Since the adoption of the Constitution of the United States, a
state has authority to pass a bankrupt law, provided such law does
not impair the obligation of contracts within the meaning of the
Constitution, Art. I, s. 10, and provided there be no act of
Congress in force to establish a uniform system of bankruptcy
conflicting with such law.
The act of the Legislature of the State of New York, passed on 3
April, 1811, which not only liberates the person of the debtor but
discharges him from all liability for any debt contracted previous
to his discharge on his surrendering his property in the manner it
prescribes, so far as it attempts to discharge the contract, is a
law impairing the obligation of contracts within the meaning of the
Constitution of the United States and is not a good plea in bar of
an action brought upon such contract.
The line of partition between bankrupt and insolvent laws is not
so distinctly marked as to enable any person to say with positive
precision, what belongs exclusively to the one and not to the other
class of laws.
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.
The rights of the United States to pass bankrupt laws is not
extinguished by the enactment of a uniform bankrupt law throughout
the union by Congress; it is only suspended. The repeal of that law
cannot confer the power on the states, but it removes a disability
to its exercise which was created by the act of Congress.
Whenever the terms in which a power is granted by the
Constitution to Congress, or whenever the nature of the power
itself, require that it should be exercised exclusively by
Congress, the subject is as completely taken away from the state
legislatures as if they had been expressly forbidden to act on
it.
The power granted to Congress of establishing uniform laws on
the subject of bankruptcies is not of this description.
What is the obligation of a contract, and what will impair
it?
The obligation of a contract is not fulfilled by a
cessio
bonorum. The parties have not merely in view the property in
possession when the contract is formed, but its obligation extends
to future acquisitions.
The prohibition in the Constitution against the states' making
any law impairing the obligation of contracts does not extend to
paper money or tender laws, because these subjects are expressly
provided for; nor is it to be limited to installment or suspension
laws, because the terms of the prohibition are general and
comprehensive, and establish the principle of the inviolability of
contracts in every mode.
Statutes of limitation and usury laws, unless retroactive in
their effect, do not impair the obligation of contracts.
Although the states may, until that power is exercised by
Congress, pass laws concerning bankrupts, yet they cannot
constitutionally introduce into such laws a clause which discharges
the obligations the bankrupt has entered into.
Distinction between a law impairing the obligation of contracts
and a law modifying the remedy given by the legislature to enforce
the obligation.
Imprisonment of the debtor is no part of the contract, and he
may be released from imprisonment without impairing its
obligation.
The 61st sec. of the Act of Congress of 1800, c. 173, for
establishing a uniform system of bankruptcy, does not confirm state
insolvent laws containing a provision impairing the obligation of
contracts, but merely leaves them to operate, so far as
constitutionally they may, unaffected by the act of Congress except
where that may apply to individual cases.
This was an action of assumpsit brought in the Circuit Court of
Massachusetts against the defendant, as the maker of two promissory
notes, both dated at New York on 22 March, 1811, for the sum of
$771.86 each and payable to the plaintiff, one on 1f August, and
the other on 15 August, 1811. The defendant pleaded his discharge
under "an act for the benefit of insolvent debtors and their
creditors," passed by the Legislature of New York 3 April, 1811.
After stating the provisions of the said act, the defendant's plea
averred his compliance with them and that he was discharged and a
certificate given to him 15 February, 1812.
Page 17 U. S. 123
To this plea there was a general demurrer and joinder. At the
October term of the circuit court, 1817, the cause came on to be
argued and heard on the said demurrer, and the following questions
arose, to-wit:
1. Whether, since the adoption of the Constitution of the United
States, any state has authority to pass a bankrupt law, or whether
the power is exclusively vested in the Congress of the United
States.
2. Whether the act of New York passed 3 April, 1811, and stated
in the plea in this case is a bankrupt act within the meaning of
the Constitution of the United States.
3. Whether the act aforesaid is an act or law impairing the
obligation of contracts within the meaning of the Constitution of
the United States.
4. Whether plea is a good and sufficient bar of the plaintiff's
action.
And after hearing counsel upon the questions, the judges of the
circuit court were opposed in opinion thereupon; and upon motion of
the plaintiff's counsel, the questions were certified to the
Supreme Court for its final decision.
Page 17 U. S. 191
MR. CHIEF JUSTICE MARSHALL delivered the opinion of the
Court.
This case is adjourned from the Court of the United States for
the First Circuit and the District of Massachusetts on several
points on which the judges of that court were divided, which are
stated
Page 17 U. S. 192
in the record for the opinion of this Court.
The first is whether, since the adoption of the Constitution of
the United States, any state has authority to pass a bankrupt law,
or whether the power is exclusively vested in the Congress of the
United States? This question depends on the following clause in the
8th section of the first article of the Constitution of the United
States. "The Congress shall have power," &c., to "establish a
uniform rule of naturalization, and uniform laws on the subject of
bankruptcies, throughout the United States." The counsel for the
plaintiff contend that the grant of this power to Congress, without
limitation, takes it entirely from the several states. In support
of this proposition, they argue that every power given to Congress
is necessarily supreme, and if, from its nature or from the words
of grant it is apparently intended to be exclusive, it is as much
so as if the states were expressly forbidden to exercise it. These
propositions have been enforced and illustrated by many arguments
drawn from different parts of the Constitution. That the power is
both unlimited and supreme, is not questioned. That it is exclusive
is denied by the counsel for the defendant.
In considering this question, it must be recollected that
previous to the formation of the new Constitution, we were divided
into independent states, united for some purposes but in most
respects sovereign. These states could exercise almost every
legislative power, and among others, that of passing bankrupt
Page 17 U. S. 193
laws. When the American people created a national legislature
with certain enumerated powers, it was neither necessary nor proper
to define the powers retained by the states. These powers proceed
not from the people of America, but from the people of the several
states, and remain, after the adoption of the Constitution, what
they were before except so far as they may be abridged by that
instrument. In some instances, as in making treaties, we find an
express prohibition, and this shows the sense of the convention to
have been that the mere grant of a power to Congress did not imply
a prohibition on the states to exercise the same power. But it has
never been supposed that this concurrent power of legislation
extended to every possible case in which its exercise by the states
has not been expressly prohibited. The confusion resulting from
such a practice would be endless. The principle laid down by the
counsel for the plaintiff in this respect is undoubtedly correct.
Whenever the terms in which a power is granted to Congress or the
nature of the power require that it should be exercised exclusively
by Congress, the subject is as completely taken from the state
legislatures, as if they had been expressly forbidden to act on
it.
Is the power to establish uniform laws on the subject of
bankruptcies, throughout the United States of this description?
The peculiar terms of the grant 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
Page 17 U. S. 194
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. But the subject is divisible in its nature into bankrupt
and insolvent laws, though the line of partition between them is
not so distinctly marked as to enable any person to say with
positive precision what belongs exclusively to the one and not to
the other class of laws. It is said, for example, that laws which
merely liberate the person are insolvent laws, and those which
discharge the contract are bankrupt laws. But if an act of Congress
should discharge the person of the bankrupt and leave his future
acquisitions liable to his creditors, we should feel much
hesitation in saying that this was an insolvent, not a bankrupt
act, and therefore unconstitutional. Another distinction has been
stated and has been uniformly observed. Insolvent laws operate at
the instance of an imprisoned debtor, bankrupt laws at the instance
of a creditor. But should an act of Congress authorize a commission
of bankruptcy to issue on the application of a debtor, a court
would scarcely be warranted in saying that the was unconstitutional
and the commission a nullity.
When laws of each description may be passed by the same
legislature, it is unnecessary to draw a precise line between them.
The difficulty can arise only in our complex system, where the
Legislature of the Union possesses the power of enacting bankrupt
laws and those of the states the power of enacting insolvent laws.
If it be determined that they are not laws of the same character,
but are as distinct as bankrupt laws and laws which regulate the
course of descents,
Page 17 U. S. 195
a distinct line of separation must be drawn, and the power of
each government marked with precision. But all perceive that this
line must be in a great degree arbitrary. Although the two systems
have existed apart from each other, there is such a connection
between them as to render it difficult to say how far they may be
blended together. The bankrupt law is said to grow out of the
exigencies of commerce and to be applicable solely to traders, but
it is not easy to say who must be excluded from or may be included
within this description. It is, like every other part of the
subject, one on which the legislature may exercise an extensive
discretion.
This difficulty of discriminating with any accuracy between
insolvent and bankrupt laws would lead to the opinion that a
bankrupt law may contain those regulations which are generally
found in insolvent laws and that an insolvent law may contain those
which are common to a bankrupt law. If this be correct, it is
obvious that much inconvenience would result from that construction
of the Constitution which should deny to the state legislatures the
power of acting on this subject in consequence of the grant to
Congress. It may be thought more convenient that much of it should
be regulated by state legislation, and Congress may purposely omit
to provide for many cases to which their power extends. It does not
appear to be a violent construction of the Constitution, and is
certainly a convenient one, to consider the power of the states as
existing over such cases as the laws of the Union may not reach.
But be this as it may, the power granted to Congress may be
exercised
Page 17 U. S. 196
or declined, as the wisdom of that body shall decide. If, in the
opinion of Congress, uniform laws concerning bankruptcies ought not
to be established, it does not follow that partial laws may not
exist or that state legislation on the subject must cease. It is
not the mere existence of the power, but its exercise, which is
incompatible with the exercise of the same power by the states. It
is not the right to establish these uniform laws, but their actual
establishment, which is inconsistent with the partial acts of the
states.
It has been said that Congress has exercised this power, and by
doing so, has extinguished the power of the states, which cannot be
revived by repealing the law of Congress. We do not think so. If
the right of the states to pass a bankrupt law is not taken away by
the mere grant of that power to Congress, it cannot be
extinguished; it can only be suspended by the enactment of a
general bankrupt law. The repeal of that law cannot, it is true,
confer the power on the states, but it removes a disability to its
exercise which was created by the act of Congress. Without entering
further into the delicate inquiry respecting the precise
limitations which the several grants of power to Congress contained
in the Constitution may impose on the state legislatures than is
necessary for the decision of the question before the Court, it is
sufficient to say that until the power to pass uniform laws on the
subject of bankruptcies be exercised by Congress, the states are
not forbidden to pass a bankrupt law provided it contain no
principle
Page 17 U. S. 197
which violates the 10th section of the first article of the
Constitution of the United States. This opinion renders it totally
unnecessary to consider the question whether the law of New York is
or is not a bankrupt law.
We proceed to the great question on which the cause must depend.
Does the law of New York, which is pleaded in this case, impair the
obligation of contracts within the meaning of the Constitution of
the United States? This act liberates the person of the debtor and
discharges him from all liability for any debt previously
contracted on his surrendering his property in the manner it
prescribes.
In discussing the question whether a state is prohibited from
passing such a law as this, our first inquiry is into the meaning
of words in common use -- what is the obligation of a contract, and
what will impair it? It would seem difficult to substitute words
which are more intelligible or less liable to misconstruction than
those who are to be explained. A contract is an agreement in which
a party undertakes to do or not to do a particular thing. The law
binds him to perform his undertaking, and this is, of course, the
obligation of his contract. In the case at bar, the defendant has
given his promissory note to pay the plaintiff a sum of money on or
before a certain day. The contract binds him to pay that money on
that day, and this is its obligation. Any law which releases a part
of this obligation must, in the literal sense of the word, impair
it. Much more must a
Page 17 U. S. 198
law impair it which makes it totally invalid and entirely
discharges it.
The words of the Constitution, then, are express and incapable
of being misunderstood. They admit of no variety of construction,
and are acknowledged to apply to that species of contract, an
engagement between man and man for the payment of money, which has
been entered into by these parties. Yet the opinion that this law
is not within the prohibition of the Constitution has been
entertained by those who are entitled to great respect, and has
been supported by arguments which deserve to be seriously
considered. It has been contended that as a contract can only bind
a man to pay to the full extent of his property, it is an implied
condition that he may be discharged on surrendering the whole of
it. But it is not true that the parties have in view only the
property in possession when the contract is formed or that its
obligation does not extend to future acquisitions. Industry,
talents and integrity constitute a fund which is as confidently
trusted as property itself. Future acquisitions are therefore
liable for contracts, and to release them from this liability
impairs their obligation.
It has been argued that the states are not prohibited from
passing bankrupt laws and that the essential principle of such laws
is to discharge the bankrupt from all past obligations; that the
states have been in the constant practice of passing insolvent
laws, such as that of New York, and if the framers of the
Constitution had intended to deprive them of this
Page 17 U. S. 199
power, insolvent laws would have been mentioned in the
prohibition; that the prevailing evil of the times which produced
this clause in the Constitution was the practice of emitting paper
money, of making property which was useless to the creditor a
discharge of his debt, and of changing the time of payment by
authorizing distant installments. Laws of this description, not
insolvent laws, constituted, it is said, the mischief to be
remedied, and laws of this description, not insolvent laws, are
within the true spirit of the prohibition.
The Constitution does not grant to the states the power of
passing bankrupt laws, or any other power, but finds them in
possession of it, and may either prohibit its future exercise
entirely or restrain it so far as national policy may require. It
has so far restrained it as to prohibit the passage of any law
impairing the obligation of contracts. Although, then, the states
may, until that power shall be exercised by Congress, pass laws
concerning bankrupts, yet they cannot constitutionally introduce
into such laws a clause which discharges the obligations the
bankrupt has entered into. It is not admitted that, without this
principle, an act cannot be a bankrupt law, and if it were, that
admission would not change the Constitution nor exempt such acts
from its prohibitions.
The argument drawn from the omission in the Constitution to
prohibit the states from passing insolvent laws admits of several
satisfactory answers. It was not necessary, nor would it have been
safe, had it even been the intention of the framers of the
Page 17 U. S. 200
Constitution to prohibit the passage of all insolvent laws, to
enumerate particular subjects to which the principle they intended
to establish should apply. The principle was the inviolability of
contracts; this principle was to be protected in whatsoever form it
might be assailed. To what purpose enumerate the particular modes
of violation which should be forbidden when it was intended to
forbid all? Had an enumeration of all the laws which might violate
contracts been attempted, the provision must have been less
complete and involved in more perplexity than it now is. The plain
and simple declaration that no state shall pass any law impairing
the obligation of contracts includes insolvent laws and all other
laws so far as they infringe the principle the convention intended
to hold sacred, and no further.
But a still more satisfactory answer to this argument is that
the convention did not intend to prohibit the passage of all
insolvent laws. To punish honest insolvency by imprisonment for
life and to make this a constitutional principle would be an excess
of inhumanity which will not readily be imputed to the illustrious
patriots who framed our Constitution nor to the people who adopted
it. The distinction between the obligation of a contract and the
remedy given by the legislature to enforce that obligation has been
taken at the bar and exists in the nature of things. Without
impairing the obligation of the contract, the remedy may certainly
be modified as the wisdom of the nation shall direct. Confinement
of the debtor may be a punishment for not performing
Page 17 U. S. 201
his contract, or may be allowed as a means of inducing him to
perform it. But the state may refuse to inflict this punishment or
may withhold this means and leave the contract in full force.
Imprisonment is no part of the contract, and simply to release the
prisoner does not impair its obligation.
No argument can be fairly drawn from the 61st section of the act
for establishing a uniform system of bankruptcy which militates
against this reasoning. That section declares that the act shall
not be construed to repeal or annul the laws of any state then in
force for the relief of insolvent debtors except so far as may
respect persons and cases clearly within its purview, and in such
cases it affords its sanction to the relief given by the insolvent
laws of the state if the creditor of the prisoner shall not, within
three months, proceed against him as a bankrupt. The insertion of
this section indicates an opinion in Congress that insolvent laws
might be considered as a branch of the bankrupt system, to be
repealed or annulled by an act for establishing that system,
although not within its purview. It was for that reason only that a
provision against this construction could be necessary. The last
member of the section adopts the provisions of the state laws so
far as they apply to cases within the purview of the act. This
section certainly attempts no construction of the Constitution, nor
does it suppose any provision in the insolvent laws impairing the
obligation of contracts. It leaves them to operate, so far as
constitutionally they may, unaffected by the act of Congress
Page 17 U. S. 202
except where that act may apply to individual cases.
The argument which has been pressed most earnestly at the bar is
that although all legislative acts which discharge the obligation
of a contract without performance are within the very words of the
Constitution, yet an insolvent act containing this principle is not
within its spirit, because such acts have been passed by colonial
and state legislatures from the first settlement of the country,
and because we know from the history of the times that the mind of
the convention was directed to other laws which were fraudulent in
their character, which enabled the debtor to escape from his
obligation and yet hold his property, not to this, which is
beneficial in its operation.
Before discussing this argument, it may not be improper to
premise that although the spirit of an instrument, especially of a
constitution, is to be respected not less than its letter, yet the
spirit is to be collected chiefly from its words. It would be
dangerous in the extreme to infer from extrinsic circumstances that
a case for which the words of an instrument expressly provide shall
be exempted from its operation. Where words conflict with each
other, where the different clauses of an instrument bear upon each
other and would be inconsistent unless the natural and common
import of words be varied, construction becomes necessary, and a
departure from the obvious meaning of words is justifiable. But if
in any case the plain meaning of a provision, not contradicted by
any other provision in the same instrument,
Page 17 U. S. 203
is to be disregarded, because we believe the framers of that
instrument could not intend what they say, it must be one in which
the absurdity and injustice of applying the provision to the case
would be so monstrous that all mankind would without hesitation
unite in rejecting the application. This is certainly not such a
case. It is said the colonial and state legislatures have been in
the habit of passing laws of this description for more than a
century; that they have never been the subject of complaint, and
consequently could not be within the view of the general
convention. The fact is too broadly stated. The insolvent laws of
many, indeed of by far the greater number of the states, do not
contain this principle. They discharge the person of the debtor,
but leave his obligation to pay in full force. To this the
Constitution is not opposed.
But were it even true that this principle had been introduced
generally into those laws, it would not justify our varying the
construction of the section. Every state in the Union, both while a
colony and after becoming independent, had been in the practice of
issuing paper money; yet this practice is in terms prohibited. If
the long exercise of the power to emit bills of credit did not
restrain the convention from prohibiting its future exercise,
neither can it be said that the long exercise of the power to
impair the obligation of contracts should prevent a similar
prohibition. It is not admitted that the prohibition is more
express in the one case than in the other. It does not, indeed,
extend to insolvent laws by name,
Page 17 U. S. 204
because it is not a law by name, but a principle which is to be
forbidden, and this principle is described in as appropriate terms
as our language affords.
Neither, as we conceive, will any admissible rule of
construction justify us in limiting the prohibition under
consideration to the particular laws which have been described at
the bar and which furnished such cause for general alarm. What were
those laws? We are told they were such as grew out of the general
distress following the war in which our independence was
established. To relieve this distress, paper money was issued,
worthless lands and other property of no use to the creditor were
made a tender in payment of debts, and the time of payment
stipulated in the contract was extended by law. These were the
peculiar evils of the day. So much mischief was done and so much
more was apprehended that general distrust prevailed, and all
confidence between man and man was destroyed. To laws of this
description, therefore, it is said, the prohibition to pass laws
impairing the obligation of contracts ought to be confined. Let
this argument be tried by the words of the section under
consideration.
Was this general prohibition intended to prevent paper money? We
are not allowed to say so, because it is expressly provided that no
state shall "emit bills of credit;" neither could these words be
intended to restrain the states from enabling debtors to discharge
their debts by the tender of property of no real value to the
creditor, because for that subject also particular provision is
made. Nothing but
Page 17 U. S. 205
gold and silver coin can be made a tender in payment of debts.
It remains to inquire whether the prohibition under consideration
could be intended for the single case of a law directing that
judgments should be carried into execution by installments. This
question will scarcely admit of discussion. If this was the only
remaining mischief against which the Constitution intended to
provide, it would undoubtedly have been, like paper money and
tender laws, expressly forbidden. At any rate, terms more directly
applicable to the subject, more appropriately expressing the
intention of the convention, would have been used. It seems
scarcely possible to suppose that the framers of the Constitution,
if intending to prohibit only laws authorizing the payment of debts
by installment, would have expressed that intention by saying "no
state shall pass any law impairing the obligation of contracts." No
men would so express such an intention. No men would use terms
embracing a whole class of laws for the purpose of designating a
single individual of that class. No court can be justified in
restricting such comprehensive words to a particular mischief to
which no allusion is made.
The fair and we think the necessary construction of the sentence
requires that we should give these words their full and obvious
meaning. A general dissatisfaction with that lax system of
legislation which followed the war of our Revolution undoubtedly
directed the mind of the convention to this subject. It is probable
that laws such as those which
Page 17 U. S. 206
have been stated in argument produced the loudest complaints,
were most immediately felt. The attention of the convention,
therefore, was particularly directed to paper money and to acts
which enabled the debtor to discharge his debt otherwise than was
stipulated in the contract. Had nothing more been intended, nothing
more would have been expressed. But in the opinion of the
convention, much more remained to be done. The same mischief might
be effected by other means. To restore public confidence
completely, it was necessary not only to prohibit the use of
particular means by which it might be effected, but to prohibit the
use of any means by which the same mischief might be produced. The
convention appears to have intended to establish a great principle
that contracts should be inviolable. The Constitution therefore
declares that no state shall pass "any law impairing the obligation
of contracts."
If, as we think, it must be admitted that this intention might
actuate the convention; that it is not only consistent with, but is
apparently manifested by, all that part of the section which
respects this subject; that the words used are well adapted to the
expression of it; that violence should be done to their plain
meaning by understanding them in a more limited sense, those rules
of construction, which have been consecrated by the wisdom of ages,
compel us to say that these words prohibit the passage of any law
discharging a contract, without performance.
By way of analogy, the statutes of limitations and against usury
have been referred to in argument,
Page 17 U. S. 207
and it has been supposed that the construction of the
Constitution which this opinion maintains would apply to them also,
and must therefore be too extensive to be correct. We do not think
so. Statutes of limitations relate to the remedies which are
furnished in the courts. They rather establish that certain
circumstances shall amount to evidence that a contract has been
performed than dispense with its performance. If, in a state where
six years may be pleaded in bar to an action of assumpsit, a law
should pass declaring that contracts already in existence, not
barred by the statute, should be construed to be within it, there
could be little doubt of its unconstitutionality.
So with respect to the laws against usury. If the law be that no
person shall take more than six percentum per annum for the use of
money, and that if more be reserved the contract shall be void, a
contract made thereafter reserving seven percent would have no
obligation in its commencement; but if a law should declare that
contracts already entered into and reserving the legal interest
should be usurious and void either in the whole or in part, it
would impair the obligation of the contract and would be clearly
unconstitutional.
This opinion is confined to the case actually under
consideration. It is confined to a case in which a creditor sues in
a court the proceedings of which, the legislature whose act is
pleaded had not a right to control, and to a case where the
creditor had not proceeded to execution against the body of his
debtor within the state whose law attempts to absolve a
Page 17 U. S. 208
confined insolvent debtor from his obligation. When such a case
arises, it will be considered.
It is the opinion of the Court that the act of the State of New
York, which is pleaded by the defendant in this cause, so far as it
attempts to discharge this defendant from the debt in the
declaration mentioned, is contrary to the Constitution of the
United States, and that the plea is no bar to the action.
CERTIFICATE. This cause came on to be heard on the transcript of
the record of the Circuit Court of the United States for the First
Circuit and the District of Massachusetts, and on the questions on
which the judges of that court were divided in opinion, and was
argued by counsel, on consideration whereof this Court is of
opinion that, since the adoption of the Constitution of the United
States, a state has authority to pass a bankrupt law provided such
law does not impair the obligation of contracts within the meaning
of the Constitution and provided there be no act of Congress in
force to establish a uniform system of bankruptcy conflicting with
such law. This Court is further of opinion that the act of New York
which is pleaded in this case, so far as it attempts to discharge
the contract on which this suit was instituted, is a law impairing
the obligation of contracts within the meaning of the Constitution
of the United States, and that the plea of the defendant is not a
good and sufficient bar of the plaintiff's action. All which is
directed to be certified to the said circuit court.