Choice of Law Provisions in Contracts

Lex Loci Contractu
In South Carolina, “’It is fundamental that unless there be something intrinsic in, or extrinsic of, the contract that another place of enforcement was intended, the lex loci contractu governs’” Team IA, Inc., v. Lucas, 395 S.C. 237, 249, 717 S.E.2d 103, 109 (Ct. App. 2011). If a contract is silent as to which state’s law applies, under lex loci contractu, the law governing the formation, validity and interpretation of the contract is the law of the place where the contract is made. Livingston v. Atlantic Coast Line Railroad, 176 S.C. 385, 391, 180 S.E.343, 345 (1935). A contract is made where the last act to form the contract occurred. Aviation Associates and Consultants, Inc. v. Jet Time, Inc., 303 S.C. 502, 402 S.E.2d 177 (1991) (citing Askins v. Firedoor Corp., 281 S.C. 611, 616, n. 3, 316 S.E.2d 713, 716, n. 3 (1984)). Where performance is at issue, the law of the place of performance governs. Livingston v. Atlantic Coast Line R.R. Co., 176 S.C. 385, 180 S.E. 343, 345 (1935). Of course, these common law choice of law rules apply only in the absence of an express choice of law provision in the contract. Team IA, 395 S.C. at 249, 717 S.E.2d at 109.

South Carolina enforces choice of law provisions
Generally, South Carolina honors choice of law clauses. Team IA, 395 S.C. at 248, 717 S.E.2d at 108. When parties to a contract agree that the laws of another state governs the contract, South Carolina courts generally enforce such provisions unless repugnant to the public policy of this state. Donahue v. Multimedia, Inc., 362 S.C. 331, 337, 608 S.E.2d 162, 164 (Ct. App. 2005).

Under the public policy exception, South Carolina courts refuse to follow foreign law when it is against “good morals or natural justice,” or if for some other reason, enforcement of foreign law would be prejudicial to the general interests of South Carolina citizens. Rogers v. Lee, 414 S.C. 225, 235, 777 S.E.2d 402, 407 (Ct. App. 2015). Examples of clauses against good morals and natural justice are “prohibited marriages, wagers, lotteries, racing, contracts for gaming, or the sale of liquors, and others.” Nash v. Tindall Corp., 375 S.C. 36, 650 S.E.2d 81, 84 (Ct. App. 2007).

Shorter statutes of repose or limitations are not against South Carolina’s public policy
One of the reasons parties litigate choice of law provisions is to advocate for a statute of repose or statute of limitation that is favorable to their position. However, in South Carolina the fact that the statutes of repose of two states differ does not imply that the law of one state violates the public policy of another state. Nash, 375 S.C. 36, 650 S.E.2d at 84. Further, South Carolina courts have held that neither good morals nor natural justice are violated when foreign law is applied to preclude an action for money damages, even if South Carolina law permits recovery for the same cause of action.” Rogers, 414 S.C. at 235, 777 S.E.2d at 407. In Nash, the South Carolina Court of Appeals held that South Carolina public policy was not violated where applying North Carolina’s six year statute of repose would bar a claim, while applying South Carolina’s eight year statute would have permitted the same claim to proceed. Nash, 375 S.C. at 36, 650 S.E.2d at 84.

South Carolina generally enforces choice of law provisions, even in instances where application of foreign law will bar a claim that otherwise would be viable in South Carolina. Notably, these provisions are often accompanied by forum selection clauses, the enforcement of which depends on which state’s law applies. Part Two will analyze the oddities of both South Carolina law concerning the enforcement of forum selection clauses.

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