Summary
In Union Carbide Carbon Corp. v. Bargain Fair, Inc., 1958, 167 Ohio St. 182, 147 N.E.2d 481, the Ohio courts had held that the non-signer provisions of the previous Ohio Fair Trade Act were invalid under the Ohio Constitution.
Summary of this case from Parke, Davis v. Health Cross Stores, Md., No. 50Opinion
No. 35097
Decided January 22, 1958.
Fair Trade Act — Sale of commodity at less than stipulated price, prohibited — Section 1333.07, Revised Code — Unenforceable as to persons not parties to price-fixing contract — Unauthorized exercise of police power.
Section 1333.07, Revised Code, a part of the Ohio Fair Trade Act, which prohibits those who are not parties to a price-fixing contract between the producer of a trademarked commodity and another from selling such commodity for less than the price stipulated in such contract, represents an unauthorized exercise of the police power in a matter unrelated to the public safety, morals or general welfare, delegates legislative power to private persons, unconstitutionally denies the owner of property the right to sell it on terms of his own choosing and is invalid.
APPEAL from the Court of Appeals for Lake County.
This cause involves a part of the Ohio Fair Trade Act (Section 1333.05 et seq., Revised Code) and originated in the Court of Common Pleas of Lake County in November of 1954, when the Union Carbide Carbon Corporation, plaintiff and the appellee herein, sought an injunction against Bargain Fair, Inc., and Mentor Brands, Inc., defendants and the appellants herein, to restrain them from selling at a price less than the minimum resale price set by plaintiff under the Ohio Fair Trade Act an antifreeze solution for the radiators of motor vehicles, bearing the trade or brand name of Prestone and produced by the plaintiff.
A general demurrer to the amended petition was filed and overruled, whereupon, after the filing of an answer, the cause was tried on its merits, and the court issued a permanent injunction against defendants in conformity with the prayer of the amended petition.
Thereafter, the cause was appealed on questions of law and fact to the Court of Appeals, which court likewise granted a permanent injunction against the defendants, almost identical in context to the one secured in the court below.
Allowance of a motion to require the Court of Appeals to certify the record and an appeal as of right place the controversy before this court for decision on the merits.
Messrs. Squire, Sanders Dempsey, Mr. John J. Adams and Messrs. Blakely Blakely, for appellee.
Messrs. Metzenbaum Schwartz and Mr. Lester W. Donaldson, for appellants.
The so-called Ohio Fair Trade Act was originally adopted in 1936. Those sections of the Revised Code which are pertinent here are as follows:
Section 1333.06. "(A) No contract relating to the sale or resale of a commodity which bears, or the label, container, or content of which bears, the trademark, brand, or name of the producer or of the owner of such commodity and which is in fair and open competition with commodities of the same general class produced by others violates any law of this state by reason of any of the following provisions which may be contained in such contract:
"(1) The buyer will not resell such commodity at less than the minimum price stipulated by the vendor;
"(2) The vendee or producer shall require any person to whom he may resell such commodity to agree that he will not, in turn, resell such commodity at less than the minimum price stipulated by such vendor or by such vendee.
"* * *."
Section 1333.07. "Whoever knowingly and wilfully advertises, offers for sale, or sells any commodity at less than the minimum price stipulated in any contract entered into under Section 1333.06 of the Revised Code, whether said person advertising, offering for sale, or selling such commodity is or is not a party to such contract, is engaging in unfair competition and unfair trade practices and is liable to any person damaged thereby."
Section 1333.08. "Whoever violates Sections 1333.05 to 1333.10, inclusive, of the Revised Code is liable to any retailer of such commodity or to any other person injured thereby, including the producer of such commodity. Suit may be brought for an injunction against such practice."
It appears from the bill of exceptions that on March 8, 1954, plaintiff entered into a written contract with a retailer of Prestone, being one of some 13,000 dealers in Prestone in Ohio, whereby the retailer agreed not to sell Prestone at a price lower than that specified in a schedule attached to the contract, namely at $2.95 per gallon in gallon cans, at $3.20 per gallon in quart cans, and at 80 cents per quart in quart cans.
Defendants had purchased Prestone from an undisclosed source at a price of $1.67 per gallon can and were selling it to customers, "over the counter" and without additional service, at $2.49. Such practice, on the claim that it represented a violation of the Fair Trade Act, precipitated the present action.
Specifically, defendants challenge the validity of Section 1333.07, Revised Code, quoted above.
During the 1930's many of the states adopted fair trade acts identical or similar to the one enacted and now existing in Ohio. Those acts have come before the courts of the different states for examination frequently and often with diametrically opposite results. Although the decisions of the United States Supreme Court are not binding on the state courts in a matter of the kind now under examination, the earlier cases upholding the legislation often relied on the reasoning of the high federal court in Old Dearborn Distributing Co. v. Seagram Distillers Corp., 299 U.S. 183, 81 L. Ed., 109, 57 S. Ct., 139.
In recent years and in the light of present-day conditions, courts have become more critical of the fair trade acts and have invalidated parts of them with increasing frequency.
Basically, those cases approving the acts in toto proceeded on the theory that a producer of a trademarked product, who has expended money and effort in establishing it on the market at a specified selling price, ought not to be subjected to the injury which cut-rate sales would entail; that the ownership of a trademark and goodwill is a property right which the law should protect and is assertable against all who sell the producer's products; and that price cutting is not only damaging to the goodwill and business of the producer but has a deleterious effect on the public as well. Also brought into the equation is the economic philosophy of the fair trade acts, which it is said bear a real and substantial relationship to the public welfare, and the proposition that their enactment is a matter for legislative determination in the exercise of the police power, with which the courts should not interfere.
On the other hand, the position taken by other courts is that the real effect of the fair trade acts is anticompetitive price fixing rather than the protection of the goodwill of trademarked products. Goodwill should be measured by the price the goods can command in a competitive market and not by allowing the manufacturer to sell at a pegged retail price which he himself selects. In normal times, the inflexible price arrangements which the acts sanction are opposed to our traditional concepts of free competition for the benefit of the consuming public, and the clause binding those who do not enter into a price-fixing contract with the manufacturer offends such concepts. Hence, the nonsigner clause interferes with the constitutional right of the owner of property to dispose of it as he pleases and represents the exercise of the police power for a private as opposed to a public purpose.
It would serve no useful purpose to discuss the pros and the cons of the matter in greater detail, since that has already been done in many cases.
Representative cases upholding fair trade acts in their entirety are Joseph Triner Corp. v. McNeil (1936), 363 Ill. 559, 2 N.E.2d 929, 104 A.L.R., 1435; Sears v. Western Thrift Stores of Olympia, Inc. (1941), 10 Wn.2d 372, 116 P.2d 756; Lionel Corp. v. Grayson-Robinson Stores, Inc. (1954), 15 N.J. 191, 104 A.2d 304; Scovill Mfg. Co. v. Skaggs Pay Less Drugs (1955), 45 Cal.2d 881, 291 P.2d 936; and Burche Co. v. General Electric Co. (1955), 382 Pa. 370, 115 A.2d 361.
Representative cases which have invalidated the nonsigner provisions of such acts are Union Carbide Carbon Corp. v. White River Distributors, Inc. (1955), 224 Ark. 558, 275 S.W.2d 455; McGraw Electric Co. v. Lewis Smith Drug Co., Inc. (1955), 159 Neb. 703, 68 N.W.2d 608; Olin Mathieson Chemical Corp. v. Francis (1956), 134 Colo. 160, 301 P.2d 139; Dr. G.H. Tichenor Antiseptic Co. v. Schwegmann Bros. Giant Super Markets (1956), 231 La. 51, 90 So.2d 343; General Electric Co. v. Wahle (1956), 207 Ore., 302, 296 P.2d 635; and Skaggs Drug Center v. General Electric Co. (N.M., 1957), 315 P.2d 967.
Many manufacturers have abandoned reliance on the fair trade acts to stipulate the prices at which their trademarked products may be sold, realizing the difficulty of enforcement and the further facts that arbitrary price fixing is monopolistic in character, has an anticompetitive effect on the economy and works to the disadvantage of the consuming public.
A majority of this court has reached the conclusion that Section 1333.07, Revised Code, which prohibits those who are not parties to the stipulated-price contract from selling trademarked items at a price lower than that stipulated by the manufacturer, is unreasonable and unenforceable and constitutes an unauthorized exercise of the police power in that there is no substantial relation to the public safety, morals or general welfare. Moreover, it contravenes the "due process" provision of the Ohio Bill of Rights by arbitrarily and monopolistically denying a seller, who has not entered into any price-fixing contract with the manufacturer, the privilege of disposing of his own property on terms of his own choosing, and in addition delegates legislative power and discretion to private persons.
The judgment of the Court of Appeals is, therefore, reversed and the cause remanded to that court with instructions to dissolve the injunction heretofore issued.
Judgment reversed.
WEYGANDT, C.J., STEWART, MATTHIAS, BELL and HERBERT, JJ., concur.
As appellants contend, unless the so-called contract between Union Carbide Carbon Corporation and Loomis Hensel Garage is a "contract" within the meaning of that word as used in Sections 1333.06 and 1333.07, Revised Code, this court, in deciding this case, will not be confronted with any question as to the validity of the so-called "nonsigner provisions" set forth in those statutory sections. It is fundamental that a court should avoid constitutional questions which need not necessarily be considered in reaching a decision on the case before it. State, ex rel. Herbert, v. Ferguson, Aud. (paragraph two of the syllabus), 142 Ohio St. 496, 52 N.E.2d 980; Belden v. Union Central Life Ins. Co. (paragraph seven of the syllabus), 143 Ohio St. 329, 55 N.E.2d 629.
In my opinion, it is clearly apparent from a mere reading of the so-called contract between Union Carbide Carbon Corporation and Loomis Hensel Garage that it is not a contract, because there is no promise set forth therein by either party which is supported by any legal consideration. The so-called contract reads as follows:
"This agreement made this 8th day of March, 1954, by and between Union Carbide Carbon Corporation, a New York corporation, having an office at 30 East 42nd Street, New York, N.Y. and being authorized to do business in the state of Ohio (hereinafter called `Carbide') and Loomis Hensel Garage, having an office at 2120 Lee Rd., Cleveland Heights, Ohio (hereinafter called the `Retailer');
"Witnesseth:
"Whereas, (a) an anti-freeze produced by Carbide is and will be distributed to retailers in the state of Ohio under the registered trademark `Prestone' owned by Carbide (said commodity being hereafter called the `Commodity'); (b) the Commodity is in free, fair and open competition within said state with commodities of the same general class produced by others; (c) stocks of the Commodity are maintained within said state for sale and distribution to retailers therein; and (d) Retailer is engaged in the sale and distribution at retail of the Commodity within said state; and
"Whereas, minimum retail resale prices for the Commodity, heretofore established under the provisions of the Fair Trade Act of said state (hereinafter called the `Act'), are to terminate on March 31, 1954 and the parties hereto wish to establish under the Act after such date the minimum retail resale prices hereinafter provided for;
"Now, therefore, in consideration of the premises and of the agreements herein contained and the benefits contemplated hereby, and in consideration of such sales and deliveries of the Commodity as may be made to Retailer from time to time while this agreement shall be in effect, and the purchase thereof by Retailer, the parties hereto agree as follows:
"1. Retailer shall not (except as specifically permitted by this agreement) advertise, offer for sale or sell the Commodity in said state at less than the minimum retail prices specified in schedule A attached hereto, plus in the case of each retail sale, the amount of applicable sales and excise taxes. Carbide by written notice to Retailer may from time to time amend schedule A, effective on or after the date of the giving of such notice as provided in such notice, so as to change the minimum retail selling prices therein specified. Such notice may take the form of a revised schedule A.
"2. Except as authorized by schedule A or a revision thereof, the offering or giving of any article of value in connection with the retail sale of the Commodity; the offering or making of a concession (whether by giving of coupons or otherwise) in connection with any such sale; or the sale or offering for sale of the Commodity in combination with other commodity or commodities shall constitute a breach of this agreement by Retailer.
"3. This agreement may be terminated by either party on ten (10) days' written notice to the other, provided, however, that such termination shall not affect the rights or obligations of either party under the Act or by reason of an agreement made pursuant thereto.
"4. The Commodity may be sold without reference to this agreement to government agencies, to consumers buying for use in their automotive fleets or for use in their non-automotive equipment, or to purchasers buying under such other circumstances as may be specifically permitted by the Act.
"5. Any notice given hereunder shall be well and sufficiently given by delivering the same personally to the party to whom it shall be addressed, or by mailing the same in a sealed postpaid envelope addressed to such party at its address hereinabove given
"6. This agreement shall become effective April 1, 1954.
"In witness whereof, the parties hereto have executed this agreement on the day and year first above written.
"Union Carbide Carbon Corporation, "By its Division, "National Carbon Company, "By R.P. Bergan, "Division Vice President, "Loomis Hensel Garage, "By Ray Hensel. "Effective Date "April 1, 1954
"Schedule A "Fair Trade Prices Minimum Retail Resale "Product Container (Fair Trade) Prices "`Prestone' brand Gallon cans $2.95 per gallon anti-freeze "Quart cans 3.20 per gallon "Quart cans 0.80 per quart"
This so-called contract does set forth promises by Loomis Hensel Garage. However, there is no definite promise by Union Carbide Carbon Corporation and there is no reference to anything else of a definitive nature either in the words of this so-called contract or elsewhere in the record which could fairly be said to represent a legal consideration for the promises of Loomis Hensel Garage, i. e., either some bargained for detriment to Union Carbide Carbon Corporation or benefit to Loomis Hensel Garage.
It is elementary that a promise without any legal consideration for the promise cannot amount to a contract. See 12 American Jurisprudence, 565, Section 72; 17 Corpus Juris Secundum, 421, Section 71; 11 Ohio Jurisprudence (2d), 295, Section 58.
Since there is no contract within the meaning of Section 1333.06 or 1333.07, Revised Code, there is obviously no basis for the injunction provided for by Section 1333.08, Revised Code. Hence, I concur in the judgment so far as it reverses the judgment of the Court of Appeals and instructs that court to dissolve the injunction heretofore issued.