69 N.J. Eq. 264 | New York Court of Chancery | 1905
The complainant is a Yew Jersey corporation engaged in the trading-stamp business in the city of Paterson as well as in other cities and towns throughout the country.
The defendant, the proprietor of a department store in the city of Paterson, is charged with various invasions of the rights of the complainant in respect of its trading stamps and trading-stamp business.
The order, which was made ex 'parte on April 22d, 1904, upon the filing of the bill, restrains the defendant from using in his business “or giving to persons who' may trade or deal with him, any of the complainant’s trading stamps * * * except such trading stamps as said defendant may lawfully obtain from the complainant, or use in his business with its consent, and except such trading stamps, as may have been given by the. customers of the complainant to dealers and traders with them in pursuance of the contract of complainant with such customers.” ’ ■
1. The complainant’s trading stamps are adhesive stamps similar in size and general appearance to ordinary postage stamps. They are delivered by the complainant to its subscribers who are merchants in various lines, in pads of sheets, which pads often contain five thousand stamps. The stamps are so arranged that they may be readily separated in any desired quantity, and they are delivered by the merchant to his customers as a premium for or discount upon every cash purchase amounting to ten cents or over. For a cash purchase amounting to ten cents the customer may demand and receive one stamp, and in like manner he is entitled to another stamp for every additional ten cents which he may pay in cash for the article or articles which he purchases. The complainant also supplies the public with small pamphlets known as trading-stamp books which purport to give an explanation of the trading-stamp system and which contain leaves to which the stamps may be conveniently affixed. When any person has attached to the pages of one of these books nine hundred and ninety stamps, which number exactly fills the book, he may present his book of stamps at the complainant’s warehouse or store for redemption. The complainant maintains a store where useful and valuable articles are kept for exhibition so ticketed as to show the public how many stamps will purchase each article. The complainant advertises in its trading-stamp books the, name and business of each subscriber to whom it delivers its stamps, and who are authorized to issue the same to their cash cus
The whole success of the trading-stamp business manifestly depends upon the creation and maintenance of a wide general demand for the stamps among the shop-going public. Without such demand merchants would have little inducement to contract with the complainant for the stamps, and of course the purchase of the stamps from the complainant is the only source of the complainant’s gain.
The rights of all parties in these trading stamps, from the time they leave the possession of the complainant until they are-returned to and redeemed by it at its store, are, to a very large extent, created, defined and limited by the contract which the complainant makes with its subscribers.
In every case, as the-bill sets forth, this fundamental contract is, in all particulars affecting this present investigation, precisely the same. The trading stamp itself bears on its face no obligation of the complainant whatsoever; its whole value is derived from the obligation of the complainant in its contract with its subscribers and the representations which the complainant malms to the public in various 'ways.
It is expressly provided in the contract that- the “property in and title to said stamps remain”.with the complainant. The
The contract leaves no room for doubt as to the method in which the subscribers, the merchants, may lawfully .issue the stamps. It provides for the redemption by the complainant of “such stamps as are issued in the regular way by merchants duly authorized by the first party to handle the same,” and the subscriber expressly agrees to give out the stamps at the rate and in -the manner above described, and also agrees “not to dispose of said stamps in any other way.” It is perfectly plain that no stamps can be lawfully issued under this contract except by subscribers to thqir customers in accordance with this definite method of business, and it is equally plain that the only obligation of the complainant to redeem its own trading stamps is confined to such stamps as are issued in the regular way. What is the “regular way” of issuing these stamps under this contract is a matter about which there is no room for controversy. It follows that every' person who in any way acquires a trading stamp of tire complainant which has been issued in any other manner tiran by one of the complainant’s customers, in pursuance of the contract, obtains no right of redemption against tire complainant.
The contract also provides that the complainant shall keep a supply of goods’ and merchandise in its store “with which to redeem said stamps when presented in the above-mentioned books (in lots of nine hundred aná ninety (990) stamps), collected in the regular way.” ' I think it i’s quite evident, and the conclusion accords with the argument of counsel for. the complainant, that the regular issuer and the regular collector of these stamps are the two parties on the respective sides of the transaction which results in creating and setting afloat the obligations of the complainant which the stamps represent. The phrases “issued in the regular way” and “collected in the regular way,” in. fact, have the same meaning—describe the same trans
That the right of redemption represented by a stamp which has been issued in the regular way, and therefore has been collected in the regular way, is assignable is admitted by counsel for the complainant, and clearly appears from the contract, the advertisements of the complainant, and the whole trading-stamp scheme as it exists in practical operation. The contract requires the complainant to “maintain a store for the purpose of redeeming such stamps as are issued in the regular way,” &c. As the stamps pass from hand to hand, and no record of the persons to whom they are issued is provided for, the evident meaning of the above provision is that “such stamps as are issued in the regular way” are entitled to redemption by whomsoever they may be presented. The other provision quoted above leads to the same result. The complainant must keep a supply of goods and merchandise “with which to redeem said stamps when presented in the above-mentioned books, in lots of nine hundred and ninety stamps, collected in the regular way.” This means that anyone may present stamps for redemption, provided they are brought to the complainant in the manner specified and have been collected by some person or persons in the regular way.
In the “explanation,” more or less complete, of the trading-stamp scheme, set forth in the trading-stamp books, the complainant, addressing anyone who may read, says, “You also can buy cheaper; you also may obtain a discount—in the way of green trading stamps—which may be taken to our store and exchanged for an endless variety of goods.” The use of the phrase “which may be taken,” instead of the phrase “which you may take,” is most significant, and indicates how carefully the complainant avoids creating the impression that the collector of the stamp on its issue is the only person who has the right to present it for redemption.
The trading-stamp system of the complainant involves, as a valuable if not an essential element, the general assignability of the right of redemption which every stamp represents after
2. I think that it is very important to. the comprehension of this case to perceive at the start that while the trading stamp is of no value whatever, and evidences no right of redemption until it has “been issued in the regular wray” by a subscriber of the complainant to his cash customers, and therefore necessarily has been “collected in the regular way” by such customer, after such issuance and collection, it represents a property right of quite definite pecuniary value, which the complainant has most' distinctly and intentionally made generally transferable. This property right is bought and paid for by the collector. The stamp is practically a negotiable order for merchandise. It is a mistake to regard it as a gratuity. Shoppers are invited to buy merchandise for cash from the complainant’s subscribers because for their money they get certain articles which the subscribers purvey, and also the right to select and receive certain other articles which the complainant purveys. Under this trading-stamp scheme $100 buys goods of that price or value from the merchant, and goods of the value of three, four or five dollars from the complainant.
3. The claim on behalf of the complainant that it retains title to the trading stamp as a chattel after it has been regu
The bill of complaint states “that said trading-stamp book contains a notice to tire effect that the book and the stamps which are to be placed therein are the property” of the complainant, and “are not 'transferable without the permission” of the complainant. The sample trading-stamp book referred to in the bill and annexed to it as an exhibit contains a notice which may or may not exactly bear out the above-quoted allegation of the bill. This allegation of the bill, however, is entirely disproved. The defendant’s affidavit has attached to it a trading-stamp book purporting to be one of the books of the complainant and apparently precisely the same in all respects as the sample referred to in the complainant’s bill, ■ excepting that it contains no notice whatever of the character above set forth—no notice
The conclusion I think on this branch of the case, quite beyond all doubt or discussion, is that the complainant has made its stamps, or rather its obligations, to deliver merchandise in exchange for its stamps,, generally assignable without limitation of any kind whatever, excepting as to the mode in which the stamps are to be presented for redemption. The complainant has not even undertaken to notify the public that it claimed the slightest right to interfere with or control the holder for value of its transferable obligations in selling, assigning or transferring the same.’ If any limitation upon the power of the holder of this transferable property to transfer the same is to be discovered in the transaction, or series of transactions which result in putting the property on the market, it must be by implication: an implied obligation or condition affecting all subsequent holders of this property must be discovered and enforced by a court of equity.
5. We are now prepared to inquire what is the true nature and definition of the legal or equitable right which the com
The complainant’s counsel argues that the defendant is fraudulently issuing or re-issuing these stamps, and that his customers who receive them are falsely led to believe that they are “collecting” them “in the regular way,” when in fact such is not the case—when in fact the stamp represents no obligation which the complainant is bound to discharge. This argument applies with full force to the alleged conduct of the defendant in fraudulently obtaining pads of stamps from tire subscribers of the complainant, in violation of their contracts, and giving out such stamps to his customers, which conduct is included within the restraining order and will be prohibited by the injunction which will issue in this cause, but has no application to the conduct of the defendant in buying up regularly-issued and collected stamps and 'transferring them to his customers as premiums. In this transaction the defendant is not fraudulently “issuing” or “re-issuing” the stamps, nor do his customers “collect” them within the meaning of the contract of the complainant with its subscribers. The defendant is merely assigning stamps which have theretofore been issued in the regular way. No one suggests that the defendant has not a right to advertise for and buy up as many stamps of the complainant as the lawful holders thereof are willing to sell to him. No one denies that the defendant may place these stamps in books and present them to the complainant to be exchanged for articles of merchandise, or give the books and stamps as Christmas pres
It has not been argued that the defendant is guilty of unfair competition in representing to the public that he was advertised, or commended, or in some way certified to by the complainant. The evidence indicates that tire public do not deal with merchants in reliance upon their connection with the complainant or its system. There is no proof that the mere right, lawfully to give out the complainant’s trading stamps in any way affects trade. There is no evidence that if a person does not wish to get trading stamps he will go to> a subscriber of the complainant in preference to other dealers. The evidence shows that the public are attracted to the shops where they can get these valuable stamps, and have no1 concern with the relations of the shopkeeper to the complainant, provided valid stamps can be obtained. But the complete answer, I think, is that the proofs show that the defendant, in the most open and notorious way, is advertising his hostility to the complainant and boldly announcing Ms intention to buy up the regularly-issued stamps of the complainant and the regularly-issued stamps of other companies, and transfer them to Ms customers, without regard to the contracts under which these stamps have been issued. I find no support for any charge of unfair com
As I analyze the complainant’s case, the proposition upon which it necessarily must rest is this: that while the complainant may flood the market with its transferable obligations, enforceable by whomsoever they may be presented, nevertheless these obligations are not transferable for a purpose or with an effect which is injurious to the complainant’s business, in which they were originally issued, and cannot be used in a manner detrimental to the trading-stamp scheme. In my opinion, this proposition is without a shadow of support in law or in equity. As I have said heretofore, the alleged equitable right of the complainant to dictate the manner in which the defendant shall transfer these transferable obligations of the complainant which the defendant has lawfully acquired must in some way be raised by implication. The complainant has not made the slightest effort, in its contracts or “explanation” upon which all its stamps were issued, to indicate that such a power of control was reserved. All these stamps have been put forth and large numbers of purchasers have been induced to- expend their money for them without notice that they could not be transferred without limitation. To raise a limitation by implication now which will take the defendant out of the market and prevent the holders of the stamps from selling them to the defendant for cash, very directly impairs the value of the stamp or the property right which it represents.
The trading-stamp scheme is complex and is based upon a large number of legal and equitable principles relating to the law of personal property, the law of contracts, the law of estoppel. The scheme has been adjusted with care so as to gain the full advantage of the- binding force of these principles of jurisprudence. One advantage to the complainant, as we have seen, results from the general assignability of the obligation which the trading stamp represents. But now a weak spot is developed by the operations of the defendant, and the rules of law and equity, which make this obligation of the complainant to give merchandise for stamps practically negotiable, are found to threaten very great damage to the complainant’s system. lit
Men who devise novel schemes of transacting business in order to make money cannot have the courts create novel rules of law for the protection of such schemes. When courts do things of this character it seems to me that they are traveling beyond even the borderland of the law of judicial decision, sound, proper, “judge-made law,” and are invading the province of legislation. The legislature often does intervene for the protection of some new form of business and enact new rules of civil or criminal law for its protection. It is the province of the courts .to administer and apply existing law. Whether the trading stamp, like the beer bottle, is entitled to receive special protection under our law, is a question for the legislature of the state to decide.
I can see no distinction between the status of this transferable obligation of the complainant after it has been put on the market and the status of a chattel issued or delivered in the same way. Suppose the defendant should obtain a large stock of merchandise which the complainant offers for the redemption of its stamps. The defendant might do this by continuing his purchases of the complainant’s stamps and presenting them in books at the complainant’s stores, or he might intercept persons who had exchanged stamps for merchandise and buy the merchandise from them for cash. In this way the defendant might possess himself of a duplicate stock of the complainant’s premiums at a price far below what the complainant paid for the same articles. Now, suppose the defendant should offer by a system of stamps or otherwise these same articles as premiums to his customers, but at a rate far more favorable to the customer than the rate which the complainant’s subscribers could offer. Such a method of business might greatly injure the complainant’s business for a time at least, but it seems
Suppose, again, a merchant should offer certain unique articles, the production of which he controlled, as premiums to his customers. A competitor would have the right to ' collect a stock of these premiums from persons who had received them and give them out again to his customers as premiums. The original distributer of the articles could not complain because his competitor was giving them out at rates which he could meet only at great loss, and his original advertising scheme was being defeated by the very instruments which he had provided for its successful operation.
The only two respects wherein these transferable obligations of the complainant seem to differ from chattels distributed under a similar system, do not, to my mind, take them out of the operation of the well-settled general rule that one who transfers personal property cannot attach to such property conditions which in any way limit the power of subsequent owners to alienate the same. The retention by the complainant of the legal title to the paper which is the evidence of its transferable obligations, for reasons which I. think I have sufficiently indicated, cannot affect in any way the property right of the holder of the complainant’s obligation to deliver merchandise in exchange for the stamp. This property right is absolutely vested in the collector of the stamp and his assignees, and is as safely be3rond the control of the complainant as a chattel which the complainant has sold.
The fact also that the complainant must do something, must receive the stamps and deliver the selected article in exchange therefor, seems to me to be immaterial to this present discus.sion. It may be conceded, for the purposes of this case, that the complainant has full power to impose all sorts of honest conditions upon its liability to exchange merchandise for its
Whether under the contract of the complainant with its subscriber a chattel or a stamp representing the right to obtain a chattel is delivered to a customer, it must be conceded that the three parties to the transaction, the complainant, the subscriber and the customer, may all be bound with reference to the transfer or use of the chattel or stamp by any contract which they may see fit to make. But as the authorities above cited show when such personal property escapes from the control of the first party who took it under the contract, the contract cannot follow it, no condition created by the contract can attach to it, and the only remedy of either of the three parties who may be injured by the violation of the contract is in a suit on the contract against-the party to such contract who was guilty of such violation. Garst v. Hall & L. Co., supra; S. C., 55 L. R. A. 631, note.
It should be observed that if upon any theory the customer who collects a trading stamp from a subscriber of' the complainant is bound by some implied contract that he will not use the stamp thus acquired, or intentionally permit it to be used as an advertising premium—an- admission now made merely for the purposes of this discussion—there is not the slightest evidence that the defendant is bound by any such contractual obligation. There is no evidence that the defendant is “collecting” stamps
Counsel for the complainant cite but a single auihority directly sustaining their contention on this motion, but the case so cited is apparently on all fours with the present ease, and if followed would compel the extension of the injunction in accordance with the complainant’s insistment. The case is Sperry & Hutchinson Co. v. Mechanics Clothing Co., decided November 29th, 1904-, by the circuit court of the United States for the district of Ehode Island, and- as yet not reported [135 Fed. Rep. 833]. The case is also reported in the same court on motion for á preliminary injunction in 128 Fed. Rep. 800, and again in the same volume at page 1015, on motion to modify the preliminary injunction. In deciding these preliminary motions the learned judge of the Ehode Island federal court seemed to incline to
In the opinion on the final hearing of the above-cited case, which has been submitted by counsel for the complainant in a printed pamphlet, the general assignability of the trading stamp or the right of redemption which it represents seems to be distinctly admitted. The tort of the defendant, to- restrain which the injunction was granted, consisted in its using these trading stamps as a means of commending and advertising and increasing its business, precisely as the subscribers of the complainant had used the same stamps when they first issued them. All through the opinion a right seems to be conceded to the complainant to interfere with the transfer of these assignable stamps when transfer-red for a purpose or in a manner inimical to the trading-stamp “scheme or plan” of business. As I have endeavored to explain, I cannot avoid tire conclusion that when a man frames a scheme or plan of business he is obliged -to frame it With reference to existing laws which govern the own
The reasoning of the learned court in this case seems to be based upon the assumption that the intention of the parties to the original trading-stamp transaction is something which the courts ought to effectuate and which outside parties should not disregard or defeat. It is difficult to see how precisely the same reasoning does not apply with equal force to prevent tire collection and so-called reissue of premiums which one merchant has given out in his business by a competitor when such premiums, instead of being transferable obligations, are chattels.
“We may assume,” the opinion reads (p. 2), “that the defendants have the right to purchase trading stamps from collectors who have acquired them from authorized merchants, and as the assignees of the collector’s rights to present them for redemption. Does it follow that they may reissue them anew as cash discounts or as premiums for cash purchases, according to the general method of merchants authorized by the company to issue such stamps?”
Why not, if the so-called reissue'is not a fraudulent simulation of an original issue under a contract, but an .honest assignment of a transferable Obligation of the trading-stamp company which the assignor has lawfully purchased for value? Back of this whole argument lies the implication that the trading-stamp “scheme or plan” is something sacred, or at least something which per se courts must protect. The truth, I think, is that there is no presumption that any particular “scheme or plan” of business, although confessedly lawful, is necessary or even specially advantageous to tire growth of commerce and the advance of civilization. All schemes and plans—and 'in these days schemes and plans are numerous and complex—have to be subjected to the test which is applied when they are set in operation in the face of opposition and competition under existing rules of law.
In another place .(p. J/.) the opinion notes the fact that persons like the defendant in this case, “as transferees of the'
Further on the court puts this question: “But it is asked why, if the right of the customer to transfer it (the trading stamp) is conceded, may he not transfer it in am' mode he pleases, and give it as an advertisement if he sees fit?” I cannot think that the court has presented any satisfactory answer to its own most aptly expressed test question. The answer seems to involve the notion that the “trading-stamp scheme is a three-cornered transaction in which the rights of the three parties are involved,” i. e., the rights of tire complainant, its subscribers, and the collectors of stamps and their assigns, and that all these three parties are in some way bound to support the scheme. I am unable to perceive how the defendant, who has purchased on tire market the transferable orders for merchandise which the complainant has seen fit to issue in pursuance of its scheme, has been in any way brought into that scheme or has become obligated in any way to concern himself about such scheme.
The learned judge concludes his discussion by accepting as true the following statement from the complainant’s brief:
“Wh&n once given out by a merchant they (the stamps) have served the advertising purpose for which they were intended, and to- permit the collector of the stamps to again advertise with them would be to go beyond what was the clear intention of the parties, and would be destructive of the rights of the complainant.”
I am unable to accept this proposition, or, indeed, to discover in it anything pertinent to the present investigation leaving out of view the manifest petilio principii contained in the last clause. Without commenting on the fact that the defendant is not the “collector” of the stamps, but stands before the court as the purchaser in the open market of property rights which
The case of National Telegraph News Co. v. Western Union Telegraph Co., supra, which seems to have very largely influenced the final decision of the subsequent Rhode Island ease, was decided by the United States circuit court of appeals in Illinois, and the opinion of the'court was delivered by Judge G-rosscup. It is a novel and interesting case. The court admits that there was no precedent for its action, and boldly proceeds to make a precedent to meet the requirements of a situation involving not only hardship to the complainant but a menace to most important interests of mankind. The facts are as follows : The Western Union Telegraph Company had a system of
The learned court sustained the order of the circuit court, which enjoined the defendant from copying and publishing the news in manner aforesaid “until the lapse of fully sixty minutes from the time such news items” were printed by the complainant’s tickers. The learned court finding the existing rules of law and equity which up to that time had been recognized by the courts to be inadequate .to protect the complainant’s business, with great frankness proceeded to make a precedent that would accomplish the desired object, and, as it declared, “to start this precedent upon a career.”
The gist of the decision seems to lie in the proposition that even without any attempted limitation by contract or notice upon the publication of news at the tickers the law will raise and enforce an implied limitation which will prevent a gratuitous recipient of such news from republishing the same in com
A wide gulf divides this case from that of a person who is invited to buy goods and trading stamps, and after buying both these things is informed that while he may use the goods as he pleases he must not use the stamps or the transferable obligations which they represent in a manner which will injure the scheme of the trading stamp company—that, in effect, by his purchase of this peculiar species of property upon an unlimited offer, he has in some strange way been brought against his will into the trading-stamp scheme so as to be charged with some duty relating to the protection of that scheme.
A still wider gulf divides this “ticker” case from the case presented here, where the defendant is not a “collector” of trading stamps, but is purchasing them on the market where they have been floated in large quantities by the complainant, and where, according to the complainant’s own scheme of business, they pass from hand to hand.
It is unnecessary for me either to criticise or approve the action of the Illinois federal court in this unique case. In the eloquent closing passages of the opinion the court plainly discloses that the business for the protection of which the court made a new precedent and started such precedent on its career, was not that of purveying stock quotations and accounts of baseball matches and prize fights to the brokers’ offices and saloons of Chicago. In some way not explained this able court found that the controversy before it involved the interests of the telegraph system of the world. I think I ought to be extremely cautious in extending under a different state of facts the scope of a novel precedent established for safe-guarding one of the most, efficient instrumentalities of civilization to the protection from injury or even to the salvation of the “scheme or plan” of a trading-stamp company. I am unable to perceive that any broad interests of civilization are involved in the trading-stamp scheme, and therefore feel constrained to apply to it the established principles of the law of contracts and the law of torts as recognized and enforced in the remedial system of courts of equity.
6. Let it be conceded that tire views adverse to the complainant’s alleged rights hereinbefore set forth may not ultimately prevail in this state—that the doctrine laid down, after careful consideration, by the Rhode Island federal court may be adopted by our court of errors and appeals, and that the views herein set forth may be rejected—it still remains true that the complainant stands in this court resting his cause upon a rule of law which to-day is unsettled and: doubtful. It is hardly necessary to cite the cases which establish the proposition that in such a case a preliminary injunction cannot be issued by the court of chancery. Citizens’ Coach Co. v. Camden Horse Railroad Co., 29 N. J. Eq. (2 Stew.) 299; Hagerty v. Lee, 45 N. J. Eq. (18 Stew.) 255; Pennsylvania Railroad Co. v. National Docks Railway Co., 53 N. J. Eq. (8 Dick.) 178, 193.
In the case of Delaware, Lackawanna and Western Railroad Co. v. Central Stockyard Co., 43 N. J. Eq. (16 Stew.) 75, Vice-Chancellor Van Fleet, referring to the above-mentioned rule, de
It is useless to discuss the origin, history or the propriety of this hard and fast rule, or to point out instances in which it has been disregarded without objection. Whatever the legislature or the court of errors and appeals may do in these modern days in the way of abolishing or modifying this rigid rule, which to some minds may seem to be inconsistent with approved modern methods of legal procedure, the rule cannot be disregarded ox-evaded by this court.
The only question, therefore, to be answered in determining the applicability of the rule to the present case is whether the primary right of the complainant, for the protection of which he asks for a preliminary injunction, is legal rather than equitable ixx its character. Of course, the rule under consideration does not interfere with the settlement of equitable principles which have been uncertain and doubtful in injunction suits, and in such suits undoubtedly preliminary injunctions may go. The whole law of unfair competition, which is largely of recent development, has been established in suits in the court of chancery, in many of which preliminary injunctions have been issued.
I think it is quite plain that the fundamental right which the complainant is asserting ixi this cause, if such right exists, is strictly a legal right which courts of law will enforce in an action for damages, and which a court of equity, under our present system, can only enforce under special circumstances, where, fox-instance, such court takes jurisdiction to prevent multiplicity of suits, or because the ascertainment of damages is difficult—• where, in brief, the remedy at law is inadequate. If the defendant is guilty of any tort it is because he is openly, under a claim of right, violating the property rights of the complainant by committing a delict which is classifiable generally as a trespass, but ixi which -there is xxo element of fraud. A court of common law would lake cognizance of this alleged tort, if it be oxxe, in the old. action ex clelicto of trespass on the case.
But let us suppose that I am' in error, as I should be glad to have proved to be the case, in assuming that at the present time
The injunction upon the defendant will be subject to the exception contained in the restraining order.