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Lex Loci Contractus

In contract law, the issue of diversity crops up when a contract is entered into in one state and its effect occurs in another state.  The doctrine “lex loci contractus” guides courts exercising diversity jurisdiction.  It generally means that the law of the place where a contract was entered into should be applied to decide any issue arising out of that contract.  Occasionally, courts also use the phrase to mean the law by which a contract is to be governed.

The parties to a contract can specify the state that will decide any issues relating to the contract.  In the absence of such a clause, it is the basic rule of contracts that the law of the place where a contract is entered into will govern any issues arising out of the contract[i].  In other words, under the doctrine of lex loci contractus, absent a contractual choice of law provision, a contract will be governed by the law of the state “where the last act necessary to complete the contract is done”[ii].  However, if the law of the state where a contract was entered into is contradictory to the forum state’s public policy, the foreign law will not be applied.

Some states have internal laws that restrict the application of lex loci contractus.  For example, in Georgia, the application of foreign laws is limited to “statutes and decisions construing those statutes”[iii].  Thus, if no statute is involved, Georgia courts will apply local law and not foreign law.

[i] Northland Cas. Co. v. HBE Corp., 145 F. Supp. 2d 1310, 1311 (M.D. Fla. 2001)

[ii] Pastor v. Union Cent. Life Ins. Co., 184 F. Supp. 2d 1301, 1305 (S.D. Fla. 2002)

[iii] Shorewood Packaging Corp. v. Commercial Union Ins. Co., 865 F. Supp. 1577, 1581 (N.D. Ga. 1994)

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