William M. Lacy James Kent.

Commentaries on American law, Volume 2 online

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the law in equal uncertainty. In Curtis «. Groat, 6 Johns. Rep. 168, Oster-
hont V. Roberts, 8 Cowen*sRep. 43, Prentiss, J., in Sanderson v. Caldwell, 2
Aik. Rep. 203, and Jones v. M'Neil, 2 Bailey^s 8. C. Rep. 466, the doctrme is,
*See, further. Fox v. Northern Liberties, 3 Watts. & S. 103; Fox v. Prick-
ett, 34 N. J. 13. The English doctrine now is, that it is not the judgment
alone that vests the property in the defendant, hut the judgment coupled
with the satisfaction thereof. Brinsmead v. Harrison, L. R. 6, C P. 584,
and the following cases in the courts here seem to follow out this doctrine.
EllioU V. Hayden, 104 Mass. 180; Smith v. Smith, 51 N. H. 571; Bacon r.
Kimmell, 14 Mich. 201; Lovejoy v. Murray, 3 Wall. 1; Bell v. Perry, 43
Iowa, 368; United Society v. Underwood, 11 Bush, 265, S. C. 21 Am. Kep.



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III. By insolvency.

It has been found neoessary, in governments which authorize
personal arrest and imprisonment for debt to interpose and pro-
vide relief to the debtor in cases of inevitable misfortune; and
this has been particularly the case in respect to insolvent mer-
. chants, who are obliged, by the habits, the pursuits, and the en-
terprising nature of trade, to give and receive credit, and en-
counter extraordinary hazards. Bankrupt and insolvent laws are
intended to secure the application of the effects of the debtor to
the payment of his debts, and then to relieve him from the weight
of them (a).

(1.) The Constitution of the United States gave to Congress the
power to establish uniform laws on the subject of bankruptcies
throughout the United States. Bankruptcy in the English law
has, by long and seUled usage, received an appropriate meaning,
and has been considered to be applicable only to unfortunate
traders^ or persons who get their livelihood by buying and selling
for gain, and who do certain acts which afford evidence of an in-
tention to avoid payment of their debts (&). The gen-
[ * 800 ] eral principle that pervades the * English bankrupt

that a recovery in damages of the valne of a specific chattel does not, of it-
self, work a change of title, and transfer it to the defendant, or his vendee,
withont satisfaction of the value found. On the other hand, it is declared,
in Morrell v. Johnson, 1 Hen, <& Munf, 449; Floyd r. Brown, 1 Rowleys Rep.
121 ; Marsh v. Pier, 4 Ibid. 2r3; Rogers t». Moore, 1 Rice^8 8. C Rep. 60, and
Carlisle v. Barley, 3 Greenieafs Rep. 250, that a recovery of the value of a
chattel, by Judgment, divests the plaintiff of his title, and transfers it to the
defendant, though the judgment \m not satisfied, and bars him from assert-
ing his title in any other action.

(a) Deeds of compositions with creditors frequently avoid the necessity of
a resort to discharges under bankrupt and insolvent laws. By these con-
tracts, the creditors agree to accept a composition for their debts, or a part of
the whole, and discharge the debtor. They have been termed private bank-
ruptcies, without the advantages attending a regular commission; but if they
are made fairly, and in good faith, and strictly conducted, they are valid in
equity and beneficial to all parties. See the case Ex parte Vere, and note
Ibid. 19 Vesey, 93. A creditor who does not agree with other creditors to a
comx>06ition is not bound; but if he does consent, an agreement in derogation
of the composition is fraudulent in respect to the other creditors, and void.
The composition binds him to good faith. Greenwood v. Ledbetter, 12
Price^» Exch, Rep. 183. Acker v. Phoenix, 4 Paige's Rep. 305. Jackman v.
Michell, 13 Vesey, 581. Ex parte Sadler & Jackson, 15 Ibid. 62. Leicester v.
Rose, 4 East^B Rep. 372. See a collection of all the modem cases on the sub-
ject, Petersdorf^s Abr. vol. vi. tit. Comp. with Creditors.

(6) 2 Blacks, (km. 285, 471. The bankrupt act of 6 Geo. IV. enlarged the
description of persons subject to the bankrupt laws, and extended it to per^
sons following the vocation of '^victuallerB, keepers of innSi taverns, hotels,
or coffeehouses.''



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system, is equality among creditors who have not previously
and duly procured some legal lien upon the estate of the bank-
rupt; and in order to attain and preserve that equality, the bank-
rupt's estate, as soon as an act of bankruptcy is committed be-
comes a common fund for the payment of his debts, and he loses
the character and power of a proprietor over it (a). He can no
longer give any preferences among his creditors, and the race of
diligence between them to gain advantages is wholly interrupted;
and if the bankrupt acts fairly and candidly, he will ultimately
be relieved from imprisonment, and even from the obligation of
his debts. In this respect there is a marked difference in general
between bankrupt and insolvent laws, for while the bankrupt may
be discharged from his debts, the insolvent debtor is usually only
discharged from imprisonment. But the line of partition between
bankrupt and insolvent laws is not so distinctly marked, as to
enable any person to say, with positive precision, whafe belongs
exclusively to the one, and not to the other class of laws. It is
difficult to discriminate with accuracy between bankrupt and in-
solvent laws; and therefore a bankrupt law may contain those
regulations which are generally found in insolvent laws, and an
insolvent law may contain those which are common to a bankrupt
law (6). The legislature of the Union possesses the jiower of en-
acting bankrupt laws, and those of the states the power of enact-
ing insolvent laws: and a state has likewise authority to pass a
bankrupt law (r). But no state bankrupt or insolvent law can
\ye permitted to impair the obligation of contracts; and there must
likewise be no act of Congress in existence on the subject, con-

ia) The English law carries the lien of the assignees of the bankrupt, back
to the time'of the act of bankrnptcy committed, so that the sheriff who on /.
fa., seizes and sells the goods of the bankrupt before the commission issued,
but after the act of bankruptcy committed, and without notice of the act of
bankruptcy, becomes liable in trover to the a.s.signees. inasmuch as the as-
signment has relation bsick to the act of bankruptcy, and vests the title to
the property in the assignees from that time. Co<iper r. Chitty, 1 ^iirr. Rep.
X>. Hal me r. Hutton, 1 Crompton it Meewn, 262, S. C. 9 Bingham^ s /?. 471.
This last decision was made in the exchequer chamber, after a very able and
learned discussion, and the rule was considered as settled, as it bad been
uniformly recognized and acted upon, ever since the deci.sion under Ix)rd

(6) Marshall, Ch. J., in Stnrges r. Crowniushield, 4 Wlwa/on, tOo.

(c) Insolvent laws, quite co-extensive with the English bankrupt system
in their operations and objects, have not been unfrequentin our colonial and
Mate legislation, and no distinction was ever attempted to be made in the
same between bankruptcies and insolvencies. Siory\^ Comm. on Const. U, 5.,
vol. iii. p. 11.

32 VOL. 11. KENT. 497


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flicting with such law (a). There is this further limitaiioQ 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 (&). At present,
[ * 391 ] 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, sub-
ject to the limitations which have been mentioned (c). The ob-

(n) Sturgesr. Crowninshield. 4 Wheaton^ 122. See, also, Gibbons r. Ogden,
9 Ibid, 197, 227, 235, 2:«. Houston v, Moore, 5 Ibid. 34, 49, 62, 54. These
c^afles 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 re-
spectively, under the restrictions which are mentioned in the text. Judjee
Story says, that Judge Washington maintained, at all times, an opposite
opinion in favour of the power being exclusive in Congress; and he says, that
his opinion was known to have been adopted by at least one other of the judges.
Tory's Comm. on tJie Contd. vol. i. p. 428, note.

(//) Ogden r. Saunders, 12 Wheaton, 213.

(c) Congress passed an act April 4th, 1800, establishing an uniform system
of bankruptcy thronghout 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 1^, 1803, and the
system has never been renewed.

An effort was made in Congress, in the spring of 1840, to re-establish a nni-
furm system of bankruptcy, and the object received an able and thorough in-
vestigation and discussion, but Congress could not agree on the principles 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 >)e thereby completely discharged from their debts, without
the co-operation or assent of any creditor. Some of the membersof Congress
were opposed to any bankrupt system on the part of the United State, 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 und^r state au-
thority 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 ex-
tremely oppressive, and would tend to break up all themonied and business
institutions created under state laws, or render the power of control of them
most formidable and dan^^erous. The advocates for the bill contended that
bankruptcy was a general term and meant failure, and was equally appli>
cable 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 beconiw
disabled and overwhelmed in the peculiar and severe calamity of the times;
that though the assent of at least a mf^jority of the creditors to the debtor's
xlischarge, 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 tor this



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jection to a national bankrupt system consists in the difficulty of
defining, to the satisfaction of every part of the country, the pre-
cise class of debtors who can, consistently with the constitutional
jurisdiction of Congress over the subject, be made 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

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omission, that the (»perntioD of the act wonld be usefal to cre<litors, thongh
the debtor should be enabled to obtain the benefit of a discharge withont their
consent or action, for it would put an end to the pernicious practice of giving
preferences among creditors, and enable the assets of insolvents to be dis-
tributed 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 i)ower 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 settled in the Eng-
lish 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 pecu-
liarly 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 difi'erence between bankrupt and insolvent laws, in the jurisprudence
of England and of America, and which had been recr^gnized 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 super-
sede, for it was in fact a general and sweeping insolvent law, and it was ap-
prehended that its operation on credit, and on the popular sense of the legal
and moial obligation of contracts would be disastrous.-

The legislation of New York afforded an historical fact on the subject which
seems not to have been noticed in the discussions in Congress. In April,
1811, the legislature of New York passed a law **for the relief of insolvent
debtors and their creditors." It w.os a voluntary process on the part of the
debtor in all cases in which he should be imprisoned or prosecuted^ and no
consent of the creditor was requisite, and on assignment of his property the
debtor was to be discharged from all his debts and contracts. This act was
adjudged by the Supreme Court of the United Sttite to impair the obligatadn
of contracts, and to be unconstitutional and void as to the discharge. See.
vol. i. 419, 420. The act was repealed by the legislature of New York on
the 14th of February, 1812, some years prior to the decision above mentionetl.
It was repealed upon the application of numerous petit ionei-s and petitions for
that purpose, and the report of the joint committee of the two houses of the
legislature on the subject, recommended its immediate repeal, and stated
"that experience had demonstrated the injustice, iftipolicy, and pernicious
tendency of the act; that the facilities and inducements which the said act
afforded to the commission of fraud and perjury, and the consequent multi-
plication of those crimes since it had been in operation, were insuperable
objections to its continuance." This is a striking instance of history teach-
ing by example.



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more grievous aooees and fraud which the system leads to, not-
withstanding the vigilance and integrity of those to whom the
administration of the law may be committed. To show the sub-
tlety of the English distinctions on this subject, it may be here
observed, that a farmer, grazier, or drover, cannot, from their
occupations, be bankrupts, for the statute of 5 Geo. IL, ch. 30,
exempted them; and yet, if a farmer buys and sells' apples, or
potatoes, or other produce of a farm, for grain, or manufactures
bricks for sale, and becomes a dealer in such articles, he becomes,
like any other trader, subject to the English bankrupt laws (a).
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 cus-
tomers who apply for it, will become an object to the bankrupt
laws. The question turns upon the person'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 (&). 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 \ye
merely the raw material of a manufacture, and that manufacture

not the necessary mode of enjoying his ]and, he is a
[ * 392 ] trader (c). And with respect to the * 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 succes-
sion of distinguished men in chancery, we may refer to the ob-
servations of Lord Eldon, when he succeeded to the great seal, in
1801, and who took the earliest opportunity to express his strong
indignation at the frauds committed under cover of that system.

(rt) Mayo V. Archer, Sfr. Rep. 513. Wells r. Parker, 1 Tritn Hep. 34.

(b) Patnian r. Vaughan, 1 Trrrn Rep. 572. Bailholomew r. Sherwood, Ihiti.
note. Bolton v. Sowerby, 11 EatU's Rep. 274. Wright r. Bird, 1 Price's
Exch. Re]). 20.

(c) WelLs r. Parker, 1 Term R. 34. A planter who gains by the raising;
of crops by slave labour, and who has a saw-mill and a brick yard as an ap-
pendage to a sugar plantation, in which he makes for sale plank and brick.s,
IS not a trader within the bankrupt law of Louisiana, of 182(5. Foucher r.
His Creditors, 7 LouU Rep. 425. In Patten r. Browne, 7 Taunt, Rep. 409,
this distinction was taken, that if a farmer buys an article, with the direrf
object of making a profit upon the resale of it, he is a trader within the
bankrupt laws: but if purchases he made as anviUary to the more profitable
occupation of the farm, and expenditure of the produce of it. and mixing
it with the produce for that purpo.se, he is not a trader.



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He remarked (a), that "the abuses 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
purposes. Thejce was no mercy to the estate. Nothing was less
thought of than the object of the commission. As they were
frequently conducted in the country, they were little more than
stock in trade for the commissioners, the assignee, and the solici-
tor {by

The respective states, as we have already seen, may pass bank-
rupt and insolvent laws. The power given to the United States
to pass bankrupt laws, is not exclusive. This is now established
by judicial decisions (c) ; and the exercise of the power residing
in the states to pass bankrupt and insolvent laws does not impair,
in the sense of the Constitution, the obligation of contracts made
posterior to the law (d).' The discharge under a soite law is no bar

(a) 6 Vesey, 1.

{b} The English bankrapt system has been mnch improved by the statute
of 6 Geo. IV. ch. 16, which was the consolidation of all the previous sta-
tutes of bankruptcy, and by the act of 1 and 2 William IV. ch. 56. The
improvements have, of course, given more simplicity and nniformity to the
code, and rendered it in several respects more remedial. The system has
been thoroughly illustrated by the treatises of Eden, Archbold, and War-
rand. On the other hand, the bankrupt law of Scotland is said to have
attained great excellence, by a slow and gradual course of improvement,
suggested in the course of practice, and wUh the aid of the combined wis-
dom of lawyers of profound knowledge, and merchants of large views and
great experience. BeWa Com. vol. i. p. 17. The French law of bankruptcy
in the commercial a)de, is said, by M. Dupin, to be equally complained of by
bankrupts and by their creditors.

(>) See ttupra^ p. 39(), note.

(d) The parties to a contract are supposed to do so in reference to the cx-

* The whole of the English bankruptcy system was amended by the act
of 1883, (statute 46 & 47 Vict. c. 52), and the rules and orders made there-
under, under which the debtor is subject to a public examination, his dis-
charge is in the hands of the court and may be granted or suspended in its
discretion according to the manner in which the debtor has conducted his
business. It contains very stringent measures affecting bankrupts who do
not suspend payment and business as soon as they know they are insolvent.
The whole of the debtor's property vests in the official receiver, (appointed
by the government], of the district in which the debtor resides or carries on
business, who conducts the meetings of the creditors and the public exam-
ination, and in fact takes full charge of the debtor's person and property,
after the petition is filed. Under an act passed in 1888, all deeds of assign-
ment, executed by debtors, are to be registered in the Ix)ndon Gazette, and
public notice is thus given of the debtor's condition. Under the act of 1883,
an assignment executed by a debtor is an act of bankruptcy upon which a
creditfjr may present a petition at any time within three months after its
execution ; Uius no trustee is safe in distributing the debtor's estate under
such a deed until after the expiration of such period.

' Bankruptcy and insolvency are co-extensive in their meaning. Kunzler
V. Kohous, 5 Hill, 317 ; Morse v. Hovey. 1 Barb. Ch. 404.

That Congress has full power, but its laws must be uniform in every state.


Jigitized by ^


to a suit on a contxact existing when the law was passed, nor to
an action by a citizen of another state, in the courts of
[ * 893 ] the United States, *or of any other state than that where
the discharge was obtained. The discbarge under a
state law will not discharge a debt due to a citizen of another
state, who does not make himself a party to a proceeding under
the law (a)/ It will only operate upon contracts made within the
state between its own citizens, or suitors subject to state power.
The doctrine of 'the Supreme Court of the United States, in Og-
den V. SaufiderSy is, that a discharge under the bankrupt law of
one country does not affect contracts made or to be executed in

iding laws Id relation to the subject matter of the contract, and the law itself
becomes a part of the contract. Belcher Ads. Oommissioners of the orphan
house, 2 M'Cord'9 8. C. Rep. 23.

(a) Sturges v. Crowninshield, 4 Whcaion^ 122. Ogden v. Saunders, 12 Ibid.
913. Braynard v. Marshall, 8 Pick. Rep. 194. Clay v. Smith, 3 Pe/irs' S. O.
Rep. 411. 3 Story' n Comm. 252— 256. Norton v. Cook, 9 Conn. Rep. 314.
Pngh V. Bussel, 2 Blackf. Ind. Rep. 394. Woodhull v. Wagner, 1 Baldwin'$
C C. U. 8. Rep. 296. See, also, supra, vol. i. p. 422.

See In re Silverman, 4 B. R. 523. There is no limitation to Its power and
its discretion is plenary. In re Irwin, 1 Pa. L. J. 291. See, also. In re
Klein, 1 How. 277 ; Thompson r. Alger, 12 Met. 428. The laws may estab-
lish voluntary or involuntaiy bankruptcy. Ix)ud r. Pierce, 25 Me. 233 ;
Rowan r. Holcomb, 16 Ohio, 463 ; LAlor v. Wattles, 8 111. 225. It has power
to modify the obligation of contracts, and a dischaige may be granted releas-
ing the debtor from contracts existing at the time the law was passed. Sack-
ett V. AndrosB, 5 Hill, 327 ; Keene v. Mould, 16 Ohio, 12 ; McCormick v.
Pickering, 4 N. Y. 276 ; In re Irwin, 1 Pa. L. J. 291. See further as to the
laws e.stablished by Oongress, Day r. Bard well, 97 Mass. 246 ; Kitteridge
V. Warren, 14 N. H. 609. The power of the state to pass a bankruptcy law
is not extinguished by a general bankruptcy law, but is merely suspended.
Sturgis V. Crowninshields, 4 Wheat. 122. Upon the effect of the general
bankruptcy act upon the state acts, see* Commonwealth v. O'Hara, 1 B. R.
86 ; Martin v. Berry, 36 Cal. 208 ; Shears r. Solhinger, 10 Abb. Pr. N. S.
287 ; /n re Ziegenfuss, 2 Ired. 463 ; Reed v. Taylor, 32 Iowa, 209.

* The question as to whether or not a debt is bari'ed by the discharge o(
the debtors, is to be determined by the question was the debt proveahle?
If it was it is barred. Hardy v. Carter, 8 Humph. 153 ; Rogers v. West. Ins.

Online LibraryWilliam M. Lacy James KentCommentaries on American law, Volume 2 → online text (page 63 of 108)