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Borrower is a small manufacturer incorporated and headquartered in State L. Bank is headquartered in State M. Bank's loan officer traveled to State L, inspected Borrower's factory, and negotiated most loan terms there. Borrower's president later flew to State M and signed the final loan documents at Bank's office. The loan funded equipment located in State L, and repayment was to be made electronically to Bank in State M.
State L has a usury statute capping interest at 12 percent for loans to local small businesses. The stated purpose is to protect local borrowers and jobs. State M permits the 18 percent rate in the loan and states a policy of supporting commercial lending by State M banks. The contract contains no choice-of-law clause. Borrower sues Bank in State L court, seeking to avoid the interest above 12 percent.
Analyze which state's law should apply under traditional contract choice-of-law rules, the Restatement Second approach, and governmental interest analysis.