Source: https://openjurist.org/186/us/181
Timestamp: 2019-04-23 00:12:44+00:00

Document:
This was an action brought by the Hanover National Bank of New York against Max Moyses in the circuit court of the United1t18 States for the eastern district of Tennessee, November 20, 1899, on a judgment recovered against him in the circuit court of Washington county, Mississippi, December 12, 1892.
It was admitted that the discharge was 'good and effectual if said act of Congress and the proceedings thereunder are valid,' but charged that the act was void because in violation of the Federal Constitution in many particulars set forth.
Plaintiff also stated that it was and had continued to be domiciled in and resident in New York; that it was not a party to siad proceedings in bankruptcy, nor did it enter its appearance therein for any purpose, nor did it prove its claim, nor did it in any way subject itself to the jurisdiction of the district court in said proceedings; that plaintiff was not served with process of any kind on said petition for adjudication, and had no notice, personal or otherwise, of the said proceedings by voluntary petition for adjudication; nor was any notice of the proceeding to adjudicate defendant a bankrupt given plaintiff, or anyone else, 'nor is any notice of any kind of such proceeding to adjudicate a person a bankrupt upon his voluntary petition required by said act of Congress, and in this said act of Congress violates the Fifth Amendment,' as does the 'adjudication of defendant as a bankrupt;' that the situs of the promissory note, on which the judgment was rendered, was never within the jurisdiction of the district court; and that the court never acquired jurisdiction of plaintiff, nor of the debt sued on.
Demurrer was filed to the amended declaration, the demurrer sustained, and final judgment entered dismissing the suit. The circuit court stated that it took this action on the authority of Leidigh Carriage Co. v. Stengel, 37 C. C. A. 210, 95 Fed. 637. Thereupon the bank brought this writ of error.
'(a) It does not provide for notice as required by due process of law to the creditor in voluntary proceedings for adjudication of bankruptcy and for the discharge of the debt of the creditor.
'(b) Ten days' notice by mail to creditors to oppose discharge is so unreasonably short as to be a denial of notice.
'(c) The grounds of opposition to a discharge are so unreasonaby limited as, substantially, to deny the right of opposition to a discharge. Thereby the act is also practically a legislative promulgation of a discharge contrary to art. 3, § 1, of the Federal Constitution.
'(a) It does not establish uniform laws on the subject of bankruptcies throughout the United States.
'(b) It delegates certain legislative powers to the several states in respect to bankruptcy proceedings.
Messrs. Marcellus Green and Garner Wynn Green for plaintiff in error.
Messrs. George T. White and Francis Martin for defendant in error.
By the 4th clause of § 8 of art. 1 of the Constitution the power is vested in Congress 'to establish . . . uniform laws on the subject of bankruptcies throughout the United States.' This power was first exercised in 1800. 2 Stat. at L. 19, chap. 19. In 1803 that law was repealed. 2 Stat. at L. 248, chap. 6. In 1841 it was again exercised by an act which was repealed in 1843. 5 Stat. at L. 440, chap. 9; 5 Stat. at L. 614, chap. 82. It was again exercised in 1867 by an act which, after being several times amended, was finally repealed in 1878. 14 Stat. at L. 517, chap. 176; 20 Stat. at L. 99, chap. 160. And on July 1, 1898, the present act was approved.
The act of 1800 applied to 'any merchant, or other person, residing within the United States, actually using the trade of merchandise, by buying or selling in gross, or by retail, or dealing in exchange, or as a banker, broker, factor, underwriter, or marine insurer,' and to involuntary bankruptcy.
In Adams v. Storey, 1 Paine, 79, Fed. Cas. No. 66, Mr. Justice Livingston said on circuit: 'So exclusively have bankrupt laws operated on traders, that it may well be doubted whether an act of Congress subjecting to such a law every description of persons within the United States would comport with the spirit of the powers vested in them in relation to this subject.' But this doubt was resolved otherwise, and the acts of 1841 and 1867 extended to persons other than merchants or traders, and provided for voluntary proceedings on the part of the debtor, as does the act of 1898.
It is true that from the first bankrupt act passed in England, 34 & 35 Hen. VIII. chap. 4, to the days of Queen Victoria, the English bankrupt acts applied only to traders, but, as Mr. Justice Story, in his Commentaries on the Constitution, pointed out, 'this is a mere matter of policy, and by no means enters into the nature of such laws. There is nothing in the nature or reason of such laws to prevent their being applied to any other class of unfortunate and meritorious debtors.' § 1113.
In the case, Re Klein, Fed. Cas. No. 7,865, decided in the circuit court for the district of Missouri, and reported in a note to Nelson v. Carland, 1 How. 265, 277, 11 L. ed. 126, 130, Mr. Justice Catron held the bankrupt act of 1841 to be constitutional, although it was not restricted to traders, and allowed the debtor to avail himself of the act on his own petition, differing in these particulars from the English acts. He said, among other things: 'In considering the question before me, I have not pretended to give a definition (but purposely avoided any attempt to define) the mere word 'bankruptcy.' It is employed in the Constitution in the plural, and as part of an expression, 'the subject of bankruptcies.' The ideas attached to the word in this connection are numerous and complicated; they form a subject of extensive and complicated legislation; of this subject, Congress has general jurisdiction; and the true inquiry is,—To what limits is that jurisdiction restricted? I hold, it extends to all cases where the law causes to be distributed the property of the debtor among his creditors; this is its least limit. Its greatest is the discharge of a debtor from his contracts. And all intermediate legislation, affecting substance and form, but tending to further the great end of the subject,—distribution and discharge,—are in the competency and discretion of Congress. With the policy of a law letting in all classes,—others as well as traders,—and permitting the bankrupt to come in voluntarily, and be discharged without the consent of his creditors, the courts have no concern; it belongs to the lawmakers.' Similar views were expressed under the act of 1867, by Mr. Justice Blatchford, then District Judge, in Re Reiman, 7 Ben. 455, Fed. Cas. No. 11,673; by Deady, J., in Re Silverman, 1 Sawy. 410, Fed. Cas. No. 12,855; by Hoffman, J., in Re California P. R. Co. 3 Sawy. 240, Fed. Cas. No. 2,315; and in Kunzler v. Kohaus, 5 Hill, 317, by Cowen, J., in respect of the act of 1841, in which Mr. Justice Nelson, then Chief Justice of New York, concurred. The conclusion that an act of Congress establishing a uniform system of bankruptcy throughout the United States is constitutional, although providing that others than traders may be adjudged bankrupts, and that this may be done on voluntary petitions, is really not open to discussion.
The framers of the Constitution were familiar with Blackstone's Commentaries, and with the bankrupt laws of England, yet they granted plenary power to Congress over the whole subject of 'bankruptcies,' and did not limit it by the language used. This is illustrated by Mr. Sherman's observation in the Convention, that 'bankruptcies were, in some cases, punishable with death by the laws of England, and he did not choose to grant a power by which that might be done here;' and the rejoinder of Gouverneur Morris, that 'this was an extensive and delicate subject. He would agree to it, because he saw no danger of abuse of the power by the legislature of the United States.' Madison Papers, 5 Elliot, 504; 2 Bancroft, 204. And also to some extent by the amendment proposed by New York, 'that the power of Congress to pass uniform laws concerning bankruptcy shall only extend to merchants and other traders; and the states, respectively, may pass laws for the relief of other insolvent debtors.' 1 Elliot, 330. See also Mr. Pinkney's original proposition, 5 Elliot, 488; the report of the committee thereon, 5 Elliot, 503; and The Federalist, No. 42, Ford's ed. 279.
Counsel justly says that 'the relation of debtor and creditor has a dual aspect, and contains two separate elements. The one is the right of the creditor to resort to present property of the debtor through the courts to satisfy the debt; the other is the personal obligation of the debtor to pay the debt, and that he will devote his energies and labor to discharge it' (4 Wheat. 198, 4 L. ed. 549); and, 'in the absence of property, the personal obligation to pay constitutes the only value of the debt.' Hence the importance of the distinction between the power of Congress and the power of the states. The subject of 'bankruptcies' includes the power to discharge the debtor from his contracts and legal liabilities, as well as to distribute his property. The grant to Congress involves the power to impair the obligation of contracts, and this the states were forbidden to do.
The laws passed on the subject must, however, be uniform throughout the United States, but that uniformity is geographical, and not personal, and we do not think that the provision of the act of 1898 as to exemptions is incompatible with the rule.
Section 14 of the act of 1867 prescribed certain exemptions, and then added: 'And such other property not included in the foregoing exceptions as is exempted from levy and sale upon execution or other process or order of any court by the laws of the state in which the bankrupt has his domicil at the time of the commencement of the proceedings in bankruptcy, to an amount not exceeding that allowed by such state exemption laws in force in the year eighteen hundred and sixty-four.' [14 Stat. at L. 517, chap. 176.] This was subsequently amended, and controversies arose under the act as amended which we need not discuss in this case. Lowell, Bankruptcy, § 4.
It was many times ruled that this provision was not in derogation of the limitation of uniformity because all contracts were made with reference to existing laws, and no creditor could recover more from his debtor than the unexempted part of his assets. Mr. Justice Miller concurred in an opinion to that effect in the Case of Beckerford, 1 Dill. 45, Fed. Cas. No. 1,209.
We concur in this view, and hold that the system is, in the constitutional sense, uniform throughout the United States, when the trustee takes in each state whatever would have been available to the creditor if the bankrupt law had not been passed. The general operation of the law is uniform although it may result in certain particulars differently in different states.
Nor can we perceive in the recognition of the local law in the matter of exemptions, dower, priority of payments, and the like, any attempty by Congress to unlawfully delegate its legislative power. Re Rahrer, 140 U. S. 545, 560, sub nom. Wilkerson v. Rahrer, 35 L. ed. 572, 576, 11 Sup. Ct. Rep. 865.
But it is contended that as to voluntary proceedings the act is in violation of the 5th Amendment in that it deprives creditors of their property without due process of law in failing to provide for notice.
The act provides that 'any person who owes debts, except a corporation, shall be entitled to the benefits of this act as a voluntary bankrupt' (§ 4a), and that 'upon the filing of a voluntary petition the judge shall hear the petition and make the adjudication or dismiss the petition.' § 18g. With the petition he must file schedules of his property, and 'of his creditors, showing their residences, if known, if unknown, that fact to be stated.' § 7, subd. 8. The schedules must be verified, and the petition must state that 'petitioner owes debts which he is unable to pay in full,' and 'that he is willing to surrender all his property for the benefit of his creditors, except such as is exempt by law.' This establishes those facts so far as a decree of bankruptcy is concerned, and he has committed an act of bankruptcy in filing the petition. These are not issuable facts, and notice is unnecessary, unless dismissal is sought, when motice is required. § 59g.
As Judge Lowell said: 'He may be, in fact, fraudulent, and able and unwilling to pay his debts; but the law takes him at his word, and makes effectual provision, not only by civil, but even by criminal, process to effectuate his alleged intent of giving up all his property.' Re Fowler, 1 Low. Dec. 161, Fed. Cas. No. 4,998.
Adjudication follows as matter of course, and brings the bankrupt's property into the custody of the court for distribution among all his creditors. After adjudication the creditors are given at least ten days' notice by publication and by mail of the first meeting of creditors, and of each of the various subsequent steps in administration. § 58. Application for a discharge cannot be made until after the expiration of one month from adjudication. § 14.
The offenses referred to are enumerated in § 29, and embrace misappropriation of property; concealing property belonging to the estate; making false oaths or accounts; presenting false claims; receiving property from a bankrupt with intent to defeat the act; extorting money for acting or forbearing to act in bankruptcy proceedings.
It is also provided by § 15 that a discharge may be revoked, on application within a year, if procured by fraud and not warranted by the facts.
Notwithstanding these provisions, it is insisted that the want of notice of filing the petition is fatal because the adjudication per se entitles the bankrupt to a discharge, and that the proceedings in respect of discharge are in personam, and require personal service of notice. The adjudication does not in itself have that effect, and the first of these objections really rests on the ground that the notice provided for is unreasonably short, and the right to oppose discharge unreasonably restricted. Considering the plenary power of Congress, the subject-matter of the suit, and the common rights and interests of the creditors, we regard the contention as untenable.
Congress may prescribe any regulations concerning discharge in bankruptcy that are not so grossly unreasonable as to be incompatible with fundamental law, and we cannot find anything in this act on that subject which would justify us in overthrowing its action.
Nor is it possible to concede that personal service of notice of the application for a discharge is required.
Proceedings in bankruptcy are, generally speaking, in the nature of proceedings in rem, as Mr. Justice Grier remarked in Shawhan v. Wherritt, 7 How. 643, 12 L. ed. 854. And in New Lamp Chimney Co. v. Ansonia Brass & Copper Co. 91 U. S. 662, 23 L. ed. 339, it was ruled that a decree adjudging a corporation bankrupt is in the nature of a decree in rem as respects the status of the corporation. Creditors are bound by the proceedings in distribution on notice by publication and mail, and when jurisdiction has attached and been exercised to that extent, the court has jurisdiction to decree discharge, if sufficient opportunity to show cause to the contrary is afforded, on notice given in the same way. The determination of the status of the honest and unfortunate debtor by his liberation from encumbrance on future exertion is matter of public concern, and Congress has power to accomplish it throughout the United States by proceedings at the debtor's domicil. If such notice to those who may be interested in opposing discharge, as the nature of the proceeding admits, is provided to be given, that is sufficient. Service of process or personal notice is not essential to the binding force of the decree.

References: v. 
 art. 3
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 § 8
 art. 1
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 § 1113
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 § 4
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 § 18
 § 7
 § 59
 § 58
 § 14
 § 29
 § 15
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