CO Code § 4-1-301 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 1 - General Provisions|Part 3 - Territorial Applicability and General Rules|§ 4-1-301. 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 such other state or nation shall govern their rights and duties.    In the absence of an agreement effective under subsection (a) of this section, and except as provided in subsection (c) of this section, the “Uniform Commercial Code” applies to transactions bearing an appropriate relation to this state.    If one of the following provisions of the “Uniform Commercial Code” specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law so specified:   Section 4-2-402;    Sections 4-2.5-105 and 4-2.5-106;    Section 4-4-102;    Section 4-4.5-507;    Section 4-5-116;    (Reserved)    Section 4-8-110;    Sections 4-9-301 to 4-9-307.        History. Source: L. 2006: Entire article R&RE, p. 466, § 1, effective September 1.    Cross references:   For offenses relating to this title, see part 5 of article 5 of title 18.   Official Comments   Copyright by the American Law Institute and the National Conference of Commissioners on Uniform State Laws. Reproduced with the permission of the Permanent Editorial Board for the Uniform Commercial Code. All rights reserved. —   Editor's note:   The Official Comments to the Uniform Commercial Code are available only in the printed book form of Colorado Revised Statutes. As noted above, the Official Comments are subject to copyright by the American Law Institute and the National Conference of Commissioners on Uniform State Laws. At this time, Colorado has a license to reprint the Official Comments in the printed book form.   Editor's note:   This article was numbered as article 1 of chapter 155, C.R.S. 1963. The provisions of this article were repealed and reenacted in 2006, resulting in the addition, relocation, and elimination of sections as well as subject matter. For amendments to this article prior to 2006, consult the Colorado statutory research explanatory note and the table itemizing the replacement volumes and supplements to the original volume of C.R.S. 1973 beginning on page vii in the front of this volume. Former C.R.S. section numbers are shown in editor's notes following those sections that were relocated.   Law reviews:   For article, “Commercial Law”, which discusses Tenth Circuit decisions dealing with commercial law, see 61 Den. L.J. 205 ; for article, “Commercial Law”, which discusses Tenth Circuit decisions dealing with commercial law, see 62 Den. U. L. Rev. 79 (1985); for article, “Commercial and Corporate Law” which discusses Tenth Circuit decisions dealing with commercial law, see 64 Den. U. L. Rev. 165 (1987); for comment, “Bad Faith Lenders”, see 60 U. Colo. L. Rev. 417 (1989); for a discussion of Tenth Circuit decisions dealing with commercial law, see 67 Den. U. L. Rev. 649 (1990).   Editor's note:   This section is similar to former § 4-1-105 as it existed prior to 2006.   OFFICIAL COMMENT   Source: Former Section 1-105.   Summary of changes from former law: Section 1-301,which replaces former UCC Section 1-105, represents a significant rethinking of choice of law issues addressed in that section. The new section reexamines both the power of parties to select the jurisdiction whose law will govern their transaction and the determination of the governing law in the absence of such selection by the parties. With respect to the power to select governing law, the draft affords greater party autonomy than former section 1-105, but with important safeguards protecting consumer interests and fundamental policies. While the Drafting Committee considered addressing the related topic of forum selection clauses, it ultimately decided that Article 1 of the Uniform Commercial Code is not an appropriate vehicle for addressing this issue.   Revised UCC section 1-301 addresses contractual designation of governing law somewhat differently than does former section 1-105. Former law allows the parties to any transaction to designate a jurisdiction whose law governs if the transaction bears a “reasonable relation” to that jurisdiction. Revised Article 1 deviates from this unified approach by providing different rules for consumer transactions than for “business to business” transactions.   In the context of consumer transactions, revised Article 1, unlike former law, generally protects consumers against the possibility of losing the protection of consumer protection laws of their home jurisdiction.   In the context of business-to-business transactions, revised Article 1 generally provides the parties with greater autonomy to designate a jurisdiction whose law will govern than does former Article 1, but also provides some safeguards against abuse that do not appear in former Article 1. Following emerging international norms, greater autonomy is provided in subsections (b) and (c) by deleting the requirement that the transaction bear a “reasonable relation” to the jurisdiction designated in this non-consumer context. It should be noted in this regard that in the case of wholly domestic transactions the jurisdiction designated must be a State. An important safeguard not present in former law is provided in subsection (e). Subsection (e) indicates that the designation of a jurisdiction's law is not effective (even if the transaction bears a reasonable relation to that jurisdiction) to the extent that application of that law would be contrary to a fundamental policy of the jurisdiction whose law would govern in the absence of contractual designation. Application of the law designated may be contrary to a fundamental policy of the State or country whose law would otherwise govern either because of the nature of the law designated or because of the “mandatory” nature of the law that would otherwise apply.   In the absence of an effective contractual designation of governing law, former UCC section 1-105(1) directs the forum to apply its own law if the transaction bears “an appropriate relation to this state.” This provision, however, is frequently ignored by courts. Revised UCC section 1-301(c) provides simply that, in the absence of contractual designation, the court should apply the forum's choice of law principles.   1. Applicability of section. This section is neither a full Restatement of choice of law principles nor a free-standing choice of law statute. Rather, it is a provision of Article 1 of the Uniform Commercial Code. As such, it is subject to Section 1-102, which states the scope of Article 1. As that section indicates, Article 1, and the rules contained therein, apply to transactions to the extent that they are governed by one of the other Articles of the Uniform Commercial Code. Thus, this section does not apply to a transaction outside the scope of the Uniform Commercial Code such as a services contract or a contract for the sale of real estate. On the other hand, if the transaction is within the scope of a substantive Article of the Uniform Commercial Code, such as in the case of a sale or lease of goods, this section does apply.   In some cases, a transaction is neither completely within the scope of the Uniform Commercial Code (as in the case of a sale or lease of goods) nor completely outside the scope of the Uniform Commercial Code (as in the case of a contract for the sale of real estate). Rather, some aspects of the transaction are within the substantive scope of the Uniform Commercial Code while other aspects are not. One example of this phenomenon is an agreement to loan money in which the borrower's obligation to repay the loan is secured by a security interest in personal property. The security agreement, and the security interest created thereby, are clearly within the scope of Article 9. The loan agreement, on the other hand, is governed not by the Uniform Commercial Code but by the general law of contracts. Another example is provided by a real estate lease in which the lessee's obligation to pay the stated rent is backed by a standby letter of credit issued by a bank. The lease is governed by realty law outside the Uniform Commercial Code, while the letter of credit is governed by Article 5. While this section, by its terms, only applies to the UCC aspect of such a “mixed transaction,” it is within a court's discretion to decide in a particular case that bifurcation of the choice of law principles applicable to the transaction is inadvisable and, accordingly, to apply principles of this section to the non-UCC aspects of the transaction in order to have the law of the same State or country apply to the entire transaction. When the UCC aspects of such a “mixed transaction” predominate, such a decision may be particularly appropriate.   2. Contractual choice of law. This section allows parties broad autonomy, with several important limitations, to select the law governing their transaction, even if the transaction does not bear a relation to the State or country whose law is selected. This recognition of party autonomy with respect to governing law has already been established in several Articles of the Uniform Commercial Code (see UCC Sections 4A-507, 5-116, and 8-110) and is consistent with international norms. See, e.g., Inter-American Convention on the Law Applicable to International Contracts, Article 7 (Mexico City 1994); Convention on the Law Applicable to Contracts for the International Sale of Goods, Article 7(1) (The Hague 1986); EC Convention on the Law Applicable to Contractual Obligations, Article 3(1) (Rome 1980).   There are three important limitations on this party autonomy to select governing law. First, a different, and more protective, rule applies in the context of consumer transactions (see note c). Second, in an entirely domestic transaction, this section does not validate the selection of foreign law. (See note d.) Third, contractual choice of law will not be given effect to the extent that application of the law designated would be contrary to a fundamental policy of the State or country whose law would be applied in the absence of such contractual designation (see Comment 5).   The Drafting Committee considered whether this Section should expressly provide for the ability of parties to designate non-legal codes such as trade codes as the set of rules governing their transaction, but decided that the principles of Section 1-302 allowing parties broad freedom of contract to structure their relation are adequate for this purpose. A similar decision was made with respect to the ability of the parties to designate recognized bodies of rules or principles applicable to commercial transactions that are promulgated by intergovernmental authorities such as UNCITRAL or UNIDROIT. See, e.g., UNIDROIT Principles of International Commercial Contracts.   3. Consumer transactions. If one of the parties is a consumer (as defined in section 1-201(11a)), subsection (d) provides the parties less autonomy to designate the State or country whose law will govern. First, in a consumer transaction subsection (d)(1) provides that the transaction must bear a reasonable relation to the State or country designated. Second, except as noted below, subsection (d)(2) provides that a designation of the law of a State or country other than that of the consumer's habitual residence, even if the transaction bears a reasonable relation to that State or country, will not deprive the consumer of the protection of any rules of law of the consumer's habitual residence which are protective of consumers and are not variable by agreement. (It should be noted that the phrase “rule of law” is intended to refer to case law as well as statutes and administrative regulations.) Thus, for example, in the case of a sale of goods by a seller in Indiana to a consumer buyer in New York, in which transaction the contract designates Indiana law as governing, the New York buyer will retain the protection of nonwaivable New York rules of law that are protective of consumers.   There is one exception to this principle. In the case of a sale of goods to a consumer in which the consumer makes the contract and takes possession of the goods in a State or country other than the consumer's habitual residence, subsection (d)(2)(B) provides that it is the consumer protection rules of law of that State or country that cannot be eliminated by choice of law. Thus, for example, if a New York consumer, while on vacation in Indiana, buys goods and takes delivery of them at an Indiana branch of an Ohio retailer, and the contract designates Ohio law as governing, this choice of law may not deprive the New York consumer buyer of nonwaivable Indiana rules of law that are protective of consumers, but may deprive that buyer of analogous New York rules. This exception, adapted from UCC section 2A-106 and Article 5 of the EC Convention on the Law Applicable to Contractual Obligations, enables a seller that engages in only face-to-face transactions to ascertain in advance which consumer protection law it is subject to. The reference in subsection (d)(2)(B) to the State or country in which the consumer makes the contract should not be read to incorporate formalistic concepts of where the last event necessary to conclude the contract took place; rather, the intent is to identify the state in which all material steps were taken by the consumer to enter into the contract.   In the absence of a contractual designation of governing law, application of the choice of law rules of the forum, as mandated by subsection (c), could lead to application of the laws of a State or country other than that of the consumer's habitual residence. In such a case, subsection (d)(2) still applies to preserve consumer protection rules for the benefit of the consumer as described in the preceding paragraph.   4. Wholly domestic transactions. While this Section provides parties broad autonomy to select governing law, that autonomy is limited in the case of wholly domestic transactions. In a “domestic transaction,” subsection (b)(1) validates only the designation of the law of a State. A “domestic transaction” is a transaction that does not bear a reasonable relation to a country other than the United States. See subsection (a). Thus, in a wholly domestic non-consumer transaction, parties may (subject to the limitations set out in subsections (e) and (f)) designate the law of any State but not the law of a foreign country.   5. International transactions. This section provides greater autonomy in the context of international transactions. As defined in subsection (a)(2), a transaction is an “international transaction” if it bears a reasonable relation to a country other than the United States. In a non-consumer international transaction, subsection (b)(2) provides that a designation of the law of any State or country is effective (subject, of course, to the limitations set out in subsections (e) and (f)). It is important to note that the transaction need not bear a relation to the State or country designated so long as the transaction is international. Thus, for example, in a non-consumer lease of goods in which the lessor is located in Mexico and the lessee is located in Louisiana, a designation of the law of Ireland to govern the transaction would be given effect under this section even though the transaction may bear no relation to Ireland. The ability to designate the law of any country in non-consumer international transactions is important in light of the common practice in many commercial contexts of designating the law of a “neutral” jurisdiction whose law is well-developed.   6. Fundamental policy. Subsection (e) provides that an agreement designating the governing law will not be given effect to the extent that application of the designated law would be contrary to a fundamental policy of the State or country whose law would otherwise govern. This rule provides a narrow exception to the broad autonomy afforded to parties in subsection (b). One of the prime objectives of contract law is to protect the justified expectations of the parties and to make it possible for them to foretell with accuracy what will be their rights and liabilities under the contract. In this way, certainty and predictability of result are most likely to be secured. See Restatement (Second) Conflict of Laws, § 187, comment e.   Under the fundamental policy doctrine, a court should not refrain from applying the designated law merely because this would lead to a result different than would be obtained under the local law of the State or country whose law would otherwise govern. Rather, the difference must be contrary to a public policy that is so substantial that it justifies overriding the concerns for certainty and predictability underlying modern commercial law as well as concerns for judicial economy generally. Thus, application of the designated law will rarely be found to be contrary to a fundamental policy of the State or country whose law would otherwise govern when the difference between the two concerns a requirement, such as a statute of frauds, that relates to formalities, or general rules of contract law, such as those concerned with the need for consideration.   The opinion of Judge Cardozo in Loucks v. Standard Oil Co. of New York, 120 N.E. 198 (1918), regarding the related issue of when a state court may decline to apply the law of another state, is a helpful touchstone here:   Our own scheme of legislation may be different. We may even have no legislation on the subject. That is not enough to show that public policy forbids us to enforce the foreign right. A right of action is property. If a foreign statute gives the right, the mere fact that we do not give a like right is no reason for refusing to help the plaintiff in getting what belongs to him. We are not so provincial as to say that every solution of a problem is wrong because we deal with it otherwise at home. Similarity of legislation has indeed this importance; its presence shows beyond question that the foreign statute does not offend the local policy. But its absence does not prove the contrary. It is not to be exalted into an indispensable condition. The misleading word ‘comity' has been responsible for much of the trouble. It has been fertile in suggesting a discretion unregulated by general principles.   * * *   The courts are not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion of expediency or fairness. They do not close their doors, unless help would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal.   120 N.E. at 201-02 (citations to authorities omitted).   Analytically, one might conclude that application of the designated law is contrary to a fundamental policy of the State or country whose law would otherwise govern either (i) because the substance of the designated law violates a fundamental principle of justice of that State or country or (ii) because it differs from a rule of that State or country that is “mandatory” in that it must be applied in the courts of that State or country without regard to otherwise-applicable choice of law rules of that State or country and without regard to whether the designated law is otherwise offensive. This distinction, which may have more theoretical than practical significance, has been suggested in some international conventions in this area, although in some cases the concept is applied to authorize the forum state to apply its mandatory rules, rather than those of the State or country whose law would otherwise govern. The latter situation is not addressed by this section. See comment 9.   In any event, it is obvious that a rule that is freely changeable by agreement of the parties under the law of the State or country whose law would otherwise govern can hardly be construed as a mandatory rule of that State or country. This does not mean, however, that rules that cannot be changed by agreement under that law are, for that reason alone, mandatory rules. Otherwise, contractual choice of law in the UCC context would be illusory and redundant; the parties would be able to accomplish by choice of law no more than can be accomplished under Section 1-302 (by agreeing to vary the rules that would otherwise govern their transaction by substituting for those rules the rules that would apply if the transaction were governed by the designated State or country) without designation of governing law. Indeed, other than cases in which a mandatory choice of law rule is established by statute (see, e.g., UCC sections 9-301 through 9-307, explicitly preserved in subsection (f)), cases in which courts have declined to follow the designated law solely because a rule of the State or country whose law would otherwise govern is mandatory are rare.   7. Choice of law in the absence of contractual designation. Subsection (c), which replaces the second sentence of former UCC Section 1-105(1), determines which jurisdiction's law governs a transaction in the absence of an effective contractual choice by the parties. Former Section 1-105(1), provided that the law of the forum (i.e., the Uniform Commercial Code) applies if the transaction bears “an appropriate relation to this state.” By using an “appropriate relation” test, rather than, say, requiring that the forum be the location of the “most significant” contact, Section 1-105(1) expressed a bias in favor of applying the forum's law. This bias, while not universally respected by the courts, was justifiable in light of the uncertainty that existed at the time of drafting as to whether the Uniform Commercial Code would be adopted by all the states; the pro-forum bias would assure that the Uniform Commercial Code would be applied so long as the transaction bore an “appropriate” relation to the forum. Inasmuch as the Uniform Commercial Code has been adopted, at least in part, in all U.S. jurisdictions, the vitality of this point is minimal in the domestic context, and international comity concerns militate against continuing the pro-forum, pro-UCC bias in transnational transactions. When the choice is between the law of two jurisdictions that have adopted the Uniform Commercial Code, but whose law differs (whether because of differences in enacted language or differing judicial interpretations), there is no strong justification for directing a court to apply different choice of law rules to its determination than it would apply if the matter were not governed by the Uniform Commercial Code. Similarly, given the wide variety of choice of law principles applied by the states, it would not be prudent to designate only one such principle as the proper one for transactions governed by the Uniform Commercial Code. Accordingly, in cases in which the parties have not made an effective choice of law, Section 1-301(a) simply directs the forum to apply its ordinary choice of law principles to determine which jurisdiction's law governs.   8. Primacy of other UCC choice of law rules. Subsection (f), which is essentially identical to former UCC Section 1-105(2), indicates that choice of law rules provided in the other Articles govern when applicable.   9. Matters not addressed by this section. As noted in comment 1, this section is not a complete statement of conflict of laws doctrines applicable in commercial cases. In particular, this section does not address, and leaves to other law, two issues that relate to the forum and its law. First, a forum will occasionally decline to apply the law of a different jurisdiction selected by the parties when application of that law would be contrary to a fundamental policy of the forum jurisdiction, even if it would not be contrary to a fundamental policy of the State or country whose law would govern in the absence of contractual designation. Standards for application of this doctrine relate primarily to concepts of sovereignty rather than commercial law and are thus left to the courts. Second, in determining whether to give effect to the parties' agreement that the law of a particular State or country will govern their relationship, courts must, of necessity, address some issues as to the basic validity of that agreement. These issues might relate, for example, to capacity to contract and absence of duress. This section does not address these issues.