By Brian Fisher
Bargaining for the law of a specific jurisdiction
One or more parties to a transaction may desire, and bargain, for the law of a specific jurisdiction to govern the interpretation or enforceability of their agreement. For example, a New York lender making a loan to a Texas entity secured by real property in Texas may require that the Promissory Note be governed by the laws of the State of New York. §271.005 of the Texas Business and Commerce Code (the “Code”) provides that parties to a “qualified transaction” can agree that the law of a particular jurisdiction governs an issue (e.g., the validity or enforceability of an agreement or specific provision of an agreement) relating to a “qualified transaction” if:
- Such agreement is in writing; and
- The “qualified transaction” bears a reasonable relation to that jurisdiction.
A “construction contract” concerning real property in Texas is subject to §271.0005. Subject to certain limited exemptions in §272.002 of the Code, the definition of “construction contract” has been expanded to mean a contract, subcontract, or agreement entered into or made by an owner, architect, engineer, contractor, construction manager, supplier, or material or equipment lessor for the design, construction, alteration, renovation, remodeling, or repair of, or for the furnishing of material or equipment for, a building, structure, appurtenance, or other improvement to or on public or private real property, including moving, demolition, and excavation connected with real property.
Don’t get bogged down and trade something for nothing
However, BEWARE, do not get bogged down in negotiating choice-of-law provisions in construction contracts as a party obligated to perform work pursuant to a construction contract may void the choice-of-law provision. Thus, do not “trade” something of value in the construction contract for the inclusion of a choice-of-law provision as you are trading something for nothing.
1A Transaction in which a party pays, receives, lends, advances or borrows consideration, money or credit with an aggregate value of at least $1,000,000.00. Texas Business and Commerce Code §271.001.
2The transaction, the subject matter of the transaction, or a party to the transaction is reasonably related to that jurisdiction. Texas Business and Commerce Code §271.004.
3Texas Business and Commerce Code §272.0001. Prior to September 1, 2017, Texas Business and Commerce Code §272.001 (b) applied “only to a contract that is principally for the construction or repair of an improvement to real property located in this state.”
4Texas Business and Commerce Code §272.001(b).