We’ve all seen the teeny-tiny type on the back pages of many contracts. Most hate reading it because it’s small, dense, and simply uninspiring. But it can make all the difference in a business deal.
Two of these boilerplate provisions are called venue and choice-of-laws, and although they address similar concepts, they couldn’t be more different. A venue provision is one that chooses where any dispute arising from the contract will be held. In other words, a contract that provides for a venue – another word for a place – is saying that if one party sues another, the lawsuit may be filed only in the place identified in the contract.
Therefore, if you’re a New York business (or individual, for that matter) and your vendor’s contract says that any dispute must be determined in the State of Montana, well, that’s where you must go. No, you can’t file suit in New York, and if you do, it’s likely your counterpart will have the lawsuit moved to their great western home state, creating considerable angst for you.
Choice-of-laws, on the other hand, identifies which State’s laws govern any dispute arising from the contract. Assuming you’re a New Yorker, it’s likely you (and your lawyer) are far more familiar with the laws of your home state than, say, the laws of Iowa. If, however, your vendor is from Iowa and its boilerplate calls for Iowa’s laws to govern the contract, then even if you’re able to file suit in New York, the New York judge likely will be required to use only Iowa’s laws in deciding the lawsuit.
Drilling it down to its essence, venue determines where a dispute is heard while choice-of-laws determine which State’s laws will guide the court in making its decision. Both clauses are important, and both can measurably affect the outcome of a dispute.
The next time you’re faced with a contract, check out the teeny-tiny type to see if there’s a venue or choice-of-laws clause, and use your new knowledge to negotiate the best outcome for you.