Commercial contract provisions dictating choice-of-law, the applicable statute of limitations, and forum selection are important yet often overlooked portions of agreements.  A recent Rhode Island Supreme Court decision presents important guidance that companies and individuals should consider when drafting, negotiating, and executing contracts.

In Webster Bank, N.A. v. Rosenbaum, 268 A.3d 556 (R.I. 2022), the court considered a “Governing Law” provision in a loan agreement.  The provision provided: “Governing Law: Federal law and the law of the State of Connecticut (to the extent consistent with Federal law) govern this Agreement.”  The issue before the court was whether Rhode Island or Connecticut law should govern the statute of limitations applicable to the plaintiff’s claim against the defendants.  Although the “Governing Law” provision stated that Connecticut law “govern[ed] th[e] Agreement[,]” it did not specify the applicable statute of limitations or forum.  The court declined to interpret the provision as encompassing those issues.  Because the “Governing Law” provision did not specifically dictate the choice of forum or the applicable statute of limitations, the court applied its own choice of law rules to determine the law of the jurisdiction that applies with respect to the statute of limitations.  The court ultimately applied Rhode Island’s statute of limitations, not Connecticut

Webster Bank makes clear that commercial contract provisions must clearly specify choice of law, the applicable statute of limitations, and choice of forum.  When contracts like the loan agreement in Webster Bank fail to specify, for example, the applicable statute of limitations, Rhode Island courts will employ their own choice of law rules to determine the law of the jurisdiction that will apply to the dispute.  The outcome of this determination can be unpredictable and can potentially have momentous consequences on the outcome and the parties’ damages exposure.

Moving forward, parties should remain cognizant of Webster Bank’s directives with respect to drafting of choice of law, statute of limitations, and forum selection provisions.  Choice of law and the statute of limitations can be outcome determinative, as the laws of different jurisdictions sometimes contain meaningful differences.  Parties can avoid these potential pitfalls by carefully crafting distinct contract provisions that specify the law of the jurisdiction that governs the agreement, the applicable statute of limitations, and the forum.

“So choose governing law wisely, but also choose it thoroughly!”[1]

[1] Glenn West, The Law You Choose to Govern Your Contract May Not Be the Law That Governs, Weil Insights, (January 12, 2016), https://privateequity.weil.com/insights/contractual-choice-of-governing-law-and-statutes-of-limitations-the-law-you-choose-to-govern-your-contract-may-not-be-the-law-that-governs-the-applicable-statute-of-limitations-for-claims-aris/