What is a Choice of Law Clause? Every now and then, this question comes up. Choice of law clauses are pretty common boilerplate clauses in contracts. These allow the contracting parties to specify which state’s laws are used if there’s a dispute.
Choice of Law Example
For example, if both parties are in North Carolina, they’d likely specify that North Carolina law should apply. That allows both parties to better understand their rights and obligations. Imagine signing a contract that says Argentinian law applies. Not knowing one thing about Argentinian law, I would be very concerned. I’m even slightly concerned if a contract says South Carolina law because of how well I know North Carolina’s law.
Certain areas of law forbid the contracting parties from changing the state laws that apply. Typically, real estate transactions are subject to the state laws where the real estate is. Additionally, consumer necessities are frequently protected to a higher level than other transactions. In North Carolina, landlords cannot specify a state outside where the renter is located. This protects the tenants.
Furthermore, you cannot use a state (or country) that has no reasonable relation to the transaction. Again, using the example of Argentinian law! If no one in the contract has even been to Argentina, it probably won’t work.
What Happens If It Is Invalid?
If a choice of law clause is invalid, a court will simply refuse to enforce it in the contract. If there’s no choice of law clause, the court will use the state’s choice of law statutes. These can be confusing, so it’s important to have a valid clause.
If you’re looking for sample clauses, check out our blog Sample Choice of Law Clauses.
In conclusion, these clauses help with (1) clarity, (2) cost, and (3) predictability. In most instances, you should have a clause to some extent.
If you’d like to know more about choice of law clauses, feel free to contact us at email@example.com.