Will a Virginia court apply the law our contract chooses?
Yes. Virginia's default is lex loci contractus with the parties' choice overriding it in the same breath: "The nature, validity and interpretation of contracts are governed by the law of the place where made, unless the contrary appears to be the express intention of the parties" (C.I.T. Corp. v. Guy). The Supreme Court of Virginia states the clause rule in that case with no proviso, "If a contract specifies that the substantive law of another jurisdiction governs its interpretation or application, the parties' choice of substantive law should be applied", and in Settlement Funding v. Von Neumann-Lillie it reversed a circuit court that had refused to apply the parties' chosen Utah law and had instead awarded the borrower Virginia usury damages. One statute overrides party choice of FORUM in a defined class of Virginia construction contracts (Va. Code § 8.01-262.1(A)), and it is drawn by reference to where the project is and where the contracting party's principal place of business is, not by reference to the governing law the contract names.
The trap
Settlement Funding is the case a Virginia drafter should actually read, because it shows what the clause is worth if nobody proves the chosen law: the circuit court there declined to apply Utah law for want of proof of its content, and it took an appeal to fix that. But read what the Supreme Court of Virginia did with that reasoning before treating proof as a heavy burden: it REVERSED. Counsel had said at trial that "[t]here is no usury in Utah" and promised to send the citation, and a post-hearing memorandum cited Utah Code § 70C-7-106, Utah Code 1943, 44-0-2 and Utah case law; the Court held that "These citations to Utah law provided the circuit court with sufficient information regarding the substance of Utah law. See also Code § 8.01-386. Therefore, the circuit court erred in refusing to apply Utah law in the construction of the loan agreement." So the bar for proving the chosen law is low, citations sufficed, and the trap is the delay and the appeal, not an evidentiary standard the clause cannot survive. The second trap is the limit of this rule: it is about which jurisdiction's substantive law applies, not about which court hears the case, and the venue rules are separate.
9 authorities
The words that state the rule
The nature, validity and interpretation of contracts are governed by the law of the place where made, unless the contrary appears to be the express intention of the parties.
The words that state the rule
If a contract specifies that the substantive law of another jurisdiction governs its interpretation or application, the parties' choice of substantive law should be applied.
- statuteVa. Code § 8.01-262.1enactment date not established
The words that state the rule
A. Where a party whose principal place of business is in the Commonwealth enters into a contract on or after July 1, 1997, to design, manage construction of, construct, alter, repair, maintain, move, demolish, or excavate, or supply goods, equipment, or materials for the construction, alteration, repair, maintenance, movement, demolition, or excavation of a building, structure, appurtenance, road, bridge, or tunnel which is physically located in the Commonwealth, any cause of action arising under such contract may be brought in the jurisdiction where the construction project is located, or such other jurisdiction where the venue is proper under the provisions of this chapter. Any provision in the contract mandating that such action be brought in a location outside the Commonwealth shall be unenforceable.
The words that state the rule
On February 10, 2006, the circuit court issued a letter opinion in which it declined to apply Utah law on the grounds that Settlement Funding produced no proper proof as to Utah law at trial.
The words that state the rule
Without proof of Utah law, the circuit court reasoned it must presume Utah law to be identical to Virginia law and, under Virginia Code § 6.1-330.55, a loan with an interest rate in excess of twelve percent is usurious.
The words that state the rule
Paragraph 13 of the loan agreement provides that the loan transaction was completed in Utah, that the lender, WebBank, was doing business in Utah, and that the borrower agrees that "any and all disputes arising from or concerning 6 this Agreement . . . shall be determined in accordance with the laws of the State of Utah."
The words that state the rule
The record in this case, however, does not support the circuit court's conclusion. At trial, when asked what the substance of Utah's usury law was, Settlement Funding's counsel responded that "[t]here is no usury in Utah" and that he would "have that statutory citation pulled" and "quickly sent over" to prove the absence of usury law in Utah. Settlement Funding then submitted two post-hearing memoranda. The circuit court, in its opinion letter specifically indicated that it considered the first memorandum. In that memorandum, Settlement Funding again asserted that Utah has not established any limits on maximum rates of interest for consumer loans. Rather, Settlement Funding pointed out, "the unconscionability provision at Section 70C-7-106 of the Utah Code provides that the ceiling interest rate be determined by the market conditions." Settlement Funding also cited Utah Code 1943, 44-0-2, and Utah case law regarding usury. 7 These citations to Utah law provided the circuit court with sufficient information regarding the substance of Utah law. See also Code § 8.01-386. Therefore, the circuit court erred in refusing to apply Utah law in the construction of the loan agreement.2
The words that state the rule
Accordingly, we will reverse those portions of the judgments of the circuit court entering judgment in favor of Lillie based on her claim of usury under Code § 6.1-330.57 and awarding her damages, costs and attorneys' fees under that statute and remand the case for further proceedings. Reversed in part, and remanded.
- statuteVa. Code § 8.01-262.1enactment date not established
The words that state the rule
B. The forum for any arbitration proceedings required in such a contract entered into on or after July 1, 1991, shall be in this Commonwealth. If the contract provides for arbitration proceedings outside the Commonwealth, such provision is unenforceable and arbitration proceedings shall be in the county or city where the work is to be performed, unless the parties agree to conduct the proceedings elsewhere within the Commonwealth.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.