Governing Law Clause

A contractual provision that selects which jurisdiction’s substantive law will be used to interpret and enforce the agreement.

Reviewed by GC AI Solutions Team•Updated August 2026

Definition

A governing law clause, also called a choice of law provision, states which jurisdiction's substantive law applies to the interpretation and enforcement of a contract. It controls questions like what counts as a breach, which defenses are available, and how damages are measured. A separate forum selection clause decides where a dispute is heard. Courts generally enforce a chosen law where the jurisdiction has a reasonable relationship to the parties or the deal, subject to a public policy limit and to statutes that can override or validate the choice.

Selects the substantive law that interprets every other provision in the contract
Settles what counts as a breach, which defenses apply, and how damages are calculated
Removes the cost and uncertainty of a conflict-of-laws fight before a court reaches the merits
Pairs with a forum selection clause, which separately decides where a dispute is heard
Can be locked to a chosen state even without a connection, under statutes in New York and Delaware

New York and Delaware remain the default choices for large commercial agreements, backed by statutes that honor the selection even when neither party is located there.

What It Does

The governing law clause is one sentence that decides whose rules apply when the contract is tested. Choose New York and a court reads your indemnity, your liability cap, and your termination right through New York case law. Choose the counterparty's home state and you inherit its quirks. It reads like boilerplate, and it sets the interpretive frame for every other term you negotiated.

When You'll See It

A governing law clause appears in the general provisions of nearly every written contract: SaaS and vendor MSAs, loan agreements, M&A documents, leases, employment agreements, and investment management agreements. It is usually grouped with the forum selection and dispute resolution terms, and the three are often confused. The drafting varies most in cross-border and multi-state deals, where each side pushes for its home law. See also: severability, survival, and assignment.

Examples

Nextracker LLC

Flextronics International USA, Inc., Amendment to Transition Services AgreementDelawareMutual2023

"This Agreement and all rights and remedies in connection herewith, shall be governed by and construed in accordance with the laws of the State of Delaware, excluding any conflict-of-laws rule or principle (whether under the laws of Delaware or any other jurisdiction) that might refer the governance or the construction of this Agreement to the law of another jurisdiction."

Source

Origin, Inc.

Executive (Michael Preston), Amendment No. 3 to Employment AgreementNew JerseyMutual2023

"This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed in that state, without regard or reference to its principles of conflicts of laws ... Each of the parties unconditionally and irrevocably consent to the exclusive jurisdiction of the courts of the State of New Jersey."

Source

Tech Infrastructure JV I LLC

LMFA Financing, LLC, Omnibus AmendmentDelawareMutual2024

"THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND THE LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO TRANSACTIONS IN THE STATE OF DELAWARE. BORROWER AND LENDER AGREE THAT THE SOLE AND EXCLUSIVE PLACE OF JURISDICTION FOR RESOLUTION OF ANY DISPUTE ARISING OUT OF OR RELATING TO THE LOAN DOCUMENTS SHALL BE DELAWARE."

Source

Unite Acquisition 2 Corp.

Lucius Partners Opportunity Fund, LP, Promissory NoteNew YorkMutual2024

"THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. ... BORROWER HEREBY CONSENTS ... TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS IN THE STATE OF NEW YORK."

Source

Splash Beverage Group, Inc.

Lender, Promissory NoteArizonaMutual2023

"This Note shall be governed by and construed in accordance with the laws of the State of Arizona, without giving effect to its principles regarding conflicts of law."

Source

AMJ Global Technology

Dark Bull Capital, Inc., Revenue Share AgreementNevadaMutual2024

"This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada. ... The parties agree that arbitration shall be the sole and exclusive remedy to redress any dispute, claim or controversy between them."

Source

Negotiate

What to Push For

Choose a state with deep, predictable commercial case law (New York and Delaware lead) so your indemnity and liability terms are read against a developed body of law.
Add “without regard to its conflict-of-laws principles” so the chosen state’s own conflict rules cannot redirect to another jurisdiction.
For a contract of $250,000 or more with no natural home, New York law can be chosen under General Obligations Law Section 5-1401 (as amended effective August 31, 2018) even without a New York connection; Delaware allows the same under 6 Del. C. Section 2708 (as amended effective June 28, 2005).
Confirm the governing law clause and the forum selection clause point where you intend, since they operate independently.

Watch the Limits

A chosen law gives way to another state’s fundamental public policy and to its mandatory statutes, such as California’s limits on employee non-competes.
Certain claims (employment, consumer protection, some IP ownership rules) follow mandatory local law regardless of the clause.
Choosing a state with no relationship to the deal can fail outside the New York and Delaware statutory safe harbors, where the reasonable-relationship test still applies.

Red Flags

No governing law clause, which leaves a court to run an expensive conflict-of-laws analysis before reaching the merits.
Governing law and forum selection that point to different places by accident, producing a court applying unfamiliar law.
A clause that names the governing law but never names a forum, so the contract is silent on where a dispute is filed.
A chosen state with no connection to the parties or the deal and outside a statutory safe harbor, which a court may decline to honor.
A missing “without regard to conflict-of-laws principles” carve-out, which can loop the analysis back to another jurisdiction.

Governing Law Clause FAQs

What is a governing law clause?

A governing law clause selects which jurisdiction's substantive law applies to interpret and enforce a contract. It decides questions like what counts as a breach and how damages are measured, and a separate forum selection clause decides where a lawsuit is filed.

What is the difference between governing law and jurisdiction?

Governing law picks the substantive rules that apply to the contract. A forum selection or jurisdiction clause picks the court system where disputes are heard. They are independent, so a contract can be governed by New York law yet litigated in California.

How do you choose the governing law for a contract?

Most parties weigh three factors: the depth and predictability of the state's commercial case law, each side's bargaining position, and any mandatory local law that applies to the subject matter. New York and Delaware are the common defaults for large commercial deals.

Does the chosen state need a connection to the contract?

Usually yes. Courts apply the chosen law where the state has a reasonable relationship to the parties or the deal. New York General Obligations Law Section 5-1401 and Delaware's 6 Del. C. Section 2708 remove that requirement for large commercial contracts, letting parties select those states even without a connection.

Does a governing law clause decide which court hears the case?

No. A governing law clause selects the applicable law only. Where a dispute is heard depends on a separate forum selection clause and on personal jurisdiction, so a contract without a forum clause can end up litigated wherever a plaintiff can establish jurisdiction.

What happens if a contract has no governing law clause?

A court applies its own conflict-of-laws rules to identify the governing law, usually the state with the most significant relationship to the deal. The analysis is unpredictable, expensive, and invites forum shopping.

Related Clauses

This content is for informational purposes only and does not constitute legal advice.