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gage company, the Corbin Banking Company, Sherwood, Wheeler, Hammell, et al., through their counsel, Mr. Simmons, filed objections to the granting of a final decree, and he moved to have the pro confesso set aside, so that he could be allowed to file pleas for the said defendants to complainant's bill under such terms as the court might deem proper. Appellee moved to have the motion of Simmons overruled. The issues made up in these two motions were argued January, 1894, and taken under advisement. On June 28, 1894, appellants' counsel again renewed his said motion for leave to appear and file pleas to said bill. There seems to be some difference of opinion between the counsel as to the subsequent history of the matters and issues attending appellants' motion; but we do not think it necessary now to deal with that matter. On January 25, 1895, the court overruled the motion, made in the interest of the nonresident defendants, to vacate the decree pro confesso, and proceeded to enter a final decree on complainant's bill. From that decree this appeal is prosecuted.

The appellants, in their assignment of errors, complained of a number of errors, prejudicial to them in the circuit court, in relation to the matters and issues which, at the instance of the appellee, arose and were set up in the various pleadings in the court below after the appellants had obtained said judgment in the said original suit at law in the court below, on the notes, and sale had been made thereunder of the land in question, and they complained of error in the court in refusing to set aside the pro confesso of January 1, 1894, and in refusing to allow them to plead to complainant's bill; and they complain, too, of errors found in the final decree. As to some of the matters complained of in the assignments, it may be that relief, at our hands, cannot be invoked on this appeal. However, under the view we take of the issues, it will not be necessary for us now to discuss those matters.

The assignments Nos. 6 and 7, which relate to the services had on complainant's bill, put at issue the only matters we deem it necessary to discuss:

"No. 6. Because said bill of appellee was really an original bill, and there having been no legal service of subpoena upon either of the appellants against whom substantial relief was prayed, all of whom reside outside of the state of Georgia, they nor neither of them have had their day in court, and were beyond its jurisdiction at the time of the filing of said bill or thereafter, so far as disclosed by the record or proof; and not having submitted itself to the jurisdiction of the court, either by appearance, demurrer, plea, or answer, and having been denied the privilege of so doing by the court when it attempted to, on the 9th of January, 1895, in open court, said court had no jurisdiction over it, and therefore the decree against it was error, and void for that reason; and the same was error as against all the other appellants, each of whom resided outside the state of Georgia, and were not found within the said state.

"No. 7. Because at the November term, 1888, of said court, on the 9th day of January, 1894, before a final decree had been rendered in said cause, and eight days after a decree pro confesso had been entered, appellants, by their counsel, appeared in open court, and applied for leave to file proper pleas to appellee's said bill, which said application was not passed upon then, or at any other time, as the court, after hearing argument, held up its decision on said application at that time, and, without further action or proceeding v.71F.no.6-50

in that matter, returned said final decree of January 26, 1895 (over a year afterwards), whereby appellants were denied the right to defend said bill, which they allege was error."

It will be seen that appellee caused two orders for taking pro confesso to be entered,-one, at the August rules, 1892; the other, at January rules, 1894. The former was founded on alleged services of bill known as "substituted services." The only personal service which the record shows to have been made was on W. E. Simmons, who accepted service on himself as a defendant in the bill, and at the same time denied that he represented any one else. The other defendants, being nonresidents, were not actually or personally served, and whatever service was made on them was made through the said W. E. Simmons, as their attorney. The appellee seems to have been unwilling to follow up or to secure a final decree on the first pro confesso based on the service made as aforesaid on nonresidents, through Mr. Simmons. We think the evidence fails to show that the substituted service was sufficient to authorize the entry of the order taking the bill pro confesso at the August rules, 1892. The order taking the bill pro confesso, at the January rules, 1894, was founded on the service of appellee's bill made by publication, as provided for in the act of 1875 (Rev. St. § 643). Under that act, as the "suit is to enforce any legal or equitable lien upon, or claim to, or to remove any incumbrance, or lien, or cloud, upon the title to real or personal property within the district" (Act March 3, 1875, §8; 18 Stat. 472), service by publication was sufficient to bring the said nonresident appellants into court; but it also provides "that any defendant or defendants, who are not actually or personally notified as above provided may, at any time, during one year after final judgment in any suit mentioned in this section enter his appearance in said suit in said circuit court, and thereupon the said court shall make an order setting aside the judgment therein and permitting said defendant or defendants to plead therein on payment by him or them of such costs as the court shall deem just, and thereupon said suit shall be proceeded with to final judgment according to law." Id. The appellee seems to have complied with the provisions of that act, and did the things necessary to perfect the service by publication, and the order taking the pro confesso bill on January 1, 1894, was properly entered; but the undisputed evidence shows that the appellants, nonresidents, who had been so served by publication, but who had received no actual personal notice, within 30 days after said entry was made, and before the final decree had been granted, came into court through their counsel, and filed their objection to the court's granting a final decree on said pro confesso, and moved the court to set the same aside, so that they could file pleas to complainant's bill.

There seems to be a difference of opinion between the counsel in the case as to the historical incidents thereafter, which relate to the said motion and the disposition made of the issues of law therein; but the record shows that a final decree was entered on the said last pro confesso, and we do not think it necessary to discuss those differences.

We find error in the court below in not allowing the appellants to appear through their counsel to plead, demur, or answer, under the provision of act of 1875.

The decree of the circuit court is reversed, and the cause is remanded, with instructions to set aside the decrees pro confesso entered in the cause, and grant leave to defendants in the bill to plead therein on such terms as to payment of costs as may be just, and thereafter proceed as equity may require.

MCCUTCHEON et al. v. MERZ CAPSULE CO.

(Circuit Court of Appeals, Sixth Circuit. January 7, 1896.)

No. 320.

1. CORPORATIONS-ULTRA VIRESHOLDING STOCK IN OTHER CORPORATIONS. The N. Co., a New Jersey corporation, the M. Co., a Michigan corporation, and two copartnerships, all being engaged in the manufacture of the same goods, entered into an agreement by which it was provided that the parties should organize a corporation to manufacture the goods; that the stock of such corporation should all be allotted to the several parties, in certain proportions; that the parties should convey all their property, of every kind, to the new corporation, and receive therefor mortgage bonds of such corporation, bearing 8 per cent. interest, to the amount of the appraised value of the property,-such bonds to be secured by mortgage of all the property of the new corporation, and the appraisal to be made by appraisers appointed by the parties in the manner provided by the agreement. Each of the parties agreed not to engage thereafter in the manufacture of the goods. The new corporation was organized under the laws of New Jersey. The stock was issued, and conveyances of the property of the parties to the agreement were made to such corporation, but it did not immediately take possession of the property of the M. Co., or issue the bonds. While still in possession of its property, the M. Co. determined to withdraw from its engagements, so notified the officers of the new corporation, tendered back the stock, and demanded a rescission of the agreement. This was refused, and the new corporation, through its agents, attempted to gain possession of the property of the M. Co. by force, and threatened to continue such attempts. Thereupon the M. Co. filed its bill to cancel the agreement and restrain interference with its property, and the new corporation filed a cross bill demanding specific performance of the agreement. The M. Co. was organized to manufacture the goods which were manufactured by the other parties to the agreement and by the new corporation, and its charter contained no authority to hold stock in other corporations. Held, that the agreement and transfers, forming part of one plan, by which the M. Co. was to abandon the exercise of its corporate powers, and restrict itself to the holding of the stock of another corporation, through which its proper business was to be carried on, were ultra vires as to the M. Co., and void.

ABANDONMENT OF CORPORATE PURPOSE

& CONTRACTS-ILLEGALITY-PARTIES IN PARI DELICTO-EXECUTORY CONTRACTS. Held, further, that as the agreement was still in large part executory, and had been promptly disaffirmed by the M. Co., the rule as to estoppel upon parties in pari delicto did not apply, and cancellation of the agreement, with an injunction against interference with the property of the M. Co., might be granted, as well as a dismissal of the cross bill praying specific performance.

Appeal from the Circuit Court of the United States for the Eastern District of Michigan.

Two corporations and two partnerships, severally engaged in the manufacture and sale of hard, empty, gelatine capsules, entered into an agreement, dated November 29, 1893, for the combination and consolidation of their sevThe plan by which this was to be eral properties and business interests.

accomplished is fully set out in the agreement here following: "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 manuThe main office and facture and sale of hard, empty, gelatine capsules. point of shipment of the goods manufactured by said company to be at DeThe capital stock to be ($70,000.00) seventy thousand doltroit, Michigan. lars, 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 jointly to the parties doing business as the Warren ThreeCapsule Company, and ten thousand dollars ($10,000.00) to be allotted jointly to the parties doing business as the Michigan Capsule Company. quarters of the stock allotted to each of said parties shall be issued at the The remaining one-quarter of time of the organization of the company. 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 The capacity of twenty gross of completed capsules per day; the Michigan Capsule Company, at least ten gross of completed capsules per day. 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 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 stock retained by said corporation shall be forfeited by said party, and remain the property of the corporation. (2) The parties 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, all 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 the appraised value of the property thus conveyed to said corporation. Said bonds to bear interest at eight per cent. per annum, payable five years from the date of issue, and only sufficient amount of bonds to be issued to cover the value of the property conveyed to said corporation by all of the The value of the parties hereto. Said bonds to be secured by mortgage covering all of the property of every kind belonging to said corporation. property conveyed to said corporation by the respective parties shall be If all of the parties hereto are unable determined in the following manner: 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 competent persons, 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 in Indianapolis to be appraised by three appraisers to be chosen in a similar manner, whose decision, or that of a majority of them, is to be final. The machinery and appliances of every kind, including box-making machinery, to be appraised by three disinterested and competent appraisers at the price at which it can be duplicated in open market; and, in estimating the value thereof, only such machinery and appliances shall be considered as are prac tical in the manufacture of empty capsules, and now used by the parties hereto in the conduct of their business. The appraisers to be chosen as follows: The National Capsule Company to select an appraiser in Indianapolis, the other parties to select an apprasier from Detroit, and the two so chosen to select a competent expert machinist from a city outside of the two cities above named; the decision of such appraisers, or that of a majority of them, to be final. (3) The parties hereto agree that each shall receive, in payment for the manufactured stock, boxes, and raw material conveyed to said corporation, notes of said corporation payable six months from the date of delivery of the property, and all marketable manufactured and unmanufactured stock of completed empty capsules to be paid for at thirty cents per thousand; partially manufactured goods, and all other material as can be readily utilized at appraised value, and raw material, to be appraised at market value. (4) All expenses of appraisal and organization of the new company shall be borne by the new company. (5) Each of the parties hereto agree, from the date hereof, not to make, sign, or accept any contract whatsoever for the future sale or delivery of any hard, empty capsules, or any other contract whatsoever, except ordinary contracts for immediate sale and delivery. All old existing contracts with drug jobbers are to be completed by the new company, provided such are not for over fifty gross of capsules. (6) It is also agreed that none of the parties hereto shall hereafter engage in the manufacture or sale of empty gelatine capsules in any manner whatsoever. In witness whereof the parties hereto have set their hands and seals, and have affixed the seals of the various corporations, by the hands of their respective officers thereunto duly authorized, the day and year first above written. All patents, procured or pending, owned by parties hereto, shall be assigned to the new company, with the sole provision that there shall be a reversion to the present owner thereof in case of dissolution or failure. or sale of assets under the mortgage, or retirement from active business of the new corporation. The word 'dissolution' shall, however, not be construed to apply to a nominal or formal reorganization or merger of the new company with any other corporation, person, or persons."

The steps taken in pursuance of this scheme were these: First. The agents of the parties organized a new corporation under the general law of New Jersey, called the United States Capsule Company. The capital stock of this new company was subscribed and allotted as follows: Twenty thousand dollars par value to each of the two contributing corporations; twenty thousand dollars to one of the partnerships, and ten thousand dollars to the other; single shares being allotted to such members of the contracting corporations as were essential to qualify them for becoming directors. Second. The property owned and operated by each of the parties in making and selling hard, empty gelatine capsules was valued by appraisers as provided in the agreement, and conveyances and bills of sale executed to the United States Capsule Company. The instrument of sale executed by the appellee, the Merz Capsule Company, bears date December 21, 1893, and recites a consideration of $15,000, "and other good and valuable considerations." In point of fact, this part of the transaction is yet incomplete. No mortgage has been made by the United States Capsule Company, and no bonds have been executed for the appraised value of this property, as contemplated by the agreement, though the United States Capsule Company did give to the Merz Capsule Company a certificate reciting that the latter company was to receive bonds to the amount of the appraised value of its property when the mortgage should be made and the bonds executed.

On the same day that the above-mentioned deed was made and delivered, the Merz Capsule Company accepted a lease upon its premises, machinery,

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