Stentor Electric Mfg. Co. v. Klaxon Co.

• Decision Date: 09 February 1942
• Docket Number: No. 7398.,7398.
• Parties: STENTOR ELECTRIC MFG. CO., Inc., v. KLAXON CO.
• Court: U.S. Court of Appeals — Third Circuit

125 F.2d 820 (1942)

STENTOR ELECTRIC MFG. CO., Inc., v. KLAXON CO.

No. 7398.

Circuit Court of Appeals, Third Circuit.

Reargued December 5, 1941.

Decided February 9, 1942.

John Thomas Smith, of New York City, and James D. Carpenter, Jr., of Jersey City, N. J. (Henry M. Hogan and Robert H. Spreen, both of New York City, and Kevin McInerney, of Rochester, N. Y., on the brief), for appellant.

E. Ennalls Berl, Paul Leahy, and Southerland, Berl, Potter & Leahy, all of Wilmington, Del. (Murray C. Bernays and Abraham Friedman, both of New York City, on the brief), for appellee.

Before MARIS, JONES, and GOODRICH, Circuit Judges.

GOODRICH, Circuit Judge.

The litigation between these parties was originally tried in the District Court for the District of Delaware where judgment was given for the plaintiff. 1939, 30 F. Supp. 425. That judgment was affirmed in this court. 3 Cir., 1940, 115 F.2d 268. The Supreme Court allowed certiorari on one point only: whether a provision of the New York Civil Practice Act regarding moratory interest is applicable to an action in the Federal District Court for Delaware. 1941, 312 U.S. 674, 61 S.Ct. 734, 85 L.Ed. 1115. The decision of the Supreme Court remanded the case to this court for decision in conformity with the law of Delaware, 1941, 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477. The basis of the remand was that, following the principle expressed in Erie R. R. Co. v. Tompkins, 1938, 304 U.S. 64, 58 S.Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487, a Federal court, in diversity of citizenship cases, is to follow the conflict of laws rules of the state in which it sits. "The conflict of laws rules to be applied by the federal court in Delaware must conform to those prevailing in Delaware's state courts." The portion of the litigation which is to receive further consideration by us upon the remand is a narrow one. It has to do solely with the question whether, under the rules of conflict of laws prevailing in the Delaware courts, reference was properly made to the New York statute providing for interest in actions for breach of contract.¹ The other points of dispute involved in the action are settled by the former decision of this court and the Supreme Court's limitation of review to the one point mentioned.

Although neither of the parties to this litigation could be expected to admit it categorically, it is clear after an extended search that there is no square Delaware authority which holds that in a suit in Delaware on a contract made and performable elsewhere, the Delaware court will refer to the law of the place of performance to determine whether interest as damages is recoverable and, if so, at what rate. The plaintiff cites cases like Maberry & Pollard v. Shisler, 1833, 1 Har., Del., 349; Mackenzie Oil Co. v. Omar Oil & Gas Co., 1929, 4 W.W.Harr. 435, 34 Del. 435, 458, 459, 154 A. 883; and Phœnix Oil Co. v. Mackenzie Oil Co., 1930, 4 W.W.Harr. 460, 34 Del. 460, 479, 480, 154 A. 894. Such cases show that Delaware courts in following the general conflict of laws rule look to the place of contracting to determine the validity of a contract. They are relevant for our purpose to the extent only of showing that the courts of Delaware follow, as would be expected, the general rules of the conflict of laws.

Then both parties have cited Canadian Industrial Alcohol Co. v. Nelson, 1936, 8 W.W.Harr. 26, 38 Del. 26, 58, 188 A. 39, 53. This was a suit in Delaware to recover damages for breach of an agreement to pay a commission. The court, in discussing the measure of damages, said that "* * * the obligation to pay damages for the nonperformance of a contract is a matter of substantive right, imposed by the law as a substitute for performance, and should, therefore, be measured by the law of the place where such performance was promised". This does not settle automatically the question of the instant case. But it does indicate Delaware acceptance of the prevailing view that the measure of damages is a matter of substance and that a Delaware court should refer it, in a contract case, to the law of the place of performance of the contract.

The next question is whether Delaware decisions have set down a different rule where the problem involved is interest given as damages (moratory interest). Here must be kept in mind the obvious but important point that we are not dealing with the allowance of interest or rate of interest as an express or implied term of a contract, but an obligation to pay interest "in the nature of damages for the delay in payment".² Barstow v. Thatcher, 3 Houst., Del., 32 is cited by the plaintiff for the proposition that the rate of interest is governed by the lex loci. The report of the case is not very helpful; it was a nisi prius case. The reporter gives a statement of facts, a summary of argument of counsel and of the judge's charge. The last sentence of the latter says: "As to the rate of the interest, if the contract was made in New York, it should be seven, but if in this state, it should be six per cent. only." From the context it appears likely that a moratory interest problem was involved. There was no problem of separate places of contracting and of performance, so far as appears from the facts. For whatever authority it has, the case may be taken as indicating that the Delaware view is that the rate of moratory interest is determined by the law of the place of payment.³

The defendant, on the other hand, makes the broad claim that the Delaware courts classify moratory interest as procedural and apply the Delaware internal law. Careful reading of the authorities cited leaves us with a conclusion far short of this statement. The argument begins with the case of Stockton's Adm'r v. Guthrie, 1849, 5 Har., Del., 204. What the case decided was that interest could be recovered as a matter of right whenever the principal sum is payable by contract on a day certain. The court did say, as the defendant quotes, "that the allowance of interest is in general a rule of practice". But it is certainly clear from a reading of the opinion that the judge writing it was not making any characterization of interest as substance or procedure for a conflict of laws case. Jacobs v. Murray, 1921, 1 W. W.Harr, 209, 31 Del. 209, 113 A. 803, was a suit upon a demand note made in New York. Defendant had paid an amount equal to the principal sum in various installments. The question was whether the plaintiff could have interest in addition. The court said that interest was recoverable as a matter of right and allowed it. There was no discussion of any other law but the internal law of Delaware. There is no indication in the report, however, that either court or counsel had considered the possibility of the application of any other than the Delaware rule to the facts. Delaware state courts do not take judicial note of the law of other states.⁴ The only relevancy of this decision, then, to the facts in controversy here is for its possible negative support of the rule urged by the defendant. Such support is so weak as to be almost trifling.

Then the defendants urge the litigation subsequent to the decision on the main points in the case of Nelson v. Canadian Industrial Alcohol Co., 1937, 8 W.W.Harr. 165, 38 Del. 165, 189 A. 591. They say that if the New York statute would be applied by Delaware courts, the plaintiff was entitled to have it applied in this case just as much as in the case at bar. In the main litigation there is nothing to indicate that anybody ever thought of the New York statute. Defense counsel for Klaxon informed us that it was cited by counsel to the Delaware court in the concluding chapters of the Nelson litigation. Following the recovery of judgment for the plaintiff, the defendant had paid the judgment and costs and interest from the date of the judgment. The plaintiff refused to give formal satisfaction of the judgment unless the defendant paid, also, interest from the date of the verdict to the date of the judgment. Thereupon, the defendant petitioned to secure a rule on the plaintiff to show cause why the judgment should not be satisfied of record and the court ordered the judgment so satisfied. It is to be observed that plaintiff had recovered his judgment. He had not asked to have it amended or reformed, but had simply refused to give a satisfaction piece until he got some more money. Judge Rodney said in the Delaware Supreme Court's affirmance of the case: "The question before the Court was the amount due on the judgment as entered, and not the determination of a different amount to which the plaintiff might consider himself entitled."⁵ Our conclusion is that there is nothing in this second Nelson case which bears on the problem in the instant litigation.

We find nothing in the Delaware cases, therefore, which even tends to establish the proposition that in a conflict of laws case the Delaware courts classify recovery of moratory interest as a procedural problem and look to the internal law. Nor do we find it clearly established that Delaware courts regard moratory interest as substantive and refer the matter to the law of the place of performance of the contract.

What is a federal court to do, then, when the question before it is a matter of state law and there is found no conclusive authority in the state decisions upon the point? Both of the parties urge upon the court the ascertainment of the state law "from all the available data".⁶ We accept that admonition completely and follow it. Among the items of data available is the approach of the Delaware Supreme Court to this kind of problem in the Nelson case. The court accepted the legal theory of the measure of damages as a matter of substance and that reference will be made to the appropriate foreign law. That law the court held was the law of the place of performance. It did not have previously decided Delaware cases to settle the point. It examined and cited cases from other states, three...