A UNIFORM SYSTEM OF BANKRUPTCY.*

MR. PRESIDENT,- The commendable temper in which the discussion has been so far conducted leads me to hope that now, when we are in the midst of the difficulties of the question, the Senate will indulge me in a few remarks. That there are difficulties I freely acknowledge. The subject of bankruptcies is a difficult subject everywhere, and perhaps particularly difficult here, as one of the results of a division of legislative powers between Congress and the States. But these difficulties are not insurmountable, and their only influence, therefore, should be to stimulate our efforts, and to increase at once our caution and our zeal.

It seems to be agreed, by all the friends of any bankrupt bill, that there shall be a provision for voluntary bankruptcy. The question now is, whether there ought to be also a compulsory power, or a power on the part of creditors to subject their debtors, in certain cases, to the operation of the law.

It is well known that the bill introduced by me contained such a power, and I should still prefer to retain it. But I do not think this of so much importance as some other gentlemen, and I should cheerfully support a bill which did not contain it, if by so doing I could contribute to the success of the general measure. In truth, on this question, and on many others, my vote will be governed by a desire to make the bill acceptable to others.

Now, Sir, the argument for the compulsory clause is, that, without this power, the creditors have no security; that the bill

* A Speech delivered in the Senate of the United States, on the 5th of June, 1840, on Mr. Clay's Motion to strike out the Compulsory Part of the Bankrupt

is a one-sided measure, a measure for the benefit and relief of debtors only, quite regardless of the just rights of creditors. All this I deny. I maintain, on the contrary, not only that there is just security for the rights of creditors under the voluntary part of the bill, but that that part, of itself, and by itself, is of the highest value and importance to creditors. This proposition takes for granted, what I have no doubt will be found true, that persons in insolvent circumstances will generally become voluntary bankrupts. And, in the second place, I maintain that very little value is added to the security of creditors by the compulsory part of the bill. These are points on which I propose now particularly to address the Senate, and, with its patience, I hope to make them clear.

When I speak of creditors, I mean the class of creditors generally, or all who, in the course of business, give trust for merchandise, or other things sold, or for money loaned. When I speak of the creditors of insolvents, I mean the creditors, in the mass, of such persons as are actually and really insolvent, that is, unable to pay their debts, whether their insolvency be known and acknowledged or not. And to creditors, and the rights of creditors, in both these senses and uses of the word, I maintain that the provisions contained in the voluntary part of this bill are of great value.

The rights of creditors are the means which the laws furnish for the enforcement and collection of their debts. In the case of an insolvent debtor, the laws at present give to the creditor, among other things, a right to pursue and demand his future earnings. This right the present bill proposes to take away. The question is, therefore, whether, in taking away this right, the bill provides for the creditor any just equivalent.

I do not admit, indeed, that by a bankrupt law we might not take away some of the existing rights or remedies of creditors, if it should appear just and proper to do so, without providing any new right or remedy as an equivalent. The relation of debtor and creditor forms a general subject of legislation. The proper law-making power may act upon this relation, and alter and modify it, upon principles of general policy, justice, and utility, whenever it sees fit. But I am willing to occupy a narrower ground, and to undertake to show, that, by the provisions of this bill, we leave creditors in a better condition than

we found them; in other words, that, as a voluntary system alone, it is beneficial to creditors.

The law, it is proposed, shall last some few years, that Congress and the country may see what is its actual operation. It will act immediately on its passage; and this operation, as I maintain, will be favorable to creditors. In other words, the law will be useful to creditors, in reference to the creation of debts. It will, I insist, increase the probability that he who parts with his money or his merchandise on credit will be paid for his merchandise, or repaid his money. Sir, we live in a highly commercial country, and a highly commercial and enterprising age. The system of credit, which I hold to be very useful, and, indeed, essential to our general prosperity, may, no doubt, be carried to excess. There is such a thing as overtrading, and such a thing as false credit; and both these things are public evils. All admit this; and many think the evils so great, that they seem to be enemies to the credit system altogether. I am not one of these; but still I desire to keep credit within bounds, and to avoid over-trading.

Now, Sir, what is it that upholds so much false credit? What is it that enables men to extend their transactions so far beyond their capital? What is it that enables them, also, to go on, often for a long time, after they become really insolvent? It is the practice of indorsement and suretyship, a practice, I venture to say, more extensive in the United States than in any other country. Men get trust upon the strength of other men's names. I do not speak of the discount of notes and bills taken in the common operations of sale and purchase, but I speak of pure accommodation, of the discount of paper representing no transaction of sale or purchase, but made for borrowing money merely, and indorsed for the sole accommodation of the borrower. That great excesses have been committed in operations of this kind, no man who has attended to the transactions of trade can doubt; nor can any one doubt that great evils arise from this source. Indorsement and suretyship, therefore, are the means by which excessive and false credit is upheld. And how is this indorsement obtained? This leads us one step farther in the inquiry. How is it that persons, continuing to carry on business after they are really insolvent, and are suspected, if not known to be so, can procure others to indorse their paper? Sir,

we all know how it is. It is by promising to secure indorsers at all events. It is by giving an assurance that, if the party stops payment, a preference shall be made, and the indorsers. shall be favored creditors. Hence it is quite general, perhaps universal, that, when an insolvent assigns his property for the benefit of his creditors, he classifies his creditors, and puts indorsers into the first class. This has become a sort of law of honor. A man that disregards it is, in some measure, disgraced. We hear daily of honorary debts, and we hear reproaches against those who, being insolvent, have yet pushed on, in the hope of retrieving their affairs, until, when failure comes, and come it does, sooner or later, they have not enough left to discharge these honorary obligations.

Now, at the bottom of all this is preference. The preference of one creditor to another, both debts being honest, is allowed by the general rules of law, but is not allowed by bankrupt laws. And this right of preference is the foundation on which the structure rests. On the legal right or power of preference lies the promise of preference. On the promise of preference lies indorsement. On indorsement lies extensive and false credit. On excessive and false credit lies over-trading. This, Sir, is the regular stratification. If we strike out preference, we shall knock away the foundation-stone. And this bill will strike

it out.

If this bill shall pass, every indorser who shall not take previous security will see that, in case of failure, he can no longer be protected or preferred, but must come in for his share, and his share only, with other creditors. And this is right. For one, I have always thought that, if any difference were to be made, indorsers should be paid last, because they come in as volunteers; they profess to run a risk. They are not giving credit in the common way, as other persons do, who sell on trust, in the ordinary way of business, and in order to earn their livelihood; but they assume a voluntary responsibility. And why should they be preferred to the grocer, the tailor, or the butcher, who has only dealt in the common way of his trade, and has not volunteered to give any trust or credit whatever? Well, Sir, will not indorsement stay its hand when this bill shall have taken away all power of preference? Will not men hesitate, more than they now do, about lending their names, when they find that, in case

of failure, they must come in for neighbor's fare with all other creditors? I think they will.

And, Sir, if there be less of indorsement, there will be less of fictitious credit, and less of over-trading. Every man's business will be brought down so much the nearer to his own property, his own capital, and his own means. And if every trading man's business be brought down to some nearer proportion to his own capital and his own means, does not this diminish the probability of his failure? Certainly it does; and therefore whoever deals with him, and trusts him, is not so likely to lose his debt. There will be more general security in giving credits. And therefore I say, that, if you take away the power and practice of preference, you affect, to some extent, false credit and over-trading; and by these means you give a security to the creditor, even in the creation of his debt; and this is one advantage, to the whole class of creditors, to be expected from this bill. It is a general advantage, and its precise amount cannot be stated; but it is a clear advantage nevertheless.

But there is a second, and a still greater advantage. Mr. President, allow me to ask, What is that feature, the capital feature, which we most often see in the insolvencies which take place among the trading classes? What is that which there is the more frequent occasion to regret and to reprehend? Is it not that the party has gone on too long? Is it not that, after he knew himself to be really insolvent, that is, after he knew he had not property enough left to pay his debts, instead of stopping, and winding up his concerns, he has ventured still deeper, and made his ultimate case thereby still more desperate? Under the present state of law, this happens quite too often. I am afraid it would be found, on inquiry, that failures are generally worse in this country than elsewhere; that is to say, that generally the amount of assets is less in proportion to the amount of debts. And, in my opinion, the present state of the law encourages and produces this result. For, Sir, let me ask, What will a man naturally do who has been unfortunate, and has sustained such losses as to bring his property below his debts, while this is known to himself, and not known to others? If he stops and surrenders, however honestly and fairly, he cannot be sure of a discharge, and the unpaid balance may keep him a pauper for life. On the other hand, he sees that another voy