Argument for Vallely, Trustee.

254 U.S.

Rep. 73; Sabin v. Larkin-Green Logging Co., 218 Fed. Rep. 984; Roszell Bros. v. Continental Coal Co., 235 Fed. Rep. 343; In re Brett, 130 Fed. Rep. 981; Denver First National Bank v. Klug, 186 U. S. 202; Des Moines Navigation Co. v. Iowa Homestead Co., 123 U. S. 552; In re Columbia Real-Estate Co., 101 Fed. Rep. 971; McCormick v. Sullivant, 10 Wheat. 192.

In most of these cases the question related to the jurisdiction of the court where it appeared that the corporation against whom adjudication was sought was not one coming within the purview of the Bankruptcy Act. Other cases relate to the jurisdiction of the federal court generally, arising in instances where a diversity of citizenship was not shown. The principle involved is the same, and so recognized by the decisions of this as well as by other courts. In some of those cases particular emphasis was laid upon the fact that there had been some delay, and, even though it were not great in those particular cases, the court took notice of the fact that the speedy administration of bankrupt estates is contemplated by the law, and that prejudice and loss would result if interested parties were permitted, after recognizing proceedings of this kind, and participating therein, to question the validity thereof. The facts established in the record in this case show clearly that loss would result to the general creditors of respondent if the proceedings taken by the petitioner in connection with managing and conserving the estate of the respondent are ignored, and the bankruptcy set aside.

The jurisdiction of the bankruptcy court is granted and defined by § 2 of c. II of the Bankruptcy Law, which contains no limitations as to the persons or corporations that may be adjudged bankrupts. Subdivisions a and b of § 4 of c. III do not relate to the jurisdiction, but cover procedure, like the numerous state statutes requiring certain suits to be brought in certain counties, and similar statutes.


Opinion of the Court.

Municipal corporations have never been subject to any bankruptcy act, and they would not be subject to the present act whether excepted therefrom or not. Loveland on Bankruptcy, § 125; Walter v. Iowa, etc., Ry. Co., 2 Dill. 487.

Mr. N. C. Young for Northern Fire & Marine Insurance Company. Mr. Tracy R. Bangs and Mr. Philip R. Bangs were also on the brief.

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MR. JUSTICE MCKENNA delivered the opinion of the court.

The Insurance Company was adjudged an involuntary bankrupt May 3, 1917, upon petition of its creditors. The petition averred the corporate capacity of the Company under the laws of North Dakota, and that it had been "engaged in the business of insuring property against loss by fire, hail, etc." Process was duly issued and served, and, the Company making default, an order of adjudication was entered against it. No appeal was taken from the order. The administration of the estate proceeded in due course, claims presented, assets collected and reduced to money, payments made to protect equities, and suits brought by the trustee in his official capacity. In the matters of the estate the trustee frequently conferred with the president and secretary of the bankrupt and received from them coöperation, assistance and information without question of the validity of the adjudication. Considerable moneys were paid out and expenses incurred by the trustee.

After the above course of administration, and on December 18, 1917, the Company by its attorneys filed a motion in the District Court to vacate the adjudication as null and void, and to dismiss the proceedings, upon the ground that it appeared that the Company was an insur

Opinion of the Court.

254 U. S.

ance corporation and that the court was, therefore, without jurisdiction. The motion was sustained and an order entered vacating the adjudication and dismissing the petition of the creditors on authority of § 4-6 of the Bankruptcy Act, as amended by the Act of June 25, 1910, c. 410, 36 Stat. 839, which provides that "any moneyed, business, or commercial corporation, except a municipal, railroad, insurance, or banking corporation,

may be adjudged an involuntary bankrupt upon default or an impartial trial, and shall be subject to the provisions and entitled to the benefits of this Act."

The trustee filed a petition to revise the order of the District Court in a matter of law in the Circuit Court of Appeals, and the latter court certifies that it is indispensable to the determination of the case, and to the end that the court may properly discharge its duty, desires instruction upon the following questions:

"1. Is a petition to revise in matter of law under section 24-6 of the Bankruptcy Act the proper remedy to review an order of an inferior court of bankruptcy vacating an adjudication and dismissing the bankruptcy proceeding for want of jurisdiction upon the motion of the bankrupt after the expiration of the time for appeal, he having neither contested the involuntary petition against him nor appealing from the adjudication?

"2. Where it appears from the averments of a petition in involuntary bankruptcy that the person proceeded against is an insurance corporation and therefore within the exceptions of section 4-b of the Bankruptcy Act as amended June 25, 1910 (36 Stat. 839), is there such an absence of jurisdiction in the court of bankruptcy that its adjudication, rendered upon due service of process and default, and not appealed from, should be vacated and the proceeding be dismissed upon the motion of the bankrupt after the time for appeal has expired?

"3. Where an insurance corporation adjudged bankrupt


Opinion of the Court.

in an involuntary proceeding after the passage of the amendatory Act of June 25, 1910 (36 Stat. 839), upon due service of process and default, does not appeal from the adjudication but acquiesces therein and aids the trustee in the performance of his duties in administering the estate, may it be estopped from thereafter questioning the validity of the adjudication and the power of the court and the trustee to proceed?"

Of the construction of the statute there can be no controversy; what answer shall be made to the questions turns on other considerations, turns on the effect of the conduct of the Company as an estoppel. That it has such effect is contended by the trustee, and there is an express concession that if objection had been made the Company would have been entitled to a dismissal of the petition. It is, however, insisted that it is settled "that an erroneous adjudication against an exempt corporation, whether made by default or upon a contest or trial before the bankruptcy court, can be attacked only by appeal, writ of error, or prompt motion to vacate," and that § 4 does not relate to the jurisdiction of the court over the subjectmatter. "It does not, therefore," is the further contention, "create or limit jurisdiction of the court with respect to its power to consider and pass upon the merits of the petition." And that "the valid exercise of jurisdiction does not depend on the correctness of the decision." And again, if the court in the exercise of its jurisdictional power, "reached a wrong conclusion, the judgment is not void; it is merely error to be corrected on appeal or by motion to vacate, timely made, but as long as it stands it is binding on every one." There is plausibility in the propositions taken in their generality, but there are opposing ones. Courts are constituted by authority and they can not go beyond the power delegated to them. If they act beyond that authority, and certainly in contravention of it, their judgments and orders are regarded as nullities. They are

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not voidable, but simply void, and this even prior to reversal. Elliott v. Peirsol, 1 Pet. 328, 344; Old Wayne Mutual Life Association v. McDonough, 204 U. S. 8.

Which of the propositions shall prevail in a given case cannot be dogmatically asserted, and cases of their consideration and application can be cited against each other. There is such citation in the pending case. Plaintiff in error cites among others, McCormick v. Sullivant, 10 Wheat. 192; Des Moines Navigation Co. v. Iowa Homestead Co., 123 U. S. 552; Denver First National Bank v. Klug, 186 U. S. 202.

McCormick v. Sullivant involved the effect of diversity of citizenship, and it was decided that an absence of its allegation did not impeach the judgment rendered in the case and preclude its being conclusive upon the parties. And it was said (as it has often been said), that the courts of the United States are "of limited jurisdiction; but they are not, on that account, inferior courts, in the technical sense of those words, whose judgments, taken alone, are to be disregarded. If the jurisdiction be not alleged in the proceedings, their judgments and decrees are erroneous, and may, upon writ of error or appeal, be reversed for that cause. But they are not absolute nullities."

In Des Moines Navigation Co. v. Iowa Homestead Co., 123 U. S. 552, there came up to be considered also the effect of a prior adjudication as dependent upon an allegation of diversity of citizenship, and the ruling in McCormick v. Sullivant was affirmed.

The immediate comment on these cases is that the courts had jurisdiction of their subject-matter and necessarily power to pass upon the fact (diversity of citizenship) upon which that jurisdiction depended in the given case. The subject-matter of the suit was not withheld from them by explicit provision of the law which was their sole warrant of power.

Denver First National Bank v. Klug is nearer to the

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