When a contract has contacts with more than one state, it is a contract in interstate commerce, and it is necessary to determine which state’s law governs the contract. The rules that govern that decision are called the law of conflicts of law. The parties may specify the jurisdiction whose law is to govern. If that jurisdiction bears a reasonable relationship to the contract, the choice will be given effect by the Court.
Assuming there is no choice of law in the contract, the law of the state where the contract is made determines whether or not the contract is valid. Matters regarding the performance of the contract, for example, damages for nonperformance or defenses for nonperformance, are generally governed by the law of the state where the contract is to be performed. An example of performance would be where a contract was made in Mississippi to sell cotton to a Tennessee merchant. If the contract provided that delivery was to be made in Tennessee with payment made in Tennessee, the contract would be performed in Tennessee.
The state in which the contract is made is determined by finding the state in which the last act essential to the formation of the contract was performed. For example, if I send a contract signed by me to someone in Tennessee with the request that they sign the contract if the terms are acceptable, the signing of the contract in Tennessee would be the last act necessary for the formation of the contract and would therefore be considered a Tennessee contract.
The modern trend, when no provision is stated in the contract as to which state’s law will apply, is to apply the center of gravity rule. Under this rule, the court will choose to follow the law of the state which has the most significant relationship to the parties, the contract, and its performance. The courts consider the place where the contract was made, where the negotiations occurred, where the performance was made, the location of the subject matter of the contract (e.g., land location), the residence of the parties, and the states of incorporation and principal place of business if a corporation is involved.