When drafting a contract, one of the most important considerations is choosing the governing law. This establishes the legal framework that applies to the contract and provides clarity on how disputes will be resolved. However, it’s not uncommon for contracts to be silent on the governing law, leaving parties uncertain about which legal system applies.
Here are some key considerations for dealing with contracts that are silent on governing law.
1. Look for implied governing law
Even if a contract doesn’t explicitly specify the governing law, there may be an implied choice of law based on the circumstances of the agreement. For example, if both parties are based in the same state, it’s likely that state law will apply. Similarly, if the contract relates to a specific type of transaction, such as the sale of goods, there may be default rules under the Uniform Commercial Code that apply.
2. Consider the jurisdiction
If it’s not clear which law governs a contract, it’s important to consider the jurisdiction where any disputes will be resolved. This may be specified in the contract or may be determined by the location of the parties or the subject matter of the agreement. It’s important to understand the legal system in the relevant jurisdiction and the rules that apply to contract interpretation and enforcement.
3. Choose a governing law
If a contract is silent on governing law, it may be necessary to choose a law to apply. This can be done through a separate agreement between the parties or through a court or arbitration proceeding. When choosing a governing law, it’s important to consider the interests of both parties and select a law that is neutral and has a well-developed body of contract law.
4. Use a choice of law clause in future contracts
To avoid ambiguity in the future, it’s important to include a choice of law clause in contracts. This specifies which law governs the agreement and can prevent disputes over jurisdiction and interpretation. When drafting a choice of law clause, it’s important to consult with legal counsel to ensure that the chosen governing law is appropriate and legally enforceable.
In conclusion, contracts that are silent on governing law can be complex, but there are strategies for addressing this issue. By considering implied governing law, jurisdiction, and choice of law, parties can minimize risk and ensure that their agreements are legally enforceable. When in doubt, it’s always best to seek the advice of legal counsel to ensure that the contract is legally sound.