What contractual provisions relating to choice of law can I apply?

By The Law Office of Yoel Molina.
 
Even if they reside in (or the agreement is signed in) a different state, the parties to a contract might choose to have that state's laws be applied to interpret the terms of the agreement by including a "choice of law" or "governing law" clause. Because Delaware law frequently favors corporations and offers some certainty when it comes to conflicts, many large corporations chose Delaware law in their contracts' choice of law clauses. Continue reading for more information on the choice of law clauses in contracts.
 
Will the law you choose to be respected? 
Imagine you are a Michigan potato farmer signing a contract with a chain of grocery stores. Can you ask that even though neither party has any connection to Idaho, the law that governs any disputes under your contract (which you assume favors potato farmers) be applied? All depends.
Since courts typically seek evidence of a relationship between the chosen state and the transaction (for instance, the fact that the contract was signed there) or the parties, using Idaho law, in this case, may not be feasible (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.
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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 1