Choice of law refers to issue of what jurisdiction’s law is to be applied in a particular case. This situation often arises in contract disputes where the breach occurs in a state other than the state of contracting. As such, contracts often include a choice of law clause to indicate the law that will apply in the event of a dispute.
Courts faced with a choice of law issue generally choose between the laws of the state where the lawsuit was brought and laws of the state where the cause of action arose. Usually, the law of state where the lawsuit was brought is chosen for procedural matters. The law of the state where the cause of action arose is usually chosen to decide substantive matters.
The 14th amendment lays down constitutional limitations to choice of law. When a dispute has no connection to a given state, it is unconstitutional to apply the law of that state.
There are three basic types of approaches to choice of law:
- The traditional “vested rights” doctrine: This doctrine is based on the notion that a state has the power to prescribe the rules of conduct for transactions or occurrences that take place in its own territory. Once the “last event” of the transaction or occurrence takes place on the territory of that state, the parties to it acquire “vested right” under the law of that jurisdiction.
- The various “interest” and “policy” analysis approach: The interest of the forum state is the key factor to be considered under this approach. Thus, this theory seeks to increase the number of occasions when a forum court will apply its own law. This is done by applying the “comparative impairment” test, under which a court will compare the extent of damage that application of one or the other legal rule to the case would inflict on the competing states interest. The court should in such cases choose the rule that causes the lesser degree of impairment.
- The “most significant relationship” theory of the Second Restatement: This theory attempts to determine which state has the “most significant relationship” to the case. To determine whether a more significant relationship exists, various factors are considered such as place of injury, place of the conduct causing injury, residence or place of business of the parties, and the place where any relationship between the parties is centered is taken into consideration.