International business transactions

§187 – Law of the State Chosen by the Parties

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OUTLINE International Business Transactions
§187 – Law of the State Chosen by the Parties

  • Chosen law applies if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue

    • i.e. could explicitly provide that performance is due at beginning or end or day, or can just incorporate state law that already determines that

  • If the particular issue is one which the parties could not have resolved by an explicit provision, law of chosen state will be applied unless:

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


      • 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.

        • Forum will apply its own legal principles in determining whether fundamental or materially greater

    • In the absence of a contrary indication of intention, the reference is to the local law of the state of the chosen law.

  • Note: There is presumption in U.S. that applicable law, in absence of choice, will be place of payment.


    • Is issue within the parties contractual power?

      • Determined by law of §188 state

    • If we’re talking about something you weren’t allowed to contract about in the 188 state, then move to §187(2) to determine if chosen law will govern.

      • Is there substantial relationship or reasonable basis?

        • Courts tend not to try to sort out motives, but if there really is no connection whatsoever, may be at risk

      • Would application of chosen law be contrary to a policy of the state that would otherwise govern under §188?

      • Is that policy of the §188 state fundamental?

      • Is the interest of the §188 state materially greater than the interest of the chosen state (absent there being a choice provision)?

      • Forum uses own law to determine whether fundamental or material.

Uniform Commercial Code

  • If rule we’re dealing with is in the UCC then UCC 1-301 has choice of law rules

  • §301-1(c) says if parties choose particular law, that law is effective whether or not the transaction bears a relation to the State or country designated

  • See page 137

New York §5-1401

  • If the agreement arises out of a transaction covering $250,000 or more and the parties choose NY law, then NY law should govern, whether or not there is a reasonable relation

  • See page 139

Government Interest Doctrine

  • holds that court should apply the law of the state that has the most interest in determining the outcome of the dispute

  • courts will first make no choice of law unless asked to do so by the parties  if not asked, will apply forum law

  • see page 122 and page 159 for more

1980 Rome Convention (Convention on the Law Applicable to Contractual Obligations)
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