Chapter 5 : The Legal Nature of Debt
The nature of debt, amid the extent of its moral and legal obligation, have been very much misunderstood; and from this misunderstanding, and the erroneous judicial decisions consequent thereon, have resulted perpetual ruin to a large proportion of debtors: utter confusion, and the violation of all natural law in regard to the rights of creditors, as against each other, in the property of their debtors; and the destruction, in a great measure, of all credit, that is sound in itself, and safe and beneficial to both debtor and creditor.
This chapter and the succeeding one will attempt to prove that a debt-such as is evidenced by a promissory note, for instance-has no legal obligation, and generally no moral cite, beyond the means of the debtor to pay at the time the debt becomes due.
Some illustrations will hereafter be given of cases, where a moral obligation to pay may remain, after the legal one has expired. The effect also of fraud, fault, neglect, and the violation of good faith, on the part of the debtor, will be explained in a subsequent part of the chapter. At present, the argument will have reference solely to the legal obligation of debt, and to cases where there has been no fraud, fault, neglect, or violation of good faith on the part of the debtor. That the debt, in such cases, is legally binding, at most, but to the extent of the debtor's means of payment at the time the debt becomes due, is proved by the following arguments.
1. The law requires no impossibilities of any man. If, therefore, a man contract to perform what proves to be impossibility, the contract is valid only for so much as is possible.
Neither is a man bound, before he enters into a contract, to know, (because it is impossible that he should know,) the utmost extent of his ability; nor to foresee, (because it is impossible that he can foresee,) all the contingencies and accidents that may occur to defeat his purposes. He is, therefore, bound only to the faithful exercise of all his powers, and the faithful application of all his means. As this is the most that the debtor can contract for, the creditor is bound to know it, and, of course, must always be presumed to have understood the contract, subject to that limitation. A creditor is, therefore, as much bound to judge for himself, whether the means and ability of the debtor will he sufficient to enable him to fulfill his contract to the letter, as is the debtor himself, unless the debtor do something intentionally to mislead him in his judgment of them.
2. A contract to perform a manifest impossibility is an immoral and absurd contract; and a contract, that is either immoral or absurd, is void from the beginning. It has no legal obligation whatever. And if a party pay value, as a consideration for such a contract, lie must lose it, unless the receiver voluntarily restore it. The law will neither restore it to him, nor compel the fulfillment of even the possible portion of the contract.
Every contract would be an immoral and absurd one, and therefore void from the beginning, if it were a contract to perform a particular act, or to pay a particular amount of money, at a particular tune, at all events, and without any Implied reservation for contingencies, accidents, and misjudgments, that may make it impossible to fulfill the letter of the contract. The only way, therefore, to make any contract a moral, reasonable, and, therefore, valid one, is to understand it subject to the limitation of all contingencies that may make its fulfillment impossible; and as binding only to the extent of what shall be possible.
If then, the contract be entered into, with these limitations implied, it imposes no obligation upon the debtor to make good, out of means that he may acquire after the contract shall have expired, any short comings, that were occasioned, not by his fault, neglect, or bad faith, but by causes, which fixed a limitation upon his original liability, and of whose effects the creditor of course took the risk.7
3. Time is a material element of the contract. All the legal obligations of the contract, of necessity, come to maturity at the time agreed upon for its fulfillment; else the whole of the debt would not be due at that time. At the maturity of its legal obligations, it is plain that the contract can attach only to the property then in the hands of the debtor-for there is nothing else for it to attach to. And it is plain that it can attach to nothing acquired by the debtor subsequently-because to allow it to do so, would be to extend the obligations of the contract beyond the time to which they were originally limited. It would be equivalent to creating a new contract, for a new period of time. Or it would be equivalent to saying that the obligations of the contract had not come to maturity at the time agreed upon for its fulfillment.
But further. Although the preceding considerations are sufficient to prove that a debt has no legal obligation beyond the means of the debtor at the time the debt becomes due, they, nevertheless, do not convey a full and clear idea of the true nature and obligation of the contract of debt. And this leads to another proposition, as follows:
4. A contract of debt is a mere contract of bailment, differing, in no, essential clement of the contract, from other contracts of bailment.8
That it is so, is easily shown. Thus a promise to pay money, for "value," that has been "received," is evidently a mere promise to deliver money, which has been sold and paid for; because the "value," that has been received" by the debtor, is nothing else than the equivalent, or price, paid by the creditor, for the money which the debtor promises to deliver, or pay to him,
The right of property, in this money, that is to be delivered to the creditor, (or in a quantum of value, in the hands of the debtor, sufficient to purchase the money,) obviously passes to its purchaser, the creditor, at the time he thus buys, and pays for it; and not, as is generally supposed, at the time it is finally delivered, or paid to him; for it is absurd to say that when a man has bought and paid for a thing, he does not, from that time, own it, merely because it is not delivered to him at that time. A promise to deliver, or pay money, especially when coupled with an acknowledgment that the equivalent, or price of the money promised, has been "received," is as good evidence that the rig/it of properly in the money, (or in an amount of value sufficient to purchase the money,) has already passed to the purchaser, as is a delivery itself.
The obligation of debt, then, on the part of the seller of the money, arises simply from the fact that the money, (or an amount of value sufficient to purchase the money,) which he has thus sold, and received his pay for, and the right of property in which has already passed to the purchaser, is, by agreement, to remain, for a time, in his, (the seller's,) hands, for his use. And the sum of his obligations, as a debtor, is, not, at all events, to preserve and deliver, but to use due diligence to preserve, and, (at the time agreed upon,) to deliver to the purchaser, the money, or value, which he has thus sold to him.
A debtor, then, is a mere seller of value, (generally measured by money,) which lie is to deliver to the purchaser at a time subsequent to the sale. And a creditor is a mere purchaser of value, that is to be delivered to him, (generally in the shape of money,) at a time subsequent to his purchase of it.
But the material point to be regarded, is, that the right of property, in the money, (or in the amount of value to be measured by money,) which is thus bought and sold, passes to its purchaser, by the sale, and, of necessity, at She time of the sale, and not at the time of final delivery, as is generally sup posed.
The common error on this point, viz., that the right of properly, in the value thus purchased and paid for by the creditor, does not pass to him until the final delivery of it to him in the shape of money, (or in whatever other shape it may be agreed to ho delivered,) is the source of all our erroneous notions of the nature and obligations of debt; for if the right of property, in the value purchased by the creditor, passes to him at the time of the purchase, then the seller, or debtor, from that time until the time agreed on for its delivery, holds the value, thus sold, merely as the bailee of the purchaser, or creditor; and his obligations are only similar to the obligations of bailees in other cases. The value itself is at the risk of the purchaser, (or creditor,) from the time of the sale, unless it be lost through some fault, or culpable neglect, on the part of the seller, (or debtor.) The seller, (or debtor,) is only bound to due fidelity and diligence in the preservation of the value, and not for its absolute preservation. If it perish in his hands, or be lost out of his hands, without any fault or culpable neglect on his part, he is not answerable. The loss falls on the purchaser, and real owner, whose bailee he (the debtor) is from the time of the sale.
The contract of debt, therefore, presupposes a prior contract of sale, to wit, a sale, by the debtor to the creditor, of the money or value, which the debtor is to bold, for a time, as time bailee of the creditor, or purchaser.
It is important to be borne in mind, that this contract of sale, which, in point of law, precedes, although in point of time it is simultaneous with the contract of bailment, is, in reality, a sale, not of the specific money promised, but of a certain quantum of value, out of the debtor's whole property, to wit, a quantum of value sufficient to produce or purchase the amount of money promised; and which is to be converted into money by the time agreed on for the delivery.
This double contract of sale and bailment of necessity implies that the debtor has property in his hands, both for the sale and bailment to attach to-otherwise there would be no validity in either contract.9 No contract, either of sale, or bailment, is of any validity, unless there be property for the contract to attach to, at the time it is made. It is in the nature of things impossible that a man can make a contract, either of bailment or sale, that can bind property, or convey any right to property, unless he have property, at the time, for the contract to attach to. All contracts of debt, therefore, whether morally void, or not, are legally void, unless the debtor have property, at the time, for the contract to attach to, and bind.10
A contract of debt, then, in order to be valid, must attach to such property as the debtor has at the time of the contract-because there is nothing else for it to attach to, and it must attach to something, or be utterly invalid. Its validity, as a legal contract, depends upon its attaching to something, at that time; and, of consequence, it has no validity beyond the property to which it then attaches, (and such as may become indistinguishably mixed with it prior to its delivery;) its validity lives only in the life of the property to which it attaches; and when the property, to which it attaches, is exhausted, its validity, as a contract, is exhausted. The obligation of the contract is fulfilled, when all the property, to which it attaches, and which it binds, is delivered to the creditor.
This contract of bailment, or debt, differs from other contracts of bailment, in no important particular, unless in those, viz.:
1. That the bailment is of a quantum of value-to wit, enough to purchase the amount of money promised-existing in a form not designated by the contract, instead of a bailment of a specific thing. But this is obviously a difference of form merely, and not of principle.
2. That it is always of a quantum of value, that has just been sold by the debtor to the creditor. Indeed the bailment is one of the conditions of the sale. The debtor sells the value to the creditor, with a proviso that he (the debtor) shall be allowed to retain and use it for a time agreed upon.
3. That this quantum of value, not being designated, or set apart by the contract, from any other value, that the debtor may have in his hands, is, in reality, merged in the value of all the property, that the debtor, or bailee, has in his hands.
4. That this value is finally to be converted into some particular form, (generally that of money,) for delivery to the creditor, or bailor.
5. That the debtor, during the bailment, while bestowing his care and labor upon the whole property in his hands, in which the value bailed to him is merged, is allowed to take his necessary subsistence out of the mass; by reason of which it may sometimes happen, in cases of sickness, misfortune, or accident, that the value bailed may itself be diminished, or consumed.
6. The debtor, or bailee, is allowed to traffic with the whole property in his hands, and of course with the value bailed, which is merged in that property.
In this respect, however, the bailment of debt does not differ, in principle, from bailments to agents, factors, and commission merchants, who are authorized to traffic with, and exchange or sell the property entrusted to them. Where this is done, the same right of property, which the bailor had in the original commodity bailed, attaches to the equivalent which the bailee receives for it. And it is the same in the bailment of debt. The right of property, which the creditor has in the original quantum of value bailed to the debtor, follows that value, and clings to it, through all the forms and changes to which the labor and traffic of the debtor may subject it.
Some of these points will be further discussed and explained in the next chapter.
That a contract of debt is a mere contract of bailment, as has now been described-that is, a mere bailment, by the creditor to the debtor, of a quantum of value hold by the latter to the former, and to be formally delivered in the shape of money, but in the mean time to remain merged in the general property of the debtor-seems to be too nearly self-evident to render a more elaborate argument, at this point, necessary. It will, however, be further discussed in the next chapter.
If debt be but a bailment, the value bailed is at the risk of the owner, (that is, of the creditor,) from the time he buys and pays for it, and leaves it In the hands of the seller, or debtor, until the time agreed on for its delivery to himself. If it be host during this time, without any fault or culpable neglect on the part of the bailee, or debtor, time loss falls on the owner, or creditor. All the obligations of the owner or debtor are fulfilled, when he has used such care and diligence, in the preservation of the value bailed, as the law requires of other baitees, and has delivered to the creditor, or owner, at the time agreed upon, the value bailed, or such part thereof, if any, as may then be remaining in his hands.
If such be not the natural limit to the obligation of the contract of debt, then there is no natural limit to it in any case, short of the absolute delivery of the amount mentioned; a limit, that requires a debtor to make good any loss that may befall the property of the creditor in his hands, whether the lose be occasioned by his fault, or not; and whether he ever be able to make good the loss, or not; a limit, which, in many cases, condemns the debtor and his family to perpetual poverty, and a liability to perpetual oppression from the creditor, for a misfortune, or accident, to which property is always liable, and for which the debtor is not morally responsible; a limit very nearly allied, both in its legal and moral character, as welt as in its practical effects, to that, which, in former times, required the debtor and his family to be sold into slavery for the satisfaction of a debt, which the debtor could not otherwise pay.11
If such be not the natural limit to the legal obligation of debt-that is, if debts be naturally binding beyond the debtor's means of payment when the debts become due, then all insolvent and bankrupt laws arc palpable violations of the true and natural obligation of debts, and, consequently, of the rights of creditors; such violations as no government has the moral right, (however it may have a constitutional authority,) to perpetrate.
On the other hand, if such be the natural limit to the legal obligation of debt, thou we have no need of insolvent or bankrupt laws at all, for every contract of debt involves, within itself, the only honest bankrupt law, that the case admits of.
If such be the natural limit to the obligation of debt, then there is, as a general rule, no moral, any more than legal obligation to pay, beyond the means of the debtor at the time the debt becomes due; and any subsequent promise to pay, is gratuitous and void.12
Taking it for granted, for the remainder of this chapter, that it has now been shown that a debtor is a mere bailee of the creditor, let us see some of the consequences, that follow from that proposition.
1. As a contract of debt does not designate the specific value, to which it attaches in the hands of the debtor, it cannot be said to attach to any one part of the value in his hands more than to another. It therefore attaches to all. And if it attaches to all, it necessarily operates as a lion upon all that the debtor has in his hands, at the time the debt is contracted; also upon all that may become indistinguishably mixed with that, prior to its delivery or payment to the creditor.13 This being the fact, each debt of course becomes a lien in the order in which it is contracted relatively to the others.14
2. A second creditor, by selling value to a debtor, and giving him credit for it, would hold a lien for his debt upon the specific value so sold to him, so long as it should be kept separate and clearly distinguishable from the value on which the prior creditor had a lien; because the first creditor could claim a lieu only on that value, which was in the debtor's hands, and to which his contract attached, at the time it was entered into; and on such other value, as, (by labor done on the property, or otherwise,) might become indistinguishably mixed with that, prior to its delivery, or payment to him, the creditor.)
If B mingle his property, as grain, wine, or money, for instance, indistinguishably with property of the same kind belonging to A, without the knowledge of A, or without any agreement, express or implied, that, in case of a diminution of the mass by accident or otherwise, there shall be a division of the remainder according to their original proportions respectively, the loss of any diminution that may befall the mass, falls upon B. On this principle, if a second creditor should suffer the value, which he should sell to a debtor, and on which he had a lien In the hands of the debtor, to become indistinguishably mixed with value in the same debtor's hands, on which a prior creditor had a lien, and there were no agreement between the two creditors, for a division in case of loss, the first creditor would be entitled to take his whole debt out of the mass before the second creditor should receive anything; for it could not be presumed, without an express agreement, that a prior creditor would authorize his debtor to give a second creditor an equal lien with himself on the whole property in the debtor's hands, even though the second creditor should pay an equal amount of value into the mass with that paid by the first creditor; because the first creditor might suppose the debtor incompetent to manage the two loans so advantageously, or so beneficially for his (the creditor's) security, as he would have managed one only, and might therefore not have consented to the mixture of the two loans. on the footing of equal liens. The first creditor might also think it necessary for his security, that the whole labor of the debtor should be bestowed on the first loan; and might therefore have objected to the mixture of another loan with it, to take an equal lien with his own. And especially it could not he supposed, without an express agreement to that effect, that a creditor would have such confidence in the judgment of the debtor, as to be willing that he should take capital from others, at his (the debtor's) own estimate of its value, mix it with that received front himself, and place these subsequent creditors on the same footing with himself, as to their rights in the mass. The first creditor would wish an opportunity to judge for himself, instead of leaving it wholly with the debtor to judge, whether the value contributed to the mass by the succeeding creditors, was such as that his security would not be weakened by allowing them to share that security equally with himself, in proportion to their debts.
3. If each creditor holds a lien upon the value of all the debtor's property, in the order in which their debts respectively were contracted, it would of course be fraudulent for a debtor to pay a second creditor, before paying a first, especially if the first should suffer a loss in consequence.
For such a fraud the debtor would be liable to a prosecution for swindling, and would also be liable in damages, if any damages should be suffered by the first creditor in consequence of it; and for these damages his future earnings would be liable forever, as in the case before mentioned, and not merely his present property, as in case of debt.
But the first creditor, in such a case, would have a right to recover, of the second creditor, the amount thus fraudulently paid to the latter by the debtor, on the ground that he (the second creditor) was not an innocent purchaser for value; that he had merely received, on a debt already contracted, value that belonged to a prior creditor; and that he (the second creditor) not having, either innocently or otherwise, paid any additional value to the debtor, as an inducement to the debtor's payment to him, would be no worse condition on restoring the value to the first creditor, than he would have been if it had not been wrongfully paid to him.
This right of a prior creditor to recover of a succeeding one, any value that should be paid to the latter in fraud of the prior creditor's rights, taken in connection with the debtor's liability as a swindler, and his perpetual liability for any damages caused to the prior creditor by such fraudulent payment, would be an effectual prevention of such payments. The principle of the prior right of the prior creditor, would thus be firmly established in practice; all those endless frauds, by which the value rightfully belonging to ono creditor, is now with impunity appropriated to the payment of another, would be prevented; and credit would be placed on the secure basis of each creditor's knowledge of the property liable for his own debt.
4. If a creditor should not demand his debt at the time it became due, his neglect to do so would be a waiver of his prior right to payment, and would make it lawful for the debtor to pay a subsequent debt, if the latter should become due before the prior one was demanded.
For this reason, (as has before been mentioned,) the principle of the prior right of the prior creditor, would be no obstacle to banking, by the issue of notes payable on demand; nor to the payment of a subsequent note while a prior one was still in circulation-because a note payable on demand is due as soon as it is issued, and if its payment be not immediately demanded, the neglect is a waiver of the right of priority.
5. If a debt were not paid immediately on its becoming due, the creditor could not take interest for the delay out of the debtor's property, to the injury of a succeeding creditor-for interest, after a debt is due, is no part of the debt itself; it is only the damage that is allowed for the detention.15 The first creditor holds a prior lien on the debtor's property only for his debt; and not for any damage he may sustain by reason of his debt not being paid when due. This claim for damage, being a separate matter from the debt itself, would not legally attach to the debtor's property, until its amount was legally ascertained and adjudged; and it could then attach to it only in its order with reference to other claims, and not to the prejudice of any prior ones.
The effect of this principle would be to make creditors prompt to collect their debts immediately on their becoming due, especially when there was any doubt as to the solvency of the debtors-because, as their claims for damage would not be entitled to the same priority as their debts, they would be liable to lose them entirely, or to be under the necessity of holding them against the debtor until he should have made some accumulations over and above his debts.
But the debtor would choose to pay when due, because for any damage occasioned by his delay, (unless the delay were occasioned by some other cause than fault on his part,) his future earnings would be liable, as in any other case of damage occasioned by his fault.
6. if a creditor should not demand, and, in case of nonpayment, sue for his debt, immediately, or at least very soon after the debt became due, the delay would afford a presumption that the debt was extinct, by reason of the debtor's inability to pay. And if, at a subsequent time, the creditor should sue for the debt, the burden of proof would then be upon himself to prove that, at the time the debt became due, the debtor actually had means in his hands to satisfy it.
So if a creditor should obtain judgment for his debt, and that judgment should remain unsatisfied for any considerable time, that fact would afford a presumption of the debtor's inability to pay, and throw upon the creditor the burden of proving that, at the time the judgment was obtained, the debtor had the means of paying it; because a judgment, founded merely on a debt, (and not on a wrong,) would attach only to the property that the debtor had in his hands at the time it was rendered.
7. If a debtor should be unable, when his debt became due, to pay the whole of it, it would be his duty to tender the most that it was in his power to pay. If the amount tendered should not be accepted in full discharge of the debt, it would be his duty to preserve it, (for the creditor's future acceptance,) separate and distinct, both from subsequent acquisitions of his own, and also from any future loans that he might procure.
In case of a tender made by a debtor, the creditor could afterwards obtain judgment only for the amount tendered, Unless he should prove - at least to the reasonable satisfaction of a jury-that the debtor had not tendered all that it was in his power to pay. But it would not be necessary for a creditor, in order to obtain judgment for more than the amount tendered, to prove, by actual witnesses of the fact, that the debtor had a larger amount in his hands at the precise time the debt became due. It would be sufficient for him to show that the debtor had not reasonably accounted for all the property that he had had in his hands either when the debt was contracted, or at any time previous to its becoming due. For these reasons, it would be important for debtors, especially for those who had little or no property in their hands more than enough to pay their debts, to keep such accounts and vouchers of their dealings, as would enable them always to account for any losses that might happen prior to their debts becoming due.
8. If a debtor be merely the bailee of his creditor, then the laws, which, on the death of a debtor, give the property, that was in his hands, to his family, to the prejudice of his creditors, are all void-as much so as would be laws, that should arbitrarily give any other men's property to the same debtor's family.
9. If a debtor be merely the bailee of the creditor, a fine imposed upon the debtor by the government, as a punishment for an offense, cannot be satisfied out of property in his hands to the prejudice of his creditors. It can only attach to his property in its order relatively with other claims.
10. If a debtor be the mere bailee of the creditor, his obligations in regard to the preservation of the value bailed to him, are similar to the obligations of bailees in other cases.
The degree of care, which the law requires of a bailee for hire, is that degree of care, (incapable of being measured with perfect accuracy, and therefore only capable of being judged of by a jury in each case separately,) which reasonable and prudent men ordinarily take of their own property. The law, however, does not require of a bailee, that he possess an equal judgment with other men, for the management of property. The bailor, or owner of the property, must take the risk resulting from any defect of judgment, on the part of the bailee - for weakness of mind is no fault; and the bailor, therefore, must judge for himself of the mental capacity of the bailee, before he entrust his property to him. All that the law requires of the bailee is, that whatever judgment he may possess, be exercised honestly, in good faith towards his bailor, and with such care and diligence in the use, custody, and management of the property entrusted to him, as prudent men generally exercise in the use, custody, and management of their own property.
In the case of a gratuitous loan, the bailee is bound to exercise still greater care and diligence, in the preservation of the property bailed, than in a case of bailment for hire.
A bailment of debt, however, differs from other bailments, in this particular, to wit, that the value bailed is merged in, and indistinguishably mixed with, the general property of the debtor. The debtor must, of course, take the necessary subsistence of himself and family out of the whole mass of property in his hands; and hence arises an obligation somewhat peculiar to this species of bailment, to wit, an obligation to practice such a degree of economy and frugality in one's mode of living, as is obviously necessary to save the amount bailed from consumption, and enable the bailee to repay the whole loan to his bailor. Good faith requires this of the bailee; and the law of bailments requires of the bailee, in all cases, everything that is essential to good faith. But what that economy and frugality are, which good faith towards a creditor requires of a debtor, may depend upon a variety of circumstances, and be very different in different cases. If, for example, a man owed but one thousand dollars, and had ten thousand dollars of property in his hands, he could, consistently with good faith towards his creditor, maintain substantially the same style of living that a prudent man would, who possessed nine thousand dollars, and owed no debts at all. On the other hand, if a debtor had no property at all, in his hands, except what had been loaned to him; and out of that and the value added to it by his labor, he was under the obligation of paying his debt and supporting his family, good faith towards his creditor would require that he practice such a degree of economy, (a stringent frugality even where the case plainly demanded it,) as would be likely to enable him to accomplish both objects; because it cannot reasonably be supposed that his creditor would have loaned him the capital, except upon the understanding that he should practice all the economy that would be obviously necessary, (setting aside unusual and unexpected contingencies,) to enable him to repay it. Nevertheless, in the case of debt, the precise measure of duty, on the part of the debtor, or bailee, cannot be defined with perfect accuracy, any more than in the case of any other bailment. All that can be said is, that the debtor is bound to do all that good faith towards his creditor requires, under the particular circumstances of each case; and the general rule is, that a bailee must practice the same care, diligence, and economy, in the management of the property bailed to him, that prudent men generally use in the management of their own property, in like circumstances; and the judgment of a jury is the final criterion for determining whether the care, diligence, and economy observed by a bailee have been such as are usually observed by other men.
11. If a bailee, or debtor, be guilty of any fraud in procuring the bailment, or of any fault, culpable neglect, or want of good faith in the custody, use, or management of the value bailed, whereby any loss should accrue to the bailor, or creditor, the bailee or debtor will be liable, not on his contract, but in an action on the case for damages; and for the satisfaction of these damages his future acquisitions will be liable forever, and not merely his present property, as in the case of debt. The reason of this distinction is, that the ground of his liability, in the former case, is a wrong done by him; in the latter, a contract. For a wrong done to another, the wrong doer can obviously be discharged from his liability only by making reparation. But from a contract he is discharged when he has delivered all the value, which the contract attaches to, and binds.
12. If a debtor do not pay his debt at the time it becomes due, (unless he have some valid excuse for not paying it at that time,) and all the property in his hands should afterwards be lost, even by accident-by such an accident as would have excused him forever from the payment, if it had happened before the debt became due-who will be liable in damages, (and his future acquisitions be responsible;) because, but for his fault in withholding the value beyond the time agreed on for its delivery, (or payment,) it would not have been exposed to the accident, by which it was lost. Such is the rule in other bailments; and the principle would apply with equal propriety to the bailment of debt.
13. If a debtor, before his debt becomes due, should use the value bailed to him in a manner wholly or plainly different from what could be reasonably presumed to have been the agreement of the parties that it should be used, and the creditor should suffer loss in consequence, the debtor would be liable in damages, and his future acquisitions will be responsible.
14. If a debtor, previous to his debt becoming due, should commence any wasteful, profligate, or manifestly unfaithful expenditure of the value bailed to him, whereby he should be plainly endangering his creditor's security, the creditor would have a right to the interference of a court of equity to restrain the debtor, and, if need be, compel him to make payment of what he had in his hands before the time agreed upon for the payment; for all the rights of the debtor, to hold the property, by virtue of the contract, are at an end the moment he violates the conditions of the bailment, if the creditor choose to avail himself of the violation to cancel the contract, and recover the property bailed.
Such are some of the leading principles, drawn from the general law of bailments, and applicable to the bailment of debt, if debt be but a bailment. How much more beneficial these principles are to the interests of, both creditors and debtors; how much more strongly protective of the rights of creditors, and how much less barbarous and absurd towards debtors; how much more promotive of sound, safe, and generally diffused credit, than are the principles, (if arbitrary rules, that violate all principles, and acknowledge none, can themselves be called principles,) that are now acted upon by legislatures and courts of law, in reference to the same subjects, need not be particularly set forth; for light and darkness, truth and falsehood, reason and absurdity, justice and injustice, present no stronger contrasts than those two systems do to each other. One system is founded in natural law, and, hike all the principles of natural haw, is defensive of all the rights, and benign in its influence upon all the lawful interests that it reaches. The other is a mere relic of that barbarous code, (as false in theory, as merciless in practice,) which sold the debtor and his family into slavery, or, (in later days,) doomed him to prison, like a felon, whenever, by reason of contingencies, to which all property is liable, and which he could not foresee, nor be expected to foresee, he proved unable to fulfill the letter, instead of the true law, of his contract.
It remains, in this chapter, to suggest the nature of the cases where a moral obligation to pay, may remain after the legal one has expired.
Where the contract has been entered into by both parties, creditor as well as debtor, with a view to profit only, and as a mere matter of business, and the loss has occurred from the necessary hazards of business, or the contingencies to which property is always liable, and not from any fraud, fault, neglect, or bad faith on the part of the debtor, no moral obligation will remain after the legal one is extinct.
But where the creditor has entered into the contract, and advanced capital to the debtor, not with a view to profit for himself, but as a matter of favor or kindness to the debtor, there a moral obligation will remain after the legal one has expired; because we are all under a moral obligation to save our friends from suffering any loss by reason of any kindnesses they may do for us.
Again. Where it was the intention of the creditor, that the only property, in the hands of the debtor, to which the contract of debt attached, or could attach, should be consumed by the debtor - as, for example, where one man should sell food to another, who was so destitute that he had nothing for his contract of debt to attach to, except the food itself which he had just bought of the creditor, and which it was the intention of the creditor that he should eat, there the moral obligation to pay would remain after the food was consumed, and after the legal obligation of the contract was consequently extinct.
There are some cases, where there would be a moral obligation to pay, where no legal one had ever accrued at alias, for example, where a physician should render his services to a sick man, who had no property in his hands for a legal contract of debt to attach to.
It may be thought an objection to the system here advocated, that it makes no provision for the legal enforcement of moral obligations of so palpable a character as those here mentioned. But the objection ought to vanish, when it is considered how very few such cases would need to arise, if the whole system of. credit, which natural law authorizes, and which has been here advocated, were in operation; for few persons only, if any, would then be so destitute as to have nothing for a legal contract to attach to, or as to need to receive pecuniary assistance on such grounds as these cases contemplate. Besides, there is no more reason why compensation should be enforced by law, for every kindness of a pecuniary nature, that one man does to another, than for kindnesses of any other sort. The honor, gratitude, and sense of duty of mankind may be safely trusted to make suitable returns for all the kindnesses which men will be likely to show to each other, where they have no legal guaranty of compensation. Such is the prudent character of men's benevolence generally, that the number of such benefits conferred will not be so great as to bring any serious injury to their authors, even if some of them should actually go unrequited. Besides, the sense of gratitude, on the part of receivers, is generally commensurate with the generosity of givers. The cases, where the former falls short of the latter, are too few to be a matter of any concern to the government.
7. A promissory note has been defined to be "a written promise to pay money absolutely, and at all events." (Bailey on Bills, p. 1. Kent's Commentaries, Lect. 44.) And courts now act on that theory, and on the theory that such a contract is binding. But if such were the legal meaning of the contract, it would plainly be an immoral, absurd, and, therefore, void contract — of no legal obligation whatever. Return
8. A bailment is where one person is temporarily entrusted with the property ofanother, either for safe keeping, as in the case of a special deposit; or to be used, as in the ease of a horse lent for a Journeys or to be sold, as in the case of goods entrusted to a commission merchant; or for some other purpose; under an agreement, express or implied, that he will comply with the conditions on which it is entrusted to him, and finally restore it to the owner, (or its equivalent, if it be sold,) or otherwise dispose of it agreeably to the owner's directions. The owner is called the bailor— the person intruded, the bailee. If the property be lost or injured in the hands of the bailee, without any fault, or culpable neglect on his part, the loss falls on the owner. Return
9. The value sold by the debtor to the creditor may often be the same "value," which he has just "received" of the creditor. It must be the same, where the debtor has no other property. But where he has other property, the value that he sells to the creditor is merged in the value of his whole property, and continues so until it is finally separated from it to be delivered to the creditor. Return
11. To say that value entrusted to a debtor was lost through his incapacity for the judicious management of it, (as it often really is, instead of by accident,) makes the case no stronger in favor of the perpetual liability of the debtor; because a want of capacity is nothing for which the debtor is culpable, or for which he can rightfully be held liable. The creditor, therefore, must judge for himself, and mutt always be presumed to have judged for himself, and to have taken the risk of the debtor's capacity, or incapacity, before he entrusted his property to him. All he could expect, or have a right to require of the debtor, was the faithful exercise of whatever capacity he possessed. It is neither policy, equity, nor law, that a man shall be protected against the legitimate consequences of his own negligence, or be permitted to throw them even upon another person equally negligent; much less upon an innocent person. The law requires diligence of all. This principle, therefore, forbids that a creditor, who has been so negligent as to entrust his property to an incompetent debtor, should hold the debtor responsible for its loss, when the latter has faithfully exercised his best ability for its preservation. Return
14. That is, each debt becomes a lien in the order in which it is contracted, if the debtor practice no fraud. But If a debtor should fraudulently conceal a former debt, when contracting a succeeding one, the first creditor might thereby lose his prior lien, and the second creditor become entitled to it, in preference to him. Tue principle, on which the debtor's fraud would have this effect against the rights of his first creditor is this. Possession is prima facie evidence of property. There is no exception to this rule, unless in cases of real estate, where legislation has substituted public records, for possession, as evidence of property. There being no exception to the rule as to personal property, all persons are bound to know it, and govern themselves accordingly. If, therefore, A put his personal property into the bands of 13—no matter on what private agreement between themselves, whether on the bailment of debt, or any other bailment — he thereby virtually and legally asserts, to the world, that B is the owner of It; and he cannot retract that assertion to the injury of any third person, who has been deceived by it, or who has purchased, without notice of the contrary, and actually paid value for the property. The sale, will, therefore, be a valid one to the purchaser, and the original owner can look only to his bailee for the damages.
This principle makes it necessary that the owner of property should take upon himself the risk (as he evidently ought) of any dishonest sales of by those, to whom he voluntarily entrusts it, and whom he holds out to the world as the owners, Instead of enabling him to throw this risk upon innocent and ignorant purchasers, who proceed according to law in presuoling1 (where they are not informed, or put upon inquiry to the contrary,) that the one having the property in his possession, is thin true owner of It.
On this principle, a second debt, (which involves a sate of value in the debtor's hands,) contracted by concealing from the creditor the existence of a former debt, might he valid against the prior creditor, and operate as a prior lien on the debtor's property.
But there would be little or no danger of such transactions; because, first, the habit of obtaining credit is so general, as to serve as reasonable notice to put creditors on inquiry; and every creditor would therefore be hound either to take the risk of any prior debts, or to make special inquiry of his debtor, before giving him credit, whether he were already in debt? If his debtor were to answer falsely, and thereby induce him to give him credit on the idea that his (the debtor's) property was free from any prior lien, the act would be one of swindling towards the prior creditor, and would be properly punishable as swindling, especially if the prior creditor should suffer any actual harm from the second lien; and perhaps It would be the same if he did not suffer any. The case would be parallel to that of a man, who, after having given one mortgage of land, should afterwards, before that mortgage was recorded, give another mortgage to another person, who hash no knowledge of the first mortgage; wish should thereby deprive the first mortgagee of his prior lien.
Debtors would have little or no temptation to practice such frauds; for It would not only make them liable as swindlers, hut also liable in damages, where any actual loss should be suffered by the first creditor; and for those damages their future earnings would be liable forever, as will hereafter be shown, and not merely their present property, as in case of debt. If, therefore, a debtor should he unable to obtain a second credit on account of the lien of a prior one on his property, his true course would be to do the best ho could with the means in his hands, until his present debt should come to maturity, then pay it, or pay to the extent of his ability, and thus cancel it. He would then be free to contract a new one.
It perhaps might be expedient for debtors, when contracting second debts, to take written acknowledgments from their creditors that their former debts (naming them) were disclosed to them. This would put it out of the power of creditors to Impute fraud to their debtors; and would also prevent any collision between creditors as to the order of their respective rights. Probably, however, this precaution would be unnecessary, for the burden of proof would always be upon the second creditor to show the fraudulent concealment, and not upon the debtor to prove his disclosure, or that no disclosure was asked. The second creditor's own testimony would be inadmissible to give himself a prior lien; and, uncorroborated, it would be suspicious testimony even in a criminal prosecution for swindling. The probability, therefore, is, that for want of proof of any fraud, if for no other reason, there would be no collision among creditors, as to the order of their respective liens, unless second creditors, at the time of giving credit, should take written declarations from their debtors that there were no prior liens on their property. And debtors would not, of course, dare to put false declarations of that kind in writing, because they would thereby convict themselves of swindling. So that there would be no collision among creditors on this ground unless in some few cases, where debtors might be such open villains as to put their fraudulent representations in writing.
The principle stated in this note would be no obstacle to a debtor's selling or exchanging any property In his hands for an equivalent value of a different kind, provided he should act according to his best judgment, and with no intent to lessen the value of his creditor's security; because the lien of his creditor is not a special lieu on specific articles of property, (none such being designated by the contract,) but upon the amount of value that adheres in all the property in his hands—which value he has an implied authority from the creditor to convert into different forms, by labor and traffic, at his discretion, (as will be more fully shown in the next chapter.) And when he soils an article for money, or makes an exchange of it for another commodity, the exchange is a mere conversion of the same value into a different form. The creditor's right attaches to it, or adheres to it, in its new form, in the same manner, and to the same extent, that it did in its original one. Return
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