From Efficiency to Politics in Contractual Choice of Law

Abstract

Enforcement of contractual choice of law can promote the application and development of efficient legal rules. However, state lawmakers can be expected to resist such enforcement because it erodes their lawmaking power. Efficiency and politics can, however, be reconciled by recognizing that parties' ability to move around within a federal system gives lawmakers incentives to enforce the clauses except where there is strong local support for regulation overriding enforcement of contractual choice. These countervailing forces help ensure that choice-of-law clauses will be enforced where enforcement is most likely to be efficient. They also suggest that party residence in designated and regulating jurisdictions should determine enforceability of contractual choice. These conclusions are supported by an analysis of nearly 700 cases involving enforcement of choice-of-law clauses. This Article also proposes a specific model statute on contractual choice of law that is generally consistent with case law but provides additional clarity and predictability.