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Governing Law Clause Defined
Governing law clauses, also known as choice of law clauses, are used in contracts and agreements and declare the laws that govern the transaction in case a dispute arises. They are standard clauses found in business contracts and transactions.
Here’s a web page that explains governing law clauses.
Governing Law Clause Explained
Governing law clauses ensures that there’s no confusion regarding the applicability of laws to a contract. The party offering the agreement stands to benefit the most since they can require the contract to recognize their local laws.
Purpose of Governing Law Clause
The purpose of governing law clauses gives a contract certainty regarding the laws applied when a legal issue occurs. If one party lives in another state or country, then the governing law clauses ensure that the parties agree upon which codes apply to the agreement.
Governing Law Clause Examples
Examples of governing law clauses include:
- Example 1. Providing services to a company in another country
- Example 2. Partnering with businesses out of state
- Example 3. Including the governing law clause as a matter of form
Governing Law Clause Samples
Sample 1 – Purchase and Sale Contract
Governing Law and Venue. The laws of the State of North Carolina shall govern the validity, construction, enforcement, and interpretation of this Contract, unless otherwise specified herein except for the conflict of laws provisions thereof. Subject to Section 13.24, all claims, disputes and other matters in question arising out of or relating to this Contract, or the breach thereof, shall be decided by proceedings instituted and litigated in a court of competent jurisdiction in the state in which the Property is situated, and the parties hereto expressly consent to the venue and jurisdiction of such court.
Security Exchange Commission - Edgar Database, EX-10.42 2 aipl2landmark_ex10z42.htm EXHIBIT 10.42, Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/711642/000071164209000488/aipl2landmark_ex10z42.htm >.
Sample 2 – Asset Purchase Agreement
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without regard to applicable principles of conflicts of law. Each of the parties hereto irrevocably consents to the exclusive jurisdiction of any federal or state court located within Austin, Texas, in connection with any matter based upon or arising out of this Agreement or the matters contemplated herein, agrees that process may be served upon them in any manner authorized by the laws of the State of Texas for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process.
Security Exchange Commission - Edgar Database, EX-2.1 2 dex21.htm ASSET PURCHASE AGREEMENT, Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1428669/000119312510013625/dex21.htm >.
Sample 3 – Share Purchase Agreement
Governing Law. This Agreement and all disputes arising out of or in connection with this Agreement shall be governed by, interpreted under, and construed and enforceable in accordance with, the laws of the State of New York, U.S.A., without giving effect to conflict of law principles.
Security Exchange Commission - Edgar Database, EX-4.12 3 dex412.htm SHARE PURCHASE AGREEMENT, Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1329394/000119312507148404/dex412.htm >.
Sample 4 – Asset Purchase Agreement
Governing Law. This Agreement and the Ancillary Agreements shall be construed in accordance with and governed by the Law of the State of Delaware, without regard to the conflicts of law rules of such state.
Security Exchange Commission - Edgar Database, EX-2.1 2 dex21.htm ASSET PURCHASE AGREEMENT, Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1080866/000119312508111207/dex21.htm >.
Sample 5 – Asset Purchase Agreement
Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of Delaware without reference to its principles of conflicts of laws.
Security Exchange Commission - Edgar Database, EX-10.1 2 dex101.htm ASSET PURCHASE AGREEMENT, Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/92769/000119312510145775/dex101.htm >.
Common Contracts with Governing Law Clauses
Common contracts with governing law clauses include:
- Arbitration agreements
- Settlement agreements
- Service contracts
- Sales contracts
- Real estate contracts
- Insurance contracts
- Demand letters
- Escalation clauses
Any contract is a good candidate for incorporating governing law clauses.
Governing Law Clause FAQs
Governing law clauses are vital to get right. Learn more by checking out the governing law clause FAQs below:
What happens when there is no governing law clause?
If there is no governing law clause, then the court overseeing your case will decide. Fighting the case in the wrong jurisdiction can result in a breach of contract case in civil court with litigation lawyers.
How do we decide the governing law of the contract?
You determine the governing law of the contract through the civil court system or alternative dispute resolution, such as arbitration, a binding solution, or mediation, a non-binding solution. Early neutral evaluation and negotiation can help avoid potential disputes in the future.
Which law should govern a contract?
The laws that govern your contracts should depend upon your business goals. Contract lawyers can help you decide on and negotiate the correct contract law for your situation.
Here’s an article about choosing your governing law clause.