Choice of Law Provisions in Contracts

Your contract can specify the governing law that will apply to disputes involving the agreement.

By , Attorney University of San Francisco School of Law

A "choice of law" or "governing law" provision in a contract allows the parties to agree that a particular state's laws will be used to interpret the agreement, even if they live in (or the agreement is signed in) a different state. For example, many big corporations choose Delaware law in their contracts' choice of law provisions, because that state's laws often favor corporations and offer some predictability when it comes to disputes.

Read on to learn more about choice of law provisions in contracts. (For explanations of other clauses you're likely to find in a written agreement, check out our article on common boilerplate provisions in contracts.)

Will Your Choice of Law Be Honored?

Let's say you're a potato farmer in Michigan, and you're entering into a contract with a chain of food stores. Can you request that any disputes under your contract be decided under Idaho law (which you suspect favors potato farmers) even though neither party has anything to do with Idaho? That depends.

In this example, using Idaho law might not fly because courts usually look for some connection between the chosen state and either the transaction (let's say the contract was signed there) or the parties (one of the parties operates a business in the state, for example).

A choice of law provision might also run into problems if it appears in an insurance contract because some states want to make sure their consumer protection laws relating to insurance apply to those within their borders. (Massachusetts, for example, prohibits choice of law provisions in insurance contracts.)

Some contracts involving secured transactions and the Uniform Commercial Code (UCC) could also conflict with choice of law rules. Also, contracts governing corporate behavior usually must be decided by the law of the state of incorporation. Generally, however, the differences in state law aren't great enough to make this a major negotiating issue for most parties.

Governing Law Versus Jurisdiction

Jurisdiction refers to where a dispute will be resolved; governing law indicates which state's law will be used to decide the dispute.

It's possible, for example, for a contract to require lawsuits to be filed in California but decided under New York law. The selection of which state is used for governing law isn't often a crucial negotiating issue. But the selection of the state for jurisdiction can be more important: If there's a dispute, that's where everyone will have to go to resolve it. Sometimes these two provisions are grouped into one paragraph.

What Does a Choice of Law Provision Look Like?

After all this discussion, you might be surprised to know that within the body of a contract, a choice of law provision is usually very brief and to the point. Here's an example of a provision regarding governing law in a contract (something like this is probably all you need):

Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts.

Additional Information

Get more practical advice on getting your agreement in writing with our article, 10 Tips for Making Solid Business Agreements and Contracts. If you're looking for an A to Z guide to everything you need to know about contracts, check our book Contracts: The Essential Business Desk Reference, by Richard Stim (Nolo).

Get Professional Help
Talk to a Business Law attorney.
There was a problem with the submission. Please refresh the page and try again
Full Name is required
Email is required
Please enter a valid Email
Phone Number is required
Please enter a valid Phone Number
Zip Code is required
Please add a valid Zip Code
Please enter a valid Case Description
Description is required

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you