## Facts

- Good Hope Chemical Corporation, through its agent M.W. Kellogg Co., contracted with Koerver & Lersch (a West German manufacturer) to build specially fabricated heat exchangers for an ammonia plant in Texas.
- Contract formation and later modifications occurred through telex communications between the United States and West Germany.
- Koerver & Lersch expressly conditioned acceptance on pricing and payment in German marks; any dollar figures were for comparison only.
- The agreement contemplated installment payments and shipment terms, but Good Hope made no payments.
- After Koerver & Lersch substantially completed the exchangers, Good Hope filed a Chapter XI petition (Oct. 31, 1975).
- The bankruptcy court did not release creditors from their contracts; Koerver & Lersch later resold the exchangers at a discount.
- The parties stipulated to allowance of a claim for a fixed number of German marks equal to the contract price minus resale proceeds.
- The remaining dispute was the exchange-rate date for converting the allowed German-mark claim into U.S. dollars for distribution in the bankruptcy case.

## Issues

1. Whether the contract obligated Good Hope to pay Koerver & Lersch in German marks rather than U.S. dollars.
2. In a federal proceeding where the cause of action arises under American law, whether conversion of a foreign-currency obligation uses the judgment-day exchange rate or the breach-day exchange rate.
3. If the breach-day rule applies in bankruptcy, what event fixes the breach date for an executory contract later rejected in the case.

## Decision

- The First Circuit affirmed that the contract required payment in German marks.
- The court reversed the use of the judgment-day exchange rate and held that the breach-day rule governed because the cause of action arose under American law.
- The court held the operative breach date was May 9, 1980, when the executory contract was formally rejected in the bankruptcy proceedings.
- The case was remanded to recalculate the dollar amount using the May 9, 1980 exchange rate.

## Legal Principles

- A contractual payment term requiring a fixed amount in foreign currency is enforceable when supported by clear communications and consistent course of dealing.
- For conversion of foreign-currency obligations in federal court, the applicable exchange-rate rule turns on where the cause of action arose:
  - If the obligation arises entirely under foreign law, conversion generally uses the judgment-day rate.
  - If, at breach, the plaintiff has a cause of action arising under American law, conversion uses the breach-day rate, fixing the dollar value when liability became complete.
- In bankruptcy, rejection of an executory contract constitutes the breach for purposes of fixing damages; the conversion date may be the actual rejection date when loss becomes definite and compensable.

## Conclusion

The First Circuit held that Good Hope’s obligation was denominated in German marks and that the allowed claim had to be converted to dollars at the breach-day exchange rate, with breach occurring on the date the contract was rejected in bankruptcy (May 9, 1980), not on the later judgment/allowance date.


In re Good Hope Chem. Corp., 747 F.2d 806 (1st Cir. 1984)