00'
I!f,jj:.
FEDERA.LREPORTER,
voL 53.
of' i;he 'y.' th.e aatl.&d:l"e substance be, "spread' leather," it IS eVIdent that no such result follows; and, even tnt be -"merely applied around the edge of the leather;" the descriptions· do not suggest that they should be sufficient thickness to confine the plaster. In short, the margin of the plaelterwas intended and adapted to fasten the plaster to the surface of,the body, and not in any degree to confine or l'etainthe medicinal substance of the plaster. Such a border does not suggest the border here patented. 'The respondents further contend that sticky fly paper precisely siIDillilJrto that described in the patent was made and sold by William P. Olonghand John W.F. Willson, and was sold by Merrill S. Noyes more than' two years before either of these patents was issued or applied"for; and they support this allegation by. the testimony of several 'Witnesses. But, ;tllewitnesaestestify loosely, and entirely from .and notably do not: produCe any samples of the article said to :have been sold,but identify it only by their description. The witnesses Olough and Willson [testify that they sold the fly paper s)lch ;asis describeddin the patent to certain wholesale druggists in Boston, whom they name. But competent representatives of all but one df! ,theSe houses entirely contradict this statement. One of these druggisfB, Mr. AlbertO; Smith, dOeS, indeed, testify, when first questioned,that he bought the article in question from Willson in the year 1878j oot.onfurtherreflection l:):esomodifies his testimony that it is not·. possible tolnfer Jrom' it that: the- sale took place earlier than the year' 1884.' .The endence in support of this last contention of the respondentS is thus very far from that which is required to support such aelaim. I therefdre conclude that the complainants are entitled to 'a; oocree.
0'
f
PERIN et at v. MEGmBEN et at (Clt'OtlltOottrt of Appeals, SIxth Circuit. November 18, 1892.) J. J ";:.. . ,. ,: JtmI8DICTJ<?l'f OJ' FEUE;RA.L COURTS OF PARTIES: DIVERSE CITIZENSIDP ARRANGEMENT
existing :wterest therein, and afterwards, being ready and willing to perform blsoontract, joins with the other vendors in a suit for specific performance, he is a proper party plaintitr, and cannot be considered a defendant for the purpose of destroying the diverse citizenship necessary to maintain:.the Buit In a federal court. 49 Fed. Rep. 183, affirmed. 2. SPEOIF1<J PJIlRFORMANCE";';'STOCK OF CORPORATION.
tract 'tOi :plU"Chase the whole, and for that purpose agrees to convey his
Where apart owner of a distillery joins a number of associates in a con-
A clause in acbntract providing for the purchase of all the stock of a distillery company may be specifically' enforced against· the purchasers when It appears tb,at it was only adopted as an expedient to secure the pel'formanceof stipulation, Which was for the transfer of the real estate and plant. 49 Fed. Rep. 183, afIlrmed.
1l..'PARTnRSHIP,....FIRM REAL ESTATE-AUTHORITY OF SURVIVING PARTNER·
. here one parmer in a firm wW,ch iBengaged In operating a distillery W dies while the· real estate is Incumbered. by mortgage to secure partner.ship debts, and whlle the firm iB Under contract to feed cattle, and liable in damages for nonperformance thereof, the· surviving parmer may have
PERIN V. MEGIBBEN.
87
under the Kentucky decisions, to continue the business for the pur· pose of discharging these obligations, or to sell the whole property, including the real estate, for cash, but the existence of the obligations will not authorize him, as against the heirs of his copartner, to convert the part· nership into a corporation, and convey the real estate to it for shares of stock. 4. SAME-LANDS TREATED AS PERSONALTy-RIGHTS OF HEIRS.
Where a distillery is purchased with partnership funds. and the naked real estate on which it is situated forms but an insignificant part of its value, it will be presumed, under the Kentucky decisions, nothing appear. ing to the contrary, that the land was to be treated as personalty, as this would be for the benefit of the partnership in order to secure a prompt and profitable disposition of the firm assets; and the surviving partner can convey the whole beneficial interest, leaving only a naked legal title in the heirs. Carter v. Flexner, (Ky.) 17 S. W. Rep. 851, considered and distin· r;uished.
6.
SAME.
Where, however, the real estate originally belongs to one of the partners, and several years after the formation of the partnership he conveys a onethird interest therein to his copartl1er, the land cannot be considered as personalty, and on the death of the grantor his interest in the land will be subject to dower, and will pass to his heirs in the usual course of descent.
6. GUARDUN AND WARD-SALE OF LANDS-POWERS OF EQUITY COURTS.
In Kentucky it is the settled rule that the powers of the equity courts to sell and reinvest an infant's real estate are not inherent, but are merely statutory, and the statutes must be strictly followed, or the proceeding is a nullity. '
7.
8.
Appeal from the Circuit Court of the United States for the Western Division of the 80uthern District of Ohio. In Equity. Bill for specific performance, brought by James W.
88
FEDERAL REPORTER I
vol. 53.
and Elizabeth Megibben, as administrators of the estate of Megibben, and,James K. Megibbcn, against Oliver L. Perin, Thn9thy Hayes, and George Hubbell. The circuit court en tered a decree for complaiuants. 49 Fed. Rep. 183. Respondents appeal. Reversed, with instructions to dismiss the bill. Sta.tement bJ TAFT, Oircuit Judge: James W. Megibben and Elizabeth Megibben, as administrators of the estate of ThomasJ. Megibben, deceased, and James K. Megibben, ftled their bill in the for the specific performance of the following contract: "In' 'consideration of the sum of twenty-five dollars, the receipt of which is hereby acknowledged, said payment having been made by O. L. Perin upon behalf Of, himself and others unto James K. Megibben and the heirs of 'rhos. J. Megibhen, deceased,. and of the undertakings of said Perin for himself and others, as hereinafter set forth, it is agreed as follows: Said Megibben hereby agrees to sell and convey unto said Perin, for himself and others, the distilleries Excelsior and Sharpe, situated at Lair's Station, Kentucky, with all grounds counocted therewith, being libove sixteen acres, more or less,and all flour mills, warehouses, buildings, and outbuildings· connected therewith, and all good win, ,brands, trade-marks, copyrights, patents, lately held. by Thomas J. Mcgibben, deceased, and.lames K. Mew-bben" and used by him and J. K. Megibben in connection with their business in or about said distilleries and flour mill, of them,and UJ,e right to use all patents or processes used by him oi·them in distillation, and, ,all appurtenances and appliances connected with said distilleries and premises. ' Said prOpel"ty to be conveyed by deed of gen.eralwarranty, free of alJ incumbrances. 'raxes now levied tQ be paid by vendor. Pri('e to be paid for sald property, $42,500, to be paid in cash on dellv(>ry of the deed, after examination and approval of title." , "Cinci.nn,ati, July 9, 1890. "It no;wappearing that the above properties are owned by two corporations, the agl'l'lement is that the entire stock of sl;l.id corporations shall be transferred to and associates upon the above considllrations, said corporations being frell trom all indebtedness. The boarding-house property shall be conveyed to said Perin on said consideration. "Jas. K. Megibben, "James W. Megibben, "James W. Megibben, "Adm'r Estate of T. J. Megibben. "0. L. Perin, "For Himself and Associates." Q,L. Perin, in signing this contra,ct,. acted for himself, Timothy Hayes, and Hubbell, the and defendants below. It appeared that James K. Megibben agreed wiUJ, Perin and his associates that he would take one fourth of the distilleries to be purchased under this conti'act, Rnd would act as partner with them in the conduct of the distilleries, it being deemed important by the purchasers that the name 0'1 Megibben should be connected with the new business. The agreement Megibben was made at the same time that the contract of purchase was entered into. As the main question in the. (lase turns on the title of the distillery companies to, the real estate described,in the contract, it is necessary to set out the history of that title in some dlltail. 'J'homus J.l'lIegibben, by deed of October 12, 1867, purchased 227 acres from the administrator of J. W. Lair, deceased. On the 28th day of October. 1868. h.e and James K. Megibbep. became associated as partners in the distilling of whiskies. Thomas J. Megibben set aside from this 227-acre tract a smull lot conta,ining about 5 acres, upon which the partners with partnership funds erected the distillery. In 1873 T. J. Megibben and his wife coriveyed to'James K. Megibben in fee an undivided third of said five acres for the consideration of $417.20, the deed containing this recital: "It is understood tha.t this conveyance is to operate as of date the 28th of October, 1868, at which da.te the said Thomas J. Megibben sold James K. Megibben the said undlvid6dthird part of the aforesaid tract of land with the
PERIN t1. MEGIBBEN.
89
View of forming a copartnership to erect a distillery, etc., on said tract, and to diStill whisky thereon; and sinee said last-mentioned date said distillery and other buildings have been erected on said tract by Thos. J. Megibben and James K. Meglbben, and the consideration aforesaid Is only for the undivided third part of said tract of land, and not for said improvements thereon." The five aCl'EiS so referred to is the tract upon which the Excelsior distillery stands. The partnership business was actively continued down to October, 1880, when the partners purchased a tract of about 10 acres, known as the "Sharpe Distillery Tract," together "with the mill and distillery buildings, improvernents,machinery, fixtures, and appurtenances of whatever nature or description thereunto belonging or appertaining." ThIs land had on it a flour mill and distillery. In the conduct of the business of the Sharpe distlllery the partners had equal shares. The firm continued the manufacture of whisky and the making of flour on both properties until the death of T. J. Meglbben, In January, 1890. At that time the Excelsior distillery was In active operation. The firm had a large quantity of grain on hand, and were under contract to feed about 300 cattle, the fulflllment of which, If the distillery did not operate, would result In a loss of from $50 to $75 a day. The Sharpe distillery had just been refitted and improved, and Its operation was about to begin. There was a mortgage of $2,700 on the Excelsior distillery and $7,000 on the Sharpe property. Under section 3262 of the Revised Statutes of the United. States, before a bond of a distiller Is approved, (which is a condition precedent to the operation of his distillery,) he isrequired to file with the collector of internal revenue the written consent of the o'\\'11er of the fee, duly acknowledged, that the premises may be used for the purpose of distilling spirits. Upon the death of the elder Meglbben, the collector of internal revenue, In accordance with spctlon 3262, Rev. St., required the consent of the owners of the fee, and thereupon, to obviate the difficulty, James K. Meglbben, as surviving partner, organized and incorporated under the laws of Kentucky two distilling companies,-one, the Meglbben Excelsior Company, for the operation of what we have described as the Excelsior distillery, and the other, the Sharpe Distillery Company, for the operation of the Sharpe distillery, ea:ch with a capital stock of $75,000, divided into 750 shares ,)f $100 pItCh; and on January 30, 1890, he conveyed, as surviving partner of the :lirm of T. J. and J. K. Megibben, the two tracts to these companies respectively, In consideration of the entire capital stock of each. The collector of Internal revenue still declined to approve the distiller's bond to the opel'8tion of the distillery under the federal law, on the ground that the title to T. J. Megibben's interest was in his widow and heirs, and that the surviving partner had not authority to convey that interest to the companies. Thereupon, in February, 1890, the widow and adult heirs of T. J. Meglbben conveyed their interests In the t.Wo distillery tracts to the two companies respectively. About the same time proceedings were also Instituted in the Harrison cOlmty chancery court by Elizabeth Meglbben, wife of T. J. Meglbben, as guardian of her three minor children, and also In her own name and right, against the two distillery companies, J. K. Meglbben, and the adult children and heirs of T. J. Meglbben, :live In number. There were two petitions filed, one in the case of each distillery. The petition with reference to the Sharpe distillery averred the death of T. J. Meglbben, set out the heirs, adult and minor, which he left; the appointment of Elizabeth Meglbben as guardian of the minor heirs; her execution of the bond required by law; the partnership of T. J. and J. K. gibhen in the manufacture and sale of whisky; the purchase by them of the Sharpe tract, and the ownership by each of them of a one-half interest; and alleged that the property was all paid for with partnership funds, was used and occupied by them as partners in the distilling of Bourbon whiskies and fue operation of a flour mill, and that the property was not useful for any other pm'bose, and could not be used for any other purpose, than that for which it was purchased by the firm. The petition further recited the sale by ,james K. Meglbben, as surviving partner undp-l" a claim of right to make it, of the Sharpe distillery tract to the Sharpe Distillery Company; and averred that he had transferred and assigned one half of tlle stock to the heirs and widow of T. J. Meglbben, a.nd the other half thereof to himself. The petition continued:
90
FEDERAL REPORTER,
vol, 53.
"Pla:lntl1f ttir'ther states that the sale of said' real estate with the distlllel'1' and other bttprovements thereon bY.the said James :K. Meglbben for the consideration .above 'stated, Is an advantageousdlsposltion of the property, and is beneficlal'toUleinterests of all parties concerned therein, 8.Jldmore especlally to the wards <ltthe plalntl1f. In fact, the interest of ,her wards require that the'said salEl:Iib.oula be made, and that the sale as made by the surviving partner shoUld, oo'coJidoned 8.Jld approved by the chancellor; and that the interests of saidr1Jifants require that this court shoUld order the commissioner of this courlto make conveyances of the interests of t4e said infants in and to the said 'property to the defend8.J1t the G. R. Sharpe Co., and confirm sald sale." . The petition further stated that the adUlt heirs ofT. J. Meglbben and his Widow had already executed a deed of conveyance for whatever interest ,each of them hadbithe property to thesald company, and "that the incorporators of suid company are James K.. Meglbben, J. M. Kimbrough, and J. W. Meglbben, and that these, together with the other children and heirs of T. J. Meb1bbell and his/widow, are the owners of the same quantities of stock of the saldcompltDythat they owned in the: partnership property before the sale thereof by the' 8urvivinJrpartner." .The petition concludes with a statement ot the ditIlctlltV 'which arose in the operation of thedlstillery under the federal law, already described. The petition in the Excelsior distillery case contained allegations similar to those in the ease. To the petitions answers were filed by James K. Megibben, by the adult heirs, and. by 1.b.edefendant companies, admitting the allegations of the petitions, and jolnl.ng in the prayers thereof. The answers of the companies averred that each had complied with its contract, and had issued to thecomplalnants and other defendants all the stock to which they were entitled. .A joint entry in the two cases was made by the chancery court, granting the prayer, and ordering the necessary master'l'l deeds. The admirilstrators of the estate of T. J. Meglbben were appointed and qualWed in February, 1890. They were not made parties to the proceeding in the chancery court. Evidence in thlscase and before the chancery court shows that it was of great importance in maintaining the value of a distillery that the operation be continuous, in order that,the brands of whisky should be kept on the market. The distilleries Were operated by the two companies from March until July, 1800. In July, 1800, at the time when the purchasers refused to take the title, the mortgage of $2,700 on the Excelsior property had .been paid off. The vendors were readY, on the payment of the purchase price, to payoff the $7,000 mortgage on the Sharpe distillery tract. There were indorsements of the Sharpe Distillery Company unpaid, amounting to about $9,000, all of which were secured by more than that amount in value of whisky stored in the distillery warehouses. There were cL'lims against the estate of T. J. Megibben, but there was other property of the deceased, amply sutIlcient to pay them. In October, 1890,' the shares of stock in the two companies tendered by James W. Meglbben, and Elizabeth Megibben, administrators of the estate of T. J. Meglbben, to Perin, Hayes, and Hubbell under the contract, and were refUsed, whereutlon the complamants 1l1ed their bill for specWc performance herein. The defendants below answered, averring-First, that the contract was made by PerinoIi behalf, of himself, Hayes, Hubbell, and James K. Megibben; that MeglbbE:'n was a necessary party defendant, and, as he was a resident of Kentucky, the court had no jurisdiction: and, second, that both corporations were in debt, and .\:hat the title to their property was imperfect and incumbered, in violation of the contract stipulations; and, 11nally, that the defendants had declined to proceed with the purchase on this account, and had notified the plaintiffs, who acquiesced in the abandonment of the contrMt. By replication issue wll$ made on these defenses. The case proceeded to a hearing, and the decree for specific performance was entered from which this appeal wus takfn. I Errors were assigned to the holding of the court on the grounds-First, that specific performance would not lie; second, that the plaintiff James K. Megibben was a necessary party defendant, and that the court had not jurisdie-
V.ME;(.HBBEN.
91
tion of the suit; third, that the title 0:( said companies in said real estate was not good and sufficient: and, fourth, that the plalnt1ffs were not the owners ot all of the capital stock of the ExcelSior Company and the K. G. Sharpe Com· vanyo
Lawrence Maxwell, ,Jr., for appellants. H. D. Peck, for appellees. Before JACKSON and TAFT, Circuit Judges. TAFT, Circuit Judge, (after stating the facf.ij.) The first error aR· signed to the finding and decree of the circuit court is based on the claim that the contract cannot be specifically enforced, because it is for the purchas'e and sale of personal property. The point has not been pressed, either in the brief or on the argument, and hardly needs consideration. The agreemeJ)t· was in form a contract to buy all the shares of stock in the incorporated companies. The language of the contract shows .that the real agreement was to buy certain real estate, together with the personal property connected with its use for milling and distilling purposes. Without discussing the question whether the sale of shares of stock can be specifically enforced in equity, it is sufficient to say that the sale here was in fact a sale of real estate, and the circumstance that personalty was included in the sale would not affect the power of a court of equity to afford relief by requiring specific performance. See Leach v. Fobes, 11 Gray, 510. The secoJ)d error assigned, that the court did not have jurisdiction, for the reason that James K Megibben, a resident of Kentucky, was a necessary party defendant, is not of weight. Megibben is a party plaintiff. He is one of the vendors; and even if he were, under the facts of the case, also one of the vendees, he is willing to comply with his part of the contract. The language of the court below upon this point meets our concurrence: "James K. Megibben is not a party defendant, nor can he in any way be regarded as such. It is true that he is one of the associates of the defendant · Perin, but he is ready and wlliing to perform the contract. The decree is sought against Perin and his associates who are unwilling, and it would not ,be against him, but against them, to compel them to join in receiving and paying for the capital stock which represents the real property involved. He is therefore properly a complainant, and as much interested in securing a decree against the defendants as are his co-eomplainants."
The assignment of error upon which the decision of the case must turn is based on the holding by the court below that the title of the distillery companies to the real esta,te was good and sufficient. It is an express stipulation of the agreement that the money was to be paid upon the delivery of the deed, and after examination and approval of the title. This required, of course, that the title should be good. The distilling companies have all the title of James KMegibben and wife and the widow and adult heirs of T. J. Megibben. The only question in the case relates to the undivided interest in each tract, the legal title to which, by the death of T. J. Megibben, was cast upon his three minor heirs. The argument upon appellees' behalf is that the land so bought by T. J. and J. K :M:egibben was purchased with partnership funds, and was used for partnership purposes, under an implied agreement that it should be personal property out
92
FEDERAL REPORTER;
and out; that by the law of Kentucky, on the death of T. J. :Megillben, the full equitable title to. this property vested in J. K. Megibben, the surviving partner, in trust to discharge the debts and obligations of the partnership, and to adjust the equities between the partners, and with power to sell the equitable title for these purposes; that, after the satisfaction of such debt."!, obligations. and equities, or at once upon T. J. Megibben's death, if it should be found no such debts or equities existed,. the equitable title passed to the personal representatives of T. J. Megibben for distribution as personal property ;1J1at nothing but the naked legal title to t,he. undivided interest af the deceased partner descended to the heirs, and that this a court of equity, in a proper proceeding, might compel them to convey as either the surviving partner or the personal representative, in his lawful right to transfer the whole beneficial interest, should direct; that the personal representatives and the surviving partner have united in ·conveying the equitable title to the distilling companies; that thead11lt heirs have also conveyed their title; and that by the Hamson chancery court proceedings the legal title of the minor heirs has been divested and transferred to the two companies, thus making in the latter a perfect title to the entire property. If the court of appeals of Kentucky have clearly laid down in their deetsions a pri!lc.iple affecting the devolution of the equitable title to partnership real estate upon the death of one partner, it is a rule of property which the federal courts will respect and follow, instead judgment, as they do with reference of exercising their to questions involving the general common law of the state. Burgess v. Seligman, 107 U. S. 20, 2 Sup. Ct. Rep. 10. The law as 'to the disposition, distribution; Or· descent of the interest of a deceased partner . in partnership real estate has been considered by the court of appeals of Kentucky in the cases of Galbraith v. Gedge, (1855,) 16 B. Mon. 631; in Cornwall v. Cornwall, (1869,) 6 · Bush, i:q. Bank v. :EJ:all,(1871,) 8 Bush, 672; in Lowe v. Lowe, (1878,) 13 Bush, 688; in ,Holmes v. Self, (1881,) 79 Ky. 297; in Caskey v. Caskey, (1884,) I) Ky. Law Rep. 775; and in Flanagan v. Shuck, (1885,) 82 Ky. 619. In Cornwall v. Cornwall, Lowe v. Lowe, Holmes v. Self, and in Caskey v. Caskey, the question was between the heirs and distributees of the deceased partner, as to whether in equity the partnership real· -estate, after the paJ-Inent of the debts of the partnership, should descend to the heirs or should pass to the distributees. From these cases it is clear that for 30 years the rule of property governing fue descent and distribution of partnership real estate on the decease of a partner has been as follows: First. The legal title to partnership real estate held in the names of the partners descends to the widow and heirs of each, exactly as it would were the partners tenants in common. Second. Where real estate is purchased with partnership funds for partnership purposes, it is partnership property, to which the surviving partner has an equitable title, and which he may sell to pay partnership debts or settle partnership equities, compelling, by aid of equity, the heirs of the deceased partner to perfect the of a sale by deeding such title.
93
Third. In the absence of any agreement between the partners, express or implied,. to the contrary, both the legal title and the beneficial interest in the surplus of SUCh. partnership real estate, after the debts and the equities of the partnership are satisfied, descend to the heir at law. Fourth. When, however, there is an express agreement between the partners, or one which can be clearly implied from the circumto consider and treat such real estate as part of the personal property stock of the partnership, then, though the legal title to t"9 deceased partner's interest descends to the heir under the statutes of descent, the equitable title, and the full beneficial interest, after the payment of the partnership debts and adjustment of the equities between the partners, vest in the personal representatives of the deceaaed partner for distribution as personal property, and to this end a court of equity may force a conveyance of the legal title from the heirs to the vendee of the personal representatives. In December, 1891, the court of appeals of Kentucky decided the case of Carter v. Flexner, 17 S. W. Rep. 851. In that case the surviving partner of a firm which had been engaged in buying and selling real estate made a contract to sell certain of the real estate bought by the firm with partnership funds in the course of partnership business. There were debts of the firm to be paid by the proceeds of sale. The co;ntracting purchaser refused to comply with the contract, onthe ground that the surviving partner was not invested with the legal title to the real estate. The court held that thesuiviving partner could not convey a good title except to his one-half interest, and that the heirs of the deceased partner should be required to convey thei! legal title to the purChaser, if an advanta,geous sale, or one of fair value, had been made in good faith by the survivor. There was noth· ing in the conclusion reached which required a departure from the principles already laid down in the cases to which we have referred. The learned judge who delivered the opinion, however, used language emphatically indicating a desire to break away from the rule stated in the fourth paragraph above, under which partnership real estate, by agreement, express or implied, between the partners, may be converted into personalty "out and out." The report of the case in the Southwestern Reporter contains a memorandum from the files of the court of appeals that the case is not to be officially reported. Just what the considerations are which lead that court to order cases not to be reported we do not know, but it would seem clear that, if it were intended by this decision to reverse and obliterate the doctrine of the conversion of real estate into personalty "out and out," which has been in force in the state for more than 35 years as a rule of property, the court would have ordered the case to be officially reported. In the case of Turman v. White's Heirs, 14 B. Mon. 450, 461, Chief Justice Marshall refers to a decision of the court of appeals as of doubtful authority because withheld from pub· lication. But, whatever the inference to be drawn from the fMI. ure to officially report a case in the court of appeals, we do not feel at liberty to disregard the line of authorities referred to, and to depart from the rule so clearly laid down in cases where the exact
94'
FEDERAL
vol.
53.
and nevertheless be regarded as obIter ditrtl1i:n:iin the case m W'hiCfi'lt 'waS used. 'Odming'nolt'to the application of the prindiples relating to paw nership real estate in Kentucky to the facts of this case, we must :first consider'the·contention of counsel for appellees ,that there were partnership deb'lfS and obligations wiUch conferred upon the surviving partner aneqtiitable title andtrlilWltosell the property to the distillery companies. There was a mortgage of $2,700 on one of the disoff7;000 on the other at the time of the death of T.J:, Megibben, but it does not appear that there was not enough pers(JDal' property to pay these debts. The firm was under contract t;()")j1ake whisky and feM cattle,and liable in damages for nonperfdrtilance. Such a condition of tM' affairs of the firm would doubta continuance of the business by the surviving partner of discharging those 'obligations at the joint risk of the livi,ng partner and the estate of the deceased partner. See 2 Bates, Farm. § 730. It might also, if by the sale of the property those obligations 'could be discharged, confer. the right on the surviving partIll'll; f9' sell the whole partnership stock, including the real estate; but such a sale, as against minor heirs having a beneficial interest iii the same, must be a; sale for cash. No authOrity has been cited whiC:il' justifies the claim that a surviving partner may exchange the partnershipstQ.ck and real estate for shares in a corporation, even th6p.gh 'the shares repJ.'esent interest in the real estate originally held. The control and management'of the property under a corporaunder partnerShip ownership are quite different. This socalled "sale for stock" iI! in fact an exchange of one kind of property for another, and there is no rllle of law or precedent conferring such '{lOwer on the surviving partner. Thedifficlllty· arising from the intei'nal revenue laws could not be obviated in that way. It might, pernaps, have justified a sale for a money consideration. It remains to consider the last and chief contention of appellees, that til equity the undivided interest of the deceased partner in this real estate was personal assets descending to the personal representatives. · If so, then, by deed of the administrators, who were the complainants below, the fl1ll equitable titJe to this undivided interest might have been conveyed to the purchasers here. It is true there is no such deed shown in the record from' the administrators to the distillery companies, but such omission collid be easily supplied by mak,ing the execution of such a deed the condition of a decree for specific performance, and we may consider the' case on the theory that such a deed has in: fact been eKecuted. There is no doubt, we presume, of the general power of the administrators, under the law of Kentucky, to reduce to money an undivided equitable interest in ,estate held by them as personalty, provided. such sale is not fraudulent, or grossly inadequate. Oook v. Burton's Adm'r, 5 Bush, 66; Anderson v. Irvine, 6 B. Mon. 23&; Ward v. Lewis,3 J. J. Marsh. 505; Haddix v. Haddix, 5 Litt. We have still to consider, therefore,whether the circumstances in tho case at bar are such, with reference to the two distillery tracts, that,
}tM.tit"Wli$ 'ititolVM.; by reason of language in'll/subsequent opiniOn,
95
in accordance with the Kentucky law of partnership, above stated, an agreement can be clearly implied between the partners to treat the two distillery ,tracts as personalty out and out. With reference to the Sharpe distillery tract, there will be little difficulty in implying such an agreement. That tract was bought with partnership funds for the .purpose of being used in the partnership business. The business was a manufacturing and trading business. The evidence would seem to show that the naked real estate, in point of value, was an in· part of the firm capital invested in the business. Nineteen twentieths ·of the partnership capital was in the plant, improvements, and good will of the distillery. The value of a distillery is largely dependent on the circumstance that the brand of whisky which is manufactured there is kept on the market. It would seem to be a reasonable inference from these facts and others in connection with the business that the real estate, the plant, the improvements, and the perproperty, together with the good will, the brands, secret prooesses, etc., all went to make up an entire thing, which, if separated [into its parts, would diminish in value, and lose its usefulness as a money-making investment. It would be to the interests of the partners, therefore, to have the real estate treated as a part of the person· alty on the dissolution of the firm, in order to secure a prompt and profitable disposition of the firm assets, and the presumption may well be indulged that such was their intention and tacit agreement. In reaching a similar conclusion in respect to the Megibben distillery tract, however, we encounter a serious obstacle. The land upon which the distillery stands was not purchased with partnership funds, and by all the Kentucky cases this is indispensable to a conversion of real estate held by partners into partnership personalty "out and out." The distillery lot was, as we have before said, part of a 227·acre tract bought by T. J. Megibben a year before the partnership was formed. Some five years after, he and his wife conveyed an undivided one third of the lot to his partner, J. K. Megibben. The remaining undivided two thirds, T. J. Megibben held just as he held the rest of the 227 acres. Even if it be conceded that the recital in the deed to J. K. Megibben shows that the transaction was in reality intended between the partners to be a transfer of the land from T..J. Megibben as an individual to himself and his partner as a firm, each partner contributing his pro rata share of the consideration, still we cannot infer any intention on the part of T. J. Megibben to treat the real estate as personalty for the purposes of distribution on his death. The dower right of his wife in the undivided two thirds of the tract was eXactly the same as it had been before the partnership was formed, and by no principle of law or equity could she be deprived of her beneficial interest in it. The equitable doctrine of the "out and out" conversion of partnership real estate into personalty, under which the widow is deprived of benefit from her dower estate in the land, is worked out on the theory that, the land having been acquired with partnership funds, there is imposed on those on whom the legal title is cast, a trust to execute the purposes for which the p3lrtners bought it; and, if one of these purposes was an "out and out" conversion into personalty, this excludes any beneficial dowel'
96
FEDERAL REPOTITER.
vol. 53,
fut(lresL" Brtthete;wher(l the foo vested in the husba:nd before there there is no. ground for a trllst on .the a,nd no room, therefore, for the apphcation of the doctrme. 'To' her, either in law or in equity, of all beneficial dower interest in the'Megibben distillery tract, she must have released it to the firm. In the absence of such a release, we cannot infer an intention on her hrtgband's part that this land should be treated as personalty for distribution by his administrator. It is true that the widow has now deeded her interest in the land to the distillery com· pany. That,hOwever, does not change the fact that on her hus· band's death she'had a beneficial interest in it as his widow, and that he intended she should have. If so, it follows that his children had a beneficial interest in it as heirs, for it would be absurd to say that the deceased partner intended the land to be real estate as to the widow and personalty as to the heirs. , For these reasons we cannot hold that the Megibben distillery tract passed as personalty to the administrators of T. J.. Megibben for distribution. The result is that the legal and equitable title to an undivided interest in the Megibben distillery tract is outstanding in the minor heirs, unless it has been transfeITed to the Megibben Distillery Company by the Harrison chancery proceedings. With ref· erence to· the Sharpe distillery tract, the naked legal title to an un· divided interest in that tract is outstanding in the minor heirs, unless it has been' transfeITed to the Sharpe Distillery Company by the same chancery proceedings. It only remains to examine and determine the validity and effect of the proceedings in the HaITison chancery court. First, as to the Megibben distillery tract. It is established by the cases of BaITett v. Churchill, 18 B. Mon. 387; Henning v. Harrison, 13 Bush, 723; Walker v. Smyser's Ex'rs, 80 Ky. 620,-"as the settled rule of Kentucky, that the powers of the courts of equity simply to sell and reinvest infants' real ,estate are statutory, and not inherent." The case of' Thompson v. Pettibone, 79 Ky. 319, relied upon by appellants, has no application here, because it involved an exchange of one form of personal property for another, and was really justified under the statutes authorizing the guardian to compound the claim of his ward with the permission of a court of equity. It follows that, unless the power of the Harrison chancery court to exchange the beneficial interest of the minor heirs in real estate for shares of stock in a corporation can be found in the statutes of the state, the action of the chancellor and the whole proceeding are void. It is not a question of irregularity, but, the power given being statutory ,and limitations of its exercise must be strictly followed, or the proceeding is a nullity. This conclusion is abundantly sustained by many decisions of the court of appeals. See Carpenter v. Strother's Heirs, 16 B. Mon. 289; Barrett v. Churchill, 18 B. Mon. 387; Woodcock v. Bowman, 4 Mete. (Ky.) 40; Barnett v. Bull, 81 Ky. 127. There is no authority conferred upon a court of equity by the statutes of Kentucky, under which the beneficial interest of infants in real estate may be exchanged for shares of stock. Section 489 of the Civil Code of Kentucky (Carroll's Code Ky. 1888, p. 235) provides
97
that infants' real estate maybe sold by a court of equity (1) to pay of an ancestor; (2) to pay his own debts; (3) in an action by tM guardian for the ward's maintenance,and education; (5) in an action against the infant by his guardian' for the sale of real estate and in. vestment in other property. The proceedings in this case are said to be for reinvestment, and the authority therefor must be found, if at all, in the fifth paragraph of section 489. But, if so, the decree of the court is void for two reasons: First, because section 493 requires that before a sale shall take place in accordance with article 5, § 489, the guardian shall execute a bond to the infant, with at least two sureties, worth not less than double the value of the estate to be sold; and, unless such bond be given, any order of sale and any' conveyance made under such order shall be absolutely void. No bond was given here. And, second, because section 19, art. 2, c. 48, of the General Statutes of Kentucky, (Bullitt & Feland,) as amended March, 1884, limits the investments which courts of equity may authorize guardians to make of the money of their wards to real estate or stocks or interestbearing bonds of the United States, state of Kentucky, or some county or town of the commonwealth. Of course, no reinvestment can be made except in these named securities. Another contention of the appellees, and one which met with favor in the court below, was that these proceedings could be sustained under section 490 of the Kentucky Civil Code. That section (Carroll's Code Ky. p. 236) provides that a vested estate in real property jointly owned by two or more persons may be sold by order of a court of equity in an action brought by either of them, though the plaintiff or defendant be of unsound mind or an infant, (1) if the share of each owner be worth less than $100; (2) if the estate be in possession, and the ,property cannot be divided without materially impairing its value, or the value of the plaintiff's interest therein. Section 497, p. 240, provides "In the. action mentioned in subsection 2 of section 490 the share of an infant 01" of a person of unsound mind shall not be paid by the purohaser, but shall remain a lien on the land, bearing interest, until the infant come of age, or the person of unsound mind come of sound mind, 01" until the guardian of the infant or the committee of the person of lillSOund mind execute bond as is required by 403."
It is clear that section 490 does not authorize a sale for anything but a money price. It is true, no bond is required, but that is because the infant's interest is, under section 497, to remain a lien on the land until a bond is given. The provision that the share of the infant shall remain a lien on the land, bearing interest, excludes entirely the idea that anything but a sale for money is authorized by section 490. We should reach this conclusion on the words of section 490 alone, for a statutory authority to sell means a sale for money, either cash or on credit, and not a barter or exchange. More than that, section 19, art. 2, c. 48, of the General Statutes of Kentucky, already referred to, limiting the character of investments for infants, would prevent such an exchange. For the reasons given, the Harrison chancery court proceedings, v.53F.no.1-7
98
FEDEEtAW .REI'ORTElV.,
.. be Wid. EVe:qdfithey werertal1d,;tbe Shares. thetorce,pt the deQree, woilild 'belong to the heirs, 'an.dfth.ere would be no. powet: in the administrators to: conttact to sell,tJhOOr;J!lhares, of stock:,· and 'W01ilct·be no right:iotiiMtioil' intb.e adtninistrators,aB' complainants, 1;@. eDfonce such acontl'$ct. .' . ' ,. , . , 'INnrdo we think, that>theproceediBga as to the Sh.a1rpe tract;may be taken as an application of the personal representativ.e.s ·of,T.. J. MegibtieI1to a comJof equity to require the miilOr heir$to part with their·;naked legal title ·in ,order to b1'i:tlg;,aboutareduction of. the money. Tb,e administrators, :who alone ,could, such: a parties[tJO the' petition in the Harrison chancery coUrt. riTne:petitionwas based on·tb,etheory thall the heirs ofT.. tJ, Megibben had a benefieieJ.interest;, as' heirs, .lJlLthe partnership 'real esta.te,'andtha.t the COllr.t, a :chnilcery court, had power to Qrder a.Bali!i intei'esMf«'shares 'of. stock in :the The anSW61.li'a(lmitB such to ,be caSe, and. the. dooree expressly finds the interestj andconftrms, ,ifJhe .exchange for shares of stock in. the new OODlpaD:Y as a beneficial investment. .It is difficult to soohowsucha pll'oooeding can.,be made to"ser'Vethe purpose of an action to. compel the transfer of the nakecl:legal title on the ground, that there was 1;1;1:' benefiellil"interest, espooially when, as an attempt to sell the benencmtlmterestof infants.imreal estate, the proceeding is a nullity. With thErdefects:in the 'title' to the two distillery-tracts, we cannot force upon an unwillingpurchasel'; The decree of the with instructions to dismiss the bill. court ·bl\low· must be
.;llothe·YegibbeJ1,Excelsior DistilleJ.lYlt1'Qct, must be held.
B.LOUNT .v. SOOIET.li1 . .
P ASTEURet al. No.57.
lJU
CHAMBERLAND SYSTE)IE
(Circuit Court of Appeals. Sixth Circuit. November 1. 1892.) 1. PATENTS lNvENTION$l-Al'l'EAL TION-REVIEW."
lrROll: OJiliER FOR PRELIMINARY INJUNC-
On an appeal to the circuit court of appeals under section 7 of the act of .:March 3. from an ordergrallting an injunction pendente lite agaillsHhe " Infringement a patent, the only question for review Is whether the inj'unction was erroneously: or l improvidently gr'anteet in the legal discretion of the trialcourt;an,d the cltJ.tlstjpn's of.thevalidjty of the patent and infringemeot call be, considered ,onl;r incidentally, as bellfing upon this matter. . On an application tOT '8 p'relirilinary 'inJun'ction to' restrain infringement Of letters llatentNo. 886,1185; 'p;ranted:February 16. 1886, to Charles E. Chamber.If\nd for oertain new compounds,itllPpeated that had an undoubted title to the patent as assigllee.and licensee;, that it made lind sold the',articlef6r several years without any; lit. tempt by others ·to maKeO! sell the·samel thatth-e invention had been used . ·from the: date.of' the:.patent until 1892. only under license of tlle patentee; and that an injunction grat;lted in another circuit in a Buit between tha same parties. Held. 'that these circumst,ances created so strong a presumption of the validity of the patent as to authorize the issuance of a prelipliU8tllY injunction, in the '8.bsence of clear'proof of invalidity. Oll'V'4loIDITY OF PATENT· .