North Carolina § 25-1-301 - Territorial applicability; parties' power to choose applicable law.

§ 25-1-301. Territorial applicability; parties' power to choose applicable law.

Except as otherwise provided in this section, when a transaction bears a reasonable relation to this State and also to another state or nation the parties may agree that the law either of this State or of the other state or nation shall govern their rights and duties. Except as otherwise provided in subsection (c) of this section, the parties to a business contract as defined in G.S. 1G-2(1) may agree in the business contract that North Carolina law shall govern their rights and duties in whole or in part, pursuant to G.S. 1G-3. In the absence of an agreement effective under subsection (a) of this section, and except as provided in subsection (c) of this section, this Chapter applies to transactions bearing an appropriate relation to this State. If one of the following provisions of this Chapter specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the specified law: G.S. 25-2-402; G.S. 25-2A-105 and G.S. 25-2A-106; G.S. 25-4-102; G.S. 25-4A-507; G.S. 25-5-116; G.S. 25-8-110; G.S. 25-9-301 through G.S. 25-9-307. History (1965, c. 700, s. 1; 1975, c. 862, s. 1; 1993, c. 157, s. 2; 1997-181, s. 17; 1999-73, s. 2; 2000-169, s. 3; 2004-190, s. 2; 2006-112, s. 1; 2017-123, s. 2.) NORTH CAROLINA COMMENT The Official Comment to this section is omitted. This section brings forward former G.S. 25-1-105 , with some stylistic changes, in lieu of Section 1-301 of Revised Article 1. As of the time this Article was enacted in this State, no state that had enacted Revised Article 1 had adopted revised Section 1-301; states that have enacted Revised Article 1 have instead chosen to continue the former provision. Appendix to North Carolina Comment The following is the text of the 1999 edition of the Official Comment to former Section 1-105: Subsection (1) [subsection (a)] states affirmatively the right of the parties to a multi-state transaction or a transaction involving foreign trade to choose their own law. That right is subject to the firm rules stated in the five sections [and two groups of sections] listed in subsection (2) [subsection (c)], and is limited to jurisdictions to which the transaction bears a "reasonable relation." In general, the test of "reasonable relation" is similar to that laid down by the Supreme Court in Seeman v. Philadelphia Warehouse Co., 274 U.S. 403, 47 S. Ct. 626, 71 L. Ed. 1123 (1927). Ordinarily the law chosen must be that of a jurisdiction where a significant enough portion of the making or performance of the contract is to occur or occurs. But an agreement as to choice of law may sometimes take effect as a shorthand expression of the intent of the parties as to matters governed by their agreement, even though the transaction has no significant contact with the jurisdiction chosen. Where there is no agreement as to the governing law, the Act is applicable to any transaction having an "appropriate" relation to any state which enacts it. Of course, the Act applies to any transaction which takes place in its entirety in a state which has enacted the Act. But the mere fact that suit is brought in a state does not make it appropriate to apply the substantive law of that state. Cases where a relation to the enacting state is not "appropriate" include, for example, those where the parties have clearly contracted on the basis of some other law, as where the law of the place of contracting and the law of the place of contemplated performance are the same and are contrary to the law under the Code. Where a transaction has significant contacts with a state which has enacted the Act and also with other jurisdictions, the question what relation is "appropriate" is left to judicial decision. In deciding that question, the court is not strictly bound by precedents established in other contexts. Thus a conflict-of-laws decision refusing to apply a purely local statute or rule of law to a particular multi-state transaction may not be valid precedent for refusal to apply the Code in an analogous situation. Application of the Code in such circumstances may be justified by its comprehensiveness, by the policy of uniformity, and by the fact that it is in large part a reformulation and restatement of the law merchant and of the understanding of a business community which transcends state and even national boundaries. Compare Global Commerce Corp. v. Clark-Babbitt Industries, Inc., 239 F.2d 716, 719 (2d Cir. 1956). In particular, where a transaction is governed in large part by the Code, application of another law to some detail of performance because of an accident or geography may violate the commercial understanding of the parties. The Act does not attempt to prescribe choice-of-law rules for states which do not enact it, but this section does not prevent application of the Act in a court of such a state. Common-law choice of law often rests on policies of giving effect to agreements and of uniformity of result regardless of where suit is brought. To the extent that such policies prevail, the relevant considerations are similar in such a court to those outlined above. Subsection (2) [subsection (c)] spells out essential limitations on the parties' right to choose the applicable law. Especially in Article 9 parties taking a security interest or asked to extend credit which may be subject to a security interest must have sure ways to find out whether and where to file and where to look for possible existing filings. Sections 9-301 through 9-307 should be consulted as to the rules for perfection of security interests and agricultural liens, the effect of perfection and non-perfection, and priority. Effect of Amendments. - Session Laws 2004-190, s. 2, effective January 1, 2005, deleted "Bulk transfers subject to the article on bulk transfers. (G.S. 25-6-102)." following "Letters of Credit" in subdivision (2). Session Laws 2017-123, s. 2, effective July 18, 2017, in subsection (a), substituted "the" for "such" preceding "other state,"and added the last sentence; and substituted "specified law" for "law so specified" at the end of the introductory language in subsection (c). Legal Periodicals. - For note on choice of law rules in North Carolina, see 48 N.C.L. Rev. 243 (1970). For article, "Foreign Law Between Domestic Commercial Parties: A Party Autonomy Approach with Particular Emphasis on North Carolina Law," see 30 Campbell L. Rev. 437 (2008).