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If the parties have chosen the applicable law of their contract, a contrac
t shall be governed by the law chosen by the parties. The parties may at any t
ime agree to subject to a law other than that which previously governed it, bu
t any variation by the parties of the law to be applied made after the conclus
ion of the contract shall not prejudice its formal validity or adversely affe
ct the rights of third parties. The choice of the parties not only shall not p
rejudice the application of the mandatory rules of the forum and the country wi
th which the situation has a close connection, but also shall not be manifestly
incompatible with the public policy of the forum. If the parties have not
chosen the applicable law of their contract, the contract shall be governed by
the law of the country with which it is most closely connected. It shall be pr
esumed that the contract is most closely connected with the country where the p
arty who is to effect the characteristic performance of the contract has his ha
bitual residence or principal place ofbusiness, but if it appears from the cir
cumstances as a whole that the contract is more closely connected with another
country, than the law of that country shall be applied. Some
special contracts h
ave different rules. For example, a contract concerning the right in immovable
property or to use it shall be presumed that it is most closely connected with
the country where the immovable property is situated. The law applicable t
o a contract governs in particular its interpretation; performance; the conseq
uences of the breach, including the assessment ofdamages in so far as it is go
verned by rules of law; the various ways ofextinguishing obligations, and pres
cription and limitation of actions; the consequences of nullity of the contrac
t. But the law applicable to a contract shall not of course govern the question
s of legal capacity of natural persons; the mode and details of the performanc
e; the formal validity of the contract; amd so on. In regard to the appli
cable law of the formal validity of a contract, a contract concluded between p
ersons who are in the same country is formally valid if it is satisfies the fo
rmal requirements of the law which governs its substantial questions or of the
law of the country where it is concluded, and a contract concluded between p
ersons who are in the different countries isformally valid if it satisfies the
formal requirements of the law which governsits substantial questions or of t
he law of one ofthose countries.
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