Lexplug logoLexplug

Holzer v. Deutsche Reichsbahn-Gesellschaft

New York Court of Appeals
14 N.E.2d 798, 1938 N.Y. LEXIS 1007, 277 N.Y. 474 (1938)
ELI5:

Rule of Law:

Under the act of state doctrine and principles of comity, a contract made and to be performed in a foreign country is governed by that country's laws, and a party cannot be held liable for breach of contract in a U.S. court if its non-performance was compelled by a sovereign act of that foreign government within its own territory.


Facts:

  • A German national, the plaintiff, had a three-year employment contract with Schenker & Co., a German corporation, for services to be performed in Germany beginning January 1, 1932.
  • The contract included a clause stating that if the plaintiff became "unable, without fault on his part, to serve," the defendants would pay him 120,000 marks.
  • In April 1933, the German government, as part of its policy to eliminate Jewish people from commerce, incarcerated the plaintiff in a concentration camp for approximately six months.
  • Subsequent to the plaintiff's incarceration, the German government promulgated laws requiring the retirement of persons of non-Aryan descent from certain positions.
  • On June 21, 1933, the defendants discharged the plaintiff effective October 31, 1933, stating the sole ground was that he is a Jew, in accordance with German law.

Procedural Posture:

  • The plaintiff sued the defendants in a New York trial court (Special Term), alleging two causes of action for breach of contract.
  • The defendant, Deutsche Reichsbahn-Gesellschaft, asserted a defense that German law compelled its actions.
  • The plaintiff moved to strike this defense as legally insufficient.
  • The Special Term granted the plaintiff's motion, striking the defense.
  • The defendant, as appellant, appealed to the Appellate Division, an intermediate appellate court.
  • The Appellate Division affirmed the trial court's order.
  • The Appellate Division then certified two questions of law to the New York Court of Appeals, the state's highest court, for review.

Locked

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does the act of state doctrine preclude a New York court from holding a German company liable for breach of an employment contract when the termination was compelled by the laws of the German government enacted within its own territory?


Opinions:

Majority - Per Curiam

Yes, as to the wrongful discharge claim; No, as to the separate contractual inability-to-serve claim. The act of state doctrine prevents a New York court from finding a breach of contract where a foreign company's actions were compelled by the laws of its own government. The court reasoned that the law of the place where the contract was made and was to be performed (Germany) governs its terms. Under the act of state doctrine, U.S. courts will not sit in judgment on the sovereign acts of a foreign government committed within its own territory. Because German law forced the defendants to discharge the plaintiff, they did not breach the contract; their performance was excused by operation of law. However, the plaintiff's second claim, based on the specific contractual provision for payment upon 'inability to serve without fault,' survives. Whether the plaintiff's government-mandated imprisonment qualifies under this clause is a question of fact and contract interpretation under German law that must be determined at trial.



Analysis:

This case is a stark application of the act of state doctrine, demonstrating that U.S. courts will defer to the sovereignty of foreign governments even when their laws are repugnant to U.S. public policy. The decision establishes that a government-compelled action can serve as a complete defense to a breach of contract claim under a choice-of-law analysis. It also shows the limits of the doctrine, as it did not bar a separate contractual claim that was triggered by the consequences of the state's act. This ruling reinforces the separation between judicial review of private commercial disputes and judicial interference in the internal political and legal affairs of other nations.

🤖 Gunnerbot:
Query Holzer v. Deutsche Reichsbahn-Gesellschaft (1938) directly. You can ask questions about any aspect of the case. If it's in the case, Gunnerbot will know.
Locked
Subscribe to Lexplug to chat with the Gunnerbot about this case.

Unlock the full brief for Holzer v. Deutsche Reichsbahn-Gesellschaft