CHAPTER XVI. THE SUBSTANTIVE LAW APPLIED BY THE FEDERAL COURTS. 452. The Substantive Law Applied by the Federal Courts to Cases Within Their Exclusive Jurisdiction.— So far as concerns those subjects the control of which is by the Constitution given to the Federal Government, the substantive law applied is found in the statutes of Congress, in the decisions of the Federal Courts, in the general principles of admiralty and international law, and in what is, in the view of the Federal Courts, the common law. 453. Substantive Law Applied by the Federal Courts to Cases in Which Their Jurisdiction is Concurrent With Courts of the States.-There are many cases which can be brought in either a State or a Federal Court. Some of these, if instituted originally in the State Court, may be removed to the Federal; as, for example, those in which Federal questions are involved or in which there is the necessary diversity of citizenship between the parties. 454. Federal Courts Apply State Law. Generally speaking the substantive law applied to such controversies is the same as governs the State Courts of the State in which the Federal Court is sitting. Quite clearly it ought to be so. Most of the transactions which get into Court are entered into subject to the law of some State. Except in very peculiar cases there is no reason why that law should not be applied to the settlement of the controversy, whether the case, if in Baltimore, be tried in the State Court on the west side of Monument Square or in the Federal on the east side. 455. State Statutes Rules of Decision in Common Law Trials in Federal Courts.-Section 34 of the original Judiciary Act provided that "the laws of the several States, except where the Constitution, treaties or statutes of the United States shall otherwise require or provide, shall be regarded as rules of decision in trials at common law in the Courts of the United States in cases where they apply.". This provision now constitutes section 721 of the Revised Statutes. 456. Federal Courts Are Bound by the Construction Given by the Highest Court of the State to Its Constitution and Statutes.-A part of the law of every State is its Constitution and its statutes. There may often be room for difference of opinion as to what particular provisions of either may mean. The interpretation put upon them by the highest Court of the State will be accepted by the Federal Courts as governing all transactions which originated after the announcement of the State Court decision. They will not inquire whether it commends itself to their judgment or not. The reasons for this rule were explained many years ago by CHIEF JUSTICE MARSHALL. He said: "This court has uniformly professed its disposition, in cases depending on the laws of a particular State, to adopt the construction which the courts of the State have given to those laws. This course is founded on the principle, supposed to be universally recognized, that the judicial department of every government, where such department exists, is the appropriate organ for construing the legislative acts of that government. Thus, no court in the universe, which professed to be governed by principle, would, we presume, undertake to say, that the courts of Great Britain, or of France, or of any other nation, had misunderstood their own statutes, and therefore erect itself into a tribunal which should correct such misunderstanding. We receive the construction given by the courts of the nation, as the true sense of the law, and feel ourselves no more at liberty to depart from that construction, than to depart from the words of the statute. On this principle, the construction given by this court to the Constitution and laws of the United States is received by all as the true construction; and on the same principle, the construction given by the courts of the several States to the leigsiative acts of those States, is received as true, unless they come in conflict with the Constitution, laws or treaties of the United States."1 457. Applicable State Statutes Will Be Enforced By Federal Courts Sitting in Equity Where the Demarcation Between Law and Equity is Not Affected.- The statute has reference to cases at common law only. It does not apply to chancery suits for reasons which have already been fully explained. Nevertheless, Federal Courts sitting as Courts of equity, do administer the statutory law of the State. Its applicable statutes are enforced by a Federal chancellor precisely as they would be in a common law case except where they in somewise affect the line of demarcation between law and equity. A State statute in force at the time of the delivery of a mortgage gave the mortgagor twelve months to redeem after foreclosure sale. It was held that such right could be exercised when the mortgage was foreclosed in a Federal Court.1 458. Section 721 Has Application to Substantive Law and Not to Procedure.-Back in the early twenties there were hard times in Kentucky. Creditors were insistent and were, moreover, not willing to take the notes of State banks in payment. The Legislature provided that if, upon execution, plaintiff would not accept them, the defendant, upon giving a bond, might replevy the property seized and thereby stay further proceedings for two years. It was contended that this statute was applicable to judgments rendered by the Federal Courts in Kentucky. The Supreme Court held that it was not, and pointed out that section 34 of the Judiciary Act, now section 721 of the Revised Statutes, relates solely to rules of decision and has nothing to do with process.1 1 Elmendorf vs. Taylor, 10 Wheat. 152. 1 Brine vs. Insurance Co., 96 U. S. 627. 1 Wayman vs. Southard, 10 Wheat. 1. The real purpose of the 34th section was to recognize a principle of universal law, viz, that in every forum a contract is governed by the law with a view to which it was made. 459. When it is Claimed That the State Has Impaired the Obligation of a Contract the Decisions of the State Courts as to the Construction of a Statu tory or Constitutional Provision Are Not Always Binding on Federal Courts.-Sometimes after a statute or a constitutional provision of a State has received a settled construction from its highest Court, and contracts have been made in reliance thereon, the policy of the State and the decisions of its Courts change. Under such circumstances the Supreme Court has sometimes held that the later construction by the State Court was itself a part of the State action and impaired the obligation of the contracts. Thus, for example the Supreme Court of Iowa had in a number of decisions delivered between 1853 and 1859 upheld the right of municipalities of that State to issue bonds in aid of railroad enterprises. In 1857 the City of Dubuque issued such bonds which were taken in good faith by the public. In 1859 the Supreme Court of Iowa held that it had been wrong in its previous decision and that under the Constitution of the State a municipality had no right to issue bonds for any such purpose. The Supreme Court of the United States held that such change of decision could not impair the obligation of the contract between the city and the bondholders.1 460. State Court Construction of State Statutes Made After a Case Has Been Brought in the Federal Courts Not Binding Upon It.-A creditor of a corpora tion brought suit in a State Court against a non-resident defendant to enforce a liability said to be imposed by a State statute upon him as a stockholder. He removed the case to the Federal Court. Up to the time the suit was brought the State Courts had never construed the statute. While the case was pending, the highest Court of the State interpreted it. Under the meaning thereby given it the defendant would have been liable. This construction was held not to be binding upon the Federal Courts, the Supreme Court saying: "The Federal courts have an independent jurisdiction in the administration of State laws, co-ordinate with, and not subordinate to, that of the State courts, and are bound to exercise their own judgment as to the meaning and effect of those laws." *** "Since the ordinary administration of the law is carried on by the State courts, it necessarily happens that by the course of their decisions certain rules are established which become rules of property and action in the State, and have all the effect of law, and which it would be wrong to disturb. This is especially true with regard to the law of real estate and the construction of State constitutions and statutes. Such established rules are always regarded by the Federal courts, no less than by the State courts themselves, as authoritative declarations of what the law is. But where the law has not been thus settled, it is, the right and duty of the Federal courts to exercise their own judgment; as they also always do in reference to the doctrines of commercial law and general jurisprudence. So when contracts and transactions have been entered into, and rights have accrued thereon under a particular state of the decisions, or when there has been no decision, of the State tribunals, the Federal courts properly 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. But even in such cases, for the sake of harmony and to avoid confusion, the Federal courts will lean towards an agreement of views with the State courts if the question seems to them balanced with doubt. Acting on these principles, founded as they are on comity and good sense, the courts of the United States, without sacrificing their own dignity as independent tribunals, endeavor to avoid, and in most cases do avoid, any unseemly conflict with the well-considered decisions of the State courts. As, however, the very object of giving to the national courts jurisdiction to administer the laws of the States in controversies between citizens of different States was to institute |