Pugh v. Bussel

Stevens, J. This is an action of debt brought by Bussel against Pugh in the Rush Circuit Court, on a note made by Pugh on the 11th day of August, 1821, to one John Jackson, and by Jackson transferred by assignment in writing, on the IGth day of December, 1829, to Bussel. Pugh pleads, in discharge of bis body from imprisonment or arrest for said debt, a discharge obtained by him in the county of Hamilton and state of Ohio, by the Court of Common Pleas of that county under the insolvent laws of that state, on the 18th day of August, 1823. The plea avers the filing of his petition and schedule of debts; the appointment of trustees, and the surrender of his effects to the trustees according to law; and that the trustees gave bond and took upon themselves the office of trustees according to law; and that such proceedings were duly and legallyhad upon such petition and schedule, that the Court of Common Pleas on the 18th day of August, 1823, ordered and adjudged “that the person of the said petitioner be henceforth privileged from imprisonment, for any debt due and owing by him at the time of filing his petition.” The plea further avers that his discharge still remains of record in said Court of Common Picas, unreversed and in ful! force; and makes the proper reference to the record; and states that the said discharge took place after the note in question was made, and after it became due and payable, and long before Jackson had sold or transferred it to Bussel. The plea further avers that, at the time the debt was contracted and the note given, and at the time of the discharge, he and Jackson were both citizens of and resided in the county of Hamilton, and state of Ohio; and that the debt was contracted and the note made and delivered to Jackson there. The plea further avers, that his body was discharged from imprisonment under or by virtue of the note or claim of Jackson; and that Jackson, as one of his creditors, became and was -entitled to bis distributive share of the estate so assigned to the — 396 — trustees. The plea is demurred to and the demurrer sustained by the Court; and thereby several questions arc raised. The first point is, are those insolvent state laws repugnant to that part of'the federal constitution, which vests exclusively in congress the power of establishing uniform laws on the subject of bankruptcy, throughout the United States ? The provisions of the constitution, which have a bearing on this point, have been by a celebrated and learned jurist collated and read thus:—“Congress shall have power to coin money, regulate the value thereof and of foreign coin; but no state shall coin money, emit bills of credit, or make any thing but gold and silver coin a tender in payment of debts, or pass any law impairing the obligation of contracts, but congress may establish uniform laws on the subject of bankruptcies.” By this collation and transposition, it is at once seen that the constitution has left nothing unfinished. It prohibits the states from impairing the obligation of contracts, and provides a uniform medium for the payment of debts, and expressly prohibits the states from interfering with that medium. St also provides a uniform manner of discharging debts without payment, when congress shall deem it expedient to legislate on the subject. The states are not excluded from any power antecedently possessed by them, except in three cases: 1, when a power is granted to congress in exclusive terms; 2, when the states are expressly prohibited from exercising it, in express terms and in a specific form; 3, where a power is granted to congress, the cotemporaneous exercise of which by the states would he incompatible. The point, now under consideration, does not fall under either of those heads. The power of congress to establish “uniform laws on the subject of bankruptcy,” as given by the constitution, is not exclusive of the states on the same subject, and until congress exercises that right, the states may constitutionally pass such laws, if they do not impair the obligation of contracts. And even if congress had exercised that right, the right of the states is not thereby extinguished, hut only suspended so far as the two laws might conflict. It is said in the case of Ogden v. Saunders, 12 Wheaton, 369, that the fair exercise of that power by the states, docs not necessarily involve a violation of the obligation of contracts, unless they pass beyond their own limits and the rights of their own citizens, and act upon — 397 — the rights of the citizens of other states, and come in collision with the judicial power granted to the United States, and thereby render their acts incompatible with the rights of the other states, and with the constitution of the United States. From this view of the case, it is clearly demonstrated that those laws are not necessarily repugnant to that part of the constitution, vesting- in congress the exclusive power to establish uniform laws on the subject of bankruptcy. The second point is, do those laws “impair the obligation of contracts,” the power of passing which is expressly vested in congress? The obligation of a contract is the law which binds the parties to perform their agreement. The Institutes and Pothier both call the obligation of a contract “the chain of the law.” That law is the municipal law of the state where the contract is made, or where it is to be performed; and must govern it throughout whenever its performance is sought to be enforced. Lord Mansfield says, the general rule established by comity and the laws of nations, is, that the lex loci forms a part of the contract, and travels with it wherever the parties to it may be found, and is to be considered in expounding and enforcing it, unless the parties have otherwise agreed; as where it is to be executed in another state or country, in which case it is to be governed by the laws of the place where it is to be executed. 1 H. Black. 684.—2 Burr. 1078.—Sira. 733.—Black. Rep. 234, 258.—3 Dallas, 370.—1 Gallison, 169.—Mather v. Bush, 16 Johns. Rep. 233, 249. It is now a settled doctrine in all Courts, that the discharge of an insolvent debtor from arrest and imprisonment only, is not an infringement of the obligation of the contract. The imprisonment of the person of the debtor is no part of the law of the contract, but is simply a means of coercion: hence, those laws that only release the body of the insolvent from arrest and imprisonment are constitutional and valid. And it is also equally well settled, that a discharge of the insolvent’s after-acquired property, is an infringement of the obligation of the contract, and those state laws which release not only the body of the insolvent, but also his after-acquired property, arc laws impairing the obligation of contracts and are unconstitutional and void. In the cases of Baker v. Wheaton, 5 Mass. Rep. 509, Smith v. — 398 — Parsons, 1 Ohio Rep. 236, Smith v. Smith, 2 Johns. Rep. 241, it is held that if the contract be made in the state where the discharge is had, between citizens of the state at the time of making the contract, it is good in all places against 1 he citizens of that state and in all countries, because the laws of the slate form a part of the contract, and the parties being citizens thereof are bound by the laws, they having assented thereto as a part of the body politic. Again, in the cases of Mather v. Bush, 13 Johns. Rep. 233, Blanchard v. Russell, 13 Mass. Rep. 1, Hicks v. Hotchkiss et al. 7 Johns. Ch. Rep. 237, it seems to be considered that if the insolvent law, under which the debtor is discharged, is not made and in force at the time of making the con tract,, it forms no part of the contract. It is, however, now settled by the cases of Sturges v. Crowninshield, 4 Wheaton, Ogden v. Saunders, 12 Wheaton, M'Millan v. M'Neill, 4 Wheaton, and Mason v. Haile, 12 Wheaton, that asíate law that discharges only the person of the debtor from arrest and imprisonment, and not his after-acquired properly, for debts contracted in the state between its own citizens, to be paid or performed in the state, is constitutional and valid, whether the debt was contracted before or after the passage of the insolvent lav/. The circumstance of the act being passed before or after the contract is made, makes no difference. And in the cases of Clay v. Smith, 3 Peters, 411, and Sturges y. Crowninshield, it appears to be considered that a state insolvent law, which discharges not only the person of the debtor from imprisonment, but also discharges after-acquired property, is valid, if the creditor makes himself a party to the proceedings which lead to the discharge in the state Court. In surveying this doctrine in all its parts, and in endeavouring to arrive at a conclusion, warranted by the peculiar situation in which the several slates stand in relation to the federal government, it is necessary to keep constantly in view, that the federal constitution is the paramount law of each state, and forms a part of the lex loci, and therefore enters into and forms a paramount part of every contract, and is equally binding and valid in every state. In a case in 7 Johns. Ch. Rep. Chancellor Kent says, that the lex loci must be constitutional law, or it is no law and forms no part of the contract; that the constitution of the United Stales is the supreme law of the land of all the states, and forms a part of all contracts made in any part of the United — 399 — States; and that any local law repugnant to the constitution can form no part of the same contract. And, again, in the case of the Farmers and Mechanics' Bank of Pennsylvania v. Smith, 6 Wheaton, 131, Judge Marshall says, that the circumstance of the parties being ciüzens of the same si ate, and the insolvent laws having been made and in existence prior to the making of the contract, and the discharge having taken place in the same state in the Courts thereof, makes no difference; that the constitution of the United Slates was made for the whole people of the Union, and is equally binding upon all the Courts and all the citizens. The result of all the foregoing cases is, that a state law discharging the person of the debtor from imprisonment only, and not his after-acquired effects, for debts contracted in the state between its citizens, is constitutional and valid, whether the debt was contracted before or after the passage of the law. And that a state law, discharging not only the person of the debtor from imprisonment, butalsodischarginghis after-acquired property^ a law impairing the obligation of contracts, and a discharge under it is not valid, unless the creditor makes himself a party to the proceedings which lead to the discharge in the state Court. The third point is, have those state laws any operation out of the state, over contracts not made and to be carried into effect in the state between the citizens thcreof;or have they any effect or operation on the citizens of other states? The Courts in England maintain the doctrine, that it is a rule of universal obligation that the assignment of the bankrupt’s effects, under a law of the country of the contract, is binding every where. It is perhaps settled in that country, that the discharge of a bankrupt shall be effectual against contracts of the state that gave the discharge, no matter what be the allegiance or country of the creditor. Their .doctrine is, that the bankrupt law of the country is paramount in disposing of the rights of the bankrupt. The United, Stales appear to have established a different doctrine. In the federal as well as the state Courts, where such cases have been adjudicated, it has been decided that, notwithstanding the bankruptcy of the debtor in England, or other foreign country, by their laws, his creditor here may levy an attachment on a debt due to the bankrupt in this coun — 400 — try and appropriate it to his own use. And further, our Courts give the debts due to the bankrupt here, to satisfy a debt contracted in England, to the prejudice of the English law, which gives the same debt to the assignees of the bankrupt. Ogden v. Saunders, 12 Wheaton, 360.—Harrison v. Sterry, 5 Crunch, 298, 302. In the case of McMillan v. McNeill, 4 Wheaton, 209, Judge Marshall says, that it is well settled that a discharge under a foreign law is no bar to an action on a contract made in this country. And in the case of Buckner v. Finley and Van Lear, 2 Peters, 590, the Court says that “for all national purposes embraced by the federal constitution, the states and the citizens thereof are one, united under the same sovereign authority, and governed by the same laws; but that in all other respects, the states are necessarily foreign to, and independent of each other.” The same is said by the Court of Appeals in Virginia in the case of Warder v. Arell, 2 Wash. 298, where the Court states the laws as it respects a foreign country, and then adds, “the same principle applies to the different states of America.” This principle, says Judge Baldwin, in the case of Woodhull and Davis v. Wagner, seems directly applicable to the insolvent laws of the states. Such laws are wholly unconnected with the federal relations of the states to the general government, where they do not impair the obligation of contracts; and discharges under them are, in other states, to be considered as made under foreign laws and subject to the same rules of decision. In the cases of Watson v. Bourne, 10 Mass. Rep. 337, Baker v. Wheaton, 5 Mass. 509, Van Raugh v. Van Arsdaln, 3 New York T. R. 154, Smith v. Smith, 2 Johns. Rep. 241, Ogden v. Saunders, 12 Wheaton, 213, it is settled that a discharge of a debtor under a state insolvent law, is not valid against a citizen or creditor of another state, they not being parties or assenting to the laws. And, in the cases of Emory v. Grenough, 3 Dallas, 369, and Proctor v. Moore, Williams’ Rep. 198, it is decided that if two citizens of the same state contract under the insolvent laws of the state, and, after the contract is made, one of them remove to another state, the one remaining in the state where the contract is made, cannot be discharged therefrom by the insolvent laws of the state, the other being a citizen of another state. — 401 — These cases, together with the cases of Shaw v. Robbins, note to 12 Wheaton, 369, McMillan v. McNeill, Ogden v. Saunders, Harrison v. Sterry, and Robinson’s Admr. v. Bank of Georgetown, establish the doctrine beyond a controversy, that a discharge by a slate law operates only on contracts made in the state between its own citizens, which are to be executed there; and that such laws have no operation out of the state, over contracts not made and to be carried into effect within the state, nor over the citizens- of other states, unless they voluntarily make themselves parties to the proceedings which lead to a discharge in the state Courts. The fourth and last point made in the case is, can the debtor when he has been constitutionally discharged in his own state under the laws thereof, plead that discharge in another state as a defence in bar against the imprisonment of his body, to an action brought on a debt from which he has been so discharged; and if he can so plead it, what is the form of the judgment to be rendered thereon? In the cases of Baker v. Wheaton, Smith v. Parsons, and Watson v. Bourne, and the case of Babcock v. Weston, 1 Gall. Rep. 168, it is held to be a settled principle, that a legal discharge once obtained between citizens of the same state, is valid and binding in every state in the Union, on general principles; and much more so under the federal compact. These decisions on this point have, we believe, never been called in question. The Court is of opinion that the discharge now in question,of thedebt- or in the state of Ohio, is valid between the defendant and Jackson, and that the assignment of the note to Bussel does notalteror affect the case; and that therefore the pica of the defendant is well pleaded. In England, they have an insolvent law called the Lords’ act, which discharges the person of the debtor from imprisonment, but does not discharge his after-acquired property. Under that act such pleas are common, and the form thereof well settled. See 2 Chitty’s Pleading, 356, 357. The judgment in such cases is, that the plaintiff recover of the defendant his debt, damages, and costs, to be levied, not on the person of the defendant, but on his goods and chattels, lands and tenements. Bingham on Judgments and Executions, 328, 329. Per Curiam. The judgment is reversed with costs. Cause remanded, &c. (1). Smith, for the plaintiff. Rariden^ for the defendant. Footnotes [(1)] The subjects, to which the opinion in the text relates, and the authorities connected with them, are very fully examined in Kent’s Commentaries, 2d Ed. 1 Vol. pp. 419 to 423; 2 Vol. pp. 389 to 408. The language of Judge Story, as to the authority-of the states to pass insolvent laws discharging the obligation of contracts, is as follows:—“It is not doubted, that the states may pass insolvent laws, which shall discharge the person, or operate in the nature of a cessio bonorum, provided such laws do not discharge, or'intermeddle with the obligation of contracts. Nor is it denied, that insolvent laws, which discharge the obligation of contracts, made antecedently to their passage, are unconstitutional. Sturges v. Crowninshield, 4 Wheat. R. 122; Farmers and Mechanics’ Bank v. Smith, 6 Wheat. R. 131; Ogden v. Saunders, 12 Wheat. R. 213. But the question is, how far the states may constitutionally pass insolvent laws, which shall operate upon and discharge contracts, which are made subsequently to their passage. After the most ample argument it has at length been settled by a majority of the Supreme Court, that the states may constitutionally pass such laws operating upon future contracts. Ogden v. Saunders, 12 Wheat. R. p. 254 to 357.” 3 Story’s Comm. 252. Respecting the contracts to which such state insolvent laws can rightfully apply, the same distinguished writer says:—“The result of-the various decisions on this subject is, 1. That they apply to all contracts made within the state between citizens of the state. 2. That they do not apply to contracts made within the state between a citizen of a state, and a citizen of another state. 3. That they do not apply to contracts not made within the state. In all these cases it is considered, that the state does not possess a jurisdiction, co-extensive with the contract, over the parties; and therefore, that the constitution of the United States protects them from prospective, as well as retrospective legislation. Ogden v. Saunders, 12 Wheat. R. 358; McMillan v. McNeill, 4 Wheat. R. 209. Still, however, if acredilor voluntarily makes himself a party to the proceedings under an insolvent law oí a state, which discharges the contract, and accepts a dividend declared under such law, he will be bound by his own act, and be deemed to have abandoned his extra-territorial immunity. Clay v. Smith, 3 Peters’ Rep. 411.” 3 Story’s Comm. 256.