Merz Capsule Co. v. United States Capsule Co.

• Decision Date: 19 March 1895
• Citation: 67 F. 414
• Parties: MERZ CAPSULE CO. v. UNITED STATES CAPSULE CO. et al.
• Court: U.S. District Court — Western District of Michigan

67 F. 414

MERZ CAPSULE CO. v. UNITED STATES CAPSULE CO. et al.

United States Circuit Court, W.D. Michigan.

March 19, 1895

This was a bill by the Merz Capsule Company, a corporation organized under the laws of Michigan, and doing business at Detroit, against Robert H. McCutcheon, J. Ernest Warren James Wilkie, John A. Grogan, William H. Warren, the National Capsule Company, and the United States Capsule Company praying that a certain contract between complainant and defendants should be declared null and void, and that defendants be enjoined from carrying out the same as against the rights of complainant. Complainant was engaged in the business of manufacturing and selling gelatine shells or capsules, and on November 29, 1893, it entered into a contract with the other defendants (excepting the United States Capsule Company), who were engaged in the same business, to pool their interests in such business, and form a corporation under the laws of New Jersey, under the name of the United States Capsule Company. After the preliminary papers had been signed, and the necessary steps taken for the organization of such New Jersey corporation, the stockholders of the complainant company reconsidered their action, and resolved to remain an independent corporation. The other parties to the combination, however, endeavored to hold the complainant company to its agreement, and took steps to obtain possession of its plant. Complainant thereupon filed this bill. The agreement was as follows:

This agreement, made the 29th day of November, 1893, between the National Capsule Company, a corporation organized under the laws of the state of New Jersey, and doing business at Indianapolis, Indiana; the Merz Capsule Company, a corporation organized under the laws of the state of Michigan, and doing business at Detroit, Michigan; J. E Warren and James Wilkie, copartners doing business at Detroit, Michigan; as the Warren Capsule Company; and John A Grogan and W. H. Warren, copartners doing business at Detroit, Michigan, as the Michigan Capsule Company,-- witnesseth:

(1) That said parties agree to organize a corporation for the manufacture and sale of hard, empty, gelatine capsules; the main office and point of shipment of the goods manufactured by said company to be at Detroit, Michigan. The capital stock to be ($70,000.00) seventy thousand dollars, allotted among the parties hereto as follows: Twenty thousand dollars ($20,000.00) each to be allotted to the National Capsule Company, the Merz Capsule Company, and ten thousand ($10,000.00) dollars to be allotted jointly to the parties doing business as the Michigan Capsule Company. Three-quarters of the stock allotted to each of said parties shall be issued at the time of the organization of the company. The remaining one-quarter of each allotment shall be held as treasury stock of the new company until the several parties shall demonstrate that the present capacity of their respective plants is as follows: The National Capsule Company at least twenty gross of completed capsules per day; the Warren Capsule Company at least twenty gross of completed capsules per day; the Michigan Capsule Company at least ten gross of completed capsules per day. The capacity of each plant to be determined by the average amount produced during a test of five consecutive days of ten hours each, to be had in the presence of the representatives of each party, and under ordinary conditions of manufacture. Such test to be had within three months from the date of the organization of said corporation, unless said test shall be prevented by reason of injury or destruction of the plant by the elements, or for other good and valid reasons, in which case a reasonable time in addition shall be allowed to restore the plant to a proper working condition. In case any of the parties above named shall fail to demonstrate that the capacity of their plant is as above stated, the twenty-five per cent. of the stock retained by said corporation shall be forfeited by said party, and remain the property of the corporation.

(2) The parties hereto hereby agree to sell and convey to said corporation, upon its organization, free and clear from all incumbrances, their respective plants operated by them in the manufacture of hard, empty, gelatine capsules, including all real estate owned and used by them for such purpose, together with all machinery and appliances of every kind pertaining thereto, stock in trade, good will, and patentable devices labels, trade-marks, trade secrets (except processes for treating gelatine), now owned by said parties, and used in connection with the business of manufacturing hard, empty, gelatine capsules, and in payment therefor (except for manufactured stock, or boxes or raw materials) to receive from said corporation mortgage bonds to the amount of appraised value of the property thus conveyed to said corporation by all of the parties hereto. Said bonds to be secured by mortgages covering all of the property of every kind belonging to said corporation. The value of the property conveyed to said corporation by the respective parties shall be determined in the following manner: If all of the parties hereto are unable to agree upon the value of the property conveyed by each, the value of the real estate now owned by each party in Detroit shall be appraised by three disinterested and competent parties; one to be chosen by the National Capsule Company, and one by the other three parties, and the two so chosen to select a third. The decision of said appraisers, or the majority of them, to be final. The value of the real estate now owned by the National Capsule Company...