Klaxon Company v. Stentor Electric Manufacturing Co., Inc.

313 U.S. 487 (1941)

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Nature of the Case

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Facts

In 1918, P, a New York corporation, transferred its entire business to D, a Delaware corporation. D agreed to use its best efforts to further the manufacture and sale of certain patented devices covered by the agreement, and P was to have a share of D's profits. The agreement was executed in New York, the assets were transferred there, and D began performance there although later it moved its operations to other states. P was voluntarily dissolved under New York law in 1919. Ten years later P alleged that D had failed to perform its agreement to use its best efforts. Jurisdiction rested on diversity of citizenship. P recovered a jury verdict of $100,000 in 1939. P then moved to correct the judgment by adding interest 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 § 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.' The 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. The Circuit Court of Appeals affirmed. It concluded that § 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 matters of substance which should be settled by reference to the law of the appropriate state according to the type of case being tried in the forum. The measure of damages for breach of a contract is determined by the law of the place of performance; Restatement, Conflict of Laws § 413.' The court referred also to § 418 of the Restatement, which makes interest part of the damages to be determined by the law of the place of performance. D appealed.