When there’s a dispute over a contract, it’s not uncommon for the parties to land in court–the question is, which court? If you’re doing business with customers and suppliers outside your local area and something goes wrong, you could find yourself involved in a courtroom battle being waged hundreds or even thousands of miles away at a prohibitive cost. In fact, it’s common for plaintiffs to count on the fact that an out-of-state defendant will find it more difficult and expensive to fight a case than to either settle or simply be in default.
Most states have basic venue statutes which provide that, in the absence of a contract stipulating otherwise, lawsuits be filed in one of three places: the county in which the contract was entered into, where the defendant resides, or where the cause of action (the breach of contract) occurred. But depending on your particular situation, these statutes may not always work to your advantage. Also, though you may be able to change the venue after a legal proceeding has begun, that process will only delay getting the real dispute settled. That’s why it’s a good idea to address the issue of venue in your contract, long before a problem arises. Ideally, your contract should say that the venue is your county. The other party (or parties) to the contract may disagree; if so, then you must negotiate those terms.
In addition to selecting the location of a possible lawsuit, you also need to specify what court–state or federal–will have jurisdiction. Generally, state court is less expensive, it’s faster, and it’s more user-friendly than federal court.
Another important provision is choice of law. This means you should decide in advance which state’s laws will apply, keeping in mind that laws regarding various aspects of commerce can vary significantly by state. Typically, the choice of law matches the venue.
Your venue clause does not have to be lengthy or complex; it should simply state the location (county), jurisdiction (court), and state law that will apply in the event of a dispute or breach of contract. If the other party objects to your venue clause, or if you are asked to sign a contract and you object to the venue clause, work toward a resolution in your negotiation process. It’s a good idea to have an attorney review your basic venue clause as well as any modifications you might make as part of a negotiation. Generally a venue clause is not going to be a make-or-break issue when it comes to a contract; however, you should make your final decision based on what is best for your company and how much risk you are willing to take.