Keith Mack
Contract law is a complex area of legislation, with many variables to consider. Contracts are promises that the law will enforce, and they can be governed by state statutory and common law, private law, or federal law. The choice of forum, or court, is critical, as it can impact the outcome of a dispute. In the US, state courts are considered to have broader jurisdiction than federal courts, which deal with civil cases and disputes between parties of diverse citizenship. Contracts related to specific sectors may be governed by state or federal law, and the Uniform Commercial Code has been adopted in nearly every state. The choice of law determines which state's rules will apply, and jurisdiction is decided by where the contract was formed or performed.
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What You'll Learn
Contract jurisdiction
In the US, state courts are considered to have general jurisdiction over contract disputes, while federal courts have limited jurisdiction. Federal courts have jurisdiction in civil cases only if the claims arise under federal law or are between parties of completely diverse citizenship. Ordinary contract claims do not arise under federal law, and diversity jurisdiction is not always available.
Forum selection clauses and jurisdiction clauses are important in contracts as they help minimize uncertainty in legal disputes. Without clear contract jurisdiction provisions, parties may face unexpected litigation venues and unfamiliar legal systems. These clauses are particularly critical for NDAs, commercial agreements, and contracts involving out-of-state parties.
When disputes arise and there is no express clause specifying contract jurisdiction, courts must determine jurisdiction based on where the contract was formed or performed, which can lead to inconsistent outcomes. Including a jurisdiction clause reduces litigation costs and avoids surprises by ensuring all parties know where a legal dispute will be resolved. For example, a jurisdiction clause specifying "exclusive jurisdiction in Texas" would ensure that a Texas-based business does not end up in litigation in New York due to a contract with a New York customer.
Additionally, the choice of law provision within a contract allows all parties to agree on which state laws will be used for the agreement, even if they reside in different states. Many companies choose Delaware law as it typically favors corporations and provides predictability in disputes.
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Governing law
The choice of law provision within a contract will allow all parties to agree on which state laws will be used for the agreement, even if they live in different states. Many companies choose to use Delaware law because the state law will typically favor corporations and provide predictability with regard to disputes.
The Uniform Commercial Code, whose original articles have been adopted in nearly every state, represents a body of statutory law that governs important categories of contracts. The main articles that deal with the law of contracts are Article 1 (General Provisions) and Article 2 (Sales). Sections of Article 9 (Secured Transactions) govern contracts assigning the rights to payment in security interest agreements. Contracts related to particular activities or business sectors may be highly regulated by state and/or federal law.
In the US, the state courts are courts of general jurisdiction, whereas federal courts have limited jurisdiction. In brief, a federal court has jurisdiction in civil cases only if the claims arise under federal law or are between parties of completely diverse citizenship. Ordinary contract claims do arise under federal law, and diversity jurisdiction is not always available.
Additionally, the United States Court of Federal Claims has jurisdiction over a wide range of claims against the government, including contract disputes, bid protests, tax refund suits, patent and copyright matters, and civilian and military pay cases.
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Choice of forum
The choice of forum, or where a case will be filed, is an important consideration in contract law. Contracts typically outline the choice of forum, specifying where the case will be filed if a dispute arises. This is significant as litigating in one state versus another can have a significant impact on the outcome of a dispute due to differences in procedural laws and the competence and fairness of courts in different jurisdictions.
In the United States, contract law is generally governed by state common law, and while there are overall similarities, specific interpretations of contract elements may vary between states. State statutory law, such as the Statute of Frauds, may require certain contracts to be in writing and executed with specific formalities for enforceability. Additionally, some contracts, such as those related to particular business sectors, may be highly regulated by state and/or federal law.
When choosing a forum, it is essential to understand the jurisdiction of the court, which refers to the court's authority to hear a dispute. In the US, state courts are generally courts of general jurisdiction, while federal courts have limited jurisdiction in civil cases arising under federal law or involving parties of diverse citizenship. For example, the United States Court of Federal Claims has jurisdiction over various claims against the government, including contract disputes.
To ensure certainty and minimize unexpected litigation venues, contracts often include forum selection clauses and jurisdiction clauses. These clauses specify the agreed-upon forum and help all parties understand where a legal dispute must be resolved. This is particularly critical in commercial agreements, as it promotes efficiency, predictability, and fairness.
Additionally, when drafting choice of forum provisions, lawyers may include a jury waiver, which is enforceable in most states. However, it is important to consider any exceptions, such as in California, where the validity of jury waivers may be treated differently.
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Jury waiver
In the United States, contract law is generally governed by state common law, and disputes are usually heard in state courts. However, federal courts have jurisdiction in civil cases if the claims arise under federal law or involve parties of diverse citizenship.
When drafting commercial contracts, lawyers may include a jury waiver clause in the section that outlines the choice of law and forum provisions. This clause stipulates that all parties to the agreement waive their right to a trial by jury for any disputes arising from the contract or related transactions. Most states enforce jury waivers in commercial contracts, allowing parties to opt for judicial litigation or alternative dispute resolution methods like arbitration.
The exact wording of jury waiver clauses can vary, but they typically include phrases such as:
> " [Each party] hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby."
It is important to note that California is an exception, as it only allows parties to waive their right to a jury trial after a lawsuit has been filed. Additionally, a California court may not honor a jury waiver if it results in a dispute with a significant connection to the state being heard in another state that recognizes such waivers.
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Contract interpretation
Contract law is a broad area of law that is generally governed by state common law, and while general overall contract law is common throughout the country, some specific court interpretations of a particular element of the contract may vary between the states. In the US, the state courts are courts of general jurisdiction, whereas federal courts have limited jurisdiction. Federal courts have jurisdiction in civil cases only if the claims arise under federal law or are between parties of completely diverse citizenship. Ordinary contract claims do arise under federal law, and diversity jurisdiction is not always available.
The Uniform Commercial Code, whose original articles have been adopted in nearly every state, represents a body of statutory law that governs important categories of contracts. The main articles that deal with the law of contracts are Article 1 (General Provisions) and Article 2 (Sales). Sections of Article 9 (Secured Transactions) govern contracts assigning the rights to payment in security interest agreements. Contracts related to particular activities or business sectors may be highly regulated by state and/or federal law.
Contract jurisdiction refers to the authority of a court to hear a dispute and should not be confused with governing law. The choice of jurisdiction has to do with whether or not a certain court has the authority to hear a case. The choice of law determines which state's legal rules will apply to a contract dispute, regardless of where the lawsuit is filed. The law that is applied, or the choice of law, is important since the laws will vary in different states. The law a court chooses to apply is not always the same law as the forum state.
When disputes arise and there is no express clause specifying contract jurisdiction, courts must determine jurisdiction based on where the contract was formed or performed, which can lead to inconsistent outcomes. Including a jurisdiction clause reduces litigation costs and avoids surprises by ensuring all parties know where a legal dispute must be resolved. Forum selection clauses are especially critical in commercial agreements because they promote efficiency, predictability, and fairness.
The United States Court of Federal Claims has jurisdiction over a wide range of claims against the government, including contract disputes. The district courts possess concurrent jurisdiction with the Court of Federal Claims to entertain any monetary claim against the United States for an amount not exceeding $10,000. Disputes arising out of commercial contracts with the federal government are governed by the Contract Disputes Act, and both claims by a contractor against the government and claims by the government against a contractor must be decided first by a contracting officer. A contractor may contest the contracting officer's final decision either by filing a direct action in the Court of Federal Claims or by appealing to a board of contract appeals.
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Frequently asked questions
Contracts are promises that the law will enforce. Contract law is generally governed by state common law, and while general overall contract law is common throughout the country, some specific court interpretations of a particular element of the contract may vary between the states.
Contract jurisdiction refers to the authority of a court to hear a dispute. The choice of law determines which state’s legal rules will apply to a contract dispute, regardless of where the lawsuit is filed. In the U.S., the state courts are courts of general jurisdiction, whereas federal courts have limited jurisdiction.
The United States Court of Federal Claims has jurisdiction over a wide range of claims against the government, including contract disputes.
The choice of forum may have a greater impact on the outcome of a dispute than the choice of law. Procedural differences such as the availability of pretrial discovery and the mode of taking evidence could be outcome-determinative.
