When entering into a contractual agreement, it is essential to include a governing law provision. This provision establishes which state or country`s laws will govern the agreement.
Why is a governing law provision necessary? It provides clarity and predictability in the event of a dispute. If there is no governing law provision, it may be difficult to determine which laws apply to the agreement.
For example, imagine a company based in New York enters into a contract with a vendor based in California. If there is no governing law provision, it may be unclear which state`s laws apply to the agreement. If a dispute arises, it could become a contentious issue.
By including a governing law provision, both parties can agree on which laws apply, providing clarity and predictability in the event of a dispute.
When drafting a governing law provision, it is important to consider the location of both parties involved in the agreement. Generally, the governing law will be the law of the state or country where the party initiating the agreement is located.
Additionally, it is important to consider the nature of the agreement. If it is a business-to-business agreement, the governing law may be different from a business-to-consumer agreement.
It is also important to seek legal advice when drafting a governing law provision. An experienced attorney can advise on the most appropriate governing law based on the specific circumstances of the agreement.
In summary, a governing law provision is necessary for any contractual agreement. It provides clarity and predictability in the event of a dispute and avoids confusion over which laws apply. When drafting a governing law provision, it is important to consider the location of both parties and the nature of the agreement, and to seek legal advice to ensure the provision is drafted correctly.