Peck Bros. & Co. v. Peck Bros.

113 F. 291, 62 L.R.A. 81, 1902 U.S. App. LEXIS 3962

• Court: Court of Appeals for the Seventh Circuit
• Decided: January 21, 1902
• Docket: No. 818
• Status: Published

Opinion

JENKINS, Circuit Judge,

after stating the facts as above, delivered the opinion of the court.

Upon the evidence in this case, we think we are warranted in saying of this defendant, as we had occasion to say of another corporation under circumstances not dissimilar, that “it was conceived in sin and brought forth in iniquity, that wrong attended at its birth, and that fraud stood sponsor at its christening, imposing upon the corporate child a name to which it was not entitled, and which it had no right to bear.” Kathreiner’s Malzkaffee Fabriken Mit Beschraenkter Haftung v. Pastor Kneip Medicine Co., 27 C. C. A. 351, 82 Fed. 321. The original Connecticut corporation had builded up a large manufacturing interest. Its goods were of superior quality, and commanded higher prices in the market than the goods of other dealers. They were universally known to the trade as “Peck Brothers’ Goods.” The name indicated the origin, and was a guaranty of the superior excellence of the gqods, and was so recognized by all dealing in them. The name arid designation was a property right belonging to, and a valuable asset of, the original Connecticut corporation. Its financial embarrassment caused no suspension of its manufacture or trade. That was continued by the receivers appointed under the bill filed manifestly for the purposes of reorganization. The defendant Oliver D. Peck was at the time the vice president of the Connecticut corporation, and bound by his duty to abstain from injuring its good will and trade name. So, likewise, were the defendants Albert D. Sanders and William A. Ratcliffe thus obligated. Each of them was a stockholder in the Connecticut corporation; the former the manager, and afterwards the receiver, of its Chicago branch, and the latter its principal salesman. So long as they occupied those relations of trust, they were bound in honor to refrain from acts detrimental to the company, and which would undermine its business and affect the value of its trade-name. Mr. Coghlan, one of the incorporators of the Chicago company, was the counsel of the Connecticut company for its Chicago branch, and was one of its counsel in the receivership proceedings in the Northern district of Illinois; and while that confidential relation continued he also was bound by ordinary professional ethics to take no part in a proceeding which must necessarily prove injurious to his client. Pending the proceedings for reorganization, and before it was known whether the corporation would be reorganized, or its property and assets disposed of to others, Coghlan, with two companions, proposed to form a corporation under the title “Peck Bros. Co.” to carry, on a like business, and, as events have proven, within the territory occupied by his client. Peck, William A. Ratcliffe, and Coghlan were three of the four subscribers to the stock of that company, and were three of its five directors. They assumed a name to which they had no warrant of right. There were no brothers Peck' interested iti this new enterprise. There was but one Peck. The name assumed was itself a falsehood, and we must believe that it was so assumed for a purpose. The fact of the proposed incorporation was by these parlies either designedly concealed from, or was not made known to, the officers or the Eastern receivers of the Connecticut corporation; but the fact that such incorporation was proposed incidentally came to the knowledge of the Connecticut receivers, and as early as August 8th they wired to the defendant Sanders, who manifestly was not unfriendly to the proposed corporation, objecting to the title of the new company, and directing him to avoid recognizing it in any way. This was nearly two weeks before the incorpoiators met to elect a board of directors. On August 14th the Connecticut receiver addressed a letter to the defendant William A. Ratcliffe, likewise protesting against the use of the name to the injury of the Connecticut corporation. So that they proceeded with this incorporation, assuming a name to which they had no right, with knowledge that they who were then in charge, as officers of the court, of the rights of the stockholders of the Connecticut corporation, protested against the assumption of the name. Here, therefore, was no mere mistaken action, but a deliberate assumption of a name which, as we think, the corporation had no right to bear. We need not stop to inquire too curiously with respect to the real part played by the defendant Albert D. Sanders in this transaction. That he was knowing to it all 'cannot be doubted. He and his codefendants, it is true, deny all conspiracy to defraud; but they content themselves with mere denial. Having submitted to answer, they should have answered fully. In view of the allegations of the bill, it was incumbent upon all of the defendants having knowledge to have informed the court whether Coghlan’s subscription was for himself or for others, or in part for himself and in part for others; whether his own money paid for his subscription to the stock, or whether it was in whole or in part paid for by others, and by whom. The fact that the defendant Albert D. Sanders was the general manager of the Chicago branch, and that within a few months after the incorporation, and while still receiver, he was, either as general manager or in some responsible position, aiding in the management of the affairs of the new corporation, made it incumbent upon him not merely to deny without explanation, but to fully explain, especially in view of the fact that it is conceded that he is now a stockholder and officer of the new corporation. But no word of explanation comes. They refrain from thus speaking by their answer. They refrain from testifying upon the hearing. Upon this whole business, and with respect to their connection with it, the defendants are as silent as the sphinx. We cannot but believe that the corporation was formed with a view to obtain, rightfully or wrongfully, the good will and trade-name of the Connecticut business. Indeed, the answer asserts that the company was formed “to buy the assets and good will of the insolvent concern,” and “for the purpose of taking off the hands of the receiver the assets and good will of the Western branch.” This affirmative allegation required of them proof of the fact, but that evidence is not forthcoming. If, however, the allegations of the answer were true, while it might acquit the defendants of “original sin,” the wrongful assumption of the name and the prosecution of the business thereunder would, as against the lawful proprietors of the name and business conducted under it, render the enterprise illegal. The new corporation did not acquire any right or title to the trade-name or the good will of the Connecticut business. The receivers declined absolutely to deal with the Chicago parties upon any such postulate, and instructed the defendant Sanders, if that were insisted upon, to “call the deal off.” The order of sale by the circuit court of the United States for the Northern district of Illinois carefully omits any inclusion of the trade-name or good will, and all that the defendant corporation acquired by the sale was the stock of goods at Chicago. There is here either original wrongful intent, or, if the design were originally honest, it became wrongful upon failure to acquire by purchase the business and trade-name.

It is now so well settled, both by the decisions of the supreme court, and of this court, that the wrongful use of one’s own name to the injury of another, which results in the palming off upon the public his goods as the goods of that other, will be restrained, that it is not needful to review the authorities. We need only refer to a few: Elgin Nat. Watch Co. v. Illinois Watch Co., 179 U. S. 665, 675, 21 Sup. Ct. 270, 45 L. Ed. 365; Meyer v. Medicine Co., 7 C. C. A. 558, 58 Fed. 884, 18 U. S. App. 372; Pillsbury v. Flour Mills Co., 24 U. S. App. 395, 12 C. C. A. 432, 64 Fed. 841; Stuart v. Stewart Co., 33 C. C. A. 480, 91 Fed. 243. See, also, Tussaud v. Tussaud, 44 Ch. Div. 678. While one may have the right to use his own name honestly in his own business, for the purpose of advertising he cannot resort to any artifice or do any act calculated to mislead the public as to the identity of the business, firm, or establishment, or the article produced, and thus work injury beyond that which results from mere similarity of names. Chemical Co. v. Meyer, 139 U. S. 540, 11 Sup. Ct. 625, 35 L. Ed. 247. Here the artifice consisted not in using one’s own name, but in assuming falsely the name “Peck Bros.,” there being no brothers of that name in the incorporation. The name, manifestly, was thus assumed for the purpose of obtaining the good will of the established business of the Connecticut corporation, resulting, failing the acquirement by purchase of the business, good will, and trade-name, in fraud upon the public, and injury to the legitimate proprietors of the business and trade-name.

The stockholders of the original Connecticut corporation “Peck Brothers & Co.,” including the defendants Peck, Sanders, and William A. Ratcliffe, reorganized under the corporate name of “The Peck Brothers & Company,” and, under the proceedings in the Connecticut court, acquired the business, good will, and trade-name of the old corporation. Beyond question, the right to the trade-name passed by the proceedings to the complainant corporation. Kidd v. Johnson, 100 , 25 L. Ed. 769; Chemical Co. v. Meyer, 139 U. S. 547, 11 Sup. Ct. 625, 35 L. Ed. 247; Nervine Co. v. Richmond, 159 U. S. 302, 16 Sup. Ct. 30, 40 L. Ed. 155; Sarrazin v. Tobacco Co., 35 C. C. A. 496, 93 Fed. 624, 46 L. R. A. 541; LePage Co. v. Russia Cement Co., 2 C. C. A. 555, 51 Fed. 941, 17 L. R. A. 354; Bank of Tomah v. Warren, 94 Wis. 151, 68 N. W. 549; Warren v. Warren Thread Co., 134 Mass. 247.

It is objected, however, that equity cannot extend its preventive arm to stay this wrong, because the defendant acquired the right to be a corporation from the state of Illinois, and that its name was given to it by the state, and that, since a foreign corporation can prosecute business in a state only by comity, it cannot obtain, an injunction from a federal court against the formation of a domestic corporation bearing the same name. In support of this contention, thus broadly stated, reliance is placed upon the case of Hazelton Boiler Co. v. Hazelton Tripod Boiler Co., 142 Ill. 494, 30 N. E. 339. In that case, in the year 1881, one Hazelton, having invented certain improvements in steam boilers, joined with one Kennedy in the business of manufacturing and selling boilers containing such inventions, both of them being then residents of the city of New York. The business was conducted under the name of Hazelton Boiler Co.; and on July 10, 1884, Hazelton assigned his interest in the entire business, including three patents with all reissues and extensions thereof, or improvements in relation thereto, and all inventions which he might thereafter make in relation to steam boilers, to the father of his partner. On June 23, 1888, the business having in the meantime been actively carried on by Kennedy and his brother, a corporation was organized by the three Kennedys, under the laws of the state of New York, under the name of the Hazel-ton Boiler Co. “In February, 1888, Hazelton organized a corporation under the laws of the state of Illinois, under the name of Hazel-ton Tripod Boiler Co., to manufacture and sell tripod boilers ox the same character as those invented by him the patents for which lie had sold to the Kennedys, except some minor changes in the structure of them. The statement of the case asserts the following:

“Neither the complainant nor the defendant corporation has ever been engaged in the business of disposing of its steam boilers by placing the same upon the market; both having confined themselves to dealings directly with customers purchasing for their own use, and not for sale, the sales by each corporation being all made upon orders of customers addressed to it directly in Now York or Chicago, as the case happened to be; and neither kept any depository, warehouse, or sales room for the disposition of its engines, except at its home office.”

The court held that there were two obstacles to recovery by the complainant, which were insuperable: The first, “that the complainant is a junior corporation seeking to contest with a senior corporation the right of the latter to the use of its corporate name”; the second, that a foreign corporation sought to contest with a domestic corporation the right of the latter to the corporate name given by the sovereignty which created it. Upon these propositions the court held that, as the incorporation of the defendant antedated that of the complainant by nearly four months, if there was any infringement, the complainant, and not the defendant, was the aggressor; overlooking, as it seems to us, the fact that if Hazelton, as was claimed, had by th¿ transfer to Kennedy several years before of the assets of the business transferred also the right to use his name in connection with the manufacture of boilers, he could not rightfully, under any guise or pretense, -either individually or by imposing that name upon a corporation, use it in connection with the same business, if thereby the public was imposed upon by reason of the confusion of goods naturally resulting from such use. It may be that the court supposed that the facts above stated with reference to the conduct of the business prevented such confusion. The court also seemed to have overlooked the fact that the New York corporation was composed of the Kennedys, and was merely > successor to them in the business, and possessed all the rights which they had thereto, including trade-names. Upon the second proposition the court remarked:

“But the complainant is in the attitude of a foreign corporation coming into this state and seeking to contest the right to the use of a corporate name which this state, in furtherance of its own public policy, and in the exercise of its own sovereignty, has seen fit to bestow upon one of its own corporations. For such a purpose a foreign corporation can have no standing in our courts. Such corporations do not come into this state as a matter of legal right, but only by comity, and they cannot be permitted to come for the purpose of asserting rights in contravention of our laws or public policy. It is competent for this state, whenever it sees fit to do so, to debar any or all foreign corporations from doing business here, and whatever it may do by way of chartering corporations of its own cannot be called in question- by corporations which are here only by a species of legal sufferance.”

We are compelled, with deference, to differ with the learned court, if it intended to hold that incorporation under the'laws of the state of Illinois protects one from the consequences of his own wrong. In a certain limited sense the sovereignty of the state had conferred the name. There is, however, in the term “sovereignty,” no magic to conjure by. It can confer upon individuals no right to perpetrate wrong. Nor do we think that the sovereignty of the state of Illinois sought to do that. It has a general law of incorporation, by which any body of men-combining for the purpose of business may incorporate under any name they may select. The name is not imposed by the law, but is chosen by the incorporators. With that selection the sovereignty of the state has nothing to do. The act of sovereignty allowing incorporation is permissive, not mandatory. It sanctions the act of incorporation under the name and for the business proposed, if that name and that business be otherwise lawful. The sovereign by the act of incorporation adjudges neither the legality of the business proposed, nor of the name assumed. That is matter for judicial determination by a court having jurisdiction of the subject when the legality of the business or of the name is called in question. If one may not use the name imposed upon him in invitum so that it shall work wrong.to smother, by what token may he become incorporated under a name selected by himself to effect like wrong? And how is the sovereignty of a great state impugned by the denial to incorporators oí a right to perpetrate such a wrong? Is it possible that a sovereignty of a state can be thus invoked to perpetrate a fraud? If it may be, then indeed will that sovereignty stand for oppression, and not for justice. Then could one who, in connection with a business to which his name had been attached and had given value to it, having disposed of the right to use that name to another, and so by the law prohibited from using it in connection with a like business under circumstances that would work a fraud, be enabled to effect the fraud by simply becoming incorporated under that name under the sovereignty of the state of Illinois. We cannot bend our judgment to the conclusion that a sovereign state designed thus to confer immunity for wrong. The court, in a review of the evidence, further held that the trade-name and good will of the business were, as a matter of fact, not transferred by an assignment which merely transferred the right of the vendor to the business, “its assets, profits, and emoluments,” and that the negotiations for a sale did not comprehend such transfer. Whether this legal conclusion be correct, we need not inquire; but the fact seems to have had influence, for the court seeks to distinguish the case then in hand from its decision in Frazer v. Frazer Lubricator Co., 121 Ill. 147, 13 N. E. 639, 2 Am. St. Rep. 73, in which that court held that one selling out an established business, and with it his own name to be used in connection with the business, cannot afterwards assume it in carrying on a like business; and this upon the ground that the instrument of transfer in that case expressly authorized the vendee to use the name as a trade-mark, or as indicating the material or product theretofore manufactured by the vendor, and conferred upon the vendee the exclusive authority to use his name for such purpose. The court seems to have been also influenced by the fact that as the boilers were made for use by those ordering them, and were not upon the market for sale, there could be but little, if any, confusion or improper interference. If that fact be potential, it is unavailing in the case in hand. Here the defendants reach out into the markets of the East, and persistently and deliberately place goods of their manufacture upon the market, selling them under such guise that experienced dealers are imposed upon. With respect to the denial by the supreme court of Illinois of the right of a foreign corporation to contest in the courts of that state the right oí a domestic corporation to the corporate name given it by the state in its articles of incorporation, even if that name be selected in fraud and be used to perpetrate a wrong, we are not concerned. The state of Illinois has the undoubted right to regulate its own courts in its own way, and, if it so will, to turn a deaf ear to a demand for justice. A federal court, however, is organized in part to listen to complaints of citizens and corporations of one state against citizens or corporations of another state, and its doors may not be closed by any ruling of a state tribunal. We study the decisions of the highest court of a state with respectful deference, but cannot be concluded thereby in such a case as the present one, when, the ruling invoked, in our judgment, works a grievous wrong. We cannot follow the decision in the Hazelton Case. The doctrine of the Illinois court, as we conceive, is not in accord with the decisions of the federal and of other state courts. Celluloid Mfg. Co. v. Cellonite Mfg. Co. (C. C.) 32 Fed. 94; Rogers Co. v. Rogers Mfg. Co., 17 C. C. A. 576, 70 Fed. 1017; Publishing Co. v. Dobbinson (C. C.) 72 Fed. 603; Higgins Co. v. Higgins Soap Co., 144 N. Y. 462, 39 N. E. 490, 27 L. R. A. 42, 43 Am. St. Rep. 769; Holmes, Booth & Hayden v. Holmes & Atwood Mfg. Co., 37 Conn. 278, 293, 9 Am. Rep. 324. In the first of these cases Mr. Justice Bradley, of the supreme court of the United States, observed:

“As to the imitation of the complainant’s name, the fact that both are corporate names is of no consequence in this connection. They are the business names by which the parties are known, and are to be dealt with precisely as if they were the names of private firms or partnerships. The defendant’s name was of its own choosing, and, if an unlawful imitation of the complainant’s, is subject to the same rules of law as if it were the name of an unincorporated firm or company. It is not identical with the complainant’s name. That would be too gross an invasion of the complainant’s right. Similarity, not identity, is the usual recourse when one party seeks to benefit himself by the good name of another.”

The whole contention is well summed up by Mr. Hopkins in his recent work upon Unfair Trade:

“Where the defendant is a corporation whose corporate name includes a proper name, and was selected by its incorporators with the intent and for the purpose of deceiving the public into the belief that its goods are the goods of the plaintiff, such frauds will, of course, be enjoined.” Hopk. Unfair Trade, 108.

Here the right to the name belongs to the complainant by virtue of the sale of 'the right to that name under the proceedings in Connecticut. The stockholders of the original corporation, including three of these defendants, are stockholders of the complainant company. The proceeding was a mere reorganization, and the complainant succeeded to all the rights of the old company, and to the eqúitable rights of the stockholders representing that company. The court below denied relief because the defendant company was incorporated two years prior to the incorporation of the complainant, overlooking the fact that the complainant corporation does not claim by virtue of its incorporation, but in right of the first corporation and its stockholders to the name it had acquired in the business. The right does not spring from the incorporation, but from the transfer of the, trade-name and good will. The status of the complainant is precisely the same as though the original Connecticut corporation, continuing to exist and to prosecute business, was the party here complaining of the wrong.' The assumption of the name “Peck Bros. Co.” was of itself the utterance of a falsehood, for there were no brothers Peck interested in the incorporation. The name assumed was voluntarily selected, and, as we must believe, for the purpose of appropriating the good will and trade-name of another. If not originally so designed, it is clear that, upon failure to procure the right by purchase, the name was afterwards used for the purpose of misleading the public, and appropriating to itself, without right, the valuable trade-name of another. That wrong has been. effected. Further wrong should be prevented. The remedy, if the defendants be honest, is simple. They have but, under the law, to change the name which they selected, and which has wrought the injury. In any event, they should be enjoined from further perpetration of the wrong.

The decree is reversed, and the cause remanded, with a direction to the court below to decree for the complainant in accordance with the prayer of the bill.