Understanding the Floating Law Clause: A Key Contractual Provision

Q: Can a floating law clause be challenged?

Yes, it can be challenged if the chosen law has no substantial relationship to the parties or if it violates public policy.

Q: How does a floating law clause differ from a choice of law clause?

A floating law clause allows for selection after an event, while a choice of law clause is determined at the outset of the contract.

Definition & Meaning

A floating law clause is a provision in a contract that allows one party to select the applicable law after a specific event occurs. This clause enables the parties involved to determine which state's laws will govern their contractual rights and responsibilities. The selected law will apply to issues that could have been explicitly addressed in the contract, as well as those that could not, unless certain conditions are met.

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Legal Use & context

Floating law clauses are commonly used in various legal practices, particularly in commercial contracts, international agreements, and partnerships. They provide flexibility in determining the governing law, which can be crucial in cross-border transactions. Users can manage these clauses through legal forms and templates available from services like US Legal Forms, which are drafted by qualified attorneys.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A company based in California enters into a contract with a supplier in New York. They include a floating law clause allowing them to choose New York law to govern their agreement, which they select after a dispute arises.

Example 2: A hypothetical example where two international firms agree to a floating law clause that allows them to choose the law of a neutral country to resolve any contractual disputes that may arise.

State-by-state differences

State	Key Differences
California	Allows floating law clauses but requires a substantial relationship to the chosen state.
New York	Enforces floating law clauses unless they violate public policy.
Texas	Similar to New York, but emphasizes the need for a reasonable basis for the choice of law.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition	Difference
Choice of Law Clause	A provision that specifies which jurisdiction's laws will govern the contract.	Floating law clauses allow for selection after a specific event, while choice of law clauses are determined at the outset.
Governing Law Clause	Similar to a choice of law clause, it designates the law that will apply to the agreement.	Governing law clauses are typically fixed at the time of contract formation, unlike floating law clauses.

Common misunderstandings

What to do if this term applies to you

If you are entering a contract that includes a floating law clause, consider the implications of the chosen law carefully. It may be beneficial to consult with a legal professional to ensure that the clause is enforceable and aligns with your interests. You can also explore US Legal Forms for templates that help you draft or review such clauses effectively.

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Quick facts

Type: Contractual provision
Common Usage: Commercial contracts, international agreements
Key Consideration: Must have a substantial relationship to the chosen state
Potential Issues: May conflict with local public policy

Key takeaways

Frequently asked questions

What is a floating law clause?

A floating law clause is a provision in a contract that allows one party to select the applicable law after a specific event occurs.