Wood Bros. Homes, Inc. v. Walker Adjustment Bureau

Brief Fact Summary

Walker’s (Plaintiff) assignor, a California resident, had contracted to perform work on an apartment complex in New Mexico owned by Wood Bros. (Defendant), a Delaware corporation with its principal place of business in Colorado.

Synopsis of Rule of Law

The Restatement (Second) of Conflict of Laws would resolve any particular issue by applying the law of that state having the “most significant relationship†to that issue and adopts a rebuttal presumption that the state where services are to be performed is the state with most significant relationship to the issue of the validity of the contract.

Facts

In accordance with negotiations in California, Colorado, and New Mexico, Wood Bros. (Defendant) contracted to have Gagnon, a California resident, perform rough carpentry work on an apartment complex it owned in New Mexico.  After the work started, New Mexico officials ordered the construction to stop because Gagnon did not have a New Mexico contractor’s license.  Wood (Defendant) canceled the contract and refused to pay Gagnon, although it did pay his employees $27,000 for their work.  As Gagnon’s assignee, Walker (Plaintiff) brought suit in Colorado for recovery on either a contract or quantum merit theory.  The trial court held New Mexico law applied, which barred the action because Gagnon was not licensed.  The court of appeals reversed, holding the law of Colorado applied, and rendered the contract enforceable.

Issue

Should an issue be resolved by applying the law of that state which has the “most significant relationship†to that issue?

Held

(Hodges, C.J.)  Yes.  The approach taken by the Restatement (Second) of Conflict of Laws is to apply the law of that state having the “most significant relationship†to the issue at hand to resolve that issue.  Section 196 thereof effectively creates a rebuttable presumption that the state where services are to be performed is the state with the most significant relationship to the issue of the validity of the contract.  Here, the presumption is valid and not rebutted.  New Mexico is the state with the “most significant relationship.â€Â  Its law barring actions by those not licensed there is designed to protect its citizens against substandard or hazardous construction and outweighs Colorado’s interest in protecting the parties’ expectations of contract.  Therefore, New Mexico law applies and bars this action on the contract.  Reversed.

Discussion

Under the traditional conflict of laws rule, it was the law of the place of execution that governed issues relating to the formation of the contract.  However, for issues relating to the performance of the contract, the law of the place of performance governed.