Choice of law: Overview, definition and example
What is choice of law?
Choice of law refers to a contractual provision that determines which jurisdiction’s legal rules will govern the interpretation and enforcement of the agreement. This clause is particularly important in contracts involving parties from different states or countries, as it establishes clarity about the legal framework that applies to the agreement.
For example, a contract between a California-based company and a Texas-based company might include a choice of law clause specifying that Texas law governs the agreement.
Why is choice of law important?
Choice of law is important because it provides predictability and reduces uncertainty in contractual relationships. It ensures that both parties understand the legal standards and procedures that will apply in case of disputes, avoiding conflicts over which jurisdiction’s laws should govern.
This clause is especially critical in multi-jurisdictional or cross-border agreements, where differing laws could lead to complexities or disagreements. Clearly defining the choice of law streamlines dispute resolution and ensures the contract aligns with the preferred legal framework.
Understanding choice of law through an example
A software company in New York enters into a licensing agreement with a client in Florida. The contract includes a choice of law clause specifying that any disputes will be governed by New York law, regardless of where the client is located. This ensures that both parties are aware of the legal framework that will apply to their agreement.
An example of a choice of law clause
Here’s how a choice of law clause might appear in a contract:
“This Agreement shall be governed by and construed in accordance with the laws of the State of [Insert State], without regard to its conflict of law principles.”
Conclusion
Choice of law clauses are a vital component of contracts, providing clarity and consistency by specifying the legal framework that will govern the agreement. By including this clause, parties can avoid disputes over applicable laws and ensure a smoother resolution process. A well-drafted choice of law provision is particularly important in contracts involving parties from different jurisdictions, fostering trust and reducing potential legal complexities.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.