U.S. Supreme Court
Sturges v. Crowninshield, 17 U.S. 4 Wheat. 122 122 (1819)
Sturges v. Crowninshield
17 U.S. (4 Wheat.) 122
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. chanrobles.com-red
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. chanrobles.com-red