Associated Merchants of Montana v. Ormesher

• Decision Date: 04 February 1939
• Docket Number: 7885.
• Citation: 86 P.2d 1031,107 Mont. 530
• Parties: ASSOCIATED MERCHANTS OF MONTANA et al. v. ORMESHER et al.
• Court: Montana Supreme Court

86 P.2d 1031

107 Mont. 530

ASSOCIATED MERCHANTS OF MONTANA et al. v. ORMESHER et al.

No. 7885.

Supreme Court of Montana

February 4, 1939

Appeal from District Court, Fourth Judicial District, Missoula County; Ralph J. Arnold, Judge.

Action by the Associated Merchants of Montana, an unincorporated trade association, and others, to enjoin Harry H. Ormesher and another from violating statute regulating minimum prices in their business of merchandizing as grocers. From an adverse judgment, defendants appeal.

Affirmed.

Fred W Schilling, E. C. Kurtz and Jay M. Kurtz, all of Missoula, for appellants.

Pope Smith & Smith, of Missoula, for respondents.

John Bonner, of Helena, amicus curiae.

ANGSTMAN Justice.

This action was brought to enjoin the defendants from violating the provisions of Chapter 80, Laws of 1937, in their business of merchandising as grocers. To the complaint charging its violation, defendants first filed a demurrer. The demurrer being overruled, they filed an answer putting in issue the allegations of the complaint, and asserting by affirmative defenses that Chapter 80, and particularly section 3 thereof is unconstitutional as in violation of certain specified sections of the state and federal Constitutions. The reply denied the affirmative allegations of the answer.

The cause was tried to the court sitting without a jury. The court made findings of fact and conclusions of law favorable to plaintiffs, finding that defendants had violated sections 3 and 4 of the Act, and entered a decree restraining and enjoining defendants from "selling, offering for sale, or advertising for sale any such articles or products (covered by the findings) at less than the cost thereof to such defendants, unless within the exceptions allowed by law, and from further like violations of the provisions of sections 3 and 4 of Chapter 80 of the Session Laws of 1937." The appeal is from the judgment.

The record on appeal consists of the judgment roll only, without the evidence introduced at the trial; hence the only question for us to determine is whether Chapter 80 is valid. This we must determine from the Act itself without the aid of factual background save as appears from the findings of fact.

Section 3 of the Act provides:

"It shall be unlawful for any person, partnership, firm, corporation, joint stock company, or other association engaged in business within this state, to sell, offer for sale or advertise for sale any article or product, or service or output of a service trade, at less than the cost thereof to such vendor, or give, offer to give or advertise the intent to give away any article or product, or service or output of a service trade for the purpose of injuring competitors and destroying competition, and he or it shall also be guilty of a misdemeanor, and on conviction thereof shall be subject to the penalties set out in Section 11 of this act for any such act.

The term 'cost' as applied to production is hereby defined as including the cost of raw materials, labor and all overhead expenses of the producer; and as applied to distribution 'cost' shall mean the invoice or replacement cost, whichever is lower, of the article or product to the distributor and vendor plus the cost of doing business by said distributor and vendor.

The 'cost of doing business' or 'overhead expense' is defined as all costs of doing business incurred in the conduct of such business and must include, without limitation the following items of expense: labor (including salaries of executives and officers), rent, interest on borrowed capital, depreciation, selling cost, maintenance of equipment, delivery costs, credit losses, all types of licenses, taxes, insurance and advertising."

Section 4 provides: "In establishing the cost of a given article or product to the distributor and vendor, the invoice cost of said article or product purchased at a forced, bankrupt, closeout sale, or other sale outside of the ordinary channels of trade may not be used as a basis for justifying a price lower than one based upon the replacement cost as of date of said sale of said article or product replaced through the ordinary channels of trade, unless said article or product is kept separate from goods purchased in the ordinary channels of trade and unless said article or product is advertised and sold as merchandise purchased at a forced, bankrupt, closeout sale, or by means other than through the ordinary channels of trade, and said advertising shall state the conditions under which said goods were so purchased, and the quantity of such merchandise to be sold or offered for sale."

Other provisions of the Act need not be referred to specifically except to say that in addition to declaring that violation of the prohibited acts shall constitute a misdemeanor, the Act authorizes injunction proceedings to enjoin a continuance of the prohibited acts. Also section 6 provides that the provisions of sections 3, 4 and 5 have no application to sales made "(a) In closing out in good faith, the owner's stock or any part thereof, for the purpose of discontinuing his trade in any such stock or commodity, and in the case of the sale of seasonal goods or to the bona fide sale of perishable goods to prevent loss to the vendor by spoilage or depreciation, provided notice is given to the public thereof; (b) When the goods are damaged or deteriorated in quality, and notice is given to the public thereof; (c) By an officer acting under the orders of any court; (d) In an endeavor made in good faith to meet the legal prices of a competitor as herein defined selling the same article or product, or service or output of a service trade, in the same locality or trade area."

The Act is assailed as being contrary to section 1 of the Fourteenth and to the Fifth Amendment to the United States Constitution, and to sections 3 and 27 of Article 3 of the Montana Constitution, as a deprivation of liberty and property without due process of law.

Defendants contend that Chapter 80 is a price-fixing statute, and, therefore, invalid under the holding of this court in H. Earl Clack Co. v. Public Service Commission, 94 Mont. 488, 22 P.2d 1056, and contrary to the decisions of the United States Supreme Court cited and relied on in the H. Earl Clack Co. Case. The statute here considered is not a price-fixing statute. Its aim and object is to prevent unfair competition in business. As a means to that end the Act prohibits sales of commodities below cost when done "for the purpose of injuring competitors and destroying competition." It fixes a minimum price only, leaving in the seller the discretion to sell at whatever price above that he chooses. The minimum price is fixed not as end in itself, but to prevent ruinous price-cutting injuring or destroying competitors.

This contention, under an identical statute, was before the supreme court of California in Wholesale Tobacco Dealers Bureau v. National Candy & T. Co., 11 Cal.2d 634, 82 P.2d 3, 118 A.L.R. 486, where the court in speaking on this point said [page 15]: "In its true sense it is not a price fixing statute at all. It merely fixes a level below which the producer or distributor may not sell with intent to injure a competitor. In all other respects price is the result of untrammelled discretion."

Speaking of a very similar statute, the supreme court of Tennessee, in Rust v. Griggs, 172 Tenn. 565, 113 S.W.2d 733, said [page 735]: "In consideration of this statute we may first observe that it is not a price-fixing law. It is not therefore necessary to consider decisions of this court and the Supreme Court of the United States respecting statutes of that sort. As appears from section 2 of the statute, its object is to prevent deception of the public and to prevent practices which tend to injure competitors unfairly and thereby lessen competition or unreasonably restrain trade or create a monopoly. *** Sales at less than cost therefore are not denounced by the Act of 1937 unless such sales are made with the intent or effect to deceive the public, to injure creditors, or to destroy competition."

Under an identical statute the supreme court of Wyoming, in State v. Langley, 84 P.2d 767, in answering the same contention here made and after referring to the Clack Case supra, and decisions of the United States Supreme Court cited therein, said [page 775]: "In these cases the legislature sought to fix, absolutely, the price of a commodity or labor. It was held that the subject sought to be regulated was not affected with a public interest and that the attempted regulation was unreasonable. These cases, of course, are clearly distinguishable from the case at bar. The legislature, by the statute here in question, sought, not to fix prices, but to prevent ruinous price cutting, by which competitors might be injured and competition be destroyed. To do that, it was, of course, necessary to fix some limit. It might, perhaps, have set other limits than that which was fixed. The limit of 'not below cost' was only one of a number of others which might, perhaps, have been selected. The one actually selected was thought to be the most just under the circumstances. It was but the means to an end, not an end in itself. As was said in Stephenson v. Binford, 287 U.S. 251, 53 S.Ct. 181, 77 L.Ed. 288, 87 A.L.R. 721, speaking of the power of a commission to fix the minimum rate for private carriers (page 188): 'The authority is limited to the fixing of minimum rates. The contract carrier may not charge less than the rates so fixed, but is left free to charge as much more as he sees fit and can obtain. Undoubtedly, this interferes with the freedom of the parties to contract, but it is not such an interference as the Fourteenth Amendment [U.S.C.A.Const....