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 insolvent,1 nor of the adversary party.2
27 Moss v. Smith, 9 C. B. 94.
28 Mineral Park Land Co. v. Howard, 172 Cal. 289, L. R. A. 1916F, 1, 156 Pac. 438.
In this case the gravel that was left was below water level, and could be taken only by a steam dredger; and it would have been necessary to have dried it before it was used. To have removed this gravel in this way and to have used it, would have cost from ten to twelve times the ordinary cost of removing gravel.
29 New York Coal Co. v. New Pitts-burgh Coal Co., 66 0. S. 140.
30 Franklin Telegraph Co. v. Harrison, 145 U. S. 459, 36 L. ed. 776.
31 Franklin Telegraph Co. v. Harrison, 146 U. S. 459, 36 L. ed. 776.
1 Contract between life Insurance company and agent. Lewis v. Ins. Co., 61 Mo. 534.
Compare the different principle in-volved under facts partially similar in Sec. 2687 et seq.
Building contract. McConnell v• Hewes, 50 W. Va. 33, 40 S. E. 436.
For dissolution of corporations, see Sec. 2687 et seq.
2 Vandegrift v. Engineering Co., 161 N. T. 435, 48 L. R. A. 685, 56 N. E. 941.
A lack of funds is not such impossibility as discharges a contract which provides for the payment of money.3 A contract by which A agreed to buy land for B, and B agreed to furnish the money to pay for such land, was not discharged by the fact that a panic followed after such contract was made, and that it was impossible for B to obtain such money.4 The fact that the contractor is unable to complete his contract through lack of funds is no discharge. This is true even if the contractor is unable to raise funds upon stocks and bonds of the company for which he is working, which he has taken under his contract as his sole compensation, even if his inability to raise such funds is due to the failure of such company to keep its credit good by meeting its obligations.5 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.6 A agreed to build a steamboat for B. Before the time for completing 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.7 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 a certain sum per month.8 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 his part so to do.9 If a contract provides for extending credit to one of the parties and such party subsequently becomes insolvent or his insolvency is discovered, the party who had agreed to extend credit is discharged from such covenant. "While analogous to impossibility, this is not, however, a true case of impossibility, but rather a case of breach by anticipation.10 The party who has agreed to give credit is no longer bound to perform the contract unless, perhaps, the party to whom credit was to be given or his legal representatives tender cash instead of asking credit.11 .
See also, on the question of the insolvency of the adversary party. Clements v. Jackson County Oil & Gas Co., - Okla. -, L. R. A. 1917C, 437, 161 Pac. 216.
See ch. LXXXIV.
3 Ingham Lumber Co. v. Ingersoll, 93 Ark. 447, 125 S. W. 139; Pratt v. McCoy, 128 La. 570, 54 So. 1012; McCreery v. Green, 38 Mich. 172.
4 McCreery v. Green, 38 Mich. 172. See to the same effect, Ingham Lumber Co. v. Ingersoll, 93 Ark. 447, 125 S.
W. 139; Pratt v. McCoy, 128 La. 570, 54 So. 1012.
5 Wood v. Boney (N. J. Eq.) 21 Atl. 574.
6 Bank Commissioners v. Trust Co., 69 N. H. 621, 44 Atl. 130.
7 Vandegrift v. Engineering Co., 161 X. Y. 435, 48 L. R. A. 685, 55 N. E. 941.
8 Henderson v. Henderson, 37 Or. 141, 82 Am. St. Rep. 741, 48 L. R. A. 766, 60 Pac. 597, 61 Pac. 136.
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.12
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 perform13 and may amount to breach.14