United States Supreme Court
41 U.S. (16 Pet.) 1 (1842)
New York resident John Tyson attempted to buy land from a couple of land speculators, Nathaniel Narton and Jairus Keith, with a negotiable instrument called a bill of exchange. In fact, Narton and Keith did not own the land. Using the bill of exchange they got from Tyson, Narton and Keith paid off an unrelated debt to George Swift, a Maine resident. Swift then tendered the bill of exchange to Tyson for payment, but Tyson refused to honor it on the ground that it had been fraudulently obtained. Swift filed a lawsuit in federal circuit court, claiming that he was entitled to collect as a bona fide holder of a negotiable instrument for valuable consideration. The trial court concluded that New York state law, rather than federal law, controlled. Under New York case law, a preexisting debt did not constitute valuable consideration. Thus, Swift was not a bona fide holder of a negotiable instrument for valuable consideration, and Tyson was able to raise the defense of fraud. The trial court found in favor of Tyson. Swift appealed to the United States Supreme Court by a certificate of division.
Rule of Law
Holding and Reasoning (Story, J.)
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