Choice of Law / Choice of Forum
Choice of law clauses specify which jurisdiction's substantive law governs a contract. Choice of forum (forum selection) clauses specify the courts authorized to hear disputes. Both are foundational for commercial contracts involving multi-state parties or transactions.
Choice of law clauses specify which jurisdiction's substantive law governs the interpretation and enforcement of a contract. Choice of forum (or "forum selection") clauses specify the courts or arbitral tribunals authorized to hear disputes arising from the contract. Both clause types are foundational to commercial contracts, particularly those involving parties or transactions in multiple states.
Choice of law enforceability
Under DeSantis, Texas courts generally enforce contractual choice-of-law clauses if (1) the chosen jurisdiction has a substantial relationship to the parties or the transaction, or there is another reasonable basis for the parties' choice; and (2) application of the chosen law would not be contrary to a fundamental policy of a state that has a materially greater interest in the issue and whose law would apply absent the parties' choice. A difference between the chosen law and Texas law does not by itself offend fundamental policy, but DeSantis itself applied the exception to refuse Florida law on a Texas employee's noncompete. For transactions of $1 million or more, Tex. Bus. & Com. Code § 271.005 enforces a written choice of a reasonably related jurisdiction's law regardless of fundamental policy, subject to the exceptions in Chapters 271 and 272.
Choice of forum enforceability
Forum selection clauses are presumptively enforceable under Texas law. Mandatory forum clauses (specifying that disputes "shall" be litigated in a specific court) are enforced unless the resisting party shows the clause is unreasonable, fraud-induced, or contrary to public policy. Permissive forum clauses (specifying that a court "may" hear disputes) preserve party rights to litigate elsewhere.
Tex. Civ. Prac. & Rem. Code § 15.020
For "major transactions" (a written agreement with consideration of $1 million or more, excluding transactions primarily for personal, family or household purposes), a written agreement that suit may be brought in a county makes venue there mandatory, and an agreement that suit must be brought elsewhere bars suit in other counties. The section does not apply if the venue agreement was unconscionable when made, is void under Chapter 272 of the Business and Commerce Code, or venue is fixed by a statute outside the venue title.
Choice-of-law and forum clauses are critical for predictability because they fix in advance the substantive rules and procedural setting that will apply to disputes. Sophisticated drafting addresses (1) substantive law selection; (2) exclusive vs. non-exclusive forum; (3) whether the clause covers tort claims arising from the contract relationship, not just breach; (4) carve-outs for injunctive relief in any jurisdiction.
Companion article: Contract Disputes in Texas