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8 J. Nat'l Ass'n Ref. Bankr. 70 (1933-1934)
Shall Bankruptcy Jurisdiction be Extended to Include Municipalities and Other Taxable Subdivisions

handle is hein.journals/ambank8 and id is 72 raw text is: JOURNAL OF THE Shall Bankruptcy Jurisdiction be Extended to Include Municipalities and other Taxable Subdivisions* By ASA G. BRIGGS, of Briggs, Weyl & Briggs, St. Paul, Minnesota. Mr. Chairman and Gentlemen of the Committee: This paper is devoted to legal and conftitutional questions in- volved in the subject under discussion. It will make liberal use of the language of the Supreme Court of the United States. There are some familiar rules 6f law that it may be well to recall. Every officer of every department of the govern- ment - executive, legislative and judicial (including every attorney) is bound by his oath and his loyalty to his gov- ernment to support and defend the Constitution. The Con- stitution is our government. There is no divided respon- sibility here; the officers of one department cannot right- fully shirk responsibility any more than can others right- fully usurp authority. A special responsibility rests upon the judiciary, because it must make the final decision on constitutional questions. But this fact does not justify passage of acts by the legis- lative department, or the approval of acts by the executive department, to avoid their responsibility. Public clamor and appeal, or even apparent necessity, may at times bring great pressure upon those who may be placed where they may act contrary to the constitution; if they shall so act, knowingly, they will be disloyal to their government and untrue to their oaths of office. Lawyers are just as tightly bound to support and defend the Constitution as are other officers of the government, although they have no vote in determining the course of action. What you do here may have serious consequences. (1) The proposed legislation you are considering is not bankruptcy legislation. It cannot be brought under the pro- vision oJ the Federal Constitution giving to Congress power to establish uniform laws on the subject of bankruptcies. (2) The Federal Government has no jurisdiction over municipalities or local taxing districts. Why is such federal legislation sought? There is one reason and one reason only. The proponents of this legis- lation desire laws under which they can impair the obliga- tions of their contracts. The state can not impair the obli- gations of contracts. Therefore, they reason, we will go to Congress which has the power to impair contracts in mat- ters that can be brought under the bankruptcy provision of the Constitution. There is nothing proposed in these bills that cannot be done with the aid of the state legislature, except that the state cannot take away any of the creditors' property, or extend the time of payment of any indebtedness, or coerce a minority into accepting the will of the majority. When the federal constitution was adopted and when the first bankruptcy act was passed in 1800 and for long years prior thereto in England, bankruptcy was confined to individuals who were traders (See 2 Kent's Commen- taries 389). The bankruptcy act of 1867 extended it to partnerships and monied, business and commercial corpo- rations and joint stock companies. Municipalities have never been included under the operation of any bankruptcy act; municipalities have never been mentioned in any bankruptcy act until the amendment of 1910 to the act of 1898, and they were mentioned then only to specifically exclude them from the operation of bankruptcy. It has been to the advantage and benefit of the municipalities *An address delivered before the Standing Committee on Commer- cial Law and Bankruptcy of the American Bar Association at Grand Rapids, Michigan, August 29, 1933, as published in the American Bar Association Journal, November, 1933, issue. Reprinted with permission. that they have been so excluded. Municipalities better let well enough alone. What is bankruptcy? There are three fundamental pur- poses for which bankruptcy acts have been passed. This statement is borne out by a long line of decisions of the federal courts. Collier on Bankruptcy 10th Ed. Page 4, says that these three fundamentals are: (1) That a debtor may turn over his unexempt property to a trustee; (2) That this property may be applied by the trustee equitably and ratably to the payment of his debts; and (3) That the debtor may be then released from his debts. None of the proposed legislation relating to municipal: ities provides for any one of these fundamentals. One of the proposed bills was sponsored by Mayor Murphy of Detroit who with Mr. Zimmerman from Chi- cago as his lawyer, appeared before the Senate judiciary Committee on March 2, 1933. At that time Mayor Murphy in explaining the purposes of the bill said: This will give us a breathing spell. There is no repudiation involved. We will pay one hundred cents on the dollar. We will work it out. A creditor will eventually receive every dollar that is due to him. (Page 10 of Report.) The city has never been in default. It has not issued bonds to its legal limit. Is this insolvency? Does this call for bankruptcy? This bill is intended purely as a means of leading to a moratorium or a compromise. It might be called a compo- sition with creditors, which we will see is not bankruptcy. No one, municipality or its creditors, considered the value of the property owned by the municipality when the debt was incurred; no one contemplated the taking or selling of any property owned and used for governmental purposes by the municipality, in satisfaction of its debt; it cannot be done. Municipal debts are based on the tax- able value of the property of every taxpayer in the muni- cipality, and are paid only by taxes levied upon all of that property. Courts now have plenary powers to compel the payment of debts by mandamus. No one ever intended to give to Congress power to ex- tend the bankruptcy law to municipalities, or that the municipality's property held for governmental purposes might be sold or diverted from its imperative use in the public interests. This novel idea had to wait for a new era for its origin. In 1874 an amendment to the 1867 Bankruptcy Act provided for a composition between an insolvent debtor and his creditors. This did not include municipalities. It did not contain any of the essentials of a bankruptcy act. It provided a means for debtors and creditors compromis- ing and settling their matters outside of bankruptcy, and without going through bankruptcy. The law provided that the debtor might make a proposition to his creditors which they might accept or reject as they saw fit. If it were accepted with the court's approval the bankruptcy pro- ceedings were abandoned and the settlement became a new contract which both parties were bound to carry out. The act contemplated the abandonment of bankrputcy pro- ceedings. Neither did it consider municipalities possible debtors in bankruptcy. Three times the United States Supreme Court has held that this amendment substituted composition for bank- ruptcy proceedings. January, 1934

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