Simplifying Governing-Law Provisions, Part 3 (“Governs” and the Alternatives)

To accompany my previous two posts (here and here) on issues relating to language used in governing-law provisions, here’s another: Do you say that the law in question governs the contract or, alternatively, that the contract is governed by the law in question? (This is a context where the passive voice is largely harmless.) Or do you refer to interpretation or construction or both (perhaps with other components) under the law in question? Or do you do some combination of the two approaches?

Here’s my choice (with the more concise active voice winning out):

New York law governs …

Why? Because except for the question of whether the governing-law provision covers claims other than claims under the contract (to be addressed in a later blog post), I see no reason to conclude that governs doesn’t cover what needs to be covered.

What about interpretation or construction? Here’s one example of such a provision, offered by @mrsalzwedel in this comment:

This Agreement is governed by and should be interpreted under [XXX] law without regard to its choice-of-law or conflicts-of-law principles or rules.

And then there’s chapter 6 (by Brad S. Karp and Shelly L. Friedland, both litigators) in Negotiating and Drafting Contract Boilerplate (2003 Tina L. Stark ed.) (NDCB), which offers the following (notes omitted):

The laws of the State of Vermont … govern all matters … including, without limitation, … its [validity], interpretation, construction, performance, and enforcement.

For the moment, let’s limit ourselves to interpretation and construction.

Here’s how the related verbs are defined in Black’s Law Dictionary:

interpret vb. To ascertain the meaning and significance of thoughts expressed in words.

construe vb. To analyze and explain the meaning of (a sentence or passage) <the court construed the language of the statute>.

Based on those definitions, interpret and construe would seem to mean the same thing. But here again is NDCB (footnotes omitted):

Both “construe” and “interpret” are included in Example 2. Many modern commentators—and courts—treat the two terms as virtually interchangeable, but the traditional approach differentiates between the two. This distinction is retained in the current Restatement of Contracts, in two of the leading treatises on contract law, and in some court decisions. Given the continuation of this practice, it is recommended that both terms be included in the governing law provision.

But this analysis misunderstands the semantic distinction between scholarship and court opinions, on the one hand, and contract language, on the other hand. All the authorities NDCB cites for the distinction between construction and interpretation consider those terms only in their doctrinal context. For example, here’s an extract from Restatement (Second) of Contracts § 200 Reporter’s Note (1981):

Former § 226 is rephrased to make it clear that “interpretation” relates to meaning and to avoid confusion with the ascertainment of legal operation or effect, sometimes called “construction.”

Forget about how this distinction, like the others, seems, um, overly subtle. The main problem with suggesting that such distinctions are relevant for purposes of contract language is that they make no sense in that context. If in a governing law provision you say, for example, This agreement is to be interpreted under New York law, it would be odd and hopelessly cumbersome to suggest that a court would apply New York law to determine meaning but would use the forum’s choice-of-law rules to ascertain legal operation or effect. Nothing NDCB cites suggests such a mechanism, and I’ve seen no evidence elsewhere. If there’s no reason to use both interpret and construe or their variants, one is left with no reason to use one or the other instead of governs.

As for performance, here’s what NDCB says:

“Performance” here refers to the substantive rights and duties of the parties under the contract, such as sufficiency of performance or excuse for nonperformance, in contrast to the details of performance, such as the grace period for payment or the currency in which payment shall be made. The Restatement (Second) of Conflict of Laws provides that the parties’ choice of law provision will apply to the parties’ substantive responsibilities, but not to the details of performance, unless the parties have explicitly indicated that they intended this result. To indicate such a preference, the drafter can add “(including the details of performance)” after “performance.”

But this summary offers no basis for concluding that performance isn’t subsumed by governs. And as for details of performance falling outside the scope of a governing-law provision unless the parties indicate otherwise, the Restatement offers no evidence, so I have no reservations about ignoring this bit of advice.

As regards enforcement, NDCB suggests that using just enforcement would narrow the scope of a governing-law provision. That means it’s of no significance that I don’t include enforcement or some variant in my governing-law provisions.

And NDCB says that whereas courts used to regard validity as being outside the scope of governing-law provisions, that’s no longer the case. It follows that it serves no purpose to refer to validity.

So I’ve found wanting the challengers interpretation, construction, performance, enforcement, and validity (and their variants), leaving governs standing by default.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

4 thoughts on “Simplifying Governing-Law Provisions, Part 3 (“Governs” and the Alternatives)”

  1. From the agreement that just landed on my desk: “10.1 This Agreement will be governed in all respects by the laws of Indiana, excluding its rules on conflict of laws.” Agree with you, Ken, re active voice if I was originating. Re the reference to conflict of laws, you’ve convinced me that there is no “legal” need for it. That said, I will continue to include in my templates. I never want its omission to add even one minute to contract negotiation. As the president of a company I used to work for liked to say: “Let’s get ‘er done.” Congrats on Adams Consulting — wondering whether you will include conflict of laws reference in your client’s templates.

    • Yep, that’s a legitimate position to take. And in Part 2 I did point out the trade-offs!

      How I handle this for my clients is part of a bigger challenge, namely informing the other side, up front, why a given template uses, or doesn’t use, certain language. I’ve previously written about what you can say in a cover note, but I’m currently toying with the idea of creating for a given template an explanatory web page, for the other side to consider before they start laying comments on you. More on that down the road.

      • Yes, changing the way things are done will be a big challenge, but you know that from years of Adams on Contracting Drafting. Now, regarding how to build a sustainable business based on “new” templates, I see parallels to growing a network-based business: the more users/believers, the more valuable the product/service. The network growth model is to get as many people as possible on board as quickly as possible. While educating the “other side” on a project by project basis may be necessary, growth will be slow and possibly expensive. Rather than one-on-one education, I’d focus on a wider base for education and conversion — perhaps starting with the industry from which you have the most clients. Even if the other side doesn’t become a user (i.e., a client), you need them to become a believer; otherwise, the red pencil will come out which in turn de-values your product. Spread — through the many platforms you already have and some new (e.g., free trials) — a clear message that is broad-based, bottom-line oriented, and risk-balanced, and appeals to the business people and doesn’t threaten the legal and contract management folks. The goal is to grow the network of believers. The more I write, the more I like the analogy to networks: believers are the free version users and clients are the premium version users. You need both to grow and add value to the premium users.

        • Yes, you’re right. That’s what I’ve been trying to do lo these many years! I think I’m getting somewhere, albeit way more slowly than I’d like. But that’s to be expected.


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