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The Canons of Construction for Choice-of-Law Clauses

81 Pages Posted: 6 Jun 2016 Last revised: 10 Oct 2017

John F. Coyle

University of North Carolina School of Law

Date Written: June 6, 2016

Abstract

Over the past half century, courts in the United States have developed canons of construction that they use exclusively to construe choice-of-law clauses. These canons are consistently applied by state and federal courts. They play an important role in determining the meaning of choice-of-law clauses and, by extension, the law that will be applied to resolve disputes that come before the courts. To date, however, these canons have attracted little attention in the academic literature. This Article provides the first comprehensive taxonomy of the canons of construction that U.S. courts use to construe choice-of-law clauses. These canons include:

1. The canon in favor of internal law. This canon holds that when the parties choose to have their contract governed by the “law” or “laws” of a particular jurisdiction, they intend for courts to apply that jurisdiction’s internal law rather than its whole law.

2. The canon in favor of substantive law. This canon holds that when the parties choose to have their contract governed by the “law” or “laws” of a particular jurisdiction, they intend for courts to apply that jurisdiction’s substantive law rather than its procedural law.

3. The canon of linguistic equivalence. This canon holds that regardless of whether the parties choose to have their contract “governed by” or “interpreted in accordance with” or “construed in accordance with” the law of a particular jurisdiction, the result will generally be the same.

4. The canon of federal inclusion and preemption. This canon holds that when the parties select the law of a particular U.S. state, the law of that state will be deemed to include any relevant provisions of U.S. federal law. This canon further holds that federal law will preempt state law if the two are in conflict.

5a. The canon against non-contractual claims. This canon holds that a generic choice-of-law clause governs only causes of action sounding in contract. It does not govern tort and statutory claims. If the parties want the choice-of-law clause to apply to tort and statutory claims, they must draft the clause more broadly. This canon is followed by courts in Florida, New York, and Texas.

5b. The canon in favor of non-contractual claims. This canon holds that a generic choice-of-law clause governs tort and statutory claims when they are related to the contract. If the parties want the choice-of-law clause to apply exclusively to contract claims, they must draft the clause more narrowly. This canon is followed by courts in California, Minnesota, and Virginia.

The Article then takes up the normative question of whether these canons produce results that are broadly consistent with the expectations of most contracting parties. To answer this question, the Article draws upon data gleaned from eighty-six lawyer interviews and email exchanges in which the subjects were asked how they wanted the courts to interpret their choice-of-law clauses. This methodological approach—which looks to lawyer surveys rather than to a close reading of the relevant text—represents a somewhat novel approach to contract interpretation. It is, however, in keeping with a burgeoning body of contract scholarship that relies on surveys and experiments to assist in the interpretation of contracts. These data suggest that at least two of the canons discussed above regularly produce results that are inconsistent with the expectations of most contracting parties. Accordingly, the Article argues that the courts should cast these canons aside. In their place, the courts should adopt new interpretive default rules that are more in line with the presumptive intent of most parties.

The Article’s final contribution to the literature relates to conflict-of-laws rules. When two canons point in different directions, the courts must decide whether to follow (1) the canons of the forum, or (2) the canons of the state named in the choice-of-law clause. Most U.S. courts apply the canons of the forum. The Article argues that the courts should instead apply the canons of the state named in the clause for four reasons. First, it ensures that the choice-of-law clause will have a consistent meaning across jurisdictions. Second, it is more in keeping with the terms of the hypothetical bargain that most parties would strike ex ante. Third, it is consistent with the approach set forth in the Second Restatement of Conflict of Laws. Fourth, and finally, it respects the ability of the parties to choose how their contract will be interpreted.

Keywords: Choice-Of-Law Clause; Canons of Construction; Scope; Whole Law; Internal Law; Governed By; Construed in Accordance With; Contractual Claims; Non-Contractual Claims; Substantive Law; Procedural Law; Conflict of Laws

Suggested Citation

Coyle, John F., The Canons of Construction for Choice-of-Law Clauses (June 6, 2016). 92 Washington Law Review 631 (2017); UNC Legal Studies Research Paper No. 2789838. Available at SSRN: https://ssrn.com/abstract=2789838 or http://dx.doi.org/10.2139/ssrn.2789838

John Coyle (Contact Author)

University of North Carolina School of Law ( email )

Van Hecke-Wettach Hall, 160 Ridge Road
CB #3380
Chapel Hill, NC 27599-3380
United States
919-843-9634 (Phone)

HOME PAGE: http://www.law.unc.edu/faculty/directory/coylejohnf/

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