respect to the particular issue, be the state of most significant relationship to the transaction, the parties and the chattel and hence the state of the applicable law. This may be so, for example, when the ccntract contemplates a continued relationship between the parties which will be centered in a state other than that where delivery took place (see Illustration 5). This may also be so when the contract would be invalid under the local law of the state of delivery but valid under the local law of a 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 by upholding the contract is outweighed in the particular case by the interest of the state of delivery in having its invalidating law applied. There will also be occasions when the local law of some state other than that of delivery should be applied in any event because of the intensity of the interest of that state in the determination of the particular issue (see Illustration 6).

COMMENTS

Illustrations:

5. A, domiciled in state X, contracts to deliver to B, domiciled in state Y, a steam shovel on conditional sale. A signs the contract in X and B signs it in Y. Pursuant to the provisions of the contract, delivery of the steam shovel is made to B in state Z for use in connection with a particular job. It is contemplated that, following the completion of this job, B will remove the steam shovel to Y, the state of his domicil, and retain it there until B has made all remaining payments under the contract. B does bring the steam shovel to Y and then, having reached the conclusion that it is defective, brings suit against A for breach of warranty. B has a good claim against A under the warranty rules of Y but not under the rules of Z. The fact that the contract contemplated that the steam shovel was to be only temporarily in Z and was then to be kept in Y, the state of B's domicil, during the remainder of the term of the conditional sale, would support the conclusion that the local law of Y, rather than that of Z, should be applied.

6. A and B are both domiciled in state X. By contract made in X, A agrees, in consideration of a gambling debt, to deliver to B a chattel in state Y. A fails to deliver and B brings suit against him for breach of contract in state Z. Under X local law, the contract is void by reason of the illegality of the consideration. It is valid and effective under Y local law. The fact that both A and B are domiciled in X and that the contract was entered into there would support the view that X is the state with the dominant interest in the issue of illegality and that accordingly its local law should be applied. If, on the other hand, it were to appear that the X courts would not apply their rule of illegality 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).

COMMENTS

Comment:

g. 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.

h. 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).

i. Contractual questions related to leasehold or security interests in chattels. As in the case of contracts of sale, a distinction must be drawn between a transfer of a leasehold or security interest in a chattel and contractual questions related to the transfer of such an interest. What interests are transferred as the result of a bailment, chattel mortgage or conditional sale will be determined by the law selected by application of the rules of ss 244-245, 251. Examples of contractual questions are whether the bailor can mingle with his own funds a deposit made by the bailee as security for the return of the bailed chattel or whether a conditional buyer can recover at least part of the payments previously made by him after the chattel has been repossessed by the conditional vendor. Such questions will be determined by the law selected by application of the principles stated in this Comment.

In determining the state whose local law governs the validity of such a contract and the rights created thereby, the contact that will be given the greatest weight, in the absence of an effective choice of law by the parties, is the place, if such a one exists, where the parties intended that the chattel should be kept during most of the term of the bailment or security interest. When, however, it was expected that the chattel would frequently be moved from state to state, the factor of its location at any particular time has little significance.

NOTES

REPORTER'S NOTE

See Baffin Land Corp. v. Monticello Motor Inn, Inc., 70 Wash.2d 893, 425 P.2d 623 (1967) (citing s 346g of Tent.Draft No. 6, 1960).

In the following cases the local law of the state where the chattel was delivered was applied: Atlas Trading Corporation v. S. H. Grossman, Inc., 169 F.2d 240 (3d Cir. 1948) (measure of damages for breach); Texas Motorcoaches v. A. C. F. Motors Co., 154 F.2d 91 (3d Cir. 1946) (implied warranty); Monarch Brewing Co. v. George J. Meyer Mfg. Co., 130 F.2d 582 (9th Cir. 1942) (same); Delta Tank Manufacturing Co. v. Weatherhead Co., 150 F.Supp. 525 (N.D.Ohio 1957), aff'd per curiam, 254 F.2d 602 (6th Cir. 1958) (whether settlement with person primarily liable barred recovery from person secondarily liable); Thrift Wholesale Inc. v. Malkin-Illion Corporation, 50 F.Supp. 998 (E.D.Pa.1943) (implied warranty --also place of performance); State of Delaware v. Mass. Bonding & Ins. Co., 49 F.Supp. 467 (D.Del.1943) (measure of damages); Snow v. Shomacker Mfg. Co., 69 Ala. 111 (1881) (express and implied warranties); Shohfi v. Rice, 241 Mass. 211, 135 N.E. 141 (1922) (severability of contract); Bennett v. Kazvini, 119 N.Y.S.2d 530 (Sup.Ct.1953), 120 N.Y.S.2d 229 (Sup.Ct.1953) (breach by seller--also place of contracting); Price v. Goodman, 226 N.C. 223, 37 S.E.2d 592 (1946) (implied warranty and liability for special damages); Griffin v. Metal Product Co., 264 Pa. 254, 107 Atl. 713 (1919) (implied warranty); Kansas City Wholesale Grocery Co. v. Weber Packing Corp., 93 Utah 414, 73 P.2d 1272 (1937) (implied warranty--also place of contracting); Miles v. Vermont Fruit Co., 98 Vt. 1, 124 Atl. 559 (1924) (interpretation of contract).

In the following cases, the opinions do not indicate where delivery took place. In each case, the court stated that it was applying the local law of the state of the seller's performance. Sperry Rand Corp. v. Industrial Supply Corp., 337 F.2d 363 (5th Cir. 1964) (implied warranty--also situs of chattel); United States v. H. R. Henderson & Co., 126 F. Supp. 626 (W.D.Ark.1955) (breach of contract); Charles v. Judge & Dolph, Limited, 111 F. Supp. 794 (N.D.Ill.1953) (implied warranty); Willson v. Vlahos, 266 Mass. 370, 165 N.E. 408 (1929) (interpretation of contract).

A case where the f. o. b. clause was meant to fix price and not to designate the place where the goods were to be surrendered by the vendor is W. G. Ward Lumber Co. v. American Lumber & Mfg. Co., 247 Pa. 267, 93 Atl. 470 (1915).

As to Illustration 5, compare John J. Shanahan v. George B. Landers Construction Co., 266 F. 2d 400 (1st Cir. 1959); Thomas G. Jewett, Jr., Inc. v. Keystone Driller Co., 282 Mass. 469, 185 N.E. 369 (1933).

See generally Batiffol, Les Conflits de Lois en Matiere de Contrats 174- 176 (1938); Dicey & Morris, Conflict of Laws 668 (8th ed. 1967); 3 Rabel, Conflict of Laws 51-75 (1950); Note, 38 Turlane L.Rev. 726, 733 (1964), but cf. 2 Beale, Conflict of Laws 1215 (1935).

Comment i: The courts have rarely considered the problems discussed in this Comment, and the reasoning of the very few cases in point is not helpful. What is said here has the support of Batiffol, supra, at p. 195 and, by way of analogy, of the cases which look to the local law of the place where the chattel is to be used in determining the respective interests therein of the parties to a security transaction. See e. g., Beggs v. Bartels, 73 Conn. 132, 46 Atl. 874 (1900), and s 244, Comment f.

REST 2d CONFL s 191

END OF DOCUMENT