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 bankruptcy of a party to an executory contract is said to operate as a breach of such contract.1 This has been explained on the theory that a party to an executory contract impliedly agrees that he will not permit himself to be disabled from performing by insolvency or bankruptcy; and that accordingly such insolvency or bankruptcy is a breach of such implied term.2 While this explanation may not interfere with the proper application of the general doctrine, it would seem unnecessary to invoke it to justify the adversary party in treating bankruptcy, especially bankruptcy of a corporation, as a breach of an executory contract which can not be performed by the bankrupt under such circumstances without violation of the rights of the remaining creditors. Since the party who is to extend credit ought not to be required to give credit in cases of the insolvency or bankruptcy of the adversary party, such conduct must be either breach or discharge on the ground of impossibility. It may be added that it is possible for such conduct to amount to breach, although the claim for damages arising out of such breach may not be a provable claim in bankruptcy.3
14 See Sec. 2687.
15 Texas Co. v. International & G. N. Ry. Co, 250 Fed 742; Roberts Cotton Oil Co. v. Morse, 97 Ark. 513, 135 S. W. 334.
16 Pennsylvania Steel Co. v. New York City Ry. Co., 198 Fed. 721.
17 Ex parte Chalmers, L. R. 8 Ch. App. 289; Hobbs v. Columbia Falls Brick Co., 157 Mass. 109, 31 N. E. 756.
See Sec. 2938.
1 Lesser v. Gray, 236 U. S. 70, 59 L. ed. 471 (breach unless discharge; in either case, discharge in bankruptcy is bar); Central Trust Co. v. Chicago Auditorium Association, 240 U. S. 581, L. R. A. 1917B, 580, 60 L. ed. 811; In re Neff, 157 Fed. 57, 28 L. R. A. (N.S.) 349; In re Mullings Clothing Co., 238 Fed. 58, L. R. A. 1918A, 539.
2 Central Trust Co. v. Chicago Auditorium Association, 240 U. S. 581, L. R. A. 1917B, 580, 60 L. ed. 811.
A contract by a transfer company for baggage and livery at a hotel is discharged by the bankruptcy of such corporation.4 The bankruptcy of a corporation to which a lease for years has been granted, together with the refusal of the receiver to accept such lease, amounts to a breach of such contract.5