In 1938, this decision was overruled by Erie Railroad Co. v. Tompkins, which dispensed with the concept of federal general common law in the United States.

The Court decided that a bona fide holder of a negotiable instrument for valuable consideration, without any notice of the facts that implicate its validity as between the antecedent parties, if he takes it under an endorsement made before the same becomes due, holds the title unaffected by those facts and may recover thereon although, as between the antecedent parties, the transaction may be without any legal validity.

It decided that Section 34 of the Judiciary Act of 1789 does not restrict federal courts hearing diversity of citizenship cases from deriving their "own" common law.

It sustained the determination of the lower federal court that under the general common law (with reference to general principles of commercial jurisprudence), a pre-existing debt constitutes a valuable consideration for a negotiable instrument.

Strictly local law consists of the state's positive statutes, constructions thereof adopted by state courts, and rights and titles to things having a permanent locality, such as to real estate and other matters immovable and intraterritorial in their nature and character.