25 U.S. (12 Wheat.) 213 (1827)
In September 1806, J. Jordan, a citizen of Kentucky, drew several bills of exchange upon Ogden, who was then a resident of New York and accepted the bills in that state.1 The payee of the bills was Saunders, also a citizen of Kentucky at the time.2
Subsequently, in April 1808, Ogden obtained a discharge as an insolvent debtor under the laws of New York enacted in 1801, having assigned all his property for the benefit of his creditors and complied with the requirements of those laws, which had been in force in substantially the same form since 1788.3 The discharge purported to release Ogden from all debts due at the time of the assignment.4
Saunders instituted an action against Ogden upon the bills in the Circuit Court of the United States sitting in Louisiana.5 The case proceeded to trial upon a special verdict that found the facts concerning the drawing and acceptance of the bills, Ogden's residence and discharge in New York, the Kentucky citizenship of the drawer and payee, and the six-year limitation period under New York law for actions on bills of exchange.6
The Circuit Court rendered judgment against Ogden, who then prosecuted a writ of error to the Supreme Court of the United States.
Whether a state insolvent law that discharges a debtor from contracts made after its enactment impairs the obligation of those contracts?7
The obligation of a contract is the law which binds the parties to perform their agreement.8 The municipal law of the state where the contract is made forms a part of the contract and its obligation.9 A discharge under a law in force at the time the contract is made does not impair its obligation.10
No. In September 1806, J. Jordan, a citizen of Kentucky, drew several bills of exchange upon Ogden, who was then a resident of New York and accepted the bills in that state. The payee of the bills was Saunders, also a citizen of Kentucky at the time. Upon the drawing and acceptance of the bills, the parties created a contractual relationship governed by the laws of New York, where the acceptance occurred and where Ogden resided.11
Subsequently, in April 1808, Ogden obtained a discharge as an insolvent debtor under the laws of New York enacted in 1801, having assigned all his property for the benefit of his creditors and complied with the requirements of those laws, which had been in force in substantially the same form since 1788. The discharge purported to release Ogden from all debts due at the time of the assignment, including the obligations arising from the bills of exchange.
Saunders instituted an action against Ogden upon the bills in the Circuit Court of the United States sitting in Louisiana. The case proceeded to trial upon a special verdict that found the facts concerning the drawing and acceptance of the bills, Ogden's residence and discharge in New York, the Kentucky citizenship of the drawer and payee, and the six-year limitation period under New York law for actions on bills of exchange. After trial, the Circuit Court rendered judgment against Ogden.12
Ogden then prosecuted a writ of error to the Supreme Court of the United States, bringing the constitutional questions regarding the validity of the state discharge before the high court for resolution.13 The procedural posture placed the dispute in a federal forum where the rights of citizens from different states could be adjudicated under the constitution.14 The New York insolvent law of 1801 was in force when Ogden accepted the bills in New York in 1806, so it formed part of the obligation of the contract, and the discharge obtained in 1808 under that law does not impair the obligation of the contract.15
The state insolvent law does not impair the obligation of contracts made after its enactment.16
Related opinions on this issue
Justice Trimble concurred in the judgment upholding the validity of the state insolvent law as applied to future contracts.17 He emphasized that the power to pass such laws is not exclusive to Congress.18 States retain authority to enact insolvent laws until Congress acts, provided the law contains no principle that violates the tenth section of the first article of the constitution.19
Trimble stressed that the discharge operates only prospectively on contracts made after the law's enactment and does not impair their obligation under the constitution.20 His analysis focused on the distinction between retrospective and prospective application, concluding that the New York law satisfied constitutional requirements when limited to subsequent contracts.21
Joined by Mr. Justice Duvall And Mr. Justice Story
Chief Justice Marshall dissented, maintaining that the state law impairs the obligation of contracts even when applied to future contracts.22 He argued that the obligation of a contract is intrinsic to the agreement itself and is not subject to alteration by state discharge provisions enacted after the contract's formation.23 Marshall viewed the constitutional prohibition as protecting the original terms of the contract from legislative interference, regardless of whether the law predated or postdated the contract.24
He contended that allowing states to discharge future contracts would undermine the inviolability of contractual obligations and conflict with the federal design for uniform bankruptcy regulation.25
Whether a discharge obtained under the insolvent laws of one state bars recovery by a creditor who is a citizen of another state?26
A discharge under the bankrupt laws of one government does not affect contracts made or to be executed under another, whether the law be prior or subsequent in the date to that of the contract.27
No. Saunders was a citizen of Kentucky at the time the bills were drawn and accepted by Ogden in New York.28 The discharge under the New York law therefore does not bar the action by Saunders in the federal court in Louisiana.29
This follows directly from the established principle that the discharge under the laws of one state has no extra-territorial operation upon the contracts of other states.30 Saunders as a Kentucky citizen never submitted himself to the operation of New York law.31
The discharge does not bar recovery by an out-of-state creditor.32
Whether the power granted to Congress to establish uniform laws on bankruptcies precludes the states from enacting their own insolvent laws?33
No. The New York law was passed before Congress exercised the power.36 It does not violate the constitution as applied to future contracts made by Ogden in New York.37
The constitutional grant confers upon Congress the authority to establish uniform laws but does not withdraw the subject entirely from the states in the absence of federal legislation.38 This allows New York to exercise its authority over contracts formed within its borders after the law's enactment.39
The power does not preclude the states from enacting their own insolvent laws.40
Related opinions on this issue
Justice Trimble concurred that the power is not exclusive and that states retain authority to enact insolvent laws until Congress acts, provided no constitutional violation occurs.41 He reasoned that the constitutional grant to Congress does not withdraw the subject entirely from the states.42 Trimble noted that the New York law operated only on contracts formed after its enactment and contained no principle violating the contracts clause.43
His concurrence reinforced the view that concurrent state power exists in the absence of conflicting federal legislation.44
Joined by Mr. Justice Duvall And Mr. Justice Story
Chief Justice Marshall dissented, maintaining that the grant of power to Congress implies exclusivity in this area to ensure uniformity across the states.45 He argued that the federal power should preclude state action to avoid conflicts with the constitutional design for uniform bankruptcy regulation.46 Marshall's dissent highlighted the potential for conflicting state systems to undermine the national commercial framework envisioned by the framers.47
He stressed that the framers intended a single national system to prevent the chaos of varying state laws on the same subject.48 Allowing concurrent state power would defeat the purpose of uniformity in commercial regulation.49
Whether a discharge under state law is valid against contracts formed in that state when the creditor resides elsewhere?50
The discharge under the laws of one state has no extra-territorial force and does not affect contracts made in that state by a citizen of another state.51
No. Although the contract was formed in New York when Ogden accepted the bills, Saunders was a citizen of Kentucky, so the discharge is not valid against him.52 The principle that the discharge under the laws of one state has no extra-territorial operation upon the contracts of other states directly controls the outcome, as Saunders never subjected himself to New York jurisdiction.53
The discharge is not valid against such contracts when the creditor resides elsewhere.54