Will an Ohio court apply the law we chose in the contract?
Ohio's default rule, absent a choice, is that where a conflict of law issue arises on a contract the law of the state where the contract is to be performed governs. Where the parties have specifically designated a forum other than the place of performance whose law is to govern, Ohio applies Restatement of the Law 2d, Conflict of Laws, Section 187, which the Supreme Court of Ohio quoted: the law of the state chosen by the parties will be applied, even as to an issue the parties could not have resolved by an explicit provision, unless (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or (b) application of the chosen law would be contrary to a fundamental policy of a state which has a materially greater interest in the determination of the particular issue and which, under Section 188, would supply the applicable law absent an effective choice.
The trap
The substantial-relationship inquiry looks at the facts as they stood when the contract was made, not at where the parties are now. In Schulke the chosen state kept the clause alive because at the time the contract was entered into one party was located there, the contract was executed there, and part of performance took place there, even though that party had since moved its operations to a different state. The exception in Section 187(2)(b) as quoted has three conditions that all have to be met: the chosen law must be contrary to a fundamental policy of another state, that state must have a materially greater interest in the particular issue, and it must be the state whose law would apply under Section 188 absent an effective choice. Schulke did not have to apply it: the Court recorded 'there being no issue that the application of New York law would be contrary to the policies of this state'. No Ohio statutory override of a choice-of-law clause is quoted in any authority listed here.
5 authorities
- case6 Ohio St.3d 436Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co.Ohiodecided 1983read it at the source ↗
The words that state the rule
The court below held, and we agree, that under these circumstances the correct rule to apply is the one set forth in the Restatement of Law 2d (1971) 561, Conflict of Laws, Section 187, which provides in part, as follows: “(2) 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 parties’ choice, or
- case6 Ohio St.3d 436Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co.Ohiodecided 1983read it at the source ↗
The words that state the rule
Under these circumstances, it is our conclusion that New York did bear a substantial relationship to the parties and the contract. Accordingly, there being no issue that the application of New York law would be contrary to the policies of this state, the court of appeals did not err in respecting the agreement of the parties.
- case6 Ohio St.3d 436Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co.Ohiodecided 1983read it at the source ↗
The words that state the rule
“(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.”
- case6 Ohio St.3d 436Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co.Ohiodecided 1983read it at the source ↗
The words that state the rule
The record below indicates that at the time the 1975 contract was entered into, Stereo was located in the state of New York. It apparently moved its operations to New Jersey in 1976. In addition, the contract was executed by Schulke on behalf of Stereo in New York. Finally, until Stereo moved to New Jersey, part of its performance of the contract, including the preparation of the duplicate tapes, took place in New York.
- case6 Ohio St.3d 436Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co.Ohiodecided 1983read it at the source ↗
The words that state the rule
Generally, Ohio follows the rule that where a conflict of law issue arises in a case involving a contract, the law of the state where the contract is to be performed governs. Montana Coal & Coke Co. v. Cincinnati Coal & Coke Co. (1904), 69 Ohio St. 351 , paragraph one of the syllabus; Pittsburgh, Cin., C. & St. L. Ry. Co. v. Sheppard (1897), 56 Ohio St. 68 , paragraph two of the syllabus. Some courts have noted that the rationale for this rule is that the place of performance bears the most significant relationship to the contract. S&S Chopper Service v. Scripter (1977), 59 Ohio App. 2d 311 [ 13 O.O.3d 326 ]; Osborn v. Osborn (1966), 10 Ohio Misc. 171 [ 39 O.O.2d 275 ]. In the instant matter, however, we are confronted with a question which we have not heretofore addressed, i.e., where the parties have specifically designated a forum other than the place of performance, should that decision be respected?
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.