Boilerplate, Part Two, Governing Law

19 01 2012

Another clause you should find in your contract is a “Governing Law” clause. It will say something like “this contract shall be governed under the laws of _____.” The blank space in that sentence can be a state or even a country.

If you are entering into a contract with another party who resides in your state, the contract will probably be governed under the laws of your mutual home state. In some cases, however, you will enter into a contract with a party from another state, or with a company that has offices across the country, or even with a foreign party that wishes to govern the contract under the laws of another country. Those parties may wish to have the law governed under the laws of a state you do not live in. Some considerations when deciding whether to agree to that arrangement:

– Is there a forum selection clause which requires me to resolve disputes in another place? If so, am I willing to take on the inconvenience and expense?

– Do the laws of the other place differ from the laws of my state in a way that negatively affects my rights?

– Are the laws of the other place more favorable, or more appropriate, for the resolution of a dispute under this type of contract?

In order to answer those questions, you should consult with a lawyer who practices in the other place, and you should consult with your regular lawyer regarding the enforceability of the governing law clause.

Next installment – the Forum Selection Clause

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