Contract Administration
Governing Law
Also: Choice of Law, Applicable Law, Choice-of-Law Clause, Governing Law Clause · Choice of Law, Applicable Law, Choice-of-Law Clause, Governing Law Clause, Jurisdiction Clause
A governing law clause specifies which state's (or country's) laws will be used to interpret and enforce the contract.
It does not necessarily determine where a lawsuit must be filed — that is typically addressed in a separate venue or forum selection clause.
Lawyer Explanation
A governing law provision is a choice-of-law clause that designates the substantive law of a particular jurisdiction to govern the contract. It determines which state's rules apply to questions of contract interpretation, enforceability, implied duties, and remedies.
In commercial agreements between sophisticated parties, courts generally respect the parties' choice of governing law, provided the chosen jurisdiction has a reasonable relationship to the transaction or the parties.
The governing law clause should be read alongside any forum selection, arbitration, or dispute resolution provisions in the agreement.
What It Actually Does
A governing law clause answers: "If we ever disagree about what this contract means or whether it was breached, whose rules do we use to figure that out?" For example, a Florida company and a California company entering a services agreement may specify that Florida law governs — meaning Florida contract law will be applied to interpret the agreement and resolve any disputes about its meaning or enforcement.
Why It Matters
The choice of governing law can affect the outcome of a contract dispute. Different states have different rules on contract interpretation, the enforceability of limitation-of-liability clauses, implied duties of good faith, and available remedies.
For Florida businesses, a governing law clause specifying Florida law provides predictability and avoids the uncertainty of having another state's rules applied to the agreement.
Example
A Florida company enters a master services agreement with a vendor based in New York. The agreement specifies that Florida law governs.
When a dispute arises about whether a limitation-of-liability clause is enforceable, Florida contract law — not New York law — will be applied to resolve the question.
Common Language You May See
"This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its conflict-of-laws principles."
What Stewart Law Looks For
- Which state's law is designated as governing law?
- Does the clause exclude conflict-of-laws principles?
- Is the governing law clause consistent with the forum selection or dispute resolution clause?
- Does the chosen law have a reasonable relationship to the transaction or the parties?
- Are there any provisions in the agreement that may be affected by the choice of governing law?
- Does the clause address federal law as well as state law?
- Is the governing law clause mutual?
Common Red Flags
A governing law provision deserves closer attention when it:
- designates the law of a jurisdiction with no connection to the transaction or the parties
- conflicts with a forum selection clause that designates a different jurisdiction
- fails to exclude conflict-of-laws principles, creating uncertainty about which law actually applies
- is silent on governing law entirely, leaving the question to be resolved by a court
- designates a foreign jurisdiction's law in a domestic commercial agreement without a clear reason
Perspectives
Customer / Buyer
The party with the stronger bargaining position will often seek to have its home state's law govern the agreement. Florida businesses will generally prefer Florida governing law for predictability and familiarity.
Vendor / Seller
The same considerations apply. Both parties benefit from a clear, agreed governing law clause that eliminates uncertainty about which rules apply to the agreement.
Florida & Federal Considerations
Florida
Florida courts generally enforce governing law clauses in commercial agreements. Florida has adopted the Uniform Commercial Code for transactions involving the sale of goods, and Florida contract law governs most commercial service agreements.
Florida courts will generally apply the chosen law unless it has no reasonable relationship to the transaction or applying it would violate a fundamental Florida public policy.
Related Terms
Contracts Where You'll Commonly See It
Frequently Asked Questions
Does the governing law clause determine where a lawsuit must be filed?
Not necessarily. Governing law determines which state's substantive law applies to interpret the contract. Venue — where a lawsuit may be filed — is typically addressed in a separate forum selection or dispute resolution clause.
Can parties choose any state's law to govern their contract?
Generally yes, in commercial agreements between sophisticated parties. However, some states may decline to apply a chosen law if it has no reasonable relationship to the transaction or if applying it would violate a fundamental public policy.
Why does the choice of governing law matter?
Different states have different rules on contract interpretation, enforceability of certain provisions, implied duties, and remedies. The choice of governing law can affect the outcome of a dispute.
What happens if a contract has no governing law clause?
Courts will apply conflict-of-laws rules to determine which state's law governs. The result may be uncertain and may not reflect what either party intended.
Is a governing law clause the same as a choice-of-law clause?
Yes. The terms are used interchangeably. Both refer to a contractual provision specifying which jurisdiction's law will govern the interpretation and enforcement of the agreement.
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Contract language operates as part of the agreement as a whole.
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