Article 1, Section 8, Clause 4 (Bankruptcy)

Document 9

Adams v. Storey

Before Livingston, Circuit Justice, and Van Ness, District Judge.

Livingston, Circuit Justice. This is an action brought on several promissory notes, made or endorsed by the defendant, then residing in Boston, to the plaintiffs, who were then and are yet residents of the same place. The notes are also made payable in Boston, and were dated prior to the passing of the insolvent law hereinafter mentioned. The defendant pleaded the general issue, and on the trial offered in evidence, pursuant to a notice given for that purpose, a discharge by the recorder of the city of New-York, dated the 13th of November, 1811, which was granted in virtue of an act of the legislature of the state of New-York, entitled "An act for the benefit of insolvent debtors and their creditors," passed the 3d of April of the same year. To the reading of this discharge the plaintiffs objected--but it was admitted. A verdict, however, was taken by consent, for the plaintiffs, subject to the opinion of the court on a case to be made by the parties. If the discharge was improperly admitted, judgment is to be entered on the verdict as it now stands; but if the discharge shall be thought a good bar to the action, the present verdict is to be set aside, and a verdict and judgment thereon entered for the defendant. The defendant, at the time of obtaining his discharge, resided and yet resides in the city of New-York. Few questions have ever been agitated in any court of the United States, since the formation of the federal government, of more extensive consequence, or of more delicacy than those which are now to be decided. When the binding force of an act of the legislature of any state is drawn into question for its supposed repugnancy to the federal constitution, although no court can entertain any doubt of its right to pronounce it invalid, yet it is no more than becoming to proceed with caution, and with more than ordinary deliberation. Presumptions will ever exist in favour of the law, for it will not readily be supposed that any state legislature, who are as much bound by the constitution, and are under the same solemn sanctions as the judges of those courts, to regard it, have either mistaken its meaning, or knowingly transcended their own powers. If, then, by any fair and reasonable interpretation, where the case is at all doubtful, the law can be reconciled with the constitution, it ought to be done, and a contrary course pursued only, where the incompatibility is so great as to render it extremely difficult to give the latter effect, without violating some provision of the former.

The plaintiff's counsel, in support of the verdict, say, that the discharge which was given in evidence can be no bar to the action. They contend that the statute of New-York, under which it was obtained, is a bankrupt law, and as such, is void for its repugnancy to the constitution of the United States; and this position is supported by the broad assertion that every law which discharges the person and property, as well future as in possession of the debtor, is a bankrupt law. But to this definition the court does not assent; for this would be to confound at once almost all the distinctions between these laws, which have been known and recognized in England, from which country we borrow the term, from the first introduction of the system there, in the reign of Henry the Eighth, down to the present time; distinctions which must have been familiar to many of the members of the convention that made the constitution. It is not because these laws may, in some respects, produce the same effects, that they are not to be distinguished from each other. In England the bankrupt system has been confined exclusively to traders, and the creditors of traders; whereas the insolvent laws of this country embrace every class of debtors. It is of no importance whether the debt has been contracted in the way of trade or not, for a person to come within the purview of an insolvent law. So exclusively have bankrupt laws operated on traders, that it may well be doubted, whether an act of congress subjecting to such a law every description of persons within the United States, would comport with the spirit of the powers vested in them in relation to this subject.

But it is not only in the persons, who are the objects of these laws, that a difference exists, but their general and most important provisions are essentially dissimilar. Under a bankrupt law, the debtor is at once, by operation of law, as soon as he has committed an act of bankruptcy, divested of all his property, which is transferred to assignees in trust for his creditors. All dispositions by the bankrupt himself after this are void; an insolvent, on the contrary, retains the management of his own estate, however he may misbehave towards his creditors at large, and it is rarely, unless on his own application, vested in others. It is of no importance how many acts he may commit, which, under a bankrupt system, would enable his creditors to take from him the control of his property; they can seldom act upon him compulsively under the provisions of an insolvent law, if he be obstinate or dishonest, until he has given what preferences he thinks proper, and is become so poor as to be scarcely worth pursuing. Under the one system the creditors are actors, and under the other the debtor himself originates the proceedings; and if, as is sometimes the case, his creditors may do it, even then his consent is generally indispensable under the provisions of an insolvent system. Other differences, in almost every stage of proceeding, might easily be pointed out, but they are so familiar to the profession, that a bare inspection of the act under which this discharge was obtained, will leave no doubt on the mind of any one to which class it belongs. "The title proclaims it to be an act for the benefit of insolvent debtors and their creditors." The first section gives power to the insolvent himself, who is imprisoned on any civil process issuing under the authority of this state, to present his petition to a proper officer, praying that his estate may be assigned and he discharged from his debts. The residue of the act is principally made up of directions as to the proceedings which are to be observed after the presenting of such petition, until the final discharge of the debtor, all of which differ greatly from the proceedings which take place on the issuing of a commission of bankruptcy. The fourth section declares, that such "discharge shall extend to all debts due from him at the time of the assignment, or contracted for before that time, though payable afterwards." If this be not an insolvent law, the court is at a loss to say to what act this appellation can apply. The opinion which has been expressed on this point would seem to preclude the necessity of inquiring how far this law interferes with the authority given to congress to "establish uniform laws on the subject of bankruptcies;" but as the view which has been taken of the act of this state may be thought incorrect, the court has no objection to consider it, as though it were a bankrupt law. The power to pass laws of this character, it is said, is exclusively vested in congress, and whether they exercise it or not, no state can have a bankrupt law of its own. As a consolidation of the different states into one national sovereignty was neither effected nor intended to be effected by the constitution, it has always been conceded that the state governments retained so much of the power, which they before had, as was not by that instrument exclusively delegated to the United States. It is now indeed one of the amendments to the constitution, that the powers not granted to the United States by the constitution, nor prohibited by it to the states, are reserved to the states respectively or to the people. It is agreed that such exclusive alienation of state sovereignty can only exist in three cases; where, by its terms, it is so, or where a power is conferred on the federal government, and the states are prohibited from exercising a similar authority, or where an authority is granted to the former, to which the exercise of a like power on the part of the different states would be absolutely and totally contradictory and repugnant. It is now pretended that the grant of the power under consideration is exclusive in its terms, or that there is an express prohibition on the states from exercising a like authority; but it is supposed that such exercise would be so totally inconsistent with the one granted to the government of the Union as to be necessarily comprehended in the third class of exclusive delegation. If it be really so, that the passing of a bankrupt law by a state, to operate, as it necessarily must, within its own limits, be absolutely incompatible with the power vested in congress, it would be conceded at once, that such an act would amount to a violation of the constitution of the United States and be void. Let us see whether the counsel have succeeded in establishing this position.

It must be allowed by all, that at the time of making the constitution, each state had a right to pass insolvent and bankrupt laws. As it was desirable, in a country so extensive as the United States, and every part of which was more or less commercial, that the laws relating to bankrupts should be uniform, so also it was an object of great importance that none of the larger commercial states should at any time be without some code on this subject. A system of the first kind, that is, one which should be uniform throughout the Union, could not well be brought about but by delegating the power of rendering it so to congress. Great difficulties however would lay in the way of a statute, whose provisions should pervade the United States; and as these must have been foreseen, the states might be willing and desirous of retaining the right of passing laws of this nature, until congress could agree on a general plan. Nor can the court perceive any contradiction, absurdity, or repugnancy in these several powers existing at the same time in the general and in the state governments; in such subordination, however, that the exercise of the authority vested in the former should, for the time, suspend all exercise of the power which resided in the latter, and operate as a repeal of any laws which might have been previously passed by the several states. It is an uniform rule which congress are to prescribe. But if they furnish none, how is it an interference for each state to legislate for itself? Neither the terms nor spirit of the instrument are thus disturbed. It seems designedly to have been left optional with the general government to exercise this power, that if the embarrassments which lay in their way were insurmountable or very great, they might omit to do it, and thus leave the states to take care of themselves. If it had been intended immediately to divest the states of all power on this subject, and to compel congress to act, the terms of the article would have been much more imperative than we find them, and probably it would have been accompanied with a prohibition on the states. No writer on this part of the constitution has gone further than to say that the power of naturalization is exclusive; because, if congress have a right to ordain a general rule, the states can have no right to prescribe a distinct rule. This construction is supposed to follow, not from any inconsistency there would be in each state passing a naturalization act for itself, if congress did not bring into action the power delegated to them, but from the inconvenience to which it might subject some of the states, by imposing upon them as citizens, obnoxious foreigners, who might become naturalized in another state, without any previous residence, or without any regard to character, by the mere formality of taking an oath of allegiance.

If the argument ab inconvenienti applies to the case of naturalization, it has no bearing on that of bankruptcy; for, in this case, each state would be legislating principally for its own citizens, and other states could not be injured by any system it might adopt. But this construction, even in the case of naturalization, where the argument in favor of an exclusive power is much stronger than in that of bankruptcy, has not only been strongly controverted, but is opposed by a judicial decision entitled to no little respect. It is the case of Collet v. Collet, [Case No. 3,001,] in the circuit court of Pennsylvania, in which the three judges, one of whom had been a member of the federal convention, decided, after solemn argument, that the several states still enjoy a concurrent right with congress on this subject, "which, however, cannot, they say, be so exercised as to contravene any rule which congress in their wisdom may establish." The most strenuous advocates for the exclusive exercise of every unqualified power granted to the general government, seem not unwilling to admit the several states to a participation of such power, if it can be exerted consistently with, or without derogating from the express grant to congress. It has not been shown how a bankrupt act, passed by a particular state, can interfere with the exercise of a power residing elsewhere, to promulgate a uniform law for all the states. If similar powers had been granted to the government of the Union, respecting the descent of real estates, the recording of deeds, or the celebration of marriages, will it be said that the several states must have remained without any laws to govern the transmission of landed property, or that no deed could be acknowledged or recorded, nor a valid marriage solemnized, although congress might for years omit to prescribe rules on these subjects? The object of this grant could have been no other than to place somewhere a power to correct the mischiefs which might arise from the different states passing on the same subject, not only dissimilar laws, but such as might be unequal in their operation on the citizens of other states. This end of the grant will be sufficiently and effectually attained, if, when the evil arises, congress bring into action the authority vested in them. From them only can a uniform system emanate; but systems, greatly varying, it is true, all of which, however, may be salutary, may be established without any derogation from or interference with a right residing elsewhere, to introduce uniformity on the same subject. Nay, from these very provisions, however discordant, might be selected materials for the one which it was committed to the general government to form. Neither can the passing of such laws by the states be regarded as a resumption of power by them, in which case, it is said, they should produce an express grant of it. This argument proceeds on the presumption of a previous relinquishment on the part of the states of all right to interfere in this matter, and is thus taking for granted what is the whole question in controversy; for, unless such transfer has been made, which is not admitted, no reassignment of it by the general government can be necessary.

No court of the United States will be suspected of feeling any disposition to countenance encroachments by the state legislature on the legitimate authority of the government of the Union; but in cases of doubt, and where the limits of separation are not very distinctly marked, and especially where the powers exercised leave in full force and unimpaired those given to the general government, the tranquillity and harmony of the Union will be better preserved by allowing to the states a reasonable share of legislation on the subject in dispute, than by strenuously insisting on a total exclusion. Congress themselves must have entertained an opinion, that the different states have this right in the present case; for on no other principle can we account for their leaving the United States so long without a uniform system of bankruptcy. Great and pressing as the call for such a system has been, the obstacles in the way of one that shall be uniform, and in that shape agreeable to all the states, continue to be so numerous, that but little hope is now indulged that any will be soon adopted; but great and serious as these difficulties may be, it would almost be the duty of congress to disregard them, if there existed no where else a power to correct the mischiefs which must necessarily be felt in many of the states from the non-user of this authority. The inference which has been drawn at the bar from this silence or inaction of congress, does not appear correct. It is considered as equivalent to an expression on their part of their sense against the wisdom and policy of all bankrupt laws, and that none ought to exist any where. Keeping in view the power which congress have, on this subject, it is more natural to interpret such silence into a declaration of their opinion of the inexpediency at present of any uniform system, and that the several states still retain the power which has been contended for, and can therefore take care of themselves. This would not be so great an imputation on their wisdom, as to suppose they can entertain an opinion in opposition to the sense of the whole world, that in a commercial state, such laws are mischievous or unnecessary. The opinion of the court, therefore, is, that this law, if a bankrupt law, would not on that account be void.

The Founders' Constitution
Volume 2, Article 1, Section 8, Clause 4 (Bankruptcy), Document 9
http://press-pubs.uchicago.edu/founders/documents/a1_8_4_bankruptcys9.html
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