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.
If the rights of the parties are controlled by the un-written or Common Law, we find that the courts often repeat that " there is no Common Law of the United States in the sense of a national customary law distinct from the Common Law of England as adopted by the several states each for itself, applied as its local law, and subject to such alteration as may be provided by its own statutes."1 While this rule might seem to indicate that the federal courts follow the state decisions, it is to be qualified by the proposition that " a determination in a particular case of what that law (i. e., that of a given state) is may be different in a court of the United States from that which prevails in the judicial tribunals of a particular state."2 The courts of the United States thus recognize the existence of a general law, uniform throughout the United States, based on state law as expressed in the decisions of state courts, but a law which the United States courts are building up for themselves. If a case involving a question of this general law comes before the federal courts for adjudication they will give great weight to the decisions of courts of the state whose law controls,3 but will not follow these decisions if contrary to the view of the federal courts as to what that general law is.4 As applied to contracts, Commercial Law is the chief example of that law general in its nature, upon which the decisions of the state courts are not controlling.5 In the leading case on this point,6 the Supreme Court of the United States said that the rule that federal courts should follow decisions of state courts "does not extend to contracts and other instruments of a commercial nature, the true interpretation and effect whereof are to be sought, not in the decisions of the local tribunals, but in the general principles and doctrines of commercial jurisprudence. Undoubtedly, the decisions of the local tribunals upon this subject are entitled to, and will receive, the most deliberate attention and respect of this court, but they cannot furnish positive rules, or conclusive authority, by which our own judgments are to be bound up and governed." Examples of this principle are found in cases involving negotiable instruments.7 The New York courts held that one who took a negotiable instrument in payment of a pre-existing debt could not be a bona fide holder.8 In a case arising in New York, the United States courts refused to follow the New York decisions and held that such a holder might be bona fide.9 The same principle applies to contracts of common carriers. The New York courts held that a carrier may by contract relieve himself from liability even for his own negligence.10 In a case arising in New York the federal courts held that such a provision in a drover's pass was invalid.11 Policies of insurance, if not controlled by state statutes, belong in this class.12 The Massachusetts courts held that insurers were liable on memorandum articles, even if there was not a total loss.13 The federal courts refused to follow this rule in a Massachusetts contract, holding that there could be no recovery except for a total loss.14 In view of this mass of federal authority, and of the fact that the federal courts are beyond the control of the state courts in their own peculiar jurisdiction, it is vain for an indignant state court to declare that "general Commercial Law " is "mythical,"15 though it may of course refuse, in deciding cases within its own exclusive jurisdiction, to recognize or enforce such general Commercial Law. It is to be regretted that on so many important and oft-recurring subjects the rights of the parties depend upon the accident, remote from the merits of the case, of whether they can bring their case before the federal courts, or whether they must abide by the decisions of the state courts.
6 Loel v. Columbia Township, 179 U. S. 472.
7 Great Southern, etc., Co. v. Jones, 193 U. S. 532. To the same effect, see Folsom v. Ninety-Six, 159 U. S. 611.
8 Great Southern, etc., Co. v. Jones, 193 U. S. 532, 546.
9 Wilkes County v. Coler, 180 U. S. 506; Post v. Supervisors, 105 U. S 667; (Town of) South Ottawa v. Perkins, 94 U. S. 260.
1 Summary of holding in Wheaton v. Peters, 8 Pet. (U. S.) 591, made in Smith v. Alabama, 124 U. S. 465, 478; and quoted in Western Union Telegraph Co. v. Publishing Co.. 181 U. S. 92, 101.
2 Smith v. Alabama, 124 U. S. 465 (478) ; quoted in Western Union Telegraph Co. v. Publishing Co., 181 U. S. 92, 101.
3 Farmers' National Bank v. Mfg. Co., 52 Fed. 191; 17 L. R. A. 595.
4 R. R. v. Lockwood, 17 Wall. (U. S.) 357; Swift v. Tyson, 16 Pet. 1; Hudson Furniture Co. v. Harding, 70 Fed. 468; 30 L. R. A. 513; Farmers' National Bank v. Mfg. Co., 52 Fed. 191; 17 L. R. A. 595.
5 Hudson Furniture Co. v. Harding, 70 Fed. 468; 30 L. E. A. 513. "On a question of general commercial law, the Federal courts administering justice in New York have equal and co-ordinate jurisdiction with the courts of that state." R. R. v. Lockwood, 17 Wall. (U. S.) 357, 367, 368.
6 Swift v. Tyson, 16 Pet. (U. S.) 1, 19.
7 Hudson Furniture Co. v. Harding, 70 Fed. 468; 30 L. R. A. 513; Farmers' National Bank v. Mfg. Co., 52 Fed. 191; 17 L. R. A. 595.
8 Payne v. Cutler, 13 Wend. (N. Y.) 605; Ontario Bank v. Worth-ington, 12 Wend. (NY.) 593; Roosa v. Brotherson, 10 Wend. (N. Y.) 86.
9 Swift v. Tyson, 16 Pet. (U. S.) 1.
10 Persons traveling on drovers' passes. Poueher v. R. R., 49 N. Y. 263; 10 Am. Rep. 364; Bissell v. R. R., 25 N. Y. 442; 82 Am. Dec. 369; (reversing 29 Barb. (N. Y.) 602); Smith v. R. R., 24 N. Y. 222; affirming 29 Barb. (N. Y.) 132.
11 R. R. v. Lockwood, 17 Wall. (U. S.) 357.
12 The policy was a Massachusetts contract, it is true, but its construction depended upon questions of general commercial law, in 165 respect of which the courts of. the United States are at liberty to exercise their own judgment and are not bound to accept the state decisions as in matters of purely local law." Washburn, etc., Co. v. Ins. Co.. 179 U. S. 1. 15.
13 Mayo v. Ins. Co., 152 Mass. 172; 23 Am. St. Rep. 814; 9 L. R. A. 831; 25 N. E. 80; Kettell v. Ins. Co., 10 Gray (Mass.) 144.
14 Washburn, etc., Co. v. Ins. Co., 179 U. S. 1.
15 Forepaugh v. Ry., 128 Pa. St. 217; 15 Am. St. Rep. 672; 5 L. R. A. 508; 18 Atl. 503.