INSOLVENCY (Lat. in, privative, solvo, to free, to pay). The state of a person who is insolvent or unable from any cause to pay his debts, 2 Blackstone, Comm. 285, 471, or who is unable to pay his debts as they fall due in the usual course of trade or business. 2. Kent, Comm. 389 ; La. Civ. Code, art. 1080 ; 3 Dowl. & R. 218 ; 1 Maule & S. 338 ; 1 Campb. 492, n. ; Sugden, Vend. 487 ; Gray, Mass. 600.
2. The distinction between bankruptcy and in solvency which is taken by jurists and accurate law writers seems to be little regarded in common use, or even by the courts, in many of the Ameri can states. In its primary reuse, insolvency has a more extensive signification than bank ruptcy. The latter, which is one species or phase of the former, denotes the condition of a trader, or merchant who is unable to pry his debts in the course of business, 2 Bell. Comm. 5th ed. 162; 1 Maule & S. 338; 5 Dowl. & R. 218; 4 Hill, N. Y. 858 ; 4- Cush, Masse 134. (Hence its derivation from bancue ruptue, signifying the broken bench or counter, per Story, J., 3 Stor. C. C. 453; art. Banker, Enoyo. Brit. (1860), or from a word of disputed etymology.) The bankrupt, says Blackstone, "is a trader who at cretes himself, or does certain other acts tending to &fraud his creditors." (Fraud is also implied in France by the use of banqueroutier as distinguished from the simple failli.) And the preamble to the statute 34 & 35 Hen. VIII. cap. 6 (A. n. 1542). is as follows: "Whereas divers and sundry persons, craftily ob taining into their own hands great substance of other mea's goods, do suddenly flee to parts un known, or keep their houses, not minding to pay or restore to any of their creditors their debts and duties, but, at their own wills and pleasures, con sume the substance obtained by credit of other men for their own pleasure and delic:.te living, against all reason, equity, and gond ei nscience." From these passages it appears that originally the word bankrupt could. only be applied to a diehon est merchant or trader. The meaning, however, is now so far changed that no dishonesty is implied' from the status of bankruptcy; but the word is still properly applied only to traders or merchants, Therefore the parliamentary commissioners of 1840 report, 'The immediate object of the bankrupt law is the equal distribution of the debtor's property. among his creditors, and the discharge of the hon. est trader. The object of the law for the relief of insolvent debtors the personal discharge of hon est debtors, prolonged imprisonment for the dis honest and fraudulent, and a fair distribution of their present and future acquired property among their creditors." Insolvency, then, as distinguished from strict bankruptcy, is the condition or status of one who is unable to pry his debts; and insol vent laws are distinguished from strict bankruptcy laws by the following characteristics.
3. Bankruptcy laws apply only to traders or merchants; insolvent laws, to those who are not traders or merchants. Bankrupt laws discharge absolutely the debt of the honest debtor, 12 Wheat.
230; 4 Id. 122, 209; 2 Mas. C. C. 161; 2 Blackf. Ind. 394; 3 Caines, N. Y. 154; 26 Wend. N. Y. 43; 1 East, 6, 11; 5 id. 124 ; 4 Barnew. & Ald. 654; 1 Baldw. C. C. 296. Insolvent laws dis charge the person of the debtor from arrest and imprisonment, but the future acquisitions of the debtor still liable to the creditor. 4 Wheat. 122; 3 Harr. & J. Md. 61. Both laws contemplate an equal, fair, and honest division of the debtor's present effects among his creditors pro rata. A bankrupt law may contain those regulations which are generally found in insolvent laws, and an in solvent law may contain those which are com mon to a bankrupt law. Per Marehall, C. J., 4 Wheat. 195; 1 Woodb. & M. C. C. 115. And in solvent laws coextensive with the English bankrupt system have not been unfroquent in our colonial and state legislation. and no distinction was ever attempted' to be made in the same be tween bankruptcies and insolvencies. Story, Comm. on Coast. U. S. vol. 3, p. 11. By art. 1, &, of the constitution of the United States, "congress shall have power to establish an uniform rule on the subject of . . . hankroptoies throughout the United States." From a desire of avoiding what might seem to be an infringement upon an exclu sive right of congress, the laws passed by' the va rious states—with the exception of Texas—upon the subject, whether properly insolvent or bank rupt laws, have been termed insolvent laws. In Texas there is a "bankrupt law." And when congress exercised its constitutional right to pass a bankruptcy law, by the act "to establish a uni form system of bankruptcy throughout the United States," 19 August, 1841, all persons were included within its operation, and were allowed, upon peti tion, to be discharged from their debts. The law of congress rendered inoperative the state insolvent laws ; and, under oertoin circumstances, traders could be proceeded against upon petition of their creditors. The provision in the bankrupt act ren dering it properly an insolvent act, being exelu sively in operation, gave rise to serious doubts whe ther the act was within the purview of the consti tution (5 Hill, N. Y. 317, 337, Bronson, ., dissent ing; 1 Barb. Ch. N. Y. 404; 12 Mete. Mass. 428 ; 6 Ark. 35 ; 25 Me. 232; 3 Gil m. Va. 225, hold the act constitutional; contra, 2 N. Y. Leg. Ohs. 184), and finally led to its repeal, March 3,1843. Encyc. Brit. Bankruptcy; 2 Kent, Comm. 391, n. a. There fore, in the United States, both the legislation of congress and of the separate states has tended to obliterate the true distinction between bankruptcy and insolvency. The first bankrupt law, passed by congress in 1800, limited to five years, and expir ing with its limitation, was modelled upon the English bankruptcy acts then in operation, and, like them, was only applicable to merchants. See Act March 3, 1791, 1 Story, Laws U. S. 465 ; Act March 2, 1799, 1 Story, Laws U. S. 630 ; Act March 3, 1841, 4 Sharswood, Coot. Sto. L. U. S. 2236; Aet Jan. 7, 1834, 4 Shorewood, Cont. Sto. L. U. S. 2258; Act March 2, 1337, 4 Sharswood, Coot. Sto. L. U. S. 2536.