Journal Issue
Column Name
With Republic of
Debtors, Bruce H. Mann, a professor of law
and history at the University of Pennsylvania, paints a thoroughly researched
and lively account of how America's unique view of debt and debtors
emerged during the late 18th century and led to enactment of the first U.S.
bankruptcy law on April 4, 1800.1
Mann illustrates how the Act "was forged in the
ideological debates that defined Revolutionary America—issues of
commerce and agriculture, vice and virtue, slavery and freedom, dependence and
independence, nationalism and federalism—but it settled none of
them."2 He shows that, with the rise of commerce, society came to view
the financial collapse of businessmen as a normal part of risk-taking rather
than moral degeneracy.3
Many of the issues discussed in the book have been debated by every generation,
including our own, since the founding of our country. Mann's vivid
accounts provide a historical context that is timely under the bankruptcy
reform debates raging in Congress at this very moment.4 Financial failure is
not merely an economic issue, but rather one with religious, moral, social,
political, legal and ideological dimensions. Along the way, Mann shines new
light on the culture of debt during the 1700s, paints vivid pictures of what it
meant to be insolvent during this period and turns the spotlight on life in
America's debtors' prisons.
At
the dawn of the 18th century, most credit transactions were between people who
knew each other. The most common form of credit was the account book, which
simply chronicled purchases and payments. Frequently, there was not even an
express promise to pay.5 In transactions between strangers, creditworthiness
depended on a person's reputation as an honest and God-fearing individual.
As
commerce expanded, so did the need for credit, which came to be memorialized by
formal written instruments.6 Unlike book accounts, these instruments bore
interest and were freely assignable, giving rise to a creditor class of
investors and speculators as well as professional debt collectors.7
Arrest
was the central element of civil debt collection. Suits were typically
commenced by writs ordering the debtor's immediate arrest as a guarantee
that he could appear in court. Once judgment was entered, a debtor's
property could be seized and he could find himself jailed indefinitely. Fear of
arrest gave rise to the practice of "keeping close," where debtors
kept to their houses—sometimes for years—because the law everywhere
prohibited sheriffs and constables from forcibly entering a person's
dwelling to serve a writ.8 Debtors could venture outside on Sundays when writs
could not be legally served, but there was no guarantee that they would not be
abducted and turned over to the sheriff on Monday.
A
few colonies—and later, states—enacted insolvency statutes, but
they were short-lived and most did not discharge debt.9
But at least debtors could get out of jail by surrendering most of their
property to creditors.10
Sometimes
a truly indigent debtor with small debts and little property could gain release
from jail after 30 days upon making a "poor debtor's oath,"
but most debtors were not so fortunate. In the absence of statutory insolvency
procedures, some imprisoned debtors petitioned the legislature for individual
relief. But few petitioners were so bold as to request a discharge of their
debts; they merely sought release from jail and perhaps freedom from future
arrest on condition that they assign all their assets for the benefit of
creditors. Only about half of these petitions were granted, and concurrence of
creditors was not even a guarantee of success.11
Prof.
Mann's extensive original research takes us into the largely unexplored
world of debtors' prisons. In the 18th century, every colony, and later
every state, permitted imprisonment for debt.12
Unlike England, only two states (New York and Pennsylvania) had freestanding
prisons exclusively for debtors.
Conditions
within the prisons were severe. Unlike common criminals, debtors had to provide
for their own food, clothing and fuel.13 One writer, speaking of
Charleston's treatment of confined debtors, said that "[a] person
would be in a better Situation in the French Kings Gallies, or the Prisons of
Turkey or Barbary, than in this dismal Place."14
After
the revolution, two separate debtors' prisons (based on the English
model) were created—the New Gaol in New York City and the Prune Street
Jail in Philadelphia.15 Articulate pleas16 from formerly wealthy and
influential debtors housed in these institutions did not bring abolition of
debtors' prisons for another 30 years, but they did lead to the enactment
or our first national bankruptcy act, under which at least some of these
formerly prominent men gained their freedom.17
When
news of enactment of the Bankruptcy Act reached the New Gaol late in the spring
of 1800, the debtors gathered to "celebrate the auspicious event"
and drank a series of 17 toasts to the "Godlike act."18
Congress
repealed the 1800 Act in December 1803, 18 months before it would have expired
on its own terms. Most of the members of Congress supporting repeal were newly
elected, suggesting that some, in running for election, may have pandered to
anti-bankruptcy sentiment. The arguments for repeal were muddled and filled
with charged rhetoric decrying widespread abuse by those "immoral"
debtors who could pay their bills. (Sound familiar?)19 Even though the Act was
short-lived and concerned only the mercantile elite,20 it marked a milestone in
America's emergence as a commercial nation, and the culture of debt.
Republic
of Debtors is an important contribution to
the written history of this country during the Revolutionary Age from a unique
perspective, and is a genuinely entertaining and lively read. When all is said
and done, Mann cogently points out that in a commercial economy, honor is no
substitute for a good security interest, whether you live in the 18th or the
21st century.21
Footnotes
1 Act
of Apr. 4, 1800, ch. 19, 2 Stat. 19 (repealed 1803). Return to article
2 See Mann, supra at 254. Return to article
3 Merchants and businessmen were the
elite of insolvents. It took 40 more years for bankruptcy relief to be offered
to ordinary debtors. See Mann,
supra at 258. Return to article
4 Also, see Warren, Charles, Bankruptcy in United
States History (1935); Skeel, David Jr., Debt's
Dominion (2001); Tabb, Charles Jordan,
"The History of the Bankruptcy Laws in the United States," 3 ABI
Law Review 5 (1995). Return to article
5 Book accounts were legally
enforceable, but typically did not bear interest. See Mann,
supra at 10. Return to article
6 These instruments took a number of
forms: bonds (simple or conditional), bills obligatory, promissory notes and
bills of exchange (the precursors of modern checks). See Mann,
supra at 11. Return to article
7 Mann gives us a look at life as an
18th century collection lawyer through the eyes of William Samuel Johnson, a
creditor's lawyer who left nearly a thousand letters describing his legal
practice before the revolution. See Mann,
supra at 19. Return to article
8 Although they could enter through an
open or unlocked door, climb through an unsecured window, or trick their way
in. See Mann,
supra at 27. Return to article
9 The first published argument for
outright bankruptcy discharges appeared in a brief, anonymously written pamphlet
in 1755 entitled Some
Reflections on the Law of Bankruptcy. See Mann, supra
at 57. Return to article
10 Between 1755 and 1757, New York, Rhode
Island and Massachusetts enacted bankruptcy laws that provided for discharging
debt. Connecticut followed suit in 1763. Although these statutes expired or
were repealed within a few years, their mere existence reflected changing
attitudes toward business debt. See Mann,
supra at 54. Return to article
11 See
Mann,
supra at 75. Return to article
12 See
Mann,
supra at 70. The first American writing criticizing imprisonment
for debt was not published until 1754 in a pamphlet entitled The Ill
Policy and Inhumanity of Imprisoning Insolvent Debtors, Fairly Stated and
Discussed. See Mann, supra at 93, n. 11. Imprisonment for debt
was abolished at the federal level in 1833, and many states followed suit in
the 1830s and 1840s. See Tabb,
supra at 16. Return to article
13 Mann says that a few statutes required
that creditors maintain their debtors under certain circumstances, but the laws
were sporadic and often ineffectual. See
Mann,
supra at 87. When yellow fever epidemics struck Philadelphia
in the late 1790s, other criminals were evacuated, but not debtors. Public officials
assumed that they bore no responsibility for the care or maintenance of
imprisoned debtors. Id. at 99. Return to article
14 Woodmason, Charles, The Carolina
Backcounty on the Eve of the Revolution: The Journal and Other Writings of
Charles Woodmason, Anglican Itinerant, ed. Richard
J. Hooker (Chapel Hill, N.C. 1953), 236. See Mann, supra at p.
86, n. 18. Return to article
15 The New Gaol was located in the northeast
corner of the present City Hall Park. The Prune Street Jail was located at the
present intersection of Locust
and Sixth Streets. See Mann, supra at 86-86. Return to article
16 William Keteltas, "an impecunious
lawyer with a flair for dramatizing humanitarian causes," who was
imprisoned in the New Gaol, campaigned against imprisonment for debt. During
the first six months of 1800, he published 25 issues of a pamphlet entitled Forlorn
Hope. Nearly every issue drove home the
point that convicted criminals fared better than imprisoned debtors. He noted
that while the revised American criminal codes of the 1790s became more
humanitarian, replacing whipping, ear-cropping, branding and other physical
penaties with prison sentences of specified length, calibrated to the seriousness
of the crime, imprisoned debtors were not included in this movement. See Mann,
supra at 105. Return to article
17 In Chapter 5, "A Shadow
Republic," Prof. Mann shows how imprisoned debtors brought the ideals of
the American Revolution right into the debtors' prison. Although they had
lost their independence as well as their wealth, their fall from financial
grace did not mean that they have abandoned civility, order or legality. In the
New Gaol, these debtors adopted a written constitution and created a
"republic of debtors." See Mann,
supra at p. 148. Like the framers of the recently ratified
federal Constitution, these debtors understood that constitutional government
implied limits. The only prisoners bound by the constitution were those who
signed it. This debtors' constitution created officers, some elected by
vote of the members, others appointed by elected officials. Similar to Article
III judges, these judges served until they died, resigned or were otherwise
liberated. Mann argues that this might appear at first blush as a form of
recreation by people with time on their hands, but this is not the case. The
creators of this "republic" were quite serious about devising a
form of self-government embracing an appreciation for due process of law. Mann
recounts a number of cases to illustrate the debtors' commitment to
community and constitutional order. Return to article
18 See
Mann,
supra at 1. The Act of 1800 applied only to merchants,
brokers, bankers, factors, underwriters and marine insurers who owed a minimum
of $1,000 and who committed an act of bankruptcy. Although bankruptcy
proceedings were—on their face—involuntary only, in practice many
were collusive between debtor and friendly creditors. To receive a discharge,
the debtor had to submit to at least three examinations by commissioners (two
or more "good and substantial persons," who were politically
connected lawyers and merchants) under oath and make full disclosure of all his
property and recent transfers. The debtor could be released from jail during
the examination period, which took 42 days. After the final examination, if 2/3
of the creditors—measured by the number of creditors and the value of
their debts—were satisfied that the debtor had been forthright, they
signed a document to that effect and submitted it to the commissioners, who
would then sign a certificate and submit it to the judge for consideration of
whether a discharge should be granted. Id., p. 223. Return to article
19 See
Mann,
supra at 251-52. Return to article
20 It was not until the Act of 1841 that
bankruptcy was available to all who applied, without regard to occupation. See Mann,
supra at 258. Return to article
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