Jacobsohn v. Larkey

• Citation: 245 F. 538
• Decision Date: 26 October 1917
• Docket Number: 2313.,2271
• Parties: JACOBSOHN v. LARKEY. GOLD v. SAME. In re AMERICAN BEAVER CO.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

245 F. 538

JACOBSOHN v. LARKEY. GOLD v. SAME. In re AMERICAN BEAVER CO.

Nos. 2271, 2313.

United States Court of Appeals, Third Circuit.

October 26, 1917

Cecil H. MacMahon, of Newark, N.J., for petitioners.

Nathan Bilder, of Newark, N.J., for defendant.

Before BUFFINGTON, McPHERSON, and WOOLLEY, Circuit Judges.

WOOLLEY Circuit Judge.

The matter here involved was brought before the District Court on petition to review an order of a referee refusing confirmation of a sale in bankruptcy on the ground of gross inadequacy of price. The court affirmed the order. Its decision is now before us for review and revision. Bankruptcy Act, Sec. 24b (Comp. St. 1916, Sec. 9608).

Pursuant to an order of the referee, the trustee offered at public sale, subject to confirmation, the property of the bankrupt consisting of real estate, machinery, equipment and merchandise theretofore used in the bankrupt's business of hat manufacturer. The real estate was encumbered by a first mortgage for $9,000 and by a second mortgage for $58,000 given to secure an issue of bonds. The latter mortgage the liens upon the two classes of property required that the property be sold separately in order to avoid confusion in the application of proceeds (the property being offered free of liens) the trustee declined to sell the property in bulk as a going concern, but sold it in separate parcels on different days.

The trustee reported that Lazar Jacobsohn had bid $19,900 for the realty and Herman Gold $7,600 for the personalty; that these were the highest bids; and recommended the confirmation of the sale.

Confirmation was opposed by Louis Kamm's an unsuccessful bidder, and by sundry unsecured creditors. Kamm's complaint was that he was forced to bid low because the property was offered in two parcels, realty and personalty; that he had no use for one without the other; that had the property been offered in bulk as a going concern he would have bid and was still ready to bid a sum larger than the aggregate of the highest bids received. The creditors' objection to confirmation was that the property was sold for a grossly inadequate price.

Upon the question of inadequacy of price no evidence was produced. The creditors cited the appraisement, and the referee relying upon it as evidence of value, was manifestly influenced in his conclusion by the great disparity between the valuations there made and the prices bid. The personal property was appraised at $31,212.20 and was sold for $7,600 the real property was appraised at $34,350 and was sold for $19,900.

Notwithstanding this disparity, the referee was not inclined to let go the bids at the first sale without first making sure of equally good bids at a second. To meet this situation the objecting bidder proposed giving a bond to insure that at a second sale the property would bring $2,500 more than the amount brought at the first, and the objecting creditors similarly offered a bond that the amount obtained at the second sale would be at least $1,500 more than that obtained at the first, provided that the property, after being offered in parcels, be offered as a whole. These tenders were accepted by the referee, the sale set aside (conditioned upon filing the bonds) and another sale ordered. On review the District Court affirmed the order of the referee. This action of the court is the matter before us for revision.

The principal question, of course, is whether the trial court exercised a proper discretion in affirming the order setting aside the sale. But in this question are involved separate and conflicting rights of perhaps three classes of persons, (1) the low bidder, (2) the high bidders, and (3) creditors.

We may lay aside any claim of right made by the low bidder to have the sale set aside in order to give him another chance to bid. There was no irregularity in the sale. He simply complains that he would have bid higher if the property had been offered in a different way. The trustee offered the property in conformity with the order of sale, and as there is nothing to show either in the order of sale or in the manner in which the trustee executed it that the low bidder was injuriously affected, he is without right to oppose confirmation. In re Burr, 217 F. 16, 19, 133 C.C.A. 126.

The high bidders, however, have a standing which permits them to appear and urge the acceptance of their bids and the confirmation of the sale. They were brought to the sale by invitation of the court, and having done what the court asked them to do, they now have a right to ask the court to approve their acts.

Their right to be heard is based upon still another consideration. Judicial sales are an indispensable part of the machinery employed in administering bankrupt estates. Public policy requires stability in such sales. The Ruby (D.C.) 38 F. 622; In re Burr, 217 F. 16, 19, 133 C.C.A. 126. To induce bidding at such sales and reliance upon them, the purpose of the law is that they shall be final, Tewabic Mining Co. v. Mason, 145 U.S. 349, 356, 12 Sup.Ct. 887, 36 L.Ed. 732; they are not to be disturbed except for substantial reasons.

After much experience in scrutinizing bidding at judicial sales, courts now uniformly hold that the mere offer to pay more than the price bid is not a substantial ground for setting aside a sale, recognizing that nothing will more certainly tend to discourage and prevent bidding than a judicial determination that the highest bidder may be deprived of the advantage of his accepted bid by an offer of another person, subsequently made, to bid higher on resale. Morrisse v. Inglis, 46 N.J.Eq. 306, 19 A. 16; In re Metallic Specialty Mfg. Co. (D.C.) 193 F. 300; In re Shapiro (D.C.) 154 F. 673.

While such are the rights of successful bidders and while the policy of the law favors them as against lower bidders who attempt to overthrow them, their rights, however, are not superior to the right of creditors not to be deprived of their security at prices which are grossly inadequate. Therefore the issue in this case is not...