Swift v. Tyson

Facts

Swift sued Tyson in the federal Circuit Court for the southern district of New York. Swift held a bill of exchange (a written order to pay money) dated at Portland, Maine, on the first day of May, 1836. Norton and Keith drew it on Tyson, and Tyson accepted it (agreed to pay it) in New York. It was payable to Norton's order, and Norton endorsed it to Swift. The bill was dishonoured at maturity. At trial the acceptance and endorsement were admitted, and Swift rested. Tyson then put in Swift's answer to a bill of discovery. It showed that Swift took the bill before it became due, in payment of a promissory note that Norton and Keith owed him. Swift believed the bill was justly due and had no notice of anything wrong with the sale or title to the lands. Tyson also offered to prove that he accepted the bill as part of the price for lands in Maine. Norton and Keith had claimed to own those lands, called them very valuable, and promised a good title. Tyson said those statements were fraudulent and false, that they had no title, and that the lands were worth little or nothing. Swift objected to that evidence.

Issues

1. Does section 34 of the judiciary act of 1789, which makes the laws of the several states rules of decision in trials at common law, bind this Court to follow New York court decisions on whether a pre-existing debt is a valuable consideration for a negotiable instrument?
2. Under the general commercial law, is a pre-existing debt a valuable consideration, so that a holder who takes a bill in payment of it, before it is due and without notice, is not subject to the equities between the original parties?

Holding

Section 34 did not bind the Court to follow New York decisions on this question of general commercial law. Under that law, Swift took the bill before it was due, without notice, for a pre-existing debt, and that debt was a valuable consideration. So Tyson was not entitled to the same defence as if the suit were between the original parties, and his evidence of fraud in the land sale was not admissible against Swift.