First-Ever U.S. Bankruptcy Law — Enacted With A Pandemic’s Help

The Bankruptcy Act of 1800

By: Donald L Swanson

1800 is the year Congress adopts its first bankruptcy law under the “Bankruptcies” clause of the newly-ratified U.S. Constitution.

Congress’s Bankruptcy Act of 1800 is modeled after England’s bankruptcy laws.  But there is a significant difference: the focus of England’s bankruptcy laws, back then, is exclusively on merchants, while Congress’s Bankruptcy Act of 1800 expands that focus to also include any “banker, broker, factor, underwriter, or marine insurer.” [Fn. 1]

Upon first seeing this merchants v. expanded list distinction, I remember thinking, “What the heck is that all about?”  Well . . . as it turns out, the answer is this:

  • to assure that Robert Morris (and other bankers, brokers, factors, underwriters and marine insurers like him) can get out of debtors’ prison!

Here’s The Backstory

Back in the Revolutionary War days, Robert Morris is one of the wealthiest colonialists. Morris is also a signer of the Declaration of Independence, a signer of the U.S. Constitution, and the first-ever United States Senator.

Additionally, Morris plays a major role in financing the Continental Army during the struggle for Independence.  Without Robert Morris and his money, there would have been no crossing of the Delaware, no surrender at Yorktown, and no U.S. Constitution.  [Note: For such information and a brief history of Robert Morris, you will want to watch this linked video—seriously!  It’s fascinating and only eight minutes long!]

But after the Revolutionary war, Robert Morris speculates heavily in land on the New York frontier.  Then, his investments go awry, and he loses everything—with millions of dollars of debts remaining.

Off to Debtors’ Prison and Disgrace

On Friday, February 16, 1798, Robert Morris is arrested at his home in Philadelphia and escorted to debtors’ prison: the Prune Street Jail nearby. [Fn. 1]  A report of the arrest says that the Morris family:

  • “exhibited a dreadful scene of distress,” and “Mrs. Morris was almost frantic, and flew upon the people who brought him to town and would have committed violence but was prevented.”  

Robert Morris remains in debtors’ prison for three and a half years.

Meanwhile, the public turns against him.  Many revel in seeing one of the mighty brought low.  Here are illustrative musings of one of Morris’s political enemies in Congress:

  • “What an example of the folly and vanity of human grandeur”;
  • “But a few years since he was in wealth and honor, the most considerable man in the United States”;
  • His wife “ruled the world of fashion with unrivalled sway”: and
  • “He will now probably moulder away a few remaining wretched years in prison.”  

Thomas Jefferson, by contrast, has a different view, writing this to James Madison during Morris’s imprisonment:

  • “What a misfortune to the public that R. Morris has fallen from his height of character”:
  • “If he could get from confinement, and the public give him confidence, he would be a most valuable officer”; but
  • “these are two impossibilities in the way.”

Life in Debtors’ Prison

Here’s an account, from Robert Morris’s biographer, of life in the Philadelphia debtor’s prison where Morris serves time:

  • “Inmates were generally at liberty and could receive visitors from daylight until nine at night”:
  • “The criminal residents were separated from the debtors by a low wall that traversed the large exercise yard, but this barrier did little to prevent bands of ruffians from climbing over to rob the debtors or avail themselves of the prostitutes turned in by their landlords”;
  • “Despite their penury, debtors were required to pay their jailers for room and board”; and
  • “the more destitute were crowded ten to a room, hungry and half-naked.”

Morris, however, has things better than most:

  • “Somehow, Mary obtained some money, and with it Morris secured his own room—‘the best in this house,’ as he termed it”; and
  • “Morris soon established his furnishings: three writing desks, a borrowed mahogany table, ‘an old Windsor settee and eight old Windsor chairs,’ six chests stuffed with correspondence and business papers, a mirror, a trunk of clothes, and a bed.”

Prison-Related Attitudes — Morris Family

In correspondence to a newly-impoverished acquaintance, he teases about fears of being sent to debtors’ prison and invites that acquaintance to join him for dinner at the “Hotel with Gated doors.”

In correspondence to his son, Morris writes:

  • “A man that cannot hear and face misfortune should not run risks”; but
  • “I have been too adventurous and therefore it is my duty to meet my Fate with Fortitude and I do it.”

But about his family, Morris writes:

  • “The punishment of my imprudence in the use of my name and loss of credit is perhaps what I deserve”; but
  • “it is nevertheless severe on my family and on my account, I feel it most tormentingly.” 

Morris’s wife, Mary, takes things hard, as Abigail Adams explains:

  • “She [Mary Morris] received me with all that dignity of manners for which she more than any Lady I ever saw, is distinguished”;
  • “She endeavored to smile away the Melancholy which was evident on her whole countenance”;
  • “I requested her to come and take Tea with me!  I took her by the hand.  She said she did not visit, but would not refuse herself the pleasure of coming someday when I was alone”; and
  • “She then turned from me, and the tears burst forth.  I most sincerely felt for her.”

A Pandemic (Yellow Fever) Intervenes

A Yellow Fever scourge intervenes, during Morris’s confinement in debtors’ prison.  Morris’s biographer writes as follows.

“During his first summer [in debtors’ prison] and the one that followed, the scourge of yellow fever returned to the city, and dozens of prisoners died”;

“At the height of the plague permission was granted for inmates to remove to quarters in the countryside. Morris declined, content to remain in his cell and tend to his plot in the prison garden,” writing that, “I feel no kind of apprehension . . . My only anxiety is for my wife and daughter and these poor sick people”; and

Morris’s son, William, “was stricken in September, and after being ‘bled, blistered, purged, sweated,’ finally succumbed. “William had been profligate in his youth and desultory in his father’s service, but Morris felt his death keenly,” saying this about William:  “his value to his family I never counted until he was lost, and now I see its magnitude, and that it is irreparable.”

New Bankruptcy Law to the Rescue

On April 4, 1800, Congress passes the Bankruptcy Act of 1800.  The reason is so that Robert Morris, and others like him, can be declared bankrupt and released from debtors’ prison, where they are being held under state laws.

Morris’s biographer explains it all like this.

“In the spring of 1800, spurred by the string of failures that swept the country—Morris’s being perhaps the largest—Congress passed the nation’s first bankruptcy law.  Designed to limit fraud and equalize competing claims, it allowed for the release of major debtors upon the petition of their creditors.”

“In Morris’s case, as might be expected, the negotiations were protracted, but on August 26, 1801, he walked once more through the gates of the Prune Street Jail.”

Morris writes: “I obtained my liberty last evening, and had the inexpressible satisfaction to find myself again restored to my home and family.”

“He’d been released from prison, but not from his debts.  The next three months Morris spent in hearings before a panel of bankruptcy commissioners appointed to manage the claims of more than ninety creditors.”

“At the commissioners’ direction, Morris composed his last great treatise, an ‘Account of Property,’ which laid out in painstaking—and undoubtedly for Morris, painful—detail his vast holdings, how they were acquired, what had been disposed of, and what remained.”

“Morris professed to the end his good faith in these acquisitions; he observed wistfully that, had he limited his land speculations to his initial purchases in New York, ‘I have every reason to believe that at this day I should have been the wealthiest citizen of the United States.’”

Morris then adds “an aside that could have afforded little solace to his creditors: ‘That things have gone otherwise I lament, more on account of others than on my own account, for God has blessed me with a disposition of mind that enables me to submit with patient resignation to His dispensations as they regard myself.’”

“Armed with [Morris’s] ‘Account,’ the bankruptcy commission closed its books on December 4 and the claims against Morris were put to rest.”

Morris writes, “My business was finished in the district court without opposition.  I now find myself a free citizen of the United States without one cent that I can call my own.”

Morris’s Contributions to these United States

Regarding Morris’s significance to the Revolution, his biographer explains:

“George Washington . . . stopped by one evening to break bread in Morris’s cell.  It was the last meeting of the two chief architects of America’s improbable Revolution; Washington died in December 1799, with Morris still in prison.”

Morris’s biographer adds these concluding observations.

Morris’s contributions to America’s founding and his “indelible impact on the life of its people.  His secret agents had supplied the armies of the Revolution, his credit had salvaged its finances, and his faction had fashioned its Constitution.”

“More than that, Morris installed his pragmatic, realist, modernist vision of a free people united by the principles of economic self-interest and not by bonds of state or political authority.”

“For better or worse, that is the feature that distinguished American from every other nation established in the New World, and set America on its course to becoming the economic powerhouse we know today.” 

Morris’s Epithet

Morris’s final will and testament closes with this epithet.

  • “I have to express my regret at having lost a very large fortune acquired by honest industry, which I had long hoped and expected to enjoy with my family during my own life and then to distribute amongst those of them that should outlive me.” 
  • Fate has determined otherwise and we must submit to the decree, which I have done with patience and fortitude.”

Robert Morris dies on May 8, 1806.

Conclusion

The enactment of any new law arises from a specific historical context.

The first bankruptcy law of these United States is no exception.  It is enacted a full decade after ratification of the U.S. Constitution, which authorizes Congress to enact such laws.  And it is enacted for a specific purpose of helping extricate Robert Morris, and others like him, from debtors’ prisons.

Ironically, the occurrence of a Yellow Fever pandemic helped hasten the day of the new law’s enactment.

So today, revisions to current bankruptcy laws are needed.  And the existence of the present pandemic may well hasten the day that many of such reforms are enacted.


Footnote 1. Thomas Cooper, “The bankrupt law of America: Compared with the bankrupt law of England,” at 1 & 37 (1801), published by Making of the Modern Law, Print Edition.

Footnote 2. Unless otherwise noted, the historical information and all quotes in this article are from the last chapter (titled “Ruin”) and Epilogue of the biography of Robert Morris, written by Charles Rappleye: “Robert Morris, Financier of the American Revolution,” at 490-530 (Simon & Schuster, 2010).

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.

2 thoughts on “First-Ever U.S. Bankruptcy Law — Enacted With A Pandemic’s Help

Add yours

Leave a Reply to mediatbankry Cancel reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Blog at WordPress.com.

Up ↑

%d bloggers like this: