What Went Wrong? Identifying Root Causes
Negotiating With The Warden—From Master To Serf
Part 3 of 5
 

In 1913 Congress revised the federal rules of equity. Rule 2 of the Federal Rules of Civil Procedure for the United States District Courts prescribes the pattern for commencement of court action. “There shall be one form of action to be known as ‘civil action’.” This seems uncommonly concise for lawyer-politicians.

The effect was immense. “In the great majority of states which have adopted rules or codes of civil procedure as patterned on the Federal Rules of Civil Procedure, there is only one form of action known as ‘civil action.’ The former distinctions between actions at law and suits in equity, and the separate forms of those actions and suits, have been abolished.”[13]

In 1938 the Supreme Court declared in Erie R.R. Co. v. Tompkins that “[t]here is no federal general common law,” leading some to conclude, incorrectly, that federal common law did not exist. A search for the truth need not be extensive. On the same day as the Erie case, the high court explicitly applied federal common law in resolving another case, stating, “For whether the water of an interstate stream must be apportioned between the two States is a question of ‘federal common law’ upon which neither the statutes nor the decisions of either State can be conclusive.”[14]
 

Common law persists in the Constitution of the United States,[15] in some federal statutes passed by Congress,[16] and in state constitutions and some statutes passed by their legislatures.[17] It may enter the federal courts from any of these sources, but in its absence the courts are free to formulate new federal common law “to protect uniquely federal interests” or where “Congress has given the power to develop substantive law.”[18] So the common law is alive and well and continues to evolve even at the federal level. However, its application now invariably originates in “civil actions” prosecuted in a consolidated system of courts.

In times past in American courtrooms it was not unusual for people to know the type of court they were in—it was plainly marked over the entrance, “LAW” or “CIVIL.” You can still see examples in photographs taken of courthouse buildings around the turn of the century or in the old buildings themselves where they have been preserved. Why was this distinction important? The answer lies in the judicial application of unalienable natural rights.
 

When individuals exercise one of their natural rights, it often becomes superior to and nullifies one or more of their other rights. Everyone has a natural right to freedom of speech. They also have a natural right to remain silent. Obviously, when exercising one of these rights, they waive the other. This routinely happens in private contracts. By exercising their unalienable natural right to contract, individuals, often unknowingly, relinquish other rights.

Americans are born contractors, learning the principles early in life. Even small children understand contracts: “If you eat all of the beans on your plate, you may have your choice of the desserts.” Unfortunately, people are rarely good negotiators, tending to rely on invalid assumptions. This, combined with a trusting attitude that professionals paid by and working for them always act in their best interest, leads them astray.

State governments cannot interfere with lawful contracts even to protect their citizens. The Constitution, at Article I, § 10, cl. 1, provides that “No State shall…pass any…Law impairing the Obligation of Contracts …” A contract is “[a]n agreement between two or more persons that creates an obligation to do or not to do a particular thing. Its essentials are competent parties, subject matter, a legal consideration, mutuality of agreement, and mutuality of obligation.”[19]

Contracts govern both trade and commerce. Trade is a natural right as is commerce. The terms “are synonymous, but not identical.”[20] In trade, using that term in its limited sense, there is no need for records of individual transactions, being an equal exchange by barter, each participant holding the tangibles in hand. The more extensive term ‘commerce’ means “[i]ntercourse by way of trade and traffic between different peoples or states and the citizens or inhabitants thereof, including not only the purchase, sale, and exchange of commodities, but also the instrumentalities and agencies by which it is promoted and the means and appliances by which it is carried on, and transportation of persons as well as of goods, both by land and sea. Also interchange of ideas, sentiments, etc. as between man and man.”[21]

“The powers conferred upon congress to regulate commerce among the several states, are not confined to the instrumentalities of commerce known or in use when the constitution was adopted, but keep pace with the progress of the country, and adapt themselves to new developments of time and circumstances …”[22] Contemplating the modern “instrumentalities” of commerce, such as credit cards and electronic banking, one easily agrees. But these are just modern versions of ancient processes—bills of exchange, drafts, promissory notes, bank-checks, and other negotiable instruments for the payment of money. Most modern usages only amount to changes in form.

On June 24, 1967, Congress made a significant substantive change by passing the Silver Certificate Act of 1967.[23] “Silver certificates shall be exchangeable for silver bullion for one year following the enactment of this Act. Thereafter they shall no longer be redeemable in silver but shall be redeemable from any moneys in the general fund of the Treasury not otherwise appropriated.” After June 1968, Treasury funds consisted of irredeemable United States Notes and Federal Reserve Notes, their gold backing for domestic commerce having been removed in 1933. At this point United States Currency became nothing more than an “instrumentality” of commerce or “commercial paper.” All legislative ties to specie or the “money of account” of the United States were severed.

Commerce embraces private exchanges outside the range of instantaneous barter. Because the exchanges are accomplished over time, they always create, through the use of commercial “instrumentalities and agencies,” a debtor/creditor relationship. It is the protection of this debtor/creditor relationship that requires the keeping of accounts of record. Commercial transactions, such as those involving credit, interest and insurance, especially when made by corporations and businesses operating under government-granted franchise or license, necessitate records of account, no tangibles being directly involved. Undoubtedly, this applies to banks and, through association by contract, to their customers.
 

13 Black’s Law Dictionary, Fifth Edition — “Civil action” 
14 Hinderlider v. La Plata River and Cherry Creek Ditch Co., 304 U.S. 92, 82 L Ed 1202 (1938)
15 “The language of the Constitution cannot be interpreted safely except by reference to the common law and to British institutions as they were when the instrument was framed and adopted.” Ex parte Grossman, 267 U.S. 87, 69 L Ed 527 (1925)
16 “The principles of the common law are operative upon all interstate commercial transactions except so far as they are modified by congressional enactments.” Western Union Telegraph Co. v. Call Pub. Co., 181 U.S. 92, 45 L Ed 765 (1901)
17 “If there were no statute the common law of Massachusetts would supplement the Constitution as it would supplement the statutes of the State.” Burrill v. Locomobile Co., 258 U.S. 34, 66 L Ed 450 (1922) “The law of a state is embodied as well in its common-law rules as in its statutes.” Magnolia Petroleum Co. v. Hunt, 320 U.S. 430,  88 L Ed 149 (1943)
18 “There is, of course, ‘no federal general common law.’ … Nevertheless, the Court has recognized the need and authority in some limited areas to formulate what has come to be known as ‘federal common law.’ … These instances are ‘few and restricted,’ and fall into essentially two categories those in which a federal rule of decision is ‘necessary to protect uniquely federal interests,’ … and those in which Congress has given the courts the power to develop substantive law.” Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 68 L Ed 2d 500 (1981) 
19 Black’s Law Dictionary, Fifth Edition — “Contract” 
20 Black’s Law Dictionary, Second Edition (1910) — “Commerce” 
21 Black’s Law Dictionary, Fifth Edition — “Commerce” 
22 Bouvier’s Law Dictionary, Rawle’s Revision, 1897, Vol. 1 — “Commerce” 
23 Public Law 90-29, 81 Stat. 77