text:
    Hall v. Haines, Appellant.

      Lease — Mines and mining — Lease of slate land — Royalty—Covenant running with land — Assignment of lease — Fraud—Legal fraud. ■

    Where a lessee of slate land assigns all his right, title and interest in the lease to another, and the assignee agrees to pay in addition to the royalty due the lessor under the lease, two per cent, on the product to the lessee, his heirs or sublessees, “so long as the said indenture of lease shall remain in force and effect,” and the assignee subsequently notifies the lessor that he has lost money and cannot continue operations, and the lessor executes a new lease directly to the assignee at a reduced royalty, the original lessee after the abrogation of the first lease is no longer entitled to two per cent of the product.. In such a case the covenant to pay the two per cent is a personal one, and even if it ran with the land it ran no longer than the continuance of'the first lease. The action of the assignee in securing a new lease was not, under the circumstances, a legal fraud upon the original lessee.
    Argued Dec. 9, 1909.
    Appeal, No. 171, Oct. T., 1909, by defendants, from judgment of C.: P. Lehigh Co., Oct. T., 1905, No. 25, for plaintiff in. case tried by the court without a jury in suit of Francis L. Hall v. Alvin S. Haines and J. Martin Koons, trading as the Provident Slate Company.
    Before Rice, P. J., Henderson, Morrison, Orlady, Head, Beaver and Porter,JJ.
    Reversed.
    Assumpsit on account rendered.

      The case was tried, Trexler, P. J., without a jury under the Act of April 22, 1874, P. L. 109.
    The facts are stated in the opinion of the Superior Court.

      Error assigned was in entering judgment for the plaintiff.

      Frank Jacobs, for appellants.
    It is respectfully submitted that under and by virtue of the assignment the defendants were the absolute owners of the lease and leasehold and had the right to do with it according to their pleasure, assign it, sublet part or whole of the premises, retain possession of the lease and the premises, or surrender the same to the lessors: Smith v. Munhall, 139 Pa. 253; Weidner v. Foster, 2 P. & W. 23; Goss v. Woodland Fire Brick Co., 4 Pa. Superior Ct. 167.
    The lessors had the right to enforce the covenant of forfeiture against the defendants (assignees): Stone v. Marshall Oil Co., 188 Pa. 602; Bartley v. Phillips, 179 Pa. 175.
    The covenant for the payment of said two per cent to the plaintiff was personal to the defendants and was not a covenant running with the land: Fisher v. Guffey, 193 Pa. 393.
    There is not a scintilla of evidence to sustain a finding of fraud, or bad faith: Young v. Oil Co., 194 Pa. 243; Pocono Spring Water Ice Co. v. American Ice Co., 214 Pa. 640.

      Jos. J. Brown, with him Edward Harvey, for appellee.—
    It is very evident that the Provident Slate Company in procuring the agreement of rescission and abrogation and the option for a lease both dated April 16, 1904, and the lease dated December 31, 1904, from Gable acted in bad faith and was guilty of a legal fraud on the plaintiff: Johnson’s App., 115 Pa. 129; Jackson v. Ludeling, 88 U. S. 616; Stone v. Marshall Oil Co., 188 Pa. 602; Mitchell v. Kintzer, 5 Pa. 216; Kintzer v. Mitchell, 8 Pa. 64; Krupp v. Scholl, 10 Pa. 193; Vandever v. Baker, 13 Pa. 121; Jackson v. Summerville, 13 Pa. 359.
    July 20, 1910:
    The forfeiture clause in leases is for the protection of the lessor and not of the defaulting lessee: Leatherman v. Oliver, 151 Pa. 646; Bartley v. Phillips, 179 Pa. 175; Wills v. Gas Co., 130 Pa. 222; Ogden v. Hatry, 145 Pa. 640.
    The covenant to pay royalty was not a personal one but one that ran with the land. Lease from Gable to Hall provides that “said covenants, agreements and conditions shall be binding upon the parties hereto, their heirs, executors, administrators, assigns and sublessees:” Bradford Oil Co. v. Blair, 113 Pa. 83; Williams v. Short, 155 Pa. 480; Fennell v. Guffey, 139 Pa. 341.
   Opinion by

Morrison, J.,

This is an action of account render tried before the judge of the court below without a jury and resulted in a judgment in favor of the plaintiff for $424.11, and the defendants appealed.

On December 23, 1899, John J. Gable and Mary E,, his wife, executed and delivered a lease for about 100 acres of land to Francis L. Hall, the plaintiff. The purpose of the lease was to mine and dig for slate and remove and transport the same therefrom. In consideration thereof, said Hall agreed to pay rental or royalty to the lessors at the rate of eight per cent of the price which might be received by him, his heirs, assigns or sublessees. On the same day, by writing duly executed and delivered, Francis L. Hall stipulated: “I, Francis L. Hall, of the Borough of Slatington, Penna., hereby sell, assign, transfer and set over and convey unto William H. Kuntz, Alvin S. Haines and J. Martin Noons, partners, trading as the Provident Slate Company, their heirs and assigns, all my right, title, claim, demand and estate whatsoever in and to that certain indenture of lease dated the 23rd day of December A. D. 1899, between John J. Gable and Mary E., his wife, and myself, for the premises therein described, and which is attached hereto and made a part hereof and all my right, title, demand and estate whatsoever in and to said premises; to have and to hold the same unto the said William H. Kuntz, Alvin S. Haines and J. Martin Koons, their heirs and assigns foréver.

“The said William H. Kuntz, Alvin S. Haines and J. Martin Koons, partners, as aforesaid, yielding and paying unto me and my heirs the sum or royalty of two percent of the. price received by the said William H. Kuntz, Alvin S. Haines and J. Martin Koons, partners, for the product of the said tract of land at the terms and in the manner stipulated and agreed in said recited indenture of lease to be paid by me unto the said John J. Gable and Mary E., his wife.” This assignment contains other stipulations, but they are not material to the questions we are investigating.

We understand that the above assignment obligated the assignees therein to pay the eight per cent royalty stipulated in the original lease to Gable and wife and also to pay Hall two per cent additional. On April 16, 1904, John J. Gable and Mary E., his wife, and Alvin S. Haines and J. Martin Koons, partners, trading as the Provident Slate Company, entered into a written agreement foy certain considerations therein recited rescinding and abrogating and making of no effect or force whatsoever the said lease of December 23, 1899. Hall was not a party to this agreement. William H. Kuntz died and all his interest in the lease had passed to Alvin S. Haines. On the same day the same parties entered into a written agreement granting to the said Alvin S. Haines and J. Martin Koons, trading as the Provident Slate Company, the option for nine months to lease the same premises described in the lease of December 23, 1899, for the purpose of mining, digging, taking out and transporting slate. The royalty to be paid'was reduced to seven per cent. The cancellation of the original lease and the granting of said option were based on the representations of said .slate company that they could not operate the mine profitably paying the royalty of eight per cent to the lessors and two per cent to Hall, and that they had lost a large sum of money in carrying on the business theretofore.

In pursuance of said option the said John J. Gable and Mary E., his wife, on December 31, 1904, executed a new lease to said Alvin S. Haines and J. Martin Koons, trading as the Provident Slate Company; the royalty reserved in this lease was seven per cent, and there were some other changes as to the price of the land in case the slate company elected to purchase it, etc., which were favorable to the latter.

It is conceded that all royalty due Hall, plaintiff, was paid up to the date when the original lease was canceled. The plaintiff took the position, and it was sustained by the court below, that the royalty of two per cent which was reserved in the assignment of the original lease by plaintiff to the defendants was a covenant running with the land and that the defendants were liable to account for and pay to him said royalty for all of the products of said quarry under the new lease of December 31, 1904.

The trial judge, in his opinion, says: “The only question in the case is, Did these various transactions divest Hall of his right to the two per cent royalty in the first assignment by him above referred to? The original contract was made with Hall. His liability upon his covenants would continue after the assignment of the lease. He had also a beneficial interest by reason of the two per cent reserved in the assignment. The liability of the assignee is different and the covenants of the lease are different and the covenants are only binding upon him while he holds the estate and enjoys its benefits.”

But is the position taken by the trial judge controlling and do his reasons warrant the entry of judgment against the defendants, assignees of Hall? The judgment rests on two grounds substantially stated by the trial judge as follows: 1. That the two per cent to Hall was secured by a covenant running with the land, evidently meaning the covenant contained in the assignment of December 23, 1899, from Hall to the defendants. 2. That the surrender and abrogation of the lease of December 23, 1899, by the agreement of the lessor and the defendants of April 16, 1904, and the taking of the new lease of the same lands, dated December 31, 1904, was a legal fraud on Hall, plaintiff. To sustain the judgment at least one of the above reasons must be sound.

As to the covenant for the two per cent to Hall, we think it was purely a personal covenant and that it did not run with the land. Hall had no interest in the leased land except what he acquired as lessee under the lease of December 23, 1899, and on the very same day he received that lease he sold and assigned it as follows: “All my right, title, claim, demand and estate whatsoever in and to said lease, and all my right, title, demand and estate whatsoever in and to said premises; to have and to hold the same unto the said William H. Kuntz, Alvin S. Haines and J. Martin Koons, their heirs and assigns forever.” It is agreed that Kuntz died and his interest in the leasehold became vested in Haines and that he and Koons are the defendants. In consideration of said assignment, Hall took the personal covenant of the defendants as follows: “To pay unto me, my heirs and assigns, two per cent on the price received by them for the product of said tract of land, with all quarries opened or to be opened thereon to be operated by them, their heirs or sublessees so long as the said indenture of lease shall remain in force and effect.” The assigned lease contained provisions whereby it might be forfeited, and Hall, lessee, knew all about these provisions. If he had not assigned the leasehold it will hardly be contended that he and the lessors could not have rescinded and abrogated the said lease of December 23,1899, by such a paper as was executed between the lessors and the defendants on April 16, 1904. If Hall could have abrogated said lease by agreement with the lessors, it is difficult to see why his assignees could not do the same. They were the absolute owners of Hall’s interest in the lease and leasehold, and what Hall could have done before parting with his title his assignees, the defendants, could do. The assignment from Hall to the defendants contained no covenant that the defendants would operate under the lease and remove and sell slate for any definite period of time. Hall \vas bound to know that if the lease was not operated according to its terms, the lessors could declare it forfeited. When Hall parted with his interest vesting it in the defendants he was bound to know that they might forfeit the lease, by failure to comply with its terms, and thus deprive him of the two percent mentioned in his assignment. It is, we think, quite clear that the defendants were not bound to operate under the lease and mine and sell slate at a loss and pay Hall his two per cent. The defendants notified the lessors that they were losing money and could not operate the leasehold under the lease of December 23, 1899, except at a heavy loss, and that they would not continue to operate under said lease. This notice, without more, entitled the lessors to forfeit and declare at an end the said lease, and that is in effect what was done by the paper of April 16,1904, between the lessors and the defendants. It can hardly be doubted that the lessors had the right to declare the lease forfeited on notice from the defendants that they could not and would not operate any longer thereunder: Stone v. Marshall Oil Co., 188 Pa. 602. We do not think that case supports the trial judge in his conclusions. The court there said: “It is contended that the lease of Grimes to the Marshall Oil Company of June 19th, 1888, was a declaration of forfeiture. That would be true if the lease was made for that purpose, and, ordinarily, there would be that presumption. A clause in that lease, inserted at the request of Grimes, before he would sign it, proves that he did not intend that lease as a forfeiture of the prior lease of Aiken. It was expressly provided that the Marshall Oil Company should stand between him and all who may have claims to this lease.”

In the present case the lessors did intend to and as we think actually did forfeit and abrogate the lease of December 23, 1899. We have already seen that Hall had no covenant that the defendants would continue to operate the leasehold for any definite period of time, and that he had no right to ask them to operate it at a loss. But now for the argument’s sake let us assume that Hall’s two per cent covenant ran with the land and that the law raises an implied covenant that the defendants would operate the leasehold in a business-like manner so long as they held the lease, and will those considerations assist in sustaining the judgment? We think not, because such implied covenant was so long as the lease of December 23, 1899, remained in force and we have already seen that it was declared at an end by the lessors with the consent of the assignees of Hall who were the only persons having control over that matter.

The said lease being at an end and the defendants having-paid Hall all money due him thereunder, he could not call on the defendants to pay him for slate sold under the lease of December 3^1, 1904. This is so even if Hall’s covenant did run with the land, for manifestly it could only run so long as the lease and assignment thereof, which created it, remained in force.

We think Hall had no legal claim against the defendants in this case, and that his covenant did not run with the land: Fisher v. Guffey & Queen, 193 Pa. 393.

In our'opinion, the following cases cited by counsel for plaintiff do not sustain the theory of the trial judge: Bradford Oil Co. v. Blair, 113 Pa. 83; Williams v. Short, 155 Pa. 480; Fennell v. Guffey, 139 Pa. 341. Those cases refer to covenants to pay royalty to a lessor.

We think the lessors had, under the notice received from Hall’s assignees, the defendants, a clear right to declare the lease forfeited and ended, and that this was effectually done by the paper of April 16, 1904: Bartley v. Phillips, 179 Pa. 175; English v. Yates, 205 Pa. 106.

As to the question of fraud it is familiar law that fraud will not be presumed but it must be proved: Pocono Spring Water Ice Co. v. American Ice Co., 214 Pa. 640. The trial judge found no fraud in fact, and we do not think there is sufficient evidence in the record from which fraud in fact can be found. Young v. Forest Oil Co. et al., 194 Pa. 243, bears on this question.

We do not think the facts found by the trial judge, and any that could be found from the evidence, sustain the conclusion that the defendants were liable in this suit on the ground of legal fraud. The action of the lessors and the defendant's in abrogating the first lease and making the second one on more favorable terms to the defendants is susceptible of an honest and fair business éxplanation, and it will not do to infer legal fraud in such a case as a basis on which to found a judgment.

The assignments of error are sustained and the judgment is reversed.


source: Caselaw Access Project

author: Rice, P. J.,

license: Public Domain

text:
    E. T. Fraim Lock Company v. Shimer, Appellant.

      Trade-marks — Equity—Answer—Discontinuance of use of mark.

    1. The mere fact that the defendant in a trade-mark bill had no knowledge of the plaintiff’s prior appropriation of the trade-mark and that he discontinued the use thereof as soon as he had been notified of the prior appropriation, is not ground for refusing an injunction or dismissing the bill, where the defendant in his answer denies the right of the plaintiff to the exclusive use of the mark, and in no way intimates that he himself will not resume its use in the future.

      Trade-marks — Registration—Conclusiveness of certificate — Act of June 20,1901, P. L. 582.

    2. The certificate of the registration of a trade-mark under the Act of June 20, 1901, P. L. 582, is hot conclusive as to the right of the holder of the certificate to the exclusive use of the trade-mark. The jurisdiction of the courts to determine the validity of the right claimed in the mark, is not divested.

      Trade-marks — Devices and symbols — Origin and ownership.

    3. The office of a trade-mark is to point out distinctly the origin or ownership of the article to which it is affixed, and thus to protect the purchaser as well as the vendor; but a name, device or a symbol, although arbitrary and fanciful may, in process of time, come, by association, to point unmistakably to the origin of the article, although not immediately connected with the name of the owner or place of manufacture.
    4. The design or emblem of a keystone slightly raised over the keyhole of an ordinary padlock may be adopted as a valid technical trademark.

      Trade-marks — Wrongful use — Penalties under the Act of June 20, 1901, P. L. 582.

    5. The penalties provided by the Act of June 20, 1901, P. L. 582, for the wrongful use of trade-marks registered under the provisions of the act, may be imposed, although the person making such use of the trade-mark, adopted it prior to its registration without knowledge of the prior adoption, and used it after the registration without knowledge of the registration. The word “wrongfully” used in the act does not mean “with a fraudulent intent.”
    Argued Dec. 10, 1909.
    Appeal, No. 188, Oct. T., 1909, by defendant, from decree of C. P. Northampton Co., Feb. T., 1909, No. 4, on bill in equity.in case of E. T. Fraim Lock Company v. Milton J. Shimer, trading as William Shimer & Company.
    Before Rice, P. J., Henderson, Morrison, Orlady, Head, Beaver and Porter, JJ.
    Affirmed.
    Bill in equity for an injunction.
    Scott, P. J., filed the following opinion:
    The plaintiff corporation claims property in a trademark by prior adoption against the defendant and by registration on November 6, 1907, in the office of the secretary of the commonwealth, under the provisions of the Act of assembly of June 20, 1901, P. L. 582. Some facts are stated in the answers to requests, separately filed. These are additional.
    The design or emblem is the keystone symbol of the commonwealth, slightly raised, over the keyhole which divides it of a small ordinary padlock such as is usually sold in commerce. The lock manufactured by the defendant is similar in size, shape and design, with the same emblem, cast in the same manner. Both are exactly alike in general appearance, but the plaintiff’s is a little finer in finish. There are no letters or words of any kind on either.
    The plaintiff company and its predecessors, whose rights it owns, have manufactured different patterns of locks in various designs, with the keystone emblem, since 1879. The defendant and his predecessors, in whose firms he has been a member since 1875, have manufactured continuously from that date certain small articles of hardware, such as sadirons, polishing irons, and others specified in the findings, with the same unlettered and otherwise unmarked symbol stamped upon them. They began to manufacture locks in 1887, but without any symbol. The padlocks in question were not made by the plaintiff until 1900, nor by the defendant until January, 1906. Each party was without knowledge of the other’s manufacture. In the summer of 1906, the plaintiff’s president, who lives at Lancaster, Pa., learned of goods upon the market similar to its own, but did not ascertain that the defendant, who lives at Freemansburg, in Northampton county, was manufacturing them until 1908. He then caused notice to be served upon the defendant to desist from the alleged infringement. The latter, who thus first obtained knowledge of the plaintiff’s goods, stopped the manufacture by advice of counsel, and withdrew his locks from the market. From January, 1906, until August, 1908, the defendant sold 242f gross of said locks upon which the profit was $359.14. The plaintiff’s sales of these locks in 1905 were 4,872 dozen; in 1906 they were 4,127 dozen; 830 dozen in 1907; 1,020 dozen in 1908. His profit was twenty-three cents per dozen.
    I cannot find that the diminution in plaintiff’s sales for 1907-1908 measures the damages which he sustained. In the absence of other conditions by which they would probably be affected, it might perhaps be legally sufficient for the conclusion if the loss were no greater than the profit at his own price would be upon the amount of defendant’s sales: Shaw & Co. v. Pilling & Son, 175 Pa. 78. But when we regard the universal business depression of all kinds during that period, and still existing, it is inadmissible. There is no other evidence.
    OPINION AND DISCUSSION.
    The penalty clause of the act of 1901 was declared to be constitutional in Bergner & Engel Co. v. Koenig, 30 Pa. Superior Cfc. 618, but otherwise the statute has not been before the appellate court for interpretation. Reference will, however, be made to another case yet unreported, in which its specific terms were not drawn into the controversy.

      Upon making and filing certain affidavits by the applicant the secretary of state is authorized to issue a certificate, which “shall in all suits and prosecutions under this act be sufficient proof of the adoption of such label, trade-mark,” etc. But it is no more. The secretary is a ministerial, not a judicial officer, and his certificate upon ex parte proofs without hearing could not divest the jurisdiction of the courts to determine the validity of the act of appropriation or the charactér of the symbol as a lawful trade-mark. One who had already, before the statute was passed, acquired title to or property in a trade name which became a valuable asset, or even afterwards, and before such registration does not forfeit it to some recent business rival who may wish to use it and applies for registry. But the act itself points out a method of retention if a prior owner has omitted the registration, and the courts always for either contestant may upon bill supervise this action. As a trade-mark is property, if the statute was intended to be conclusive and does upon its face effectuate this purpose, it is in contravention of the bill of rights and of the fourteenth amendment to the federal constitution. Recording acts may postpone but do not create titles. An act of assembly which operates retrospectively to take the property of John Doe and give it to Richard Roe, is prohibited by the fundamental law: Palairet’s Appeal, 67 Pa. 479. The statute, however, does not purport to be so intended. The certificate is declared to be proof of adoption only, without reference to time, and. prohibits infringement subsequent to registration, until or less the. registry is revoked upon proof before the secretary of state that there has been a prior adoption of the mark. In neither particular is his action judicial nor beyond ultimate determination by the courts. But unless the remedy for revocation given by the statute be invoked it is not subject to collateral attack.
    The original acts of congress providing for registration were declared to be unconstitutional because they were a regulation of domestic commerce: Trade-mark Cases, 100 U. S. 82. Then followed the Act of March 3, 1881, 7 Fed. Stat. Ann. 329. This defined registration as prima facie evidence of ownership only and all existing rights were in terms expressly reserved. A bill by the registering party under it may be dismissed because the name registered is not a lawful trade-mark: Elgin Nat. Watch Co. v. Illinois Watch Co., 179 U. S. 665 (21 Sup. Ct. Repr. 270); Leschen & Sons Rope Co. v. Broderick & Bascom Rope Co., 201 U,. S. 166 (26 Sup. Ct. Repr. 425). One person may be registered owner, and another the actual owner of the mark: Sarrazin v. Cigar, etc., Co., 93 Fed. Repr. 624, 628. Under this statute an injunction will not issue upon the certificate of registration from the Patent Office. It is not a judicial act: Leschen & Sons Rope Co. v. Broderick & Bascom Rope Co., 123 Fed. Repr. 149 (aff’d 201 U. S. 166). Nor does it give title, if none existed independently: Edison v. Thomas A. Edison, Jr., Chem. Co., 128 Fed. Repr. 1013. But the Pennsylvania act expressly authorizes an injunction and assessment of damages for its violation, upon exhibition of an unrevoked certificate. The act of 1901 was designed for something, and within the limits of constitutional legislation that effect must be given to it.
    Now it is clear enough that after the date of the statute the defendant here, before the adoption of any mark of his own, was bound to inquire in the registration office, and would be answerable by constructive notice thereof for infringement of any mark then shown to have been registered. He adopted the mark in January, 1906, but without registration on his own part, as he might have done, and the plaintiff’s' registry was not made until November 7, 1907. He received actual notice from the plaintiff and his first knowledge of the similar symbol in August, 1908, whereupon he ceased the manufacture and withdrew his locks from the market. Does he under these circumstances, by unintentional violation of the statute, incur its penalties? A chancellor is never easily moved to penalize an innocent party against whom relief is sought,

      In Brennan v. Emery-Bird-Thayer Dry-Goods Co., 99 Fed. Repr. 971, it was held under the act of congress, that if there had been innocent infringement, but stopped under actual notice, an injunction bill would not be entertained, because there was no threatened injury. It was said, however, these facts must appear in the pleadings, while in the present case there is in the answer a general denial of the plaintiff’s rights, and' no assertion or suggestion that the manufacture may not be continued.
    The statute is mandatory. “The court in addition to the penalty shall award,” etc. It must at least, as in all other such cases, receive a strict construction, and exact compliance be shown with all its terms. “The fine or penalty” is to be inflicted irrespective of the fact that the plaintiff in any case may have suffered no actual damages at all, or be unable to prove they have resulted from the acts of a defendant. If the certificate is to be taken as proof of the plaintiff’s adoption of the mark, it does not, therefore, extend beyond the date of. registry. If the statute protects the owner of a trade-mark by requiring the world to take notice of the registry, it also protects the alleged infringer of his rights to the extent that he is not bound to inquire beyond the record which he makes for himself. In any event no profits made by defendant would be recoverable, nor damages if they had been established, except from the date of registration to August, 1908. They are expressly limited to unlawful sales made afterwards. The statute is penal in character. The court is to impose a fine of $200, forfeit defendant’s profits, beside award actual damages. Whether the two last items correctly represent the measure of damages in a suit at law for infringement, they are nevertheless penalties here, for a chancellor does not always, or necessarily, decree them for unintentional offending. A person innocently selling goods bearing the spurious trade-mark of another is not in equity absolutely liable to account for the profits made thereby, but the owner is entitled to an injunction: Moet v. Conston, 33 Beav. 578. The Superior Court in the case cited has sustained its validity because on behalf of public interests as well as for private protection “the object of the statute is to punish one who unlawfully appropriates the trade-mark of another.” This was predicted of the fact admitted by demurrer that the defendant “wrongfully and injuriously adopted an imitation which he falsely represented to be the trade-mark of the plaintiff.” The later decision, December 14, 1908, at Pittsburg (not yet reported), in Hohenstein et al. v. Abraham Prelstein et al.,No. 37, April Term, 1908, the exemplification of which is before me, shows that the defendants continued to use the registered trade-mark of the Carter shoes, after personal notice of the registration, and continued to sell them under the trade name. “They persistently sought,” said Judge Head, “to secure to themselves some of the benefits, real or fanciful, which they must have assumed attached to the use in some form of the word ‘Carter.’ ” The forbidden acts it seems partake of the nature of a public offense. The penalties are to follow only when “any person shall hereafter wrongfully perform or permit” any act expressly prohibited or declared unlawful in sec. 3.
    But I have found no authority to support the proposition that this emphasized word means willful or intentional or anything more when employed in statute making than a bare invasion of a right. Vide 8 Words and Phrases; 2 Bouvier’s Law Diet. 1251. A Wrong is inflicted in legal contemplation whether or not it may have been done with a bad motive. That ingredient of the act is only a question of aggravation (Williams v. Hays, 143 N. Y. 442, 447), and penalties are frequently imposed for acts ignorantly committed. They are sometimes punished by indictment: Com. v. Holstine, 132 Pa. 357.
    In such cases it required another statute to give relief: Act of May 25, 1897, P. L.93. It was the necessary conclusion from this discussion:
    1. That if this be a lawful trade-mark the defendant must pay the penalty prescribed for default in not registering his own. when adopted, and continuing to employ it without examination of the registration record, or making application to have that of the plaintiff’s revoked.
    2. That he is liable to- pay plaintiff the profits made from his manufacture and sale of the marked padlock from November 7, 1907, to August, 1908. But no exact account of this proportion of total profits from manufacture have been shown. No other damages have been proven.
    3. That the registration of adoption by the plaintiff does not close judicial inquiry into the validity of the alleged trade-mark to give him by appropriation of it a monopoly in its use.
    The defendant had used the symbol of a keystone on various small articles of his hardware manufacture, as far back as 1875, but not on these locks until 1906. The plaintiff’s predecessors began business in 1879 and first employed this mark in 1900. It is the rule that when one has acquired the right to use a trade-mark in connection with particular goods, no one else can adopt it to distinguish wares of that same general class.
    The defendant, however, did not employ the device on any of the different varieties of locks, the manufacture of which he began in 1887, until he stamped it on this particular padlock first made in 1906.
    The application of the rule is too restricted to protect the defendant, as it would have done had the symbol been employed earlier -on any of his different styles and patterns of locks. Many cases which illustrate the distinction will be found collected in 28 Am. & Eng. Ency. of Law (2d ed.), 389, and notes. But the question of prior adoption is not open to be disputed in this proceeding. Registration would not otherwise serve the purpose intended by its specific terms which are unlike the act of congress. In point of fact plaintiff’s original employment of it was first.
    There is a further question in the contention. The plaintiff’s right to*an injunction is challenged on the ground that the particular device or symbol is not a distinctive or lawful trade-mark at all. The cases which bear any relation to this subject are not entirely plain in meaning, because the facts in each are so variously different that discussion of some of them in connection with a general rule has led to statements apparently confusing or equivocal when set in comparison with others. I have closely examined a great many more of them than will find reference in this opinion. There may be cases in. which a mere arbitrary symbol or device (not name) without other label or designation in association pointing to individual origin or ownership, or distinguishing it in combination, will be protected as a trade-mark, but none of that exact kind have been pointed out. It has been said “A trade-mark is one’s commercial signature to his goods:” Leidersdorf v. Flint, 8 Biss. (U. S.) 327.
    Even a device not a technical trade-mark because generic or geographical may by long adoption and use acquire what is called a “secondary signification” which will be protected against unfair competition through imposition and fraud: Elgin Nat. Watch Co. v. Illinois Watch Case Co., 179 U. S. 665 (21 Sup. Ct. Repr. 270). The intentional purpose it has been said in unfair competition must be clearly proven: Lawrence Mfg. Co. v. Tennessee Mfg. Co., 138 U. S. 537 (11 Sup. Ct. Rep. 396); Cheavin v. Walker, L. R. 5 Ch. D. 850; vide dissenting opinion of Mr. Justice Mitchell in Brown et al. v. Seidel et al., 153 Pa. 60. In Juan F. Portuondo Cigar Mfg. Co. v.. Cigar Mfg. Co., 222 Pa. 116, to which I am referred, the design to deceive was expressly found, and constituted the fundamental reason for the decree. But there are authorities opposed to this view too, and in the case of identical trade names, which however differ from an arbitrary symbol standing alone, a more stringent rule is applied: American Clay Mfg. Co. v. Clay Mfg. Co., 198 Pa. 189.
    If there be a lawful trade-mark or name, the motive of infringement is immaterial. It will be protected in the owner when established, although two traders have taken the same symbol, each in ignorance that the other uses it, or with an honest doubt as to who has the legal right therein: Brown on Trade-marks, sec. 449; Pratt’s App., 117 Pa. 401.
    The keystone is the popular symbol of the commonwealth. I do not imply that thereby the device in itself or her coat of arms must be assigned to the generic or territorial class as if it were a name like “Lackawanna” (Canal Co. v. Clark, 80 U. S. 311) or “Glendon” (Giendon Iron Co. v. Uhler & Fulmer, 75 Pa. 467), which all persons within the district or state might use with equal liberty and truthfulness. There is no other distinguishing or physical mark to identify its origin. But it is not necessary that the name or place of business of the owner should appear upon it, nor that the purchaser should know to whom it belongs, if its long use points definitely to some unknown proprietor to whom it has become valuable: 28 Am. & Eng. Ency. of Law (2d ed.), 351, and notes. This principle in actual application seems to be almost, if not entirely, limited to cases, so far as reported, in which there is an arbitrary or fanciful name which it will be perceived has a significance of its own more specific than a symbol: 28 Am. & Eng. Ency. of Law, 359.
    In Leschen & Sons Rope Co. v. Broderick & Bascom Rope Co., 201 U. S. 166 (26 Sup. Ct. Repr. 425), the mark registered was to consist of a red or other distinctively colored streak applied to or woven in a wire rope. It was held that this was too indefinite in the first place, and then “whether mere color can constitute a valid trademark may admit of doubt. Doubtless it may be if it be impressed in a particular design, as a circle, , square, triangle, a cross or a star. But the authorities do not go farther than this: Vide Putnam Nail Co. v. Dulaney, 140 Pa. 205; Lafean et al. v. Weeks & Co., 177 Pa. 412.
    The rules to be deduced from the decisions are formulated in Columbia Mill Co. v. Alcorn, 150 U. S. 460 (14 Sup. Ct. Repr. 151), and are thus stated:
    1. That to acquire the right to the exclusive use of a name, device or symbol, as a trade-mark, it must appear that it was adopted for the purpose of identifying the origin or ownership of the article to which it is attached or that such trade-mark must point distinctively either by itself or association to the origin, manufacture or ownership of the article on which it is stamped. It must be designated as its primary object and purpose to indicate the owner or producer of the commodity, and to distinguish it from like articles manufactured by others.
    2. That if the device, mark, or symbol was adopted or placed upon the article for the purpose of identifying its class, grade, style, or quality, or for any purpose other than a reference to or indication of its ownership, it cannot be sustained as a valid trade-mark.
    3. That the exclusive right to the use of the mark or device claimed as a trade-mark is founded on priority of appropriation, that is to say, the claimant of the trademark must have been the first to use or employ the same on like articles of production.
    4. Such trade-mark cannot consist of words in common use as designating locality, section or region of territory.
    An illustration of the kind of trade-mark in an arbitrary symbol which will be protected when used in combination with something that points to its origin, will be found in Pratt’s App., 117 Pa. 401.
    These rules have found substantial expression in Pennsylvania: Ferguson et al. v. Davol Mills et al., 7 Phila. 253; Dixon Crucible Co. v. Guggenheim, 7 Phila. 408, 415, 416 (approved generally by the Supreme Court in Heinz v. Lutz, 146 Pa. 592); White v. Schlect, 14 Phila. 88 (device was merely a drum on collars); Laughman’s App., 128 Pa. 1; McVey v. Brendel, 144 Pa. 235. In Hohenstein et al. v. Perelstine et al., supra, the device registered was combined with the trade name “Carter.”
    But the real test of application here must be taken to lie in the meaning of the words “either by itself or association” in the statement of the first rule above cited.
    It must not be forgotten that while the keystone mark on this lock is absent from, any combination of words to point to the manufacturer, its design is a particular one. It is pierced by the keyhole, and not stamped generally upon the lock, and by its use thus with specific combination for six years prior to its employment by the defendant may be properly said to have acquired “association” with the owner and his wares in the market, although unidentified by name.
    This view was adopted by the president judge, now of the Superior Court, when sitting in the common pleas, Gowans v. Ahlborn Bros., 4 Kulp, 31, and he referred to Sheppard et al. v. Stuart et al., 7 W. N. C. 498, where Judge Finletter declined to follow the decisions of two of his associates in Philadelphia in the cases above noted. Upon the consideration herein stated I must conclude that the plaintiff has shown its right to a technical trade-mark; its specific design and use in the market has given to it that association and character by which the defendant's ignorant and accidental employment of it if continued would have a tendency by the exact similarity, as in the case of the same trade name (American Clay Mfg. Co. v. Clay Mfg. Co., 198 Pa. 189) to confuse the public mind respecting the manufacturer, and the identity of the wares. For this equity will extend its protection.
    Now, June 21, 1909, this cause came on to be heard, and after arguments of counsel and due consideration, it is ordered, adjudged and decreed that the defendant be and he hereby is enjoined from the manufacture and sale of the padlock similar in design and mark to that of the plaintiff as registered in the office of the secretary of state November 6, 1907; that he be and hereby is adjudged to pay to the plaintiff a penalty of $200 and the further sum of $207.20 as profits realized by him upon sales of the infringed locks from November 6, 1907, to the time he ceased manufacture of them in August, 1908. The defendant will pay the costs.

      Error assigned was the decree of the court.

      John D. Hoffman, for appellant.
    It is necessary that the symbol be sufficiently distinctive, or arbitrary, so as to distinguish plaintiff’s goods from those of another; and which other persons cannot use with equal truth as applied to their own goods: Putnam Nail Co. v. Dulaney, 140 Pa. 205; Leschen & Sons Rope Co. v. Broderick, etc., Rope Co., 201 U. S. 166 (26 Sup. Ct. Repr. 425); Brown v. Seidel, 153 Pa. 60; Hoyt v. Hoyt, 143 Pa. 623; Elgin Nat. Watch Co. v. Watch Case Co., 179 U. S. 665 (21 Sup. Ct. Repr. 270); Saxlehner v. Eisner & Mendelson Co., 179 U. S. 19 (21 Sup. Ct. Repr. 7); Castner v. Coffman, 178 U. S. 168 (20 Sup. Ct. Repr. 842); Glendon Iron Co. v. Uhler, 75 Pa. 467; Columbia Mill Co. v. Alcorn, 150 U. S. 460 (14 Sup. Ct. Repr. 151).
    There is absolutely no evidence that there was any unfair intent to compete. On the contrary, it is established clearly as a fact, that defendant knew nothing of plaintiff’s claim, and that when he first learned of it, he ceased the sale of the locks, in dispute, and therefore on this ground alone the bill also must be dismissed: Lawrence Mfg. Co. v. Tennessee Mfg. Co., 138 U. S. 537 (11 Sup. Ct. Repr. 396); Brown v. Seidel, 153 Pa. 60; Brennan v. Dry-Goods Co., 99 Fed. Repr. 971.
    It is an undeniable fact, and one so found by the court, that defendant, if he offended at all, did so innocently, and that when he heard of plaintiff’s complaint he ceased to sell the kind of locks complained of. We claim that as there was no fraudulent purpose to deceive, no penalty is recoverable under the Act of June 20, 1901, P. L. 582: American Clay Mfg. Co. v. Clay Mfg. Co., 198 Pa. 189; MacMahan Co. v. Chemical Mfg. Co., 113 Fed. Repr. 471; Juan F. Portuondo Cigar Mfg. Co. v. Cigar Mfg. Co., 222 Pa. 116; Com. v. Norton, 16 Pa. Superior Ct. 423; Hohenstein v. Perelstine, 37 Pa. Superior Ct. 540.

      H. J. Steele, with him John A. Nauman, for appellee,
    cited: Com. v. Norton, 16 Pa. Superior Ct. 423; Perkins v. Heert, 158 N. Y. 306 (53 N. E. Repr. 18); Tracy v. Banker, 170 Mass. 266 (49 N. E. Repr. 308); Pratt’s App., 117 Pa. 401; Hohenstein v. Perelstine, 37 Pa. Superior Ct. 540; Cigar Mfg. Co. v. Cigar Mfg. Co., 222 Pa. 116; George v. Smith, 52 Fed. Repr. 830; Celluloid Mfg. Co. v. Read, 47 Fed. Repr. 712; Colman v. Crump, 70 N. Y. 573; Hoard v. Wilcox, 47 Pa. 51; Campbell v. Grooms, 101 Pa. 481.
    July 20, 1910:
   Opinion by

Rice, P. J.,

The principal object of this bill in equity was to restrain the infringement of a trade-mark which is thus described: The design or emblem is the keystone symbol of the commonwealth, slightly raised over the keyhole, which divides it', of a small ordinary padlock, such as is usually sold in commerce. The padlock manufactured by the defendant is similar in size, shape and design, with the same emblem cast in the same manner. Both are exactly alike in general appearance, but the plaintiff’s is a little finer in finish. There are no letters or words of any kind on either. This precise emblem was appropriated by the plaintiff or its predecessor and first applied as above described to padlocks of its manufacture in 1900, and by the defendant or his predecessor to padlocks of his manufacture in 1906. On November 6, 1907, the plaintiff caused it to be registered in the office of the secretary of the commonwealth in the manner prescribed in the Act of June 20, 1901, P. L. 582, and received from that officer a duly attested certificate of the record. The defendant, without actual knowledge of the prior appropriation by the plaintiff and this registration on November 6, 1907, continued the use of the trade-mark until August, 1908, when, being notified by the plaintiff of the alleged infringement, he discontinued the manufacture and sale of padlocks bearing it.

1. It is argued that on this last ground alone the bill ought to have been dismissed. It is to be noticed, however, that the ground of defense set up in the defendant’s answer was not that this was an innocent infringement which he discontinued as soon as discovered. There, he not only challenged the right of the plaintiff to the trademark in question, but he also denied that he had at any time done anything that would entitle the plaintiff to the relief prayed for. In effect, he asserted the right to do in the future what he had done in the past, and gave no intimation that it was his intention not to resume the manufacture and sale of padlocks bearing this trade-mark. In view of the issue upon which the case went to final hearing, the mere fact, proved on the. trial, that he discontinued the manufacture and sale which he, in effect, asserted the right to resume at any time, if not restrained, was not ground for refusing an injunction, much less for dismissing the bill.

2. The learned judge held that the certificate of the secretary of the commonwealth, issued under the act of 1901, upon ex parte proofs, does- not divest the jurisdiction of the courts to determine the validity of the act of appropriation or the character of the symbol as a lawful trade-mark, and, therefore, it did not of itself preclude the defendant from asserting its invalidity and denying the right of the plaintiff to a monopoly in its use. This conclusion is so well supported by his opinion that we adopt it without further discussion.

3. The office of a trade-mark is to point out distinctly the origin or ownership of the article to which it is affixed: Delaware & Hudson Canal Co. v. Clark, 80 U. S. 311, and thus to protect the purchaser as well as the vendor. But that a name, device or symbol, although arbitrary and fanciful, may in process of time come, by association, to point unmistakably to the origin of the article, although not immediately connected with the name- of the owner or place of manufacture, is a proposition that is supported not only by reason but by authority. It would be an almost endless task to review and attempt to harmonize or distinguish all the cases from the different jurisdictions of this country in which names and symbols as trade-marks have been considered. But it is safe to say that the proposition as we have stated it is supported by the weight of authority. In the case last cited, Justice Strong, after elaborately discussing the question, said: “Hence the trade-mark must either by itself, or by association, point distinctively to the origin or ownership of the article to which it is.applied. The reason of this is that unless it does, neither can he who first adopted it be injured by any appropriation or imitation of it by others, nor can the public be deceived. The first appropriator of a name or device pointing to his ownership, or which, by being associated with articles of trade, has acquired an understood reference to the originator, or manufacturer of the articles, is injured whenever another adopts the same name or device for similar articles, because such adoption is in effect representing falsely that the productions of the latter are those of the former. . . . . The trade-mark must, therefore, be distinctive in its original signification, pointing to the origin of the article, or it must have become such by association.” And, as pointed out in the opinion of the learned judge in this case, the same principle is recognized in other cases, and particularly in the rules formulated in Columbia Mill Co. v. Alcorn, 150 U. S. 460. Applying this principle to the facts of the case, he reached the conclusion which we deem it important to quote' in this immediate connection. “Upon the considerations herein stated I must conclude that the plaintiffs have shown their right to a technical trade-mark; its specific design and use in the market has given to it that association and character by which the defendant’s ignorant and accidental employment of it, if continued, would have a tendency by the exact similarity, as in the case of the same trade name (American Clay Mfg. Co. v. Clay Mfg. Co., 198 Pa. 189) to confuse the public mind respecting the manufacturer, and the identity of the wares. For this equity will extend its protection.” We need not reiterate the citation of other cases, supporting this conclusion, that will be found in his opinion and in the appellee’s brief. We deem it sufficient to say that, after deliberate consideration of the evidence, the learned argument of appellant’s counsel, and the authorities bearing upon the question, we unanimously concur in the fore-' going conclusion and in the reasoning of the opinion of the learned judge in support of it.

4. In his eighth point of law the defendant requested the court to find that in any event no penalty can be visited on defendant, but only an award of injunction against him restraining him from using said trade-mark, “as his act was neither fraudulent nor calculated to deceive.” The majority of us are of opinion that this point was properly refused and that no error was committed in imposing the penalty. It is true the court found as a fact that the defendant adopted the trade-mark without actual knowledge of its prior adoption by ,the plaintiff, and continued its use after registration, without actual knowledge of that fact. But the court did not find, and would not have been warranted in finding, that the defendant’s action was not calculated to deceive. On the contrary, irrespective of fraudulent intention, the tendency of his action was to produce confusion in the public mind and consequent loss to the plaintiff. And the general rule is, that anything done by a rival in the same business, by imitation or otherwise, designed or calculated to mislead the public in the belief that in buying the product offered by him for sale they were buying the product of another’s manufacture, would be in fraud of that other’s rights and would afford just grounds for equitable interference: Juan F. Portuondo Cigar Mfg. Co. v. Vicente Portuondo Cigar Mfg. Co., 222 Pa. 116; Hohenstein v. Perelstine, 37 Pa. Superior Ct. 540. Is the mere fact that the defendant adopted the trade-mark in ignorance of the plaintiff’s right to its exclusive use ground for refusing to impose the penalty? Section 4 of the act of 1901 prescribes a penalty of $200 for wrongfully performing or permitting to be performed any act expressly prohibited or declared unlawful by sec. 3, and the jurisdiction of a court of equity Upon an injunction bill to impose the penalty is given in these words: “and the court having jurisdiction of the parties shall grant an injunction restraining the defendant from such unlawful acts, and in addition to the penalty provided for in this section shall award to the plaintiff such damages, resulting from such wrongful and unlawful acts, as may be proved, and shall require the defendant to pay to the plaintiff the profits derived from such unlawful acts.” The appellant’s counsel would construe this act to mean the same as if, instead of the word “wrongfully,” the legislature had used the words “with fraudulent intent.” This is the logical import of his argument. We are constrained to the opinion that if this had been the intention of the legislature they would have expressed it in unmistakable terms. The purpose of this statute was considered in Bergner & Engel Co. v. Koenig, 30 Pa. Superior Ct. 618, where our Brother Henderson, speaking for the court, said: “The proprietor of the trade-mark not only has what has been frequently called a property interest therein, but there is also a public interest out of which legislative control arises. One of the reasons for the protection of trademarks exists in the policy of encouraging trade and manufacture and stimulating the production of commodities which are acceptable in the market. Another is the prevention of fraud upon consumers. It has long been recognized as a police power of the state to protect its citizens from imposition in regard to the kind and quality of goods they purchase, and dealers in merchandise have a right to adopt a distinguishing mark by which their commodities may be known. Legislation of this character has been enacted by the United States and by substantially all of the states and in many instances penalties have been prescribed.” Further on in the opinion he says: “The object of the statute is to punish one who unlawfully appropriates the trade-mark of another. The owner may be indirectly interested, but the penalty inflicted is for the wrong done to the public. Numerous penal statutes are in force in which the penalty is recoverable in whole or in part by the informer or the ‘party aggrieved. ’ ” Many such statutes are cited in the opinion. In holding that the defendant’s ignorance furnishes no defense against the recovery of the penalty, it is to be noticed, first, that before the defendant applied the trade-mark to padlocks of his manufacture the plaintiff had acquired, under the application of common-law principies, the exclusive right to its use upon padlocks; second, that the defendant continued his infringement of the plaintiff’s trade-mark after the latter had caused it to be registered in the manner provided by the act of 1901. Therefore, if the defendant acted ignorantly in continuing the infringement it was because he did not avail himself of the means of knowledge which registration under the act of 1901 was intended and was ample to furnish him. This being so, we see no escape from the conclusion that his act was wrongful within the true intent and meaning of the statute.

We have not discussed the case as fully as would seem necessary if the opinion of the learned trial judge had not so fully and satisfactorily met and answered the questions raised by the assignments of error and the contentions advanced in the able argument of appellant’s counsel.

The decree is affirmed at the costs of the appellant.


author: Head, J.,

text:
    Childs, Appellant, v. Adams.

      Equity — Findings of fact — Review—Appeals.
    1. The findings of fact of a trial judge sitting as a chancellor will be accepted by the appellate courts as having the same force and effect as the verdict of the jury; and this rule is especially applicable where such findings are the result of an investigation of the business affairs of a manufacturing corporation, its system of bookkeeping, its method of dealing with its own officers and the outside world and kindred matters which require in such an investigation, the knowledge and skill of business or bookkeeping experts rather than the- application of established legal principle.

      Corporations — President—Treasurer—Director's—Illegal dividends— Acts of July 18,1868, P. L. (1864) HOB, and April 89,1874, P- Á 73.

      2. Where the president and treasurer of a corporation are permitted to control and manage the whole business of the company without any interference by the directors or stockholders, and they declare and distribute dividends in good faith out of what they suppose is profits, although the company is in fact insolvent, they cannot be compelled to pay back the sums thus distributed to the corporation by a bill in equity filed against them by the general receiver of the company. Their only liability is to creditors who must first have the amount of their indebtedness adjudicated in an action against the corporation, and then file their bill for themselves and other like creditors against the officers who have made the illegal payments.
    3. The liabilities of the officers and directors of a corporation specially imposed upon them by the statute, are not assets of the corporation so as to give a general receiver authority to enforce them.
    4. Illegal distribution of what are supposed to be profits, made by the officers of a corporation without any formal action by the board of directors are dividends within the meaning of the Acts of July 18, 1863, P. L. (1864) 1102, and April 29,1874, P. L. 73, and such moneys so distributed are not assets of the corporation in the hands of the officers.
    Argued Dec. 10, 1909.
    Appeal, No. 246, Oct. T., 1909, by plaintiff, from decree of C. P. Montgomery Co., March T., 1908, No. 5, on bill in equity in case of Louis M. Childs, Receiver of the Eureka Knitting Company, v. Edward S. Adams and Edwin Metcalf.
    Before Rice, P. J., Henderson, Morrison, Orlady, Head, Beaver and Porter, JJ.
    Affirmed.
    Bill in equity to compel the return of alleged illegal dividends. Before Swartz, P. J., and Weand, J.
    The facts are stated in the opinion of the Superior Court.

      Errors assigned were various findings of fact and conclusions at law.

      Louis M. Childs, with him Henry M. Brownback, for appellant.
    A dividend is that portion of the profits and surplus funds of a corporation which has been actually set apart by a valid resolution of the board of directors, or by the shareholders at a corporate meeting for distribution amongst the stockholders, etc.: Rose v. Barclay, 191 Pa. 594; Com. v. R. R. Co., 29 Pa. 370; Com. v. Ry. Co., 74 Pa. 83; City of Allegheny v. Ry. Co., 179 Pa. 414; Moss’s App., 83 Pa. 264; Kisterbock’s App., 51 Pa. 483; In re Exchange Banking Co., L. R. 21 Ch. Div. 519.
    July 20, 1910:
    The capital stock cannot lawfully be impaired by the action of the stockholders and we claim that the voluntary payment of it by the treasurer cannot be converted into a dividend lawful as to him by the mere receipt of the money by the stockholders: Lane’s App., 105 Pa. 49; Upton v. Tribilcock, 91 U. S. 45; Sanger v. Upton, 91 U. S. 56; Bell’s App., 115 Pa. 88.
    The receiver is the proper person to bring the suit: State Bank of Pittsburg v. Kirk, 216 Pa. 452; Cushing v. Perot, 175 Pa. 66; Bailey v. Pittsburg Coal R. R. Co., 139 Pa. 213; Lane’s App., 105 Pa. 49; Bell’s App., 115 Pa. 88; McCarty’s App., 110 Pa. 379.

      Montgomery Evans, with him John M. Dettra, for Edwin Metcalf, appellee.
    We submit, as a proposition of law, that the liability of directors and officers of a corporation to creditors as claimed in this proceeding is purely statutory, and the remedies are not by a common-law action, but by the method which the statute has provided and that such method is exclusive: Miller Paper Co. v. Paper Co., 34 Pa. Superior Ct. 315; Ahl v. Rhoads, 84 Pa. 319; Mechanics’ Building, etc., Assn.’s Est., 202 Pa. 589; O’Reilly v. Bard, 105 Pa. 569; Lane’s App., 105 Pa. 49.

      E. L. Hallman, for Edward S. Adams, appellee.
   Opinion by

Head, J.,

The sound reasons which support the rule that the findings of fact of a trial judge, sitting as a chancellor, will be accepted by the appellate courts as having the same force and effect as the verdict of a jury have been too often stated to require a repetition here. The wisdom and the necessity of such a rule are especially apparent in a case like the present one where the conclusions of fact, adopted by the trial judge, are the result of an investigation of the business affairs of a manufacturing corporation, its system of bookkeeping, its method of dealing with its own officers and the outside world, and kindred matters which require, in such an investigation, the knowledge and skill of business or bookkeeping experts rather than the application of established legal principles. The ability and earnestness with which a number of these conclusions have been assailed by the learned counsel for the appellant have necessarily invited a somewhat laborious examination of the testimony and the various statements, groups of figures and exhibits embraced therein. We are obliged to say, however, as the result of such examination, that we are unable to discover any such plain or palpable error in the conclusions of fact reached by the learned trial judge as to warrant us in setting them aside and adopting those contended for by the appellant. We therefore accept these conclusions and dismiss the numerous assignments of error relating solely to this subject.

The important facts thus found, in so far as a statement of them becomes necessary to develop the contention of the parties, may be thus put in narrative form. The Eureka Knitting Company was a manufacturing corporation duly organized under the general act of 1874 and its supplements. It seems to have been created primarily for the purpose of taking over the plant and dfoing business of Edward S. Adams, who had theretofore been engaged in the same line of manufacturing. The property was paid for in the capital stock of the corporation and Adams became the owner of about nine-tenths of the entire capital. The plant was shortly after enlarged by the purchase of the machinery of another mill, and this too was paid for by the issue of additional shares of stock. The stockholders were few in number and each owned but few shares. The entire enterprise seemed to be dependent upon the experience and business ability of Adams, who not only became the president of the corporation, but upon him devolved, by the acquiescence and consent of everybody, almost the entire management and control of the business. A board of directors was • formally elected and Edwin Metcalf, one of them, was made secretary and treasurer of the corporation. In the several years of the active existence of the corporation the board never met except on one or two occasions. Its members acquired no knowledge of its affairs and took no part in its direction or management, but passively permitted Adams and Metcalf to do as they chose and acquiesced in all that was done by them as if their actions had been done in accordance with formal corporate action taken by the board itself.

It has been found that the books displaying the business and financial standing of the corporation were badly kept and failed to show the true condition of the corporate business; that this was .the result of lack of ability and care on the part of both Adams and Metcalf, but that both of them, in the matters referred to, were acting honestly and in good faith and had no intention to bring about the insolvency of the corporation or imperil in any way the rights of the corporate creditors. At the conclusion of the business year ending July 31, 1903, the books as kept and the statements taken therefrom showed a sufficient profit to justify a dividend to the stockholders, and the president, Adams, directed such distribution to be made and checks were accordingly issued by him and the treasurer to each stockholder for his proportionate share. Precisely the same thing occurred at the end of the following year, July, 1904,. and again a distribution was made to each stockholder according to the number of shares held by him. Both of these distributions were received and acquiesced in by all of the stockholders, including of course those who were nominally members of the board of directors.

After a complete examination of the corporate books and a restatement of the accounts, in so far as necessary to disclose the true financial condition of the company, the learned trial court has found that there, was not in fact, at the time these dividends were paid, sufficient net profits to warrant such distributions. He further finds, however, that the corporation was not then insolvent, and that these improvident distributions resulted in some impairment of the existing capital, but had not yet necessarily imperiled the rights of the creditors.

About August 1, 1905, the active management of the corporation was turned over by Adams and Metcalf to two men named Smith and Moyer, who were to continue the business and were to pay info the treasurer of the company annually what would amount to six per cent on its outstanding stock. The arrangement or contract contained certain other provisions which are perhaps not now material to state, but no adequate provision was made for the payment or substantial reduction of the debts of the corporation which had then reached, a considerable sum. For the years 1906 and 1907 Adams and Metcalf seem to have assumed that the money paid in by Smith and Moyer, under the arrangement stated, was properly applicable to dividends, and in each of said years it was so distributed. The learned court below finds that although these distributions, like the others, were made without any dishonest or fraudulent purpose or intent, they were made at a time when the corporation was actually insolvent, or that it became so by reason of these distributions. Later on the corporation was regularly adjudicated to be insolvent, and Louis M. Childs, the appellant, was appointed its receiver. He filed the present bill against Adams and Metcalf, first for the purpose of securing a correct accounting between the company and themselves as individual debtors or creditors of the corporation, and further for the purpose of obtaining a decree requiring them to refund to him, as receiver, the amounts of money which, as he alleges, they had unlawfully paid out to the stockholders in the dividends already referred to.

If the findings of fact of the learned judge below are correct, the first purpose stated has been satisfied by the decree which has been made, and this aspect of the case we need not further consider. As to the remaining purpose of the bill, the learned court held that the receiver had mistaken his remedy, and the prayers of the bill for the repayment or return of the four dividends referred to were dismissed wMmutjirejudice, etc. This portion of the decree raises the legal question involved in the case.

In considering it we may say at the outstart that the findings of the court that the defendants acted throughout honestly and in good faith, and were guilty at most but of inefficiency and carelessness, broadly distinguish this case from Kisterbock’s Appeal, 51 Pa. 483; McCarty’s Appeal, 110 Pa. 379, and kindred cases cited and relied on by the appellant. In Ahl v. Rhoads, 84 Pa. 319, this distinction was clearly pointed out, and it was there held that the liability of certain bank officers and directors for neglect and nfisfeasance in office, not involving any actual fraud, was the liability created by the acts of 1850 and 1867 relating to such subjects, and that the exclusive remedy therefor was that pointed out by those statutes. So in Mechanics’ Building & Savings Association’s Estate, 202 Pa. 589, the Supreme Court, adopting the language of Judge Endlich, said, “But even apart from these considerations, it is to be observed that the liability sought to be fastened upon the directors by the exceptants is not one predicated upon actual fraud, as in Kisterbock’s Appeal, 51 Pa. 483, but upon constructive fraud, technical tort, which, according to Ahl v. Rhoads, 84 Pa. 319, cannot be used for the purpose here attempted to be accomplished.”

In Miller Paper Co. v. York Coated Paper Co., 34 Pa. Superior Ct. 315, this court determined that the Act of July 18, 1863, P. L. (1864) 1102, had not been repealed by the general corporation act of 1874, except in so far as its provisions were supplied by the later act, or where the later had enacted provisions inconsistent with and repugnant to the earlier act. We further held that where the act of 1874 re-enacted those provisions of the act of 1863 prohibiting the doing of certain things by officers and directors of corporations and creating certain liabilities theréfor, but failed to provide any remedy by which such liability could be enforced other than that contained.in the earlier act, the sections of the earlier act providing such remedy remained in full force and effect and must be strictly followed. It would serve no purpose to repeat the reasoning and again cite the authorities which led us to the conclusion we there reached.

The very acts of the corporate officers complained of in this bill are precisely those forbidden by the act of 1863 and the later act of 1874. In both the extent and nature of the liability incurred, by officers and directors who do these forbidden acts, are clearly pointed out, and by the earlier act, in this respect still in force, a definite and adequate remedy to enforce such liability is provided. The learned court below but followed the authority of our former decision in refusing to make the decree prayed for.

We may note here that the liability of directors who declare or pay a dividend when their company is insolvent, or when such payment would render it insolvent, is not necessarily the return, either to the corporation or-to its receiver, of the whole amount of the dividend thus wrongfully paid. In the language of the act, “they shall be jointly and severally liable for all the debts of the company then existing and for all thereafter contracted, so long as they respectively remain in office, provided that the amount for which they shall be liable shall not exceed the amount of such dividend,” etc. Their liability then is not to the corporation or its receiver, but to the creditors who have suffered by their improvident act. But such creditor must first proceed to have the amount of his indebtedness adjudicated in an action against the corporation where the latter, of course, has a right to defend in whole or in part against the alleged claim. When his status as a creditor and the amount of his indebtedness have thus been adjudicated, then he may file his bill for himself and other like creditors against the officers and directors who have violated the statute, and in such a proceeding the court could at once determine to what extent they had incurred the statutory liability and thus make a proper decree. .

This conclusion in nowise militates against the principle declared in Cushing v. Perot, 175 Pa. 66, and State Bank of Pittsburg v. Kirk, 216 Pa. 452, that the receiver, generally speaking, represents not only the corporation but also its creditors, and that it is his duty to gather together all of the assets of the corporation.

We are unable to regard the liability of the officers and directors of a corporation, specially imposed by the statute, as an asset of the corporation within the meaning of that principle. As was said in Lane’s Appeal, 105 Pa. 49, “This liability is, of course, of a purely statutory character, having no existence outside ,of the legislation, and whenever it is invoked it must be enforced in the very manner prescribed by the other portions of the act. If that kind of remedy is not literally pursued when that particular liability is proposed to be enforced, there can be no recovery. Such were the decisions of this court in many cases, notably in Patterson v. Lane, 35 Pa. 275,” etc.

The learned counsel for the appellant ingeniously argues that the distributions of money complained of in this case were not dividends because they were' not formally declared by the board of directors and were not paid out of the net earnings or profits of the company. This is only to argue, however, that there can be no dividend, legally speaking, except a proper and duly authorized one. He therefore contends that, representing the corporation and its creditors, he now seeks but an accounting for the moneys of the company which were at one time in the custody and under the control of its president and treasurer, the present defendants. If, he argues, these officers cannot show a duly authorized and legal disbursement of these moneys, they are still in theii* hands as assets of the corporation, and their payment ought to be decreed to him as its receiver. But the very language of the acts of 1863 and 1874 designates exactly such payments as dividends, forbids the declaration or payment of them and fixes the liability therefor. They were in fact, as the court finds, distributions among the stockholders of what was mistakenly supposed to be net profits available for that purpose, and the distributions were made in accordance with the shares of stock held by each stockholder. They were thus dividends in fact, although not lawfully authorized, and they were declared and their payment was directed, not by the formal action of the board of directors de jure, but of the board de facto, which, by the acquiescence and consent of both stockholders and directors, performed all the functions of the board. The bill itself, upon which the proceeding is founded, recognizes these facts and declares that these officers paid out “as a dividend”, the several sums referred to in the bill.

After a careful examination of the entire record and the able argument of counsel, both at bar and in his printed brief, we are of the opinion that the conclusion reached by the learned trial judge is abundantly supported, both on reason and authority, and the assignments of error must therefore be dismissed.

Decree affirmed.