Supreme Court of the United States · 1805 · Constitutional Law
6 U.S. (2 Cranch) 358 (1805)
Updated
Constitutional LawNecessary and Proper Clausefederal priorityinsolvencybankruptcystatutory interpretationUnited States debtsordinary course of trade
Facts
The United States held a protested bill of exchange that had been negotiated in the ordinary course of trade. The debtor became bankrupt, and the dispute was whether the United States should be preferred over general creditors in payment. The government based its claim on section 5 of the Act of March 3, 1797, which gives the United States first satisfaction when a debtor to the United States becomes insolvent or commits an act of legal bankruptcy. The only real controversy before the Court was the government's right to priority of payment.
Issue
Whether section 5 of the Act of March 3, 1797 gives the United States priority over general creditors when it is the holder of a protested bill of exchange negotiated in the ordinary course of trade and the debtor becomes bankrupt. Also, whether Congress constitutionally had power to create that priority.
Rule
Section 5 of the Act of March 3, 1797 gives the United States priority in payment against insolvent debtors generally, not merely against revenue officers or persons accountable for public money. Under the Necessary and Proper Clause, Congress may use any means that are in fact conducive to carrying into execution powers vested by the Constitution, and a federal priority rule for debts owed to the United States is such a permissible means.
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10 practice questions + 4 AI-graded essays on this case
One of 10 multiple-choice questions for this case. Pick an answer to see why.
A federal statute provides that when any person indebted to the United States becomes insolvent, the federal debt must be paid before general unsecured creditors. Dana Rowe, a contractor in Columbus, owes money to the United States under a supply agreement and later becomes insolvent; several private creditors challenge the statute as beyond Congress's enumerated powers.
How should a court most likely rule on the constitutional challenge?
Explanation. The majority held that Congress is not limited to measures that are indispensably necessary. Under the Necessary and Proper Clause, Congress may select any means that are in fact conducive to carrying federal powers into execution. A priority rule for debts owed to the United States is such a permissible means. The holding was grounded in statute plus constitutional power, not inherent prerogative.