CHAPTER 4.06. Choice of Law

• Jurisdiction: United States

4.06. Choice of Law

[1] General Principles

The traditional rule in Delaware with respect to contracts that contain express choice of law provisions is that "[c]ontracting parties, within definite limits, have some right of choice in the selection of the jurisdiction under whose law their contract is to be governed . . . if the selected jurisdiction has a material connection with the transac-tion."¹¹⁴ Although the Delaware Supreme Court has never expressly rejected this traditional conflict of laws rule, several decisions by Delaware lower courts and federal courts sitting in diversity cases in Delaware have instead applied the rules set forth in the Restatement (Second) of Conflict of Laws when resolving contractual choice of law issues.¹¹⁵

[2] Restatement of Conflicts Position

Section 187 of the Restatement of Conflicts¹¹⁶ permits an express contractual choice of law provision as follows:

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 party's 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.

In addressing the enforceability of a choice of law provision, a Delaware court would likely focus on (i) the place of contracting, (ii) the place of negotiation, (iii) the place of performance, (iv) the location of the subject matter of the contract, and (v) the domicile of the parties.

This injection of the Restatement of Conflicts test into Delaware's conflict of laws analysis originated in OliverB. Cannon & Son, Inc. v. Dorr-Oliver, Inc.,¹¹⁷ in which the court cited to Section 188 of the Restatement and applied a "close relationship to the transaction" test to determine that Delaware law applied to a contract that did not contain an express choice of law provision.¹¹⁸ Assuming that a Delaware court found that the choice of law in a contract adopted a jurisdiction with a substantial relationship to the parties or the...