Benefits and Barriers of Choice of Law (COL) Provision

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Another important contract clause is the choice of law (COL) provision.

COL is the parties’ agreement about which state’s law applies to their contractual relationship. It may or may not be the state where the parties live. It does not have to be the location where the contract was signed.

Benefits include:

  • Clarity about which state’s law governs the agreement and any conflicts that arise from it.
  • Reduction in the length of time needed to resolve a dispute.
  • Familiarity with the laws of the state of choice gives more certainty on how a dispute will be handled.
  • Working within the bounds of the state law you are familiar with gives you more confidence in the outcome.

Barriers include:

  • Conflicts can arise with provisions involving secured transactions and/or the Uniform Commercial Code (UCC).
  • Contracts regarding the governance of corporate behavior usually must be determined by the laws of the state of incorporation.
  • If you draft contracts, make sure you understand how different courts interpret COL clauses.

And, remember, though sometimes used interchangeably, COL is not the same as jurisdiction.

  • COL is which state’s laws apply in interpreting the contract.
  • Jurisdiction is the court where a lawsuit must be filed.