Guth Chocolate Co. v. Guth

• Decision Date: 02 June 1914
• Citation: 215 F. 750
• Parties: GUTH CHOCOLATE CO. v. GUTH.
• Court: U.S. Court of Appeals — Fourth Circuit

215 F. 750

GUTH CHOCOLATE CO. v. GUTH.

United States District Court, D. Maryland.

June 2, 1914

Emery Booth, Janney & Varney, of Boston, Mass., and City of New York, Laurence A. Janney, of Boston, Mass., and Marbury Gosnell & Williams and George Weems Williams, all of Baltimore, Md., for plaintiff.

Richard B. Tippett, E. Walton Brewington, and George W. Lindsay, all of Baltimore, Md., for defendant.

ROSE District Judge.

Plaintiff asks that the defendant be restrained from using the name 'Guth' in the sale of candies and from doing in his competition with it certain other things which it says are unfair.

It is a Delaware corporation; the defendant a Maryland citizen. Since he was 14 he has been a maker of candy. Until 1899 he was employed in various candy factories, presumably in subordinate positions. About that time he started in business for himself in Trenton, N.J. His capital was limited. His venture was on a very small scale. It soon came to grief. He moved to this city. He believes that up to that time chocolate candy had not been manufactured in Baltimore. He says that he succeeded in convincing others that it could be here profitably made. He organized, or helped to organize the Headley Chocolate Company. It speedily built up a large business which it apparently still retains. After the great fire in Baltimore in February, 1904, he severed his connection with it. With the financial assistance of other persons, he organized a new corporation under the laws of Maryland. From that time on he appears to have done his best to make his surname prominent in the candy trade. He called the new company the 'Guth Chocolate Company of Baltimore City. ' He determined that 'Guth' should be the trade-mark of the new business. An expert in such matters was commissioned to prepare an artistic and striking embodiment of that word. A comparison of this design with the ordinary signature of the defendant shows that the former was suggested by the latter. There are many differences in detail. Nevertheless, unmistakably the one was kept steadily before the eye of the designer of the other. He did for a somewhat work-a-day signature what a portrait painter who knows his business usually does for a commonplace countenance. You can see the likeness. Nevertheless, if you are a candid critic, you can point out the respects in which the artist has greatly improved upon the original. The design as made and accepted was used in every way in which the family pride and the advertising instinct of the defendant could find opportunity to employ it. The company made some candies for jobbers who each had his own brand. These of course were labeled as their owners directed. The bulk of the company's products were sold as its own. On every package of them the word 'Guth' was imprinted or embossed. On each piece of the more expensive kinds of chocolate made by it the name was impressed, and it was displayed on the little paper cups in which each individual chocolate was packed. It appeared on the company's stationery and in all its advertising literature. The defendant says his idea was to have the public recognize the brand of goods by that name in the characteristic script. The company spent $100,000 in advertising. It built up a large business. It started retail stores in Baltimore and in several other cities. The defendant says that he or it, for he does not instinctively distinguish between the individual and corporate personality, was the first to put out candies to be retailed at $1 a pound. His judgment, he thinks, has found vindication in the fact that there is now a demand for candies selling as high as $1.50. He is not unnaturally proud of his accurate forecast of the possibilities of the market. Some of those who are embarrassed by the high cost of living may not be grateful to him for creating a taste for so expensive a luxury. The circumstance has here significance merely because it shows how generally and favorably the name 'Guth' became known to the sellers and consumers of candy. In spite of, or perhaps because of, the rapid extension of its business, it put a greater strain upon its financial resources than they could bear. A state court receivership followed. For a while it was supposed that its difficulties would be but temporary, and that its creditors would lose little. As time went on it was found that this hope was illusory. The company had much money invested in its plant and machinery. These were installed in a rented building. If they were moved, a large part of their value would be destroyed. It had on hand candy boxes, stationery, etc., which the defendant says cost it $20,000. If it had continued in business they would have been worth that sum to it. All of them, however, bore the name 'Guth.' They were valueless to any one who did not want to use that word as one of the trade-marks or trade-names of his business. It became obvious that the only possible purchaser was some one who wished to continue to sell candies as Guth's.

The defendant arranged for the organization of a new company-- the complainant. The phrase 'of Baltimore City,' which the Maryland corporation law, as it then stood, had required to be a part of the corporate title of the old concern, was in ordinary speech omitted. It had been universally known as the Guth Chocolate Company. The new venture was to bear the same title. The first company had been organized under the laws of Maryland. The second was formed under those of Delaware. In March, 1909, plans for the transfer of the business from the old to the new corporation were consummated. The latter was incorporated. The defendant offered the receivers $16,000 in cash and a release of his $4,000 claim for salary for the 'factory, machinery, fixtures, and equipment located at 30 South Calvert street, Baltimore, together with all boxes, labels, trade-marks, good will, name of the company, raw material, and manufactured goods on hand. ' With the approval of the court, the receivers accepted the proposal. The sale was duly ratified on March 25, 1909. At a later hour on the same day the complainant's directors held their first meeting. To them the defendant, acting, as he stated, for himself and his associates, proposed in writing to sell 'the factory and all the machinery and equipment contained in the building 30 South Calvert street, Baltimore, Md., together with all labels, boxes, packing material, manufactured goods, and appurtenances necessary and now contained in said factory as per schedule attached hereto, together with the good will and the use of the name 'Guth' for the purpose of manufacturing and selling candies under the Guth label; also the complete formulas for manufacturing the Guth chocolates, bonbons, and fancy candies, together with any improvements or changes that might be made from time to time in said formulas. Said offer to include all the property, rights, and privileges lately acquired from the receivers of the Guth Chocolate Company of Baltimore. ' All that he bought from the receivers he expressly sold to the plaintiff. His counsel suggest that he sold nothing else. If they are right, he obtained for a salary claim of $4,000 against the old concern $1,000 in cash and $83,000 of the common stock of the company. The plaintiff gave him in money $17,000, or $1,000 more than his cash payment to the receivers. He gave the latter nothing else except the release of the salary claim.

Individuals or groups of individuals often act as mere conductors through which property instantaneously passes from one party to another. Not infrequently they make on paper at least even greater profits than those obtained by the defendant. Such transactions are so common that they usually give occasion for nothing more than a passing comment. They are, however, worthy of that notice. In this case what was done would have deserved that much attention even if the facts were as the defendant's counsel supposed them to have been.

Unquestionably defendant did undertake to sell all that he had bought. His offer was expressly 'to include all the property, rights, and privileges' he acquired from the receivers. Quite as clearly he did not attempt to transfer any tangible property other than that which the judicial sale had given him. From the receivers he obtained 'the factory, machinery, fixtures, and equipment located at 30 South Calvert street, Baltimore, together with all boxes, labels, * * * raw material, and manufactured goods on hand. ' He conveyed to the plaintiff 'the factory and all of the machinery and equipment contained in the building 30 South Calvert street, Baltimore, Md., together with all labels, boxes, packing material, manufactured goods, and appurtenances necessary and now contained in said factory, as per schedule attached.'

The phraseology differs somewhat. The things conveyed are the same. Did he in like manner restrict the intangible rights he assumed to sell to those which he had bought? The receivers gave him the good will of the old business. That, in so many words, he passed over to the plaintiff. They sold him the 'trade-marks' and 'name of the company.' He did not specifically mention these in his assignment to the plaintiff. They passed under the general clause by which he conveyed all that he had obtained from the receivers. The new company was apparently not content to let its rights rest entirely upon more or less vague language. In his proposal to it he offered 'the use of the name 'Guth' for the purpose of manufacturing and selling candies under the Guth label. ' The products of the old company had been sold as Guth candies. Whatever other trade-marks it once had were of minor value, even if any of them were at that time still in use. It was as Guth's that its...