CRS Annotated Constitution

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Constitutional Status of State Insolvency Laws: Preemption

Prior to 1898, Congress exercised the power to establish “uniform laws on the subject of bankruptcy” only intermittently. The first national bankruptcy law was not enacted until 1800 and was repealed in 1803; the second was passed in 1841 and was repealed[p.285]two years later; a third was enacted in 1867 and repealed in 1878.1267 Thus, during the first eighty–nine years under the Constitution, a national bankruptcy law was in existence only sixteen years altogether. Consequently, the most important issue of interpretation that arose during that period concerned the effect of the clause on state law.

The Supreme Court ruled at an early date that in the absence of congressional action the States may enact insolvency laws, since it is not the mere existence of the power but rather its exercise that is incompatible with the exercise of the same power by the States.1268 Later cases settled further that the enactment of a national bankruptcy law does not invalidate state laws in conflict therewith but serves only to relegate them to a state of suspended animation with the result that upon repeal of the national statute they again come into operation without re–enactment.1269

A State is, of course, without power to enforce any law governing bankruptcies, which impairs the obligation of contracts,1270 extends to persons or property outside its jurisdiction,1271 or conflicts with the national bankruptcy laws.1272 Giving effect to the policy of the federal statute, the Court has held that a state statute regulating this distribution of property of an insolvent was suspended by that law,1273 and that a state court was without power to proceed with pending foreclosure proceedings after a farmer–debtor had filed a petition in federal bankruptcy court for a composition or extension of time to pay his debts.1274 A state court injunction ordering a defendant to clean up a waste–disposal site was held to be a “liability on a claim” subject to discharge under the bankruptcy law, after the State had appointed a receiver to take charge of the defendant’s property and comply with the injunction.1275 A[p.286]state law governing fraudulent transfers was found to be compatible with the federal law.1276

Substantial disagreement has marked the actions of the Justices in one area, however, resulting in three five–to–four decisions first upholding and then voiding state laws providing that a discharge in bankruptcy was not to relieve a judgment arising out of an automobile accident upon pain of suffering suspension of his driver’s license.1277 The state statutes were all similar enactments of the Uniform Motor Vehicle Safety Responsibility Act, which authorizes the suspension of the license of any driver who fails to satisfy a judgment against himself growing out of a traffic accident; a section of the law specifically provides that a discharge in bankruptcy will not relieve the debtor of the obligation to pay and the consequence of license suspension for failure to pay. In the first two decisions, the Court majorities decided that the object of the state law was not to see that such judgments were paid but was rather a device to protect the public against irresponsible driving.1278 The last case rejected this view and held that the Act’s sole emphasis was one of providing leverage for the collection of damages from drivers and as such was in fact intended to and did frustrate the purpose of the federal bankruptcy law, the giving of a fresh start unhampered by debt.1279

If a State desires to participate in the assets of a bankruptcy, it must submit to the appropriate requirements of the bankruptcy court with respect to the filing of claims by a designated date. It cannot assert a claim for taxes by filing a demand at a later date.1280

Cls. 5 and 6—Fiscal and Monetary Powers

Clauses 5 and 6. The Congress shall have Power * * * To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.

* * * To provide for the Punishment of counterfeiting the Securities and current Coin of the United States.


Coinage, Weights, and Measures

The power “to coin money” and “regulate the value thereof” has been broadly construed to authorize regulation of every phase of the subject of currency. Congress may charter banks and endow them with the right to issue circulating notes,1281 and it may restrain the circulation of notes not issued under its own authority.1282 To this end it may impose a prohibitive tax upon the circulation of the notes of state banks1283 or of municipal corporations.1284 It may require the surrender of gold coin and of gold certificates in exchange for other currency not redeemable in gold. A plaintiff who sought payment for the gold coin and certificates thus surrendered in an amount measured by the higher market value of gold was denied recovery on the ground that he had not proved that he would suffer any actual loss by being compelled to accept an equivalent amount of other currency.1285 Inasmuch as “every contract for the payment of money, simply, is necessarily subject to the constitutional power of the government over the currency, whatever that power may be, and the obligation of the parties is, therefore, assumed with reference to that power,”1286 the Supreme Court sustained the power of Congress to make Treasury notes legal tender in satisfaction of antecedent debts,1287 and, many years later, to abrogate the clauses in private contracts calling for payment in gold coin, even though such contracts were executed before the legislation was passed.1288 The power to coin money also imports authority to maintain such coinage as a medium of exchange at home, and to forbid its diversion to other uses by defacement, melting or exportation.1289

Punishment of Counterfeiting

In its affirmative aspect, this clause has been given a narrow interpretation; it has been held not to cover the circulation of counterfeit coin or the possession of equipment susceptible of use for making counterfeit coin.1290 At the same time, the Supreme Court has rebuffed attempts to read into this provision a limitation upon[p.288]either the power of the States or upon the powers of Congress under the preceding clause. It has ruled that a State may punish the issuance of forged coins.1291 On the ground that the power of Congress to coin money imports “the correspondent and necessary power and obligation to protect and to preserve in its purity this constitutional currency for the benefit of the nation,”1292 it has sustained federal statutes penalizing the importation or circulation of counterfeit coin,1293 or the willing and conscious possession of dies in the likeness of those used for making coins of the United States.1294 In short, the above clause is entirely superfluous. Congress would have had the power it purports to confer under the necessary and proper clause; and the same is the case with the other enumerated crimes it is authorized to punish. The enumeration was unnecessary and is not exclusive.1295


1267 Hanover National Bank v. Moyses, 186 U.S. 181, 184 (1902).
1268 Sturges v. Crowninshield, 4 Wheat. (17 U.S.) 122, 199 (1819); Ogden v. Saunders, 12 Wheat. (25 U.S.) 213, 368 (1827).
1269 Tua v. Carriere, 117 U.S. 201 (1886); Butler v. Goreley, 146 U.S. 303, 314 (1892).
1270 Sturges v. Crowninshield, 4 Wheat. (17 U.S.) 122 (1819).
1271 Ogden v. Saunders, 12 Wheat. (25 U.S.) 213, 368 (1827); Denny v. Bennett, 128 U.S. 489, 498 (1888); Brown v. Smart, 145 U.S. 454 (1892).
1272 In re Watts and Sachs, 190 U.S. 1, 27 (1903); International Shoe Co. v. Pinkus, 278 U.S. 261, 264 (1929).
1273 International Shoe Co. v. Pinkus, 278 U.S. 261, 265 (1929).
1274 Kalb v. Feurerstein, 308 U.S. 433 (1940).
1275 Ohio v. Kovacs, 469 U.S. 274 (1985). Compare Kelly v. Robinson, 479 U.S. 36 (1986) (restitution obligations imposed as conditions of probation in state criminal actions are nondischargeable in proceedings under chapter 7), with Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552 (1990) (restitution obligations imposed as condition of probation in state criminal actions are dischargeable in proceedings under chapter 13).
1276 Stellwagen v. Clum, 245 U.S. 605, 615 (1918).
1277 Reitz v. Mealey, 314 U.S. 33 (1941); Kesler v. Department of Public Safety, 369 U.S. 153 (1962); Perez v. Campbell, 402 U.S. 637 (1971).
1278 Reitz v. Mealey, 314 U.S. 33, 37 (1941); Kesler v. Department of Public Safety, 369 U.S. 153, 169–174 (1962).
1279 Perez v. Campbell, 402 U.S. 637, 644–648, 651–654 (1971). The dissenters, Justice Blackmun for himself and Chief Justice Burger and Justices Harlan and Stewart, argued, in line with the Reitz and Kesler majorities, that the provision at issue was merely an attempt to assure driving competence and care on the part of its citizens and had only tangential effect upon bankruptcy.
1280 New York v. Irving Trust Co., 288 U.S. 329 (1933).
1281 McCulloch v. Maryland, 4 Wheat. (17 U.S.) 316 (1819).
1282 Veazie Bank v. Fenno, 8 Wall. (75 U.S.) 533 (1869).
1283 Id., 548.
1284 National Bank v. United States, 101 U.S. 1 (1880).
1285 Nortz v. United States, 249 U.S. 317 (1935).
1286 Legal Tender Cases (Knox v. Lee), 12 Wall. (79 U.S.) 457, 549 (1871); Legal Tender Cases (Juilliard v. Greenman), 110 U.S. 421, 449 (1884).
1287 Legal Tender Cases (Knox v. Lee), 12 Wall. (79 U.S.) 457 (1871).
1288 Norman v. Baltimore & O.R. Co., 294 U.S. 240 (1935).
1289 Ling Su Fan v. United States, 218 U.S. 302 (1910).
1290 United States v. Marigold, 9 How. (50 U.S.), 560, 568 (1850).
1291 Fox v. Ohio, 5 How. (46 U.S.) 410 (1847).
1292 United States v. Marigold, 9 How. (50 U.S.) 560, 568 (1850).
1293 Ibid.
1294 Baender v. Barnett, 255 U.S. 224 (1921).
1295 Legal Tender Cases (Knox v. Lee), 122 Wall. (79 U.S.) 457, 536 (1871).
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