Category: Clauses
Governing law
The clause in a contract that specifies which jurisdiction's laws will be applied to interpret the contract and resolve disputes.
Governing law tells a court (or arbitrator) which set of laws to use when interpreting the contract. A contract between a New York company and a California company might be governed by the laws of Delaware, New York, California, or somewhere else entirely — whatever the parties agree on.
The clause looks simple: "This Agreement shall be governed by and construed in accordance with the laws of the State of [X], without regard to its conflict of laws principles."
The "without regard to conflict of laws principles" bit matters. Without that language, a court might apply *another* jurisdiction's conflict-of-laws doctrine and end up picking a different jurisdiction's law than the parties intended. The phrase locks in the choice.
Why this clause matters more than it looks:
**Procedural vs. substantive differences.** Contract law is similar across US states, but not identical. Delaware is famous for its well-developed corporate and contract case law, predictable outcomes, and experienced judges — which is why so many US contracts are Delaware-governed even when neither party is based there. California has stronger employee protections and restrictions on non-competes. New York courts are known for enforcing contracts as written, with less interest in equity.
**Forum selection vs. governing law.** These are separate clauses, often confused. Governing law says *which laws* apply. Forum selection says *which courts* hear the case. You can have a Delaware-governed contract with litigation required in New York — strange but legal. Most well-drafted contracts pick a governing law and a matching forum to avoid cross-jurisdictional oddness.
**Negotiating it.** In practice, governing law goes to whoever has more bargaining power. The enterprise vendor demands Delaware or New York; the small customer usually accepts. Fighting this clause rarely pays off unless you have a specific reason (for example, one jurisdiction disfavors your business). What's worth fighting: neutral jurisdictions when both sides are in different states, and avoiding places where one side has a home-court advantage.
For international contracts, governing law matters more. Choice between (say) English law, Singapore law, and California law produces materially different outcomes — on damages, termination rights, warranty claims, and a dozen other things. Large international deals sometimes spend more time negotiating governing law than the commercial terms.