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Conflict Theories of Contracts: Cases Versus Restatement

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Conflict Theories of Contracts: Cases Versus Restatement THE YALE LAW JOURNAL VOLUME 51 APRIL, 1942 NumER 6 CONFLICT THEORIES OF CONTRACTS: CASES VERSUS RESTATEMENT ARTHUR NUSSBAUMt THE THEORY OF THE RESTATEmENT AMERICAN conflict cases on contracts have had a bad press in this country, primarily, it seems, as a result of the strong criticism of the cases by Professor Beale,' Reporter of the Restatement of the Law of Conflict of Laws and author of the famous and most comprehensive treatise on the Conflict of Laws. Professor Beale's doctrines on the Conflict aspects of contracts have been embodied in the Restatement, and the resulting semi-official repudiation of a great many cases has further influenced the judgment of the legal profession. It is submitted that the unfavorable estimate of the cases is caused by doctrinal preconceptions; perhaps a comparative approach will facilitate a fairer appraisal. Ntiteworthy is a remark by Professor Batiffol of the University of Lille, author of the leading comparative treatise on the Conflict law of contracts, in the preface to his work: "We must say that it is the study of the American cases ['jurisprudence amnricaine'], incidentally at first blush just as confused as the others, which has definitely enlightened us, in com- parison with the French cases . "' In fact his treatise clearly reveals the manifold insights which Professor Batiffol has received from the American cases. The present writer's experience has been similar. While the writer's primary objective is to outline what he found in the cases, it is necessary to devote a considerable part of the discussion to the contracts chapter of the Restatement of the Law of Conflict of Laws. There has been already much penetrating criticism of this chapter;3 t Research Professor of Public Law, Columbia University. 1. See p. 897 infra. 2. BATIFFOL, LES CONFLITS DE Lois EN MATILRE DE CONIwTS (1933) 3. 3. See Lorenzen & Heilman, The Restatement and the Conflict of Laws ( 1933 ) 43 U. OF PA. L. RE%. 555, 573; Cook, 'Contracts' and the Conflict of LOws (1936) 31 IU. L. REv. 143; Willis, Two Approaches to the Conflict of Laws (1936) 14 CA.. B. REv. 1; Harper, Das 'Restatenwnt of Conflict of Laws' (1935) ZrTscnw~r Fon AuSm,,.D. u.a. INT. PRIVATRECHT 844; see also Yntema, The Restatement of the Law of Conflict of Laes (1936) 36 COL. L. REv. 183. The general criticism of the territoriality doctrine, infra note 39, has an indirect bearing upon the Restatement. 893 THE YALE LAW JOURNAL [VolI. 51 : 893 perhaps more so than of any other single part of the great work of the American Law Institute. But this criticism has been mainly directed against certain theoretical phases of the chapter, so that the present inquiry into the cases is in a sense supplementary. Moreover, since the Restatement's conception of the matter at hand still domitiates the legal mind, the Restatement presents a natural background against which divergent views may be properly set. It is well known that this conception is based on the law of the place- of-contracting (lex loci contractus) theory,4 a theory which has been championed by Professor Beale. Theories which focus on the place of contracting are not unfamiliar in Private International Law. Many courts and writer,: both American' and foreign,' favor the applieation of the lex loci contractus in case of doubt. Moreover, the idea is time-honored and common that parties acting in a given territory must not violate the law of that territory lest their transaction be invalidated.' Hence, there is no reason for rejecting the place-of-contracting theory altogether. However, the Restatement's version of the theory has certain extra- ordinary features, namely: (1) the courts are considered powerless to depart, through their Conflict rules, from the control of the lex loci contractus; and in no case may the contrary intent of the parties be taken into account (the inflexible character of the doctrine); (2) this solution is made even more rigid by the postulate that the place of contracting be determined by the internal rules on offer and acceptance, with no regard to the essential materi- ality of the contacts contemplated; (3) the inflexible rule is extended to the effects of the contract; (4) intrinsic and extrinsic validity are treated in the same way; and (5) the primary place-of-contracting theory is supplemented by a secondary, again inflexible, place-of-performance theory, with an inordinately wide and ill-defined orbit. The extension of the place-of-contracting theory to the effects of the contract, supra number 3, is not easy to discover. While systematic discussion of Private International Law ordinarily separates the issues of 4. RESTATEMENT OF THE LAW OF CONFLICT OF LAWS (1934) c. 8, topics 1 & 2 (hereinafter cited as RESTATEMENT). 5. Many instances from American cases are cited throughout Professor Beale's treatise. See 2 BEALE, CONFLICT OF LAWS (1935) 1107, 1108 (Supreme Court), 1157 (New York). This treatise is hereinafter cited as BEALE. 6. See, e.g., CHESHIRE, PRIVATE INTERNATIONAL LAW (2d ed. 1938) 261. 7. See note 93 infra. 19421 CONFLICT THEORIES OF CONTRACTS validity and effects, s the Restatement treats the latter topic in the second part of the Contracts chapter called "Creation of a Contract", a title which does not reflect its real contents. Aloreover, the topic 41f the effects of contracts is dealt with in a rather perfunctory way.' Obviously, the Reporter's attention was focused upon the validity issue."' Ntw it is true that in the American interstate scene invalidity cases are tot the fore due to the impact of usury laws and other prohibitive state enact- ments. But the Conflict problems touching the effects of osntracts are hardly less important. The indiscrimination involved is stimething more than a flaw of organization. The salient point in the Restatement doctrine is its rejection of the intent theory, that is, the idea that the law governing a contract must principally be ascertained from the express or implied common inten- tion of the parties." In Private International Law few ideas are as time-honored and as universally adopted by courts as this one. While some vestiges of the intent theory may be found as early as the medieval "Statutists", 2 who, however, were more concerned with inheritance and familial questions than with contracts, the intent theory was first elald- orated by the great French jurist Molinaeus (1500-1566))." Frequently called the theory of "autonomy of the parties", it became dominant on the continent in the nineteenth century. French, German, Belgian, Dutch, 8. As done, e.g., in the English treatises. See DicEy, CoN:rc~r or La.ws (5th cd. 1932), CHESHIRE, PRIVATE IiTTERNAxON.OT. LAw (2d ed. 1938). 9. Xamely, through § 346: "Except as stated in § 358, the law of tile place of con- tracting determines what are the obligations of a sealed instrument, a mercantile instru- ment or any other contract." (italics added). §§ 337, 341, and 342-45 are concerned with obligations arising out of particular types of contract. 10. In his treatise no general discussion of the effects of a contract is found. Per- tinent instances, not neatly distinguished from cases on validity, are presented in the sections on agency or partnership, negotiable instruments, insurance, contracts to fell, etc. See 2 BEALE 1192-99, 1205 et seq. 11. Writings on the "intent theory" form one of the most valuable parts of the literature on the Conflict of Laws. The leading work is BAriF'OL, LEs Co::.rrs DE Lots EN MATIkRE DE CONTRATS (1938), a comparative study with a thorough treatment Qi the American and English as well as the continental cases. An excellent analysis of German and other continental cases is offered by HArDEr, DIE BEEZU'uir r: P.An- TEIWILLENS I-M INT. PRiV.TRECHT (1931), with ample bibliography. CA..1n, EssAt sun LE PRINCIPE DE L'AUToNoIIE DE LA VOLONT9 EN Dnorr INT. Praiv (19-17); i.et, La thorie de l'autononde de la volont (1927) 16 RECUEIL DES Couns 5; Wolff, The Choice of Law by the Parties in International Contracts (1937) JUDICIAL RE'IW 110; and Schnitzer, Parteiantononie (1939) 35 SctWvEIzrniscIE Jn'IIsTr..ZEITL:G 305, 323 are likewise helpful comparative contributions to the problem of this section. Wolff's article will be particularly informative to the common law jurist. Touching American law see Cook, 'Contracts' and the Conflict of Laws: Intention of the Parties (1938) 32 ILL. L. REV 899. 12. See BATIFTOL, op. cit. supra note 11, at 19: CALEB. op. cit. supra note I1, at 135. 13. See CALEB, op. cit. supra note 11, at 134. THE YALE LAW JOURNAL [Vol, 51 : 893 Swiss, and other continental courts 14 profess it consistently, and it has been incorporated in the Italian Disposizioni Preliminari, liberal and Fascist brand,' " and in other legislation."" Lord Mansfield introduced it into the common law 17 and since then it has been consistently applied by the English courts.'8 It was recognized by Story" as well as by Chancellor Kent,2" and it became familiar to the highest courts of this country, particularly to the Supreme Court of the United States tinder the leadership of Chief Justice Marshall."' Business has joined courts and legislatures in this instance. Stipulations determining the applicable law to a contract have become common especially in standard forms of insurance, banking, and shipping enterprises.2 Where the law govern- ing the contract is not expressly agreed upon by the parties, courts have been eager to infer from the surrounding circumstances an "implied" or "hypothetical" intent of the parties. The generally followed view is that the law of the country, with which in the expressed or presumed intent of the parties the contract had its most important connection, shall govern, taking into account the various territorial "contacts" of the contract, such as the place of contracting, place of performance, domicil of the parties, situs of the res, etc.
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