Article 1, Section 8, Clause 4 (Bankruptcy)

Document 7

Gill v. Jacobs

Drayton, District Judge. This was a case of habeas corpus, in which a motion was made to discharge defendant on common bail, he being in the marshal's custody on mesne process issuing from this court, with an order for bail. The plaintiffs are citizens of Philadelphia; and the debt to a considerable amount (upwards of six thousand dollars) was contracted with them there. The defendant having been arrested by process, issuing from the state court of common pleas, has been discharged by the same authority, under the insolvent debtor's act of this state, passed in the year 1759. He therefore contends he should be enlarged on giving common bail, as he has been arrested since he was so discharged. On the part of the plaintiffs it is urged they were not parties to this discharge, not having due notice; nor were they parties to the record. That they have not agreed to receive any portion of the dividends, and, therefore, they ought not to be delayed, or prevented having due relief, under the laws of the United States and the practice of this court.

The case before me being strictly a mercantile contract will be considered as referring to those laws which relate to commerce and merchandise. As respects their principles, it is contended there is a difference between a bankrupt and an insolvent debtor; as the first becomes so by omissions and commissions, as well as by compulsory process; whereas, the latter is so situated, by the effects of a suit at law, and by taking the benefit of an insolvent debtor's act thereupon, for regaining his liberty. This distinction, and the discharge obtained in the state court, appear to be the general grounds on which the argument seems to rest. For bankrupts being exclusively concerned in trade and merchandise, in buying and selling in gross, or by retail; dealing in exchange and in other acts of necessary commercial intercourse; it seems but reasonable they should be protected and controlled by laws more especially for themselves, and which the practice of civilized nations is in the habit of ordaining. Hence a bankrupt law may be very different from an insolvent debtor's act, as a bankrupt law relates to the interest of merchants and traders; where, an insolvent act relates to the general interest of society. If, then, this distinction of interest prevail, can it be said the distinction of rights does not also prevail?

By the eighth section, first article, of the United States constitution, congress have a right "to regulate commerce with foreign nations, and among the several states," also to establish "uniform laws on the subject of bankruptcies throughout the United States." The power, then, of making bankrupt laws no longer remains with the several states; it is vested in the United States government. And how far a transient merchant, indebted in Philadelphia, can plead in this circuit court for the district of South Carolina a discharge under the insolvent debtor's act of South Carolina, obtained in the state court, against a suit instituted in this court, is the question which is now before me. On this point, involving the rights of the United States and individual states, I feel myself delicately situated in deciding the contending claims. More especially, as one of the particular reasons for calling into existence the present constitution of the United States was to equalize the commerce and trade, and the rights and privileges of the American and other merchants and traders throughout the Union, and with foreign nations. Unless, then, the question be considered as having this grand object in view, the merits of this case will be carried back to where they would have been before the passing of the constitution. The lex loci and lex fori of the several states would be brought under special consideration, as having more controlling powers than I think ought to be admitted at this day. Each state would then by such reasoning be deemed to authorize discharges of insolvency according to its own laws, and in mercantile concerns; not by uniform laws resting on the same principles, and promoting the same ends, but sometimes conflicting in points of justice and expediency not only with themselves but with the United States, and the principles of their superintending government.

On the 4th of April, 1800 [2 Stat. 19], a bankrupt law was passed. It was limited to the term of five years; and from thence to the end of the next session of congress thereafter, and no longer. It then expired, and there has never been since any bankrupt law in the United States. What were the reasons which influenced congress not to revive that act, or not to pass a new one, is not for me to say. Although it would appear that the different decisions which take place in the courts of the United States, and in those of the individual states, afford some grounds for the reconsideration of a bankrupt law; as well as the great inconvenience resulting from the want of one to which parties are occasionally subjected, by vexatious suits in different states of the Union against insolvent debtors, after they have obtained insolvent discharges in one of the states. In passing the bankrupt law it is evident congress looked towards bankrupt merchants and traders especially, as respecting the insolvent act of state authorities. For in the sixty-first section of the bankrupt law--5 Smith's Laws U. S. p. 81 [2 Stat. 36]--it is expressly enacted that this act shall not "repeal or annul, or be construed to repeal or annul, the laws of any state now in force, or which may be hereafter enacted, for the relief of insolvent debtors, except so far as the same may respect persons who are or may be clearly within the purview of this act." It is said, however, this act has expired; it does not thence follow that the reasons which gave rise to the exception do not still exist. And so far it does not come within the rule of "cessante ratione, cessata et ipsa lex." If, then, they do exist, I see not why for national and commercial purposes this court should not give them a consideration, although they be not engrafted into a bankrupt law. Under this impression it would seem the distinction taken by the defendant's counsel between a bankrupt law and an insolvent debtor's act has not been improperly introduced.

Among the great features of government, population and credit are to be ranked. As to the population, congress has equalized that by acts of naturalization throughout the United States; but having no bankrupt law, the credit as to provisions for bankrupts, and for securing the rights of their creditors, has not been so equalized, resting at present upon the insolvent acts of individual states, and the discretion and decisions of courts having cognizance. It hence results that foreigners and citizens of different states will look to the government of the United States for some general system, as either emanating from their laws or from their courts; and more particularly when they commence suits in the courts of the United States. The obligation is, therefore, the more imposing upon these courts, having this high responsibility to carry all such suits into effect in as uniform a manner as possible, so far as their authorities will permit, agreeably to the rights and just expectations of individuals, and the confidence so reposed in the United States government.

. . . . .

Upon the whole, without touching any other contested points of the argument (deeming it unnecessary in the opinion I am about to give), the case appears to me to resolve itself into this: That by the constitution of the United States the individual states have given up their rights of legislating as to commerce and bankruptcy; that this right is now solely in possession of the United States government, which, through its laws and judiciary, is bound to watch over and superintend the same; that no bankrupt law existing at this time does not affect the main question, because the right in government still remains to enact one, or to repose its confidence in the judiciary as to their decision respecting the same, in relation to the state laws; that the courts of the United States by admitting defendants to the benefit of the state insolvent acts, under the superintending and contracting power of the laws of the United States now existing, can and do promote the due ends of justice as relating to bankrupts. But it must be remembered all this is done under the authority of the United States and not under that of state authorities, although in doing so the insolvent acts of the states are referred to as rules of decisions in cases when they apply, as declared by the thirty-fourth section of the judiciary act. Under these impressions I do not think that by insolvent discharges from the courts of this state the insolvent debtor's acts of this state should be allowed to suspend or weaken the lien of process in this court, in the manner contended for in this case. It would be an interference between creditors and debtors, and certainly would tend to impair the obligation of contracts.

The Founders' Constitution
Volume 2, Article 1, Section 8, Clause 4 (Bankruptcy), Document 7
http://press-pubs.uchicago.edu/founders/documents/a1_8_4_bankruptcys7.html
The University of Chicago Press

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