Will a North Carolina court apply the law the parties chose in this contract?
Generally yes. In Tanglewood the Supreme Court of North Carolina stated that 'where parties to a contract have agreed that a given jurisdiction's substantive law shall govern the interpretation of the contract, such a contractual provision will be given effect', concluded in the very next sentence that 'the law of the Commonwealth of Virginia governs our determination of its validity', and then found the land sale contract valid under Virginia law and affirmed; the Court stated in the same opening passage the default rule that 'the interpretation of a contract is governed by the law of the place where the contract was made'. What such a clause selects is substantive law: in Johnston County v. R. N. Rouse & Co. the Court described the choice of law provision as one that 'names a particular state and provides that the substantive laws of that jurisdiction will be used to determine the validity and construction of the contract, regardless of any conflicts between the laws of the named state and the state in which the case is litigated'. Inside the Uniform Commercial Code the freedom is narrower: N.C.G.S. § 25-1-301(a), opening 'Except as otherwise provided in this section', lets the parties agree that the law either of this State or of another state or nation governs only 'when a transaction bears a reasonable relation to this State and also to another state or nation'; and in the absence of an agreement effective under (a), and except as (c) provides, § 25-1-301(b) applies Chapter 25 to transactions bearing an appropriate relation to this State.
The trap
One statute takes a whole category of work out of the rule. N.C.G.S. § 22B-2 makes a provision in ANY contract, subcontract or purchase order for the improvement of real property in this State, or the providing of materials for it, void and against public policy if it makes the contract subject to the laws of another state, and the same sentence voids a provision fixing the exclusive forum for litigation, arbitration or other dispute resolution in another state. So a governing-law clause in a subcontract for the improvement of real property in this State is void by the statute's own words, whatever the parties' bargaining power; that category of contract is the statute's whole reach, so the same clause in an unrelated services or supply agreement is untouched by it. Two further limits sit next to the general rule. N.C.G.S. § 25-1-301(c) lists eight numbered provisions of Chapter 25 whose own choice-of-law rules govern, and provides that a contrary agreement is effective only to the extent permitted by the specified law, and the eight are not eight single sections: item (2) names both G.S. 25-2A-105 and G.S. 25-2A-106, and item (7) is the range G.S. 25-9-301 through G.S. 25-9-307. And the Rouse taxonomy matters in drafting: choice of law, consent to jurisdiction and forum selection are three types of provision 'which have very distinct purposes', and the Court applied that distinction to re-label the clause in front of it (what Johnston County and the Court of Appeals had both treated as a forum selection clause 'is a consent to jurisdiction clause'), so choosing another state's law does not by itself move the forum. The published North Carolina statutes checked for this answer hold no Chapter 1G, the chapter § 25-1-301(a) cross-refers to for a 'business contract as defined in G.S. 1G-2(1)', and the string '1G-2' was found in a single section, § 25-1-301 itself; what Chapter 1G requires or permits was therefore not read and is not stated here.
12 authorities
The words that state the rule
This Court has held that where parties to a contract have agreed that a given jurisdiction's substantive law shall govern the interpretation of the contract, such a contractual provision will be given effect. Thus by the provisions of this contract, the law of the Commonwealth of Virginia governs our determination of its validity.
The words that state the rule
the interpretation of a contract is governed by the law of the place where the contract was made.
The words that state the rule
We find also that the land sale contract in this case is valid under Virginia law and therefore we affirm the opinion of the Court of Appeals. Affirmed.
The words that state the rule
The first type, the choice of law provision, names a particular state and provides that the substantive laws of that jurisdiction will be used to determine the validity and construction of the contract, regardless of any conflicts between the laws of the named state and the state in which the case is litigated.
The words that state the rule
Although the language used may differ from one contract to another, one or more of three types of provisions (choice of law, consent to jurisdiction, and forum selection), which have very distinct purposes, may often be found in the boilerplate language of a contract.
- statuteN.C.G.S. § 22B-2enactment date not established
The words that state the rule
A provision in any contract, subcontract, or purchase order for the improvement of real property in this State, or the providing of materials therefor, is void and against public policy if it makes the contract, subcontract, or purchase order subject to the laws of another state, or provides that the exclusive forum for any litigation, arbitration, or other dispute resolution process is located in another state.
The words that state the rule
The second type, the consent to jurisdiction provision, concerns the submission of a party or parties to a named court or state for the exercise of personal jurisdiction over the party or parties consenting thereto. By consenting to the jurisdiction of a particular court or state, the contracting party authorizes that court or state to act against him.
The words that state the rule
A third type, a true forum selection provision, goes one step further than a consent to jurisdiction provision. A forum selection provision designates a particular state or court as the jurisdiction in which the parties will litigate disputes arising out of the contract and their contractual relationship. We are not here concerned with a true forum selection provision.
The words that state the rule
Despite Johnston County’s characterization of the provision as a forum selection clause and the Court of Appeals’ treatment of it as such, this provision is a consent to jurisdiction clause, whereby the contractor, in this case Rouse, waived any right to challenge the North Carolina courts’ exercise of personal jurisdiction over it.
- statuteN.C.G.S. § 25-1-301enactment date not established
The words that state the rule
If one of the following provisions of this Chapter specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the specified law: (1) G.S. 25-2-402. (2) G.S. 25-2A-105 and G.S. 25-2A-106. (3) G.S. 25-4-102. (4) G.S. 25-4A-507. (5) G.S. 25-5-116. (6) G.S. 25-8-110. (7) G.S. 25-9-301 through G.S. 25-9-307. (8) G.S. 25-12-107.
- statuteN.C.G.S. § 25-1-301enactment date not established
The words that state the rule
Except as otherwise provided in this section, when a transaction bears a reasonable relation to this State and also to another state or nation the parties may agree that the law either of this State or of the other state or nation governs their rights and duties. Except as otherwise provided in subsection (c) of this section, the parties to a business contract as defined in G.S. 1G-2(1) may agree in the business contract that North Carolina law governs their rights and duties in whole or in part, pursuant to G.S. 1G-3.
- statuteN.C.G.S. § 25-1-301enactment date not established
The words that state the rule
(b) In the absence of an agreement effective under subsection (a) of this section, and except as provided in subsection (c) of this section, this Chapter applies to transactions bearing an appropriate relation to this State.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.