express or implied, which at the time of the bankruptcy were fixed in amount or susceptible of liquidation. Dunbar v. Dunbar, 190 U. S. 340, 350; Crawford v. Burke, 195 U. S. 176, 187; Grant Shoe Co. v. Laird, 212 U. S. 445, 448; Zavelo v. Reeves, 227 U. S. 625, 631. It provides complete protection and an ample remedy in behalf of the surety upon any such obligation. He may pay it off and be subrogated to the rights of the creditor; if the creditor fails to present the claim for allowance against the estate he may prove it; and in any event he has abundant power by resort to the court or otherwise to require application of its full pro rata part of the bankrupt's estate to the principal debt. To the extent of such distribution the obligation of the bankrupt to the surety will be satisfied. Although, unlike the Act of 1867, the present one contains no express provision permitting proof of contingent claims, it does in substance afford the surety on a liability susceptible of liquidation the same relief possible under the earlier act, i. e. application to the principal debt of all dividends declared out of the estate (Act of March 2, 1867, 19, 27, c. 176, 14 Stat. 517, 525, 529). And as the surety thus either shares or enjoys an opportunity to share in the principal's estate, we think the discharge of the latter acquits the obligation between them incident to the relationship. Mace v. Wells, 7 How. 272, 276; Fairbanks v. Lambert, 137 Massachusetts, 373, 374; Hayer v. Comstock, 115 Iowa, 187, 191; Post, Adm'r v. Losey, 111 Indiana, 74, 80; Smith v. Wheeler, 55 App. Div. (N. Y.) 170, 171."

"It would be contrary to the basal spirit of the Bankrupt Law to permit a surety, by simply postponing compliance with his own promise in respect of a liability until after bankruptcy, to preserve a right of recovery over against his principal notwithstanding the discharge would have extinguished this if the surety had promptly performed as he agreed. Such an interpretation would effectually defeat a fundamental purpose of the enactment."

The cases may, it is believed, be classified as follows: (1) Those in which the surety has become liable and has also paid before the filing of the bankruptcy petition.

(2) Those in which the surety has become liable before, but has not paid until after the institution of the bankruptcy proceedings.

(3) Those in which the surety's liability had not determined, and he had accordingly not paid, at the time of the filing of the petition.

If the liability of the surety has been determined, prior to the filing of the bankruptcy petition, and he has also discharged such liability by payment prior thereto, then there can be no doubt as to his right to prove the creditor's claim, to which he is now subrogated, against the estate of the bankrupt principal. His claim is a "fixed liability."

But where, although liability has determined before, payment has not been made until after, the institution of the bankruptcy proceedings, the question becomes a little closer. Perhaps the surety will never be called upon to pay, and can it not be said that the surety's liability is contingent upon this condition, i. e. the "sustaining or incurring of actual pecuniary loss," as much as upon the happening of the other condition, viz., accrual of liability under the provisions of the bond? Such arguments have been pressed upon the courts with great earnestness, but the rule is now well settled that, so long as the surety's obligation is "susceptible of liquidation," he is subrogated to the rights of the creditor whose claim he has satisfied, even though he has discharged his undertaking after the institution of the bankruptcy proceedings.64

64 Williams v. U. S. Fidelity Co., (1915) 236 U. S. 549, 35 Sup. Ct. 289, 59 L. Ed. 713, quoted note 63, supra.

Kilpatrick v. United States Fidelity and Guaranty Co. (1916) 228 Fed. 587, at pp. 591, 592, says:

"It is a fundamental principle of the law of suretyship, recognized alike under the decisions of the Alabama courts and the federal courts, that the indebtedness of a bankrupt principal to his surety, who subsequently discharges the obligation in whole or in part, takes effect from the date the surety executed the instrument which binds him, and that in the event the surety discharges the debt of the principal, after the principal's adjudication as a bankrupt, the surety is indemnified, in that he has a provable and likewise a dischargeable

debt, which had its origin prior to the adjudication. In re Stout, 6 Am. Bankr. Rep. 508 (D. C.) 109 Fed. 794; Livingstone v. Heineman, 10 Am. Bankr. Rep. 39, 120 Fed. 786, 57 C. C. A. 154; 1 Remington on Bankruptcy, Secs. 611 and 644; 1 Loveland on Bankruptcy, 304, 329 and 330; Kyle v. Bostick, 10 Ala. 589; In re O'Donnell, 12 Am. Bankr. Rep. 641 (D. C.) 131 Fed. 150."

"The rendition of a judgment against a principal and surety does not alter the relation which was established prior to the institution of the suit, and the rights of the principal and the surety in the event the judgment is rendered, either separately or jointly, are not affected. Therefore the relation of principal and surety, brought into being by the execution of the dissolu

But, in order for the surety to prove the creditor's claim against the bankrupt estate of the principal, he must comply with the rule that claims against a bankrupt must be filed within one year after the date of adjudication, and the fact that the claim to which the surety is subrogated is the claim of a sovereign makes no difference.65

It would seem that, where the surety's liability on the bond has not become fixed at the time of the beginning of the bankruptcy proceedings, and consequently he has not paid, the claim is entirely a contingent one, which cannot be proved, for the reason that the creditor's claim was itself a contingent one, to which the surety cannot be subrogated, and, if the surety is still contesting his liability to the creditor, the rule is that the surety cannot prove his claim, since, by his own admissions, the liability is still contingent."

However, there are cases in which the surety's claim has been allowed, notwithstanding that his liability accrued after the bankruptcy of the principal.67 But if the surety has never paid, or otherwise discharged the undertaking, then it would seem clear that he is not entitled to a share in the estate for himself on the theory of subrogation.68

§ 215. Surety, though not entitled to subrogation, nevertheless is entitled to pro tanto reduction by payment of proportionate share to creditor. Where the surety has not yet paid,

Compare the Williams case, note 63, supra. If the surety cannot prove his claim until he has paid, or discharged his undertaking, and the judgment finally determining his liability is not recovered until more than a year after the adjudication, is it not somewhat harsh on the surety to hold that his claim was discharged in the bankruptcy proceedings, and yet, at the same time, say he cannot prove his claim? This seems to expose the surety to an undue hazard in availing himself of his legal right to defend the action brought against him.

66 Insley v. Garside (1903) 121 Fed. 699.

67 In re Lyons Beet Sugar Refining Co. (1911) 192 Fed. 445, 57 C. C. A. 423, is perhaps explainable on the theory that the appeal bond was executed before the filing of the bankruptcy petition, and the

inchoate rights and corresponding liability of the surety ran from that date, within the doctrine of the Kilpatrick case, note 64, supra. See In re Halsey W. Kelley & Co. Inc. (1914) 215 Fed. 155.

68 In re Baker and Edwards (1915) 224 Fed. 611; In re Dr. Voorhees Awning Hood Co. (1911) 187 Fed. 611, 633, reversed on other grounds in (1911) 188 Fed. 425; Insley v. Garside (1903) 121 Fed. 699. Analogously, Samuels v. E. F. Drew & Co., Inc. (1922) 286 Fed. 281.

Compare, obiter, In re Elletson Co. (1912) 193 Fed. 84; also In re B. T. Wise Furniture Corporation (1924) 3 F. (2nd) 271.

See "A Surety's Claim Against His Bankrupt Principal Under the Present Law," by Professor Evans Holbrook, in (1912) 60 U. of Pa. Law Review, p. 482.

and consequently is not entitled to subrogation, he has the right to have the dividend to which the creditor is entitled applied to the reduction of the debt, and to his own exoneration pro tanto.69

§ 216. Is the surety who has paid the creditor's claim in part entitled to subrogation pró tanto? It is possible for the surety to discharge his undertaking in whole and yet for the creditor's claim not to be entirely satisfied. A familiar illustration of this occurs where the surety on a bond limits his liability to a certain specified amount, for example, $25,000.00, and the judgment recovered by the obligee is for $35,000.00. Assuming that the principal is a bankrupt, has the surety, thus having paid, a right to dividends in 5/7 of the claim, or is the creditor entitled to dividends on the entire claim up to the extent of $10,000.00 It would seem certain that the creditor would hold any amount received by him in excess of $10,000.00 in trust for the surety, but can the creditor file a claim based on an indebtedness of $35,000.00?

The language of section 57-i of the Bankruptcy Act would appear to support the conclusion that the surety who has even partially discharged his own undertaking shall be subrogated "to that extent" to the rights of the creditor.70

The majority of the actual decisions, however, have come to the opposite conclusion, with the result that the general rule is as follows: the surety who has only partially satisfied the claim of the creditor is not entitled to a pro tanto subrogation on the claim, even though he has entirely discharged his own undertaking, but the partially satisfied creditor can prove the entire

69 Bankruptcy General Order XXI (4):

"The claims of persons contingently liable for the bankrupt may be proved in the name of the creditor when known by the party contingently liable. When the name of the creditor is unknown, such claim may be proved in the name of the party contingently liable; but no dividend shall be paid upon such

claim, except upon satisfactory proof that it will diminish pro tanto the original debt."

See Williams v. U. 8. Fidelity & Guaranty Co., note 63 supra; In re Baker & Edwards (1915) 224 Fed. 611; Sec. 146, supra.

70 See Sec. 214, supra, wherein this section of the Act was quoted. Also see Sec. 146, supra.