Boilerplate Blurb: The Governing Law Clause

What is it?

The governing law or choice of law clause usually can be found combined with or near the jurisdiction provision (that I discussed last week). Why? Well, the choice of law provision allows the parties to the agreement that a particular state’s laws apply to the agreement when interpreting it.

Doesn’t that mean the same thing as the jurisdiction provision?

No. Jurisdiction is about where the lawsuit must be settled, but governing law is what state’s laws will be used to settle the dispute. Here is a local example to help you think about this concept. Let’s say you argue with your sibling. You have to go to your aunt’s house to be punished (jurisdiction), but your mom’s rules set the punishment (governing law).

Is it possible to have the choice of law state be different than the jurisdiction state?

Yes. Absolutely. It is possible to have the contract to force the parties to settle their suit in Hawaii, but be decided under California law. In fact, many of the large corporations set their contracts governing law clause to Delaware; the reasons are the state’s laws are favorable and the predictable.

Can I do that in my agreement?

As I tell people all the time, an attorney can put whatever you want in a document, but the real question is whether a court will enforce the terms of the contract if a dispute arises.

For example, if you are on Oahu and decided that North Dakota had some favorable laws if your business was there, but you do no business or have any connection to North Dakota, the court is unlikely to enforce the provision. In fact, there are industries that choice of law provisions are barred, such as insurance. However, most general laws are not so great in difference from state-to-state to make clause a negotiating point for most parties. However, you want to check with your attorney if that is the situation for your business.

Finally, here is a simple example of this clause may look like:

The laws of the state of Hawaii govern this agreement.

That’s your boilerplate blurb for this week. Next week I will cover disclaimers in conjunction with Draw the Law. Don’t forget to “Subscribe” to this blawg!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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