You Need To Know French To Choose Applicable Law For Your Agreement

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Today, we begin with a French lesson. The French word, “renvoi,” means “to return,” in the sense of “sending back.” In law, “Renvoi” is a doctrine, and what follows is why you’ll be pleased to know that.

Last week, we tackled the humdrum, excitement-lacking “boilerplate” of specifying, in a lease or other agreement, an exclusive venue for litigation. What we didn’t even hint at was that just because the parties are obligated to duke it out in a particular jurisdiction doesn’t mean that the law of that jurisdiction will apply to their fight. Often, but not always, parties are free to specify which jurisdiction’s (state’s) law will govern their dispute. As to the location (venue) for the match, though some states will allow contracting parties with no connection to those jurisdictions to avail themselves of that state’s courts, most still require the parties or the subject matter of the dispute to at least “touch” their state. For example, if a loan is made in State X on a property in State Y, but the lender or borrower is in State “Z,” it is likely that each of those three states would allow its courts to hear the dispute. But, which state’s law would apply? A less than comprehensive list of the factors a court will use in deciding to apply the law of a jurisdiction other than its own would be: the parties’ intent, their domiciles, where the lease or other agreement was executed, and where the property is located. In the case of “property,” a secondary analysis is made as to whether the property is primary or secondary to the agreement in front of the court. For example, a personal guaranty of a mortgage loan may only have an attenuated relationship to the property serving as collateral for the loan and the parties are able to call for jurisdiction where either the borrower or lender “resides.” It could also be, but isn’t required to be, where the property is located. [A separate issue is whether a party or either party can be served in other than its “home” state, but we’ll leave that for another day (if ever)].

In reality, when it comes to specifying “which” law will apply, there are two broad categories of law in play: substantive and procedural. For example, in nearly all situations, the statute of limitations (which sets a time limit within which one may sue another) is considered to be “substantive” law. That means if a state court in South Carolina was hearing a case whose outcome was to be decided by Texas law and Texas would only allow a suit on the claim to be filed within four years of the happening, but South Carolina law would permit a six-year-old claim to be filed, the court would apply the shorter time period. On the other hand, if you sue someone in that South Carolina Court and a Summons is only good if served in person, but Texas would permit mail service, then only in-hand service will be acceptable. That’s because the rules as to how the court’s own “business” operates will be that of the court hearing the dispute. That’s “procedural” law – the court’s own “procedure.” In Federal courts, there is a very similar approach. A federal court hearing matters involving the application of substantive (non-federal) law will apply the substantive law of the relevant state but will apply Federal procedural law.

So, parties can’t agree that the court will apply procedural law from another jurisdiction. Courts apply their own rules. But (in almost cases involving agreements) they can choose which state’s substantive law will apply to their dispute. How is that important? For an answer, we direct you back to a dispute involving the definition of “groceries.” [Click: HERE if you’d like to see a posting about that.] Under Florida law, a box of aluminum foil (by way of example) is a grocery, but in another state, say Georgia, only foodstuffs are “groceries.” So, if a lease used the word “groceries” and its definition was important for determining the outcome of a dispute, you’d want to know which state’s substantive law applied.

If you’ve gotten to this point in today’s blog posting, then you know that in complicated situations, you can’t be sure “whose” law will apply. That’s why we almost always find a “choice of law” provision in agreements. We grant that many leases and purchase contracts omit such a provision, most likely based on the high probability that a court will apply the law where the property is located. That’s a good, but not a sure, bet.

Is there a punchline for today’s blog posting and, if so, what was that stuff about “renvoi” at the outset? Here it is. Many, many agreements state only that: “This Agreement will be governed and interpreted in accordance with the law of [insert: name of favorite state].” That gives a court the ability to rule that the law of your chosen state would look to the law of another state based on such grounds as “public policy” or some such. That’s how the Doctrine of Renvoi works. Essentially, when the “choice of law” provision is written that way, you may not be getting the state law you wanted.

How do you keep that from happening? Try something like this: “This Agreement will be governed and interpreted in accordance with the law of [insert: name of favorite State] as if it was fully executed in [State] by persons domiciled in [State] and is to be wholly performed in [State].” That way, the parties are making clear that their intention is that they don’t want a court to consider any interest that any other State might have in the outcome of their disputes.

As to why the parties would prefer or agree-upon any particular jurisdiction’s law to govern their disputes, that’s NOT for another day. It’s too complicated and too “fact” sensitive. What Ruminations is willing to write, however, is that the choice is often forced by the higher bargaining power party on the lesser bargaining-power party and only rarely makes a difference (at least as among the “industrial” states). But, then again, the dispute might involve a box of aluminum foil.


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