Floating Law Clause Law and Legal Definition
Floating law clause refers to a provision in a contract which permits one party to the contract to choose the applicable law, after a predetermined event has occurred. Under this clause, the law of the state is chosen by the parties to govern their contractual rights and duties and will only be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue. The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either:
1.the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or
2.application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which would be the state of the applicable law in the absence of an effective choice of law by the parties.
In the absence of a contrary indication of intention, the reference is to the local law of the state of the chosen law.[In re Commercial Money Ctr., Inc., Equip. Lease Litig., 627 F. Supp. 2d 786 (N.D. Ohio 2009)]. However, such clauses have been criticized for lending themselves to evasion of the law.
