Klaxon Co. v. Stentor Electric Manufacturing Co.

Facts

Plaintiff, Stentor Electric Manufacturing Co. (Stentor), was a New York corporation and Defendant, Klaxon Co. (Klaxon), was a Delaware corporation. In 1918, Stentor entered into an agreement with Klaxon that transferred its business in certain patented devices to Klaxon. The parties agreed that Klaxon was to use its best efforts to manufacture and sell the devices covered by the agreement, and Stentor was to receive a share of the profits. The agreement was executed in New York, the assets were transferred in New York, and Klaxon began performance in New York. In 1919, Stentor was voluntarily dissolved under New York law.

In 1929, Stentor brought suit against Klaxon in the U.S. District Court for the District of Delaware for breach of contract, alleging that Klaxon failed to use its best efforts. Jurisdiction was based upon diversity of citizenship. In 1939, Stentor recovered a jury verdict of $100,000. Stentor then moved to correct the judgment to add interest at the rate of 6% from the date the action had been brought. The basis of this motion was a New York state law. The District Court granted the motion, stating that the rights of the parties were governed by New York law, and the addition of interest was mandatory according to New York state law. The Circuit Court of Appeals affirmed. The U.S. Supreme Court granted Klaxon’s petition for certiorari.