Metropolitan Telephone & Telegraph Co. v. Metropolitan Telephone & Telegraph Co.

156 A.D. 577, 141 N.Y.S. 598, 1913 N.Y. App. Div. LEXIS 5837

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: May 9, 1913
• Status: Published

Opinion

Scott, J.:

The purpose of this action is to restrain the defendants and ■ each of them from continuing to use the corporate name which they have selected, and under which they are now assuming to do business. Although there are two defendants bearing the same name, they are for all practical purposes identical so far ■ as concerns their composition, their purposes and the' means adopted to further their aims. . The only difference is that their promoters, for some obscure reason, have seen fit to incorporate in two States, and thus have created technically two legal entities where, so far as appears, one would have answered every legitimate purpose.

The corporation known as the Metropolitan Telephone and Telégraph Company, and joined as a plaintiff in this action, was. duly incorporated under the laws of the State of New York in the year 1880 for the purpose of carrying on the telephone business in the city of New York. It did carry on this business until the year 1896, during which time it was the only-company carrying on that business in said city, and succeeded in building up a very considerable business, thereby acquiring a good reputation and accumulating a large amount of valuable property. -In the year 1896 it instituted proceedings for a voluntary dissolution pursuant to the provisions of law, and, as an incident thereof, transferred to the plaintiff New York Telephone Company all of its assets, business, property rights, privileges and franchises of every kind and' sort, except its franchise to be a corporation. The New York Telephone Company thereafter carried on and now carries on the same business formerly carried on by the Metropolitan Company, using so far as available the property and assets assigned by the latter company. In the course of its- business the Metropolitan Telephone and Telegraph Company issued bonds to the extent of $2,000,000, of which $1,577,000 are still outstanding and will not mature until. the year 1918. These bonds have proven to . be a profitable and desirable investment, having sold as high as fifteen per cent above par, although they are apparently offered for sale very infrequently. The’New York Telephone Company has assumed the payment of these bonds, but so far as concerns their holders the original issuer also remains liable thereon. The plaintiff Ford Huntington is the owner and holder of some of these bonds, and sues in his own behalf and in behalf of others similarly situated. The other individual plaintiffs were directors and trustees of the plaintiff Metropolitan Telephone and Telegraph Company at the time of its voluntary dissolution, and under the statute to be • hereinafter referred to remain trustees charged with certain duties and responsibilities.

One of the defendants was organized under the laws of the State of Delaware on July 8, 1912, and the other was organized under the laws of the State of. New York on the 26th of August, 1912. Both adopted the name of Metropolitan Telephone and Telegraph Company, not because it is descriptive of any business they propose to carry on, but evidently because they hoped to gain an advantage from the reputation which had been gained by the original company of the same name which is joined as a plaintiff in this action. The main promoter of the defendant companies, being president of one and vice-president of the other, has stated very frankly the reason for incorporating a company in New York. He says: “We organized this corporation [The Metropolitan Telephone and Telegraph Company] for the simple purpose of sequestrating the name in the State of New York; that was the main object.” And apparently the only function which the defendant company organized in New York has performed or is intended to perform is to hold on to the name, and if possible to prevent the plaintiff New York Telephone Company from making any use of it. The defendant organized in the State of Delaware has apparently engaged in no business in this State or elsewhere except that it has issued bonds of very uncertain and problematical value, being based rather upon hopes for the future than upon any tangible security in prcesenti, some of which bonds it has already disposed of. These bonds purport to be issued by the Metropolitan Telephone and Telegraph Company, and are in such form that they might easily be mistaken for the bonds issued by the plaintiff corporation of that name. -

The answers, which are practically identical in form, do not substantially controvert any of the foregoing statements, except that they deny any wrongful intent in the adoption by said defendants of the name under which they have incorporated. The principal argument urged in behalf of the defendants is that the original Metropolitan Telephone and Telegraph Company, having been voluntarily dissolved, had become an “ extinguished entity,” and had thereby lost whatever exclusive right it ever had to the use of the name under which it had been incorporated, ■ Hence, it is argued, that name became freed from any prior claim and" was open to selection by whomsoever might first readopt it as a corporate name.

It may be remarked in passing that it is not strictly accurate to denominate the original Metropolitan Telephone and Telegraph Company as an “ extinguished entity. ” 1STotwithstanding its formal dissolution it continued in existence “ for the purpose of paying, satisfying and discharging any existing debts or obligations, collecting and distributing its assets and doing all other acts required in order to adjust and wind up its business and affairs, and may sue and be sued for the purpose of enforcing such debts or obligations, until its business and affairs ai-e fully adjusted and wound up.” (Stock Corp. Law [Gen. Laws,'chap. 36; Laws of 1892, chap. 688], § 57, added by Laws of 1896, chap. 932; re-enacted by Laws of 1900, chap. 760; now Gen. Corp. Law [Consol. Laws, chap. 23; Laws of 1909, chap. 28], § 221, subd. 3.) Since said company has still outstanding-more- than a million and a half of dollars upon which it is potentially liable, it cannot be said that its business and affairs are fully adjusted and wound up, or that it is, strictly speaking, an “extinguished entity.”

Upon the foregoing facts the question Whether the defendants’ continued use of the name which they have selected should be enjoined suggests two questions. First. Whether any of the plaintiffs have an interest in protecting the -name Metropolitan Telephone and Telegraph Company, for if any one plaintiff has such an interest it will suffice upon this application for a temporary injunction. Second. Should the defendants he enjoined from continuing to use the name.

The original' Metropolitan Telephone and Telegraph Company apparently has sufficient interest to maintain the action until it shall finally become in fact and in law an “extinguished entity,” notwithstanding it has ceased to engage in the telephone business. (Armington v. Palmer, 21 R. I. 109; 43 L. R. A. 95; Peck Bros. & Co. v. Peck Bros. Co., 113 Fed. Rep. 291; Holmes, Booth & Haydens v. Holmes, Booth & Atwood Mfg. Co., 37 Conn. 278.) The holders of the bonds of the original company, represented by the plaintiff Huntington, may also be said to be interested in preventing the defendants or either of them from issuing other bonds so similar to the bonds already issued by the plaintiff corporation as to create confusion among possible investors. As has already been said, the bonds issued by the plaintiff corporation are guaranteed by a strong going concern and command a high price in the market. The bonds already issued and proposed to be issued by one of the defendant corporations are so similar in purport and appearance to those issued by the original corporation as to be not easily distinguished, and have behind them nothing, so far as appears, except the promise to pay of a corporation having neither assets nor business. It would seem to be almost inevitable that the confusion resulting from the adoption by one of the defendants of the name of' the original corporation, and the issue of bonds under such name, would tend to discourage investors from buying any bonds of either issue, lest by inadvertence they might receive bonds of the new company instead of those issued by the original company. This confusion would have a direct tendency to destroy the market for the bonds of the original company and thus depreciate their market value. But if. it be considered that the interests of the plaintiffs already mentioned are too remote and unsubstantial to justify the interposition of a court of equity, the plaintiff New York Telephone Company stands in a much stronger position. It' is alleged and not disputed that-' the New York Telephone Company acquired all the assets, business, property rights, privileges and franchises of the plaintiff Metronolitan Telephone and Telegraph Company, except its franchise to be a corporation. If this be so, it acquired the good will of the last-named corporation, and this, according to the rule now well established, carried with it the right- to use the name of the assignor corporation in con-v nection with its own in such manner as to indicate that it is the successor of the corporation whose business and good will it has purchased. (Fisk v. Fisk, Clark & Flagg, 77 App. Div. 83; Slater v. Slater, 175 N. Y. 143.) It is of no moment, as we consider, that the New York Telephone Company has not, as yet, found it necessary or considered it advisable so to use the name of its assignor, the Metropolitan Telephone and Telegraph Company. The point is that it acquired and has never relinquished the right so to use it. Until some one attempted, as these defendants have now attempted, to appropriate the name, the corporation rightfully entitled to use it was not called upon to assert its right, and its failure to do so should not be attributed to an intention to relinquish it. We are, therefore, of the opinion that the New York Telephone Com- - pany, in any event, has sufficient interest in and right of proprietorship to the name Metropolitan Telephone and Telegraph Company to resort to equity for protection. The neglect to carry on business for a number of years, as it has been held, does not prevent a party from resuming his trade mark or sign • of his good will, nor entitle another to use it. (Glen & Hall Mfg. Co. v. Hall, 61 N. Y. 226.)

Assuming that it has such right,. we think, that there can be no doubt that its prayer for an injunction pendente lite should be granted. The motion papers do not disclose and we are unable to conceive of any reason except a fraudulent and reprehensible one for the adoption by defendants of the name under which they have severally incorporated. The name is not fairly descriptive of any business in which they are engaged or propose to engage. They in fact do no business and are apparently organized only for the purpose of issuing securities as subsidiaries or auxiliaries of a company proposing to build a projected line of telegraph between the city of New York and the city of Chicago. Any other name would have served any honest purpose equally well, and many could be thought of which would be more descriptive of the declared purposes of organization. Reference has already been made to the fact that one of the defendants has issued and sold bonds resembling in nearly every particular those already issued by the plaintiff Metropolitan Telephone and Telegraph Company. In the absence of any other plausible or apparently innocent reason for the appropriation of the name of the original company we are forced to the conclusion that a real reason is the hope that unwary investors may be induced to purchase bonds of the. new company in the belief that they are procuring bonds of the original company, and thus pay a high price for securities which are intrinsically of little value. If such was not the reason for the adoption of this particular name, and the defendants are content to sell their securities upon their own merits they can easily adopt a name which will avoid any confusion. That they have not done so is the strongest evidence of their lacle of good faith. The case, therefore, presents strong reasons for the interposition of equity not only to redress the wrong done to the plaintiffs or some of them but to prevent a continuation of a palpable fraud upon the public.

It is of no moment that defendants are not at present competing for business With either of the corporations plaintiff. Injunctions to prevent the misappropriation of established corporate names are not limited to business corporations. They have been issued to protect the use of the name of a fraternal benevolent society (B. P. O. Elks v. Improved B. P. O. Elks, 205 N. Y. 459); a patriotic society (Society of 182 v. Society of 1812, 46 App. Div. 568), and a charitable society (Salvation Army in U. S. v. American Salvation Army, 135 id. 268). As was pointed out by the Court of Appeals in the case first above cited the public policy of the State, as evidenced by its statutes and the decisions of the courts, forbids the use of misleading names by corporations of any character.

We are, therefore, of the opinion that, upon the facts as disclosed in the papers before us, the continued use of the name Metropolitan Telephone and Telegraph Company in this State by the defendants should be enjoined pendente lite.

The order appealed from will, therefore, be reversed, with ten dollars costs and disbursements, and the motion granted, with ten dollars costs.

Ingraham, P. J., Clarke and Hotchkiss, JJ., concurred; Dowling, J., dissented upon the opinion of Mr. Justice Greenbaum at Special Term.

Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.