Source: https://caselaw.findlaw.com/us-supreme-court/236/549.html
Timestamp: 2019-04-18 15:32:05+00:00

Document:
WILLIAMS v. US FIDELITY & GUARANTY CO.
[236 U.S. 549, 550] Messrs. J. Howell Green and Alexander C. King for plaintiffs in error.
Messrs. Alexander W. Smith, Jr., and Alexander W. Smith for defendant in error.
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?
November 9, 1900, the partners abandoned the contract; the trustees took possession and completed the structure April 13, 1901, and on May 14th following they made adequate demands for payment of the amount expended beyond the contract price. This being refused, they brought suit and recovered a judgment against the company July 1, 1904, which it satisfied February 20, 1905, by paying $5,475.36.
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.
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.
It is the purpose of the bankrupt act to convert the assets of the bankrupt into cash for distribution among creditors, and then to relieve the honest debtor from the weight of oppressive indebtedness, and permit him to [236 U.S. 549, 555] start afresh free from the obligations and responsibilities consequent upon business misfortunes. Wetmore v. Markoe, 196 U.S. 68, 77 , 49 S. L. ed. 390, 394, 25 Sup. Ct. Rep. 172, 2 Ann. Cas. 265; Zavelo v. Reeves, 227 U.S. 625, 629 , 57 S. L. ed. 676, 678, 33 Sup. Ct. Rep. 365, Ann. Cas. 1914D, 664; Burlingham v. Crouse, 228 U.S. 459, 473 , 57 S. L. ed. 920, 926, 46 L.R. A.(N.S.) 148, 33 Sup. Ct. Rep. 564. 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, 59 , 36 S. L. ed. 340, 344, 12 Sup. Ct. Rep. 517; Re Chapman, 166 U.S. 661, 667 , 41 S. L. ed. 1154, 1158, 17 Sup. Ct. Rep. 677.
Within the intendment of the law provable debts include all liabilities of the bankrupt founded on contract, express or implied, which, at the time of the bankruptcy, were fixed in amount or susceptible of liquidation. Dunbar v. Dunbar, 190 U.S. 340, 350 , 47 S. L. ed. 1084, 1092, 23 Sup. Ct. Rep. 757; Crawford v. Burke, 195 U.S. 176, 187 , 49 S. L. ed. 147, 151, 25 Sup. Ct. Rep. 9; Frederic L. Grant Shoe Co. v. W. M. Laird Co. 212 U.S. 445, 448 , 53 S. L. ed. 591, 593, 29 Sup. Ct. Rep. 332; Zavelo v. Reeves, 227 U.S. 625, 631 , 57 S. L. ed. 676, 678, 33 Sup. Ct. Rep. 365, Ann. Cas. 1914D, 664. It provides complete protection and an ample remedy in behalf of the surety upon any such obligation. He may pay it off and be subrogated to the rights of the creditor; if the creditor fails to present the claim for allowance against the estate, he may prove it; and in any event he has abundant power, by resort to the court or otherwise, to require application of its full pro rata part of the bankrupt's estate to the principal debt. To the extent of such distribution the obligation of the bankrupt to the surety will be satisfied. Although, unlike the act of 1867, the present one contains no express provision permitting proof of contingent claims, it does in substance afford the surety on a liability susceptible of liquidation the same relief possible under the earlier act, i. e., application to the principal debt of all dividends declared out of the estate (act of 1867, 19, 27 [14 Stat. at L. 525, 529, chap. 176]). And as the surety thus either shares or enjoys an opportunity to share in the principal's estate, we think the discharge of the latter [236 U.S. 549, 557] acquits the obligation between them incident to the relationship. Mace v. Wells, 7 How. 272, 276, 12 L. ed. 698, 699; Fairbanks v. Lambert, 137 Mass. 373, 374; Hayer v. Comstock, 115 Iowa, 187, 191, 88 N. W. 351; Post v. Losey, 111 Ind. 74, 80, 60 Am. Rep. 677, 12 N. E. 121; Smith v. Wheeler, 55 App. Div. 170, 171, 66 N. Y. Supp. 780.
It would be contrary to the basal spirit of the bankrupt law to permit a surety, by simply postponing compliance with his own promise in respect of a liability until after bankruptcy, to preserve a right of recovery over against his principal, notwithstanding the discharge would have extinguished this if the surety had promptly performed as he agreed. Such an interpretation would effectually defeat a fundamental purpose of the enactment.
The written indemnity agreement embodied in the bankrupt's application to the surety company for execution of the bond, so far as its terms are important here, but expressed what otherwise would have been implied from the relationship assumed by the parties. At the time of the bankruptcy, the obligation under this agreement was ancillary to a liability arising out of a contract, estimation of which was easy of establishment by proof. There was no uncertainty which could prevent the surety from obtaining all benefits to which it was justly entitled from the bankrupt estate.
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.

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