This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Analogous to the subject of conflict of laws is the question of the law which controls when a cause of action on a contract arises within a state of the union, and the action is brought before a Federal court, and not before a state court. It is generally said that the law of the state in which the cause of action arose controls.1 This rule, however, both in its wording and in its application by the courts leaves open for discussion the vital question whether this means the law of the state as its own courts pronounce it, or the law of the state as the Federal courts may pronounce it, ignoring the decisions of the state courts. In passing upon this question, the courts distinguish between written and unwritten law. If the rights of the parties are determined by state statute or constitution, the Federal courts follow the construction placed upon such written law by the state courts.2 Thus a railroad company leased land in Iowa by its track by a lease which contained a stipulation releasing the lessor from all liability by reason of fire caused by lessor. The Iowa statute forbade such provision in contracts between carrier and shipper. It was first held that such provision in a lease was invalid,3 but on rehearing, the provision was held to be valid.4 A second rehearing resulted in the same decision as the first rehearing. It was held proper for the Federal court to follow the final decision of the state court.5 It must be noted, however, that the opinion of the court in this last case indicates a very limited range for the operation of state law.6 The decision of a state court of last6 "Questions of public policy as affecting the liability for acts done or upon contracts made and to be performed within one of tbe states of the Union, - when not controlled by the Constitution, laws, or treaties of the United States, or by the principles of the commercial or mercantile law or of general jurisprudence, or national or universal apresort has been held to control as to the meaning of a state statute, prescribing the terms on which foreign insurance companies may do business in the state, and giving the right under certain circumstances, to paid-up policies, extended insurance and the like,7 as to the necessity of demand before commencing suit,8 and as to the effect of the state statute concerning usury.9 The decision of a state court is " at least most persuasive "10 on the question whether under a state statute a trustee of a corporation became liable by reason of a failure to file a report as required by law, upon notes indorsed by the corporation, acting through another officer without the notice of the trustee sought to be held, and for the accommodation of such other officer.11 If, however, the rights of the parties are fixed before the decision of the state court is rendered, " the federal courts will lean towards an agreement of views with the state courts if the question seems to them balanced with doubt;"12 but if the question seems a clear one they " claim the right to adopt their own interpretation of the law applicable to the case, although a different interpretation may be adopted by the state courts after such rights have accrued."13 plication, - are governed by the law of the state as expressed in its own constitution and statutes, or declared by its highest court." Hartford Fire Ins. Co. v. Ry. Co., 175 U. S. 91, 100; affirming 70 Fed. 201; 17 C. C. A. 62; 30 L. R. A. 193.
8 Rice v. Moore, 48 Kan. 590; 30 Am. St. Rep. 318; 16 L. R. A. 198; 30 Pac. 10; Hepler v. Davis, 32 Neb. 556; 29 Am. St. Rep. 457; 13 L. R. A. 565; 49 N. W. 458.
9 Janeway v. Burton, 201 111. 78; 60 X. E. 337; affirming 102 111. App. 403; McCann v. Randall, 147 Mass.
81; 9 Am. St. Rep. 666; 17 X. E. 75.
10 MeCann v. Randall. 147 Mass. 81; 9 Am. St. Rep. 666; 17 X. E. 75.
11 Martin v. Wilson. 120 Fed. 202; 58 C. C. A. 181.
12 Berkley v. Tootle. 163 Mo. 584; 8.3 Am. St. Rep. 587; 63 S. W. 681.
1 Western Union Telegraph Co. v. Publishing Co., 181 U. S. 92; Hartford Fire Ins. Co. v. Ry., 175 U. S. 91; affirming 70 Fed. 201; 17 C. C. A. 62; 30 L. R. A. 193; Wheaton v. Peters, 8 Pet. (U. S.) 591.
2 Hartford Fire Ins. Co. v. Ry., 175 U. S. 91; affirming 70 Fed. 201; 17 C. C. A. 62; 30 L. R. A. 193; Wade v. Travis County, 174 U. S. 499; Sioux City R. R. v. Trust Co., 173 U. S. 99; Williams v. Eggleston, 170 U. S. 304; Bauserman v. Blunt, 147 U. S. 647; Burgess v. Seligman, 107 U. S. 20: Fairfield v. Gallatin County, 100 U. S. 47; Morgan v. Curtenius, 20 How. (U. S.) 1.
3 Griswold v. Ry. (la.), 53 N. W. 295.
4 Griswold v. Ry., 90 la. 265; 24 L. R. A. 647; 57 N. W. 843.
5 Hartford Fire Ins. Co. v. Ry., 175 TJ. S. 91; affirming 70 Fed. 201; 17 C. C. A. 62; 30 L. R. A. 193.
7 New York Life Ins. Co. v. Cravens, 178 U. S. 389; affirming Cravens v. Ins. Co., 148 Mo. 583; 71 Am. St. Rep. 628; 53 L. R. A. 305; 50 S. W. 519.
8 Iowa Life Ins. Co. v. Lewis, 187 U. S. 335.
9 Missouri, etc., Co. v. Krumseig, 172 U. S. 351; Scudder v. Bank. 91 U. S. 406. " Usury is, of course, merely a statutory offense, and Federal courts in dealing with such a question must look to the laws of the state where the transaction took place, and follow the construction put upon such laws by the state courts." Missouri, etc., Co. v. Krumseig, 172 U. S. 351, 355.
10 Park Bank v. Remsen, 158 U. S. 337, 342.
11 Park Bank v. Remsen, 158 U. S. 337 (following Park Bank v. Security Co., 116 N. Y. 281; 5 L. R. A. 673; 22 N. E. 567, in holding that the trustee was not liable).
12 Burgess v. Seligman, 107 U. S. 20, 34.
13 Burgess v. Seligman, 107 U. S. 20, 34. To the same effect, see Stanley County v. Coler, 190 U. S. 437; Barnum v. Okolona, 148 U. S. 393; Pleasant Township v. Ins. Co., 138 U. S. 67; Anderson v. Santa Anna, 116 U. S. 356; Carroll County v. Smith, 111 U. S. 556.