Cluett, Peabody & Co. v. J.W. Mays, Inc.

• Decision Date: 06 January 1958
• Citation: 5 A.D.2d 140,170 N.Y.S.2d 255
• Parties: CLUETT, PEABODY & CO., Inc., Appellant-Respondent, v. J. W. MAYS, Inc., Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 255

170 N.Y.S.2d 255

5 A.D.2d 140

CLUETT, PEABODY & CO., Inc., Appellant-Respondent, v. J. W. MAYS, Inc., Respondent-Appellant.

Supreme Court, Appellate Division, Second Department.

Jan. 6, 1958.

James A. Thomas, Jr., New York City and Stephen Rackow Kaye, New York City, for appellant-respondent.

Milton Kunen, Sidney A. Diamond and Donald H. Balleisen, New York City, for respondent-appellant.

NOLAN, Presiding Judge.

We are required on this appeal to determine whether or not the provisions of article XXIV-A of the General Business Law (Fair Trade Law) were properly invoked against respondent-appellant (hereinafter referred to as defendant) under the circumstances disclosed by the record before us and, if so, whether it was proper to grant a conditional injunction against defendant, restraining it from selling articles of merchandise at less than their fair-trade prices.

Cluett, Peabody & Co., Inc., (hereinafter referred to as plaintiff) sued defendant to enjoin discount sales and advertising in violation of a fair-trade contract covering men's shirts manufactured by plaintiff, and bearing its registered trade-mark. After trial, an injunction was granted enjoining defendant from selling such merchandise below the prices fixed therefor in plaintiff's fair-trade contract 'except that as to the said shirts * * * defendant may offer to sell to plaintiff the balance of the stock now on hand at the cost to it * * * and in the event of the failure of plaintiff, within ten days from date hereof, to purchase said balance on hand, then defendant may dispose thereof at any price obtainable, without reference to the fair trade agreement.' Plaintiff appeals from the quoted portion of the judgment; defendant appeals from the entire judgment. Defendant has also moved to dismiss plaintiff's appeal on the ground that it is academic.

There is little dispute as to the facts, with one exception, and they are succinctly stated in the Referee's decision. On January 28, 1955 plaintiff entered into a fair-trade agreement with a New York City department store retailer (other than defendant) providing for minimum prices for the sale in New York State at retail of some but not all of its varieties of men's shirts. Notice of the establishment of a fair-trade price-maintenance agreement was given by plaintiff to its many New York State customers and a general press release dated July 27, 1956 seems to have resulted in three short news items published about August 1, 1956 to the effect that plaintiff, starting August 1, would fair trade certain of its varieties of shirts.

Defendant owns and operates three large cash-and-carry department stores. On March 13, 1957 it purchased from an exporter, Colamerica Company, approximately 200 dozen men's shirts manufactured by plaintiff of which approximately 147 dozen were of the varieties covered by plaintiff's fair-trade agreement. The shirts were delivered to defendant on March 15. They were put on sale and prominently featured in defendant's advertisements on April 5 and 12, at prices considerably less than the minimum prices stipulated in plaintiff's agreement. When the matter was brought to plaintiff's attention, it promptly notified defendant by registered mail that certain of its shirts were subject to a fair-trade contract with minimum resale prices specified. Defendant continued to advertise and sell the shirts, including those price-fixed, at prices below the specified minimums, and this action followed.

The disputed issue of fact, above referred to, was whether or not, at the time of its purchase of the shirts, defendant knew that they were subject to a fair-trade agreement. Defendant asserted that it had no such knowledge, its president, Shulman, and its men's wear buyer, Baruchin, who negotiated the purchase, testifying to that effect. Plaintiff offered no proof of direct knowledge on the part of defendant, but claims that defendant must have known of the fair-trade agreement. That contention may be disposed of summarily. The trial court found to the contrary and that finding is supported by the evidence. For the purposes of this appeal, it must be held that defendant had no knowledge, actual or constructive, of the fair-trade agreement at the time it purchased the shirts in question in March, 1957. Concededly, it had such knowledge when it sold them.

It is plaintiff's contention that it met every requirement of the statute for full and effective injunctive relief, and that the conditions and limitations imposed by the Referee, respecting the return of the merchandise or its sale below the fair-trade price, were erroneous and effected a complete frustration of the statutory purpose. Defendant contends that no injunctive relief whatever was warranted, and that in any event plaintiff's appeal should be dismissed as academic since the goods which are the subject of plaintiff's appeal have been disposed of.

Defendant states without contradiction that the shirts were tendered to plaintiff as required by the judgment, that the tender was refused, and that the shirts were then sold at reduced prices to expedite their removal from stock. At present, defendant has none of such shirts in stock and sells none.

It is of course the general rule that the court will not decide questions which have become abstract because of a change in circumstances affecting the case after the decision below. Adirondack League Club v. Board of Black River Regulating Dist., 301 N.Y. 219, 222, 93 N.E.2d 647, 648. However, an exception is made where questions of importance are presented, which are likely to arise with frequency. Lyon Co. v. Morris, 261 N.Y. 497, 499, 185 N.E. 711; Glenram Wine & Liquor Corp. v. O'Connell, 295 N.Y. 336, 340, 67 N.E.2d 570, 571; Rosenbluth v. Finkelstein, 300 N.Y. 402, 404, 91 N.E.2d 581. In our opinion, this is such a case. The primary question presented is whether or not the Fair Trade Law may be successfully invoked against one who has established that he purchased merchandise in ignorance of the fact that it was subject to resale price restrictions under a fair-trade agreement to which he was not a party. Plaintiff urges that lack of knowledge at the time of purchase is immaterial if there was such knowledge at the time of offering for sale, while defendant contends that lack of knowledge at the time of purchase is a complete defense. There is also presented, if the Fair Trade Law may be enforced against such a purchaser, the question whether the goods may be sold at any price if the manufacturer who seeks to enforce his statutory rights refuses to buy them back. Neither question appears to have been decided by any appellate court in this State, although the former was presented in Oneida v. Macher Watch Co., 254 App.Div. 859, 6 N.Y.S.2d 362. Under the circumstances, we believe that we should deny defendant's motion to dismiss the appeal (see Cluett, Peabody & Co. v. J. W. Mays, Inc., 5 A.D.2d 770, 170 N.Y.S.2d 491) and should pass upon the merits.

The determination of the appeals by both parties depends upon whether plaintiff established a cause of action under section 369-b of the General Business Law, which provides:

'Wilfully and knowingly advertising, offering for sale or selling any commodity at less than the price stipulated in any contract entered into pursuant to the provision of section three hundred sixty-nine-a, 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.'

If such a right of action was established there is no authority for the learned Referee's ruling that defendant could sell the shirts in question at any price, if plaintiff refused their return. As plaintiff argues, and defendant apparently concedes, the 'closing-out' exception contained in the statute (General Business Law, § 369-a, subd. 2[a]), is inapplicable (cf. Remington Arms v. Harris Berger, Inc., 208 Misc. 561, 144 N.Y.S.2d 751), although defendant asserts that the determination was proper, to achieve substantial justice between the parties. We do not agree that justice requires such a result. If in fact the law is violated by the sale of fair-trade merchandise, with knowledge at the time of sale that it is so price-fixed, regardless of whether there was such knowledge at the time of acquisition, the decision under review frustrates the statutory purpose. It would permit any retailer, under similar circumstances, to sell below the minimum fair-trade price, if the manufacturer refused to repurchase the goods at the retailer's cost. In effect, the manufacturer could only maintain its prices by repurchasing from a retailer the goods which were to be sold in violation of the fair-trade contract. The statute contemplates no such obligation on the part of the manufacturer, and in our opinion there is no warrant for imposing such a duty upon it. Cf. Bridgeport Brass Co. v. Modell's Sporting Goods Co., 8 Misc.2d 714, 92 N.Y.S.2d 96.

If knowledge at the time of sale, as distinguished from knowledge at the time of acquisition, is sufficient to show that there was a knowing and willful violation of the statute, plaintiff should be entitled to full and unconditional relief. We are therefore of the opinion that the determinative question in the case is whether a violation of the statute is shown where the defendant acquired merchandise without knowledge that it was subject to a fair-trade agreement, although such knowledge was present at the time the goods were offered for sale. In our opinion that question should be answered in the negative.

It has been stated that 'Plaintiff's cause of action depends upon defendant's knowledge of the existence of the resale price maintenance system and of the price stipulated by the trade-mark owner. By the almost unanimous interpretation of the Fair Trade Acts in state and federal courts, the defendant must have had...