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.
While it is often said that a provable debt can not be contingent or uncertain,1 and that it must be fixed,2 the question whether a contingent liability is barred by a discharge in bankruptcy really depends on the question whether it is a provable debt. If the contingent debt is provable, it is barred by the discharge.3 The liability of a bankrupt as surety, guarantor, indorser, 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.4 Under the bankrupt act of 1898 a means is provided by which a party secondarily liable may 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.5 If the amount of a stockholder's liability to creditors of a corporation under a statute imposing such liability is fixed,6 as where the corporation has ceased to do business and the amount of its debts is fixed,7 or the corporation is avowedly insolvent, having made an assignment for the benefit of creditors,8 or the liability of the stockholder has been fixed by a decree against the corporation,9 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.10 If there is a binding contract between the parties at the time that the proceedings in bankruptcy are instituted, and there is bound to be some liability thereunder, the fact that the transaction is not completed and that the amount of the liability can not therefore be ascertained, does not render it a contingent claim, or at least it does not prevent it from being a provable debt.11 If the bankrupt has entered into a valid contract before the commencement of the bankruptcy proceedings, by which he is to repay a certain sum of money if the adversary party elects to avoid the contract and to return what he has received thereunder, the duty of the bankrupt to return such sum of money is regarded as a fixed liability, on the theory that the bankruptcy is a renunciation of the executory contract which fixes liability at once.12
18 Re Grant Richards , 2 K. B. 33, 4 B. R C. 597.
19 Re Grant Richards , 2 K. B. 33, 4 B. R. C. 597.
20 Barker v. Stickney , 2 K. B. 356.
21 See $ 60 of the Bankruptcy Act of 1914; 4 & 5 Geo. V, c. 59.
1 Leader v. Muttingly, 140 Ala. 444, 37 So 270.
2 Phoenix National Bank v. Water-bury, 197 N. Y. 161, 90 N. E. 435.
3 California. Mooney v. Detrick, 85 Cal 649, 26 Pac 280.
lowa. Hayer v. Comstock, 115 la. 187, 88 N. W. 351.
Kentucky. Hardy Buggy Co. v. Pa-ducah Banking Co., 183 Ky. 776, 210 S. W. 452.
Massachusetts. Rand v. King, 156 Mass 515, 31 N. E 650.
Pennsylvania. Nesbit v. Greaves, 6 W. & S. (Pa) 120.
4 Reitz v. People, 72 111. 435; Begein v. Brehm, 123 Ind. 160, 23 N. E. 496; Hardy Buggy Co. v. Paducah Banking Co., 183 Ky. 776, 210 S. W. 452; Bouie v. Prickett, 26 Tenn. (7 Humph.) 169.