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CRONEL WATCH, S.A. v. PETERSON STATE BANK

March 7, 1983

CRONEL WATCH, S.A., A SWISS CORPORATION, AND ENZO WATCH, S.A., A SWISS CORPORATION, AS ASSIGNEES OF MAX JEKER JEMAB, PLAINTIFFS,
v.
THE PETERSON STATE BANK, AN ILLINOIS BANKING CORPORATION, J.E. BERNARD & CO., AN ILLINOIS CORPORATION, KARL SCHROFF & ASSOCIATES, INC., A NEW YORK CORPORATION, AND LEONARD M. SPIRA, AS ASSIGNEE FOR BENEFIT OF CREDITORS OF MERCANTILE PRODUCTS CO., INC., AN ILLINOIS CORPORATION, NOW DISSOLVED, AND WARREN WINKLER, INDIVIDUALLY, DEFENDANTS.



The opinion of the court was delivered by: Moran, District Judge.

MEMORANDUM AND ORDER

Plaintiffs Cronel Watch and Enzo Watch (hereinafter collectively referred to as "Cronel"), bring this action as assignees of Max Jeker ("Jeker") to recover money owed on the sale of Swiss watches and watch movements by Jeker to Mercantile Products Co., Inc. ("Mercantile"), an Illinois corporation which is now dissolved. The specific basis for this lawsuit was discussed by the court in its Memorandum and Order dated November 19, 1981.*fn1 Briefly, the watches were received by defendant J.E. Bernard & Co., Inc. ("Bernard"), an Illinois-licensed custom broker. Bernard was then to forward the shipments to the Peterson Bank, which would hold the goods for Mercantile pending payment in Swiss francs to Jeker. The use of the bank as an intermediary was insisted on by Jeker because he had previously encountered difficulty in securing payment from Mercantile. As this court determined in that earlier opinion, the evidence procured through discovery revealed that Bernard, rather than delivering the watches to Peterson, turned them over directly to Mercantile. Mercantile failed to settle its account with Jeker, and this lawsuit followed.

Currently pending before the court is defendant Bernard's pretrial motion to determine the measure of damages and to decide whether Bernard is liable for any prejudgment interest.

I. Measurement of Damages

It is well settled that a money judgment by a court in the United States must be expressed in terms of American currency. Bronson v. Rodes, 74 U.S. 229, 7 Wall. 229, 19 L.Ed. 141 (1868); Shaw, Savill, Albion & Co., Ltd. v. The Fredericksburg, 189 F.2d 952, 954-55 (2d Cir. 1951). The problem arises when the ascertainment of damages requires a court to

  take account of two or more media of exchange which
  are fluctuating with respect to each other. . . . In
  [such] cases it may become necessary to decide what
  date should be adopted for the conversion of the
  foreign money. Among the possible dates which have
  been suggested are breach date, i.e., date when the
  cause of action accrued, date of commencement of the
  action, date of trial, date of verdict or judgment,
  date at which the judgment is paid or execution
  levied thereon, and that date within a reasonable
  time after breach on which the rate was most
  favorable to the plaintiff. The only two of these
  alternatives that have been seriously considered by
  the courts are the date of breach and the date of
  judgment or verdict.

40 Harv.L.Rev. 619, 619-20 (1927) (footnotes omitted).

The choice of date for conversion of money — it is assumed for the purposes of this motion that Bernard is liable for conversion — can have profound effects on the amount awarded. In this case the substantial decline in the dollar relative to the Swiss franc since 1974 makes the question much more than of academic concern. In part, that decline may be due to inflation, the inevitable consequence of which is that any person called upon to pay a past liability with current dollars is economically benefitted and the creditor bears the loss from the decline in value. In part, that decline may be due to international or foreign domestic monetary factors, with the consequence that payment of a past liability with current dollars does not benefit the debtor and may cause harm to the creditor, although even that is uncertain in the absence of any information respecting changes in the domestic purchasing power of the Swiss franc. Since payment will, in any event, be in current dollars, the economic impact depends when the liability is valued. For obvious reasons, then, defendant urges this court to convert the value of the watches from Swiss francs to dollars, utilizing the exchange rate existing on the date of the alleged conversion. Plaintiffs contend that only application of the current exchange rate would restore Cronel to the position it would have been in but for the wrongful conduct of Bernard.

Defendant lodges two arguments in support of its position. First, Bernard maintains that since it was not a party to the contract of sale between Jeker and Mercantile, there is no obligation for Bernard to pay in Swiss francs. Accordingly, Bernard's liability should be measured, like any other tort-feasor who converts property in Illinois, as the dollar value of the property at the time and place of conversion. Assuming, however, that Bernard was connected with the contractual obligation to pay in Swiss francs, then established case law requires that the computation of foreign currency to U.S. dollars be based on the exchange rate at the time the conversion took place.

Plaintiff, on the other hand, relying on the "fundamental concept" underlying the measure of compensatory damages, argues that courts should utilize a flexible approach in choosing the exchange rate so as to make the injured party whole. In some cases this requires utilizing the exchange rate prevailing on the date of the wrong; in other cases the exchange rate at the time of judgment is appropriate. Here plaintiff contends that the "judgment date" rule best restores Cronel to the position it would have occupied had the tortious conduct not occurred.

This is a diversity case. The claim against Bernard is one for conversion in Illinois. Bernard is not a party to the contract to pay in Swiss francs, and the mere existence of such an agreement does not govern the proper determination of damages.*fn2 Cf. First National Bank of Mount Prospect v. York, 27 Ill. App.3d 614, 327 N.E.2d 400, 402 (1st Dist. 1975). Rather, relief should be determined in accordance with the general rule applied in Illinois for trover and conversion actions. The measure of damages is the market value of the property at the time and place of conversion, plus legal interest. Jensen v. Chicago & Western Indiana R. Co., 94 Ill. App.3d 915, 50 Ill.Dec. 470, 485, 419 N.E.2d 578, 593 (1st Dist. 1981); Henkel v. Pontiac Farmers Grain Co., 55 Ill. App.3d 898, 13 Ill.Dec. 635, 371 N.E.2d 352 (4th Dist. 1977). The mere fact that plaintiffs are Swiss citizens, and that they hoped for a set payment in Swiss francs, does not justify deviating from this general rule. Cf. Charles Selon & Assoc. v. Aisenberg, 103 Ill. App.3d 797, 59 Ill.Dec. 457, 431 N.E.2d 1214, 1217 (1st Dist. 1981) (the fact that the property converted was gold, whose value fluctuates significantly over time, does not render inapplicable the rule in Illinois that damages are determined as of the date of conversion).

Assuming arguendo that the contract price in Swiss francs was conclusive as to damages, moreover, the result would not be significantly changed. Determination of the judgment in terms of United States currency would require using the exchange rate in existence on the date of the alleged conversion.

Although the issue most often arises in the context of a breach of contract, the principles governing recovery for tortious conduct are analogous. See Shaw, Savill, Albion & Co., Ltd. v. The Fredericksburg, 189 F.2d 952, 955 (2d Cir. 1951). When faced with this question, the courts have responded in a virtually unanimous fashion. Where a tort occurs in the forum state,*fn3 but damages must be assessed in terms of foreign money, the rate of exchange existing on the date the cause of action arose should prevail. 40 Harv.L.Rev. 619, 625 (1927), and cases cited therein. See The Verdi, 268 F. 908 (S.D.N.Y. 1920). Cf. Hicks v. Guinness, 269 U.S. 71, 46 S.Ct. 46, 70 L.Ed. 168 (1925); Compania Engraw Commercial E. Industrial S.A. v. Schenley Distillers, Corp., 181 F.2d 876 (9th Cir. 1950); Simonoff v. Bank, 279 Ill. 248, 116 N.E. 636 (1917).

Cronell responds that it is merely "fortuitous" that courts chose a breach-day rule, and that judges simply selected the date which would ensure the injured party the higher dollar amount. This contention is not supported by the decisions they cite. While, in the past, the rate of exchange prevailing at the date of breach did predominantly favor the plaintiff, this fact does not appear to be a significant reason for the court's choice of a breach-date rule. For example, in one case relied upon by Cronel, the court held that the judgment in American dollars was computable at ...


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