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IN THE CASE OF OGDEN vs. SAUNDERS, IN THE SUPREME COURT
OF THE UNITED STATES, JANUARY TERM, 1827.
This was an action of Assumpsit brought originally in the Circuit Court of Louisiana by Saunders, a citizen of Kentucky, against Ogden, a citizen of Louisiana. The plaintiff below declared upon certain bills of exchange, drawn on the 30th of September, 1806, by one Jordan, at Lexington, in the State of Kentucky, upon the defendant below, Ogden, in the city of New York, (the defendant then being a citizen and resident of the State of New York,) accepted by him at the city of New York, and protested for non-payment.
The defendant below pleaded several pleas, among which was a certificate of discharge under the act of the legislature of the State of New York, of April 3d, 1801, for the relief of insolvent debtors, commonly called the threefourths act.
The jury found the facts in the form of a special verdict, on which the Court rendered a judgment for the plaintiff below, and the cause was brought by writ of error before this Court. The question, which arose under this plea as to the validity of the law of New York as being repugnant to the constitution of the United States, was argued at February term, 1824, by Mr. Clay, Mr. D. B. Ogden, and Mr. Haines, for the plaintiff in error, and by Mr. Webster and Mr. Wheaton, for the defendant in error, and the cause was continued for advisement until the present term. It was again argued at the present term, by Mr. Webster and Mr. Wheaton, against the validity, and by the Attorney General, Mr. E. Livingston, Mr. D. B. Ogden, Mr. Jones, and Mr. Sampson, for the validity.
Mr. Wheaton opened the argument for the defendant in error; he was followed by the counsel for the plaintiff in error; and Mr. Webster replied as follows:
The question arising in this case is not more important, nor so important even, in its bearing on individual cases of private right, as in its character of a public political question. The constitution was intended to accomplish a great political object. Its design was not so much to prevent injustice or injury in one case, or in successive single cases, as it was to make general salutary provisions, which, in their operation, should give security to all contracts, stability to credit, uniformity among all the States, in those things which materially concerned the foreign commerce of the country, and their own credit, trade, and intercourse among themselves. The real question is, therefore, a much broader one than has been argued. It is this, whether the constitution has not, for general political purposes, ordained that bankrupt laws should be established only by national authority? We contend that such was the intention of the constitution; an intention, as we think, plainly manifested by a consideration of its several provisions
The act of New York, under which this question arises, provides, that a debtor may be discharged from all his debts, upon assigning his property to trustees for the use of his creditors.
When applied to the discharge of debts, contracted before the date of the law, this Court has decided that the act is invalid.* The act itself makes no distinction between past and future debts, but provides for the discharge of both in the same manner. In the case, then, of a debt already existing, it is admitted, that the act does impair the obligation of contracts. We wish the full extent of this decision to be well considered. It is not, merely, that the legislature of the State cannot interfere, by law, in the particular case of A. or B., to injure or impair rights which have become vested under contracts; but it is, that they have no power, by general law, to regulate the manner in which all debtors may be discharged from subsisting contracts; in other words, they cannot pass general bankrupt laws, to be applied in presenti. Now, it is not contended that such laws are unjust, and ought not to be passed by any legislature. It is not said they are unwise or impolitic. On the contrary, we know the general experience is, that when bankrupt laws are established, they make no distinction between present and future debts. While all agree that special acts, made for individual cases, are unjust, all admit that a general law, made for all cases, may be both just and politic. The question, then, which meets us in the threshold, is this: if the constitution meant to leave the States the power of establishing systems of bankruptcy to act upon future debts, what great or important object, of a political nature, was answered, by denying the power of making such systems applicable to existing debts?
The argument used in Sturges vs. Crowninshield, was, at least, a plausible and consistent argument. It maintained, that the prohibition of the constitution was levelled only against interferences in individual cases, and did not apply to general laws, whether those laws were retrospective or prospective in their operation. But the Court rejected that conclusion. It decided, that the constitution was intended to apply to general laws, or systems of bankruptcy; that an act, providing that all debtors might be discharged from all creditors, upon certain conditions, was of no more validity than an act, providing that a particular debtor, A., should be discharged on the same conditions from his particular creditor, B.
It being thus decided that general laws are thus within the prohibition of the constitution, it is for the plaintiff in error now to show, on what ground, consistent with the general objects of the constitution, he can establish a distinction, which can give effect to those general laws in their application to future debts, while it denies them effect in their application to subsisting debts. The words are, that “ no State shall pass any law impairing the obligation of contracts." The general operation of all such laws is, to impair that obligation; that is, to discharge the obligation without fulfilling it. This is admitted; and the only ground taken for the distinction to stand on is, that when the law was in existence, at the time of the making the contract, the parties must be supposed to have reference to it, or, as it is usually expressed, the law is made a part of the contract.
* Sturges vs Crowninshield, 4 Wheat. Rep. 122.
fore considering what foundation there is for this argument, it may be well to inquire, what is that obligation of contracts of which the constitution speaks, and whence is it derived ?
The definition given by the Court in Sturges vs. Crowninshield, is sufficient for our present purpose.
“A contract,” say the Court, “is an agreement to do some particular thing; the law binds the party to perform this agreement, and this is the obligation of the contract."
It may, indeed, probably, be correct to suppose the constitution used the words in somewhat of a more popular sense. We speak, for example, familiarly of a usurious contract, and yet we say, speaking technically, that a usurious agreement is no contract.
By the obligation of a contract, we should understand the constitution to mean, the duty of performing a legal agreement. If the contract be lawful, the party is bound to perform it. But bound by what? What is it that binds him? And this leads to what we regard as a principal fallacy in the argument on the other side. That argument supposes, and insists, that the whole obligation of a contract has its origin in the municipal law. This position we controvert. We do not say that it is that obligation which springs from conscience merely; but we deny that it is only such as springs from the particular law of the place where the contract is made. It must be a lawful contract, doubtless; that is, permitted and allowed; because society has a right to prohibit all such contracts, as well as all such actions, as it deems to be mischievous or injurious. But if the contract be such as the law of society tolerates, in other words, if it be jawful, then we say, the duty of performing it springs from universal law. And this is the concurrent sense of all the writers of authority
The duty of performing promises is thus shown to rest on universal law; and if, departing from this well established principle, we now follow the teachers who instruct us that the obligation of a contract has its origin in the law of a particular State, and is, in all cases, what that law makes it, and no more, and no less, we shall probably find ourselves involved in inexplicable difficulties. A man promises, for a valuable consideration, to pay money in New York; is the obligation of that contract created by the laws of that State? or does it subsist independent of those laws? We contend that the obligation of a contract, that is, the duty of performing it, is not created by the law of the particular place where it is made, and dependent on that law for its existence; but that it may subsist, and does subsist, without that law, and independent of it. The obligation is in the contract itself, in the assent of the parties, and in the sanction of universal law. This is the doctrine of Grotius, Valtel, Burlemaqui, Pothier, and Rutherforth. The contract, doubtless, is necessarily to be enforced by the municipal law of the place where performance is demanded. The municipal law acts on the contract after it is made, to compel its execution, or give damages for its violation. But this is a very different thing from the same law, being the origin or fountain of the contract. Let us illustrate this matter by an example. Two persons contract together in New York for the delivery, by one to the other, of a domestic animal or utensil of husbandry, or a weapon
This is a lawful contract, and while the parties remain in New York, it is to be enforced by the laws of that State. But if they remove with the article to Pennsylvania or Maryland, there a new law comes to act upon the contract, and to apply other remedies if it be broken. Thus far the remedies are furnished by the laws of society. But suppose the same parties to go together to a savage wilderness, or a desert island, beyond the reach of the laws of any society; the obligation of the contract still subsists, and is as perfect as ever, and is now to be enforced by another law, that is, the law of nature, and the party to whom the promise was made, has a right to také by force the animal, the utensil, or the weapon, that was promised to him. The right is as perfect here, as it was in Pennsylvania, or even in New York; but this could not be so if the obligation were created by the law of New York, or were dependent on that law for its existence, because the laws of that State can have no operation beyond its territory. Let us reverse this example. Suppose a contract to be made between two persons cast ashore on an uninhabited territory, or in a place over which no law of society extends. There are such places, and contracts have been made there by individuals casually there, and these contracts have been enforced in Courts of law in civilized communities. Whence do such contracts derive their obligation, if not from universal law?
If these considerations show us that the obligation of a lawsul contract does not derive its force from the particular law of the place where made, but may exist where that law does not exist, and be enforced where that law has no validity, then it follows, we contend, that any statute which diminishes or lessens its obligation, does impair it, whether it precedes or succeeds the contract in date. The contract having an independent origin, whenever the law comes to exist together with it, and interferes with it, it lessens, we say, and impairs its own original and independent obligation. In the case before the Court, the contract did not owe its existence to the particular law of New York; it did not depend on that law, but could be enforced without the territory of that State, as well as within it. Nevertheless, though legal, though thus independently existing, though thus binding the party everywhere, and capable of being enforced everywhere, yet, the statute of New York says, that it shall be discharged without payment. This, we say, impairs the obligation of that contract. It is admitted to have been legal in its inception, legal in its full extent, and capable of being enforced by other tribunals according to its terms. An act, then, purporting to discharge it without payment, is, as we contend, an act impairing its obligation.
But here we meet the opposite argument, stated on different occasions in different terms, but usually summed up in this, that the law itself is a part of the contract, and, therefore, cannot impair it. What does this mean? Let us seek for clear ideas. It does not mean that the law gives any particular construction to the terms of the contract, or that it makes the promise, or the consideration, or the time of performance, other than they are expressed in the instrument itself. It can only mean, that it is to be taken as a part of the contract, or understanding of the parties, that the contract itself shall be enforced by such laws and regulations, respecting remedy
and for the enforcement of contracts, as are in being in the State where it is made at the time of entering into it. This is meant, or nothing very clearly intelligible is meant, by saying the law is part of the contract.
There is no authority in adjudged cases, for the plaintiff in error, but the State decisions which have been cited, and, as has already been stated, they all rest on this reason, that the law is part of the contract.
Against this we contend, 1st. That if the proposition were true, the consequence would not follow.
2d. That the proposition itself cannot be maintained.
1. If it were true that the law is to be considered as part of the contract, the consequence contended for would not follow; because, if this statute be part of the contract, so is every other legal or constitutional provision existing at the time which affects the contract, or which is capable of affecting it; and especially this very article of the constitution of the United States is part of the contract. The plaintiff in error argues in a complete circle. He supposes the parties to have had reference to it because it was a binding law, and yet he proves it to be a binding law only upon the ground that such reference was made to it. We come before the Court alleging the law to be void as unconstitutional; they stop the inquiry by opposing to us the law itself. Is this logical? Is it not precisely objectio ejus, cujus dissolutio petitur? If one bring a bill to set aside a judgment, is that judgment itself a good plea in bar to the bill? We propose to inquire if this law is of force to control our contract, or whether, by the constitution of the United States, such force be not denied to it. The plaintiff in error stops us by saying that it does control the contract, and so arrives shortly at the end of the debate. Is it not obvious, that supposing the act of New York to be a part of the contract, the question still remains as undecided as
What is that act? Is it a law, or is it a nullity? A thing of force, or a thing of no force? Suppose the parties to have contemplated this act, what did they contemplate? its words only, or its legal effect? its words, or the force which the constitution of the United States allowed to it? If the parties contemplated any law, they contemplated all the law that bore on their contract, the aggregate of all the statute and constitutional provisions. To suppose that they had in view one statute, without regarding others, or that they contemplated a statute without considering that paramount constitutional provisions might control or qualify that statute, or abrogate it altogether, is unreasonable and inadmissible. “This contract,” says one of the authorities relied on, “is to be construed as if the law were specially recited in it.” Let it be so for the sake of argument. But it is also to be construed as if the prohibitory clause of the constitution were recited in it, and this brings us back again to the precise point from which we departed.
The constitution always accompanies the law, and the latter can have no force which the former does not allow to it. If the reasoning were thrown into the form of special pleading, it would stand thus: the plaintiff declares on his debt; the defendant pleads his discharge