226 U.S. 148
FRANK H. JONES, Trustee in Bankruptcy of the Oro Dredging Company, Appt.,
Argued October 30 and November 4, 1912.
Decided December 2, 1912.
[226 U.S. 148, 149] Messrs. Elmer E. Studley, J. E. MacLeish, Frank H. Scott, and Edgar A. Bancroft for appellant.
[226 U.S. 148, 151] Messrs. Ernest Knaebel, Charles A. Spiess, Aldis B. Browne, Alexander Britton, and Evans Browne for appellee.
Mr. Justice Holmes delivered the opinion of the court:
This case comes here upon appeal from a judgment denying the title of the appellant, as trustee in bankruptcy, to property formerly belonging to the bankrupt and sold in this suit by order of the local court. The facts are these. The property in question is a mining dredge. It was attached on February 27, 1906, and a receiver was appointed on March 19. On May 1, a petition was filed for an order directing the dredge to be sold on the ground that it was 'of a perishable nature, and liable to be lost or diminished in value before the final adjudication of the [226 U.S. 148, 154] case,' within the Compiled Laws of New Mexico, 1897, 2716, and an order to that effect was made on the same day. The ground of the finding on which the sale was ordered was that the dredge was anchored in an embanked pond fed by a mountain stream subject to heavy floods, and was liable to damage from that source. The sale took place on June 26, and the dredge was bought in good faith and without notice of the defendant's insolvency, at a price of $5,000, paid into court by the appellee, Springer. The sale was confirmed on July 17. But on March 12, 1906, a petition in bankruptcy had been filed in the northern district of Illinois against the Oro Dredging Company, the defendant in this suit. On April 23, the company was adjudged a bankrupt. On July 9, the appellant was appointed trustee, and on July 19 qualified. On August 2, he first appeared in this cause, that being the first notice of the adjudication received by the parties concerned or the court. He filed an intervening petition praying that the order of sale be set aside, the attachment dissolved, and the property turned over to him. The petition, so far as it affects the dredge, was denied, the judgment was affirmed by the supreme court of the territory, and the trustee appealed.
The main ground of the appeal is that by 70 of the bankruptcy act1 the title of the trustee related back to the date of the adjudication of bankruptcy, and that, as matter of law, Springer could not be a bona fide purchaser within the proviso of 67f, saving the title of a bona fide purchaser for value who shall have acquired the property by the attachment without notice or reasonable cause for inquiry. It is argued that filing the petition in bankruptcy was a caveat to all the world (Mueller v. Nugent, 184 U.S. 1, 14 , 46 S. L. ed. 405, 411, 22 Sup. Ct. Rep. 269, and that the above proviso can have effect only when the judgment and sale took place before the petition was filed.
We have no occasion to consider the last proposition in order to decide this case, or what effect, if any, the pro- [226 U.S. 148, 155] viso has upon some language in Conner v. Long, 104 U.S. 228 , 26 L. ed. 723, relied upon by the appellant (see Clarke v. Larremore, 188 U.S. 486, 488 , 47 S. L. ed. 555, 557, 23 Sup. Ct. Rep. 363), the proceeding not having been one to enforce the lien of the attachment, but simply an order made on a finding that, in the language of the New Mexico statute, 'the interests of both plaintiff and defendant will be promoted by the sale of the property.' But the proposition quoted from Mueller v. Nugent must be taken with reference to the facts then before the court, and not as applicable to all intents and purposes. York Mfg. Co. v. Cassell, 201 U.S. 344, 353 , 50 S. L. ed. 782, 785, 26 Sup. Ct. Rep. 481; Hiscock v. Varick Bank, 206 U.S. 28, 41 , 51 S. L. ed. 945, 953, 27 Sup. Ct. Rep. 681; Re Rathman, 106 C. C. A. 253, 183 Fed. 913, 924, 925. It is true that the estate is regarded as in custodia legis from the date of the petition, as against a subsequent attachment. Acme Harvester Co. v. Beekman Lumber Co. 222 U.S. 300, 306 , 307 S., 56 L. ed. 208, 213, 32 Sup. Ct. Rep. 96. But in a case like the present, where, under an attachment levied before the petition was filed, the property had been put into the hands of a receiver, without notice of the petition, it is not true that all power and jurisdiction of the local court were ended before notice of the bankruptcy proceedings. Eyster v. Gaff, 91 U.S. 521, 524 , 525 S., 23 L. ed. 403-405; Scott v. Ellery, 142 U.S. 381, 384 , 35 S. L. ed. 1050, 1051, 12 Sup. Ct. Rep. 233; Jaquith v. Rowley, 188 U.S. 620, 626 , 47 S. L. ed. 620, 623, 23 Sup. Ct. Rep. 369; Frank v. Vollkommer, 205 U.S. 521, 529 , 51 S. L. ed. 911, 915, 27 Sup. Ct. Rep. 596; Revere Copper Co. v. Dimock, 90 N. Y. 33.
The jurisdiction of the territorial court not having been avoided, and that court having the actual custody of the res, it had the power to preserve the subject-matter of the controversy that necessarily is incident to such conditions. An illustration, although not a perfect analogy, is to found in United States v. Shipp, 203 U.S. 563, 573 , 51 S. L. ed. 319, 323, 27 Sup. Ct. Rep. 165, 8 Ann. Cas. 265. An appeal had been taken to this court on a petition for habeas corpus, where a prisoner was held under sentence of a state court, and pending the appeal this court had ordered the custody of the appellant to be retained. Shipp was charged with contempt for having been party [226 U.S. 148, 156] to a conspiracy that ended in lynching the prisoner. It was strongly argued that neither the circuit court that refused the writ, nor this court, had any jurisdiction of the case, but it was held that, whether it had jurisdiction or not, until the question was decided, this court had authority from the necessity of the case to preserve the subject of the petition. A similar authority existed in the territorial court until the trustee saw fit to intervene, which, so far as would have appeared at the time of the sale, had anyone known of the bankruptcy proceedings, he might never do. According to Marshall, Ch. J., 'a right to order a sale is for the benefit of all parties, not because the case is depending in that particular court, but because the thing may perish while in its custody, and while neither party can enjoy its use.' Jennings v. Carson, 4 Cranch, 2, 26, 2 L. ed. 531, 539. The recognition of a power springing from necessity is of old standing in English law. Eyston v. Studd, 2 Plowd. 459, 466; 2 Co. Inst. 168; Baker v. Baker, 1 Vent. 313. See further Young v. Kellar, 94 Mo. 581, 4 Am. St. Rep. 406, 7 S. W. 293; Betterton v. Eppstein, 78 Tex. 443, 14 S. W. 861; Re Le Vay, 125 Fed. 990, 992.
It is argued that if a sale was necessary, the court of bankruptcy could have directed it under general order 18, 3, and that its power was exclusive. But such a rule would much impair the usefulness of the principle. The trustee, if appointed, may not know the condition of the property, or be prepared to decide. The court having the actual custody of the res does not know of the bankruptcy proceedings. There is a necessity for immediate action and no one is ready to act. If the local court, in its ignorance, directs a sale and the purchaser is chargeable with notice that there may be somewhere a petition filed that will destroy his title, the doubt affects the price that he will give, and if the sale turns out effective, the goods have been sacrificed. The very reason of the rule that permits a good title to be given by an authority that has [226 U.S. 148, 157] none contradicts the limitation supposed. We are of opinion that the power of the territorial court remained. 'For necessity (which is excepted out of the law) the sale in that case is good.' 2 Co. Inst. 168 The proceeding is in rem, against all the world, the sale stands, and the claim of the trustee is transferred to the proceeds, which ordinarily must be presumed to represent the fair value of the goods and take their place.
Finally it is argued that the court of bankruptcy must decide whether the property is perishable or not, and that this property was not within the power conferred by the statute of New Mexico. The first proposition is little more than the one last discussed in another form. But assuming that for any reason we could go behind the findings on which the case comes here, was see no reason for doing so, if the sale was within the terms of the local act. On that question, as usual, we follow the ruling of the supreme court of the territory unless there are stronger reasons to the contrary than are shown here. Fox v. Haarstick, 156 U.S. 674 , 39 L. ed. 576, 15 Sup. Ct. Rep. 457; Albright v. Sandoval, 216 U.S. 331, 339 , 54 S. L. ed. 502, 508, 30 Sup. Ct. Rep. 318. The act as construed, though possibly broader than general order 18, 3, does not go beyond the principle of necessity, at least, as applied to this case.
[ Footnote 1 ] Act July 1, 1898, c. 541, 30 Stat. 565 [U. S. Comp. St. 1901, p. 3451].