The Supreme Court allowed states to provide bankruptcy relief in the absence of national legislation.
In Sturges v. Crowninshield
By a 4-3 margin, a badly divided Court upheld New York’s law in Ogden v. Sanders. Six justices wrote seriatim opinions. Justice Bushrod Washington, in a majority opinion, reasoned that an existing law actually formed part of a contract; therefore, application of the law to posterior debts did not impair the obligations of the contract. Justice William Johnson argued for an expansion of the state’s authority to regulate contracts for the common good. In his only dissenting opinion on a constitutional issue, Chief Justice John Marshall argued that the statute violated both the contract clause and nontextual vested rights to property. On a second issue, a majority of the justices agreed that the law could not be applied to a contract owed to a citizen of another state. The Ogden decision was of importance because Congress, for political reasons, was unable to enact a permanent insolvency law until 1898.