American Home Products Corp. v. Homsey

• Citation: 361 P.2d 297
• Decision Date: 18 April 1961
• Docket Number: Nos. 38958,38968,s. 38958
• Parties: AMERICAN HOME PRODUCTS CORPORATION, a corporation, Plaintiff in Error, v. Benny HOMSEY and Associates, doing business as American Mutual Company, Defendant in Error. REVLON, INC., a corporation, Plaintiff in Error, v. AMERICAN MUTUAL COMPANY, an unincorporated Association, Defendant in Error.
• Court: Oklahoma Supreme Court

Page 297

361 P.2d 297

1961 OK 91

AMERICAN HOME PRODUCTS CORPORATION, a corporation, Plaintiff in Error, v. Benny HOMSEY and Associates, doing business as American

Mutual Company, Defendant in Error.

REVLON, INC., a corporation, Plaintiff in Error, v. AMERICAN MUTUAL COMPANY, an unincorporated Association,

Defendant in Error.

Nos. 38958, 38968.

Supreme Court of Oklahoma.

April 18, 1961.

Syllabus by the Court

1. As a general rule, in the absence of some legal or contractual duty, the owner of goods may dictate the price at which he will sell them.

2. The Oklahoma Fair Trade Act, 78 O.S.1951 § 41 et seq., is in reality a selective price control act which leaves to the producer of trademark commodities the arbitrary right to determine if and when it shall take effect. It grants to a private party the privilege of creating a right of action for its own benefit or suspending that right at its will.

3. The purported authority to fix prices binding on nonsigners under the Oklahoma Fair Trade Act, 78 O.S.1951 § 41 et seq., is an unconstitutional exercise of legislative power in that it delegates to private persons the right to prescribe a rule governing conduct for the future which is binding upon those who do not consent; it fails to provide any standard or condition as to the necessity of the act, provides for no hearing or safeguards, and is not subject to review.

4. Since there is no closed class or category of business affected with a public interest, the court in applying the due process sections of the Oklahoma Constitution, will determine in each case whether the circumstances are such as to justify the challenged legislation as a reasonable exertion of governmental authority or condemn it as unreasonable, arbitrary and discriminatory. Furthermore the mere recital in the Act of the reasons for or conditions which gave rise to the enactment are not controlling on the courts so that they must declare that to be which palpably is not.

5. Section 44 of the Oklahoma Fair Trade Act (78 O.S.1951 § 41 et seq.) which provides that the sale of trademarked items at a price less than that stipulated to is a violation of the Act whether the seller is a party to the stipulated price contract or not, is unconstitutional and void as an arbitrary and unreasonable exercise of the police power without a substantial relation to the public health, safety or general welfare insofar as it concerns persons who are not parties to the price contracts.

Appeal from the District Court of Oklahoma County; A. P. VanMeter, Judge.

Actions by American Home Products Corporation and Revlon, Inc. under the provisions of Fair Trade Act, 78 O.S.1951 §§ 41-45, to restrain defendants from alleged violation of said Act. From judgment for defendants the plaintiffs appeal. Affirmed.

John G. Hervey and Hugh F. Owens, Oklahoma City, for plaintiff in error American Home Products Corp.

Granville Scanland, Oklahoma City, for plaintiff in error Revlon, Inc.

Miskovsky & Miskovsky, Oklahoma City, for defendants in error.

DAVISON, Justice.

Plaintiffs, American Home Products Corporation and Revlon, Inc., brought separate actions in the lower court to enjoin the defendants from selling certain products bearing the trademark, brand or name of the respective plaintiffs, below the prices set by the plaintiffs pursuant to the Oklahoma Fair Trade Act, 78 O.S.1951 § 41 et seq., Oklahoma Session Laws 1937, p. 479, Secs. 1 to 6. The defendants answered that the 'nonsigner' provision of the Fair Trade Act violated the provisions of the Oklahoma Constitution and was unconstitutional.

The cases were consolidated for trial in the lower court and were presented on a stipulation of facts. It was stipulated, inter alia, that defendants were retail distributors of merchandise with one store and that plaintiffs were producers and sellers of products throughout the United States and in Oklahoma bearing their respective trademarks, brands and names and that these products were in fair and open competition with products of the same general class produced by others; that pursuant to the Fair Trade Act the plaintiffs had previously entered into written retail sales contracts with certain retailers in Oklahoma providing minimum retail sales prices as therein fixed or as fixed by any amendments thereof. It was also stipulated that defendants had not entered into any such contracts with plaintiffs, and with knowledge of said contractual prices, did sell the products of the plaintiffs, title to which was in defendants, at retail prices less than the prices fixed by the contracts with some other retailers and that such sales were not within any exceptions in the Act; and further, although not admitted by defendants as a fact, that witnesses of plaintiffs would testify that plaintiffs had and would suffer irreparable damage to their business, trademark and goodwill, because of defendants' acts.

It was further stipulated that the defendants had complied with the Oklahoma Unfair Sales Act, 15 O.S.1951 § 598.1 et seq., Oklahoma Session Laws 1949, p. 103, § 1 et seq., and that said Act was not an issue in the cases.

Under the issues and the stipulation there was presented to the trial court the sole question of whether the 'nonsigner' provision of the Fair Trade Act violated certain provisions of the Oklahoma Constitution. (It is therefore unnecessary for us to discuss the Sherman Anti-Trust Act, the Miller-Tydings Act or the McGuire Act.) The trial court refused to enjoin the defendants and held the nonsigner provision of the Fair Trade Act unconstitutional and void as being (1) an improper delegation of legislative power of price fixing to private persons in violation of Art. 4, Sec. 1, and Art. 5, Sec. 1, and (2) in violation of the due process provisions (Art. 2, Secs. 2 and 7), in that there was no real and substantial relation between the price fixing provisions as applied to nonsigners and prevention of injury to the economic, social and moral well-being of the state.

The plaintiffs perfected separate appeals and the cases are consolidated for opinion by this court.

Title 78 O.S.1951 § 41, of the Fair Trade Act authorized vertical minimum price fixing contracts concerning commodities bearing the trademark, brand or name of the producer or owner of the commodity and provides in part as follows:

'No contract relating to the sale or resale of a commodity which bears, or the label or content of which bears, the trade-mark, brand or name of the producer or owner of such commodity and which is in fair and open competition with commodities of the same general class produced by others, shall be deemed in violation of any law of the State of Oklahoma by reason of any of the following provisions which may be contained in such contract:

'First: That the buyer will not resell such commodity below a minimum price stipulated by the vendor.

'Second: That the vendee or producer require in delivery to whom he may resell such commodity to agree that he will not, in turn, resell below a minimum price stipulated by such vendor or by such vendee.'

It was pursuant to this portion of the Act that plaintiffs made the price fixing contracts with certain retailers other than the defendants. The validity of these contracts is not questioned here. The plaintiffs contend that defendants are bound by the nonsigner provisions of the Act. This is Sec. 44 of the Act and is in part:

'Wilfully and knowingly advertising, offering for sale or selling and commodity at less than the minimum price stipulated in any contract entered into pursuant to the provisions of Section 1 of this Act, whether the person so advertising, offering for sale, or selling is or is not a party to such contract is unfair competition and is actionable at the suit of any person damaged thereby.'

Under this section the plaintiffs by making a contract with one or more retailers in the state may establish a retail price binding upon all nonsigning retailers in the state having notice thereof, regardless of their wishes in the matter. This is the very heart of the effectiveness of the Fair Trade Act because if the nonsigner portion of the Act is unenforceable then nonsigner retailers may compete with all retailers on a price basis. It is because of this method in fixing prices binding upon nonsigners that the Act is said to be unconstitutional.

An extensive and comprehensive annotation concerning the validity of Fair Trade Laws appears in 60 A.L.R.2d 420. From examination of this annotation and of later decisions it appears that the states are about evenly divided on the question of the validity of these laws. Since May, 1951, fifteen state supreme courts have declared acts of this kind unconstitutional. The trend of later decisions is to hold such laws invalid as violative of one or more state constitutional provisions.

Under the provisions of the Oklahoma Fair Trade Act private individuals and concerns who produce or own a commodity bearing their trademark, brand of name are exempted from antitrust laws and by the creation of a single contract with a purchaser for resale or a retailer may impose on all nonsigners a minimum sales price. The nature, type or kind of commodity is not named or described and need not be clothed with a public interest. No public officer or official board has any say or participation in fixing the price and no investigation or report is required to be made by or to any such person or body. There is no provision for an official or court review of the fixed price for the protection of nonsigner or the consumer who represents the public. The law does not provide any standard or guide as to the amount or necessity of the price fixing.

The ostensible justification is to compel adherence to fixed prices so as to protect the trademark, name, brand and goodwill. Examination of the decisions and literature on the subject compels the conclusion that the real impact of the law is in the realm of price...