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ASSOCIATED METALS & MINERALS CORP. v. SHARON STEEL

April 27, 1983

ASSOCIATED METALS & MINERALS CORPORATION, Plaintiff, against SHARON STEEL CORPORATION, Defendant.


The opinion of the court was delivered by: MOTLEY

MOTLEY, C.J.

This is an action for damages arising from a breach of contract. Plaintiff Associated Metals and Minerals Corporation (Associated) is a New York corporation. Defendant Sharon Steel Corporation (Sharon) is incorporated in the state of Pennsylvania. This court has jurisdiction of the subject matter pursuant to 28 U.S.C. § 1332. The personal jurisdiction of this court over Sharon is not contested.

 This case is now before the court on cross-motions for summary judgment. Sharon moves for partial summary judgment to the extent the Associated's damage claim is for interest on late contractual payments at a rate in excess of six per cent per annum. Associated cross-moves for summary judgment to the full extent of its claimed damages, or in the alternative for a partial award of damages at the rate of six percent, subject to a greater damage award after trial of the action. For the reasons stated below, Sharon's motion is granted, and Associated's motion is granted in part.

 The material facts underlying this action are undisputed. The case involves two contracts for the purchase and sale of steel slabs. On or about March 30, 1981, the parties entered into an agreement for the sale by Associated to Sharon of steel slabs of a net weight of 15,000 metric tons. A second agreement was entered into on or about July 7, 1981, for the same quantity of steel, on the same terms. The two agreements were momorialized in purchase orders. *fn1"

 The steel slabs purchased to the two contracts were to be delivered to Sharon in separate shipments, with payment by Sharon required within fifteen days of receipt of each shipment. The contracts contained no provision for interest on late payments. The combined purchase price of the 30,000 metric tons of steel slabs under the two contracts was approximately $7,380,000.00.

 All of the steel was delivered and accepted. Sharon made many of its payments more than fifteen days after it had received the shipment of steel slabs. The total purchase price was, however, eventually paid by Sharon.

 In addition, Associated contends that it had contracted to acquire the steel slabs for sale to Sharon from a Norweigan producer. According to Associated, it financed these acquisitions with an irrevocable letter of credit drawn in Norway. Associated claims that Sharon was aware of these arrangements. This Sharon denies.

 Associated brought suit in this court after the completion of all shipments under the contracts, and after Sharon had paid the contractual purchase price, seeking damages in the form of interest on Sharon's late payments. Associated claims to have been damaged by Sharon's failure to timely meet its contractual obligations in that Associated incurred additional financing charges. Associated seeks to recover $103,955.78, representing interest on the late payments at prime rates ranging from 15.75% to 20.50%. *fn2"

 Discussion

 I. Choice of Law:

 State law governs the substantive aspects of actions in diversity in the federal courts. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 82 L. Ed. 1188, 58 S. Ct. 817, reh'g denied, 305 U.S. 673, 83 L. Ed. 436, 59 S. Ct. 229 (1938).To determine which state's law is to be applied, the federal court must look to the choice of law rule of its forum state. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). This court must therefore look to the choice of law rules of the state of New York to determine the governing state law in this action.

 New York courts will honor a choice of law provision in a sales contract as long as the transaction bears a "reasonable relationship" to the state whose law is chosen. N.Y. U.C.C. § 1-105(1) (McKinney Supp. 1982-1983). See also Fleischmann Distilling Corp. v. Distillers Co. Ltd., 395 F. Supp. 221, 229 (S.D.N.Y. 1975). Here, both purchase orders contain a choice of law provision stating that they are to be governed by Pennsylvania law. *fn3" The purchase orders indicate that the steel slabs were to be delivered FOB in Pennsylvania. *fn4" It is also undisputed that the material was to be used by Sharon at its Ferrell, Pennsylvania facility. *fn5" The court concludes that the transaction bears a reasonable relationship to Pennsylvania. Hence, it is to Pennsylvania law that the court must turn in considering the instant motions.

 II. The Uniform Commercial Code

 Since the contracts at issue are for the purchase and sale of goods, the court turns first to Article 2 of the Uniform ...


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