When a contract is signed in one state and broken in another, or an injury happens away from home, a court must first decide whose law it is applying. This subject covers what a choice-of-law clause achieves and where it fails, the tests courts use for contracts and for torts, why land follows the state it sits in, the public policy exception, and the borrowing statutes that decide which limitation period runs.
Under the federal rule and its state equivalents, a party intending to raise an issue about the law of another state must give notice, generally in a pleading or by separate written notice. The court then determines that law as a question of law rather than as a question of fact, and may consider any relevant material whether or not submitted by a party and whether or not admissible in evidence.
Courts decline to apply a chosen law on four broad grounds. The chosen state may have no substantial relationship to the parties or the transaction and no other reasonable basis may exist for the choice. Applying the chosen law may contravene a fundamental policy of a state with a materially greater interest in the issue. A statute may expressly void the clause, as several states have done for employment covenants and consumer contracts.
Issue-by-issue analysis, sometimes called depecage, follows from the way the modern choice-of-law test is framed: the question is which state has the most significant relationship to the issue in question. Because different issues implicate different contacts and different policies, a single dispute can be governed by one state's law on the standard of care, another's on damages, and a third's on a limitation defense.
A choice-of-law clause identifies which state's law governs the contract, and courts generally respect it where the chosen state has a substantial relationship to the parties or the transaction and no fundamental policy of a more interested state is offended. What it settles is the interpretive law of the bargain: formation, construction, performance and remedies for breach.
Limits on non-economic damages, statutory ceilings in particular categories of claim and restrictions on punitive awards are characterized as substantive in most analyses, which means they are supplied by the state whose law governs rather than by the forum. Courts have generally applied another state's cap even where the forum has none, treating the difference as an ordinary policy choice rather than as an affront.
The traditional rule applied the law of the place where the injury occurred, mechanically and regardless of how fortuitous that place was. A large majority of states replaced it with a most-significant-relationship analysis weighing four contacts: the place of injury, the place of the conduct causing it, the parties' domicile and place of business, and the place where any relationship between them is centered.
In the absence of an effective choice-of-law clause, most states identify the law of the state with the most significant relationship to the transaction and the parties. Five contacts are considered: the place of contracting, the place of negotiation, the place of performance, the location of the subject matter, and the parties' domicile, residence, nationality, place of incorporation and place of business.
Renvoi is the question of whether a reference to another state's law includes that state's own choice-of-law rules. If it does, the second state might refer the question back to the first, or on to a third, and the analysis could circle. American courts almost uniformly reject renvoi in ordinary cases: a reference to another state's law means its internal or local law, and its conflicts rules are disregarded.
Because limitation periods have historically been characterized as procedural, the forum's own period governs, which invited plaintiffs to file in a state with a longer deadline after their own had expired. Nearly every state responded with a borrowing statute providing that where a claim arose in another state and is barred there, it is barred in the forum as well.
The situs rule holds that questions about land are governed by the law of the state where the land is located. It reaches title and its transfer, the formalities of deeds, mortgages and their foreclosure, easements, adverse possession, landlord and tenant regulation of the premises, and the descent of land on death. It survives choice-of-law clauses, because a state's control of the land within its borders is not something private parties can vary.
A forum may decline to apply the law of another state that its conflicts analysis would otherwise select, where applying it would violate a strong public policy of the forum. The threshold is high: a difference in rule, even a substantial one, is not enough, and courts have consistently said that applying another state's law is not made objectionable by disagreeing with it.
