SAME-POLICY OF THE LEGISLATION

33. The general policy of bankrupt laws is at once the relief of honest but unfortunate debtors, by enabling them to start life anew, relieved of a load of indebtedness which would otherwise crush their future, and again the protection of the bankrupt's creditors, who find a remedy in its provisions for the better enforcement of their claims. The policy of these laws has varied according as they have had most in view the protection of the creditor or the relief of the debtor. The necessity for uniform legislation on this subject vindicates the wisdom of vesting the national government with the power to regulate the question.

Paragraph 19, § 24, of the Judicial Code, confers on the district court original jurisdiction of all matters and proceedings in bankruptcy.

Article 1, § 8, of the Constitution, conferred power upon Congress, among other things, to establish uniform laws. on the subject of bankruptcies throughout the United States. This power was not exercised until 1800, when the first bankrupt law was passed. It remained in force but a short time. In 1841 another bankrupt law was passed, which also was repealed very shortly. Soon after the Civil War, and largely in consequence of the financial misfortunes which had been caused by it, the act of March 2, 1867, was passed. This law remained in force for over twenty years, when it, too, was repealed. Then for a period of about twenty years no national bankrupt law was in force, but the act of July 1, 1898, put into force the present statute on the subject.

Bankrupt laws are based upon sound reasons of public policy, and the importance of having uniform laws of this character throughout the United States was the main rea

son which induced the authors of the national Constitution to confide that power to Congress instead of the states. By a national bankrupt law the rights of creditors can best be protected against frauds of dishonest debtors and partial state legislation in favor of the resident debtor against the nonresident creditor. On the other hand, a national bankrupt law, as distinguished from a state law, is in the interest of the honest debtor as well, for thereby alone can he obtain a release from all of his debts; since a state statute, which has no extraterritorial jurisdiction, could not discharge him from the claims of nonresident creditors. The proper purposes of a bankrupt act, therefore, are to protect creditors from fraud, to secure an equal and equitable distribution of a debtor's estate among his creditors, and to relieve honest debtors from the burden of debts which have fallen upon them through misfortune, and which they could never pay. The state itself, as has been well said, has an interest in extending this relief to such debtors, since it is for the good of the state that all its members should be industrious, and contribute their efforts to building up the general prosperity. Any one who has been so unfortunate as to contract an enormous load of indebtedness, which he recognizes to be beyond his ability to pay, even by the labor of a lifetime, is liable to have his industry paralyzed, and to become a mere drone on society. On the other hand, if he is allowed to turn over all his property as a trust fund to his creditors, and secure a discharge from his indebtedness, he can start life anew, with the feeling that he will reap some benefit from his labor, and will thereby be induced again to become a useful member of the body politic.

The policy of bankrupt laws has varied according as the lawmakers have had most in mind the protection of the creditor or the relief of the debtor. The act of March 2, 1867, with which the older members of the bar are familiar, was mainly a collection law in the interest of the creditor,

though it did not entirely lose sight of the interest of the debtor. The present law was in its inception mainly in the interest of the debtor. Subsequent amendments, however, have changed this considerably, and made it more of a collection law, though it still remains as to its distinctive features primarily in the interest of the debtor.

A bankrupt law is in a certain sense a proceeding in rem. It treats the debtor's property as a trust fund, takes charge of it through the machinery of the bankrupt court, and divides it among his creditors.2

Nothing can better illustrate the advance in civilization than the contrast between the present and former methods of treating the debtor. The old laws of imprisonment for debt locked up many deserving, talented, and industrious citizens, withdrew them from the general class of producers, and made them a charge upon the community. The horrors of this state of affairs have played too prominent a part, in history and literature, to require more than a passing reminder. On the other hand, the abolition of imprisonment for debt and the enactment of the bankrupt laws have placed every citizen in a position where he not only can, but probably will, labor for the general weal, as he still has left the motive of acquisition, which is the mainspring of prosperity.

In view of the object of a bankrupt law, the courts have treated such laws, not as special statutory proceedings, to be strictly construed, like attachment laws, but as remedial, and to be liberally construed. On this point Judge Deady has said in In re Muller: "In the course of the argument counsel have insisted that this is a special proceeding, purely statutory, and that the act must be taken most

2 Hills v. The McKimmiss Co. (D. C.) 188 Fed. 1012. See "Bankruptcy," Dec. Dig. (Key-No.) § 4; Cent. Dig. §§ 3, 4.

3 Fed. Cas. No. 9,912. See, also, Blake, Moffit & Towne v. Valentine (D. C.) 89 Fed. 691; Norcross v. Nathan (D. C.) 99 Fed. 418; Botts v. Hammond, 99 Fed. 916, 920, 40 C. C. A. 179. See "Bankruptcy," Dec. Dig. (Key-No.) § 4; Cent. Dig. §§ 3, 4.

strictly against the creditor and in favor of the bankrupt. In my judgment, this view of the matter is not supported by reason or authority. The act does not attempt to punish the bankrupt, but to distribute his property fairly and impartially between his creditors, to whom in justice it belongs. It is remedial, and seeks to protect the honest creditor from being overreached and defrauded by the unscrupulous. It is intended to relieve the honest but unfortunate debtor from the burden of liabilities which he cannot discharge, and allow him to commence the business of life anew. The power to pass bankrupt laws is one of the express grants of power to the national government, and history teaches that the want of a uniform law on this subject throughout the states was one of the prominent causes which led to the assembling of the constitutional convention, and consequent formation and adoption of the federal Constitution. Such a statute is not to be construed strictly, as if it were an obscure or special penal enactment, and this was the sixteenth instead of the nineteenth century. The act establishes a system, and regulates, in all their details, the relative rights and duties of debtor and creditor. Such an act must be construed—as, indeed, should all acts-according to the fair import of its terms, with a view to effect its objects and to promote justice."

CONSTITUTIONALITY OF BANKRUPT LEGISLATION

34. A national bankrupt law may constitutionally provide for discharges from debts existing at the time of its passage; also for an adjudication without notice to creditors. It may limit the classes to which it applies, and adopt state exemptions, though they vary in the different states, without contravening the constitutional requirement of uniformity.

Although the Constitution forbids a state from passing any laws that would impair the obligation of contracts, there is no similar prohibition against congressional action. For this reason a national bankrupt law can accomplish the objects of bankruptcy legislation when a state law could not; for Congress can pass a bankrupt law that would authorize the discharge of the debtor not only from debts incurred subsequent to the passage of the law, but also from debts existing at the time of its passage.* Under its power to pass a bankrupt law, Congress can also prescribe penal offenses for violation of its provisions, but it could not make a penal law ex post facto; so that an act innocent at the time it was committed cannot be made, even by Congress, an offense upon the happening of some subsequent act either of the bankrupt or another.5

As a bankrupt procedure is in the nature of a proceeding in rem, a bankrupt law is not invalid, as depriving creditors of their property without due process of law, because it fails to provide for notice to them of the adjudication of bankruptcy. Under the voluntary proceeding, as will be seen later on, the debtor, on filing his petition, is adjudged a bankrupt by the court without giving notice to his creditors; but the law requires notice of subsequent proceedings to be given, so that, before any distribution of the property so surrendered by the debtor, the creditors have ample opportunity to prove their claims and litigate any questions in which they are interested. They also have opportunity to contest the right of the bankrupt to a discharge; hence they have their day in court, and the law for that reason is constitutional."

4 In re Owens, Fed. Cas. No. 10,632; Darling v. Berry (C. C.) 13 Fed. 659. See "Bankruptcy," Dec. Dig. (Key-No.) § 5; Cent. Dig. § 2. 5 U. S. v. Fox, 95 U. S. 670, 24 L. Ed. 538. See "Bankruptcy," Dec. Dig. (Key-No.) § 6; Cent. Dig. § 2.

6 HANOVER NAT. BANK v. MOYSES, 186 U. S. 181, 22 Sup. Ct. 857, 46 L. Ed. 1113. See "Bankruptcy," Dec. Dig. (Key-No.) § 3; Cent. Dig. § 1; "Constitutional Law," Dec. Dig. (Key-No.) § 309; Cent. Dig. §§ 929, 930.