1. The fact that a false statement may be obviously false to
those who are trained and experienced does not change its
character, nor take away its power to deceive others less
experienced. P.
302 U. S.
116.
2. There is no duty resting upon a citizen to suspect the
honesty of those with whom he transacts business. Laws are made to
protect the trusting as well as the suspicious.
Id.
3. Findings of the Federal Trade Commission are conclusive if
supported by evidence. P.
302 U. S.
117.
4. As part of a scheme for selling an encyclopedia and a
loose-leaf extension service, respondents falsely represented to
prospective purchasers that the books would be given to them free
and that they would pay only for the extension service at a reduced
price, whereas, in truth, the price charged them was the same as
the regular standard price for both the books and the extension
service.
Held violative of § 5 of the Federal Trade
Commission Act. Pp.
302 U. S. 115,
302 U. S.
117.
5. An order of the Federal Trade Commission forbade, in the
advertising of a revised encyclopedia, the use of the names of
persons, as contributors or editors, who had not consented to such
use and who had neither actually contributed to the publications
nor helped to edit them.
Held properly inclusive of
contributors to an earlier work no part of whose contributions had
been carried into the revision. P.
302 U. S.
117.
6. The Commission's findings, supported by evidence, sustain its
order forbidding, in advertisements of a publication, the use of
testimonials attributed to persons who did not give them. P.
302 U. S.
118.
7. A cease and desist order of the Federal Trade Commission
directed to a corporation binds those who are in control of its
affairs, and may properly include them as individuals when there is
reason to believe that, if directed to the corporation alone, they
will endeavor to evade it. P.
302 U. S.
119.
86 F.2d 692 reversed in part.
Page 302 U. S. 113
Certiorari, 301 U.S. 674, to review the judgment of the court
below which modified in part, and reversed in part, an order of the
Federal Trade Commission.
MR. JUSTICE BLACK delivered the opinion of the Court.
Upon application by the Federal Trade Commission, this Court
granted certiorari to review that part of a decree of the Circuit
Court of Appeals for the Second Circuit which modified in part and
reversed in part a "cease and desist" order of the Commission. 86
F.2d 692. The Commission, after service of a complaint and
extensive hearings, made a finding of facts from the testimony and
ordered two corporation respondents and three individuals
controlling these corporations to desist from certain practices
used by respondents in furthering the sale of encyclopedias and
other books in interstate commerce. The Commission not only found
the practices to be "unfair," but also "false, deceptive, and
misleading." The court below modified and weakened the Commission's
order in material aspects, and the questions here are whether the
testimony supported all the findings of the Commission and whether
these findings justified the entire order as against all the
respondents.
All "unfair" practices found by the Commission related wholly to
methods of sale. The Commission's order against respondents was
based, in part, upon the following findings:
Page 302 U. S. 114
That fictitious testimonials and recommendations had been used
by respondents; that authorized testimonials and recommendations
had been exaggerated and garbled; that authorized testimonials for
a "previous work" were later used to further the sale of another
"work, quite different in form, in material and in purpose." "For
the purpose of selling their publications, Standard Reference Work
and New Standard Encyclopedia," respondents advertised
"a list headed 'Contributors and Reviewers' and . . . [i]n such
list they include many who have not been either contributors or
reviewers to either the Standard Reference Work or the New Standard
Encyclopedia."
Respondents sold "their publications at retail to the public by
salesmen on the subscription plan," and, in carrying out said plan,
they represented to prospects that they were selecting a small list
of "well connected representative people" in various localities in
order to present them with an "artcraft deluxe edition" of the
encyclopedia. Further carrying out respondents' scheme, their
agents represented that
"they are giving away a set of books; that they are not selling
anything; that the books are free; that the books are being given
free as an advertising plan, . . . that the prospect has been
specially selected, and that the only return desired for the gift
is permission to use the name of the prospect for advertising
purposes and as a reference;"
that the
"said prospects are paying only for the loose-leaf extension
service; . . . that the price of $69.50 is a reduced price, and
that the regular price of the books and the extension service is
$150.00, sometimes even as high as $200.00."
The statements that the encyclopedia is being given away; that
payment is only being made "for the loose-leaf extension service;"
and that "$69.50 is a reduced price . . . are false, deceptive and
misleading, as $69.50 is the regular, standard price" for both the
encyclopedia and the loose-leaf extension and research
privileges.
Page 302 U. S. 115
The Court of Appeals reversed clauses one and three of the
Commission's order. These clauses ordered respondents not to
represent falsely to purchasers of their publications that the
publishing company was giving encyclopedias to them as a gift, and
that purchasers were paying only for loose-leaf supplements.
The Court of Appeals affirmed clauses two and six of the
Commission's order. These clauses ordered respondents not to
represent falsely to purchasers that sets of books had "been
reserved to be given away free of cost to selected persons" and
that the usual price at which respondents' publications are sold is
higher than the price "at which they are offered to such
purchasers."
It is clear, both from the findings of the Commission and the
testimony upon which they rest that the practices forbidden in
clauses one, two, three, and six are all tied together as parts of
the same sales plan. As a first step under this plan, salesmen
obtained an audience with prospective purchasers by representations
made to them that, by reason of their prestige and influence, they
had been selected by the company to receive a set of books free of
costs for advertising purposes. After respondents' agents thus
gained an audience by the promise of a free set of books, they then
moved forward under the same general sales plan by falsely
representing that the regular price of the loose-leaf supplement
alone was $69.50, and that the usual price of both books and
loose-leaf supplements was much in excess of $69.50. The Commission
ordered respondents not to engage in carrying out any part of this
entire sale plan. However, as the Court of Appeals reversed clauses
one and three of the Commission's order, a part of the sales scheme
which the Commission condemned as unfair can yet be carried out by
respondents. That is to say, respondents, by that reversal, are
left free to continue to obtain audiences with prospects and to
sell encyclopedias and loose-leaf supplements
Page 302 U. S. 116
to them by false representations that the company gives them a
set of encyclopedias free, and that $69.50 paid by them to the
company is for the loose-leaf supplement alone.
In reaching the conclusion that respondents should be left free
to engage in that part of the sales scheme prohibited by clauses
one and three of the Commission's order, the court below reasoned
as follows:
"We cannot take too seriously the suggestion that a man who is
buying a set of books and a ten years' 'extension service' will be
fatuous enough to be misled by the mere statement that the first
are given away and that he is paying only for the second. . . .
Such trivial niceties are too impalpable for practical affairs,
they are will o' the wisps which divert attention from substantial
evils."
The fact that a false statement may be obviously false to those
who are trained and experienced does not change its character nor
take away its power to deceive others less experienced. There is no
duty resting upon a citizen to suspect the honesty of those with
whom he transacts business. Laws are made to protect the trusting,
as well as the suspicious. The best element of business has long
since decided that honesty should govern competitive enterprises,
and that the rule of
caveat emptor should not be relied
upon to reward fraud and deception.
The practice of promising free books where no free books were
intended to be given, and the practice of deceiving unwary
purchasers into the false belief that loose-leaf supplements alone
sell for $69.50, when in reality both books and supplement
regularly sell for $69.50, are practices contrary to decent
business standards. To fail to prohibit such evil practices would
be to elevate deception in business and to give to it the standing
and dignity of truth. It was clearly the practice of respondents
through their agents, in accordance with a well matured plan, to
mislead customers into the belief that they
Page 302 U. S. 117
were given an encyclopedia and that they paid only for the
loose-leaf supplement. That representations were made justifying
this belief, that the plan was outlined in letters going directly
from the companies, that men and women were deceived by them there
can be little doubt. Certainly the Commission was justified from
the evidence in finding that customers were misled. Testimony in
the record from citizens of ten states -- teachers, doctors,
college professors, club women, business men -- proves beyond doubt
that the practice was not only the commonly accepted sales method
for respondents' encyclopedias, but that it successfully deceived
and deluded its victims.
The courts do not have a right to ignore the plain mandate of
the statute which makes the findings of the Commission conclusive
as to the facts if supported by testimony. [
Footnote 1] The courts cannot pick and choose bits of
evidence to make findings of fact contrary to the findings of the
Commission. The record in this case is filled with evidence of
witnesses under oath which support the Commission's findings.
Clauses 1 and 3 of the Commission's order should be sustained and
enforced.
The seventh clause of the Commission's order forbade the use of
names of persons as contributors or editors who had not consented
to such use and who had neither actually contributed to the
publications nor helped to edit them.
The Court of Appeals upheld this clause except as it might apply
to the original contributors to Aiton's encyclopedia, saying that
"it seems to us not
unfair' to announce as contributors to the
derived works those who have been contributors to the original."
Aiton's encyclopedia was published about 1909, and respondents'
works represent the result of periodic revisions and expansions of
the prior work. The government concedes in
Page 302 U. S.
118
its brief that this clause of the Commission's order does
not prevent respondents from representing a person who contributed
to the original, as a contributor to their revised publication, if
"some of the material originally in Aiton's encyclopedia remained
in the new Edition of the revised work." Respondents agree with
this interpretation. As between these parties, therefore, this
clause permits respondents to represent any person as a contributor
to their present revised encyclopedia if a part of his original
material has been carried forward to it. If no part of his
contribution to Aiton's encyclopedia has been brought forward, he
is not a contributor, and should not be represented as such. This
clause, as originally declared by the Commission, would, under this
interpretation, properly forbid respondents from falsely
representing as contributors or editors those who had actually
neither contributed to nor edited the publications. The decree of
the court below modifying this clause is not in accordance with our
conclusion, and clause seven of the Commission's order should be
enforced.
The Court of Appeals reversed the eighth clause of the order of
the Commission. The reason given by the court below for this action
was as follows:
"For the eighth, which forbade the use of such testimonials
which had not been given by the person whose name was used, we have
been able to find no support in the evidence."
We are convinced that the Commission's findings of fact
justified this clause of the order, and that the testimony supports
these findings. [
Footnote
2]
Page 302 U. S. 119
The Court of Appeals entirely excluded respondent Greener from
the operation of the Commission's order, and partially excluded
respondents Stanford and Ward. The Commission had found from the
testimony that
"Respondents H. M. Stanford, W. H. Ward, and A. J. Greener are
the managers and sole stockholders of respondent Standard Education
Society, and the managers and sole incorporators of Respondent
Standard Encyclopedia Corporation. . . . The Commission concludes
and infers from the record in this case, and so finds, that this
corporation was organized by the individual respondents for the
purpose of evading any order that might be issued by the Federal
Trade Commission against the respondent, the Standard Education
Society."
There was ample support in the testimony for this finding of the
Commission.
The Federal Trade Commission Act (
supra) gives the
Commission power to "prevent persons, partnerships, or
corporations, . . . from using unfair methods of competition in
commerce."
This Court has held that
"a command to the corporation is in effect a command to those
who are officially responsible for the conduct of its affairs. If
they, apprised of the writ directed to the corporation, prevent
compliance . . . they, no less than the corporation itself, are
guilty of disobedience, and may be punished for contempt."
Wilson v. United States, 221 U.
S. 361,
221 U. S.
376.
Respondents Stanford, Ward and Greener, who are in charge and
control of the affairs of respondent corporations, would be bound
by a cease and desist order rendered against the corporations.
Since circumstances disclosed by the Commission's findings and the
testimony are such that further efforts of these individual
respondents to evade orders of the Commission might be anticipated,
it was proper for the Commission to include them in its cease and
desist order.
Page 302 U. S. 120
The record in this case discloses closely held corporations
owned, dominated, and managed by these three individual
respondents. In this management, these three respondents acted with
practically the same freedom as though no corporation had existed.
So far as corporate action was concerned, these three were the
actors. Under the circumstances of this proceeding, the Commission
was justified in reaching the conclusion that it was necessary to
include respondents Stanford, Ward, and Greener in each part of its
order if it was to be fully effective in preventing the unfair
competitive practices which the Commission had found to exist. The
court below was in error in excluding these respondents from the
operation of the Commission's order.
The decree below will be reversed except as to modification of
clause ten of the Commission's order, and the cause is remanded
with instructions to proceed in conformity with this opinion.
Reversed.
[
Footnote 1]
Federal Trade Commission Act, Sept. 26, 1914, 38 Stat. 717,
U.S.C. Title 15, § 45.
[
Footnote 2]
From paragraphs fourteen and fifteen of the Commission's
findings, it appears that respondents used the names of various
individuals in testimonials, and that
"None of these men or this woman ever wrote any testimonial or
recommendation of or concerning the New Standard Encyclopedia. The
representations that these men and this woman wrote the
recommendations for the so-called 'New Standard Encyclopedia' are
false, deceptive and misleading."