Modern Approaches Outline

Modern Approaches

1. Party Autonomy and the Rule of Validation

   1. Party Autonomy

      1. Choice of Law Provisions

         • Cases

           • Siegelman v. Cunard White Star Ltd. (pg. 99)

             • Re Validity

               • "Where the law of the parties' intention has been permitted to govern the validity of contracts, it has often been said (1) that the choice of law must be bona fide, and (2) that the law chosen must be that of a jurisdiction having some relation to the agreement, generally either the place of making or the place of performance." Siegelman v. Cunard White Star Ltd. (pg. 101)

             • Re Interpretation

               • "[I]t is clear that the federal conflicts rule will give effect to the parties' intention that [the chosen law] is to be applied to the interpretation of the contract." Siegelman v. Cunard White Star Ltd. (pg. 100)

           • In Wyatt v. Fulrath, the court determined that the parties' express intention, found within a written agreement, to have New York survivorship law apply with respect to certain movable property controlled. (pp. 111-12)

         • Second Restatement

           • § 187. Law of the State Chosen by the Parties.

             • (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.

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

           • § 187 Comment g

             • To be "fundamental," a policy must in any event be a substantial one. Except perhaps in the case of contracts relating to wills, a policy of this sort will rarely be found in a requirement, such as the statute of frauds, that relates to formalities . . . . Nor is such policy likely to be represented by a rule tending to become obsolete, such as a rule concerned with the capacity or married women . . . , or by general rules of contract law, such as those concerned with the need for consideration . . . . On the other hand, a fundamental policy may be embodied in a statute which makes one or more kinds of contracts illegal or which is designed to protect a person against an oppressive use of superior bargaining power . . . . To be "fundamental" within the meaning of the present rule, a policy need not be as strong as would be required to justify the forum in refusing to entertain suit upon a foreign cause of action. (pg. 107)

           • Subsequent provisions of the Second Restatement particularize these general rules and make the parties' choice of governing law controlling on matters other than validity.

           • The Second Restatement adopts party autonomy to determine the law governing the validity of testamentary and inter vivos trusts in movables. Second Restatement §§ 269-270 (pg. 110)

      1. Choice of Forum Provisions

         • In Bremen v. Zapata Off-Shore Co, the Court enforced choice of forum clauses that were the result of arms-length bargaining, arguing that this would help to achieve predictability in international business transactions. (pg. 110)

         • In Carnival Cruise Lines, Inc. v. Shute, the Court enforced the choice of forum clause notwithstanding the fact that the contract was not subject to negotiation, because the choice of forum clause served several desirable ends such as limiting the fora in which the defendant would have to litigate, making clear in advance where litigation would occur, and reducing the fares to passengers. The Court also noted that Florida was not a "remote alien forum," and the inconvenience to the Shutes in having to litigate there was not intolable. (pp. 110-11)

      2. Choice of Law for Inter Vivos and Testamentary Trusts [SEE pp. 113-16]

      3. Why would we want party autonomy?

         • Party expectations

           • Uniformity and predictability

         • Less uncertainty/transaction costs

         • Simplifies litigation

         • BUT Forum state loses some control (regulatory/legislative authority)

   2. Rule of Validation (A supplement to party autonomy)

      1. With respect to contracts, there is a "presumption that the obligor has voluntarily submitted himself to a particular local law . . . ." Pritchard v. Norton (pg. 98)

      2. "[T]hat presumption may be rebutted, either by an express declaration to the contrary, or by the fact that the obligation is illegal by that particular law, though legal by another." Pritchard v. Norton (pg. 98)

      3. "The parties cannot be presumed to have contemplated a law which would defeat their engagements." Pritchard v. Norton (pg. 98)

         • Therefore, where there is a conflict between two states' laws and one state's laws would invalidate a contract, while the other state's laws would uphold the contract, the law that would uphold the contract should be applied. See id.

           • In Seeman v. Philadelphia Warehouse Co., the Supreme Court followed this approach with respect to a note issued in New York that was usurious under New York law. The Court held that that question of where the note was issued was immaterial because "a policy of upholding contractual obligations assumed in good faith" required application of the law permitting the higher interest rate. (pg. 108)

           • Second Restatement § 203 endorses this approach in usury cases:

             • The validity of a contract will be sustained against the charge of usury if it...

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