What is a Choice-of-Law Clause?

Doing business across state (or even national) lines used to be relatively uncommon, but now these kinds of far-flung business transactions are an everyday occurrence. While this opens up plenty of opportunity for businesses seeking new markets and greater profits, it also brings inevitable legal complications as trade jumps across jurisdictions and brings laws from distant lands into conflict. For these sorts of disputes, there is a relatively simple workaround, however, known as the choice-of-law clause.

With a choice-of-law clause (also known as a “proper law” or “governing law” clause), both parties to a contract agree to be bound by the laws of a designated state or country with respect to that contract. It also determines where any dispute related to that contract will be heard, which can be (but isn’t always) the same state whose laws are meant to apply. Typically, this means agreeing to be bound by the laws of either a state where one of the parties reside, or where the contract is being signed. The purpose of a choice-of-law clause is to clear up any potential jurisdiction conflicts that might arise due to the parties of a contract being from different states or countries.

Choice-of-law provisions aren’t absolute, however, and aren’t always enforceable. For example, a court is likely to look askance at any choice-of-law clause that requires the contract be judged according to the laws of a jurisdiction that has no relation to either party or to the contract itself. There are also some states that place restrictions on what kinds of contracts can have choice-of-law clauses as a consumer protection measure. Finally, a court may choose not to enforce a choice-of-law clause on public policy grounds if it considers the provision to be coercive in some fashion.

The business attorneys at Blodnick, Fazio & Clark have the experience you need to make your business successful.  If you want assistance in compliance with interstate or international trade regulations, or you’re interested in other aspects of commercial transactions, please call our Nassau County business lawyers at (516) 280-7105, or, for our Suffolk County business lawyers, call (631) 669-6300.

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