Debates in the Several State Conventions/Volume 4/Bankrupt Law (1826)
On the Bankrupt Law.
Mr. HAYNE. The first question which presents itself for consideration is, the necessity of a bankrupt law. It is asked "whether the laws of the states, on this subject, are not adequate to the object." I answer, decidedly and unequivocally, that there exists the most pressing necessity for now establishing "uniform laws on the subject of bankruptcy through out the United States;" and that the laws of the states, on this subject, are inefficient, unjust, and ruinous in their operation. In the remarks I am about to make on this branch of the subject, I wish to be distinctly understood as confining my observations to the effect of the state insolvent laws on persons concerned in trade. It is from the operation of these laws on the commerce of the country that those evils flow which demand a speedy and effectual remedy.
There now exist, in the several states of this Union, upwards of twenty distinct systems of bankruptcy, or insolvency, each differing from all the rest in almost every provision intended to give security to the creditor or relief to the debtor; differing in every thing which touches the rights and remedies of the one, or the duties and liabilities of the other.
By the laws of some of the states, debtors cannot be arrested either on mesne or final process; by others, personal property may be held in defiance of creditors; while, by others, real estate cannot be touched. In some instances, executions are suspended; in others, the courts of justice are closed, or, which is the same thing, delays are sanctioned which amount to a denial of justice. In some states, a few creditors in the immediate neighborhood are suffered, by attachment, or other legal proceedings, (often the result of collusion with the debtor,) to secure to themselves the whole estate of an insolvent. In several states, persons arrested for debt are permitted to "swear out," as it is called, after a notice of a few days; while in other states, they are required to lie in jail for three or four months. In some instances, the relief extended is confined to the discharge of the debtor from arrest in the particular suit; in others, from arrest in all suits; and in some few cases, the attempt has been made to release him from all future liability on existing contracts. These various systems, unequal and inconsistent as they must be admitted to be, are rendered still more objectionable by being perpetually fluctuating. It was the opinion of one of the ablest judges that ever sat on the English bench, or any other bench, that it was better for the community "that a rule should be certain than that it should be just;" for the obvious reason, that we can shape our conduct, or our contracts, in reference to any known and settled rule, so as to avoid its injurious effects; but when the rule is uncertain, we cannot avoid falling under its operation.
We are told that it was felt as a grievance by the Roman people, that the tyrant should write his laws "in a small character, and hang them up on high pillars," so that it was difficult to read them; but that grievance would have been rendered still more intolerable, if the inscriptions had been varied with the rising and setting of the sun.
Not a year, hardly a month passes by, which does not witness numerous, and, in many instances, radical changes in the insolvent systems of the several states. It is found utterly impracticable to conform to them or to guard against them. It defies the wisdom of the bench, or the learning of the bar, to give certainty or consistency to a system of laws, upon which twenty-four different legislatures are constantly acting, and almost daily innovating—a system which changes with a rapidity that deceives the mental vision, and leaves us in the grossest ignorance.
It is manifest, Mr. President, that the states are now reduced to the necessity of entering into a competition with each other, in restricting the rights of creditors, and impairing the liabilities of debtors; and this, too, in a matter in which, as it is impossible to mark the exact line of equality there must be great danger of their advancing, step by step, until every thing is unsettled. I am persuaded that nothing but the constitutional prohibition on the states, against "impairing the obligation of contracts," and the general—I might almost say the universal—belief that they have no right to pass an efficient bankrupt law, have hitherto prevented such an interference between debtor and creditor, as would have given a fatal blow to commercial credit and enterprise.
Sir, this whole country is filled with unfortunate debtors, who owe their failure to such causes. I have no hesitation in declaring it to be my firm belief, and settled conviction, founded on some personal knowledge, and information derived from those well acquainted with the subject, and worthy of entire confidence, that, from these causes, there is a mass of talent, industry—ay, sir, and virtue too—in our country, idle and useless; and that their number is daily and rapidly increasing. Thousands of individuals, who, in the commercial vicissitudes of the last twenty years, have become bankrupt,—sometimes from fraud, oftener from imprudence, but most frequently from misfortune,—are now struggling out a miserable existence, a burden to their friends and to their country. They live without hope, and will die without regret.
If we look into the proceedings of the Convention, or examine the commentaries on the Constitution by the great men who framed it, we shall find abundant reason to believe that the article which gives to Congress power over this subject, was designed to prevent frauds. The Journals of the Convention show that, on the 29th August, 1787, it was moved to commit the following proposition, to wit, "to establish uniform laws on the subject of bankruptcy, and respecting the damages arising from the protest of foreign bills of exchange;" which passed in the affirmative by a vote of nine states against two—Connecticut, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, North Carolina, South Carolina, and Georgia, voting in the affirmative, and New Hampshire and Massachusetts in the negative. On the 1st of September following, Mr. Rutledge, of South Carolina, (from the committee,) reported and recommended the insertion of the following words, viz.: "to establish uniform laws on the subject of bankruptcies;" which, on the 3d of September, was agreed to by yeas and nays, every state voting in the affirmative, except Connecticut.
I confess I felt my confidence in the wisdom of this provision of the Constitution strengthened and confirmed, when I discovered that it had been introduced by John Rutledge, and had received the unequivocal sanction of James Madison. In a number of the Federalist, written by that distinguished statesman, speaking of this particular provision of the Constitution, he says, "Uniform laws on the subject of bankruptcy will prevent so many frauds, that the expediency of it seems not likely to be called in question." Sir, we are wiser than our ancestors; that which they designed to "prevent frauds" we pronounce to be the most fruitful source of frauds. A proposition which seemed to them so clear that it was "not likely to be called in question," we have for twenty years rejected as unworthy even of a trial. It may be, Mr. President, that I am bigoted in my reverence for the authors of this Constitution; but I am free to confess that I distrust my own judgment when I find it leading me to discard their precepts, or to reject their injunctions.
In relation to bankruptcy, it is the federal government only that ever will enact a wise and judicious system, and no power but Congress can establish uniformity. This is the great desideratum. This is the true, the only remedy for the evils which I have pointed out. The wise man now at the head of the Supreme Court of the United States (whose character has been drawn with a master's hand by the gentleman from Virginia, in a finished picture that I cannot venture to touch, lest I should impair its beauty) has given us his opinion on this clause of the Constitution in terms worthy of consideration:—
"The peculiar terms of the grant (says Chief Justice Marshall) certainly deserve notice. Congress is not authorized merely to pass laws, the operation of which shall be uniform, but to establish uniform laws on the subject throughout the United States. This establishment of uniformity is, perhaps, incompatible with state legislation on that part of the subject to which the acts of Congress may extend."
Now, let it be remembered, that while, on the one hand, the power is expressly conferred on the federal government of acting efficiently on this subject, the right has been taken away from the states. This the Supreme Court of the United States have decided in the cases of Sturges and Crowninshield, and M'Millan and M'Neill, (4 Wheat. 122, 209.) A discharge under the bankrupt or insolvent law of a state is, in these cases, declared to be invalid, in consequence of the constitutional prohibition on the states of passing any law "impairing the obligation of contracts." Now, prior to the adoption of the Constitution, the states possessed this right, and, in some instances, exercised it to the most unlimited extent. It is a right essential to commercial credit and prosperity. It has been taken from the states, and vested in us; and if proper to be exercised at all, can only be exerted by us. I am aware, sir, that there are cases still pending before the Supreme Court, in which the question is involved, whether a state bankrupt law may not be enforced, in such state, on parties residing there, and contracting in reference to that law. This question has remained for several years undecided; but, whatever may be the final decision, it is obvious that it will not restore to the states the power of acting on the subject matter in the only way at all adequate to the exigencies of the country. The application of the lex loci contractus would be but a miserable substitute for a general bankrupt law. And even if it were possible that the case of Sturges and Crowninshield could be reversed, and the power be restored to the states of passing bankrupt laws, without restriction or limitation, I should consider twenty-four different bankrupt laws as infinitely worse than none.
In this bill the committee have framed a system of bankruptcy, which will, in their opinion, greatly contribute to give security to creditors, and relief to debtors, within the sphere of its operation. It is believed that it offers the strongest inducements to debtors for honest dealing; that it holds out a temptation to insolvent traders to make a timely surrender of their effects to their creditors; and that, thus, it will have a powerful tendency to prevent over-trading and desperate adventures. This bill gives power to creditors to arrest the fraudulent career of their debtors, furnishes a prompt remedy for the recovery of debts, and time and means for thorough investigations; it prevents all unjust preferences, and secures an impartial distribution of insolvent estates: it puts citizens of different states on an equal footing, and gives a certain, a just rule for commercial contracts; it puts our own citizens on a footing with foreigners; and, lastly, it will restore to society, to honor, and usefulness, a mass of industry and talent which, under the present system, is irretrievably lost—thus "paying a just tribute to the rights of humanity, by depriving the creditor of the power he now has over the whole life of his debtor."
Mr. WOODBURY. The gentleman on his right (Mr. Berrien) had said that Congress might legislate without limitation as to the objects or manner of a bankrupt system, because no limitation as to them had been expressed in the Constitution. But the limitation existed in the subject matter of the grant. The grant was not to legislate on the subject of contracts generally, of descents, of suits at law, but on the subject of bankruptcy. To bankruptcies, and to bankruptcies alone, then, was the power confined. And the word bankruptcies, as used in the Constitution, was never, in his apprehension, intended to extend beyond embarrassments and failures among mercantile men.
The bankrupt system had been limited essentially to persons more or less engaged in trade. The word itself, as remarked last year by the gentleman from South Carolina, had been derived from the circumstance that the person coming within its operation had his bench ruptured or broken up. The bench of whom? Not of the farmer—not of the mechanic—but the bench of the money-dealer, and the bench, or counter, of the merchant. Grant that some persons, not strictly traders, may, at times have been included in the provisions of some laws on the subject of bankruptcies; yet this was where the power of legislation was unlimited—where all legislation, as to all creditors and debtors, was invested in one body. It has but seldom occurred any where, and existed nowhere at the time of this grant of power to Congress.
That laws on the subject of bankruptcies were then deemed commercial only, is further manifest from the fact that when, late in the session of the Convention which framed the Constitution, this clause was introduced, it was coupled with a clause regulating the rate of damages, &c., on bills of exchange. It was well known to our fathers, that, in thirteen distinct sovereignties, the laws as to debtors and creditors were, and must always be, in many respects, very various, to meet their different usages, pursuits, prejudices, and educations; but that the merchants, throughout the confederacy, must carry on their business in other and remote states from those where they resided; and hence, as to their debts, their failures, and their adjustment of their affairs, it might be highly convenient and salutary to have similar rules and laws. In a Constitution, therefore, created, in a great degree, throughout, to benefit commerce, it was natural to confer power to make uniformity, or uniform laws, on a commercial subject.
It was impossible that Congress could, constitutionally, bring farmers and mechanics, by their individual consent, within the provisions of this act, where they would not be compelled to come without consent. It was no question between Congress and those individuals; it was solely a question between the general government and the individual states. He was opposed to this feature of the act; because to pass it would be to bring subjects and citizens within the scope of the general government, never contemplated by our fathers.
The question lay in a very narrow compass. It was, whether Congress had been clothed with power to pass laws regulating the insolvencies of persons not traders, and making their operation upon such persons dependent on their consent. The solution of this question rested mainly on the meaning of the word bankruptcies, as used in the grant of power on this subject, by the states, to the general government, in the 8th section of the 1st article of the Constitution. It thus became a momentous question of state rights, and hence deserved most deliberate consideration.