Contracts

Lesson 22: Governing Law

As part of the topic on Key Contract Clauses, this lesson delves into the significance of the governing law clause in a contract. Understanding which jurisdiction's laws will apply to interpreting and enforcing the agreement is crucial for both parties.

Definition

The governing law clause specifies which jurisdiction's legal rules will be used to interpret the contract and resolve any disputes that arise from it. This selection can be critically important, as laws can vary significantly between jurisdictions.

Importance

Note: The choice of governing law can affect contract enforceability, available remedies, and the interpretation of contractual terms.

Choosing the appropriate governing law helps manage risks and provides clarity. For example, parties in different countries may prefer to choose the law of a neutral jurisdiction.

Sample Clause

This Agreement shall be governed by and construed in accordance with the laws of the State of [State], without regard to its conflict of law principles.

Factors to Consider

Location of the parties involved
Jurisdictional preferences
Business interests and operations
Legal predictability and familiarity

Jurisdiction vs. Governing Law

It's essential to differentiate between governing law and jurisdiction clauses. While the governing law determines which laws apply, the jurisdiction clause specifies where disputes will be resolved.

Any legal action or proceeding arising under this Agreement will be brought exclusively in the courts of the State of [State].

Caution: The governing law clause does not automatically decide jurisdiction. Both should be clearly defined in a contract.

Flowchart of Governing Law Clause Decision Making

graph TD A["Start"] --> B["Identify Jurisdictions Involved"] B --> C["Assess Legal System Familiarity"] C --> D["Consider Business Operations"] D --> E["Evaluate Risk Management"] E --> F["Consult Legal Advisor"] F --> G["Select Governing Law"]

Learn More

For further insights into key contract clauses, check out our other lessons, or consider reading Working with Contracts: What Law School Doesn't Teach You by Charles M. Fox for a deeper dive into contract law.