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.
If a contract has been entered into between the parties, but no liability of any sort has accrued under it up to the time of the institution of the proceedings in bankruptcy, such contract is not a fixed liability since nothing is due thereon;1 and the liability which accrues under such contract, after the bankruptcy proceedings are instituted, is not a debt which exists at the time of the filing of the petition in bankruptcy, and accordingly it is not a provable debt.2 For these reasons, it is held that a continuing contract is not affected by a discharge in bankruptcy as to amounts which fall due thereunder after bankruptcy proceedings are instituted unless there is some special provision therefor in the bankrupt statute.3 Rents which are not due when the petition in bankruptcy is filed, but which become due after the filing of such petition, on a lease into which the parties had entered before the filing of the petition in bankruptcy, are held not to be barred by a discharge in such bankruptcy proceedings.4
2 Brown v. J. & E. Stevens Co.52 Conn. 110; Dale v. Warren, 32 Me. 94, 62 Am. Dec. 640; Liddell v. Wiswell, 50 Vt. 365, 8 Atl. 680; Smith v. Hod-son, 50 Wis. 279, 6 N. W. 812.
3 Tobias v. Rogers, 13 N. Y. 59; Eber-hardt v. Wood, 74 Tenn. (6 Lea) 467.
4 United States. Mace v. Wells, 48 U. S. (7 How.) 272, 12 L. ed. 698 [reversing, 17 Vt. 503]; Williams v. United States Fidelity & Guaranty Co., 236 U. S. 549, 59 L. ed. 713.
Indiana. Post v. Losey, 111 Ind. 75, 60 Am. Rep. 677, 12 N. E. 121.
Iowa. Hayer v. Comstock, 115 la. 187, 88 N. W. 351.
Massachusetts. Columbia Falls Brick Co. v. Glidden, 157 Mass. 175, 31 N. E. 801.
Tennessee. Hardy v. Carter, 27 Tenn. (8 Humph.) 153.
5 Lewis v. Brown, 41 Me. 448; Pax-son v. Haster, 11 N. J. L. 410.
6 Dunn v. Sparks, 7 Ind. 490; Halliburton v. Carter, 55 Mo. 435.
See also, Goding v. Roscenthal, 180 Mass. 43, 61 X. E. 222, where the breach occurred after the discharge in bankruptcy.
If the contract, which is entered into before the petition in bankruptcy is filed, provides for payments in the future by the party who thereafter becomes bankrupt, his bankruptcy is treated in some jurisdictions as a renunciation of the contract on his part, or as the voluntary creation of an impossibility which prevents him from performing the contract thereafter.5 Where this explanation can be employed, the bankruptcy of the debtor operates as an immediate breach of a prior contract; and the damages to which the adversary party is entitled by reason of such breach are a provable debt which may be liquidated in such proceedings.6 If a corporation has dissolved voluntarily, and if proceedings in bankruptcy are subsequently instituted and a lease to such corporation for a term of years is repudiated, both by its receiver and by its trustee in bankruptcy, the lessor is entitled to damages because of such repudiation; and such claim forms a provable debt.7
1 See Sec. 3137.
2 See Sec. 3133.
3 Bernhardt v. Curtis, 109 La. 171, 94 Am. St. Rep. 445, 33 So. 125; Robinson v. Peasant, 53 N. Y. 419.
4 Watson v. Merrill, 136 Fed. 359, 69 L. R. A. 719; In re Roth, 181 Fed. 667, 31 L. R A. (N.S.) 270; Bernhardt v. Curtis, 109 La. 171, 94 Am. St. Rep. 445, 33 So. 125; Rodick v. Bunker, 84 Me. 441, 30 Am. St. Rep. 364, 24 Atl. 897; Tredwell v. Marden, 123 Mass. 390, 25 Am. Rep. 108.
See, Does the Relation of Landlord and Tenant Become Severed by Operation of the Bankrupt Law? by John M. Patterson, 39 American Law Register (N S.), 656.
5See Sec. 2938.
6 Chicago Auditorium Association v. Central Trust Co., 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, 151 C. C. A. 134, L. R. A. 1918A, 539.
7 1n re Mullings Clothing Co., 238 Fed. 58, L. R. A. 1918A, 539.
Even under the United States Act of 1898 it has been held that bankruptcy discharges a lease,8 even if under the state statute the landlord has a lien upon the tenant's property on the premises for rent to become duo.9 If a transfer company has entered into a contract with a hotel company, by the terms of which the transfer company is to take charge of all the baggage and livery business for the hotel, and is to pay a certain sum for such privilege, the bankruptcy of the transfer company may be regarded as an anticipatory breach of such contract;10 and the claim of the hotel company for damages may be liquidated, and in such case it will constitute a provable debt.11
Liability on a penal bond, conditioned on the payment to another for life, of certain rents and annuities, has been held to be provable as a fixed liability against the estate of the bankrupt, as to instalments in arrears, but not as to those to fall due thereafter.12 If the lease contains a reservation to the lessor of the right of re-entry upon the bankruptcy of the lessee and a covenant on the part of the lessee to pay to the lessor, under such circumstances, the difference between the rent fixed by the lease and the rent which the lessor is able to obtain by reletting the property after the bankruptcy of the lessee, such claim of the lessor is not a fixed liability absolutely owing;13 and accordingly it can not be liquidated.14 The bankruptcy of the lessee is said not to operate as a discharge of the lease, unless the bankrupt elects to accept such lease as an asset.15 A trustee in bankruptcy may, if he chooses, accept an executory contract of the bankrupt, or he may renounce it;16 and his election to accept or renounce is to be exercised for the interest of the estate of the bankrupt without regard to the interest of the adversary party to the contract.17
8 Bray v Cobb, 100 Fed 270; In re Mullings Clothing Co, 238 Fed. 58, L. R A. 1918A, 539
9 In re Jefferson, 93 Fed. 948. 10 See Sec. 2938.
11 Central Trust Co v Chicago Auditorium Association, 240 U. S. 581, L. R A. 1917B, 580, GO L. ed. 811.
12 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)
13 In re Roth, 181 Fed. 667, 31 L. R. A (NS.) 270.
14 In re Roth, 181 Fed. 667, 31 L. R. A. (M.S.) 270.
15 In re Roth, 181 Fed. 667, 31 L. R. A. (N.S) 270.
16 Barr v. Youngsville Sugar Factory, Ltd., 141 La. 869, L. R. A. 19I7F, 654, 75 So 805.
See Sec. 1822 et seq.
17 Barr v. Youngaville Sugar Factory, Ltd., 141 La. 869, L. R. A. 1917F, 654, 75 So. 805.
It was held in England that the bankruptcy of a publisher operated as a breach of his contract with authors to publish their books and to pay them royalties thereon;18 and it was further held that the only claim of the author was for damages, and that if the trustee elected to perform the contract and to publish the book, he could not be compelled to pay royalties thereon to the author.19 This rule rested on the theory that the assignee of the benefits of such a contract can not be compelled to pay the royalty agreed upon,20 that the author was not a party to the contract between the publisher and the assignee, and that the contract gave no specific-lien on the proceeds arising from the sale of the books. The injustice of the rule was so apparent that it was abolished by statute, as to proceedings in bankruptcy; and it was provided that if the trustee elected to publish the book, he was obliged to pay the royalty therefor.21