Why It Matters Whose State Law Governs the Contract

This is, without a doubt, the most common question I receive when two people are entering into a contract with one another, and they live in different states. Luckily, the answer is very simple.

Why does it matter?

Simply put, because whichever state is chosen will govern how the contract is construed, and every state (generally speaking) has different state laws regarding contract interpretation.

Therefore, you should keep this in mind when deciding who’s state laws should govern. Do you want your state’s laws to govern, or do you not care?

A word of caution: you probably DO care, even if you don’t think so now. If an issue arises with the contract that must be resolved in court, it will be decided in the court that has venue rights. In other words, the state written in the contract. This means that if you let the other party’s state govern the agreement, and you end up in court, you won’t only be paying attorney’s fees: you’ll also be paying for out of state costs, such as a hotel, etc.

Therefore, this provision of the contract that seemed so simple, actual requires quite a bit of thought, caution, and typically, negotiation.

This is just one example of why every provision of a contract matters- never let your guard down when reading through and signing an agreement!