INSOLVENCY. The condition of a person who is insolvent (q. v.). Inability to pay one's debts.
Bankruptcy, which is one species or phase of in solvency, denotes the condition of a trader or mer chant who is unable to pay his debts in the course of business ; 2 Bell, Com. 162; 1 M. & S. 338; Her rick v. Borst, 4 Hill (N. Y.) 650 ; Thompson v. Thompson, 4 Cush. (Mass.) 134. Insolvency, then, as Bouv.-1O1 distinguished from strict bankruptcy, is the condi tion or status of one who is unable to pay his debts ; and insolvent laws are distinguished from strict bankruptcy laws by the following characteristics: Bankruptcy laws apply only totraders or mer chants; insolvent laws, to those who are not trad ers or merchants. Bankrupt laws discharge abso lutely the debt of the honest debtor ; Ogden v. Saunders, 12 Wheat. (U. S.) 230, 6 L. Ed. 606 ; Le Roy v. Crowninshield, 2 Mas. 161, Fed. Cas. No. 8, 269 ; Pugh v. Bussel, 2 Blackf. (Ind.) 394; Van Hook v. Whitlock, 26 Wend. (N. Y.) 42, 37 Am. Dec. 246 ; 4 B. & Ald. 654 ; Baldw. 296. Insolvent laws discharge the person of the debtor from arrest and imprisonment, hut leave the future acquisitions of the debtor still liable to the creditor ; Sturges v. Crowninshield, 4 Wheat. (U. S.) 122, 4 L. Ed. 529 ; Pollitt v. Parsons, 2 H. & 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 regula tions which are generally found in insolvent laws, and an insolvent law may contain those which are common to a bankrupt law ; per Marshall, C. J., Sturges v. Crowninshield, 4 Wheat. (U. S.) 195, 4 L. Ed. 529. And insolvent laws quite coextensive with the English bankrupt system have not been infrequent in our colonial and state legislation, and no distinction was ever attempted to be made in the same between bankruptcies and insolvencies ; 3 Sto. Const. 11; Bish. Insolv. Debt. 4.
Under the United States constitution the power to pass a bankrupt law is vested in congress, and this is held to include power to pass an act which provides for voluntary bankruptcy, or, strictly speaking, an insol vent law. So in the absence of congressional action, the states have passed laws which, though called insolvent laws, were in fact bankrupt laws, and their right to do so has been sustained, such laws being held valid; see BANKRUPT; except as limited by the pro hibition against impairing the obligation of contracts, which title see ; see also Cook v.
Moffat, 5 How. (U. S.) 295, 12 L. Ed. 159; Hall v. Boardman, 14 N. H. 38 ; Savoye v. Marsh, 10 Mete. (Mass.) 594, 43 Am. Dec. 451. Stone v. Tibbetts, 26 Me. 110; Towne v. Smith, 1 Woodb. & M. 115, Fed. Cas. No. 115 ; Larrabee v. Talbott, 5 Gill (Md.) 437, 46 Am. Dec. 637; Baldwin v. Hale, 1 Wall. (U. S.) 229, 17 L. Ed. 531; Cooley, Const. Lim. 360 ; Miller, Const. U. S. 616.
U. S. Bankruptcy Act of 1898 supersedes all state Insolvent laws from the date of its passage; Parmenter Mfg. Co. v. Hamilton, 172 Mass. 178, 51 N. E. 529, 70 Am. St. Rep. 258.
So far as the jurisdiction of the state ex tends, its insolvent laws may have all the essential operation of a bankrupt law, not being limited to a mere discharge of the per son of the debtor on surrendering his effects. And a creditor out of a state who voluntarily makes himself a party and accepts a divi dend, is bound by his own act; and is deemed to have waived his ex-territorial immunity and right ; Sturges v. Crowninshield, 4 Wheat. (IT. S.) 122, 4 L. Ed. 529 ; Braynard v. Marshall, 8 Pick. (Mass.) 194 ; Norton v. Cook, 9 Conn. 314, 23 Am. Dec. 342 ; Pugh v. Bussel, 2 Blackf. (Ind.) 394; Browne v.
Van Hook v. Whitlock, 26 Wend. (N. Y.) 43, 37 Am. Dec. 246 ; Scribner v. Fisher, 2 Gray (Mass.) 43 ; Beer v. Hooper, 32 Miss. 246.
The effect of a discharge upon non-resident creditors is examined in 6 Harv. L. Rev. 349, containing a very complete list of cases, to that date and concluding that it is the gen erally accepted doctrine that, in such case, a discharge will be of no effect (even in the courts of the state where the discharge is granted) against a non-resident, unless he becomes a party by voluntary appearance or personal service. The correctness of this conclusion, though it is admitted as estab lished, is seriously challenged on grounds of expediency which are stated at large.