A “choice of law” or “governing law” provision allows the parties to a contract to agree that a particular state’s laws will govern the interpretation of the contract, as well as any future disputes under the contract. While choice of law clauses are often no longer than a few sentences, the question of whether the parties’ choice of law will be honored is more complex. In determining whether to honor the parties’ choice of law, courts usually look for some connection between the selected state and either the transaction itself or the parties to the transaction. Modern courts follow the rule articulated in the Restatement (Second) of Conflict of Laws, which provides that governing law provisions are presumptively enforceable as long as there is some relationship between the transaction and the jurisdiction whose laws would govern or another reasonable basis for choosing the law of a particular jurisdiction. Parties may establish such a connection when they sign the relevant contract in the state referenced in the governing law provision or when one or more of the parties to the contract operate a business in the referenced state. To avoid expensive legal battles over the enforceability of a choice of law provision, attorneys, when drafting contracts, must carefully consider the likelihood that the choice of law will be honored and the potential outcomes of hypothetical disputes under the laws of the state in question.
