Article 1, Section 8, Clause 4 (Bankruptcy)

Document 6

Golden v. Prince

Washington, Circuit Justice. This is an action brought upon a bill of exchange drawn by the defendant, on the 10th of May, 1811, at St. Barts, for value received there, in favour of the plaintiff, on himself, at Philadelphia, 90 days after sight, which was regularly noted for non-acceptance, and protested for non-payment. This action was brought on the 4th of May, 1812; to which the defendant pleaded in bar, his discharge, under a law of this state, passed on the 13th of March, 1812, for the relief of insolvent debtors; obtained provisionally on the 23d of April, and finally, on the 29th of May, 1812. The case agreed, states, that the defendant did not give to the plaintiff, or to any agent of his, notice of the defendant's petition, which was presented on the 20th of April, 1812, although the plaintiff's attorney was informed of the application a few days after it was made; nor has the plaintiff proved his debt under the said proceedings. The act referred to in the plea declares, that a debtor who has conformed to the several regulations of the law, for the purpose of vesting all his property in the assignees, for the benefit of his creditors, and who has received his certificate of discharge from the commissioners, shall be set at large by the sheriff, if he be imprisoned; and that such certificate shall be conclusive evidence of the fact, that such petitioner has been discharged by virtue of that act; and shall be construed to discharge such insolvent from all debts and demands due from him, or for which he was liable, at the date of such certificate, or contract, or originating before that time, though payable afterwards. It is objected to this plea--1. That the act under which the discharge is claimed, having been passed since the year 1789, affords no binding rule for the government of this court:--2. That the law is unconstitutional and void in two respects; as being a bankrupt law--and as being a law impairing the obligation of contracts.

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The next question is, whether the law relied upon by the defendant, to bar the present action, is repugnant to the constitution of the United States; and, on that account, is not to be regarded by the court, in this case? We shall reverse the order pursued by the counsel, and consider, in the first place, whether this law is repugnant to the constitution, upon the ground of its impairing the obligation of contracts? It may be proper to premise, that a law may be unconstitutional, and of course void, in relation to particular cases; and yet valid to all intents and purposes, in its application to other cases within the scope of its provisions, but varying from the other in particular circumstances. Thus, a law prospective in its operation, under which a contract afterwards made, may be avoided in a way different from that provided by the parties, would be clearly constitutional; because the stipulations of the parties, which are inconsistent with such a law, never had a legal existence, and of course could not be impaired by the law. But if the law act retrospectively, as to other contracts, so as to impair their obligation, the law is invalid; or, in milder terms, it affords no rule of decision in these latter cases.

The question then is, whether a law of a state, which declares that a debtor, by delivering up his estate for the benefit of his creditors, shall be for ever discharged from the payment of his debts, due or contracted before the passage of the law;--whether the creditor do any act, or not, in aid of the law; can be set up to bar the right of such creditor to recover his debt, either in a federal or state court? We feel no difficulty in saying that it cannot; because the law is, in its nature and operation, one which, in the case supposed, impairs the obligation of a contract. What is the obligation of a contract? It is to do, or not to do, a certain thing; and this may be either absolutely, or under some condition; immediately, or at some future time, or times; and at some specified place, or generally. A law, therefore, which authorizes the discharge of a contract, by a smaller sum, or at a different time, or in a different manner than the parties have stipulated, impairs its obligation, by substituting for the contract of the parties, one which they never entered into; and to the performance of which, they of course had never consented. The old contract is completely annulled, and a legislative contract imposed upon the parties in lieu of it. That a law which declares a subsisting contract to be void, impairs its obligation, will, we presume, be admitted by all men who can understand the force of the plainest terms; or, if not so, then we should be curious to know by what means the obligation of a contract can be impaired? And if this be the effect of such a law; in what respect does it differ from another, which declares, that a debt consisting of a specified sum, and due at an appointed period of time, shall be discharged at a more distant, or indeed at a different time, or with a smaller sum? The degree of injury to the creditor, may not be so great in the one case as in the other; but the principle is precisely the same. That the framers of the constitution were extremely jealous of the exercise of such a power by the state governments, is apparent from other parts of the section, in which the provision we are examining is found. It would have been a vain thing, to prohibit the state legislatures from passing laws, by which a contract might be annulled, or discharged, by payment of a less sum than is stipulated, if they could emit bills of credit, and make them, or any thing but gold and silver coin, a tender in payment of debts; and, therefore, they are expressly forbid to pass any such laws. And yet, a law, which should make a depreciated paper currency a tender in payment of debts, might be less injurious to the creditor, than one which discharges the debt altogether, upon the payment of perhaps a shilling in the pound, or any other sum less than that stipulated to be paid.

The opinion given upon this last point decides the cause in favour of the plaintiff; and we might well spare ourselves the trouble of examining the other objection made by the plaintiff's counsel to the validity of this law. But, when we observe, from the case under consideration, that a power to pass bankrupt laws is deemed by one state, at least, to be rightfully vested in the state legislature; (for otherwise we must suppose it would not have been exercised;) and when we recollect, that the constitution of the United States contains a grant of other powers to the general government, which may equally with that immediately under consideration be exercised by the state legislatures, if such a right exist in either case; we hold it to be our duty to embrace the first opportunity which presents itself, to express the unhesitating opinion which we entertain upon these great questions, and thus to pave the way for as early a decision of them, as possible, by the supreme national court. No citizen feels a higher respect than we do for the state governments, or would be more cautious in questioning the validity of any laws which their legislatures might think proper to enact. But we should very unfaithfully discharge our duty, were we to remain silent witnesses of designed or unintentional usurpations, by these governments, of powers properly belonging to the general government; when a case comes judicially before us, which demands an expression of our opinion on these subjects. The sooner the limits which separate the two governments are marked by those authorities, which can alone define and establish them, the less danger there will be of serious, if not fatal collisions hereafter, arising respecting essential powers, to which a prescriptive right may be asserted by the one, in opposition to the chartered rights of the other. It is from these considerations that we venture respectfully, yet firmly, to examine the question, whether the power given to congress to pass uniform laws of bankruptcy, be exclusive of such power in the state governments; and whether the latter may exercise it whenever the former has not thought proper to do so.

It would seem, at the first view of this question, that, if an unqualified power be granted to a government to do a particular act, the whole of that power is disposed of, and not a part of it; consequently, that no power over the same subject remains with those who made the grant, either to exercise it themselves, or to part with it to any other government. But, if the application of this principle to the complicated systems of government which prevail in the United States, should be liable to doubt, it will, we presume, be admitted with this qualification; that whenever such a power is given to the general government, the exercise of which by the state governments would be inconsistent with the express grant, the whole of the power is granted, and, consequently, vests exclusively in the general government. In such a case, the people resume the power, which before resided in the state governments as to this subject, without which they could not grant the whole to the general government; and, if resumed, it would seem to follow, that the state governments can in no event exercise the same power, without showing either an express grant of it, or that it is fairly to be deduced from the circumstance upon which the claim is founded. That the exercise of the power to pass bankrupt and naturalization laws by the state governments, is incompatible with the grant of a power to congress to pass uniform laws on the same subjects, is obvious, from the consideration that the former would be dissimilar and frequently contradictory; whereas the systems are directed to be uniform, which can only be rendered so by the exclusive power in one body to form them.

It was admitted, in the argument of this cause, that whenever congress shall think proper to exercise the power granted to that body, to pass uniform laws of bankruptcy, the state governments cannot legislate upon the same subject. But it was contended, that, if congress shall decline to exercise the power, the right to pass such laws results to the state governments. This conclusion appears to us to beg the whole question in controversy. It resigns all claim to a concurrent right in the state governments, and sets up one which is to arise on a condition, not to be found in the constitution, but which is gratuitously interpolated into it. If, then, this claim of the state legislatures is not founded upon any express grant made to them in the constitution, is it to be deduced from the circumstance of a nonuser of the power by congress? This doctrine appears to us to be as extravagent as it is novel. It has no analogy, that we know of, in legal or political science. It must, in some way or other, be likened to the case of forfeiture, which could not, we conceive, answer the purpose; because, if the power of congress is, upon principles purely legal, divested by an omission to exercise a valid right, it would not of necessity result to the state governments, but would more naturally revert to the people. If the forfeiture be political, then this absurdity would follow, that congress would possess a right to do, by omission, what it must be admitted they could not effect by any direct and positive act:--that is, to delegate to the state governments the power of legislation over a particular subject, of which the people had thought proper not only to deprive the state governments, but to vest exclusively in the national legislature. The inconvenience of dissimilar and discordant rules upon the subjects of bankruptcy and of naturalization, no doubt, suggested to the framers of the constitution, the remedy which that body adopted, of vesting the right to legislate in those cases in the general government; that some uniform system might prevail throughout the United States, if congress should think that any regulations upon those subjects ought at all to be made. Now, it would not only violate the express grant of these powers to congress, but the policy which led the convention to withdraw them from the state governments, if they should be construed to result by implication to the latter, on account of the omission of the former to exercise them.

But let us examine into the reasonableness of this pretension of the state legislatures, and see if the policy which induced the grant of these powers to congress be not effectually answered by the omission of congress to legislate on those subjects as much as if they had done so. Suppose the subject of a bankrupt law to be brought before congress, and the questions to be whether such a system be a wise one under any circumstances, or be at all suitable to the present state of the country; and that body should, in its wisdom, decide negatively on those questions, it would seem to follow, that no bankrupt law ought to exist in the United States, for the reasons which induced the rejection of any plan to establish such a system. In this case, what is congress to do, in order to give effect to this policy? The answer is plain,--reject the bill and do nothing. Then the law of the land would be, that no man is compelled, against his will, to deliver up his property to be distributed amongst his creditors; and, consequently, that he is at all times liable to the payment of his debts, unless discharged by some other legal means. Now, will it be said that the state legislatures, availing themselves of the refusal of congress to act upon this subject, can be at liberty to thwart the very policy which induced it; and pass laws upon the same subject, not only changing the state of the law as congress had constitutionally left it, but impugning the policy which led the convention to deprive the state legislatures of the power altogether, by imposing upon the country at large a variety of systems, instead of one uniform system? To argue, that to prevent such an absurd consequence, congress must legislate upon the subject, is to assert, that in the exercise of a power intended to promote the general good, congress must do some act, which, in its wisdom, it believes will produce a public evil--do wrong that good may come of it--a doctrine, as pernicious in politics as it is wicked in morals. How would state laws upon this subject, and in the case supposed, differ, otherwise than in degree, from similar laws, passed inconsistent with such as congress might think proper to enact upon the same subject? In the one case, the policy and the law of congress might be opposed in part only by the state law. But in the other, the whole policy and law are defeated by inconsistent rules, upon a subject where congress supposed that it was unwise to establish even a uniform rule.

The Founders' Constitution
Volume 2, Article 1, Section 8, Clause 4 (Bankruptcy), Document 6
http://press-pubs.uchicago.edu/founders/documents/a1_8_4_bankruptcys6.html
The University of Chicago Press

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