Also known as:choice-of-law clause · choice of law clause · choice of law clauses · governing-law clause · choice of law provision
Written by attorneys · grounded in primary & secondary sources — see below
A contractual provision designating the law of a particular jurisdiction to govern disputes arising under the agreement. The designation supplies the substantive rules for interpretation and enforcement while leaving the forum for litigation to be determined separately.
Sources & Authorities
How it applies
Common Examples
6
Long-Term Contract Supports Jurisdiction
Continental Bank, headquartered in State A, entered a seven-year loan agreement with Colin Chambers, a resident of State B. The agreement required ongoing reporting and payments to be processed through Continental Bank's State A offices and selected State A law to govern any disputes. When Chambers defaulted, Continental Bank sued in State A. The court found the choice-of-law clause, together with the contemplated future consequences in State A, established sufficient contacts for personal jurisdiction.
Bill of Lading Designates Japanese Law
Cedar Creek Farms shipped perishable goods from Morocco to the United States under a bill of lading issued by a Japanese carrier. The bill contained a clause selecting Japanese law to govern all disputes and requiring arbitration in Tokyo. When the cargo arrived damaged, Cedar Creek Farms sought to litigate in a U.S. court. The clause directed the court to apply Japanese law to determine whether the arbitration provision was enforceable.
Select any source to read its text and confirm it supports the definition.
Cases
Model Codes
Casebooks
Hornbooks
Study Supplements
Royalty Owners Challenge Kansas Law
Phillips Petroleum entered oil and gas leases with thousands of royalty owners residing in multiple states. The leases selected Kansas law to govern royalty calculations. When Phillips applied Kansas law in a class action filed in Kansas, the royalty owners objected. The Supreme Court held that the contractual designation permitted Kansas to apply its own law consistently with due process.
Arbitration Clause Paired with Choice of Law
Mitsubishi Motors and Soler Chrysler-Plymouth signed a distribution agreement that included both an arbitration clause and a choice-of-law provision selecting Swiss law. When Soler asserted antitrust claims, it argued the clauses together waived statutory remedies. The Court enforced the arbitration clause while noting that a prospective waiver of statutory rights would raise public-policy concerns.
Insurer Anticipates Minnesota Law
Allstate issued an insurance policy to a Wisconsin resident who later moved to Minnesota. The policy selected Minnesota law to govern coverage disputes. After the insured died in an accident, his widow sued in Minnesota and sought application of Minnesota stacking rules. The Court upheld Minnesota's application of its own law because Allstate could reasonably anticipate that the insured's change of domicile would trigger Minnesota coverage rules.
Arbitration Agreement Limits Class Claims
American Express and Italian Colors Restaurant entered a merchant agreement containing an arbitration clause and a choice-of-law provision. The clause prohibited class arbitration. When Italian Colors sought to pursue antitrust claims on behalf of a class, it argued the prohibition effectively waived federal remedies. The Court enforced the clause, holding that the choice-of-law and arbitration provisions together controlled the available procedures.
Common questions
Frequently Asked
4
How does a choice-of-law clause differ from a forum-selection clause?+
A choice-of-law clause identifies the substantive legal rules that will govern contract disputes. A forum-selection clause instead designates the court or jurisdiction in which disputes must be litigated. The two provisions address separate issues and may appear together or independently.
Supporting sources
Can parties use a choice-of-law clause to evade protective state statutes?+
Courts will not enforce a choice-of-law clause when it operates as a prospective waiver of statutory remedies or violates a fundamental public policy of the forum. The clause remains subject to ordinary contract defenses and public-policy limits.
Does a choice-of-law clause by itself confer personal jurisdiction?+
No. The clause is one factor courts consider when evaluating whether a defendant purposefully availed itself of the forum. Jurisdiction also requires a long-term interdependent relationship with contemplated future consequences in the forum and an absence of grave inconvenience.
Supporting sources
What happens when a contract lacks any choice-of-law clause?+
The court applies the forum's choice-of-law rules to determine which state's substantive law governs. In the absence of a contractual designation, the analysis focuses on the most significant relationship or other traditional factors rather than party intent.
449 U.S. 302, 101 S. Ct. 633, 66 L. Ed. 2d 521 (1981)Conflict of Laws
…law was applied). At the same time, Allstate did not seek to control construction of the contract since the policy contained no choice-of-law clause dictating application of Wisconsin law. See Clay II, supra , at 182 (nationwide coverage of policy and lack of choice-of-law clause). [^maj-25]: Justice Black’s dissent in the first Clay…