In Contracts: What can I do in the choice of Law Provisions?

By The Law Office of Yoel Molina.
 
Even if the parties reside in separate states or the contract was signed in a different state, they might choose to have that state's laws be applied to interpret the agreement by including an "option of law" or "governing law" clause in the contract. For instance, many large firms chose Delaware law in the choice of law clauses of their contracts since the laws of that state frequently favor corporations and provide some certainty in the event of a disagreement.
 
Will the Law of Your Choice Be Upheld?
Imagine you're a potato farmer in Michigan signing a deal with a chain of grocery stores. Despite neither party having any connection to Idaho, can you ask that any issues under your contract be resolved in accordance with Idaho law (which you assume favors potato farmers)? Depends, really.
 
Idaho law may not be appropriate in this situation since courts typically seek evidence of a relationship between the chosen state and either the transaction (for instance, the fact that the contract was signed there) or the parties (one of the parties operates a business in the state, for example). Because some states seek to ensure that their consumer protection rules regarding insurance apply to those who are within their boundaries, a choice of law provision that exists in an insurance contract may potentially generate issues. (For instance, Massachusetts forbids choice of law clauses in insurance contracts.) Rules governing the choice of law may also conflict with some contracts involving secured transactions and the Uniform Commercial Code (UCC). Additionally, the law of the state of incorporation is typically required to be applied to contracts controlling corporate behavior. However, in most cases, the variations in state law are not significant enough to turn this into a contentious bargaining point.
 
Jurisdiction versus Governing Law:
Governing law designates which state's law will be applied to resolve the conflict; jurisdiction refers to the location where a dispute will be decided. For instance, a contract may provide that litigation must be brought in California but be judged in accordance with New York law. The choice of which state will rule the law is not frequently a critical point in negotiations. However, the choice of the state for jurisdiction may be more crucial: Everyone will have to go there to resolve any disagreements. These two clauses are occasionally combined into a single paragraph.
 
What Exactly Is a Choice of Law Provision?
After all of this debate, you might be shocked to learn that a choice of law clause is typically extremely succinct and direct inside the body of a contract. Here is an illustration of a clause controlling the applicable law in a contract (something similar to this is generally all you need):
Regulation Law. The Commonwealth of Massachusetts' laws shall govern this Agreement.

 
If you have any questions about this article or similar matters, please contact our office, the Law Office of Yoel Molina, P.A., at fd@molawoffice.com or 305-548-5020, option