A substantive connection between the applicable law and the contract

Other jurisdictions allow for choice of law clauses but impose certain restrictions on these. Most states in the US for instance restrict the choice to a law, which has a substantive connection with the contract. Private international law in the US is regulated at state level and not at federal level. It should be taken into account, that conflicts of law legislation cover interstate contracts as well as international contracts. The main focus within legislation and debateis on interstate conflicts of law more than on international disputes.⁵⁹As space precludes discussing each individual state’s private international law this section focuses on two pieces of legislation: The Restatement (Second) of the Conflicts of Law and the Uniform Commercial Code.

The Restatement (Second) of the Conflicts of Law was published in 1971 by ALL Restatements are codifications of general legal principles that are deducted from case law. They try to establish the common denominators in case law to understand how courts approach and interpret the law. They aim to provide a true description of the current state of the law, but they also contain prescriptive elements as they indicate what direction the law should take. Restatements are not binding on the courts, but they are considered highly authoritative. According to the ALI they arc more than a treatise and less than a code.⁶⁰ Twenty-three states have adopted legislation that has the same approach as the Restatement (Second) of the Conflicts of Law.⁶¹ Therefore, the Restatement is an important document for understanding how party autonomy is approached in the US. In the Restatement (Second)

• 59 Mathias Reimann, ‘Parochialism in American Conflicts Law’ (2001) 49 American Journal of Comparative Law 369, 388.
• 60 As first stated by Benjamin Cardozo The Growth of Law (Yale University Press 1924) p 9.
• 61 States that follow the Restatement (Second) on choice of law: Alaska, Arizona, Colorado,

Connecticut, Delaware, Idaho, Illinois, Iowa, Kentucky, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, Ohio, South Dakota, Texas, Utah, Vermont, Washington, West Virginia.

12 other states follow a traditional approach (Alabama, Florida, Georgia, Kansas, Maryland, New Mexico, Oklahoma, Rhode island, Sour Carolina, Tennessee, Virginia, and Wyoming), 4 states follow the significant contacts approach (Arkansas, Indiana, Nevada, North Carolina), 2 states follow the better law approach (Michigan and Wisconsin), and the remaining states follow the combined modern approach (California, District of Colombia, Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Dakota, Oregon, and Pennsylvania.)

See for this: Symeon C Symeonides, ‘Choice of Law in the American Courts in 2015: Twenty-Ninth Annual Survey’ (2016) 64 American Journal of Comparative Law,

http://papers.ssrn.com/sol3/papers.cfmiabstract_id-2709668

Note that the above is valid for choice of law in contracts and not necessarily in other legal matters like tort.

Another approach does not necessarily mean that party autonomy is treated differently. The law of New York for instance endorses party autonomy if there is a substantial relationship with the chosen law (unless the contract is worth more than S250,000 as in that case there is no need for a substantial relationship). Therefore, the approach is similar to that of the Restatement.

See New York Law of General Obligations section 5-1401.

Although states follow certain approaches to conflicts of law it is not so that in practice they always clearly adhere to that method:

Symeonides notes that conflicts of law cases often seem isolated from one another and that it is not always easy to find the methodological underlying principles in individual cases.

Symeon C Symeonides, ‘The Choice-of-Law Revolution Fifty Years after Currie: An End and a Beginning’ (2015) 2 University of Illinois Law Review 1847

Symeon C Symeonides, ‘Choice of Law in the American Courts in 2019: Thirty-Third Annual Survey’ (2020) 68 American Journal of Comparative Law,

https://papers.ssrn.com/sol3/papers.cfmiabstract_id-3511163.

Party autonomy 101 the approach to party autonomy in contracts (both international and interstate) can be found in §187:

• (1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.
• (2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either

a. The chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or

b. Application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

A choice of law is thus accepted if there is a substantial relationship between the law and the contract. This seems to pose stringent restrictions on choice of law, but the official commentary discusses that relationship should be interpreted in a broad manner and with respect for the will of the parties: ‘Contracts are entered into for serious purposes and rarely, if ever, will the parties choose a law without good reason for doing so.’ Thus, courts should give serious consideration to the chosen law even when the connection is not immediately obvious.

A substantial relationship can be any reasonable basis underlying the choice. This includes:

• • Experience with this type of case
• • Underdeveloped law in other states that have a more substantial relation with the contract
• • More comprehensive law in a particular state
• • Lex loci contractus
• • Place of performance
• • Place of domicile of one of the parties
• • Place of incorporation of one of the parties
• • Principal place of business of one of the parties

This indicates willingness towards accepting choice of law clauses even when the connection with the contract is not straightforward.

¹

http://www.kentlaw.edu/perritt/conflicts/restl87.html.

The leading cases point to a choice being honoured even when the relation between the contract and the choice of law is not immediately obvious. In Radioactive, J.V v. Manson it was held that the law of New York had sufficient connections with the contract despite neither party being based there and the contract not being concluded or executed there: 'New York federal and state courts have significant experience with music industry contracts, and the parties wanted to avail themselves of that experience by selecting a New York forum and New York law.’^[1] Therefore, the expertise of the law of New York in the music industry was deemed to be a substantial enough relationship.

In Allstate Insurance Co. v. Hague, the Supreme Court stated that for a state’s substantive law to be selected in a constitutionally permissible manner, that state must have a significant contact or significant aggregation of contacts, creating state interests, such that the choice of its law is neither arbitrary nor fundamentally unfair.** The substantial relationship does restrict the options of the parties ’to reduce [...] insecurity’¹ and could prevent the choice for a neutral law. Practice seems to suggest that a choice for a neutral law could be respected under certain circumstances if the parties can make clear what the relationship is, yet they cannot be certain their choice will be honoured.

Further limits are placed by 'the fundamental policy of a state which has a materially greater interest than the chosen state and which would be the state of the applicable law in the absence of choice of law by the parties.*⁶ Under the Restatement (Second) there arc hence two questions for the court to consider when confronted with a choice of law clause: first of all, whether there is a substantial relationship with the chosen law, and second whether there is a fundamental policy of the otherwise applicable law that bears a closer relationship to the contract. Professor Symeonides conducts an annual survey into American choice of law cases. His conclusion, based on this long-standing work, is that in most cases when a choice of law clause is not honoured the reason is the public policy exception and not the absence of a substantial

Party autonomy 103 relationship.⁶⁷ The main reasons for this are most likely a mix between the wide interpretation of the substantial relationship criterion and that lawyers already premeditate this criterion when advising clients on choice of law.⁶⁸ Third, in many cases parties would most likely wish to select a law that is connected to the case anyway as often this is the most practical choice.

Could party autonomy under the Restatement (Second) be extended to include non-statc rules? The aforementioned article §187 states: (1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue. The wording law of the state is used throughout the article. State can refer to a foreign state or to a US state, but would not refer to rules that are emitted by an entity, which is not a state.

Comment C on subsection 1 reads: Tn the alternative, they may incorporate into the contract by reference extrinsic material which may, among other things, be the provisions of some foreign law.’ The Reporter’s Notes to the Restatement provide some clarity on what this extrinsic material could be: ‘may also stipulate for the application of trade association rules or well-known

67 See for instance Symeon C. Symeonides, ‘Choice of Law in the American Courts in 1996: Tenth Annual Survey* (1997) 45 American Journal of Comparative Law 447 where he reported that out of 100 cases the choice of law was not enforced in only six of these. In all six cases this was for public policy reasons.

For more recent examples see:

Symeon C. Symeonides, ‘Choice of Law in the American Courts in 2013: Twenty-Seventh Annual Survey’ (2014) 62 American Journal of Comparative Law 223 analysed several cases where the choice of law clause was not upheld by the court. Only in one of the cases discussed did the absence of a substantial relationship play a part in the decision. In the other cases the reason was the fundamental policy exception.

Symeon C. Symeonides, ‘Choice of Law in the American Courts in 2014: Twenty-Eight Annual Survey’ (2015) 63 American Journal of Comparative Law 299

Again, in the cases discussed the reasons for not enforcing a choice of law clause is fundamental public policy.

As an example, one of the cases discussed in the survey is Exxon Mobil Corp. v. Drennen 2014 WL 4782974 (Tex. 2014). This concerned a choice of law clause in an employment contract for New York law. The Texas Supreme Court reinforced the choice and noted that even if New York did not have a substantial relationship to the contract there was a reasonable basis for the choice because: (1) New York had a well-developed body of law regarding employee stock and incentive programs and securities-related transactions; and (2) the choice of New York law assured a uniform treatment of Exxon’s employee incentive programs in all states.

68 An example of where choice of law was not accepted:

Curtis 1000, Inc. i’. Suess 24 F.3d 941 (7th Cir. 1994), where in an employment contract a choice for Delaware law was not upheld by the Illinois Court because of the absence of a sufficient connection with the state of Delaware (the only connection was that the company was incorporated in Delaware)

(However other courts have enforced choice of law clauses whereby the incorporation of a company in a given state was sufficient evidence of a substantial relationship.)

commercial customs.'^[2] This thus allows reference to non-state rules, which can be incorporated as contractual rules for any non-mandatory provisions.

In absence of a choice of law clause §188 states that ‘the applicable law is the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties...⁹⁰ As the text clearly refers to state law it would be difficult to see how this could lead to the application of non-state rules. This becomes more evident when one reviews the points of contact to take into account to establish the most significant relationship. These points of contacts are: the place of contracting, the place of negotiation, the place of performance, the location of the subject matter of the contract, and the domicile, residence, nationality, place of incorporation, and place of business of the parties. These all refer to a geographical place and thus all point to the law of a territorial entity. The same is true for special type contracts where the points of contact that determine the most significant relationship are all geographical.

Work has now started on the Restatement (Third) on the Conflicts of Law. The Restatement (Second) has little specific content on international conflicts of law situations, which can be explained by the insularity of American conflicts of law theories in the 60s and 70s as well as by a lack of international cases at the time. It is likely that the new Restatement will consider international contracts in more depth because of the increase in international cases and trade. This could include further considerations of non-state rules as a choice of law.

NCCUSL and ALI first published the Uniform Commercial Code in 1952. The UCC is a model law that can be adopted by state legislators.^[3] A permanent editorial board regularly proposes updates and publishes official comments on application and interpretation. The UCC consists mainly of variable default rules that arc only applied if the contract is silent on the issue. The UCC makes explicit that it is a continuation of the lex mercatoria. The UCC does not address itself specifically to merchants and most provisions are applicable to all, including consumers. All US states have adopted the UCC. States can make changes to the UCC. Mostly these changes are minor and concern, for example, the numbering of the articles, but in other cases they arc more extensive. For instance, Louisiana has not adopted the second chapter of the UCC (concerning sale of goods) and uses separate legislation to cover these issues. The interpretation of the code also varies which means that, despite uniformity on paper, the UCC has not unified commercial law completely.

Before the reforms in 2001 article §1-105 of the UCC discussed choice of law. This article states that when a transaction bears a reasonable relation to this state (the particular state in which the UCC is enacted) as well as to another state or nation the parties can choose cither law to govern their transaction. It therefore reflects the substantial relationship criterion of the Restatement (Second). What a reasonable relationship is, does not become clear from the article. The official Comments give guidelines and state that the reasonable relationship needs to comply with the criteria that were laid down by the Supreme Court in Seeman v. Philadelphia Warehouse and that the law chosen must be that ‘of a jurisdiction where a significant enough portion of the making or performance of the contract is to occur or occurs. Thus, a choice of law would be valid as long as there is a connection to cither the conclusion or execution of the contract, the transaction is valid at the place of performance, and the choice is made in good faith. Different rules apply to special contracts (like bank deposits, investment securities, and rights of creditors.)⁸²

§1-105 was replaced in the updated version of the UCC in 2001 with §1-301.⁸³ The Rome Convention significantly influenced the drafters.⁸⁴ This new article distinguished between an international contract and an interstate contract. In an international contract the law of any foreign nation could be chosen regardless of whether there was a relationship with the contract. In a domestic contract only the law of a US state can be chosen but the law did not need to be connected with the contract. Therefore, in a contract between a buyer from Arizona and a seller from France the parties could choose the unrelated Italian law. In a contract between a buyer from Arizona and a seller from Nevada the parties could not choose the unrelated Italian law, but they could choose the unrelated law of Montana. Most states adopted the 2001 version of the UCC, however the text of the article §1-301 proved less than popular. States that adopted the new version of the UCC retained the text of the original §1-105. Examples of how this looks are for instance the codes of Delaware⁸⁵ and Virginia.⁸⁶ In the end only the US Virgin Islands adopted the new text. In 2008 the editorial board subsequently withdrew it.

81 See: UCC § 1-105, Comment 1.

Subsection (1) states affirmatively the right of the parties to a multi-state transaction or a transaction involving foreign trade to choose their own law. That right is subject to the firm rules stated in the six subsections listed in subsection (2) and is limited to jurisdictions to which the transaction bears a 'reasonable relation.’

Seeman v. Philadelphia Warehouse Company., 274 U.S. 403, 47 S. Ct. 626, 71 L. Ed. 1123 (1927)

• 82 UCC § 1-105 (2)
• 83 Uniform Commercial Code (as amended March 8, 2008)
• § 1-301 Territorial Applicability; Parties’ Power to Choose Applicable Law.
• (c) Except as otherwise provided in this section:
• (1) an agreement by parties to a domestic transaction that any or all of their rights and obligations are to be determined by the law of this State or of another State is effective, whether or not the transaction bears a relation to the State designated; and
• (2) an agreement by parties to an international transaction that any or all of their rights and obligations are to be determined by the law of this State or of another State or country is effective, whether or not the transaction bears a relation to the State or country designated.

http://www.law.cornell.cdu/ucc/l/l-301

• 84 U.C.C. § 1-301 Reporter’s Note b (Proposed Draft, Nov. 2000)
• 85 § 1-301 Territorial applicability; parties’ power to choose applicable law.
• (a) Except as otherwise provided in this section, when a transaction bears a reasonable relation to this State and also to another state or nation the parties may agree that the law cither of this State or of such other state or nation shall govern their rights and duties.

http://delcode.delaware.gov/title6/c001/sc03/index.shtml

This text is thus the same text as article § 1-105 in the previous version of the UCC.

86 Code ofVirginia §8.1A-301. Territorial applicability; parties’ power to choose applicable law

https://legl.state.va.us/cgi-bin/legp504.exe?000+cod+8.1A-301.

Two major objections were made to article §1-301.The first was that extending choice of law in this way encourages forum shopping and this allows the parties to evade a law which is more closely connected to the contract but considered inconvenient by the parties.^[4] SME might not be able to properly research what it entails if the applicable law is completely unrelated to the transaction. This could decrease security in business transactions. The second objection came from a different angle and asserted that the new article actually restricts choice of law as it distinguishes between B2C and B2B contracts, which the old article §1-105 does not do.

There were also questions regarding the constitutionality of the amendment. The Full Faith and Credit Clause (Article IV, Section 1 of the Constitution) covers interstate duties with respect to public acts and judicial proceedings. It was questioned whether the proposed amendment was constitutional in light of this clause and the Allstate Insurance Co. n Hague decision. Applying the law of a state, which has no interest (even remotely) in the conflict infringes on the rights of a state that does have an interest in the outcome of the conflict and that consequently applying this unrelated law would violate the Full Faith and Credit Clause. Others argued that the fundamental policy provisions in the law are enough to satisfy the demands of the Clause. Case law confirms that the law of a state that has a stake in the dispute should be taken into account although it is not clear to what extent this should be done. As several US states have conflicts of law legislation that does not require a substantial relationship between the contract and the applicable law it might be presumed that the proposed Artiele §1-301 would not have been contrary to the Full Faith and Credit Clause.^[5] There are currently no plans to re-introduce a new updated version of the old Article §1-105 so for now this issue is shelved.

The discussion in the previous section concerned the choice for a state law. Under the current law parties enjoy freedom of choice provided that a reasonable relationship can be established to the chosen law. The wording of the UCC makes it explicit that the chosen law should be a state law: '...when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties' This wording does not sanction a choice of law for non-state rules.

When the 2001 text of §1-301 was drafted the question of non-state rules was addressed in the official comments:

This Section does not address the ability of parties to designate non-le-gal codes such as trade codes as the set of rules governing their transaction. The power of parties to make such a designation as part of their agreement is found in the principles of Section 1-302. That Section, allowing parties’ broad freedom of contract to structure their relations, is adequate for this purpose. This is also the case with respect to the ability of the parties to designate recognized bodies of rules or principles applicable to commercial transactions that are promulgated by intergovernmental organizations such as UNCITRAL or Unidroit. See, c.g., Unidroit Principles of International Commercial Contracts.

This allows the parties to include non-state rules in the contract for any non-mandatory provisions. As discussed, the text of this article was not adopted, and the official comments are thus not applicable. The official comments above refer to Section §1-302. This section reads:

• (a) Except as otherwise provided in subsection (b) or elsewhere in [the Uniform Commercial Code], the effect of provisions of [the Uniform Commercial Code] may be varied by agreement.
• (b) The obligations of good faith, diligence, reasonableness, and care prescribed by [the Uniform Commercial Code] may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards arc not manifestly unreasonable. Whenever [the Uniform Commercial Code] requires an action to be taken within a reasonable time, a time that is not manifestly unreasonable may be fixed by agreement.
• (c) The presence in certain provisions of [the Uniform Commercial Code] of the phrase “unless otherwise agreed”, or words of similar import, does not imply that the effect of other provisions may not be varied by agreement under this section.

Contrary to the 2001 text of §1-301 the text of §1-302 is widely adopted by state legislations. Parties could use their rights to vary from the UCC and incorporate non-state rules when this does not run contrary to the obligations described in sub-article b. As the parties themselves can choose the standards by which these obligations arc measured (provided these are reasonable) this gives the parties considerable leeway to include non-state rules by reference The parties would still need to choose a governing state law and this would not displace any mandatory provisions of the applicable law. The official comments discuss the possibility to use non-state rules:

An agreement that varies the effect of provisions of the Uniform Commercial Code may do so by stating the rules that will govern in lieu of the provisions varied. Alternatively, the parties may vary the effect of such provisions by stating that their relationship will be governed by recognized bodies of rules or principles applicable to commercial transactions. Such bodies of rules or principles may include, for example, those that arc promulgated by intergovernmental authorities such as UNCITRAL or UNIDROIT (see, e.g., UNIDROIT Principles of International Commercial Contracts), or non-Icgal codes such as trade codes.^[6]

As a large part of the UCC consists of variable rules this would give non-state rules a significant role in regulating the contract.

Article §4-103 on bank deposits and collections confirms the possibility to vary from the default rules. Article §4- 103(b) even goes so far as to state that in certain cases specific non-state rules could be applied without the consent of all those involved in the contract. Clearinghouses insert rules in contracts for cheques and credit cards that affect millions of people without meaningful agreement from the parties. Professor Symeonides questions the justification given in the official comments that such transactions involve a great number of people which makes it quasi impossible to get consent from all the parties, as it gives ‘private for-profit entities’ a great deal of power to impose rules upon people who a) had no say in whether these should be included in the contract and b) had no democratic say in the rule making process." These are often consumers or SME that do not have any realistic alternative beyond accepting these rules, as all companies with similar services impose them.

If no choice of law clause is included in the contract then the UCC states that b) In the absence of an agreement effective under subsection (a), and except as provided in subsection (c), the Uniform Commercial Code applies to transactions bearing an appropriate relation to this state. Sub section C lists a number of articles on the applicable law in special type contracts. The comments state furthermore that if the case has a reasonable relation to a state which has enacted the UCC as well as to other jurisdictions 'the question what relationship is appropriate is left to judicial decision.’ multistate transactions it could be suitable to apply the UCC based on its comprehensiveness, uniformity, and its understanding of business which transcends state and national boundaries even when it does not represent the most significant relationship to the contract.^[7]

As the UCC is not a conflict of law legislation it can only indicate when it is applicable and not which other laws might be applicable. Therefore, the UCC does not indicate a situation in which non-state rules could govern the contract in absence of a choice of law clause.

Some US States have enacted legislation that allows for a choice of law without the need for a substantial or reasonable relationship. These arc Oregon and Louisiana. Several other states such as Texas, California, New York, Delaware, and Illinois have enacted legislation that allows

Party autonomy 111 a choice of law clause for that state without the presence of a reasonable relationship provided that the transaction in the contract is worth more than a certain amount of dollars.^[8]

To summarise, under the UCC and the Restatement (Second) of the Conflicts of Law it is not possible to choose non-state rules as the law of the contract. It is possible to incorporate these into the contract, in addition to a choice for a state law. Under the variation by agreements rules of the UCC and the incorporation by reference rules of the Restatement the contracting parties have considerable leeway to use non-state rules, but not as the applicable law.

• [1] Radioactive, J.V, >> Manson, 153 F. Supp. 2d 462 (S.D.N.Y 2001). 2 Allstate Insurance Co. v. Hague, 449 U.S. 302,312-13 (1981) Some American states* choice of law legislations also contain provisions where a substantial relationship to the chosen law is not required. The need for this substantial relationship is therefore not absolute. 3 Charles R Calleros, 'Towards Harmonization and Certainty in Choice of Law Rules for International Contracts: Should the U.S. Adopt the Equivalent of Rome I?’ (2010) 28 Wisconsin International Law Journal 639, 666. 4 § 187. Law of the State Chosen by the Parties.
• [2] Reporter’s Notes Subsection 1, article 187. 2 §188 Law governing in absence of effective choice by the parties http://www.kentlaw.edu/perritt/conflicts/restl88.htnil 3 §188 Law governing in absence of effective choice by the parties http://www.kentlaw.edu/perritt/conflicts/restl88.htnil. 4 § 189-90 Land contracts-law of site. http://www.kentlaw.edu/perritt/conflicts/restl89.htnil § 191 Contracts to sell interests in chattels-the place of delivery. http://www.kentlaw.edu/perritt/conflicts/restl91.htnil § 192 Life insurance contracts-the domicile of the insured. http://nisgre2.people.wni.edu/2ndRestatenient.htnil § 193Contracts of fire, surety, or casualty insurance-the principal location of the insured, http://www.kentlaw.edu/perritt/conflicts/restl93.htnil § 194Contracts of surety ship-the law governing the principal obligation, http:// www.kentlaw.edu/perritt/con flicts/rest 194. ht in I § 195Contracts for the repayment of money-the place of repayment. http://www. kentlaw.edu/perritt/conflicts/restl95.html § 196 Contracts for the rendition of services-the place where the major portion of the services are to be rendered. http://msgre2.peoplc.wm.edu/2ndRcstatenient.html § 197Contracts for transportation-place of departure or dispatch, http://www.kent-law.edu/perritt/conflicts/restl97.htnil. 5 For the current status see: https://www.ali.org/projects/show/conflict-laws/. 6 Symeon C Symeonides, ‘The Choice-of-Law Revolution Fifty Years after Currie: An End and a Beginning’ (2015) 2 University of Illinois Law Review 1847, 1919.
• [3] Professor Chen notes that the UCC is a Holy Roman Empire: it is not uniform, nor commercial, nor a code (Jim C Chen, ‘Code, Custom, and Contract: The Uniform Commercial Code as Law Merchant’ (1992) 27 Texas International Journal 91, 93) It is not uniform as changes are made by the states when adopting the UCC, it is not strictly commercial as it not just applicable to merchants and it is also not a comprehensive code as is understood in the civil law tradition. 2 Official comments to §1-301: it is in large part a reformulation and restatement of the law merchant and of the understanding of a business community which transcends state and even national boundaries For more information on this see: Bruce L Benson, ‘The Spontaneous Evolution of Commercial Law’ (1989) 55 Southern Economic Journal 644. 3 Jim C Chen, ‘Code, Custom, and Contract: The Uniform Commercial Code as Law Merchant’ (1992) 27 Texas International Journal 91, 106. 4 The District of Colombia, Puerto Rico, Guam, and the US Virgin Islands have also enacted the UCC. 5 Robert J Nordstrom and Dale B Ramerman, ‘The Uniform Commercial Code and the Choice of Law’ (1969) 4 Duke Law Journal 623, 624 6 Note UCC article 4A regarding fund transfers allows banks to choose an applicable law without a reasonable relation criterion. Article 8 gives the same leeway in the area of investment securities and article U.C.C. § 5-116(a) to letters of credits. Therefore, for certain types of contracts there is no need for a substantive relationship between the contract and the applicable law.
• [4] Giesela Ruhl, ‘Party Autonomy in the Private International Law of Contracts: Transatlantic Convergence and Economic Efficiency’ (2007) 3 Comparative Research in Law & Political Economy Research Paper 21 http://digitalcommons.osgoode.yorku.ca/clpe/227. 2 See section e of article § 1-301 for the provisions on consumer contracts: http://www. law.cornell.edu/ucc/1/1-301 A reasonable relationship to the chosen law is still required for consumer contracts and this law may not deprive the consumer of the protection of the law of its principal residence or that of the law where he receives the goods in sales of goods contract. 3 The text of the clause reads: Full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state. And the Congress may by general laws prescribe the manner in which such acts, records, and proceedings shall be proved, and the effect thereof. 4 Richard KGreenstein, ‘Is the Proposed UCC Choice of Law Provision Unconstitutional?’ (2000) 73 Temple Law Review 1159. 5 Ibid, 1179. 6 Alaska Packers V. Industrial Accident Commission, 294 U.S. 532 (1935) This case considered an employment contract between an employer from California and an employee with a choice of law clause for Alaskan law. The employee was injured whilst working in Alaska. The Court reasoned that the Full Faith and Credit Clause permitted the court in California to apply its own law because: Prima facie every state is entitled to enforce in its own courts its own statutes, lawfully enacted. One who challenges that right, because of the force given to a conflicting statute of another state by the full faith and credit clause, assumes the burden of showing, upon some rational basis, that of the conflicting interests involved those of the foreign state are superior to those of the forum.
• [5] See for instance the conflict of law legislation in Oregon and Louisiana. 2 UCC 1957, 1-302, Comment 2 (2001 Revision).
• [6] See for the full official comments on this article: http://nebraskalegislature.gov/laws/ ucc.php?code=l-302. 2 Article 4-103 regarding bank deposits and collections states: (a) The effect of the provisions of this Article may be varied by agreement, but the parties to the agreement cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank’s responsibility is to be measured if those standards are not manifestly unreasonable. http://www.law.cornell.edn/ucc/4/article4.htm 3 UCC §4-103 (b) Federal Reserve regulations and operating circulars, clearing-house rules, and the like have the effect of agreements under subsection (a), whether or not specifically assented to by all parties interested in items handled. 4 David V Snyder, 'Private Lawmaking’ (2003) 64 Ohio State Journal 371, 397.
• [7] 2 Official comments §1-301. Territorial Applicability; Parties’ Power to Choose Applicable Law (as amended 8 March 2008) http://www.law.indiana.edu/instruction/ dhlong/5534/doc/ucc_amend_ 1-301.pdf. 3 Oregon: § 81.120 Choice of law made by parties http://www.oregonlaws.org/ ors/2007/81.120. 4 Louisiana 2009 Louisiana Civil Code: CC 3540 - Party autonomy http://law.justia.com/codes/louisiana/2009/cc/cc3540.html. 5 Texas: Business and Commerce Code Title 9. Applicability of law to Commercial Transactions Chapter 271. Rights of the Parties to Choose Law Applicable to certain transactions. http://www.statutes.legis.state.tx.us/Docs/BC/htm/BC.271.htm Valid for any transactions with a value of at least SI million. 6 New York General Obligation Law § 5-1401: NY Code - Section 5-1401: Choice of law http://codes.lp.findlaw.eom/nycode/GOB/5/14/5-1401#sthash.b6TuVwoN.dpuf Transactions over S 250,000. 7 California Civil Code Section 1646.5 http://law.onecle.eom/california/civil/1646.5.html; Transactions over S 250,000. 8 Delaware Code Annual title 6, § 2708 http://delcode.dclaware.gov/title6/c027/sc01/index.shtml; Transactions over S 100,000. 9 Civil Procedure (735 ILCS 105/) Choice of Law and Forum Act. http://www.ilga.gov/legislation/ilcs/ilcs5. asp?ActID=2018&ChapterID=56 Transactions over S 250,000.
• [8] Note that California, Delaware, Illinois and New York allow the parties to choose their own law as the applicable law in these cases whereas Texas allows the parties to choose any law and not just the law of Texas. 2 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) http://eur-lex.europa.eu/legal-content/EN/TXT/iuri-celex%3A32008R0593. 3 The Protocol on the Position of the United Kingdom and Ireland on Policies in Respect of Border Controls, Asylum and Immigration, Judicial Cooperation in Civil Matters and on Police Cooperation http://eur-lex.europa.eu/LexUriServ/LexUriServ.doiuri-OJ:C:2004:310:0353:03 55:EN:PDF Protocol no. 4 (1997) (United Kingdom and Ireland annexed to the Treaty on European Union (TEU) and to the Treaty establishing the European Community (TEC) art. 1-4) Commission Decision of 22 December 2008 on the request from the United Kingdom to accept Regulation (EC) No 593/2008 of the European Parliament and the Council on the law applicable to contractual obligations (Rome I) http://eur-lex.europa.eu/LcxUriServ/LcxUriServ.do?uri=OJ:L:2009:010:0022:00 22:en:PDF Following the UK exiting the EU the UK is no longer part of the Rome I Regulation and no decisions have yet been made on how UK private international law will develop after December 2020.