Eldon Industries, Inc. v. Paradies and Company

• Decision Date: 25 June 1975
• Docket Number: Civ. A. No. 18712.
• Citation: 397 F. Supp. 535
• Parties: ELDON INDUSTRIES, INC., a California Corporation v. PARADIES AND COMPANY, a Georgia Corporation.
• Court: U.S. District Court — Northern District of Georgia

397 F. Supp. 535

ELDON INDUSTRIES, INC., a California Corporation v. PARADIES AND COMPANY, a Georgia Corporation.

Civ. A. No. 18712.

United States District Court, N. D. Georgia, Atlanta Division.

June 25, 1975.

COPYRIGHT MATERIAL OMITTED

Thomas C. Harney, Kilpatrick, Cody, Rogers, McClatchey & Regenstein, Atlanta, Ga., for plaintiff.

Marvin H. Shoob, Shoob, McLain & Jessee, Atlanta, Ga., for defendant.

ORDER

RICHARD C. FREEMAN, District Judge.

This is an action by plaintiff seller, a California corporation, to recover an alleged debt, owed by defendant, a Georgia corporation, as a result of certain purchases of goods on open account. The action is presently before the court on cross motions for partial summary judgment. These motions relate primarily to the sufficiency of defendant's purported accord and satisfaction defense. As noted in an order entered in this action on March 28, 1975, an important preliminary question concerns the issue of whether California law or Georgia law should govern the accord and satisfaction defense. The parties have submitted supplemental briefs on this latter question; therefore the issues raised by the cross motions for summary judgment are now ripe for decision.

The accord and satisfaction, if any, in this action is predicated on partial payments for certain items listed on the account by means of checks mailed to plaintiff, endorsed, and deposited in California. These checks contain the following wording: "Payee by Endorsement Acknowledges Receipt in Full as Per Statement Below Detached by Payee." There is no dispute that these checks only covered certain of the items purchased by defendant; therefore the instant motions only seek partial summary judgment. Plaintiff seeks summary judgment in its behalf because of the following legal contention: "An accord and satisfaction effectuated by the cashing of a check cannot be used to settle certain credits in an open account which otherwise continues to remain open." Plaintiff argues that California law and Georgia law support this proposition; however defendant, relying on Georgia law, contends otherwise. If Georgia law and California law are identical on this issue, this is a case involving a "false conflict" and it makes no difference which law is applied. In effect, plaintiff espouses this contention. On the other hand, plaintiff argues that the law to be applied is California law, overlooking the proposition that a finding of a "false conflict" generally results in application of the lex fori. See W. Reese and M. Rosenberg, Cases and Materials on Conflict of Laws 524-25 (6th ed. 1971). In the prior order, this court concluded that it would avoid this type analysis, noting that better practice requires that this court make a preliminary determination, under conflict of laws rules applied by the Georgia courts, of whether Georgia or California law should govern the transaction. After reviewing the supplemental briefs on this issue, the court has concluded that Georgia law should govern all aspects of this case.

There are two alternative rules which may be applied in this case. Plaintiff argues that the traditional rule of lex loci contractus should control. See Cox v. Adams, 2 Ga. 158 (1847). Under that rule, plaintiff contends that California law should apply, since California is the place where the last act essential to execution of the contract of accord and satisfaction, endorsement of the checks, was performed. See Peretzman v. Borochoff, 58 Ga.App. 838, 200 S.E. 331 (1938). Plaintiff relies on Delta Air Lines, Inc. v. McDonnell Douglas Corp., 350 F.Supp. 738 (N.D. Ga.1972), in support of its contention that the lex loci contractus rule remains viable in Georgia; however, in that case, the court applied California law "not only because the contract was made and performed in California, but also because the parties specifically agreed in the contract that California law would control." Id. at 742-43. Furthermore, as noted in this court's prior order, a recent Georgia case specifically held that "the general conflicts rule expressed by prior statute and case law with regard to contracts has been repealed." Allen v. Smith & Medford, Inc., 129 Ga.App. 538, 544, 199 S.E.2d 876 (1973) (on rehearing). Although the Allen case left open the question of which conflicts rule might govern actions not involving Georgia securities laws, id. at 542, 544, 199 S.E.2d 876, 881, the strong implication in that case is that the Georgia courts will now generally adhere to the "grouping of contracts" theories expressed in the Restatement (Second) of Conflicts § 188 (1971). This approach, also called the "center of gravity" approach, has in effect been adopted in actions controlled by the provisions of the Uniform Commercial Code, see Ga.Code Ann. § 109A-1-105; Annot., 63 A.L.R.3d 341 (1975), and has also been approved by this court. See Ray v. National Inventory Control Systems, Inc., Civil Action No. 18630 (N.D.Ga. Feb. 20, 1975). As a result, the appropriate question is whether, pursuant to the center of gravity approach, California or Georgia law should govern this transaction.

Relevant portions of the Restatement set out the following five factors which should be taken into account in applying the center of gravity approach:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.

Restatement (Second) of Conflicts § 188(2) (1971). This court agrees with plaintiff that in the circumstances of this case application of these factors to the alleged accord and satisfaction serves little purpose; however it does not follow that the court must therefore apply the lex loci contractus — last act doctrine and rule on the validity of defendant's accord and satisfaction defense under California law. Moreover, this court does not agree that validation of the intent of the parties and protection of the interest of certainty, predictability and uniformity of result also compel application of California law. On the contrary, in cases involving purported contracts of accord and satisfaction, where the factors otherwise applicable in determining a choice of law question are in balance, it seems patently reasonable to rule that the law governing the underlying contract should also govern the contract of accord and satisfaction. In reaching this conclusion, the court recognizes that under common law and Georgia law principles, a contract of accord and satisfaction is a separate contract, see Ga.Code § 20-1201; but this fact does not compel a finding that one conflicts rule should be applied to the underlying contract and another to the contract of accord and satisfaction. As noted in the prior order, the same center of gravity approach may be applied to both contracts. See Restatement (Second) of Conflicts § 212(2) (1971). Arguably, under some circumstances, applying the center of gravity approach might result in applying one state's law to the accord and satisfaction contract and another state's law to the underlying contract; but it is evident that those circumstances should be limited to those cases where the parties clearly intended such a result. Any other rule would frustrate the parties' expectations, to the detriment of predictability and certainty of commercial transactions. The anomaly presented by such an approach is aptly illustrated by this case, in which plaintiff might seek to apply California law to invalidate the purported contract of accord and satisfaction and Georgia law to validate the underlying contract.

Plaintiff has not expressed its views regarding which law should govern the underlying contract, probably in recognition that Georgia law controls. As pointed out in defendant's brief, and undisputed by plaintiff,¹ the underlying contract was executed in Georgia, by plaintiff's sales agent located in Georgia; the merchandise forming the basis for the contract was delivered to defendant in Georgia; and that merchandise is presently stored in a Georgia warehouse. The only contacts with the state of California were the mailing of the checks and the deposit of those checks in plaintiff's California bank. As pointed out by defendant, plaintiff might just as well have maintained its financial center in Atlanta or Chicago, or for that matter, in a foreign country. As a result, this court agrees that the endorsement and deposit of the checks in California is a purely fortuitous circumstance which should not operate to require what is in essence a Georgia commercial transaction to be governed by California law. Under these circumstances, the fact that California may have been the place of execution of the contract of accord and satisfaction, standing alone, is simply not enough to warrant application of California law to this Georgia transaction.² As a result, the question for resolution is whether under Georgia law, the transactions in issue constituted a partial accord and satisfaction of the purported debt.

Turning first to plaintiff's motion for partial summary judgment, it should be noted that since this motion is predicated solely on the legal contention that "certain credits" on an open account may not be discharged by an accord and satisfaction, this motion may more properly have been brought as a motion to strike the accord and satisfaction defense. See Rule 12(f), Fed.R. Civ.P. In any event, plaintiff's legal contention is incorrect. It is true that "every payment upon an account does not amount to an accord and satisfaction of the whole account," American Associated Companies, Inc. v. Vaughan, 213 Ga. 119, 121, 97 S.E.2d 144, 146 (1957); however, it is equally true that where a check is tendered, accepted, and cashed in full settlement of the account, the debt evidenced by that account is discharged:

In Georgia,

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