Choice of Law Clause

Choice of Law Clause Defined

Choice of law clauses, also known as governing law clauses, are a provision in contracts determining which laws apply to the adjudication if a question or dispute arises. Choice of law in real estate is critical for sellers and buyers alike. However, it’s essential that parties carefully structure their choice of law clauses to prevent conflict of law situations, making contract adjudication more challenging.

Here is another web page about the definition of choice of law clauses.

Choice of Law Clause Explained

Choice of law clauses are found in almost every contract. However, parties can sometimes use them strategically. For example, a business can set the choice of law in Delaware if they are headquartered in that state, even though they may be conducting business elsewhere in the country.

Choice of Law in Real Estate

Choice of law in real estate is critical for sellers and buyers alike. However, it’s essential that parties carefully structure their choice of law clauses to prevent conflict of law situations, making contract adjudication more challenging.

Learn more about drafting choice of law clauses with this article.

Purpose of a Choice of Law Clause

The purpose of a choice of law clause is to provide a level of certainty about what laws will govern in case there is a dispute or issue in the future. Since parties routinely contract over state or country lines, the choice of law clause makes it clear what jurisdiction’s laws govern the transaction and any potential issues.

Choice of Law Clause Examples

Examples of choice of law clauses include:

• Example 1: Oil & gas companies when working offshore
• Example 2: Soccer players living in one country while playing for another
• Example 3: Hiring employees from another country or out-of-state
• Example 4: Adopting a child from another country
• Example 5: Attending school in another country

Choice of Law Clause Samples

Sample 1 - Sales Contract:

The Contract shall be governed by the laws of the State of Delaware, USA, excluding its conflict of laws principles. The parties agree, consent and waive contest to the exclusive jurisdiction and venue of the federal or state courts of New Jersey for all disputes arising out of or relating to this Contract. The United Nations Convention on Contracts for the International Sale of Goods and the United Nations Convention on the Limitation Period in the International Sale of Goods, as amended, shall not apply to the Contract. Failure of either party to exercise any right it has under the Contract on one occasion shall not operate or be construed as a waiver by such party of its right to exercise the same right on another occasion or any other rights it has. Any waiver must be in a writing signed by the waiving party. If any provision of the Contract shall be adjudicated to be invalid or unenforceable, it is the parties’ intent that the remaining provisions of the Contract will remain in full force and effect, and the affected provision or portion thereof will be deemed modified so that it is enforceable to the maximum extent permissible to reflect as closely as possible the intentions of the parties as evidenced from the provisions of the Contract. The section headings used herein are intended for convenience of reference only and shall not be considered in interpreting the Contract. Nothing in the Contract shall be construed as creating any direct or beneficial right in or on behalf of any third party.

Reference:

Security Exchange Commission - Edgar Database, EX-10.29 3 dex1029.htm SALES CONTRACT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/1492426/000119312510226984/dex1029.htm >.

Sample 2 – Purchase and Sale Agreement:

THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND, WITHOUT GIVING EFFECT TO ANY PRINCIPLES REGARDING CONFLICT OF LAWS.

Reference:

Security Exchange Commission - Edgar Database, EX-10.8 3 dex108.htm PURCHASE AND SALE AGREEMENT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/1490985/000119312510160407/dex108.htm >.

Sample 3 – Asset Purchase Agreement:

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.

Reference:

Security Exchange Commission - Edgar Database, EX-2.1 2 dex21.htm ASSET PURCHASE AGREEMENT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/1428669/000119312510013625/dex21.htm >.

Sample 4 – Stock Purchase Agreement:

This Agreement shall be governed by and construed in accordance with the domestic Laws of the State of California as if this Agreement were fully performed and all obligations recited herein were undertaken solely within the State of California without giving effect to any choice or conflict of Law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than the State of California. Any dispute or claims made under this Agreement or any attempt to enforce the terms of this Agreement shall be resolved in San Diego, California pursuant to Section 11.9 of this Agreement.

Reference:

Security Exchange Commission - Edgar Database, EX-2 2 f10k063013_ex2.htm EXHIBIT 2 STOCK PURCHASE AGREEMENT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/1527702/000107878213001959/f10k063013_ex2.htm >.

Sample 5 – Employment Contract:

This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia. Employee hereby consents to the subject matter and personal jurisdiction of the Superior Court of Fulton County, Georgia over any action brought by either Party to enforce this Agreement.

Reference:

Security Exchange Commission - Edgar Database, EX-10.6 3 ubi_ex10z6.htm EMPLOYMENT CONTRACT, Viewed April 5, 2021, < https://www.sec.gov/Archives/edgar/data/1320729/000137647415000176/ubi_ex10z6.htm >.

Common Contracts with Choice of Law Clauses

Common contracts with choice of law clauses include:

• Oil & gas contracts
• Sports contracts
• Employment contracts
• Maritime law contracts
• International contracts

Choice of Law Clause FAQs

Choice of law clauses impacts your agreement when making decisions, strengthening enforceability, or handling disputes. Check out the choice of law clause FAQs below for details.

What is the difference between choice of law vs. choice of forum?

The difference between choice of law vs. choice of forum lies within how you apply rules. Choice of law determines the governing body under which the contract falls. Choice of forum identifies which courts will preside over contract adjudication proceedings.

For more tips on writing choice of law clauses, check out this article. You can also speak with contract lawyers if you have specific questions.