Mahler v. Sanche

Me. Justice Freeman

delivered the opinion of the court.

Plaintiffs in error first insist that the contract with Potter of March 15, 1895, created no trust between the parties and hence none between complainant and defendants. By the contract Potter was granted the right to establish an office in Chicago for the exclusive sale of complainant’s instruments in certain parts of Illinois. He was to be furnished with goods at a discount of 60 per cent, from the retail price and was to malee settlements of account with complainant every thirty days, failing which the agreement was to be invalidated. Complainant agreed to advance funds to equip the Chicago office and to allow Potter a drawing account of $35 per week for four weeks. Complainant’s advances were to be repaid within one year with interest at six per cent. Potter was to establish other offices later as business might justify, and was to be furnished with a list of dealers in the state and to be allowed to sell anywhere at retail.

It is clear this contract did not make Potter complainant’s trustee, except in a general sense. It was an agreement by complainant to advance Potter goods, office equipment and money to start in the business of selling complainant’s instruments. The obligations imposed on Potter were to “diligently devote his time until otherwise agreed, to the interest of the business,” to make settlements every thirty days for goods furnished by complainant, to pay within a year for the advances made, and to sell complainant’s instruments only under the agreement while it lasted. Ho definite time was named for which the contract should continue. If Potter failed to meet these obligations and committed a breach of the contract, the law afforded a remedy. We discover nothing in the writing, however, which of itself made him thereafter trustee for complainant. He could be held responsible for any wrongful breach of the contract on his part, and for failure to meet his contract obligations; but we know of no ground upon which he could be regarded as a trustee for complainant under the contract. If he is to be regarded as such trustee in any sense it must be upon grounds independent of the contract.

The bill alleges, however, not only a breach of contract on the part of Potter but also a fraudulent imitation by defendants of complainant’s invention. It is averred that using the means furnished by complainant, Potter incorporated the “Cardinal Curative Company” with defendant kiahler as general agent for the manufacture and sale of the so-called “Oxygenor,” a very close imitation not only in name but in fact of complainant’s instrument called “Oxydonorand that this was held out as the latest and best of complainant’s genuine productions. It is averred that with this fraudulent imitation first Potter and then defendants have sought and still seek to supplant complainant’s instrument and obtain the trade built up by the use and sale of the original device. There is evidence which tends to support these 'averments. It appears that defendant Mahler in connection with the other defendants formed a copartnership and bought out Potter and the Curative Company and have since conducted the business in competition with complainant’s device. There is evidence tending to show that Potter while employed by complainant on a salary obtained the knowledge or secret of the manner in which complainant’s device was made and that he imitated it in the manufacture, of the “Oxygenor that defendant Mahler obtained the knowledge from Potter and that he with the other defendants have used it in like' manner. In Peabody v. Norfolk, 98 Mass. 452-456, it is said quoting from Lord Cranworth in Morison v. Moat, 9 Hare, 241: “There is no doubt whatever, that when a party who has a secret in trade employs persons under a contract express or implied, or under duty express or implied, those persons cannot gain the knowledge of the secret and then set it up against their employer.” In that case an' employee who had learned the secret and a third party who had made an arrangement to use the secret in conjunction with the employee were restrained from carrying out - such arrangements. Potter no doubt by his arrangement with' complainant was placed in a relation which enabled him to acquire the knowledge which it appears he made use of for his own benefit and in antagonism to defendant in error'. Equity will prohibit one who occupies any position out of which duty to the person with whose interest he has been associated ought in equity and good conscience to arise, from acquiring such antagonistic rights. Davis v. Hamlin, 108 Ill. 39-49; Trice v. Comstock, 121 Fed. Rep. 620. And what he cannot acquire he cannot convey to others.

It is said, the bill is not predicated upon the allegations relating to “unfair competition, infringement of trade-mark and fraudulent use of confidential information by Potter,” but solely upon an alleged trust created by the contract referred to. The bill is open to that criticism, but it does contain allegations of that character which are amply supported by the evidence. The prayer of the bill is that the rights and interests the defendants acquired in the “Oxygenor” “be declared to have been acquired and to be held in trust” for complainant “under and by virtue of the said agreement of date March 15, 1895.” We do not regard defendant in error entitled to the relief prayed for under and by. virtue of that agreement, but upon other grounds stated in the bill. Equity looks to the substance rather than the form, and we are inclined to hold that the specific portion of the prayer for relief relating to the contract of March 15 may be treated as surplusage.

Whether Potter committed the first breach of the contract or not, is not in the view we take material, but so far as it may be so deemed, the-finding of the master upon the contested question of fact where we cannot say that such finding is manifestly against the evidence, may be deemed conclusive. Siegel v. Andrews, 181 Ill. 350-356.

Plaintiffs in error urge laches in bringing the suit, that complainant waited seven years after breach of the contract of March 15, 1895, and offers no excuse therefor. Such defense is not available to defendants, who are continuing the wrong, as against future infringement. Equity will not extend the limitation of the statute where the latter would bar an action at law. (R. S. chap. 83, sec. 15.) Castner v. Walrod, 83 Ill. 171-175. Complainant claims to have been ignorant of what Potter and defendants were doing until recently. If that be true “no lapse of time, no delay in bringing a suit however long, will defeat the remedy, provided the injured party was during all this interval ignorant of the fraud.” Pomeroy’s Eq. vol. 2, sec. 917. Whether such ignorance existed or not as a matter of fact the master does not find nor the decree determine. If upon further investígation it shall appear that complainant was ignorant of the fraud practiced and not guilty of laches, then he may be entitled to an account of gains and profits, otherwise not. McLean v. Fleming, 96 U. S. 245-257-8. The court there says:

“Cases frequently arise where a court of equity will refuse the prayer of the complainant for an. account of gains and profits on the ground of delay in asserting his rights even when the facts proved render it proper to grant an injunction to prevent future infringement.”

While, therefore, the decree as entered is erroneous, complainant is nevertheless entitled to relief under the averments of the bill and the proofs. He is entitled to an injunction restraining further infringement and it may be to further relief as the proofs may disclose. The decree will therefore be reversed and the cause remanded with directions to the Circuit Court to allow complainant to amend his bill, and for further proceedings not inconsistent with the views above expressed.

Reversed and remanded with directions.