This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Insolvency of a party to a contract does not operate as a discharge of the insolvent1 nor of the adversary party.2 Insolvency proceedings against a trust company do not discharge a contract where it has agreed to pay the expenses of a certain trust, but when the trust company is disabled from carrying out its contract by such proceedings the contract is broken.3 A agreed to build a steamboat for B. Before the time for com pleting the boat A became insolvent and made an assignment for the benefit of his creditors. This was held not to discharge B, and B's act in taking possession of the uncompleted boat was held to be either a trespass or an acceptance of the boat, making him liable for the contract price, at the election of A's assignee.4 A husband and wife entered into a contract adjusting their property rights. This contract was by consent carried into a decree for alimony. It was held that a subsequent unfavorable change in the husband's financial condition could not discharge the contract, and hence under such circumstances the court could not modify the decree awarding $150 a month.5 The bankruptcy of the insured does not render it impossible for him to prepare and transmit proofs of loss and hence does not discharge a covenant on bis part so to do.6 Under a contract for sale on credit, delivery to be made in the future, the solvency of the vendee is held to be an implied condition of the contract. The insolvency of the vendee eliminates the provision for credit, therefore, but leaves the rest of the contract in force.7 A different principle applies to contracts for payment out of a specific fund. If the fund is insufficient, the contract is fully performed by paying the entire fund. Thus if the fund raised for the payment of teachers is insufficient, the school district is not liable.8 While mere insolvency of one party does not discharge the other, the fact of his giving notice of his insolvency to the other may be equivalent to a notice that he will not perform9 and may amount to breach.10
10 C. F. Jewett Publishing Co. v. Butler, 159 Mass. 517; 22 L. E. A. 253; 34 N. E. 1087; Prospect Park etc., By. v. By., 144 N. Y. 152; 26 L. E. A. 610; 39 N. E. 17.
11 C. F. Jewett Publishing Co. v. Butler, 159 Mass. 517; 22 L. E. A. 253; 34 N. E. 1087.
1 Contract between life insurance company and agent. Lewis v. Ins. Co.. 61 Mo. 534. Compare the different principle involved under facts partially similar in Sec. 1368.
Building contract. McConnell v-Hewes, 50 W. Va. 33; 40 S. E. 436
2 Vandegrift v. Engineering Co., 161 N. Y. 435; 48 L. B A. 685; 55 N. E. 941.
3 Bank Commissioners v. Trust Co., 69 N. H. 621; 44 Atl. 130.
4 Vandegrift v. Engineering Co., 161 N. Y. 435; 48 L. B. A. 685; 55 N. E. 941.
5 Henderson v. Henderson. 37 Or. 141; 82 Am. St. Ben. 741; 48 L. E. A. 706; 60 Pac. 597; 61 Pac. 136.
 
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