Acts the first in 1800, which, after a short career of three years, was repealed in 1803. Thirty-eight years later, the second Act was passed in 1841, also destined to a short career of about thirteen months and repealed in 1843. Twentyfour years later, the third Act was passed in 1867. This Act, after being several times amended, was finally repealed, after a period of eleven years, in 1878. Then for twenty years, the settlement of the affairs of insolvents was again left to the varying, incomplete and unsatisfactory laws of the several States. During all this time, however, there was an incessant demand for the adoption of a national bankruptcy law, on the part of those who recognized in this hurlyburly of State legislation a condition unworthy of a nation. with great commercial inerests. It was the creditor class which now demanded the enactment of such a law, not, as theretofore, the debtor class, who had sought to be relieved from obligations resulting from financial panic and industrial depression. Many Bills were introduced and finally the Act. now in force was adopted and approved July 1st, 1898. It has now been on the Statute Books for sixteen years. It was amended in 1903 and again in 1910, and it has the approval of the American Bar and the American business world.

Before the adoption of the first of our bankruptcy laws in 1800, the law relating to insolvents was concerned primarily with the seizure of the person and property of fraudulent debtors. The characteristic feature of he modern bankruptcy law, voluntary bankruptcy, was then unknown and indeed. impossible, for the bankrupt was always conceived of merely as a trader or broker who had defrauded his creditors. The merely unfortunate merchant seeking relief from a burden too heavy for his shoulders was outside of the sphere of bankruptcy legislation. Furthermore, it was only persons who were engaged in dealing in money and in buying and selling merchandise the trader, the broker, the merchantwho were subject to be proceeded against in bankruptcy. Under our present bankruptcy law, any person may file a voluntary petition in bankruptcy and only wage earners and persons engaged chiefly in farming and the tillage of the soil are exempt from proceedings in involuntary bankruptcy. All corporations, except municipal, railroad, insurance or

For review of early English legislation prior to the Revolution as well as of the American bankruptcy legislation see Introduction to Remington on Bankruptcy (Ed. 1908).

banking corporations, may file a voluntary petition and with these exceptions, any monied, business or commercial corporation may be thrown into involuntary bankruptcy."

Our first bankruptcy law of 1800 made little change in the then existing laws of the States. It followed the English bankruptcy law, and it seemed to have been merely an experimental exercise of federal power over the subject of bankruptcy. It was limited by its own terms to five years, but was repealed in 1803. The jealousy of the States in the early years of the American Commonwealth against encroachment on the part of the Federal Government may have had some influence upon the repeal of this law. More obvious reasons existed, among them the failure to provide for the administration of the bankrupt's estate in his home district. At a time when methods of transportation were still primitive, parties to such proceedings had to travel great distances, at much inconvenience and expense, to the seat of the Federal Courts, if they desired to participate in the administration of the bankrupt's estate. This alone would have justified the repeal of the law in those days; and yet this fault was not completely remedied until the adoption of the present Act in 1898. When in 1841, the second bankruptcy law was passed, a notable step in advance was taken, in the introduction of the right of the bankrupt to file a voluntary petilonger confined to merchants and persons who dealt in money and it contained ample provision for

tion. It was no

'Act of 1898, § 4.

7

The reasons for its repeal are thus stated by President Adams, "As this law authorized a majority of the creditors to discharge a bankrupt trader from all his preceding debts, it was regarded by many of the other classes of men as an invidious privilege to the mercantile community, especially in the Southern States, where the agricultural pursuits are predominant; and as it was found that by the in obtaining the sanction of the requisite majority for the debtor's and in fact of making surreptitious creditors, there was no difficulty encouragement to fraud, waste and a rash spirit of adventure." 2 A. & E. Enc. of Law (1st Ed.) 68 note 8. that although the reasons for the objection to the old law no longer exist,, the objection to the present Act of 1898 comes largely from the

It is interesting to note

dise, all retailers of merchandise, and all bankers, factors, brokers, All persons, being merchants, or using the trade of merchanceedings and "all persons whatsoever underwriters or marine insurers." officer or as executor, administrator, guardian or trustee, or while not have been created in consequence of a defalcation as a public acting in any other fiduciary capacity," could become voluntary

were subject to involuntary pro..owing debts which shall

bankrupts. Act of 1841, § 1.

the discharge of the honest debtor, for the distribution of the assets among the creditors and the recovery, not only of property fraudulently conveyed, but also of that conveyed by way of preference.10 It was in 1843, at about the time. that the American Bankruptcy Act of 1841 was repealed, that Canada adopted its first bankruptcy law, which by subsequent enactment was continued in force until 1849. It bore the characteristic mark of all early bankruptcy legislation and was limited to traders, a term which was very strictly defined.11

Before the third American Bankruptcy Law was adopted in 1867, Canada made a second experiment, and in 1864, a new Insolvency Act was passed, which applied in Lower Canada to all persons. This new legislation had a rather checkered career. The Act of 1864 was repealed in 1869, in which year a new Insolvency Act was passed, applying only to traders, which Act was continued by further legislation until 1875, when again a new Act was passed, which was repealed in 1880.

In the early history of bankruptcy, there is a characteristic similarity between the career of the Canadian and the American legislation-the laws had a short career-were subjected to strong criticism-and repealed apparently without much effort. Perhaps the failure of all the old bankruptcy Acts was due to the fact that both your country and the United States were undeveloped commercially, were largely agricultural and the real purposes of the bankruptcy law were not sufficiently understood by the people.

In the meantime, the great American Civil War had been fought and ended, and again the reasons, which had theretofore been largely prominent in the adoption of bankruptcy laws, came to the front. Unfortunate debtors, the castaways and derelicts of the commercial community, cried for discharge from their obligations. But, in spite of the obvious pressure of this demand on the part of debtors, I believe that a careful study of the history of this law will shew that the real motive for its adoption was the desire to administer the bankrupt estates in an efficient and uniform manner. The popular notion that bankruptcy laws exist primarily for the

discharge of the .debtor has not yet been eradicated,12 and finds its apparent support in the fact that in most cases bankrupt estates pay little, if any, dividends. The thoughtless creditors easily jump to the conclusion that inasmuch as they receive no benefit from the administration of the Act, its real purpose must be the discharge of the debtor, a conclusion which is false, not only in logic, but in fact.13

The Act of 1867 contained features for the most part similar to those of the Act of 1841. It provided for the appointment of Registers in Bankruptcy to assist the Federal Judge in performing the duties presented by the Act 14 without power, however, to decide any contested issue of fact or law.15 Its faults were principally these the distance of the Courts from the people the extravagant expense of its administration-the difficulty of obtaining the bankrupt's discharge and the ease with which debtors could be thrown into bankruptcy, on account of the interpretation of the word "insolvency." Technically, any person was insolvent under the Act of 1867, if he had no cash or quick assets, and, although his reserves and his property might be more than sufficient to liquidate all his indebtedness, the mere fact that they were not immediately convertible into money enabled creditors to throw him into bankruptcy.10 It will readily be seen that in the time of panic, such a definition of insolvency would make nearly everyone liable to bankruptcy proceedings and indeed, the experience of the great financial panic of 1873 gave the strongest impetus to the movement then already in existence for the repeal of the Act of 1867. The failure of the Act of 1867 may be ascribed to four great

12 The following resolution was adopted by the American Bankers Association in 1901 (after the act had been in force about two years). "Whereas, The Bankruptcy Act has had time to serve the purpose intended by Congress to give relief to the honest, oppressed debtor, and, whereas, its further operation will entail loss upon both the creditor and debtor and the general public by reducing lines of credit, restricting business and decreasing its general volume, thereby checking the wonderful development of the country promised through right conditions, therefore be it resolved, That this Convention. through the Executive Council of the American Bankers Association, memorialize Congress to repeal the Bankruptcy Law." Though fourteen years have passed since the adoption of this resolution, the Bankers Association has done nothing more toward securing a repeal. 19 See Essay of Referee James M. Olmstead of Boston "Bankruptcy and Commercial Regulations"-15 Harvard Law Review 829. 14 R. S. T. S. 4993.

15 R. S. U. S. 5009,

1 Black on Bankruptcy, § 173.

VOL. XXXV. C.L.T.-2

causes, first, the danger of its misuse by. creditors against debtors not immediately able to liquidate their indebtedness; second, the difficulties in the way of securing the bankrupt's discharge; third, the distance of the Courts which administered it:18 and, fourth, the great expense of its administration.19 Under the combined assault of those who opposed it for these several reasons, the Act was repealed in 1878.

During the twenty years that intervened between the repeal of the Act of 1867 and the adoption of the present Act in 1898, the subject was given much thought and discussion,20 and it was pointed out that the practical disadvantages of the then existing system could be overcome by appropriate legislation. The task was no easy one, and it required a campaign of education lasting almost twenty years to bring the country to the point of adopting a new bankruptcy law. There are many men in many parts of our country who are to-day as innocent of any real knowledge of the purpose and effect of the bankruptcy law as though tons of printer's ink

17 In addition to objections to discharge justly based on bankrupt's frauds and perjuries, the Act of 1867 denied the discharge on the ground of negligence in care, custody or delivery of property to the assignee; loss in gaming; failure to keep proper books of account by merchant or tradesman; giving a preference; R. S. U. S. 5110. No discharge was granted after 1869 unless assets were equal to 50 per cent, of liabilities proved against the estate except by consent of majority in number and amount of such creditors. Ibid. 5112.

18 "The litigation was all, or practically all, in the Federal Courts, generally sitting at a great distance from the debtor, the claimants, and the witnesses. It was the purpose of the present Statute to correct this, and limit the fees and expenses, and have the greater part of the litigation where the parties resided." McPherson J.: In re Wells, 8 A. B. R. 75; 114 Fed. 222.

Per

19 The history leading up to the adoption of the present Bankruptcy Law shews that the great abuses under the preceding national Bankruptcy Act, in the way of exorbitant fees, which largely consumed the assets of the bankrupt, whereby the ministerial officers grew rich upon the administration of the act, while the creditors starved, impelled Congress, in the adoption of the present Bankrupt Act, to reverse this practice The obvious policy of the present act is to reduce to the lowest minimum the expenses of administration. This is especially made manifest in the meagre fees allowed to clerks, referees and trustees. Indeed, so inadequate is the compensation allowed to these officers that it is a matter of happy surprise to the Courts that they have been able to secure the services of such competent persons to fill the places of referees and trustees." Per Phillips J.: In re Harris v. Mercantils Co., 2 A. B. R. 419; 95 Fed. 123.

20 Among the numerous measures presented but not passed during this period was an act presented in 1887 which sought to confer jurisdiction on the State Courts. The difficulty aimed at-the distance to the seat of the Federal Court-was remedied by the appointment, under the Act of 1898, of local Referees in Bankruptcy with judicial powers.