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.
The question whether a contingent liability is barred by a discharge in bankruptcy depends on the question whether it is a provable debt. If the contingent debt is provable1 it is barred by the discharge. The liability of a bankrupt as surety, guarantor, iridorser and the like, for another is provable, and is therefore barred by a discharge in bankruptcy if it existed when proceedings in bankruptcy were begun.2 Under the bankrupt act of 1898 a means is provided for a party secondarily liable to prove the claim against the primary debtor, if the creditor does not prove it. The claim of a surety against his principal for a debt which the surety is obliged to pay after the discharge of his principal in bankruptcy, is therefore barred by such discharge.3 If the amount of a stockholder's liability to creditors of a corporation under a statute imposing such liability is fixed,4 as where the corporation has ceased to do business and the amount of its debts is fixed;5 or the corporation is avowedly insolvent, having made an assignment for the benefit of creditors,6 a discharge in bankruptcy granted to a stockholder is a bar which the stockholder may invoke as against the creditors of the corporation. In Massachusetts the liability of directors and stockholders for debts of the corporation is held not to be a debt provable when the petition in bankruptcy is filed, and hence not barred by such discharge.7
5 Lewis v. Brown. 41 Me. 448; Paxson v. Haster, 11 N. J. L. 410.
6 Dunn v. Sparks, 7 Ind. 490; Halliburton v. Carter, 55 Mo. 435.
1 Bernhardt v. Curtis. 109 La. 171; 94 Am. St. Rep. 445; 33 So. 125; Robinson v. Peasant. 53 N. Y. 419.
2 Bernhardt v. Curtis. 109 La. 171; 94 Am. St. Rep. 445; 33 So. 125; Rodiek v. Bunker, 84 Me. 441; 30 Am. St. Rep. 364; 24 Atl. 897; Treadwell v. Marden, 123 Mass. 390; 25 Am. Rep. 108.
3 Bray v. Cobb, 100 Fed. 270.
4 In re Jefferson, 93 Fed. 948.
5 Cobb v. Overman, 109 Fed. 65; 54 L. R. A. 369; 48 C. C. A. 223. (The amount of the claim was limited to the penalty of the bond, where the computed value of the expectancy exceeded that amount.)
1 Mooney v. Detrick, 85 Cal. 549: 26 Pac. 280; Rand v. King, 156 Mass. 515; 31 N. E. 650; Nesbit v. Greaves, 6 W. & S. (Pa.) 120.