7 Johns. Ch. 297 | New York Court of Chancery | 1823
The contract upon which the present demand is founded, was made in the state of Connecticut. In July, 1813, H. S. Beach, (whose interest the plaintiff represents,) G. Peck, and the defendants, being at JVeiti Haven, in Connecticut, and engaged in business there, became concerned in a commercial adventure to the West Indies; the cargo of the return voyage was consigned to the defendants W. S. and S. Hotchkiss, and delivered to them in Rhode Island, the latter end of the year 1813. If was shortly thereafter sold and converted into cash, and those consignees became responsible to the other parties for
The only question in the case is, whether that discharge, under the circumstances, be a legal bar to the suit. The facts do not sufficiently warrant the conclusion, that the discharge was fraudulently procured, by concealing or denying the fact that Beach was a creditor at the time H. Sy H. exhibited to the Recorder an account of their debts and creditors. The denial of the existence of that creditor or debt, was not, at the time, necessary to the validity of the proceedings. The act of 1813, only required the assent of two thirds of the creditors, in value, to the petition, and the insolvents had signatures to that amount, without the assent of Beach or his assignee.
The act declared, that the insolvent debtor, upon his petition, in conjunction with two thirds of his creditors in value, and upon assigning over all his property, (except a few articles of necessity,) and complying with the requisitions of the -act, should be discharged “from all his debts due at the time of the assignment, or contracted for before that time, though payable afterwards, except debts due or owing to creditors without the United States, who should not have petitioned for the insolvent’s discharge, or have come in and accepted
It is contended, that the discharge in question was no bar, inasmuch as no state can pass any law “ impairing the obligation of contracts,” and the discharge of the insolvents from their contract to pay Beach, without his consent and without having paid him, was an act of law impairing and destroying the obligation of the contract.. If the discharge would have been valid, if the contract had been made in this State, yet it is insisted, that the contraes being made out of the State, and between persons not at the time citizens of this State, the discharge is clearly void.
The question, upon this discharge, is of very grave import, and leads to an examination of the principal decisions on the constitutionality of these state insolvent laws.
The great and leading case on the subject, is that of Sturges v. Crowninshield, decided by the Supreme Court of the United States, in February, 1819. (4 Wheaton, 122.) The defendant, in that case, gave two promissory notes to the plaintiff, dated at Mew- York, the22d of March, 1811, and in February following he was discharged from all his debts under the insolvent act of this State, of the 3d of Jlpril, 1811, entitled, “ an act for the benefit of insolvent debtors and their creditors.” He was afterwards sued in the Circuit Court of the United States, for the district of Massachusetts, upon one of those notes, and pleaded his discharge in bar. To this plea there was a demurrer, and the cause was carried up to the Supreme Court of the United States, and argued in February, 1819. Every topic of discussion, in respect to the policy, the origin, the necessity, and the construction of those parts of the constitution, which bear upon the question, and in regard to the powers of the general and state governments, to pass bank
In the opinion of the Court, as delivered by the Chief Justice, it was admitted, that until Congress exercise the power to pass uniform laws on the subject of bankruptcy, the individual States may pass bankrupt laws, provided those laws contain no provision violating the injunction in the constitution, not to impair the obligation of contracts. It was admitted, also, that the States might, by law, discharge debtors from imprisonment, as imprisonment was no part of the contract, but only a means of coercion; and that they might likewise pass statutes of limitation ; for such statutes relate to the remedy, and not to the obligation of the contract. . It was further stated by the Court, that the insolvent laws, of far the greater number of the States, only discharged the person of the debtor, and left the obligation to pay in full force; and to this the constitution was not opposed. But in the judgment of the Court, a law which discharged the debtor from his contract, without performance, and released him, without payment, entirely from any future obligation to pay, impaired the obligation of that contract, and, consequently, the plea of a discharge, under the act of this State, of the 3d of April, 1811, was no bar to the suit on the notes given in New-YorJc, on the 22d of March, 1811.
It is to be observed, that the act of 1811, was retrospective, and discharged the debtor upon his single petition, without the concurrence of any creditor, from all his pre-existing debts; or, in the words of a supplementary provision, (Act of the 9th of April, 1811, ch. 248.) from “ all liability and responsibility, by reason of any bill, indorsement, contract, covenant, obligation or engagement, which the debtor might previously have drawn, made, entered into, or executed.” This act manifestly impaired the ob
So far as this decision has settled the construction of the constitution of the United States, it is to be received as the true construction; for questions of that kind fall within the cognizance of the judicial power. The decisions of the Supreme Court of the United States upon questions arising Upon the construction of the powers and authority of the constitution, must be definitive, and binding upon all the tribunals of the Union ; because the constitution has made their judgments and decrees final, and without appeal. Every decision by a Court in the last resort, in a case within its undoubted jurisdiction, must, from the necessity of the case, be absolutely binding. The proposition, that the State Courts are equally supreme, independent and absolute, in the consideration and decision of such national questions, strikes me as untenable. It would lead to the subversion of all order and subordination. There must be a paramount power, some where, in the organization of every political institution, or there is no government. The Supreme Court of the United States, on questions within its cognizance, is that power; and if the State Courts were to undertake to disobey or elude its decisions, the consequence would be discord and confusion, or a dissolution of the national compact.
I should have deemed it my duty, therefore, to have maintained this doctrine, even if I had considered the application of a prohibition in the constitution to the discharge under the act of 1811, to have been a mistaken application. But this is not the case. The act of 1811, did impair the obligation of contracts to a most fatal and alarming extent. It was equivalent to a general re
I have not described the mischiefs of the act of 181Í, beyond historical truth. We have, as authentic evidence of the fact, the report of the joint committee of the Senate and Assembly of the 6th of February, 1812. That report contained this strong declaration, that “ experience had demonstrated the injustice, impolicy, and pernicious tendency of the act of 1811; that it had multiplied fraud and perjury, and that the dictates of-justice and sound policy required its immediate repeal.” The fate of such a law affords a monitory lesson; and it is, certainly, without any mixture of regret, that I have perceived that, under the authority of the case of Sturges v. Crowninshield, a great number of discharges, procured by means of the act of 1811, have been sacrificed upon the altar of the national justice. An insolvent law, discharging a debtor from his then existing debts, is a violation of vested right, injurious to morals, and dangerous as an example, and ought to be condemned.
But the case of Sturges v. Crowninshield, is not free
The Court, however, Said, at the conclusion of their opinion, that it was “ confined to the case actually under considerationand that case was one in which the contract was existing when the law was passed. It must be admitted, that it is not very safe, to separate the reasoning of the Court, in any given case, from the facts to which the reasoning was meant to apply; and if there be any thing material or solid in the distinction, we may avail ourselves of it, without impairing the authority of such case. A decision is, strictly considered, an authority to the extent only of the facts which warranted it.
In Mather v. Bush, (16 Johns. Rep. 233.) decided by the Supreme Court of this State, in May, 1819, that dis
I do not perceive the very great force of this last argument ; for if parties are to be supposed to contract in reference to existing laws, they must be presumed to mean laws made in pursuance of the constitution. But the materiality of this distinction between an insolvent act made to affect past, and one confined to future contracts, had been already perceived and acknowledged by the Judges of other Courts. It was admitted by Ch. J. Parker, in Blanchard v. Russell, (13 Mass. Rep. 1.) and by Mr. Justice Washington, in Golden v. Prince. (5 Hall’s L. J. 502.) In this last case, the insolvent act of Pennsylvania was passed after the making of the contract upon which the defendant was sued; and the discharge which was pleaded in bar, was overruled. It was held, that the law was un? constitutional in relation to that particular case, because it impaired the obligation of the contract by discharging the debtor, to use the language of the learned Judge, “ from the payment of his debts, due or contracted before
A great deal may be said against the policy of insolvent laws, which go to discharge the debtor absolutely from his debts, though they are prospective in their operation; and such considerations are proper for the legislative power, when passing upon such laws. Good faith should be earnestly taught, and religiously observed, not only on the part of government, but in the dealings of individuals with each other; and the interference of the law to discharge a party from the obligation of his contract, fairly and freely made, without the consent of the party entitled to performance, and without performance, is, in itself, a strong measure, and of dangerous influence, and requires a pressing necessity to justify it. In the language of the report, which I had the honour, in connexion with the Judges of the Supreme Court, to submit to the Legislature of this State, on the 22 d of January, 1819, “a permanent insolvent act, made expressly for the relief of the debtor, and held up daily to his view and temptation, and when its main object is to set him for ever free from his debts, has a powerful tendency to render him heedless in the creation of debt, and careless as to payment. It induces him to place his hopes of relief rather in contrivances for a discharge, than in increased and severe exertions to perform his duty.” I have no doubt that insolvent and bankrupt laws have an unfavourable effect upon the morals of the community; and that, though it >nay be a discouraging check to industry and enterprise, to subject the future acquisitions of a bankrupt or insolvent debtor to the payment of his debts, according to the rule of the cessio bonorum of the Roman law, the evils resulting from the practice of a complete release of the debtor, are much greater.
The contemporary exposition of the constitution on this point, and the uniform practice under that exposition, ap- ... . pear to me to furnish a very strong argument against that construction, which would apply the prohibition to prospective insolvent lawsl We have good reason to believe that the construction now under review, was not originally in the contemplation, either of the convention that made, or of the conventions which ratified the constitution.
Insolvent laws, to the extent of the act of 1813, existed, and were in use, when the constitution of the United States was adopted. No person supposed they were repealed by the adoption of the constitution. They have been kept in use ever since, without the suggestion of a doubt as to their validity. It did not occur to any person at that period, that Congress might and ought to pass bankrupt laws, discharging bankrupt merchants from their debts, and that the State Legislature could not pass or continue insolvent laws, discharging any other class of unfortunate debtors, upon the same terms, without a violation of civil and moral obligation. No objection had been raised, as far as I recollect, to the constitutionality of these insolvent laws, by thejudiciary of this or of any other State, or by that of the United States, until the decision in Sturges v. Crowninshield. I have already alluded to the opinions of the Chief Justice of Massachusetts, and of Justice Washington; and I may add, the judicial opinions in Adams v. Storey, (6 Hall’s L. J. 474.) and in the case of the Farmers and Mechanic’s Bank v. Smith, (ib. 547.) as well as in several other early cases before the federal Court, referred to by Mr. Hunter, in his argument, in Sturges v. Crowninshield, to show that such laws were held to be valid. In this State there was a per
But the decision in M'Millan v. M'Neill, at the same term of the Supreme Court of the United States, (4 Wheaton, 209.) went a step further, and held, that a discharge under an insolvent law, existing when the debt was contracted, was equally void, and within the principle of the decision in Sturges v. Crowninshield. This was a case, however, of a discharge under the insolvent law of a different government from that in which the contract was made. The plaintiff resided in South Carolina, and gave a custom house bond, in November, 1811, with the defendant, also a citizen of S. C., as his surety. The bond was paid, after suit and judgment, by the defendant, in 1813. The plaintiff, afterwards, removed to Neto-Orleans, and was discharged in 1815, both as to person, and present and future • property, from all his debts, under an insolvent law of the State of Louisiana, passed in 1808. He was sued in Louisiana, in 1817, by MNiell, and pleaded his discharge under the Louisiana act, and the plea was overruled on demurrer, by the Circuit Court of the United States, for that district, and the judgment affirmed by the Supreme Court of the United States. The Court said, that the circumstance of the State law, under which the debt was attempted to be discharged, having been passed before the debt was contracted, made no difference in the application of the principle of the former decision.
Here, also, the principle of the decision seems to be more general and extensive than the facts in the case required. Do the Court mean to say, that if the debt had arisen in Louisiand, between persons residing there, the discharge, under a pre-existing law, would have been equally unavailing ? Are we bound to regard this decision, as an. authority to that extent ? If we are, then there is an end of all State
The subsequent case of the Farmers and Mechanic's Bank of Pennsylvania v. Smith, (6 Wheaton’s Rep. 131.) declared, that though the parties were citizens of the same State, when the contract was made, and continued such to the bringing of the suit, it made no difference in the application of the principle of the former decisions, as the constitution of the United States was equally binding on all the Courts and all the citizens. But here also the facts were more narrow than the general doctrine of the Court, for the insolvent act, in that case, was passed subsequent to the contract; and I must once more advert to the rule, that a case is no authority beyond the facts that called for the decision.
It results, then, from the decisions at Washington, that valid discharges, under an insolvent act, must, at all events, be confined to the case of debts contracted after the passing of the act, and which were contracted within this State. Whether the principles, declared in the case of Sturges v. Crowninshield, are to be more extensively applied, so as to reach and control this remaining power of the insolvent act, I am not prepared to say. It would not be in my power, according to my present view of the subject, to carry these principles to that extent. It is sufficient for the present, to observe, that the case is not an authority for that purpose; and I willingly leave the further application of its doctrine to the consideration and judgment of the Supreme Court of the United States, whose decisions, even when we do not entirely assent to
The following order was entered:
“ It is ordered, that the decree pronounced at the first hearing, in respect to the two defendants, W. S. fy S. Hotchkiss, be vacated, and that they account to the plaintiff for the sum of 1803 dollars and 28 cents, the amount admitted to have been received for H. S. Beach, together with interest thereon, from the 1st of January, 1814, and that they pay to the plaintiff his costs as against them, and that the bill, as to the other defendants, be dismissed, with costs.”