In the Conflict of Laws, the validity of a contract with one or more foreign law elements will be decided by reference to the so-called "proper law" of the contract. Private international law comprises provisions of national law regarding contracts and lawsuits involving foreign laws or jurisdictions. ... Jump to: navigation, search A contract is any legally-enforceable promise or set of promises made between parties. ...

History

Until the middle of the 19th century, the courts applied the lex loci contractus or the law of the place where the contract was made to decide whether the given contract was valid. The apparent advantage of this approach was that the rule was easy to apply with certain and predictable outcomes. Unfortunately, it was also open to abuse, e.g. the place could be selected fraudulently to validate an otherwise invalid contract; it might lead to the application of laws with no real connection with the transaction itself, say, because the parties signed the agreement while on holiday; or it might have been difficult to decide where the contract was made, e.g. because it was negotiated and signed on a railway journey through several states. A court is an official, public forum which a public power establishes by lawful authority to adjudicate disputes, and to dispense civil, labour, administrative and criminal justice under the law. ... In the broadest sense, a fraud is a deception made for personal gain, although it has a more specific legal meaning, the exact details varying between jurisdictions. ... For the purposes of Public International Law and Private International Law, a state is a defined group of people, living within defined territorial boundaries and subject, more or less, to an autonomous legal system exercising jurisdiction through properly constituted courts. ...

To avoid these difficulties, some courts proposed applying the lex loci solutionis or the law of the place of performance of the contract. This produced difficulties in cases where the contract required each party to perform its obligations in a different country, or where the place of performance was dictated by later circumstances. However, as the public policies driven by the theory of freedom of contract evolved, the doctrine of Proper Law emerged. Public policy or ordre public is the body of fundamental principles that underpin the operation of legal systems in each state. ... Freedom of contract is the key public policy that underpins the law of contract and justifies a legally enforceable system of bargaining as a benefit to society. ...

Proper law

The proper law of the contract is the main system of law applied to decide the validity of most aspects to the contract including its formation, validity, interpretation, and performance. This does not deny the power of the parties to agree that different aspects of the contract shall be governed by different systems of law. But, in the absence of such express terms, the court will not divide the proper law unless there are unusually compelling circumstances. And note the general rule of the lex fori which applies the provisions of the proper law as it is when the contract is to be performed and not as it was when the contract was made. Lex fori is a private international law doctrine meaning the law of the court in which proceedings are being conducted. ...

The parties to a valid contract are bound to do what they have promised. So, to be consistent, the Doctrine of Proper Law examines the parties' intention as to which law is to govern the contract. The claimed advantage of this approach is that it satisfies more abstract considerations of justice if the parties are bound by the law they have chosen. But it begs the question of whether the test is to be subjective, i.e. the law actually intended by the parties, or objective, i.e. the law will impute the intention which reasonable men in their position would probably have had. It cannot safely be assumed that the parties did actually consider which of the several possible laws might be applied when they were negotiating the contract. Hence, although the courts would prefer the subjective approach because this gives effect the parties' own wishes, the objective test has gained in importance. So the proper law test today is three-stage: A party is a person or group of persons that compose a single entity which can be identified as one for the purposes of the law. ... Jump to: navigation, search Allegory of Justice as woman with sword and with book - statue at court building. ...

• it is the law intended by the parties when the contract was made which is usually evidenced by an express selection clause; or
• it is implied by the court because either the parties incorporated actual legal terminology or provisions specific to one legal system, or because the contract would only be valid under one of the potentially relevant systems; or
• if there is no express or implied choice, it is the law which has the closest and most real connection to the bargain made by the parties.

It is only fair to admit that the task of imputing an intention to the parties in the third situation presents the courts with another opportunity for uncertainty and arbitrariness, but this overall approach is nevertheless felt to be the lesser of the available evils.

Express selection

When the parties express a clear intention in a formal clause, there is a rebuttable presumption that this is the proper law because it reflects the parties' freedom of contract and it produces certainty of outcome. It can only be rebutted when the choice is not bona fide, it produes illegality, or it breaches public policy. For example, the parties may have selected the particular law to evade the operation of otherwise mandatory provisions of the law which has the closest connection with the contract. The parties are not free to put themselves above the law and, in such cases, it will be for the parties to prove that there is a valid reason for selecting that law other than evasion.

Implied selection

When the parties have not used express words, their intention may be inferred from the terms and nature of the contract, and from the general circumstances of the case. For example, a term granting the courts of a particular state exclusive jurisdiction over the contract would imply that the lex fori is to be the proper law.

Closest and most real connection

In default, the court has to impute an intention by asking, as just and reasonable persons, which law the parties ought to, or would, have intended to nominate if they had thought about it when they were making the contract. In arriving at its decision, the court uses a list of connecting factors, i.e. facts which have an unambiguous geographical connection, and whichever law scores the most hits on a league table created from the list will be considered the proper law. The current list of factors includes the following:

• the residence/domicile/nationality of the parties;
• the parties' main places of business and of incorporation;
• the place nominated for any arbitration proceedings in the event of a dispute;
• the language in which the contract documents is written;
• the format of the documents, e.g. if a form is only found in one relevant country, this suggests that the parties intended the law of that country to be the proper law;
• the currency in which any payment is to be made;
• the flag of any ship involved;
• the place where the contract is made (which may not be obvious where negotiations were concluded by letter, fax or e-mail);
• the place(s) where performance is to occur;
• any pattern of dealing established in previous transactions involving the same parties; and
• where any insurance companies or relevant third parties are located.

In Conflict of Laws, domicile (termed domicil in the U.S.) is the basis of the choice of law rule operating in the characterisation framework to define a persons status, capacity and rights. ... Nationality is, in English usage, a legal relationship existing between a person and a state. ... Incorporation (abbreviated Inc. ... Arbitration, in the context of law, is a form of alternative dispute resolution — specifically, a legal alternative to litigation whereby the parties to a dispute agree to submit their respective positions (through agreement or hearing) to a neutral third party (the arbitrator(s) or arbiter(s)) for resolution. ...

Problems

There are many problems affecting this area of law, but the two most interesting are:

Incapacity through age

States approach the issue of intentionality from two related, but distinct, conceptual directions: Intentionality, originally a concept from scholastic philosophy, was reintroduced in contemporary philosophy by the philosopher and psychologist Franz Brentano in his work Psychologie vom Empirischen Standpunkte. ...

• liability in which the law holds individuals responsible for the consequences of their actions, and
• exculpability in which fundamental social policies exclude or diminish the liability that actors would have incurred in different circumstances.

Many states have policies which protect the young and inexperienced by insulating them from liability even though they may have voluntarily committed themselves to unwise contracts. The age at which children achieve full contractual capacity varies from state to state but the principle is always the same. Infants are not bound by many otherwise valid contracts, and their intention is irrelevant because of the legal incapacity imposed on them by the state of the domicile or nationality. This recognises a set of social values that requires exculpation even though there is relevant action and consent freely given. In the most general sense, a liability is anything that is a hindrance, or puts one at a disadvantage. ... An action, as philosophers use the term, is a certain kind of thing a person can do. ... Capacity is a legal term that refers to the ability of persons to make certain binding dispositions of their rights, such as entering into contracts, making gifts, or writing a valid will. ... In law, a person who is not yet a legal adult is known as a minor (known in some places as an infant or juvenile). ... In Conflict of Laws, domicile (termed domicil in the U.S.) is the basis of the choice of law rule operating in the characterisation framework to define a persons status, capacity and rights. ... Nationality is, in English usage, a legal relationship existing between a person and a state. ...

Equally, states have an interest in protecting the normal flow of trade within their borders. If businesses had constantly to verify the nationality or domicile of their customers and their ages, this might slow down business and, potentially, infringe privacy legislation. Hence, conflicts of public policy can emerge which complicate the choice of law decision and invite forum shopping, i.e. traders will always seek to sue infants with whom they have contracts in those states which accord priority to commercial interests, while children will seek the avoidance of liability in the courts which protect their interests. This would be achieved during the characterisation stage by classifying the issue as status and its incidents rather than contract because a party's status and lack of capacity would be in rem. Forum shopping is the informal name given to the practice of attempting to get a case heard in the court thought most likely to provide a decision favorable to a plaintiff. ... In Conflict of Laws, characterisation is the second stage in the procedure to resolve a lawsuit involving a foreign law element. ... Sometimes a court may exercise jurisdiction over property located within the perimeter of its powers without regard to personal jurisdiction over the litigants; this is called jurisdiction in rem. ...

Mistake, misrepresentation, etc.

In many states, fundamental mistakes, misrepresentations and similar defects may make a contract void ab initio, i.e. the defect is so serious that it prevents an agreement from ever coming into being. If this happens, every term in the contract including the express selection of the proper law, would be unenforceable. This raises the question of whether the lex fori should operate a policy of saving the validity of contracts wherever possible. Suppose that a contract would be valid under many potentially relevant laws but not under the putative proper law, and that, until problems arose, the parties have acted in good faith on the assumption that they will be bound by the agreement, some courts might be tempted to ignore the apparent proper law and choose another that would give effect to the parties general contractual intentions. The Latin term ab initio means from the beginning and is used in several contexts: when describing literature: told from the beginning as opposed to in medias res (meaning starting in the middle of the story). ... For the practice in Wikipedia, see Wikipedia:Assume good faith. ...