Swift v. Tyson

Swift v. Tyson, 41 U.S. 1 (1842), was a case brought in diversity in the Circuit Court for the Southern District of New York on a bill of Exchange accepted in New York in which the Supreme Court of the United States determined that United States federal courts hearing cases brought under their diversity jurisdiction pursuant to the Judiciary Act of 1789 must apply the statutory law of the states when the state legislature of the state in question had spoken on the issue but did not have to apply the state's common law in those cases in which that state's legislature had not spoken on the issue. The Court's ruling meant that the federal courts, when deciding matters not specifically addressed by the state legislature, had the authority to develop a federal common law.

Statute

Judiciary Act of 1789, §34: "the laws of the several states, except where the constitution, treaties or statutes of the United States shall otherwise recognise or provide, shall be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply."

Holdings

The Court:

1. Held that a bona fide holder of a negotiable instrument for valuable consideration, without any notice of the facts which implicate its validity as between the antecedent parties, if he takes it under an endorsement made before the same becomes due, holds the title unaffected by those facts, and may recover thereon although, as between the antecedent parties, the transaction may be without any legal validity.
2. Held that §34 of the Judiciary Act of 1789 does not restrict federal courts hearing diversity of citizenship cases from deriving their "own" common law.
3. Sustained the determination of the lower federal court that, under federal common law (with reference to general principles of commercial jurisprudence), a pre-existing debt constitutes a valuable consideration for a negotiable instrument.

Reasoning

• Common law is not strictly local; court decisions aspire towards true interpretations, which are to be sought, not in the decisions themselves, but in general principles and doctrines. Court decisions do not constitute laws, or conclusive authority as to what the law is, but only evidence of what the law is.

• What is strictly local law: the state's positive statutes; constructions thereof adopted by state courts; and rights and titles to things having a permanent locality, e.g. to real estate and other matters immovable and intra-territorial in their nature and character.
• What is not local but "common" law: the rights and titles created in contracts or other instruments of a commercial nature, which are to be sought in general principles of commercial jurisprudence.

• In Judiciary Act 1789 § 34, "the laws of the several states" was intended to refer to state laws strictly local—and thus, by the above reasoning, not to a state's "common" law.

• Thus, the Judiciary Act 1789 § 34 does not bind Federal courts to state commercial jurisprudence. The Federal jurisdiction is free to derive its "own" common law.

• The Court sustained the determination of the lower federal court that, under federal common law,

• A pre-existing debt constitutes a valuable consideration for a negotiable instrument.

See also

• List of United States Supreme Court cases, volume 41

Notes

To avoid confusion when discussing this case, it is helpful to employ some sort of convention to distinguish whether you are referring to, e.g., "transcendent" common law versus "locally implemented" common law (even though the case does not use this language). This distinction seems counter-intuitive to American law students today because we are predisposed to assume that "common law" refers exclusively to a jurisdiction's local rules, while assuming in turn that domains previously accounted for as natural law are governed by the social sciences (e.g. sociology, anthropology, economics, game theory, cognitive science).

This case has been criticized by some as an example of forum shopping because the facts of the case involved the quintessence of the need for a uniform nationwide rule, the handling of negotiable instruments—and the fact that most of the states have subscribed to the Uniform Commercial Code's Article 3 shows us that it did. The problem was that the "rule in Swift" was extended by later judges to cover all of common law and not just that of commercial paper, bank notes, bankers acceptances and other forms of "near money". This decision resulted in forum shopping, wherein plaintiffs would file their cases in federal as opposed to state courts, or, when permitted, defendants would remove an action from state court to federal court, in order to have a different law applied. This was seen to result in manipulation of the federal court system and was eventually overturned in Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938).

External links

• Works related to Swift v. Tyson at Wikisource
• Supreme Court of the United States
• United States District Court for the Southern District of New York
• ^ Text of Swift v. Tyson, 41 U.S. 1 (1842) is available from:  Findlaw  Justia 

• Case Brief for Swift v. Tyson at Lawnix.com