THIS was an appeal from the Circuit Court of the United States for the southern district of New York, sitting in equity. Livermore and Sexton, who filed the bill, were citizens of New York, and Jenckes, Farnum, and Waterman, citizens of Rhode Island. The complainants claimed to set aside an assignment made on the 19th of April, 1854, by Waterman, to Jenckes & Farnum, upon the ground that the assignment was to enure to such of Waterman's creditors who should sign a release. This provision, it was admitted, was valid by the laws of Rhode Island, where the assignment was executed, but invalid by the laws of New York, where the property in question was situated. Livermore and Sexton had become judgment creditors after the assignment was made; and if it could be set aside, the property would be open to execution upon their judgments. The defendants all answered the bill, and much evidence was taken. After the cause was heard upon the pleadings and proofs, the Circuit Court passed the following decree: 'This cause having been heretofore brought on to be heard at final hearing on pleadings and proofs, and having been argued by Mr. A. J. Willard on the part of the plaintiffs, and by Mr. T. A. Jenckes and Mr. C. A. Seward on the part of the defendants, now, on consideration thereof, it is found and decided by the court, that the property in the State of New York, assigned by the defendant Waterman to the defendants Jenckes & Farnum, by the assignment mentioned in the pleadings herein, was taken into possession by said assignees, and converted into money, and the proceeds transferred to the State of Rhode Island, prior to the filing of the bill in this cause, and that the plaintiffs have no lien on said property, and that there was no fraud in fact in the making of said assignment; and it is therefore ordered, adjudged, and decreed, that the bill in this cause be and the same is hereby dismissed, with costs to the defendants against the plaintiffs to be taxed, and that the defendants have execution against the plaintiffs for such costs, according to the course and practice of this court.' The complainants appealed from this decree. The cause was submitted on printed arguments by Mr. Morrell for the appellants, and Mr. Jenckes and Mr. Clarence A. Seward for the appellees. The arguments upon both sides covered a great deal of ground. It will be seen by the decree above recited, which was affirmed by this court, that the broad question of whether the law of Rhode Island or that of New York should govern, was not decided by either court, but that the decree was founded upon the three following circumstances: 1. That the property was converted into money, and transferred to Rhode Island. 2. That the plaintiffs had no lien on the property. 3. That there was no fraud in fact in the assignment. In noticing the arguments upon the general proposition, whether the lex loci contractus or the lex fori should govern, the reporter can give only an outline. The first point of Mr. Morrell was the following, viz: FIRST POINT.–The Circuit Court erred in not deciding that the assignment from Waterman to Jenckes & Farnum was fraudulent and void as affecting the complainants below, and the other creditors of Waterman residing within the State of New York at the time of the assignment, so far at least as the assignment affected the estate of the assignor within the State of New York, at the time of its execution and delivery. As it regards the invalidity of the assignment, the essential facts are briefly as follows: Waterman being insolvent, and indebted, among others, to the complainants, and holding property and choses in action in the State of New York, assigned to J. & F., giving certain preferences, and directing the residue to be paid to such of his creditors at large as should release their demands within six months, reserving to himself the dividends of such creditors as should refuse to release. We contend that such an assignment is adjudged fraudulent as to creditors, by the laws of the State of New York. That, as to property situated within the State of New York and the claims of resident creditors, the laws of the State of New York are paramount, and do not yield to the laws of the domicil of the debtor.
The opinion of the court was delivered by: See the remarks of Chief Justice Marshall in Elmendorf v. Taylor, 10 Wheaton, 159.
First. This case is one of State jurisdiction. It has arisen out of the conflict of the laws of the States of New York and Rhode Island. These laws relate to matters of internal administration, over which Congress, under the Constitution, has no control whatever. The States have not seen fit to lodge in Congress power to harmonize the conflict of their internal systems. Such a power, if lodged in the Federal Government, would necessarily involve the right to carry the laws and systems of polity prevailing in one State within the territorial limits of another. It would aim a blow at the integrity of the State sovereignties. Whatever may be thought of the necessity or wisdom of such an accession of authority to the Union, it is undisputed that no such grant has been made by the Federal Constitution.
Story's Conflict of Laws, sec. 18.
Previous to the Constitution, the States possessed the absolute dominion common to all independent sovereigns over all persons and property within their territorial limits. They determined for themselves the laws by which real and personal property within their limits should be held and transmitted. If they recognised the dispositions of property made by foreign States, it was on a principle of comity alone, and not an acknowledgment of any inherent vitality in the laws of the foreign State within their own territories.
That body of opinion called the law of nations had no practical existence or positive efficacy, except so far as it had become embodied in and formed a part of some local system of laws.
The Constitution created the Federal sovereignty, and invested it with certain specified powers; but neither by express grant nor by necessary implication has the power been conferred to communicate vitality to the laws of one State within the limits of another.
Wherever it was deemed desirable that a harmonious system should exist throughout the Union in regard to a particular subject, the Constitution, in regard to that subject, conferred supreme legislative power on Congress, in some instances excluding the States from all legislative control over the subject, and in others permitting local legislation to a certain extent, but subordinating it to the paramount authority of Congress.
The power vested in Congress to establish an uniform rule of naturalization, and uniform laws on the subject of bankruptcies, is an instance of this kind.
The system of laws adopted by Congress in such cases displace State legislation on the same subjects altogether. It was no part of the intent of the Constitution that Congress should leave the conflicting laws of the States in such cases in force, and adopt merely a system of rules by which the conflict arising out of these jarring provisions should be determined.
Such a principle would blend the national and local legislation into an inextricable maze. It would be impossible to define the limits of either. The line of demarcation once destroyed, the stronger of the antagonistic powers would gradually absorb the weaker, and the balance of the Union ultimately be destroyed.
It is not necessary to consider whether the power granted to Congress in regard to the establishment of bankrupt laws could be so exercised as to make the disposition of the estates of insolvents depend wholly and exclusively on the laws of Congress. Until Congress exercises the power, no such question can arise. The defendants rest their case upon the authority of the laws of the State of Rhode Island, and not upon those of Congress.
The power, then, of determining what disposition may be made by insolvents of their property within the State of New York, rests with that State to determine, free from any control in Congress, under existing laws.
If Congress cannot define a system of rules to determine controversies growing out of the conflict of the laws of the States, it is clear that the Federal courts cannot, independently of the States, compose and enforce such a system.
The adjudications of the Federal courts must, in every instance, rest upon the express or the implied authority of either the National or State Legislatures.
The language used by Mr. Justice Grier in Caskie v. Webster (2 Wallace, jun., 131) would, on a cursory examination, appear to imply that it was a part of the duty of the Federal courts to apply to controversies of this character a sort of modified jus gentium, adapted to harmonize with the objects and purposes of the Union of the States. He says: 'We do not think that the different States of this Union are to be regarded, as a general thing, in the relation of States foreign to each other; especially ought they not to be so regarded in regard to questions relating to the commerce of the country, which is co-extensive with the whole land, and belongs, not to the States, but to the Union.' A careful examination of that case will show that such was not his intent.
The question in that case was as to the validity, in Pennsylvania, of an assignment valid by the laws of Virginia, where it was made, in its operation upon property situated in Pennsylvania. We shall see hereafter that the case was decided in strict conformity with the laws of the State of Pennsylvania, and that the principle above cited was intended as an exposition of the liberal rules that governed the State of Pennsylvania in questions arising out of the conflict of her laws with those of other States.
The present controversy originated in the Supreme Court of the State of New York, which court had jurisdiction, not only of the subject-matter, but of the parties who had been served with process. It has been removed into this court merely in consequence of the parties being residents of different States.
This court must therefore give the same judgment which the courts of the State of New York would have been bound to give, had they adjudicated the case.
Second. By the laws of the State of New York, an insolvent's assignment, containing the clause requiring creditors to release or forfeit their dividends, and directing them to be paid in that case to the assignor, is fraudulent as to creditors, and is void.
The Revised States re-enact the statute of 13 Eliz., which is an affirmance of the common law.
Third. The assignment being of a nature forbidden by the laws of New York, according to the acknowledged principles governing the jurisprudence of that State, it cannot be asserted there as affecting property within that State, and as against a creditor of the assignor there resident.
We do not find that the precise point in question has been adjudicated in that State, but the principles governing the case are well settled.
[Mr. Morrell then examined the following cases: 2 Mason, 157; 12 Wheaton, 259; Ware, 232; 5 Greenl., 245; 19 Wendell, 15; 3 Dallas 375, note; 14 Martin, 93, 102; Conflict of Laws, sec. 390; 4 Term Reps., 192; 5 East., Potter v. Brown.]
These authorities go as far as authority can go to establish the principle, that it is not only within the power, but it is the duty, of a State to deny to strangers privileges not permitted to its own citizens. The wisdom of such a rule can find no better illustration than the present case. Waterman establishes himself in business in the State of New York, contracts debts due to its citizens, until, finding himself insolvent, he returns to the State of Rhode Island, and there executes an assignment, which, if executed in this State, would have been adjudged fraudulent as against his creditors. If the State of New York should allow so unequal a privilege to strangers, would she not be justly chargeable with neglecting the interests of her own citizens? Would it not, in the language of Judge Ware, be equivalent to surrendering her independence?
Such a doctrine would give rise to great abuses. A citizen of New York, in failing circumstances, wishing to make a disposition of his property forbidden by the laws of his own State, but permitted by another, could, by taking up a residence in the latter State, successfully evade the laws of his State.
There is another view of this case still more conclusive. The law of the State of New York, which in the present instance is in conflict with the laws of Rhode Island, is a part of the insolvent system of the State. The greatest diversity exists between the insolvent systems of the different States and foreign countries; all, however, recognise, in greater or less degree, the right of the State to assume the disposition of the estates of insolvents. In some countries, the system is coercive; in others, voluntary; and in some, a mixture of both; but all unite in limiting the power of the insolvent in regard to the absolute disposition of his estate. The laws which have relation to the estates of insolvents, and tend to prevent the unequal or unjust dispositions of such estates, are a part of the insolvent system of the State.
Whatever relates to the insolvent system of the State depends exclusively upon the lex fori.
If the insolvent or bankrupt laws of a foreign country or State are not permitted to have any extra-territorial efficacy, for the reason that every State must determine for itself the best mode of administering the estates of insolvents, with how much more reason should we refuse to permit a citizen of a foreign State voluntarily to make such a disposition of his property in this State, at variance with our insolvent laws?
The cases of insolvency and of administration are similar in principle in this respect.
Let us now consider the decisions that have been made on this subject in sister States:
[Mr. Morrell then examined the following cases:
Massachusetts: 13 Mass., 146; 6 Pick., 286; 19 Pick., 281; 15 Pick., 11; 19 Pick., 105.
Connecticut: 14 Conn., 555; 9 Conn., 487.
New Jersey: 1 Green, 326.
Missouri: 6 Missouri, 302.
Pennsylvania: The precise point does not appear to be adjudicated, although there are floating dicta adverse to the principle contended for. 3 Harris, 91; 6 Harris, 185; Caskie v. Webster, Wallace, jun.
Maryland: 7 Gill, 446, where the court states the condition of the question upon the State authorities at that time (1848-'9) to be as follows:
The States which had determined against the validity of the releasing clause were stated to be New York, Ohio, North Carolina, Mississippi, Missouri, Alabama, Connecticut, and Illinois.
In favor of the validity, Pennsylvania, Virginia, South Carolina, Massachusetts, New Hampshire, and Maine.
Virginia: 8 Grattan, 457.
Since the decision in Abbert v. Winn, New Jersey has acceded to the States holding ...