313 U.S. 487 (1941), 741, Klaxon Company v. Stentor Electric Manufacturing Co., Inc.

Docket Nº:No. 741
Citation:313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477
Party Name:Klaxon Company v. Stentor Electric Manufacturing Co., Inc.
Case Date:June 02, 1941
Court:United States Supreme Court
 
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Page 487

313 U.S. 487 (1941)

61 S.Ct. 1020, 85 L.Ed. 1477

Klaxon Company

v.

Stentor Electric Manufacturing Co., Inc.

No. 741

United States Supreme Court

June 2, 1941

Argued May 1, 2, 1941

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE THIRD CIRCUIT

Syllabus

1. In diversity of citizenship cases, the federal courts, when deciding questions of conflict of laws, must follow the rules prevailing in the States in which they sit. Erie R. Co. v. Tompkins, 304 U.S. 64. P. 496.

2. In an action in a federal court. in Delaware, for breach of a New York contract, the applicability of a New York statute directing that interest be added to the recovery in contract cases is a question of conflict of laws, which the federal court must determine by the law of Delaware. P. 496.

3. The Full Faith and Credit Clause does not require that a State, contrary to its own policy, shall give effect in actions brought locally on contracts made in other States, to laws of those States relating, not to the validity of such contracts, but to the right to add interest to the recovery as an incidental item of damages.

Page 488

§ 480 N.Y.Civ.Prac. Act. John Hancock Mutual Life Inc. Co. v. Yates, 299 U.S. 178, distinguished. P. 497.

115 F.2d 268, reversed.

Certiorari, 312 U.S. 674, to review the affirmance of a judgment recovered for breach of a contract, 30 F.Supp. 425. The review in this Court was limited to the question whether § 480 of the New York Civil Practice Act is applicable to an action in the federal court in Delaware.

Page 494

REED, J., lead opinion

MR. JUSTICE REED delivered the opinion of the Court.

The principal question in this case is whether, in diversity cases, the federal courts must follow conflict of laws rules prevailing in the states in which they sit. We left this open in Ruhlin v. New York Life Insurance Co., 304 U.S. 202, 208, note 2. The frequent recurrence of the problem, as well as the conflict of approach to the problem between the Third Circuit's opinion here and that of the First Circuit in Sampson v. Channell, 110 F.2d 754, 759-762, led us to grant certiorari.

In 1918, respondent, a New York corporation, transferred its entire business to petitioner, a Delaware corporation. Petitioner contracted to use its best efforts to further the manufacture and sale of certain patented devices covered by the agreement, and respondent was to have a share of petitioner's profits. The agreement was executed [61 S.Ct. 1021] in New York, the assets were transferred there, and petitioner began performance there although later it moved its operations to other states. Respondent was voluntarily dissolved under New York law in 1919. Ten years later, it instituted this action in the United States District Court for the District of Delaware, alleging that petitioner had failed to perform its agreement to use its best efforts. Jurisdiction rested on diversity of citizenship. In 1939, respondent recovered a jury verdict of $100,000, upon which judgment was entered. Respondent then moved to correct the judgment by adding interest

Page 495

at the rate of six percent from June 1, 1929, the date the action had been brought. The basis of the motion was the provision in section 480 of the New York Civil Practice Act directing that, in contract actions, interest be added to the principal sum "whether theretofore liquidated or unliquidated."1 The District Court granted the motion, taking the view that the rights of the parties were governed by New York law and that, under New York law, the addition of such interest was mandatory. 30 F.Supp. 425, 431. The Circuit Court of Appeals affirmed, 115 F.2d 268, 275, and we granted certiorari, limited to the question whether section 480 of the New York Civil Practice Act is applicable to an action in the federal court in Delaware. 312 U.S. 674.

The Circuit Court of Appeals was of the view that, under New York law, the right to interest before verdict under section 480 went to the substance of the obligation, and that proper construction of the contract in suit fixed New York as the place of performance. It then concluded that section 480 was applicable to the case because

it is clear by what we think is undoubtedly the better view of the law that the rules for ascertaining the measure of damages are not a matter of procedure at all, but are

Page 496

matters of substance which should be settled by reference to the law of the...

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