Swift v. Tyson

41 U.S. (16 Pet.) 1 (1842)

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Nature of the Case

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Facts

Tyson (D) purchased land from speculators. D gave a negotiable instrument for payment on the land and got a bill of exchange. At the time this transaction occurred, the speculators did not own the land and D was not aware of that fact. The land was located in Maine. The note eventually found its way into Swift’s (P) hands. P was a banker in Maine, and the instrument was given over to pay a debt owed to P from the speculators. P sought payment from D but D refused on grounds he had been fraudulently induced to purchase. P sued in federal court in New York on diversity of citizenship to enforce the bill of exchange. The issue that arose at trial was whether a preexisting debt constituted consideration for an endorsement on the bill, making the endorsee a holder in due course. Under federal law, valid consideration would be found. Under New York law, there would be no consideration. D argued that the federal court had to apply New York law under the Rules and Decisions Act. The Supreme Court granted certiorari.