Williams v. United States Fidelity Guaranty Company

• Decision Date: 23 February 1915
• Docket Number: No. 80,80
• Citation: 59 L.Ed. 713,35 S.Ct. 289,236 U.S. 549
• Parties: R. P. WILLIAMS and J. B. Carr, as Partners under the Firm Name of R. P. Williams & Company, Plffs. in Err., v. UNITED STATES FIDELITY & GUARANTY COMPANY
• Court: U.S. Supreme Court

236 U.S. 549

35 S.Ct. 289

59 L.Ed. 713

R. P. WILLIAMS and J. B. Carr, as Partners under the Firm Name of R. P. Williams & Company, Plffs. in Err.,

v UNITED STATES FIDELITY & GUARANTY COMPANY.

No. 80.

Argued January 18, 1915.

Decided February 23, 1915.

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.

[Argument of Counsel from pages 550-552 intentionally omitted] Mr. Justice McReynolds delivered the opinion of the court:

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?

R. P. Williams and J. B. Carr, as partners, entered into a contract with certain school trustees—April, 1900—to construct a building in Florida; and, with defendant in error company as surety, gave a bond guarantying its faithful performance. Contemporaneously with the execution of the bond, and as a condition thereto, the partners made a written application to the company, in which they obligated themselves '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.'

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.

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, 75 S. E. 1067), and the cause is here upon writ of error.

The state court treated the written contract of indemnity between the bankrupts and the surety company as the expression of what would have been implied, and declared: '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.'

Counsel for the company '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.

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 start afresh free from the obligations and responsibilities consequent upon business misfortunes. Wetmore v. Markoe, 196 U. S. 68, 77, 49 L. ed. 390, 394, 25 Sup. Ct. Rep. 172, 2 Ann. Cas. 265; Zavelo v. Reeves, 227 U. S. 625, 629, 57 L. ed. 676, 678, 33 Sup. Ct. Rep. 365, Ann. Cas. 1914D, 664; Burlingham v. Crouse, 228 U. S. 459, 473, 57 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 L. ed. 340, 344, 12 Sup. Ct. Rep. 517; Re Chapman, 166 U. S. 661, 667, 41 L. ed. 1154, 1158, 17 Sup. Ct. Rep. 677.

The statute (30 Stat. at L. 544, chap. 541, Comp. Stat. 1913, § 9585), as amended in 1903 (32 Stat. at L. 797, chap. 487, Comp. Stat. 1913, § 9586), provides: Sec. 17. 'A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as . . . (2) are liabilities for obtaining...