Choice-of-law clauses

Question 1

Validity of a contract

Answer 1

Although parties generally are free to choose the law that will govern their contracts, the validity of a contract cannot be resolved solely by the parties’ choice of law.

Issues that bear on validity include illegal subject matter, incapacity, or absence of formalities.

Question 2

Validity of a contract: Second Restatement

Answer 2

Parties can choose the law that will apply to contract validity if:

(1) The chosen state has a substantial relationship to the parties or transaction; or
(2) There is some other reasonable basis for the choice.

Question 3

Validity of a contract: public policy

Answer 3

Under the Second Restatement, a choice of law will be ignored if application of the chosen law would be contrary to a fundamental policy of the state with the most significant relationship to the issue.

Question 4

Consequences of an invalid choice-of-law provision

Answer 4

If the parties do not have an effective choice-of-law provision in the contract, general approaches for choice of law take over.

Question 5

Wills and trusts

Answer 5

Many states will enforce a choice-of-law clause with a preference in favor of validity—i.e., if a will or trust is valid under the law of the place where it was made, courts will generally enforce it.