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bankrupt or insolvent law can be permitted to impair the obligation of contracts: and there must likewise be no act of congress in existence on the subject, conflicting with such law.* There is this further limitation also on the power of the separate states to pass bankrupt or insolvent laws, that they cannot, in the exercise of that power,
act upon the rights of citizens of other states.b *391 At present, there is not any bankrupt *system in
existence under the government of the United States, and the several states are left free to institute their own bankrupt systems, subject to the limitations which have been mentioned.0 The objection to a national
* Sturges v. Crowninshield, 4 Wheaton, 122. See, also, Gibbons v. Ogden, 9 Ibid. 197. 227. 235. 238. Houston v. Moore, 5 Ibid. 34. 49. 52. 54. These cases have settled the doctrine that the power in congress to pass bankrupt laws is not exclusive, but the same power may be exercised by the states respectively, under the restrictions which are mentioned in the text. Judge Story says, that Judge Washington maintained, at all times, an opposite opinion in favor of the power being exclusive in congress; and he sayx, that his opinion was known to have been adopted by at least one other of the judges. Story's Com. on the Const. vol. i. p.428, note. Since the passage of the bankrupt act of the United States, in 1841, it has been decided, that a state insolvent act may exist in full vigor, so far as it does not impede the operation of the bankrupt law. They do not come in conflict until the bankrupt law attaches upon the person and property of the bankrupt, and that is not until it is judicially ascertained that the petitioner is a person entitted to the benefits of the act by being declared a bankrupt by a decree of the court. Ex parte, Ziegenfuss, 2 Iredell's NC. Rep. 463. This case has been overruled, and I think very justly, in Griswold v. Pratt, 9 Mstcalf s Rep. 16, where it was adjudged that while a bankrupt law of the U. S. is in force it destroys the validity of the operation of a state insolvent law, even though no proceedings be had under it at the time. The one system supersedes the other, for they would in their proceedings be repugnant to each other.
b Ogden v. Saunders, 12 Wheaton, 213.
« Congress passed an act April 4th, 1800, establishing an uniform system of bankruptcy throughout the United States. The act was limited to five years, and from thence to the end of the next session of congress; but the act was repealed within that period, by the act of December 19th, 1803, and the system was not renewed until 1841.
An effort was made in congress, in the spring of 1840, to re-establish a uniform system of bankruptcy, and the subject received an able and thorough investigation and discussion, but congress could not agree on the principles bankrupt system consists in the difficulty of defining, to the satisfaction of every part of the country, the precise
of the system, and the effort failed. The bill which was reported and debated, enabled debtors of every description and class to take advantage of it at their option, and to be thereby completely discharged from their debts without the co-operation or assent of any creditor. Some of the members of congress were opposed to any bankrupt system on the part of the United States, as it would enlarge the powers of the federal courts to a great extent, and lead to the creation of a crowd of officers and agents to administer it, and probably to much abuse and corruption. They preferred that the administration of bankrupt and insolvent laws, should remain with the state governments. The compulsory process of bankruptcy at the instance of the creditor was urged by others as essential to the system, and that the provision should even be extended so as to include corporations, instituted under state authority for banking, manufacturing, commercial, insurance and trading purposes. But this last provision was objected to as most inexpedient, if not absolutely beyond the purview of the constitution. It was apprehended that such a power would lead to infinite abuse, and become expensive and extremely oppressive, and would tend to break up all the monied and business institutions created under state laws, or render the power of control of them most formidable and dangerous. The advocates for the bill contended that bankruptcy was a general term and meant failure, and was equally applicable to all persons of broken fortunes; that the constitution was not intended to be bound to the English system of bankruptcy, and that congress had the same power as the British parliament to extend the application of it, and that it might and ought to extend to all classes of debtors who had become disabled and overwhelmed in the peculiar and severe calamity of the times; that though the assent of at least a majority of the creditors to the debtor's discharge, was deemed by the New-York board of trade, to be essential to the stability of credit, the rights of creditors, the claims of justice, and the reputation of the country; it was insisted upon, as a compensation for this omission, that the operation of the act would be useful to creditors, though the debtor should be enabled to obtain the benefit of a discharge without their consent or action, for it would put an end to the pernicious practice of giving preference among creditors, and enable tho assets of insolvents to be distributed equally among the creditors.
The bill was strongly opposed by other members of congress on constitu. tional grounds reaching to the fundamental principles of the bill. It was contended that the power given to congress to establish uniform laws on the subject of bankruptcy, was one incidental to the regulation of commerce and applicable only to merchants and traders, or persons essentially engaged, in various ways and modes, in trade and commerce. That the term bankruptcy was adopted in the constitution, as it stood defined and class of debtors who can consistently with the constitutional jurisdiction of congress over the subject, be made
settled in the English law, where it had a clear and definite meaning; that it was universally taken and understood in that sense, contemporaneously with the adoption of the constitution, and it received that practical construction, and none other, in the bankrupt act of 1800; that the English bankrupt laws discharged the bankrupt from his debts and contracts, and were coercive on the debtor, and put in action at the instance of creditors, and at their instance only; that the proceeding was for the equal benefit of all the creditors, and its justice and policy, as applicable to that class of debtors, was founded on the peculiarly hazardous business of trade and commerce, and the necessity of large credits to sustain an extensive foreign and domestic trade; that there was a marked difference between bankrupt and insolvent laws, in the jurisprudence of England and of America, and which had been recognized by the supreme court of the United States ; (vide supra, p. 390 ;) that insolvent laws were left to the cognizance of the individual states, each of which had its own system of insolvent laws, and which the bill before the house would entirely supersede, for it was in fact a general and sweeping insolvent law, and it was apprehended that its operation on credit, and the popular sense of the legal and moral obligation of coutracts, would be disastrous.
Tho effort to establish a national bankrupt law was renewod at the next session of congress and was successful. An act of congress 11 To establish a uniform system of bankruptcy throughout the United States," was passed the 19th of August, 1841. It was declared to apply to all persons whatsoever residing within the United States, who owed debts, not created in consequence of a defalcation as u public officer, or as executor, administrator, guardian or trustee, or while acting in any other fiduciary character, and who should by petition on oath, setting forth a list of their creditors and an inventory of their property, apply to the district court for the benefit of the act, and declare themselves unable to meet their debts and engagements. The act was further declared to apply to all persons being merchants, or using the trade of merchandise, and all retailers of merchandise and all bankers, factors, brokers, underwriters or marine insurers, owing debts to the amount of $2,000, who should be liable to become bankrupts, upon petition of one or more of their creditors to the amount of $500, provided they had absconded, or fraudulently procured themselves or their property to be attached or taken in execution, or had fraudulently removed, or concealed, or assigned or sold their property. The bankrupt when duly discharged, was declared to be free from all his debts. The first provision is a sweeping insolvent law, and applies to all debtors and upon their own voluntary application ; the second is confined to merchants and traders, and the act is put in operation only at the instance of the creditors. The numerous details of the statute, and the many questions the objects of it; and in the great expense, delay and litigation, which have been found to attend proceedings in bankruptcy; and in the still more grievouf abuses and fraud which the system leads to, notwithstanding the vigilance and integrity of those to whom the administration of the law may be committed. To show the subtlety of the English distinctions on this subject, it may be here observed, that a farmer, a grazier, or drover, cannot, from their occupations, be bankrupts, for the statute of 5 Geo. II., ch. 30, exempted them; and yet, if a farmer buys and sells apples, or potatoes, or other produce of a farm, for gain, or manufactures bricks for sale, and becomes a dealer in such articles, he becomes like any other trader, subject to the English bankrupt laws.* So a farmer, who becomes a dealer in horses, for the sake of gain, or an inn-keeper, who sells liquor out of his house to all customers who apply for it, will become an object to the bankrupt laws. The question turns upon the per
which were raised, discussed and decided in the district and circuit courts of the United States, in the execution of tho act, cannot be noticed in the limited space allowed to this note, nor would they be any longer interesting, since the entire statute was repealed by congress on the 3d of March, 1843. The provision in the bankrupt act which rendered it a general insolvent act, and was the one almost exclusively in operation, gave occasion to serious doubts, whether it was within the true construction and purview of the constitution, and it Wob that branch of the statute that brought the system, and I think justly, into general discredit and condemnation, and led to the repeal of the law. In the cases of Kunzler v. Kohaus, and of Sackett v. Andross, 5 Hill's N. Y. Rep. 317. 327, the constitutionality and construction of the bankrupt act of congress of 1841 was largely discussed, and it was held that the voluntary as well as the other branch of the act was constitutional, and applied as well to debts created before as after its passage. Mr. Justice Bronson in a very elaborate opinion dissented from both of those propositions. And Judge Wells of the U. S. district court of Missouri, in the case of Edward Kleen, 2 TV. Y. Legal Observer, 184, after a very full consideration of the subject, also decided that the provision in the act of congress of 1841 for the discharge of a voluntary debtor from his debts and future acquisitions without payment or assent of his creditors was unconstitutional.
« Mayo v. Archer, Sir. Rep. 513. Wells v. Parker, 1 Term Rep. 34
son's common or ordinary mode of dealing in the case. and whether there be any trading carried on ultra his particular calling as farmer, grazier or drover.a If a man exercises a manufacture from the produce of his own land, as a necessary or usual mode of enjoying that produce, he is not a trader; but if the produce of his farm be merely the raw material of a manufacture, and that manufacture not the necessary mode of enjoying his land, he is a trader.1* And if a person use the profession of a scrivener, receiving other men's money or estates into his trust or custody, he is a trader, liable to the bankrupt act of 6 Geo. IV., c. 16. And with respect to the *392 *infirmities of the English bankrupt system, which has been the growth of upwards of two centuries. and been constantly under the review of parliament, and matured by the talents and experience of a succession of distinguished men in chancery, we may refer to the observations of Lord Eldon, when he succeeded to the great seal, in 1801. who took the earliest opportunity to express his strong indignation at the frauds committed under cover of that system. He remarked,0 that the "abuse of the bankrupt law was a disgrace to the country, and that it would be better at once to repeal all the statutes, than to suffer them to be applied to such
* Patman v. Vaughan, 1 Term Rep. 572. Bartholomew v. Sherwood. Ibid. note. Bolton v. Sowerby, 11 East's Rep. 274. Wright v. Bird, 1 Price's Exch. Rep. 20.
b Wells v. Parker, 1 Term Rep. 34. A planter who gains by the raising of crops by slave labour, and who has a saw-mill and brick yard as an appendage to a sugar plantation, in which he makes for sale planks and bricks, is not a trader within the bankrupt law of Louisiana, of 1826. Foucher v. His Creditors, 7 Louis. Rep. 425. In Patten v. Browne, 7 Taunt. Rep. 409, this distinction was taken, that if a farmer buys an article, with the direct object of making a profit upon the resale of it, he is a trader within the bankrupt laws; bat if purchases be made as ancillary to the more profitable occupation of the farm, and expenditure of the produce of it, and mixing it with the produce for that purpose, he is not a trader. • 6 Vesey, 1.