Will Idaho enforce this choice-of-law clause, and does it matter if our agreement is a franchise?
For contracts generally, Idaho applies the Restatement (Second) of Conflict of Laws "most significant relationship" test, and Idaho's courts have applied it to contract interpretation and formation questions, not only torts. Sword v. Sweet puts it in its own section heading: "THE 'MOST SIGNIFICANT RELATIONSHIP' TEST IS APPLICABLE IN ANALYZING WHICH STATE'S LAW SHOULD BE APPLIED IN THE INTERPRETATION AND CONSTRUCTION OF CONTRACTS." The formulation it applies is not the Court's own drafting: Sword takes it from Rungee v. Allied Van Lines, Inc. (1968), which was quoting "the then proposed (later officially adopted and promulgated in 1969) official draft of the Restatement Second of Conflict of Laws" under the heading "Law Governing in Absence of Effective Parties' Choice": "The rights and duties of the parties with respect to an issue in contract are determined by the local law of the State which, as to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6." The Restatement's contacts include the place of contracting, the place of negotiation, the place of performance, the location of the contract's subject matter, and the parties' domicile, residence, and places of business. FOR FRANCHISE AGREEMENTS specifically, Idaho Code § 29-110(2) supplies a distinct statutory rule rather than the common-law test: a franchise agreement's clause waiving Idaho venue or jurisdiction is void, but its CHOICE-OF-LAW clause is affirmatively enforceable ("[a]ny condition, stipulation or provision in a franchise agreement, to the extent it purports to assert, or has the effect of asserting, the choice of law is enforceable"), applicable to franchise agreements entered into or renewed on or after July 1, 2003, by a resident or an entity incorporated or organized under Idaho law.
The trap
Do not read § 29-110(2)'s franchise choice-of-law enforceability rule into ordinary, non-franchise contracts: it is a franchise-specific statute with its own definition of "franchise agreement" (a marketing-plan relationship using the franchisor's trademark or system, with a payment of $1,000 or more for the right to transact business, excluding ordinary credit-card service charges and bona-fide wholesale purchases), and the common-law most-significant-relationship test, not this statute, governs an ordinary commercial contract's choice-of-law clause. Sword v. Sweet's own application is a caution against assuming an express choice-of-law clause always controls: the case applied the test to an ALLEGED ORAL agreement with no operative choice-of-law clause at all, determining Indiana law governed because Indiana had the most significant relationship to the parties and performance: a reminder that the test is a DEFAULT for when the parties made no effective choice, which is what the Restatement text itself says by listing its contacts for use "[i]n the absence of an effective choice of law by the parties", and this rule's authorities do not independently confirm how Idaho treats an EXPRESS choice-of-law clause once one exists (a separate question from which law applies in its absence). One more thing § 29-110 does that this rule did not say: it saves arbitration, and it saves it across the WHOLE section, subsection (2) included. The sentence sits at the end of subsection (1) but is written “Nothing in this section shall affect contract provisions relating to arbitration so long as the contract does not require arbitration to be conducted outside the state of Idaho.” So the franchise venue-and-jurisdiction void in (2) does not reach an arbitration provision, on one condition: the arbitration must not be required to take place outside Idaho. A franchise agreement with an Idaho-seated arbitration clause is therefore not caught; one seated elsewhere gets no help from this sentence.
8 authorities
- statuteIdaho Code § 29-110enactment date not established
The words that state the rule
Any condition, stipulation or provision in a franchise agreement is void to the extent it purports to waive, or has the effect of waiving, venue or jurisdiction of the state of Idaho’s court system. Any condition, stipulation or provision in a franchise agreement, to the extent it purports to assert, or has the effect of asserting, the choice of law is enforceable. This subsection shall apply to any franchise agreement entered into or renewed on or after July 1, 2003, by any person who at the time of entering into or renewing such franchise agreement was a resident of this state or incorporated or organized under the laws of this state.
- statuteIdaho Code § 29-110enactment date not established
The words that state the rule
As used in this section "franchise agreement" means a written contract or agreement by which: (a) A person ("franchisee") is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a third party ("franchisor"); (b) The operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor of such plan or system; and (c) The franchisee is required to pay the franchisor one thousand dollars ($1,000) or more for the right to transact business pursuant to the plan or system. Such payments shall not include amounts paid: (i) As a reasonable service charge to the issuer of a credit card by an establishment accepting or honoring the credit card; or (ii) For the purchase of goods at a bona fide wholesale price.
The words that state the rule
II. THE “MOST SIGNIFICANT RELATIONSHIP” TEST IS APPLICABLE IN ANALYZING WHICH STATE’S LAW SHOULD BE APPLIED IN THE INTERPRETATION AND CONSTRUCTION OF CONTRACTS
The words that state the rule
In Rungee v. Allied Van Lines, Inc., 92 Idaho 718, 722-23 , 449 P.2d 378, 382-83 (1968), quoting from the then proposed (later officially adopted and promulgated in 1969) official draft of the Restatement Second of Conflict of Laws, Ch. 8, Contracts, the Supreme Court said: Law Governing in Absence of Effective Parties’ Choice. (1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the State which, as to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6. (2) In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties.
The words that state the rule
Indiana law regarding contracts controls. The agreement Larry seeks to enforce was negotiated and allegedly formed while the parties lived in Indiana. A large part of the performance claimed by him took place in Indiana; much of the subject matter of the contract was located in Indiana; and, the parties were domiciled in Indiana. Therefore, under the “most significant relationship” test, Indiana law regarding contracts applies in determining whether the parties reached an enforceable agreement.
The words that state the rule
Lawrence Sweet appeals the decision of the district court which affirmed the decision of the magistrate court that an alleged oral agreement regarding a property division of marital property from a November 6, 1991, Indiana court hearing was invalid.
- statuteIdaho Code § 29-110enactment date not established
The words that state the rule
Nothing in this section shall affect contract provisions relating to arbitration so long as the contract does not require arbitration to be conducted outside the state of Idaho.
The words that state the rule
The decision of the magistrate court, upheld by the district court is affirmed. Costs and attorney fees are awarded to Joyce Sweet’s estate.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.