Petitioner John Swift Respondent George W. Tyson

Petitioner

John Swift

Respondent

George W. Tyson

Petitioner's Claim

In a federal case based on diversity jurisdiction, the common law of the locus state should govern the tender of a negotiable instrument, not common law developed by a federal court.

Chief Lawyer for Petitioner

Fessenden

Chief Lawyer for Respondent

Dana

Justices for the Court

Henry Baldwin, John Catron, Peter Vivian Daniel, John McKinley, John McLean, Joseph Story (writing for the Court), Roger Brooke Taney, Smith Thompson, James Moore Wayne

Justices Dissenting

None

Place

Washington, D.C.

Date of Decision

January 1842

Decision

In a federal case based on diversity jurisdiction, a federal court has the power to make its own decisions, in the absence of a controlling state statute.

The decision allowed federal courts hearing civil cases based on diversity jurisdiction to create their own body of common law. Diversity jurisdiction is a special way for a federal court to gain jurisdiction over a case. Generally, federal courts hear only matters of federal concern. However, they can preside over a case that concerns state law if the parties to the case live in different states and the controversy involves a dollar figure that exceeds a minimum threshold amount.

At trial, Swift argued that Tyson was liable for the bill of exchange, and that such a bill should be considered assignable. Tyson countered that, under New York common law, the assignment of the bill of exchange by Norton was invalid. The federal court, Tyson argued further, was obliged under Section 34 of the Judiciary Act of 1789 to follow the laws of New York and invalidate the assignment.

At the time, New York City was fast developing into the country's financial hub. Although Swift did not have the law of New York on his side, he did enjoy the support of business leaders concerned with growing the nation's economy. If New York insisted on retaining its strict laws prohibiting the assignment of negotiable instruments, the argument went, interstate transactions would cease and the national economy would suffer. The federal judges in New York were divided on the issue, and they certified the matter to the U.S. Supreme Court, which unanimously sided with Swift.

Prior to the Swift decision, under the Judiciary Act, federal courts were to use the law of the state when they were sitting on a case involving state law. At the heart of the Swift case was the definition of the word "laws." Tyson argued that "laws" included common law made by a state's courts. Swift countered that "laws" was only meant to describe statutory laws. Since the New York law forbidding the assignment of a bill of exchange was a law made by the New York courts, Swift maintained, the federal court was not obliged to enforce it. The High Court agreed. Common laws "are, at most, only evidence of what laws are, and are not, of themselves, laws," declared Justice Story, writing for the majority.

Having decided that the federal courts may create their own federal common law in the absence of a controlling state statute, the Court proceeded to hold for Swift in the case. Specifically, the Court held that federal common law allowed the assignment of commercial papers. The Court observed that England followed a similar course on negotiable instruments, noted the benefits to both commercial debtors and commercial creditors, and found no reason to take a different approach. Justice Story wrote,

It is for the benefit and convenience of the commercial world, to give as wide an extent as practicable to the credit and circulation of negotiable paper, that it may pass not only as security for new purchases and advances, made upon the transfer thereof, but also in payment of, and as security for, preexisting debts.