Then what provision had the present bill made to discharge half a million of bankrupts, the number which its friends assert exist at present in the United States? None whatever, except to cast this burden upon the district courts of the United States, which, in the large commercial cities, where the cases of bankruptcy must chiefly be heard, had already as much business as they could conveniently transact. The courts could not transact all this business, if there were half a million of bankrupts to be discharged, within the next twenty years. Sir, unless you establish new courts, and increase your judicial force at least ten fold, it is vain for you to pass the present bill. Without this, the law can never be carried into effect. The moment it goes into operation, these unfortunate bankrupts will rush eagerly to the district courts in such numbers as to arrest all other judicial business. This bill provides that these courts shall be considered open every day in the year, for the purpose of hearing bankrupt cases.
The district courts of the United States were scattered over the Union at great distances from each other. For example, there were in the State of New York, he believed, but two of these courts. In Pennsylvania, one was held in Philadelphia, another in Pittsburg, and a third in Williamsport. Pittsburg and Philadelphia were three hundred miles apart; and parties, jurors, and witnesses must constantly be in attendance from great distances at these two places, on the hearing of the different bankrupts, and on the trial of all the causes which might arise out of the settlement of their estates. By the operation of this bill, all these causes would and must be transferred from the State to the Federal courts. This would be an intolerable oppression to the people.
Without entering into any detail of the frauds to which this bill would give birth, he must be permitted to advert to the effect which it would have upon the rights of creditors in States distant from the court where the debtor might make his application. It would speedily sponge away all the indebtedness, now very great, of the Southwestern portion of the Union to the Eastern cities. Our merchants in those cities, should the bill pass, would have no difficulty in balancing their books. This would be done for them by the bill in the easiest possible manner.
Under all other bankrupt laws which had ever existed, or ever been proposed, either in this country or in England, or anywhere else, as he believed, the debtor could not obtain his certificate of discharge without the express written assent of a certain proportion of his creditors in number and value. This rule had never been found to operate severely in practice on honest debtors, whilst it afforded some security to the creditors. Under the present bankrupt laws of England, the certificate of discharge must be signed by four-fifths in number and value of the creditors of the bankrupt; and under our old bankrupt law of 1800, two-thirds in number and value of the creditors were required to sign. Without this express assent, no bankrupt could receive his certificate of discharge. But the present bill had completely reversed this rule. Under it the debtor must be discharged, “unless a majority in number and value of his creditors, who have proved their debts, shall file their written dissent thereto.” Now he should put a case; and many such would occur under the present bill. A merchant in Philadelphia had a debtor in Mississippi, who owed him $20,000. This debtor applies to the district court of that State for the benefit of the act. The merchant believes he has been guilty of fraud, and determines to oppose his discharge. He goes or sends to Mississippi for this purpose. I ask you, sir, what chance he would have to obtain the necessary proof, in a country where thousands were at the same time applying for the benefit of the bankrupt law. The task would be hopeless; and consequently the attempt would be made in very few cases. Had the law required the express assent of two-thirds or even a majority in number and value of the bankrupt’s creditors, the merchant would have had one security left. The debtor must have satisfied him that he had acted honestly before he could have obtained his assent. Now the debtor would be discharged unless a majority expressly dissent. The ancient rule had been reversed; and instead of an express assent being required to produce his discharge, there must now be an express dissent to prevent it. And if the majority did dissent, what would be the consequence? Was this conclusive, and would the debtor still remain liable? No, sir, no. The Philadelphia merchant would then have to enter upon a new law suit. Notwithstanding this express dissent, the question would, under the bill, be referred to a jury, and if they decided in the bankrupt’s favor, he was discharged from his debts forever, even against the dissent of all his creditors. This jury would necessarily be composed of his own neighbors, all having a sympathetic feeling with him, and looking upon the distant Philadelphia creditor as an unjust and an unfeeling man. This was a natural feeling, and common to almost all men in similar circumstances. It implied no imputations upon their honesty. Truly this bill was a measure to relieve all debtors who might desire to cut loose from their debts, without any adequate provision for the security of creditors.
But all these evils were nothing when compared with the baneful effects which the bill would have upon the morals of the people of this country. Our people were already too much addicted to speculation, and too anxious to become suddenly rich. As a nation, we required the rein and the bit much more than the spur. The present bill would stimulate the spirit of speculation almost to madness. Men would be tempted by the hope of realizing rapid fortunes, and living in affluence the remainder of their days, to embark in every wild undertaking, knowing that they had everything to gain and nothing to lose. This bill proclaimed not merely to merchants and insurers, whose business was from its nature hazardous; but to every citizen of the United States, “you may be as wild and extravagant in your speculations as you please—you may attempt to seize the golden prize in any manner you choose: if you succeed you will then possess what your heart most desires; if not, your debts shall be blotted out in the easiest manner possible, and you may begin the world again.” This was in effect the language of the bill. The consequence must be that the faith of contracts would soon become an idle word. Our former bankrupt law was wholly compulsory in its character, and was confined to traders. The present English bankrupt law expressly excludes farmers and graziers from its provisions. We went a long distance in advance of both. The present bill would be in effect wholly voluntary, and it embraced everybody under the sun, and all debts which had been, or might be, contracted.
He would venture to predict, that when this bill should go into operation the people of the United States would soon become astonished and alarmed at its consequence: and it would be blotted out of existence in less time than had elapsed between the passage and repeal of the act of 1800.
He might be asked if he were opposed to a bankrupt law in any form. He could answer that he was not. He would most cheerfully vote for any safe measure of this nature which could be carried into execution by the courts of the United States, and he did not believe that it would be very difficult to frame such a measure. The judicial system of the Federal Government was of such a character, that it could never execute a bankrupt law, modelled after the English system, without producing great fraud, delay, and injustice. If you changed this system, and increased the number of courts and judges, so as to enable them to transact the business under this bill, with proper deliberation and within a reasonable time, you would go far towards producing a judicial consolidation of the Union. It was the opinion of Mr. Lowndes, that we should be compelled to abandon the idea of framing a bill upon the English model, and adopt the system which prevailed in countries subject to the civil law. For example, he (Mr. B.) would permit a debtor in failing circumstances to make any composition he could obtain from a majority or two-thirds in number and value of his creditors. In that event, he would discharge him from his debts as against the remainder, unless they could prove that he had been guilty of fraud. He would never place any unfortunate, but honest debtor, in the power of a few vindictive creditors against the will of the majority. Such a law would, in a great degree, execute itself, and dispense with nearly all the machinery of this bill. The composition between the debtor and his creditors, and his assignment of his property for the benefit of them all, which he should consider indispensable, might be filed in the district court, and receive its sanction. He would not take time at present to do more than hint at the nature of the bankrupt law, which he thought would be applicable to this country. It would very much resemble the cessio bonorum which now prevailed in Louisiana, where the civil and not the common law governed the proceedings of the courts.
But what great and overruling necessity existed for Congress to pass any bankrupt law? Each State could now pass bankrupt laws, which would relieve their citizens from the obligation of debts contracted with other citizens of the same State subsequent to the passage of such laws. This point had been solemnly adjudged by the Supreme Court of the United States, in the case of Ogden vs. Saunders, reported in 12th Wheaton, 213; and its authority was confirmed in the case of Boyle vs. Zacharie, reported in 6 Peters, 635.
This discharge, however, would be confined to debts contracted between citizens of the same State where the discharge was granted. The decision rested on the principle, that the State law under which the discharge would take place, had become a part of the original contract, in the contemplation of the parties. But if a citizen of Pennsylvania had loaned money to a citizen of New York, who should afterwards take the benefit of a bankrupt law existing in the latter State, this would not discharge the debt; but the Pennsylvanian might, notwithstanding, recover the amount due from the New Yorker, in either the federal or State courts. But, even in such a case, if the Pennsylvania creditor should accept his dividend of the estate of the New York debtor, he would then be bound for ever, and the debt would be discharged. [Vide the case of Clay vs. Smith, 3 Peters, 411.] Foreign creditors would, in almost every instance, accept such dividends, if they amounted to anything considerable; and this would be an encouragement for debtors, in failing circumstances, not to struggle on till all their property was gone, but to surrender it while something remained for the general creditors. Thus, then, it was clear that the States could provide for all prospective cases, and could enact bankrupt laws which would have the same force and effect between their own citizens as though they had been passed by Congress. Besides, the State courts, established in every county, could carry those laws into effect with promptitude, and without inconvenience to the people.
A thought had struck him at the moment. Why might not Congress declare by law that a discharge under all State bankrupt laws should be as effectual against citizens of other States as they could be against citizens of the same State? This would render the system complete in regard to future debts, without any further interposition of Congress. He would not say that we possessed the power, under the Constitution, to pass such a law, because he had never considered the subject; but, if we did, it would be the best mode in which we could exercise our power over bankruptcy. Every State would then be left at liberty to adopt the policy in relation to bankrupts required by its own peculiar circumstances, and to execute the laws which operated chiefly upon the domestic concerns of its own citizens according to its own discretion.