Ohio business contracts often contain a paragraph at the end that says where a lawsuit will be brought and what state’s law will apply. When you’re signing a contract, you’re not considering a lawsuit — why should you worry about what this clause says, or even whether it’s in the contract at all?
Like all contractual language, venue and choice of law provisions are there for a reason, and if they’re left out, you could be setting yourself up for an expensive procedural battle if either party ever decides to file a lawsuit.
Let me explain. If you’re an Ohio business, and you’re signing a contract with another Ohio business that’s going to be performed in Ohio — say you’re purchasing equipment from a company across town — then any dispute arising under that contract is going to be decided under Ohio law, in Ohio courts. There’s no reason to be anywhere else. But what if your Ohio business has offices in West Virginia and Tennessee, and you purchase equipment for the Tennessee office from a company in Florida? Now if there’s a dispute, where will it be litigated? Ohio? Florida? Tennessee? And which state’s law will apply? If you don’t have it spelled out in your contract, you’re going to be paying a lawyer to sort this out.
Choice of Law
The choice of law provision simply says which state’s law will apply to disputes arising under the contract. Although most states have a similar set of laws, the exact wording and the way courts enforce those laws can vary. If your company enters into similar contracts with individuals and businesses in many states, you’ll want the same state’s law to apply to all your contracts, so that there’s consistency in enforcement. For this same reason, if your contract is with a large national company, you may find it difficult to negotiate an Ohio choice of law if their standard contract specifies another state.
A choice of law provision can also allow you to use a more favorable state law. For example, many corporations are formed in Delaware because that state’s law is considered favorable to corporations, and a Delaware corporation may want its contractual disputes decided under Delaware law.
Venue
The venue provision says where disputes will be litigated. Small businesses will usually want to litigate disputes in their hometown court because it’s cheaper and easier than hiring an out-of-state lawyer and traveling to another state for court appearances. However, if disputes are being decided under another state’s law, it may make sense to litigate in that state’s courts because the judges will be more familiar with the law to be applied.
It’s a good business practice to have a lawyer review your contracts to make sure they’ve got the right provisions for your situtation. To find out how Jane Haskins can help you with this, call 614-330-5463 or email Jane at jane@haskins-law.com.
