Making a Choice of Law for Your Business Contract - Daniel Ross & Associates

Each state has its own local laws which control how businesses can operate, how business partners can cooperate, and how disputes over contracts are settled in court. Interestingly, business relations have the ability to choose which state laws they want to govern their venture through a “choice of law” provision in their agreement. This is generally true even if no relationship exists between the parties and the state law of choice.

Choice of law allows businesses to cherry pick the laws that are most conducive to their venture. So, which selection should you make for your next business contract?

Mail Order Law

As most things legal, the answer is: it depends – in this case, on the nature of your business endeavor. For industrial agreements, look to Alabama, Nebraska, or Idaho for the most favorable regulatory laws. If you’re employing key personnel or highly specialized workers, Florida has a larger “reasonable” scope for non-compete clauses. When dealing with a manufacturer, it might behoove you to adopt Mississippi law, which prevents suppliers from limiting standard implied warranties of merchantability and fitness for a particular purpose. Georgia places time limits on non-trade secret-related confidentiality obligations, so non-disclosure agreements with a business partner won’t last ad infinitum.

When dealing at arm’s length with an unfamiliar business relation, you may be more concerned with the laws of contract enforcement. Delaware has a dedicated business court with a wealth of well-developed case law. Arizona provides for the mandatory award of attorneys’ fees to the prevailing party in a contract lawsuit.

Under Ohio law, the statute of limitations for bringing a lawsuit after discovering a claim is one of the longest in the country: eight years for a written contract, and four years for the sale of goods under the UCC. If you’re a service provider with some auxiliary product sales, Ohio may be a good choice of law for your client contracts: the Ohio Revised Code limits products liability for professional service providers.

Spell Out Your Coverage

A choice of law isn’t as simple as saying, “we choose the state laws of X to control our agreement.” There are laws governing a party’s rights – substantive law – and laws governing the procedure for protecting those rights – procedural law. Make sure your choice of law language includes both, as some forum courts can be narrow in their choice of law interpretations.

Courts might be amenable to applying choice of law to the language of the contract, but they are far less inclined to apply tort choice of law to a dispute that is related to the agreement but beyond the “four corners” of the contract. Be sure that your language is sufficiently broad to encompass the entire relationship between the contracting parties, not just the contract terms.

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