Boilerplate, Part Three, Forum Selection Clause

23 01 2012

Another clause you almost always find in a contract is a Forum Selection Clause.  This clause specifies the place where disputes will be resolved.  It will say that disputes under the agreement will be resolved in the courts of a certain jurisdiction, and that, by signing the contract, you grant jurisdiction over any resulting dispute. The clause may even require you and the other party to consent to service of process in a specific manner.

THE RISK: By signing an agreement with such a clause, you are agreeing to the forum provided. If the jurisdiction selected in the contract is not your state of residence, you risk the time and expense required to fight a lawsuit in a distant state (or even country!). This can cause you great inconvenience. If a distant jurisdiction is listed in the forum selection clause, it is important to specify what law will apply to the contract. This is usually included in a Governing Law Clause (discussed in the previous installment).

THE REWARD: You can structure this clause in a way that is convenient for you, ensuring that a dispute will be resolved in your state of residence. If you are entering into a contract with an individual or entity located outside the United States, this clause can place the contract firmly under United States jurisdiction, and allow you to resolve disputes in the US. You can also use this clause to state the method of service in case of a dispute, which is valuable when your potential adversary is not local.


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