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Legal Memorandum: Contracts for the Repayment of Debt

Issue: What law applies to contracts for the repayment of debt in California?

Area of Law: Business Organizations & Contracts, Litigation & Procedure
Keywords: Repayment of debt; Contracts
Jurisdiction: California
Cited Cases: 118 Cal. App. 4th 531; 113 P.3d 1100; 8 Cal. 2d 241
Cited Statutes: Restatement (Second) of Conflict of Law § 195; Restatement (Second) of Conflicts of Law § 202(1)
Date: 05/01/2008

The Restatement (Second) of Conflict of Laws addresses, more specifically, the law that applies to contracts for the repayment of debt.  The Restatement, which has been adopted in California (e.g., Discover Bank v. Superior Court (2005) 36 Cal. 4th 148, 30 Cal. Rptr. 3d 76, 113 P.3d 1100), states that a contract for the repayment of money lent and the rights created thereby are, in the absence of an effective choice of law by the parties, governed by the law of the state where the contract requires that repayment be made.  See Restatement (Second) of Conflict of Law § 195.

A contract that is invalid based on the law of the place of repayment may nevertheless be upheld by application of the law of another state with which it has a substantial relationship.  Id., cmt. a.  In other words, in some cases, “a state which is not the place where the contract requires that the loan be repaid will nevertheless, with respect to the particular issue, be the state of most significant relationship to the transaction and the parties and hence the state of the applicable law.”  Id., cmt. c. 

This may be so, for example, when the contract would be invalid under the local law of the [jurisdiction] where repayment is to be made but valid under the local law of another state with a close relation to the transaction and the parties.  In such a situation, the local law of the […]

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