An insolvent law of a state, providing that any conveyance of
property within the state, made by a citizen of the state, being
insolvent within four months before the commencement of proceedings
in insolvency and containing preferences shall be void and shall be
a cause for adjudging him insolvent and appointing an assignee to
take and distribute his property, does not, as applied to a case in
which the preferred creditors are citizens of other states, impair
any right of the debtor under the Constitution of the United
States, and such an adjudication, though made without notice to
such creditors and declaring void the conveyance made for their
benefit, cannot, upon its affirmance by the highest court of the
state, be reviewed by this court on a writ of error sued out by the
debtor only.
This was a petition to the Court of Common Pleas of Baltimore
City for an adjudication of insolvency and the setting aside of an
unlawful preference under the insolvent act of the State of
Maryland, which enacts that any conveyance containing preferences
(with exceptions not material to this case) by a merchant or
trader, being insolvent, shall be unlawful and void, and shall be
deemed an act of insolvency, provided a petition in insolvency
shall be filed by any creditor within four months afterwards, and
that, upon such petition alleging the facts, and upon notice to the
debtor and proof of the allegations, an adjudication shall be made
by the court that the debtor is insolvent, and thereupon his right
and power to dispose of any part of his property shall cease, and
as soon as a trustee to manage and distribute his estate shall have
been appointed by the court and shall have given bond, the whole
property of the insolvent shall be divested out of him and be
vested in the trustee. Maryland Code of Public General Laws of
1860, art. 48, as amended by Laws 1880, c. 172, §§ 13, 23, 24, and
Laws 1886, c. 298; Code 1888, art. 47, §§ 14, 22, 23.
This petition was filed December 8, 1887, by Theodore B. Smart
and others, partners, and creditors in the sum of $600 of Solomon
Brown, a merchant of Baltimore, and prayed the
Page 145 U. S. 455
court to adjudicate him an insolvent debtor, to appoint a
trustee, and to decree fraudulent and void a conveyance made by
him, being insolvent, on November 30, 1887, of all his property,
including his stock of goods in his store in Baltimore, and all his
debts, accounts, and choses in action, to Isaac Eichberg, of
Alexandria, in the State of Virginia, preferring certain of his
creditors, citizens of other states, whose debts were for money
lent at various times from December 29, 1886, to September 30,
1887, under contracts made and to be performed in those states, and
who were preferred in consideration of their agreement, expressed
in the conveyance, to accept the provisions thereof in full
satisfaction of their debts, and to acquit and discharge him of any
part of those debts remaining unsatisfied out of the proceeds of
the property conveyed. The petition prayed for a subpoena to Brown,
to Eichberg, and to each of the preferred creditors.
Brown alone was served with a subpoena and appeared, and
admitted the facts alleged in the petition and above stated, but
denied that the conveyance created an unlawful preference, because
all the creditors preferred therein resided out of the State of
Maryland, and were creditors on contracts made and to be performed
out of the state, and had agreed to accept the provisions of the
conveyance in full satisfaction of their debts, and also denied
that the court had any jurisdiction to decide upon the validity and
effect of the conveyance, and especially because the court had
acquired no jurisdiction of the trustee or of the creditors named
therein.
The court overruled both defenses, and entered an order
adjudicating Brown to be an insolvent, declaring void the
conveyance by him to Eichberg and appointing a trustee to take
possession of all his property.
Brown appealed to the Court of Appeals of Maryland, which
affirmed the order. 69 Md. 320, 14 A. Rep. 468, and 17 A. Rep.
1101. Brown then sued out this writ of error.
Page 145 U. S. 457
MR. JUSTICE GRAY, after stating the case as above, delivered the
opinion of the Court.
The principles which underlie this case are clearly established
by the decisions of this Court. So long as there is no national
Bankrupt Act, each state has full authority to pass insolvent laws
binding persons and property within its jurisdiction, provided it
does not impair the obligation of existing contracts; but a state
cannot by such a law discharge one of its own citizens from his
contracts with citizens of other states, though made after the
passage of the law, unless they voluntarily become parties to the
proceedings in insolvency.
Sturges v.
Crowninshield, 4 Wheat. 122;
Ogden v.
Saunders, 12 Wheat. 213;
Baldwin v.
Hale, 1 Wall. 223;
Gilman v.
Lockwood, 4 Wall. 409. Yet each state, so long as
it does not impair the obligation of any contract, has the power by
general laws to regulate the conveyance and disposition of all
property, personal or real, within its limits and jurisdiction.
Smith v. Union
Bank, 5 Pet. 518,
30 U. S. 526;
Crapo v.
Kelly, 16 Wall. 610,
83 U. S. 630;
Denny v. Bennett, 128 U. S. 489,
128 U. S. 498;
Walworth v. Harris, 129 U. S. 355;
Geilinger v. Philippi, 133 U. S. 246,
133 U. S. 257;
Pullman's Car Co. v. Pennsylvania, 141 U. S.
18,
141 U. S. 22. In
Denny v. Bennett, above cited, the law upon this subject
was well summed up by Mr. Justice Miller, speaking for the Court,
as follows:
"The objection to the extraterritorial operation of a state
insolvent law is that it cannot, like the bankrupt law passed by
Congress under its constitutional grant of power, release all
debtors from the obligation of the debt. The authority to deal with
the property of the debtor within the state, so far as it does not
impair the obligation of contracts, is conceded. "
Page 145 U. S. 458
A provision of the insolvent law of a state that all
conveyances, by way of preference, of any property within its
borders made by a citizen of the state, being insolvent and within
four months before the commencement of proceedings in insolvency,
shall be void is a usual, and a valid exercise of the power of the
state over property within its jurisdiction as to all such
conveyances made after the passage of the law, whether to its own
citizens or to citizens of other states.
But even if it should be held that such a law could not
invalidate such a conveyance so far as citizens of other states are
concerned, it is clearly valid so far as it makes the conveyance an
act of insolvency sufficient to support an adjudication of
insolvency and the appointment of a trustee or assignee to take and
distribute among creditors any property which may lawfully come to
his possession. The state might enact that conveyances preferring
particular creditors, if made in good faith, should be valid so far
as concerned them, and yet provide that, so far as the debtor was
concerned, the preference showed such a disregard of the rights of
other creditors as would justify adjudging the debtor to be
insolvent, and appointing a trustee or assignee to take possession
of and distribute any property not included in the conveyance.
In the case before us, the only plaintiff in error is the
insolvent himself. The position taken by him in the court below,
but not argued in this Court, that the obligation of a contract
with him has been unconstitutionally impaired is clearly untenable,
because the statute of the state was in existence when the contract
was made, and the subsequent decision of the Court of Appeals was
not a law within the meaning of the provision of the Constitution,
which declares that no state shall pass any law impairing the
obligation of contracts.
New Orleans Waterworks v. Louisiana
Co., 125 U. S. 18.
The only provision of the Constitution of the United States now
relied on by the plaintiff in error is the first section of the
Fourteenth Amendment, which forbids any state to deprive any person
of property without due process of law. But the plaintiff in error
has been deprived of no right by the judgment below. There is no
doubt of the validity of that judgment
Page 145 U. S. 459
so far as it adjudged him to be an insolvent and appointed an
assignee to take possession of his property, and in any view he has
no title or right in the property which was the subject of the
conveyance in trust. If that conveyance was valid, the property
belongs to the trustee for the benefit of the creditors named
therein. If it was invalid, the property vested in the assignee in
insolvency.
Whether the judgment below was ineffectual as against the
trustee or the creditors named in the conveyance, either for want
of notice or because the conveyance to them could not be set aside,
or whether, on the other hand, that judgment was valid against them
because rendered in a proceeding
in rem of which they were
bound to take notice is a question which could be presented by them
only, and they are not parties to this writ of error. The plaintiff
in error cannot invoke the judgment of this Court upon the rights
of persons under whom he does not claim.
Long v. Converse,
91 U. S. 105;
Ludeling v. Chaffe, 143 U. S. 301,
143 U. S. 305.
Judgment affirmed.
