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Article 1, Section 8, Clause 4 (Bankruptcy)

Document 11

House of Representatives, The Bankrupt Bill

8, 11 Feb. 1822Annals 38:971--74, 996--98

[8 Feb.]

[Mr. Montgomery] . . . The Convention who framed the National Constitution had the experience of some years before their eyes; the members were witnesses to the results of such discordant legislation in regard to the merchants of the country; they were wise men, and could see that the evil would grow with the growth of our population and commerce, and to guard against it Congress was invested with the power of passing a system of bankruptcy which should be uniform throughout the United States. This in his view was the great reason for the investiture of the power, and the strongest for the expediency of the exercise of it.--

He then remarked that he would consider the question of power with reference to the bill now before the Committee, and endeavor to prove that Congress possessed the power of passing it. (He then read from the 8th section of the first article of the National Constitution, that portion which vests Congress with the power of "establishing an uniform system of bankruptcy throughout the United States.") He said he believed the members of the Convention were wise men, and as such he could not believe that they intended to bring within the scope of the jurisdiction of the national courts the small transactions of handicraftsmen, agriculturists, &c. He could not believe that it was intended to drag them before commissioners of bankruptcy, and finally before a federal court, to adjust the division of an estate, not worth more than one or two hundred dollars. No, he believed, in opposition to many others, that the law ought to be confined to the cases of those classes in society, whose transactions of a mercantile and trading character had furnished the necessity of the system. He then read the second section of the third article of the National Constitution to show that if every class in society were embraced by the terms of the law, their cases would become subjects of cognizance in the federal courts, as being cases governed by a law of the United States. This, in his opinion, was not the intention of the Convention.

He then remarked that the terms bankruptcy and insolvency were both technical terms in the law, the first expressing the condition of a merchant, trader, or broker, &c., who had committed some act, &c., evincive of a disposition to hinder or delay the payment of his debts, and who was entitled, upon a complete surrender of his estate for the benefit of his creditors, to be released from future liability; the second embracing the cases of all the other classes of society who were unable to pay their debts, and who were entitled by sundry statutory provisions to be released from imprisonment, but not from all future liability with reference to their property. The members of the Convention were generally learned in the laws, as well of the States as of Britain; they had a full opportunity of seeing these principles in the form of statutes and digests; they understood them; it is, therefore, a fair conclusion, that, if they had designed to adopt the principles and notion of insolvency, they would have used the term.

He then observed that the term bankruptcy was a technical term in legal science, embracing the persons, acts, proceedings, and results of the bill; that the persons using the term well understood its technical import; and he thought it a fair conclusion that it was used in that sense. He then called the attention of the Committee to one of the rules of construction laid down by Vattel, B. II. chap. 17, section 276. The rule is, that "technical terms, or terms peculiar to the arts and sciences, ought commonly to be interpreted according to the definition given of them by masters of the art, or persons versed in the knowledge of the art or science to which the terms belong." This is the rule; the exceptions, as given by Vattel, are where the writer of a treaty or deed is proved not to understand the art or science; that he is unacquainted with its import, as a technical word, or that he employed it in a vulgar acceptation, &c. Now, as there is no evidence to show that the members of the Convention were ignorant of the science of law; nor any fact or circumstance to justify the inference that they were unacquainted with the import of the word "bankruptcy" as a legal phrase; nor any evidence of its being used in a vulgar sense, the case cannot be taken as falling within the exceptions. The rule, then, is to be applied. He remarked, that it was possible some might say that Vattel was no authority on the question. To this he would answer, that he did not consider the rule as authoritative because it was written by Vattel, but because it was a dictate of good sense, proper to be used in any age, nation, or country, for the purpose of ascertaining the meaning of written instruments.

He then observed that he would endeavor to answer some objections to the power of Congress, as contemplated to be exercised by the passage of the bill, by a gentleman from Virginia, (Mr. Stevenson.) That gentleman objected that the bill would be an ex post facto law, and in violation of the third member of the 9th section of the first article of the National Constitution, which prohibits Congress from passing such laws. To this objection he would answer, 1st. That, if the exposition which he (Mr. M.) had exhibited of the term "bankruptcy" be correct, the prohibition must be considered as a general one, subject to the exception of the power to pass a bankrupt law which should be retroactive in its operations. This is justified by the well known sensible rule, that every part ought to have some operation and effect, if it may be done by any reasonable intendment or construction. 2d. The principles of the bill are not within the terms of the prohibition. Many legal characters are of opinion that the prohibition only relates to criminal matters; but he (Mr. M.) did not believe that the words ex post facto ought to be so strictly taken; they are Latin words, which he supposed ought to be rendered "after the fact;" and, as he thought the prohibition precluded Congress from passing laws to render any facts criminal which had happened before the passage of such laws, and were not criminal at the date of the facts; and, also, to prohibit Congress from passing laws to divest individuals of rights dependent upon pre-existing laws and facts. The last idea embraces all that great division of rights, or things in action, which lawyers term actions ex delicto. This import of the prohibition is strengthened, by looking into the 10th section of the same article, in which the States are, in like manner, prohibited from passing ex post facto laws, and, by the terms of the same prohibitory clause, they are also prohibited from passing laws to impair the obligation of contracts. The latter prohibition secures the rights of the citizens in every thing in action dependent upon contract; and, if the construction above contended for obtains, the other branch of the prohibition secures all the rights dependent upon wrongs; but, if it does not, all the rights of one class, dependent upon the wrongful acts of another, are unprotected. He could not believe that the Convention intended to be thus careful in guarding one great class of rights, and at the same time leave the other great class unprotected. He then remarked, that, under the view of the prohibition to pass ex post facto laws just given, no violation could be found in the bill, because, upon examining the bill, it would be found that claims, founded upon torts, were not within its provisions; so that, after the passage of the bill, rights of this class may be enforced as before, and the responsibility will continue as before. The claimants of this class are left to run the race of the law with the others.

The same gentleman had contended that the bill, if passed, would impair the obligation of contracts in releasing debtors from future liability after obtaining certificates of bankruptcy. To this he (Mr M.) answered, 1st. That, if his view of the Constitution was correct, that power was expressly given for the reasons urged by him. 2dly. He contended that the law in force, when contracts are made, must be considered as being in the view of the parties contracting, and must be taken as limiting and fixing the extent of the liability of the obligors: in the cases, then, within the terms of the bill, there was in full force a fundamental rule, under which the liability of the debtors might be determined, upon surrendering up their estates, and so no impairing of the obligation of the contracts, as they ought to have been understood. 3dly. He contended that Congress are not prohibited from passing laws to impair the obligation of contracts. The omission of the prohibition on the part of Congress, when it is so distinctly written, as to the States, affords a strong ground from which to infer that it was intended Congress might exercise it with reference to those cases of contracts, respecting which it might legislate. 4thly. He contended that the humane views of the convention would be marred very much, if not defeated, by confining the operation of the law entirely to cases arising after its passage; and the same may be said of the equal distribution among creditors contemplated by the bill.

[11 Feb.]

[Mr. Colder] . . . Mr. C. said, he should entirely agree with the gentleman from Virginia, that the power to pass the bill before us--that is to say, a bill discharging the property as well as the person, was expressly given by the Constitution, or that Congress had no power to make such a law. Though he thought the power to pass a bankrupt law might as well be implied from the powers which Congress had to regulate commerce, as the power to grant a bank charter was inferred from any part of the Constitution; yet, he repeated, that he did admit, for the purpose of this argument at least, that there was no such power to pass this law, unless it was expressly given by the letter of the Constitution.

The Constitution has given Congress "power to establish uniform laws on the subject of bankruptcies throughout the United States." Mr. C. said that this phraseology was deserving attention, and seems to have been adopted to convey ideas more extended than the expressions which would be the most likely first to occur for granting a limited power to pass bankrupt laws. Had the Constitution merely said Congress shall have power to establish bankrupt laws, or all bankrupt laws, even then it would be difficult to say that there was any restriction as to the kind of bankrupt law which Congress might pass. But when the power is to pass laws on the subject of bankruptcies, is it not to be understood that Congress have a right to pass every kind of bankrupt law?

Mr. C. said, it seemed to him that this question would be answered by determining the meaning of the word bankrupt, or bankruptcy.

It had been justly said by the gentleman from Virginia, that Blackstone gave us no definition of the word bankrupt. He merely describes those who may become obnoxious to the English bankrupt laws, and points out the consequences of such liability. Neither would the English statutes assist us in our search for a definition. For he who might be a bankrupt at one time, according to the English law, was not so considered at another. Thus, the statute of Henry VIII., which was entitled "a law against such as do make bankrupt," applied to all persons. The statute of Elizabeth confined the application of the bankrupt law to traders. A subsequent statute of James extended it to scriveners. A law of Queen Anne absolved the subsequently acquired property, as well as the person, of a discharged bankrupt--and a statute of George III. extended their then numerous bankrupt laws to bankers, brokers, and factors; so that we cannot appeal to the English statutes for the definition we are in search of, unless we should be willing to admit that the word bankrupt must, at all times, mean whatever the British Parliament shall please to say shall be its signification.

Mr. C. said that we must, in this case, as in all others where the meaning of a word in our language was in question, inquire as to its etymology, its definition by lexicographers, and its use by authors.

The honorable member from Virginia had expressed an aversion to such references, as having an appearance of pedantry. But, Mr. C. said, he knew not in what other channels the inquiry might be pursued, and hoped it would not be thought there was any ostentation in a reference to mere initial books.

Etymology, he admitted, was an uncertain, and often a fallacious, guide to the meaning of words. But where it happened to give a corresponding meaning with that derived from other sources, as in the present case, it might be taken into account. The word bankrupt was probably first applied to money-dealers. They, we may suppose, transacted their business on counters or benches. When they failed, were unable to pay their debts, or absconded, their counters were probably removed, or broken up; and therefore those who had occupied them were said to be bankrupt.

The dictionary definition of bankrupt, as will appear by that of Dr. Johnson, which I now see in the collection of books made for your use in this hall, and which must be admitted to be as of high authority as any other that could be appealed to, defines a bankrupt to be "one indebted beyond the power of payment." This definition evidently implies that, in the opinion of the author, the word bankrupt was not limited in its signification by any statuteable provisions; and we shall see, by again recurring to the statute of Henry VIII., that the word bankrupt had been adopted in our language, and had a precise signification before that statute was passed, and, of course, antecedently to any English statute on the subject. Mr. C. here read an abstract from the statute of Henry VIII., to show that the word bankrupt was not mentioned in the body of the law. That merely provided punishment for those "who craftily obtained the goods of other men, and fled or kept their houses, not minding to pay their debts, but consumed the substance obtained by credit, for their own pleasure against all reason, equity, and good conscience." It is well known that, anciently, there were no titles given to their acts by the Parliament itself. The titles were nothing more than the endorsement of the clerk, in forming which he was determined by the substance of the bill. So, in this case, having found that the act contained provisions against fraudulent and insolvent debtors, he endorsed upon it that it was "a law against such persons as do make bankrupt"--the word bankrupt was not found in any part of the bill. It cannot be doubted, then, that this word, bankrupt, has, at all times, had a meaning independent of legislative enactments, and did mean, and does yet mean, one in debt beyond the power of payment, according to the definition of Johnson; and one who fraudulently avoided payment, according to its application in the title to the statute of Henry VIII. Hence we may derive a definition of bankruptcy; and as Congress have power to establish all laws on that subject, they have power to establish laws which relate to those who are in debt beyond the power of payment, or who fraudulently avoid payment of their debts.

If we have ascertained the meaning of the term bankrupt, there seems an end to the argument on this point. For Congress have power to pass all laws on this subject, as well laws which discharge the subsequently acquired property of the debtor as his person. It cannot, with any reason, be said that Congress has less than plenary powers in this respect; and it would seem absurd to contend that the very general and comprehensive words of the Constitution conveyed to Congress only the lowest grade of authority which a legislative body can exercise on this subject--that is, to exonerate only the person of the debtor.

But, though we should in vain appeal to the statute law of England, or of our own country, for the definition of the term bankrupt, yet we may refer to them to ascertain the sense in which the word was used by the framers of the Constitution; and, when we find that every law which existed in Europe, under the name of a bankrupt law, not only enabled the insolvent debtor to obtain a discharge of his person, but an exoneration of his subsequent acquisitions, can it be supposed that, in our Constitution, the term was used in a more restricted sense than it was used in all contemporaneous laws?

Mr. C. said these considerations had brought his mind to the most satisfactory conclusion, that, by the letter of the Constitution, power was given to Congress to pass the bill now under the consideration of the Committee.

But he would ask the indulgence of the Committee while he attempted to show, by another argument, which appeared to him perfectly conclusive, that Congress had the power in question.

It must be admitted that, previously to the adoption of the Confederation and the present Constitution, the United States were respectively free and independent sovereigns, having all the powers and attributes of sovereignty which ever belonged to any people on earth. They then unquestionably had power, in virtue of their sovereignty, to pass such a law as that on our table, or any other law not forbidden by the laws of God. But it has been determined by an authority, not inferior or subordinate to our own, that the individual States have not now this power. The supreme judicial tribunal, whose decrees cannot be questioned on earth, have said that the States have parted with this power. Where, then, is it gone? If you say that it is not surrendered to Congress, then you must say that a power, which originally belonged to the States, has passed from them, merely in virtue of their having confederated; and yet, strange as it may appear, it must be contended that this power is not vested in the Confederacy, or touched by the instrument of confederation. Sir, said Mr. C., if the power be not in the particular States, nor in the United States, I hope some of the gentlemen who are opposed to the bill will have the goodness to tell us by what process it has been dissipated.

The Founders' Constitution
Volume 2, Article 1, Section 8, Clause 4 (Bankruptcy), Document 11
The University of Chicago Press

Annals of Congress. The Debates and Proceedings in the Congress of the United States. "History of Congress." 42 vols. Washington, D.C.: Gales & Seaton, 1834--56.

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