Cameron Miranda
Contracts are private law, and parties are allowed to make choices within them. This includes the governing law, which is the law that will be applied if there is a dispute, and the venue, which is the geographical location where a dispute will be resolved. The governing law and venue can be the same, or they can be different, depending on the preferences of the parties involved. The governing law is important because it dictates the rules by which a contract will be interpreted and enforced. The venue is often a matter of convenience for the parties involved.
Characteristics of Governing Law and Venue
| Characteristics | Values |
|---|---|
| Governing Law | The law that will be applied if there is a dispute |
| Venue | Where the dispute will be resolved |
| Jurisdiction | The court that can issue an order and expect to have that order enforced |
| Choice of Law | The state whose laws will be used to interpret the agreement |
| Rational Connection | There needs to be a rational connection between the governing law and the transaction or parties |
| Home Court Advantage | Combining governing law, jurisdiction, and venue may favor one party |
| Financial Cost | Litigating a case in a different state or country can be expensive |
| Convenience | Venue is often a matter of convenience for the contract parties |
| Enforceability | Courts may reject a choice-of-law provision if it conflicts with their own conflict-of-law principles |
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What You'll Learn
- Jurisdiction and venue are separate from governing law
- Parties can agree on the governing law and venue
- The choice of law and venue can be influenced by convenience and cost
- Choice of venue and governing law can create a home court advantage
- Choice of venue and governing law can be influenced by state laws
Jurisdiction and venue are separate from governing law
Jurisdiction, venue, and governing law are three distinct concepts that are often addressed in the boilerplate of a contract. Jurisdiction refers to a court's authority to hear and decide a case, depending on its nature or location. Federal courts, for instance, have exclusive jurisdiction over cases involving federal law, treaties, and constitutional issues. On the other hand, venue is about geography; it is the specific location where a case is tried, often related to the defendant's location or where the dispute originated. The choice of venue can be influenced by factors such as convenience and legal justifications, impacting the outcome of the case.
The governing law, meanwhile, dictates the rules by which a contract will be interpreted and enforced. Parties to a contract are generally allowed to choose the governing law, which is usually the law of the home state of the drafting party or, if both parties are from the same state, their mutual home state. If the parties are from different states, they can choose one of their states or a third state. However, there needs to be a rational connection between the chosen governing law and the transaction or the parties to the contract.
While these three concepts are often addressed together in a contract, they can also be split apart. For example, a contract might specify that it is governed by Delaware law, with the parties subject to the jurisdiction of Maryland's state and federal courts, and the venue chosen as Baltimore City or the District of Maryland, depending on the nature of the dispute.
The choice of jurisdiction and venue can create a "home court advantage" for one party, as local lawyers and courts will be more familiar with the laws and procedures, which can impact the dynamics of a dispute. Additionally, the financial cost of travel should be considered when choosing a venue, as litigating in a far-flung location can quickly become expensive. Therefore, it is important to carefully consider these provisions when negotiating a contract, as they can significantly impact the outcome of any potential disputes.
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Parties can agree on the governing law and venue
Contracts are private law, and parties are allowed to make choices inside their contracts. One of the things they can choose is the law that will be applied if there is a dispute. The chosen law is usually the law of the home state of the party that is drafting the contract. If both parties are in the same state, their home state is automatically selected. However, if the parties to the contract are in different states, they can choose one of the two states they are in, or a completely different state.
The governing law is important because that state's law will dictate the rules by which a contract will be interpreted and enforced. The state's governing law may have some statutory requirements depending on the subject matter of the contract. For example, a contract about building a bridge would need to incorporate permitting rules, labor rules, and environmental regulations from the state.
Jurisdiction refers to where a dispute will be resolved. For a court to have jurisdiction over a party, the party has to be located within the state or have "minimum contacts" with that state. "Minimum contacts" are determined on a case-by-case basis, but generally, courts look at whether a party conducts business or has ties to a particular state. Venue outlines where a party may file a lawsuit, and it is often a matter of convenience for the contracting parties. The majority of courts will uphold the agreed-upon terms for jurisdiction and venue.
The selection of the state for jurisdiction can be more important than the choice of governing law because, if there's a dispute, that's where everyone will have to go to resolve it. However, hardly anyone ever really negotiates governing law, jurisdiction, and venue.
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The choice of law and venue can be influenced by convenience and cost
The choice of governing law is important as it will dictate the rules by which a contract will be interpreted and enforced. It is possible to choose a state that neither party is located in. For example, big corporations often choose Delaware as their choice of law as it often favours corporations and offers predictability.
The choice of venue is closely related to the choice of law, but it restricts the parties to a specific jurisdiction or venue when resolving disputes. The venue can be unfavorable to one of the parties when they are located in different states or countries. For example, a Pennsylvanian business that contracts with a New York business, but with New York as the chosen venue, will be at a disadvantage as it is costlier and more time-consuming.
The choice of law and venue can have major consequences, and it is important to be aware of the implications of these provisions before any contractual dispute arises.
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Choice of venue and governing law can create a home court advantage
Choice of venue and governing law can create a "home court advantage". This is because contracts are private law, and parties are allowed to make choices inside their contracts. One of the things they can choose is the law that will be applied if there is a dispute. The chosen law is usually the law of the home state of the party that is drafting the contract. If the parties to the contract are in different states, they can choose one of the two states they are in, or a state that is not where either of the parties is located.
The choice of venue provision designates the specific location where any disputes must be resolved. A choice of jurisdiction provision can provide that the courts of a particular state have the exclusive authority to hear disputes related to the contract and also contain a choice of venue provision that designates a specific location where the dispute must proceed. When parties are located far from each other, a choice of venue provision can dramatically change the dynamics of a dispute. One party can pursue or defend a claim on their home turf, using their own attorneys who are familiar with the judges and their local courts' written and unwritten rules.
The governing law is important because the state's law will dictate the rules by which a contract will be interpreted and enforced. The choice of law and venue for disputes can have major consequences. There are 51 different sets of laws in the United States, and each state has its own rules and regulations. Federal law applies across the country. In the modern commercial world, companies have the capacity to do business throughout the entire nation and even the globe. As such, it is common for a business to be acquired by a company from another state or country. In such a scenario, it is necessary for the parties to agree on which jurisdiction's law will govern the agreement and in which jurisdiction any legal proceedings pertaining to the agreement will take place.
The choice of law provision may favour one party or the other, but it also provides clarity and predictability and can spare the parties the financial cost of travel.
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Choice of venue and governing law can be influenced by state laws
Contracts are private law, and parties can dictate how their relationship will work. However, there needs to be a rational connection between the governing state law and the transaction or the parties to the contract. The governing law dictates the rules by which a contract will be interpreted and enforced. For instance, the laws of a particular state may have some statutory requirements depending on the subject matter of the contract.
The choice of venue and governing law can be influenced by state laws. For example, some states want to ensure that their consumer protection laws relating to insurance apply to those within their borders. Massachusetts 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. Contracts governing corporate behaviour usually must be decided by the law of the state of incorporation.
The choice of law and venue for disputes can have major consequences. There are 51 different sets of laws in the United States, and each state has its own rules and regulations. The courts of one jurisdiction can and regularly do apply the law of another jurisdiction. For example, a state court in Oregon can apply Maine law, and a federal court in Florida can apply Colorado law. The choice of governing law and venue each have different consequences and, thus, should be chosen based on different considerations.
The primary consideration when choosing the venue is convenience. A party based in California will not likely want to fly to New York for hearings or trial, and the same is true of the reverse. Doing so takes time and money. The primary consideration when choosing the governing law is the substantive effect it will have on the outcome of disputes. For example, many big corporations choose Delaware law in their contracts' choice-of-law provisions because that state's laws often favour corporations and offer some predictability when it comes to disputes.
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Frequently asked questions
A governing law is the law that will be applied if there is a dispute. The chosen law is usually the law of the home state of the party that is drafting the contract.
Jurisdiction refers to where a dispute will be resolved. For a court to have jurisdiction over a party, that party has to be located within the state or have “minimum contacts” with that state.
Venue outlines where a party may file a lawsuit. The venue is often a matter of convenience for the contracting parties.
Yes, governing law and venue can be different. For example, a lender may file a lawsuit in New Jersey, but the contract provides for California law to govern the contract.
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