121 as a delivery of the property mentioned in them. Upon that question the case is sufficiently stated in the opinion of the court below, wherein it was said that the "receipts themselves would put the holders on notice of the facts." If the receipts were not negotiable instruments, it is contended that the transactions showed a valid pledge of the property to some of the appellants, and hence they are entitled to its possession until they are paid the debts due them from the bankrupt. Whether there was а sufficient change of possession of the thing pledged to render the same valid under the law of Wisconsin, we think was correctly answered in the negative by the courts below. Geilfuss v. Corrigan, 95 Wis. 651, 665, 669, 37 L.R.A. 166, 60 Am. St. Rep. 143, 70 N. W. 306. The general law of pledge requires possession, and it cannot exist without it. Casey v. Cavaroc, 96 U. S. 467, 24 L. ed. 779. There was scarcely a semblance of an attempt at such change of possession from the hands of the knitting company to the hands of the warehousing company. Actual possession of the property in question was exercised by and existed with the knitting company substantially the same after the issuing of the receipts as before. It is a trifling with words to call the various transactions between the knitting company and the warehousing company a transfer of possession from the former to the latter. There was really no delivery, and no change of possession, continuous or other wise. The alleged change was a mere pretense, a sham. Upon the subject of change of possession the opinion of the circuit court of appeals contains the following statement of fact: "In the present case the main office of the security company was in New York; the nearest district office was in Chicago; from there the receipts were issued; and in Wisconsin the security company had no office and no warehouses, unless the inclosures within the buildings of the knitting company at Racine and Stevens Point be counted such. The receipts themselves would put the holders thereof on notice of these facts. And at Racine and Stevens Point the security company gave no evidences to the public of its presence. No signs were displayed to the passer-by. No business was sought from the public. The only property within the inclosures was the knitting company's. The knitting company did not want storage room, but collaterals, which the security company agreed to furnish for a commission upon the amount thereof plus all expenses. The security company's only agents on the scene were the agents of the knitting company, who cared for and shipped out its goods. That this was the only business contemplated is disclosed by the agreement that the knitting company should be restored to full possession of the premises at any time it returned the outstanding receipts. This, in our judgment, was not warehousing within the law of Wisconsin." Also: "So far from the security company's maintaining an open, exclusive, unequivocal possession during the two years this arrangement was carried on, it seems to us that the security company might as well have been eliminated, and the knitting company have employed its own stockkeepers and shipping clerks as custodians for intending lenders, directly, instead of indirectly through the security company. In that view this becomes one of the cases 'in which the exclusive power of the socalled bailee' (Union Trust Co. v. Wilson, 198 U. S. 530, 537, 49 L. ed. 1154, 1156, 25 Sup. Ct. Rep. 766) tapers away to nothingness (Drury v. Moors, 171 Mass. 252, 50 N. E. 618; Tradesmen's Nat. Bank v. Kent Mfg. Co. 186 Pa. 556, 65 Am. St. Rep. 876, 40 Atl. 1018). The actual transactions in the case at bar differ radically from the facts as stated in Union Trust Co. v. Wilson, supra. The court there held that there was sufficient proof to show a change of possession, and that the transaction was valid within the law of the state of Illinois. Assuming the law of Wisconsin to be the same on the subject of possession by the pledgee of the property pledged, the facts in this case are so different from the Wilson Case as to prevent that case from forming a foundation for holding there was a sufficient change of possession here to make the pledge a valid one. We are satisfied with the decision of the courts below upon the merits. There is, however, an important matter which has been raised by the appellants aside from the merits. That is, whether a trustee in bankruptcy can question the validity of these receipts, or the sufficiency of the alleged transfer of the property belonging to the bankrupt knitting company, to constitute a pledge of such property. The right is denied by the appellants, and it is contended that the transfers were valid between the parties; that the trustee in bankruptcy takes only the title and right of the bankrupt, and therefore he cannot assert a right not possessed by the knitting, company. It is no new doctrine that the assignee or trustee in bankruptcy stands in the shoes of the bankrupt, and that the property in his hands, unless otherwise provided in the bankrupt act, is subject to all of the equities impressed upon it in the $424 hands of the bankrupt. This has been the rule under former acts and is now the rule. Hewit v. Berlin Mach. Works, 194 U. S. 296, 48 L ed. 986, 24 Sup. Ct. Rep. 690; | Thompson v. Fairbanks, 196 U. S. 516, 526, 49 L. ed. 577, 25 Sup. Ct. Rep. 306; Humphrey v. Tatman, 198 U. S. 91, 49 L. ed. 956, 25 Sup. Ct. Rep. 567; York Mfg. Co. v. Cassell, 201 U. S. 344, 352, 50 L. ed. 782, 785, 26 Sup. Ct. Rep. 481. property in fraud of creditors, and the property was not, at the time of the filing of the petition in bankruptcy, or at the time of the adjudication, liable to levy and sale under judicial process against the bankrupt. It had already been taken possession of by the mortgagee under a valid mortgage, and was not subject to any other liability of the mortgagor. Humphrey v. Tatman reiterates the principle that whether such a mortgage as is referred to in the Fairbanks Case is good or bad depends upon the state law. no In the Hewit Case there was a sale of property to the bankrupt upon condition that the title should not pass until the property was paid for. Such a conditional In York Mfg. Co. v. Cassell, the same sale was good in New York state, where question arose as in the Hewit Case. There the contract was made, and it was held was a sale of property to one who theregood as against the trustee in bankruptcy, after became bankrupt, with a condition because it was good against the bankrupt. that no title to the property should pass It was further held that the property was until it was paid for. Such a conditional not, under the facts and the law of New sale was good under the Ohio law, where York, such as might have been levied upon the instrument was executed, except as to and sold under judicial process against the those creditors who, between the time of bankrupt, nor could she have transferred the execution of the instrument and the it, within the meaning of § 70 of the bank-filing thereof, had obtained some specific rupt act. It was a clear case for the ap- lien upon the property. There were plication of the doctrine that the trustee such creditors, and hence there was no one stands in the shoes of the bankrupt, and who could question the validity of the inthere was nothing in the act which made strument at the time the trustee's title any inconsistent provision. would have accrued, unless it was the trustee in bankruptcy. He made the claim that the adjudication in bankruptcy was equiva lent to a judgment or an attachment or other specific lien on the property, so as to prevent the vendor from asserting its title and its legal right to remove the property on account of the nonpayment of the purchase price. We held that, as the conditional sales was valid by the law of Ohio, except as to a certain class of creditors, if there were no such creditors there was no one who could question the validity of the instrument; that the adjudication in bankruptcy did not give the trustee the right to do so, because in that case the adjudication did not operate as the equivalent of a judgment or attachment or other specific lien on the property. The trustee represented no one who had that right as there were no creditors who had liens on the property when the title of the trustee to the property of the bankrupt accrued. Section 70 of the bankrupt act had no application. There was no property within either the fourth or fifth subdivision of that section. The fact that if there had been a creditor of the bankrupt of the class mentioned who had obtained a specific lien on the property prior to the adjudication in bankruptcy, the trustee could in that case have enforced the same, did not make any difference, because no such thing had been done when the adjudication in bankruptcy was made. This court had theretofore approved the remark in Re New York Eco In Thompson v. Fairbanks the question arose as to the validity of a chattel mortgage (which had been duly filed) upon after-acquired property as against the trustee in bankruptcy of the mortgagor. The mortgagee took possession of the mortgaged property before the filing of the petition in bankruptcy, and the question raised was whether there was a violation of any provision of the bankruptcy act. It was held that the validity of such a mortgage was a local, and not a Federal, question, and that in such case this court would follow the decisions of the state court; and as in Vermont such a mortgage was good, and the taking possession of the property related back to the date of the mortgage, even as against an assignee in insolvency, it was good as against the trustee in bankruptcy. It was said: "Under the present bankrupt act, the trustee takes the property of the bankrupt, in cases unaffected by fraud, in the same plight and condition that the bankrupt himself held it, and subject to all the equities impressed upon it in the hands of the bankrupt, except in cases where there has been a conveyance or encumbrance of the property which is void as against the trustee by some positive provision of the act." As there was no provision therein making such a mortgage void, the mortgagee was permitted to enforce his mortgage as a valid instrument, and to retain possession of the property. There was no fraud in fact and no transfer of any *426 It was held by the circuit court of ap nomical Printing Co. 49 C. C. A. 133, 110 | consin law, was a fraud in fact, and neither Fed. 514, 518, that the present bankrupt the receipts nor the so-called pledge could act contemplates that a lien good as against be asserted against any of the creditors. the bankrupt and all of his creditors at the time of the filing of the petition in bank-peals in a case arising in Wisconsin, relaruptcy should remain undisturbed. Hewit Case, supra. Upon these facts it was reiterated that the trustee takes the property as the bankrupt held it. The case at bar bears no resemblance in its facts to the cases just cited. There was no valid disposition of the property in the case before us, or any valid lien. The socalled warehouse receipts issued by the warehousing company to the knitting company, upon the facts of this case, gave no lien under the law in Wisconsin, in which state they were issued. In such case this court follows the state court. Etheridge v. Sperry, 139 U. S. 266, 35 L. ed. 171, 11 Sup. Ct. Rep. 563; Dooley v. Pease, 180 U. S. 126, 45 L. ed. 457, 21 Sup. Ct. Rep. 308. tive to a chattel mortgage, which gave power to the mortgagor to make sales from the mortgaged property for his own use and benefit, that such a mortgage was fraudulent in fact, so it could not be asserted even against general creditors; citing Wisconsin cases. Re Antigo Screen Door Co. 59 C. C. A. 248, 123 Fed. 249, 254. A further question was ruled upon in the above-cited case. It was in respect to a second mortgage upon chattels, which had not been properly filed, but the mortgagee had taken possession of the mortgaged property prior to the filing of the petition in bankruptcy, although long subsequent to the giving of the mortgage, and it was held that the mortgagee might hold the property as against the trustee in bankruptcy representing general creditors. There was no fraud in fact alleged. It was said by Judge Jenkins, in delivering the opinion of the court: "When the statute (Rev. Stat. Wis. 1898, § 2313) declares that a chattel mortgage shall be invalid against any other person than the parties thereto, unless possession be delivered and retained, or the mortgage be filed, there being no actual fraud and no collusive delay in the By 70a, the trustee in bankruptcy is vested, by operation of law, with the title of the bankrupt to all property transferred by him in fraud of his creditors, and to all property which, prior to the filing of the petition, might have been levied upon and sold by judicial process against him; and, by subdivision (e) of the same section, the trustee in bankruptcy may avoid any transfer by the bankrupt of his property which any creditor of the bankrupt might avoid, and may recover the property so trans-filing or the taking of possession,-we think ferred, or its value. Here are special provisions placing the title to the property transferred by fraud or otherwise, as mentioned, in the trustee in bankruptcy, and giving him the power to avoid the same. The title to this property was in the knitting company. There had been no valid pledge of it, because the possession had been, at all times, in the knitting company, and it could have been levied upon and sold under judicial process against the knitting company at the time of the adjudication in bankruptcy. The security company had, of course, full knowledge that the knitting company in fact, at least, shared in the possession of the property. It was itself an actor, or it acquiesced in the arrangement under which it had, at most, but a partial possession, and even that was subject to the control of the knitting company. The method taken to store the property was, as found by the district court, a mere device or subterfuge to enable the bankrupt to hypothecate the receipts, and thus raise money upon secret liens on property in the possession of the pledgeor and under its control; and such scheme, the court said, ought not to receive judicial sanction. Such a scheme, under the facts, and as carried out in this case, and with regard to Wis the statute must be construed to mean that the omission to file or to take possession renders the mortgage invalid only as to the creditor who, by execution or attachment, has acquired a lien upon the property." The case illustrates the distinction taken between fraud in fact and the mere failure to file a mortgage otherwise valid against the world. Under the circumstances of this case we are satisfied there was no valid pledge and no equitable lien in favor of the interveners which would take precedence of the title of the trustee by virtue of the special provisions of the bankrupt act. The decree is affirmed. (206 U. S. 358) HIGINIO ROMEU, Appt., V. ROERT H. TODD. Lis pendens-in Porto Rico-cautionary notice. 1. A suit in equity to enforce a judg ment upon real property which, though standing upon the public records in the name of another than the judgment debtor, is alleged to have been paid for with his money, resulting in a decree that such judg ment debtor is the owner of the equitable and beneficial title, is within the scope of the Porto Rico mortgage law, art. 42, which, in order to protect innocent purchasers pendente lite, provides for the giving of a cautionary notice in suits for the ownership of real property or for the creation, declaration, modification, or extinction of any property right. Lis pendens-in Porto Rico-cautionary notice. 2. The local statutory law of real property requiring the giving and recording of cautionary notice of a pending suit in order to affect innocent third parties dealing with the recorded owner is applicable to a suit brought on the equity side of the United States district court of Porto Rico, in view of the provision of the act of April 12, 1900 (31 Stat. at L. 79, chap. 191), § 8, continuing in force the local laws not inconsistent with the laws of the United States, although, by § 34, the district court of the United States for Porto Rico is given, in addition to the ordinary jurisdiction of Federal district courts, jurisdiction of all cases cognizant in the Federal circuit courts, with power to proceed therein in the same manner as a circuit court. of the court: Robert H. Todd obtained a judgment in the United States provisional court of Porto Rico, in the year 1900, for the sum of $2,946.05, against Pedro and Juan Agostini, and execution to enforce the same was rereturned nulla bona. Thereupon Todd, in 1901, filed a bill in equity in the United States court for the district of Porto Rico against the judgment debtors (the two Agostinis) and one Ana Merle for the purpose of enforcing the judgment upon certain real property of which Ana Merle stood upon the public records as the owner. The ground was that the property had been paid for with the money of the Agostinis and was hence liable to be applied to their debts. Without further detail it is only necessary to say that the court decreed that a certain parcel of land described in the bill had been purchased by Ana Merle with funds belonging to Pedro Agostini, and said Agostini "was the owner of the equitable and beneficial title of the same." And it was ordered that, to pay the indebtedness to Todd, the property, with the improvements thereon, be sold at public sale by a commissioner appointed for that purpose. Whilst this suit was pending, before decree, the piece of real estate embraced by the decree was sold by Merle to Higinio Romeu, the plaintiff in error. The present bill was filed on behalf of Romeu against Todd to enjoin the sale of this piece of property. The bill alleged the bringing, of the Todd suit, the purchase by Romeu pending such suit, the decree rendered there-→ in as above stated, and the fact that the decree was about to be executed. It was averred that the purchase by Romeu had been made for an adequate consideration, with the utmost good faith and without knowledge of the pendency of the Todd suit; that the property, since it was bought by Romeu, had been largely improved by him, and that, as no cautionary notice concerning the Todd suit, as authorized and required by the law of Porto Rico, had been put upon the records, the property acquired by Romeu under the circumstances alleged was not subject, in Romeu's hands, to the Todd decree. A temporary restraining order was allowed. The bill was demurred to on two grounds,-first, that it stated no cause of action, and second, that, admitting all its averments to be true, as the property was bought whilst the equity cause was pending, the purchaser took subject to the lis pendens. The demurrer was sustained, and, Romeu electing not to plead further, a final decree was made dismissing the bill. The court below, in its opinion, assumed that, under the local law, a third party in good faith purchasing from or dealing with the registered owner of real estate, without notice in fact of the existence of a pending suit concerning the title to property, was not to be treated by operation of law as constructively notified of the pendency of the suit unless the cautionary notice which the law of Porto Rico required to be put upon the record was given. But, whilst so declaring, it was nevertheless decided that the local rule of real property referred to was not controlling in this case. This ruling was based upon the conception that the constructive notice resulting from a suit in equity in the United States court for Porto Rico was to be imputed, irrespective of the positive requirements of the local law. The court said: "As this is a proceeding on the equity side of the court it is governed by the principles of equity followed by the Federal courts, as distinguished from suits at law, 198. *364 363 where local statutes are adopted. As local, volved in a pending litigation was no longer laws have no binding force upon the United prohibited. And when the comprehensive States courts in matters of procedure in system known as the mortgage law came equity and maritime law, the laws of Porto to be adopted, the power of the record ownRico relating to filing of notice of lis pendenser of real property involved in litigation, to have therefore no application in this case, and the sufficiency of this bill must be determined by the rules and principles followed in like proceedings in the courts of the United States. Stewart v. Wheeling & L. E. R. Co. 52 Ohio St. 151, 29 L.R.A. 438, 41 N. E. 247." Proceeding then to apply what is deemed to be the conclusive force of decisions of this court, it was held that the pendency of an equity cause in a court of the United States affecting real property constituted constructive notice as to third parties, and was therefore operative against those dealing with the owner as to such property, in good faith, any rule of state law to the contrary. In the argument at bar on behalf of the appellee the correctness of the ground upon which the court based its decision is insisted on as follows: "The main contention of appellant, however, seems to be that even courts of equity of the United States in a state are bound by the statutory provisions for recording a lis pendens when such provision has been enacted in such state. But in this contention counsel fail to distinguish between cases of law and cases in equity Nevertheless, in substance, it is contended that, even if the court below was wrong in its reasoning, it was right in its conclusion. This rests on the proposition that the court mistakenly assumed that the local law provided for a notice of the pendency of suit of the character of the Todd case, and protected an innocent purchaser where a notice was not given. That issue arises, therefore, and as it underlies the question whether the court should have applied the local law, we come first to ascertain the local law concerning notice and its effect. It appears certain that by the ancient Spanish law the sale or the dismemberment by mortgage of the ownership of real property which was involved in a pending litigation was forbidden. Law 13, title 7, Part. 3; see also Resolution of November 29, 1770, referred to in commentaries upon the Spanish mortgage legislation by D. Leon Galindo y De Vera, 1903 ed., vol. 2, p. 594. The result was that acts done in violation of the prohibitory law were void, even as to innocent third parties. But, as pointed out by the author just referred to, the prohibition in question was omitted from the Spanish Civil Code, and therefore the right to deal with real property in mortgage or contract concerning the same, was not left to the implication resulting from the disappearance of the ancient prohibitions, but was expressly recognized by articles 71 and 107 of the mortgage laws. D. Leon Galindo y De Vera, in his commentaries, considering the provisions of the mortgage law concerning the power of the owner of real property to deal with it pendente lite, and of the right of the plaintiff in a suit affecting such property to obtain a cautionary notice, and his duty to record the same in order to affect third parties, points out that these provisions were the natural result of three considerations: respect for the rights of property, regard for the rights of one seeking redress in the courts against such owner, and solicitude for the public interest. Because of the first the owner was not deprived of his right to dispose of his real property merely because a suit relating to the same had been brought against him, but was left free to make contracts concerning the property, if anyone could be found willing to do so, and thus assume the risk of the pending litigation. On account of the second consideration a means was provided for giving a notice by which one who brought suit would be able to secure the results of an ultimate decision in his favor. Because of the third, those dealing in good faith, in reliance on public records, were protected from the risks of pending suits unless the cautionary notice was made and recorded according to the statute. That the essence of the statute was the protection of innocent third parties dealing with the recorded owner when no cautionary notice had been given is obvious. Answering the contrary contention, D. Leon Galindo y De Vera says (p. 192): "That is not so; if the mortgagor has on the record the ownership of the properties in litigation and those who claim the properties have not made the cautionary notice on the register, and the writing establishing the mortgage does not show that the properties are in litigation, the debtor can freely mortgage them, and the mortgage will have effect, even when the decision of the case is in favor of the plaintiffs, declaring that the ownership of the properties mortgaged belongs to them" See articles 71 and 107 of the "Mortgage Law for Cuba, Porto Rico, and the Philippine Islands," War Department translation, 1899, and see also title 2 of the same law, concerning the method of re |