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In adopting an approach for tort actions, Supreme Court of Colorado recognizes the shortcomings of the traditional conflict of laws rule and the benefits of the most significant relationship approach. Supreme Court of Colorado now adopts the following approach for contract actions: Where a conflict of laws question is raised, the objective is to locate the state having the most significant relationship to the particular issue. In analyzing which state has the most significant relationship, certain choice-of-law principles are to be taken into account. Once the state having the most significant relationship is identified, the law of that state is then applied to resolve the particular issue.
Fred Gagnon, a resident of California, contracted with Wood Bros. Homes, Inc. (Wood), a Delaware corporation having its principal place of business in Colorado, to perform rough carpentry work on a Wood's apartment complex in Albuquerque, New Mexico. Contract negotiations took place in California, Colorado, and New Mexico. Shortly after Gagnon commenced work, New Mexico officials ordered construction halted because he had not obtained a New Mexico contractor’s license. The New Mexico Construction Industries Licensing Act prohibited any person from engaging in the business of a contractor without first obtaining a license from the appropriate state commission. Wood promptly cancelled Gagnon’s contract and refused to pay him. Plaintiff-respondent, Walker Adjustment Bureau (Walker), as Gagnon’s assignee, brought a suit against Wood in Colorado seeking recovery against Wood on either a contract or quantum meruit theory. The trial court granted Wood's motion for summary judgment, ruling that under Colorado choice of law rules, New Mexico law applied, and barred the action. The court of appeals reversed, holding that under the traditional conflict of law rules or the Restatement (Second) of Conflict of Laws (Restatement (Second)) the law of Colorado applied and the contract was enforceable. The state supreme court granted certiorari.
Under the circumstances, did New Mexico law apply, thereby barring the action?
On appeal, the court reversed and noted that either state's local law could have been constitutionally applied, however, the value of protecting the parties' contractual expectations was outweighed by New Mexico's interest in applying its invalidating rule, and the action was consequently barred. The court noted that when performance was illegal in the place of performance, the contract would have usually been denied enforcement. The court found that New Mexico's interest clearly preponderated and was the state having the most significant relationship to the issue. Moreover, because under New Mexico law estoppel could not have been founded on an illegal contract, a defendant cannot be estopped from asserting a plaintiff's nonconformance with the licensing requirement of the New Mexico Construction Industries Licensing Act, N.M. Stat. Ann. § 67-35-1 et seq.