Contract Law Jurisdiction: Everything You Need to Know
Understanding contract law jurisdiction is important especially if you are contracting with someone in a state far away from where you are located. 3 min read
Understanding contract law jurisdiction is important for many reasons, especially if you are contracting with someone in a state far away from where you are located. Both parties to a contract have a say in where the jurisdiction is, so it is important that you pay careful attention to this section of your contract.
Background on Choice of Law Provisions in Contracts and Related Contract Provisions
It is likely you have noticed that there is language in contracts that talks about possible disputes and how they are handled. A contract typically details:
· Where the case will be filed if a dispute goes that far
· It will also mention the law that is applied
· It also discusses the fact that the court will have the jurisdiction to hear the case
The choice of forum, or where the case will be filed, is very important. Should you end up having to go to court a long distance from your current location, those costs will add up quickly. This could result in you settling sooner than you would have otherwise just to get the process over with.
The law that is applied, or the choice of law, is also important since the laws will vary in different states. The law a court chooses to apply is not always the same law as the forum state.
The choice of jurisdiction has to do with whether or not a certain court actually has the authority to hear your case. To find out if the court has jurisdiction over your case, the party has to be physically in the state. If the party is out of state, there have to be minimum contacts with that state.
The depth and range of different activities completed in a state will determine if the party has minimum contacts. For example, if your company is in Montana and has a facility in California with employees who live in California, and you also service the residents of California, you have minimum contacts.
Going into a contract with a party that is out of state does not always mean that you will be subjected to their jurisdiction. However, you are likely to deal with outside jurisdiction if you had any benefits from the contract, if your actions were directed at the other party, or if you received notice that you are being served with a court summons.
The choice of law provision within a contract will allow all parties to agree on which state laws will be used for the agreement, even if they live in a different state.
Many companies choose to use Delaware law because the state law will typically favor corporations and provide predictability with regard to disputes.
If a contract states these three provisions, the point is to provide additional certainty regarding the issues. This results in parties waiving their rights in regard to where to file a lawsuit, and instead sets it in a certain forum agreed to in the contract.
Governing Law Versus Jurisdiction
The jurisdiction is where a dispute will be dealt with. Governing law will indicate which state’s laws will be utilized to determine the outcome. A contract can file a lawsuit in one state but be decided under the law of a state across the country.
Choosing which state is not generally a difficult negotiation to make. However, the selection of the state can be more complex. These two provisions are often lumped together because they are similar in nature.
Choice of Law and Jurisdiction in NDAs
Choosing a jurisdiction for a non-disclosure agreement, also known as an NDA, is crucially important. There are two important components to this choice, including jurisdiction and the choice of law.
The jurisdiction will refer to which court will hear the lawsuit, whether it be in a different county or state altogether.
The choice of law chooses which state’s law will be used to determine the outcome of the non-disclosure agreement. Just like in the other examples, both of these items are important to get right when you are forming a contract so that all parties get fair treatment by the law and the location.
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