Cohen v. Frey & Son

• Decision Date: 18 April 1951
• Docket Number: No. 140,140
• Citation: 80 A.2d 267,197 Md. 586
• Court: Maryland Court of Appeals
• Parties: COHEN et al. v. FREY & SON, Inc., et al.

Page 586

197 Md. 586

80 A.2d 267

COHEN et al. v. FREY & SON, Inc., et al.

No. 140.

Court of Appeals of Maryland.

April 18, 1951.

Harry Adelberg and Simon E. Sobeloff, Baltimore (Meredith R. Hoffmaster, Baltimore, on the brief), for appellants.

Jacob Blum, Baltimore (Sidney Blum, Baltimore, on the brief), for appellee.

Before MARBURY, C. J., and DELAPLAINE, COLLINS, GRASON, HENDERSON and MARKELL, JJ.

MARKELL, Judge.

This is an appeal from a decree permanently enjoining defendant 'from advertising, offering to sell, or selling at wholesale any item of merchandise at prices less than cost to him as defined in the Unfair Sales Act, Article 83, sections 111 to 115 inclusive * * *, with intent to injure a competitor or competitors, or destroy competition, unless such advertisement, offer to sell or sales are made in accordance with and pursuant to the provisions of section 114 * * *.' The court filed an opinion which fully discusses the facts and the law of the case, but the decree does not, by reference, embody the opinion as part of the decree. At the argument, when attention was called to the scope of the decree, defendant's counsel said that he had not objected to this feature of the decree because he thought the decree would not be enforceable. We need not comment on the tactics of the parties, or their underlying strategy, in this respect. It is, however, to be noted that the decree (a) is a sweeping, abstract prohibition of violation of the act, without mentioning any conduct which is found to constitute a violation (New York, New Haven and Hartford Railroad Company v. Interstate Commerce Commission, 200 U.S. 361, 402-404, 26 S.Ct. 272, 50 L.Ed. 515; Rust v. Griggs, 1938, 172 Tenn. 565, 113 S.W.2d 733) and (b) embodies a plain misconstruction of the act, perhaps not material in this case. It is clear that the act does not make it unlawful 'to sell at less than cost, with intent to injure a competitor, unless the price is made in good faith to meet competition.' Section 114 provides that the provisions of the act shall not apply to sales 'Where the price of merchandise is made in good faith to meet competition' or in seven other enumerated cases. Manifestly these eight cases are not exceptions to the prohibition of sales at less than cost with intent to injure a competitor. Section 114 is a statutory declaration that these eight case are not to be regarded as sales with intent to injure a competitor.

This suit was instituted against defendant by Wholesale Grocers Association of Maryland. A demurrer to the bill was sustained, presumably on the ground that the association had no standing to sue. Dvorine v. Castelberg Jewelry Corporation, 170 Md. 661, 668, 185 A. 562; Maryland Naturopathic Association v. Kloman, Md., 62 A.2d 538; Crider v. Cullen, Md., 63 A.2d 618; Norwood Heights Improvement Association v. Mayor and City Council of Baltimore, Md., 72 A.2d 1; Windsor Hills Improvement Association v. Mayor and City Council of Baltimore, Md., 73 A.2d 531, 535. In the amended bill (called 'amended petition') the present plaintiffs, three members of the association, were named as plaintiffs instead of the association. An order overruling a demurrer to the amended bill will affirmed by this court. Cohen v. Frey & Son, Md., 66 A.2d 784. The amended bill enumerates twenty- nine items of merchandise, which it alleges defendant 'has been selling at wholesale, and is now selling at wholesale,' at specified prices. It also alleges that 'pursuant to the Unfair Sales Act, * * * the cost of the said items to the defendant, as defined in section 112 * * *' is as enumerated. Strange to say, the twenty-nine 'costs' enumerated in the amended bill are not in fact what the lower court found, and plaintiffs contend, were defendant's 'costs, as defined in section 112'. The 'costs' enumerated in the amended bill do not include the two per cent 'mark-up' specified in section 112, (b)(3), as part of 'cost to the wholesaler'. The allegations of the amended bill, other than those relating to the twenty-nine items of merchandise are substantially in the language of the act, with little or no detail added. The demurrer to the amended bill did not present the questions presented on this appeal. Defendant contends (1) that the act, properly construed, has not been violated by him, and (2) that the act, as construed and applied to him by the lower court, is unconstitutional. Blum v. Engelman, 190 Md. 109, 57 A.2d 421, in which the Unfair Sales Act was held constitutional, was likewise decided on demurrer to the bill, which set out virtually no facts beyond allegations of violation of the act in substantially the language of the act.

The three plaintiffs, Frey, Sachs and Rudo, and defendant are all wholesale grocers in Baltimore. Defendant has been in business, trading as Capital Wholesale Grocery Company, since 1944. Since May 13, 1947 he has also been trading as Self-Service Wholesale Grocery Company. The Capital business is conducted in the usual way, including purchase from manufacturers of goods which are delivered to defendant's warehouse, solicitation of orders by telephone and by personal calls of salesmen, delivery of goods sold, extension of credit, collection of accounts, bookkeeping and keeping other records. Self-Service business is essentially similar to 'cash and carry' retail business. The customer takes from bins and assembles the merchandise he desires carries it to the front of the building, where the price is tabulated on a cash register tape, and pays for it. Defendant has eight employees (including his son-in-law, a salesman), viz., two salesmen, an office clerk, two drivers and three helpers, who work principally or solely for Capital and two who work principally for Self-Service, handling merchandise from the platform to the bins. The two businesses are conducted in the same building, the two trade names are on the outside of the building.

All merchandise is purchased and paid for, and all salaries and other expenses are paid, in the name of Capital. There is one bank account, in Capital's name. The bank book shows two deposits each day; one is Capital's receipts, the other Self-Service's. In the cash receipts book the cash for each day is segregated between Capital and Self-Service. For the year ended January 31, 1949 gross sales were $1,819,185, $571,667 for Capital $1,247,517 (68.58 per cent of the total) for Self-Service. Defendant owns the building and charges $4,800 rent as an expense. In an allocation of expenses between Capital and Self-Service for the year ended January 31, 1949, prepared by defendant's accountant, $3,600 rent was allocated to the warehouse (three-fourths of the space) in proportion to sales, 68.58 per cent, $2,468, to Self-Service, $1,131 to Capital, $1,200 to the office (one-fourth of the space), ten per cent, $120, to Self-Service, $1,080 to Capital. Defendant's total expenses, $40,771, which is 2.24 per cent of sales, were allocated, $14,872, which is 1.192 per cent of sales, to Self-Service, $25,895, which is 4.53 per cent of sales, to Capital. Most expenses were allocated, either all to Capital or all to Self-Service, or in proportion to sales, 68.58 per cent to Self-Service; some, applicable almost exclusively to Capital, ten per cent to Self-Service, or ten per cent to both (in proportion to sales), all the rest to Capital. Defendant's son-in-law receives $75 weekly ($3,900 a year), and more at the end of the year, but what he gets is not charged as an expense of the business. Another statement, without itemization or allocation of expenses, but with sales cost of goods sold and comparable figures for three prior years, shows a total of $41,539 expenses (a difference of $768), and shows $28,625 discounts received on cash purchases. For the calendar year 1948 the cost to plaintiff Sachs of doing business was approximately nine per cent of gross sales, of which delivery expense was $26,604, sales were $1,210,579, discounts received $17,178. As otherwise expressed by him, his selling expense, and likewise his delivery expense, each were between 2.50 and 2.75 per cent. For the fiscal year ended June 30, 1948, the total of net sales by Frey was $3,802,741, the cost of salesmen's salaries and commissions equivalent to 2.53 per cent, cost of delivery 1.25 per cent, cash discount received, $53,073; sales by Rudo, $3,098,366, salesmen's salaries and commissions 2.52 per cent, cost of delivery 2.9 per cent, cash discount received $43,810.

The first Unfair Sales Act in Maryland, Acts of 1937, ch. 211, was repealed and superseded by Acts of 1939, ch. 248, which was held unconstitutional in Daniel Loughran Company v. Lord Baltimore Candy and Tobacco Company, 178 Md. 38, 12 A.2d 201. In Blum v. Engelman, 190 Md. 109, 115, 57 A.2d 421, 423, we held that the present 'Unfair Sales Act [Acts of 1941, ch. 330, as amended by Acts of 1943, ch. 803], prohibiting sales below cost with intent to injure competitors and to destroy competition, promotes a policy within the police power of the State.'

Section 112 of the act provides: '112. When used in this Act the following terms shall have the following meanings: * * * (b) 'Cost to the Wholesaler' shall mean the invoice cost of merchandise to the wholesaler or the replacement cost of the merchandise to the wholesaler, whichever is lower; less all discounts except customary discounts for cash, to which shall be added: (1) Freight charges not otherwise included in the invoice cost or replacement cost of the merchandise as herein set forth. (2) Cartage to the retail outlet if performed or paid for by the wholesaler, which cartage cost, in the absence of proof of a lesser cost, shall be deemed to be three-fourths (3/4) of one per cent. (1%) of the cost of the merchandise to the wholesaler, as herein set forth, after adding thereto freight charges, but before adding thereto cartage. (3) A mark-up to cover in part the cost of doing business,...