Swift v. Tyson

George Tyson (defendant), a New York resident, bought land from Nathanial Narton and Jairus Keith. Tyson paid for the land with a bill of exchange. A bill of exchange is similar to a promissory note: it is a promise to pay a certain amount at a later date, and like a promissory note, it is negotiable, meaning it can be transferred to others. Narton and Keith gave the bill of exchange to John Swift (plaintiff), a Maine resident, to pay off a previous debt they owed him. However, Narton and Keith never actually owned the land they claimed to sell to Tyson. The sale was a ploy to defraud Tyson. Thus, when Swift presented the bill of exchange for payment, Tyson refused to honor it. Since Swift resided in Maine and Tyson lived in New York, Swift sued Tyson in the federal circuit court for the Southern District of New York, invoking the federal court’s diversity jurisdiction. Tyson argued that since Narton and Keith obtained the bill of exchange fraudulently, it was invalid and he did not have to honor it. Swift responded that he was a bona fide purchaser for value, without notice of the fraud, so he took the bill of exchange free of the initial fraud. Tyson countered that a preexisting debt did not qualify as valid consideration for the bill of exchange, so Swift was not a bona fide purchaser, and Tyson did not have to pay him. New York State’s constitution and statutes did not address whether preexisting debt qualified as valid consideration, but New York state courts had ruled that preexisting debts did not qualify. The trial court applied New York common law, held that Swift was not a bona fide purchaser, and entered judgment for Tyson. The Supreme Court accepted the case.