In Re Carl Edward Bozzo and Diane Filice Bozzo, Bankrupts, Highlands Insurance Company of Houston, Texas v. Carl Edward Bozzo and Diane Filice Bozzo

The question presented is whether the claim filed by Highlands Insurance Company against the bankrupt estate of the Boz-zos should be declared nonprovable and thus nondischargeable. The claim was based on Highlands’s contingent liability on surety undertakings on which the bankrupts are principals. Highlands’s motion in the bankruptcy court to have the claim declared nonprovable was granted by the bankruptcy judge who was then reversed by the district court.

I

On August 19,1974, Carl and Diane Boz-zo entered into an equipment lease contract with Union Commerce Leasing Corporation (“Union Commerce”). When the Bozzos later failed to make the payments required by the lease Union Commerce commenced a state court action alleging breach of the contract and fraud in the execution of the lease. Union Commerce also pursued the prejudgment remedies of claim and delivery and attachment in order immediately to regain possession of the leased equipment. Wishing to retain possession, however, the Bozzos filed undertakings for redelivery ($60,000) and release of attachment ($55,-000), both of which were obtained from Highlands. The Bozzos agreed to indemnify Highlands for any loss it might…