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18 Colum. J. Transnat'l L. 323 (1979-1980)
Governing Law Clauses in Commercial Agreements--New York's Approach

handle is hein.journals/cjtl18 and id is 327 raw text is: Governing Law Clauses in Commercial Agreements-New York's Approach MICHAEL GRUSON* I. INTRODUCTION-THE NEED FOR GOVERNING LAW CLAUSES The parties to a commercial agreement have an understand- able desire that the rights and obligations under the agreement be as well defined and predictable as possible. Entry into the agree- ment is, after all, motivated largely by the parties' wish to make the behavior of the other party, and thereby the achievement of the desired economic results, certain and predictable.1 The princi- pal method by which this objective is achieved is the careful draft- ing of the agreement. But disputes do occur and if a party resorts to a court of law, the judge must interpret the agreement within the framework of a legal system. To which legal system will the judge resort? Absent a governing law clause, a court will apply cer- tain of today's generally accepted conflict-of-laws rules to deter- mine the law governing an agreement. These rules may have some merit; they do not have, unfortunately, the merit of certainty and predictability,' and the larger the number of jurisdictions having some connection with the transaction, the less predictable it is which law the court will apply. Each disputed issue will call for its own conflict-of-laws analysis, so that different issues under the same agreement may be governed by different laws. The problem is aggravated further when the jurisdictions which have some con- nection with the transaction belong to different legal cultures. While it may be of little consequence whether the law of New York or the law of New Jersey is applied to the construction of an agree- * Member of the New York Bar; LL.B. 1962 (University of Mainz, Germany); M.C.L. (1963), LL.B. (1965) (Columbia University); Dr. iur. (1966) (Freie Universitat, Berlin). 1. Judge Breitel, in his dissent in Miller v. Miller, 22 N.Y.2d 12, 27, 237 N.E.2d 877, 886, 290 N.Y.S.2d 734, 747 (1968), emphasized the need to satisfy the reasonable expecta- tions of persons participating in transactions and said that this pragmatic significance of expectations varies with the type of legal rule involved. It is undoubtedly strongest in con- tract cases. Id. at 28, 237 N.E.2d at 886, 290 N.Y.S.2d at 747. 2. See Section II A infra.