The opinion of the court was delivered by: COOPER
This is a petition to review the July 6, 1966 order of the referee in bankruptcy authorizing the sale of all the trustee's right, title and interest in the American Oxford Encyclopedia for Home and School.
Little & Ives Co., the bankrupt, and Oxford University Press (hereinafter Oxford) entered into two agreements, one on December 13, 1956, the second on March 13, 1958. The essence of both agreements - with extraordinary emphasis on quality of performance and end product - was that Little & Ives was to adapt and revise the Oxford Junior Encyclopedia to make it suitable for the American market. Oxford retained the right to approve all editorial revisions and the "form, content, type of paper and printing" of each completed volume. Copyrights in the finished product were to be taken out in the name of Oxford. Little & Ives was to select an editor subject to the approval of Oxford. Little & Ives was prohibited from making any public statements or issuing any releases regarding the American editions without the prior consent of Oxford. In addition, Little & Ives agreed to set up a system for policing complaints and to discharge any sales personnel using "methods not approved by Oxford and reasonably believed by Oxford damaging to its reputation and prestige."
Upon completion of the American editions, Little & Ives had the exclusive right (within a specified area) to publish, advertise and sell these editions. Little & Ives was to pay all expenses for revision, publication and sale. The first agreement was to terminate five years after the date of initial publication and was subject to renewal; the second on the date of expiration of the copyright and also subject to renewal. Little & Ives was to pay Oxford 2 1/2% royalties on each volume sold. Both agreements provided that Little & Ives was required to pay specified minimum royalties and the second agreement provided that Oxford could terminate if royalties did not amount to that minimum.
The second agreement gave Oxford the right to sell the American editions in areas outside of the exclusive sales area allocated to Little & Ives. Either party had the right, with the consent of the other party, to use its original material appearing in the American edition in other publications under its own name.
Of especial significance here is the provision in both agreements that upon termination "all rights in and to the * * * [Editions] shall belong to Oxford and Little & Ives shall promptly deliver to Oxford, without cost to Oxford, all plates, negatives and other materials used in connection with the publication of [each] * * * Edition." Further, if Little & Ives became insolvent, instituted any bankruptcy proceedings or was adjudicated a bankrupt, Oxford had the option to terminate. It should also be noted that Little & Ives was prohibited from assigning the agreements without the consent of Oxford.
On July 15, 1965 Little & Ives filed a petition for an arrangement under Chapter XI of the Bankruptcy Act. On August 13, 1965 Oxford sent a letter to Little & Ives (a copy was also sent to the referee) terminating the agreements. On February 15, 1966 Little & Ives was adjudicated a bankrupt and the trustee invited offers to purchase whatever interest Little & Ives had under the agreements with Oxford. On July 6, 1966 a hearing was held to consider an offer by Harver Publishing, Inc. (hereinafter Harver). During the hearing Oxford stated its objection to a sale on the ground that the trustee had no interest in the rights or work product of Little & Ives (T. 6-8) and demanded the return of all material that Little & Ives had compiled in preparing to publish the American editions of the encyclopedia. (T. 23). Encyclopedia Britannica, Inc. and Littlefield & Littlefield & Adams then made offers which exceeded the initial offer of Harver. Harver ultimately entered the highest bid, $21,000; the referee overruled Oxford's objections and approved the sale of all:
"* * * the trustee's right, title and interest, if any, in and to the American Oxford Encyclopedia for Home and School including all the material prepared for or in the process of preparation for the publication, manufacturing and/or sale of said work of every description whatsoever * * * subject to the alleged liens if any * * * and subject further to any and all contracts and agreements between Little & Ives Co., Inc. and Oxford University Press;"
The referee stayed the order of sale pending the determination of this petition for review, filed by Oxford on July 15, 1966 and certified by the referee on August 2, 1966.
Section 70(a) of the Bankruptcy Act, 11 U.S.C. § 110, provides that the trustee in bankruptcy is
"* * * vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title * * * (5) [to] property * * * which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him, or otherwise seized, impounded or sequestered * * *"
The trustee may sell with the approval of the court whatever interest of the bankrupt has passed to him by operation of law. § 70(f) Bankruptcy Act, 11 U.S.C. § 110(f). See 4 Colliers, Bankruptcy § 70.97. If the trustee has possession of property that the bankrupt did not have title to, or could not have transferred, the trustee can not include that property in the assets of the bankrupt's estate and can not sell that property. See In re American Boiler Works, 220 F.2d 319 (3d Cir. 1955); In re Gravure Paper & Board Corp., 234 F.2d 928 (3d Cir. 1956); In re Michigan Motor Specialties Co., 288 Fed. 377 (E.D.Mich.1923); In re Miners Mills Coal Min. Co., 30 F. Supp. 597 ...