does not destroy the continuing obligation of the bond.203 The liability of a defendant in replevin on his bond given to secure the return of the chattels is too contingent, even after judgment in replevin against him, and is thus neither provable nor dischargeable.204 A conditional contract for the purchase of personal property, whereby the purchaser agrees to pay a stipulated monthly rental, based on rates of payment, is a continuing contract, but it does not necessarily bind the purchaser's trustee in bankruptcy to continue payment under the contract, regardless of the extent or value of the trustee's use of the property.205 (6) BREACH OF WARRANTY.-A claim for damages for breach of warranty upon a sale of personal property is for a debt founded upon a contract and is provable, although the amount thereof is undetermined.200 And this rule obtains although because of actual fraud in the sale there might be an independent claim purely in tort.207. But the term "represent and warrant" does not imply a promise to reimburse claimants for damages on account of the failure of a certain tract of land to cut as much timber as represented.208 (7) EMPLOYMENT AND COMMISSION CONTRACTS.- Where contracts of employment are made for specified periods of time and are breached by the bankrupt before the expiration thereof, the damages resulting therefrom are provable although at the time of the bankruptcy the contract was not terminated.2 A claim of an employeefor salary to be earned in the future under a contract of employment, the term of which had not expired when the bankruptcy occurred, has been held to be a contingent liability, and not provable,210 but, creditor may prove the present worth of the sum during his expectation of life, as shown by the mortality tables. Matter of Miller (D. C., Mass.), 35 Am. B. R. 333, 225 Fed. 331. 203. Fowler v. Kendall, 44 Me. 448. 204. Clemmons v. Brinn (Sup. Ct., N. Y. App. T.), 7 Am. B. R. 714, 36 Misc. 157, 72 N. Y. Supp. 1066. 205. In re Daterson Pub. Co. (C. C. A., 3d Cir.), 26 Am. B. R. 582, 188 Fed. 64. 206. In re Grant Shoe Co. (C. Č. A., 2d Cir.), 12 Am. B. R. 349, 130 Fed. 881, affg. 11 Am. B. R. 48, 125 Fed. 576. 207. Grant Shoe Co. v. Laird Co., 212 U. S. 445, 21 Am. B. R. 484, 53 L. Ed. 591, 29 Sup. Ct. 332. See also this section, ante, subtitle "Claims 209 tortious in character based on contract." 208. Switzer & Johnson v. Henking (C. C. A., 6th Cir.), 19 Am. B. R. 300, 153 Fed. 784. 209. In re Silverman (D. C., Mo.), 4 Am. B. R. 83, 101 Fed. 219, revg. 2 Am. B. R. 15; In re Pollard, Fed. Cas. 11,252; Orr v. Ward, 73 Ill. 318; Sturgiss y. Meurer (C. C. A., 4th Cir.), 26 Am. B. R. 851, 191 Fed. 9, revg. in part 25 Am. B. R. 836, 184 Fed. 109; Matter of Nagel (C. C. A., 2d Cir.), 47 Am. B. R. 561, 278 Fed. 105. As to breach of employment and commission contracts, see Am. Bankr. Dig., § 839.. 210. In re Inman & Co. (D. C., Ga.), 22 Am. B. R. 524, 175 Fed. 312; Matter of Levy & Sons (D. C., Md.), 31 since the decision of the Supreme Court in Central Trust Co. v. Auditorium Association 211 holding that an adjudication amounts to an anticipatory breach of an executory contract,212 an employee, upon the bankruptcy of his employer, must necessarily have an immediate right of action for wrongful discharge, in which he may recover, as damages, future services, less an allowance, for the reasonable value of his prospective earnings elsewhere, and such a claim, when properly liquidated, would be provable.213 So also where a contract has been made for the sale of goods on commission for a specified time a breach either by some act of the bankrupt or by the bankruptcy will give rise to a claim for damages, which is provable.214 The annual fee to be paid under a contract with a mercantile agency is a provable debt although only a part of the year has elapsed.215 A claim for commissions and expenses incurred by a trustee, named in a deed of trust executed by a bankrupt, in the sale of chattels thereunder prior to bankruptcy, is not provable under this section.216 (8) ILLEGAL CONTRACTS.217-(I) In general.- Debts founded upon illegal contracts, or contracts against public policy, are not provable. 218 Am. B. R. 25, 208 Fed. 479; In re 211. 240 U. S. 581, 36 Am. B. R. 679, 60 L. Ed. 811, 36 Sup. Ct. 412. 212. See this section, ante, subtitle "Anticipatory breach." 213. Matter of Schultz & Guthrie (D. C., Mass.), 37 Am. B. R. 604, 235 Fed. 907; Matter of Rouden Mfg. Co., Inc. (D. C., N. Y.), 48 Am. B. R. 272, 278 Fed. 663. 214. As to claim for commissions on contract repudiated by bankrupt, see In re Saxton Furnace Co. (D. C., Pa.), 15 Am. B. R. 445, 142 Fed. 293. As to effect of bankruptcy of corporation upon contract containing provisions for revocation in case of dissolution, see In re Sweetser (C. C. A., 2d Cir.), 15 Am. B. R. 650, 142 Fed. 131. Claim only allowed for commissions on orders filled by the bankrupt. In re Ladue Tate Mfg. Co. (D. C., N. Y.), 14 Am. B. R. 235, 135 Fed. 910. 215. Matter of Buffalo Mirror & Beveling Co. (Ref., N. Y.), 15 Am. B. R. 122; In re Glick (D. C., N. Y.), 25 Am. B. R. 871, 184 Fed. 967. 216. In re Standard Dairy & Ice Co. (D. C., Sup. Ct.), 20 Am. B. R. 321. 217. In England, see Williams on Bankruptcy (12th ed.), p. 143. 218. Matter of McCarthy Portable Elevator Co. (D. C., N. J.), 28 Am. B. R. 45, 196 Fed. 247; In re Chandler, 9 N. B. R. 514, Fed. Cas. 590, 6 Biss. 53; In re Greene, 15 N. B. R. 198, Fed. Cas. 5,751; Ex parte Jones, 17 Ves. 332; Lowe v. Waller, 1 Douge, 736; In re Young, Fed. Cas. 18,145, 6 Biss. 53; Ex parte Mumford, 15 Ves. 289; Lehman v. Strassberg, 2 Woods, 554; Ex parte Cottrell, 2 Cowp. 742; Ex parte Daniels, 14 Ves. 191; Buckner v. Street, 7 N. B. R. 255, Fed. Cas. 2098; In re Paddock, 6 N. B. R. 132, Fed. Cas. 10,657; In re Eady, 3 N. B. R. 434; Matter of Wyoming Valley Co-operative 220 (II) Gambling transactions.219 If the contract is illegal because in violation of a statute prohibiting betting and gaming, it may not be provable. The rule applies to speculative contracts for the future delivery of cotton and grain, no actual delivery being intended." The provability of claims based on "bucket shop" transactions will depend largely upon State statutes; if such transactions are unlawful, debts arising therefrom are not provable.221 If the contract involves the purchase and the actual delivery of the stock or grain, it is not a gambling transaction, although it provides for future delivery, and the payment was "on a margin. Ass'n (D. C., Pa.), 28 Am. B. R. 462, 198 Fed. 436; Matter of Fenn (C. C. A., 2d Cir.), 24 Am. B. R. 130, 177 Fed. 334, revg. 22 Am. B. R. 833, 172 Fed. 620. Executed contracts.-An exception to the rule has been made in the case of an executed contract. In re Dorr (C. C. A., 9th Cir.), 26 Am. B. R. 408, 186 Fed. 276. Illegal or immoral consideration.— In the absence of proof, an illegal or immoral consideration should not be assumed. Matter of Wray (C. C. A., 2d Cir.), 37 Am. B. R. 28, 233 Fed. 418. Public policy not opposed by brewers' contract with bankrupt saloon keeper restricting the bankrupt from selling any other beer than that manufactured by the brewer. Matter of Clark (Ref., Cal.), 21 Am. B. R. 776. Illegal contract for sale of liquors not established without proof that the sale was illegal at place where made. Jacobs v. Ballentine Breweries Co. (C. C. A., 1st Cir.), 27 Am. B. R. 918, 193 Fed. 393. See also Thompson, Belden & Co. v. Leisy Brewing Co. (C. C. A., 8th Cir.), 41 Am. B. R. 682, 249 Fed. 462. 219. In England, see Williams on Bankruptcy (12th ed.), p. 144. 220. In re Aetna Cotton Mills (D. C., S. Car:), 22 Am. B. R. 629, 171 Fed. 994. 221. Transactions with bucket shop. In the case of Streeter v. Lowe (C. C. A., 1st Cir.), 25 Am. B. R. 774, 184 222 The mere fact that the buyer Fed. 263, it appeared that a customer of the bankrupt who was a stockbroker, filed a proof of claim for the balance due from the bankrupt on account of the purchase and sale of stock by the bankrupt for the account of such customer. The trustee objected to the claim on the ground that it was founded upon wagering contracts and therefore was invalid. It appeared that the bankrupt had rendered accounts to the creditor in which the transactions were treated as real sales and purchases and in these accounts he entered also certain cash payments actually made as margins by the creditor to the bankrupt. The evidence showed, however, that the bankrupt was the keeper of a bucket shop, neither making nor intending real sales and purchases of stock, but only wagers on its price, and that the creditor understood that the transactions were wagers and did not intend that the orders which he gave the bankrupt should be carried out by actual sale or purchase. It was held that the creditor was not entitled to prove a claim for the entire balance alleged to be due on account of purchases and sales, but that under Rev. Laws of Mass. Chap. 99, sec. 4, providing for the recovery of payments made on margins, the creditor was entitled to have his claim allowed to the extent of the cash payments actually made as margins and interest thereon. 222. Actual delivery contemplated. 223 did not contemplate actual delivery does not make the contracts illegal. The test of illegality is the intention of all of the parties. Where money was received by a bankrupt intended to be used for gambling purposes, a considerable portion of it being in his hands. at the time of the filing of the petition, the claimant may base his claim upon money had and received, and prove his claim regardless of the intended use of the money. 224 Where a note is given for a gambling debt, and indorsed by the holder to the claimant, the burden is on him to show that he is a holder in due course. 225 Claims founded upon the ultra vires general rule, not provable.226 - Under section 8416 of the Revised Code of Montana subjecting to a penalty "any person conducting any brokerage business, bucket shop or office where grain or other securities are sold on margins," where bankrupt, a stockbroker, converted stock which had been left in his possession to secure the balance due him on the purchase price, about one-fourth of which had been paid, under an agreement stating that the stock had been sold "with the distinct understanding that actual. delivery is contemplated," a claim against bankrupt's estate for the difference between the value of the stock at the time of bankruptcy and the balance due is not illegal as based upon. a contract prohibited by law. In re Dorr (C. C. A., 9th Cir.), 26 Am. B. R. 408, 186 Fed. 276; Lamson Bros. & Co. v. Turner (C. C. A., 8th Cir.), 47 Am. B. R. 486, 277 Fed. 680. 223. Hill v. Levy (D. C., Va.), 3 Am. B. R. 374, 98 Fed. 94. 224. In re Arnold (D. C., Mo.), 13 Am. B. R. 320, 133 Fed. 789. Where bankrupt had issued to claimants certificates stating, in substance, that he had received certain sums of money in full payment for a specified number of shares in the "pool" of a company, under whose name bankrupt was doing business, and it was further provided in the certificates that the company would invest the money ac But cording to its judgment and pay the holders their pro rata shares of the profits on hand on the first of each. month, claimants having the option to withdraw the whole or any part of their money on the first of any month upon ten days' notice of intention so to do and the company being privileged to cancel the certificate on the first day of any January upon thirty days' notice. It was held that the relation created was that of lender and borrower, and not that of partners, so that claimants were entitled to prove, in bankruptcy proceedings, for the money advanced, notwithstanding the fact that such money was intended to be used in a gambling enterprise. In re Norris (D. C., Minn.), 26 Am. B. R. 945, 190 Fed. 101. 225. In re Hill & Sons (D. C., Pa.), ́. 26 Am. B. R. 133, 187 Fed. 214. See as to effect of loan of money to be used for gambling purposes, In ⚫re Norris (D. C., Minn.), 26 Am. B. R. 945, 190 Fed. 101. 226. In re Prospect Worsted Mills (D. C., Mass.), 11 Am. B. R. 502, 126 Fed. 1011; In re Waterloo Organ Co. (C. C. A., 2d Cir.), 13 Am. B. R. 466, 134 Fed. 341; Forsyth v. Woods, 11 Wall. 484; Buckner v. Street, Fed. Cas. 2,098; In re Chandler, Fed. Cas. 2,590; In re Young, Fed. Cas. 18,145; In re Jaycock, Fed. Cas. 7,244; In re Green, Fed. Cas. 5,751; Matter of where a bankrupt has had the benefit of money loaned by a corporation under an ultra vires contract this rule will not be applied to prevent the corporation from, proving its claim for the amount of the loan.227 A note given by a corporation for the indebtedness of another, for which it is in no way responsible, is not provable against the corporation,228 nor is a claim founded upon the guaranty of a lease by a dry goods store corporation,229 or the guaranty of the notes of an officer of a corporation, 230 or the illegal agreement to repur Springfield Realty Co. (D. C., Mich.), 44 Am. B. R. 105, 257 Fed. 785; In re Liquor Dealers' Supply Co., 24 Am. B. R. 399, 177 Fed. 197. Compare also In re Ervin (D. C., Pa.), 7 Am. B. R. 480, 114 Fed. 596. Corporate contract by lumber company to guaranty the completion of a building contract held ultra vires. In re Smith Lumber Co. (D. C., Tex:), 13 Am. B. R. 118, 132 Fed. 618. 227. Matter of Machine Metal Products Co. Inc. (C. C. A., 2d Cir.), 41 Am. B. R. 505, 251 Fed. 280; Garden City, etc., Co. v. Commerce Trust Co. (C. C. A., 7th Cir.), 44 Am. B. R. 340. 228. Corporate notes for payment of debt of another. In the case of Mapes v. German Bank (C. C. A., 8th Cir.), 23 Am. B. R. 713, 176 Fed. 89, the court said: "The officers of a trading corporation undoubtedly have authority to make and deliver its promissory notes for the just debts of the corporation, and the acts of such officers in this regard are presumed to be lawfully done, when no notice to the contrary is received by the holder of the paper. But it is beyond the powers of the corporation and its officers alike to make accommodation paper, or to guarantee or to pay the obligations of others in which it has no interest, and from which it derives no benefit." Assumption of debts of old corporation by new corporation.- Where a new corporation was organized, upon the failure of a prior corporation, the stockholders being different from the old in numbers and proportion of stock held, and the debts of the former corporation not having been assumed by the new corporation, nor the entire assets of the old taken over, and where a bank holding the notes of the old corporation took the notes of the new one with the proceeds of which the old notes were taken up, to the knowledge of the bank, there was no valuable consideration moving to the new corporation for taking up the notes of the old and the bank was chargeable with notice of such want of consideration and could not prove the new notes against the estate in bankruptcy of the new corporation. In re Standard Clothing Co. (D. C., Ala.), 26 Am. B. R. 124, 187 Fed. 172. 229. Matter of Gilchrist (D. C., Mass.), 47 Am. B. R. 548, 278 Fed. 235. 230. Guaranty of notes for individual benefit of president.-A proof of. claim, based upon a guaranty of sixteen notes drawn to the order of an individual, endorsed by him, and discounted by claimant bank, which placed the money obtained thereon to the credit of his individual account, and which guaranty was executed by a corporation of which said individual was president, will not be allowed where it appears that none of the proceeds of such notes are used for the benefit of the corporation or its subsidiaries, the giving of such guaranty being an ultra vires act of the said corporation. Matter of Rose & Co. (C. C. A., 2d Cir.), 47 Am. B. R. 268, 275 Fed. 416. 9 |