Thursday, April 27, 2017

Can I Use My Contract Across State Lines?

“My company is based in Kansas. But I build in Missouri too. Can I use my KS contract on construction projects in MO?”

Good question. The answer is “No.” But it takes some explaining.

Contract law lets people decide where and how disputes will be settled – which court (the forum) and which state law (choice of law) will apply. If the contract makes reasonable decisions on forum and choice of law, courts will usually enforce the agreement as written. For example, the following would usually be a good choice: the state where the contract was signed or where goods were delivered or the home state of the vendor. On that basis, a Kansas contractor could use Kansas contracts on Missouri jobs. But keep reading. Construction contract law is different.

Most states require that disputes about construction in that state be settled by a state court applying law of that state. Twenty-six states fall in this “home rule” category: AZ, CA, CT, FL, IL, IN, KS, LA, MN, MT, NC, NE, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, and WI. In those states, decisions about forum and choice of law are made for you. Anything to the contrary in your contract is a waste of time.

“OK,” you say. “But MO isn’t on that list of 26 states. Doesn’t that mean my KS contract will work in Missouri?”

The answer is still “No.”

Most of the other 24 states, including Missouri, follow § 187(2) of the Restatement (Second) of Conflict of Laws, "The law of the state chosen by the parties to govern their contractual rights and duties will be applied...unless...(b) 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." Following that logic, no Missouri court has ever applied the law of another state to resolve a dispute about construction in Missouri.

“Fine. But I’m not trying to use Kansas law or Kansas courts to settle disputes on my Missouri jobs. I just want to use the same basic contract on all my jobs. Can I do that?”

Again, the answer is “No.”

Every state requires very specific notices and disclosures in construction contracts. Nothing in your contract about forum or choice of law is going to change the law at your construction site.

If your Kansas contract is legal, it includes several of these KS notices. All will be worthless on a Missouri job. For example, the notice required by the Kansas Residential Construction Defect Act does nothing on a job in Missouri. Terms required by the Kansas Fairness in Private Construction Contract Act are irrelevant in Missouri. The arbitration notice required by Kansas law is rubbish in a contract for construction in Missouri.

Worse, your transplanted Kansas contract won’t have notices required for construction in Missouri. For example, if any part of the work will be covered by insurance, the contract has to include disclosures required by Missouri Statutes § 407.725. Lien rights may be forfeit if the owner doesn’t get the notice required by Missouri Statutes § 429.012. Omit the notice required by Missouri’s Right to Repair Act and you lose the right to inspect any claimed defect and make repairs.

Other Examples
I’ve been talking about MO and KS. But you’ll have nearly the same problem in any pair of states. Take this to the bank: Contracts have to comply with law at the construction site. And construction contract law is different every state.

If you handle jobs in two or more states, there’s an easy answer. Construction Contract Writer drafts perfectly legal agreements for any state you select. The single-state version is $99. Or get CCW for all 50 states for $299. The trial version of either is free.

Once the 50-states version of CCW is installed on your computer, try this: Change the construction site address in any contract to a different state. The agreement morphs into a contract perfectly legal in the state just selected.

So, I guess the answer to the first question above is a qualified “Yes.” With Construction Contract Writer, you can make essentially the same construction contract work in every state.

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