Falling farmer influence and rising business power revived national bankruptcy law

Evidence

Conventional wisdom has it that the law of 1867 was a failure. It was cumbersome, badly administered, corruptly applied. The costs of proceedings consumed immense amounts of money; after lawyers and administrators took their bite, creditors were left with crumbs. It was an age of shaky credit. The act was a sword of Damocles over the heads of merchants. A cold-​hearted creditor could push them into bankruptcy. This fear was not irrational. The Supreme Court (1871) construed “insolvency” broadly. It meant not only lack of assets to pay debts but also inability to pay debts as they came due in the ordinary course of business. The Panic of 1873 and hard times brought on a mad urge to repeal. The House killed the act in a frantic hurry (1874). The Senate, however, gave the law a reprieve. They added, too, a provision for “composition.” Debtors might propose a plan for gradually settling their debts, over a period of years. If a “majority in number and three-​fourths in value” of the creditors accepted the plan at a composition meeting, it would go into effect and be enforceable. Other provisions, too, were designed to ease the problems of debtors. The 1874 amendments did not end criticism, however. The law lasted four more years; in 1878, it was finally repealed. Once more there was no national bankruptcy act. But the federal law was scarcely cold in its grave when a movement began to revive it. This time, revival was helped along by business interests that favored uniform, national laws of commerce and trade. Politically, the influence of farmers was waning; and commercial influence was growing. — Lawrence M. Friedman, A History of American Law, 3141

Categorization

• DEFINE: Explains the 1871 broad construction of insolvency and the composition provision as salvage amendments to the 1867 act.
• XREF: Pays off ch40’s early federal bankruptcy acts and ch59’s story of state competition vs. uniform national commercial law. — connects to: Land’s dominance of national wealth made land law track the business cycle closely — Lawrence M. Friedman, A History of American Law, 1468; Early federal bankruptcy acts were crisis-driven and short-lived — Lawrence M. Friedman, A History of American Law, 1592; State courts struck down debt-relief statutes to protect investment over indebted farmers — Lawrence M. Friedman, A History of American Law, 2480