Source: https://supreme.justia.com/cases/federal/us/236/549/
Timestamp: 2019-04-20 02:26:53+00:00

Document:
Justia › US Law › US Case Law › US Supreme Court › Volume 236 › Williams v. United States Fid. & Guar. Co.
Statutes should be sensibly construed with a view to effectuating the legislative intent.
estate, and therefore the discharge of the bankrupt acquits the obligation between them incident to the relationship.
A discharge in bankruptcy acquits the express obligation of the principal to indemnify his surety against loss by reason of their joint bond conditioned to secure his faithful performance of a building contract broken prior to the bankruptcy, although the surety did not pay the consequent damage until thereafter.
The facts, which involve the construction of the Bankruptcy Act and effect of a discharge in bankruptcy, are stated in the opinion.
This cause presents the following question: does a discharge in bankruptcy acquit an express obligation of the principal to indemnify his surety against loss by reason of their joint bond, conditioned to secure his faithful performance of a building contract broken prior to the bankruptcy when the surety paid the consequent damage thereafter?
"to indemnify the said United States Fidelity & Guaranty Company against all loss, costs, damages, charges, and expenses whatever resulting from any act, default, or neglect of ours that said United States Fidelity & Guaranty Company may sustain or incur by reason of its having executed said bond or any continuation thereof."
Voluntary petitions were filed by partnership and members May 28, 1901, and all were immediately adjudged bankrupt. The schedules specified the building contract, its breach and the bond, and their adequacy is not now questioned. In due time, the school trustees proved their claim and it was allowed. October 5, 1901, the petitioners received their discharges. No dividend was declared, all the assets being required for administration expenses.
Defendant in error brought suit in the City Court of Atlanta against the firm and its members -- August, 1911 -- setting up the written promise made to it when the bond was executed and asking judgment for the amount paid in satisfaction of the recovery thereon, together with attorneys' fees. The matter was submitted upon an agreed statement of facts, and judgment went in favor of the company; this was affirmed by the Court of Appeals of Georgia (11 Ga.App. 635), and the cause is here upon writ of error.
"The bankrupts owed the surety nothing at the time the petition in bankruptcy was filed, because the surety had paid nothing for their benefit, and the relation of debtor and creditor did not exist between them until after actual payment by the surety. . . . The surety had no claim against the bankrupts which it could file in its own name. . . . The liability to the surety by the bankrupts was altogether contingent, and might never have arisen. Indeed, we hold that, at the time the petition in bankruptcy was filed, the surety had no claim or debt against the bankrupt which could have been proved in the bankrupt court under § 63 of the Bankrupt Act."
"contend that the claim at bar was subject to two contingencies, one of which, to-wit, the sustaining or incurring of actual pecuniary loss, resultant to the principal's act, had not arisen at the time of the filing of the petition. Therefore, said claim was not an unliquidated claim upon an express contract absolutely owing at the time. It was a contingent claim, and as such not provable, and therefore not affected by the bankrupt principal's discharge."
If the doctrine announced by the court below and maintained here by counsel is correct, a discharge in bankruptcy may have very small value for the luckless debtor who has faithfully tried to secure his creditors against loss, and, in effect, a demand against him may be kept alive indefinitely, according to the interest or caprice of his surety.
start afresh free from the obligations and responsibilities consequent upon business misfortunes. Wetmore v. Markoe, 196 U. S. 68, 196 U. S. 77; Zavelo v. Reeves, 227 U. S. 625, 227 U. S. 629; Burlingham v. Crouse, 228 U. S. 459, 228 U. S. 473. And nothing is better settled than that statutes should be sensibly construed, with a view to effectuating the legislative intent. Lau Ow Bew v. United States, 144 U. S. 47, 144 U. S. 59; In re Chapman, 166 U. S. 661, 166 U. S. 667.
"Section 17. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as . . . (2) are liabilities for obtaining property by false pretenses or false representations."
"Section 63. Debts of the bankrupt may be proved and allowed against his estate which are . . . (4) founded upon an open account, or upon a contract, express or implied; . . . unliquidated claims against the bankrupt may, pursuant to application to the court, be liquidated in such manner as it shall direct, and may thereafter be proved and allowed against his estate."
"(11) 'Debt' shall include any debt, demand, or claim provable in bankruptcy."
"Section 2. Courts of bankruptcy have jurisdiction to"
"(6) bring in and substitute additional persons or parties in proceedings in bankruptcy when necessary for the complete determination of a matter in controversy; . . ."
"Sec. 57i. Whenever a creditor whose claim against a bankrupt estate is secured by the individual undertaking of any person fails to prove such claim, such person may do so in the creditor's name, and if he discharge such undertaking in whole or in part, he shall be subrogated to that extent to the rights of the creditor."
XXI.-4. The claims of persons contingently liable for the bankrupt may be proved in the name of the creditor when known by the party contingently liable. When the name of the creditor is unknown, such claim may be proved in the name of the party contingently liable, but no dividend shall be paid upon such claim except upon satisfactory proof that it will diminish pro tanto the original debt."
"Sec. 16. The liability of a person who is a co-debtor with, or guarantor or in any manner a surety for, a bankrupt shall not be altered by the discharge of such bankrupt."
acquits the obligation between them incident to the relationship. Mace v. Wells, 7 How. 272, 48 U. S. 276; Fairbanks v. Lambert, 137 Mass. 373, 374; Hayer v. Comstock, 115 Ia. 187, 191; Post v. Losey, 111 Ind. 74, 80; Smith v. Wheeler, 55 App.Div. 170, 171.
Upon the facts presented, we are of opinion that the discharge pleaded by the plaintiffs in error constituted a good defense, and the court below erred in holding otherwise. The judgment is accordingly reversed, and the cause remanded for further proceedings not inconsistent with this opinion.

References: v. 
 § 63
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.