Choice-of-Law Clauses

The local law of the jurisdiction under whose certificate of title the goods are covered governs perfection, the effect of perfection or nonperfection and the priority of a security interest in goods covered by a certificate of title from the time the goods become covered by the certificate of title until the goods cease to be covered by the certificate of title. (A.R.S. § 47-9303)

While Arizona has no statute of general application providing choice-of-law rules for contracts, the Arizona appellate courts since 1968 have almost exclusively referred to the principles of the Restatement (Second) of Conflict of Laws (1971) in resolving choice-of-law or conflict-of-law questions. Most important are Restatement (Second) Section 187, where the parties, in their contract, have chosen a particular state law to apply, and Section 188, where the parties have not made an expressed choice of law, or there exists a conflict with a fundamental policy of a state which has a materially greater interest than the law of the state chosen by the parties in their contract. These principles likewise apply under Arizona's Revised Article 9 of the UCC, which upholds an express choice of law by the parties, provided the transaction bears a "reasonable relation" to the jurisdiction so selected (A.R.S. § 47-1105(A)), and absent such an express choice of law in the documents, the UCC of the state bearing "an appropriate relation" to the transaction will control (Id.). Examples of application of the Restatement (Second) in contract matters include Cardon v. Cotton Lane Holdings, Inc., 173 Ariz. 203, 841 P.2d 198 (1992) (real estate secured loan transaction) and Taylor v. Security National Bank, 20 Ariz. App. 504, 514 P.2d 257 (1973) (deficiency claim following repossession and sale of personal property after breach of a security agreement). Examples where Arizona public policy was held under Sections187 and 188 to prevail over inconsistent contract choice-of-law provisions are Swanson v. Image Bank, Inc., 202 Ariz. 226, 43 P.2d 174 (Ct. App. 2002) and Landi v. Arkules, 192 Ariz. 126, 835 P.2d 458 (Ct. App. 1992).

The Restatement (Second) Section 187 generally provides that the law of the state chosen by the parties to govern their contractual rights and duties will be applied, provided the particular issue is one which the parties could have resolved by explicit language in their agreement directed to that issue. Furthermore, the law the state chosen by the parties will be applied even if the particular issue is not one that could have been resolved by an explicit provision, unless either (a) the chosen state has no substantial relationship to the parties or the transaction, and there is no other reasonable basis for the party's choice of law, or (b) the application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue, which under the rule of Section 188 would otherwise be the state of applicable law. Thus, "party autonomy" as to choice of law is not always upheld in Arizona, depending upon the particular issue and circumstances.