• Last updated on November 11, 2022

In suits arising from diversity citizenship, the Supreme Court held that federal courts were free to exercise an independent judgment in principles of general commercial law, even if the principles were inconsistent with decisions of state courts.

Section 34 of the Judiciary Act of 1789Judiciary Act of 1789;section 34 required federal courts to follow state “laws” whenever applicable. Before 1842, the requirement was usually assumed to extend to decisions of state courts, which blocked any serious attempt to establish a uniform commercial law. In Swift v. Tyson, two litigants living in different states had a conflict over the validity of a bill of exchange. In New York, where the trial took place, state courts would have voided the bill of exchange because it was corrupted by original fraud. However, the plaintiff argued that general interstate commercial law required that the bill must be paid.[case]Swift v. Tyson[Swift v. Tyson]Common law, federal;Swift v. Tyson[Swift v. Tyson]Federalism;Swift v. Tyson[Swift v. Tyson]

By a 9-0 vote, the Supreme Court supported the plaintiff. Speaking for the Court, Justice Joseph StoryStory, Joseph;Swift v. Tyson[Swift v. Tyson] held that section 34 referred only to state statutes and not to decisions of state courts. Federal courts, therefore, were free to resolve interstate commercial disputes according to their own interpretations of “the general principles and doctrines of commercial jurisprudence.” Although Story hoped that the decision would encourage national uniformity, it actually resulted in separate bodies of state and federal commercial common law, which was the source of much confusion. A century later, Swift was overruled in Erie Railroad Co. v. Tompkins[case]Erie Railroad Co. v. Tompkins[Erie Railroad Co. v. Tompkins] (1938), the only time in history that the Court ever held that the decision of a previous Court had been unconstitutional.

Common law, federal

Erie Railroad Co. v. Tompkins

Federalism

Judiciary Act of 1789

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