What is more important, diversity jurisdiction must follow State law and policy. A federal court in North Carolina, when invoked on grounds of diversity of citizenship, cannot give that which North Carolina has withheld. Availability of diversity jurisdiction which was put into the Constitution so as to prevent discrimination against outsiders is not to effect discrimination against the great body of local citizens.

Cases like Lupton's Sons Co. v. Automobile Club, 225 U. S. 489, are obsolete insofar as they are based on a view of diversity jurisdiction which came to an end with Erie Railroad v. Tompkins, 304 U. S. 64. That decision drastically limited the power of federal district courts to entertain suits in diversity cases that could not be brought in the respective State courts or were barred by defenses controlling in the State courts. Compare Suydam v. Broadnax, 14 Pet. 67, 75. Of course, where resort is had to a federal court not on grounds of diversity of citizenship but because a federal right is claimed, the limitations upon the courts of a State do not control a federal court sitting in the State. Holmberg v. Armbrecht, 327 U.S. 392.

8. After an adverse decision against Bullington on a cause of action created by State law, Bullington wants to start all over again in another North Carolina court, albeit a federal court. The first litigation raised and adjudicated federal issues every one of which is again involved in the second suit. To allow such a second suit is to say that a federal right in issue in a State court evaporates because the State court calls it a State right and the litigant accepts the decision. If tolerated, our federal system would afford fine opportunities for needlessly multiplying litigation in this way. The doctrine of res judicata is a barrier against it. Litigation is the means for vindicating rights, but it may also involve unwarranted friction and waste. The doctrine of res judicata reflects the refusal of law to toler

ate needless litigation. Litigation is needless if, by fair process, a controversy has once gone through the courts to conclusion. Compare, e. g., Hazel-Atlas Co. v. Hartford Co., 322 U. S. 238, 244. And it has gone through, if issues that were or could have been dealt with in an earlier litigation are raised anew between the same parties. Chicot County Dist. v. Bank, 308 U. S. 371.

MR. JUSTICE REED, dissenting.

Judgment reversed.

My understanding of the Court's decision is that the doctrine of res judicata, that is a former adjudication, defeats Bullington's claim against Angel. The opinion is limited to that point. In my view the conclusion reached by the Court is erroneous. To narrow the line of my disagreement, I shall state the issues treated in the opinion. with which I agree. The causes of action and the parties in the two suits are identical. Federal questions were raised by Bullington's contention that the North Carolina. statute, sufficiently quoted at the beginning of the Court's opinion, Michie's Code, 2593 (f), was unconstitutional by federal tests because it barred the North Carolina courts to Bullington's suit on his notes. It is immaterial, for the purposes of determining the availability of a plea of res judicata, whether the North Carolina judgment was erroneous or not. I agree, further, that, on the ground that a state cannot bar this cause of action from its courts, Bullington could have had review in this Court of the North Carolina judgment and that this Court, if it did not conclude that the North Carolina judgment rested on an adequate state ground, could have finally settled that federal constitutional issue.

The reasoning of the Court leads to the announced result because of these presuppositions with which I differ: (I) "For purposes of res judicata, the significance of what a court says it decides is controlled by the issues that

were open for decision." (II) "The 'merits' of a claim are disposed of when it is refused enforcement." (III) "Since it was open for Bullington to come here to seek reversal of the decision of the North Carolina Supreme Court shutting him out of the North Carolina courts and he chose not to do so, the decision of the North Carolina Supreme Court concluded an adjudication of a federal question even though it was not couched in those terms." (IV) "For purposes of diversity jurisdiction a federal court is, 'in effect, only another court of the State.'" "He cannot begin all over again in an action involving the same issues before another forum in the same State."

I. To say that for purposes of res judicata the significance of what a court says it decides is controlled by the issues, announces a rule which, so far as I know, has no prior authority. To adopt such a rule is to declare that a decision in a cause of action is final between the same parties although the court specifically reserves certain questions not necessary for its decision. Res judicata settles all questions which were raised or those that might have been raised but it settles them in accordance with the decision that is made. Of course, when a decision is upon the merits, a matter discussed later, the entire cause of action is adjudicated finally. But this North Carolina adjudication was not upon the merits. It was upon a question of judicial power. The pertinent excerpts from the opinion appear below. The fact that other

1 220 N. C. at 20-21, 16 S. E. 2d at 412: "The statute operates upon the adjective law of the State, which pertains to the practice and procedure, or legal machinery by which the substantive law is made effective, and not upon the substantive law itself. It is a limitation of the jurisdiction of the courts of this State.

"The Legislature, within constitutional limitations, can fix and circumscribe the jurisdiction of the courts of this State. The Legislature has exercised its prerogative to so limit the jurisdiction of the

issues, going to the merits of the cause of action, might have been decided seems immaterial.

The rule which I consider sound appears in the Restatement of the Law, Judgments § 49, as follows:

"Where a valid and final personal judgment not on the merits is rendered in favor of the defendant, the plaintiff is not thereby precluded from thereafter maintaining an action on the original cause of action and the judgment is conclusive only as to what is actually decided."

The way to know what was actually decided in this case is to read the applicable portion of the opinion printed in the preceding note. The result of the decision was to leave the cause of action unaffected because when a state denies a remedy, it leaves "unimpaired the plaintiff's substantive right, so that he is free to enforce it elsewhere." Bradford Electric Co. v. Clapper, 286 U. S. 145, 160; Dalton v. Webster, 82 N. C. 279.

courts of this State that holders of notes given for purchase price of real estate are not entitled to a deficiency judgment thereon in such courts. We cannot hold that this action upon part of the legislative branch of our government impinged the full faith and credit clause of the Constitution of the United States or the general doctrine that the validity of a contract is determined by the law of the place where made, the lex loci contractus as distinguished from the lex fori. Both the constitutional provision urged and the general doctrine invoked by the appellee are substantive law and the statute involved, as aforesaid, relates solely to the adjective law. No denial of the full force and credit of the Virginia contract is made, and no interpretation or construction of the contract involved is attempted. The court, being deprived of its jurisdiction, has no power to render a judgment for the plaintiff in the cause of action alleged. 'Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause. And this is not less clear upon authority than upon principle.'"

II. It is now to be considered whether or not this judgment of the state court was on the merits. That court said it had no "power to render a judgment for the plaintiff in the cause of action alleged." This Court now says that such a decision is a disposition on the merits. Evidently what is meant is that when a litigant, who has raised a federal constitutional question, has his case dismissed on the ground that the court "has no power to render a judgment for the plaintiff in the cause of action alleged," there is a judgment on the merits on the constitutional question as well as upon the right to recover in North Carolina on any other ground. If we have power to declare that it "concluded an adjudication of a federal question even though it was not couched in those terms," I would reach the opposite conclusion based upon what the North Carolina court did. In my view, the North Carolina court merely decided that it had no power to adjudicate the cause of action. Certainly the state court had the power to interpret its own statute. Knights of Pythias v. Meyer, 265 U. S. 30, 32; Chaplinsky v. New Hampshire, 315 U. S. 568. The withdrawal of jurisdiction surely does not make a judgment one upon the merits. The state court cited Ex parte McCardle, 7 Wall. 506, to emphasize what it meant. If there was a suit on this note in a federal court on an allegation of diversity of citizenship and the federal court dismissed the suit with an opinion saying that the case was dismissed because of lack of jurisdiction, e. g. proof of non-diversity of citizenship, no state court would hold that there had been a decision upon the merits. Where there is no jurisdiction of the subject of the action the judgment is not upon the merits. Stoll v. Gottlieb, 305 U. S. 165, 171-172. Of course, if there is a judgment upon the merits, that judgment would be binding on both federal and state courts. Even if the North Carolina decision is not upon the merits, it is conclusive on North Carolina courts and upon federal courts in North Carolina,