Drink, Inc. v. Babcock

• Decision Date: 07 November 1966
• Docket Number: No. 7942,7942
• Citation: 1966 NMSC 236,421 P.2d 798,77 N.M. 277
• Parties: DRINK, INC., Plaintiff-Appellant, v. Howard BABCOCK, Chief of Division of Liquor Control, Bureau of Revenue, Defendant-Appellee.
• Court: New Mexico Supreme Court

Page 798

421 P.2d 798

77 N.M. 277

DRINK, INC., Plaintiff-Appellant, v. Howard BABCOCK, Chief of Division of Liquor Control, Bureau of Revenue, Defendant-Appellee.

No. 7942.

Supreme Court of New Mexico.

Nov. 7, 1966.

Motion to Intervene and for Rehearing Denied Jan. 3, 1967.

Hannett, Hannett & Cornish, William C. Schaab, Albuquerque, for appellant.

Boston E. Witt, Atty. Gen., Joel M. Carson, Tom Overstreet, Asst. Attys. Gen., Santa Fe, for appellee.

OPINION

NOBLE, Justice.

This appeal requires our determination of whether the fair-trade contract and minimum markup provisions of the Liquor Control Act are constitutional.

Plaintiff corporation, a retail liquor dealer, sought a declaratory judgment to determine the constitutionality of §§ 46--9--1, 46--9--3, and 46--9--11, N.M.S.A. 1953, or, in the alternative, an injunction to prohibit enforcement of those provisions of the law by the director of the liquor division. The trial court held that there was a failure to prove the challenged provisions to be unconstitutional and denied injunctive relief. This appeal followed.

Our attention has not been called, nor can we find the decision of any court of last resort ruling on the constitutionality of a statute identical to ours. It follows that the decisions from other jurisdictions are of little help. We are concerned with the particular language of the New Mexico statutes.

The Liquor Control Act was enacted by ch. 236, Laws 1939, Section 1303, as amended by § 7, ch. 80, Laws 1941 (§ 46--9--3, N.M.S.A.1953) prohibits the sale of alcoholic liquors 'unless uniform, standard, minimum fair-trade prices be set thereon and posted in accordance with section 1301, article 13 (46--9--1) when sold by the package.' Section 1301 (§ 46--9--1, N.M.S.A.1953) in turn authorizes the creation of fair-trade contracts relating to the sale or resale of alcoholic liquor which bears the trademark, brand, or name of the producer. This contract may provide that the buyer will not resell such liquor except at the price stipulated by the producer, and may require that a subsequent purchaser (retail dealer) agree that he will not resell except at the price stipulated by the producer. The two sections interplay to require the distiller, by contract, to establish the wholesale and retail prices of his product and prohibit the sale of trademarked liquor not bearing an established and published price.

Section 46--9--1(c), N.M.S.A.1953, goes on to declare that sales of trademarked liquor at less than the contract price constitute unfair competition. Such a sale gives rise to a right of action by anyone damaged thereby, and subjects the seller to criminal penalties, whether he is or is not a party to the contract. Other provisions of this Act limit the gross profit to be stipulated by the contract to 33 1/3% of the retail selling price for retailers and 18 4/100% of the wholesale selling price for wholesalers.

We recognize that the legislature has the power not only to regulate the sale of alcoholic beverages, but to suppress it entirely, and may impose on the liquor industry more stringent regulations than on other businesses. But when the manufacture and sale of liquor is lawful, as it is under our laws, statutes providing for the regulation of the business are limited by constitutional guaranties and must fall within the proper exercise of the state's police power.

In testing the constitutionality of statutes, courts must indulge in every presumption in favor of the validity of the legislation. Baca v. Perez, 8 N.M. 187, 42 P. 162; State v. Armstrong, 31 N.M. 220, 243 P. 333; State v. Thompson, 57 N.M. 459, 260 P.2d 370; State ex rel. Dickson v. Saiz, 62 N.M. 227, 308 P.2d 205; State ex rel. Hovey Concrete Products Co. v. Mechem, 63 N.M. 250, 316 P.2d 1069; Bradbury & Stamm Constr. Co. v. Bureau of Revenue, 70 N.M. 226, 372 P.2d 808. This principle applies with equal force in a determination of whether a statute amounts to a proper exercise of the police power. We have said that the state may adopt an economic policy reasonably deemed to promote the public welfare, and may enforce such a policy by appropriate legislation without contravening due process so long as such legislation has a reasonable relation to a proper legislative purpose and is neither arbitrary nor discriminatory. Rocky Mountain Wholesale Co. v. Ponca Wholesale Mercantile Co., 68 N.M. 228, 360 P.2d 643.

Sections 46--9--1 and 46--9--3 provide for what is generally referred to as a non-signer or 'vertical agreement,' fixing the resale prices of a commodity by contract between the manufacturer and a wholesaler without regard to whether the retailer is a party to the contract. The validity of the non-signer provisions of the Liquor Fair-Trade Act is challenged as denying appellant due process and the equal protection of the law.

The record discloses that the appellant is a non-signer liquor dispenser. Although the trial court made no specific finding of a contract authorized by § 46--9--1 between a distiller and a wholesaler, § 46--9--3 prohibits the sale of any alcoholic beverage unless the price therefor has been stipulated by a fair-trade contract and published in a trade journal. The court did find that such fair-trade prices were so published, as follows:

'3. The minimum prices which may be charged for the sale of alcoholic beverages in New Mexico are listed in the New Mexico Beverage Journal, a trade publication.'

The state argues that the Supreme Courts of many states have upheld the validity of such fair-trade statutes. We are aware of those dicisions generally adopting the theory of Old Dearborn Distributing Co. v. Seagram Distillers Corp., 299 U.S. 183, 57 S.Ct. 139, 81 L.Ed. 109, 106 A.L.R. 1476, that liquor dealers, by purchasing trademarked goods with knowledge of the fair-trade contract, impliedly assented to the contract and thereby ratified and became bound by it. The courts adopting this reasoning conclude that such non-signer fair-trade laws are not price-fixing statutes. The validity of such non-signer fair-trade statutes was laid at rest in this State, however, by our decision in Skaggs Drug Center v. General Electric Co., 63 N.M. 215, 315 P.2d 967. There, after discussing and quoting at length from many of the decisions of other states expressing conflicting views, we held that such laws do amount to price-fixing statutes, and said:

'* * * we are of the opinion that the better reasoning and logic are to be found in those decisions above quoted at some length which have declared the Fair Trade Acts unconstitutional and void.'

We perceive no valid distinction between the fair-trade statutes considered in Skaggs and §§ 46--9--1 and 46--9--3, N.M.S.A. 1953, and are of the opinion that Skaggs is controlling and requires our determination that §§ 46--9--1 and 46--9--3, supra, are unconstitutional and void. See Comment, 4 Natural Resources J. 189.

Appellant next attacks the mandatory markup provisions contained in § 1410, ch. 236, Laws 1939, as amended by § 2, ch. 258, Laws 1963 (§ 46--9--11, N.M.S.A. 1953), as being a price-fixing statute constituting an improper exercise of the state's police power. The section in question, § 46--9--11(B), N.M.S.A. 1953, declares that advertising, offers to sell, or sales of alcoholic beverages by either wholesalers or retailers at less than cost:

'* * * with the intent or effect of inducing the purchase of other merchandise, or of unfairly diverting trade from a competitor, or of otherwise injuring a competitor, impair and prevent free competition, and are contrary to the public policy of this state, and are violations of this section.'

Cost is then defined as the delivered price of the beverage, including taxes, labels, containers, etc., plus a markup amounting to not less than the minimum cost of operation in the handling of the liquor by the most efficient wholesaler or retailer. In the absence of satisfactory proof to the contrary, made before the sale to the chief of the liquor control division, this markup is 12 1/2% on liquor, 23% on wine and 18% on beer for the wholesaler, and is 38 8/10% on liquor and wine and 25% on beer for the retailer.

Appellee, arguing that this section of the liquor statute is similar to the Cigarette Act, §§ 49--3--1 to 49--3--14, N.M.S.A. 1953, relies heavily upon Rocky Mountain Wholesale Co. v. Ponca Wholesale Mercantile Co., supra, which held that the prohibition of sales of cigarettes at a price below cost with intent to injure competitors or lessen competition was a valid exercise of the state's police power. Appellant, conversely, argues that Rocky Mountain Wholesale is not controlling because the effect of § 46--9--11 is not only to prohibit below-cost sales but to establish a fixed, standard, uniform price for liquor and contains a built-in protection of a net profit to liquor dealers. These opposing contentions succinctly state the issue before this court.

In construing particular statutory provisions to determine legislative intent, an entire act is to be real together so that each provision may be considered in its relation to every other part, and the legislative intent and purpose gleaned from a consideration of the whole act. 2 Sutherland, Statutory Construction, §§ 4703 and 4704. The Liquor Control Act was enacted as comprehensive legislation to regulate and control the sale of alcoholic beverages. It cannot be doubted that the fair-trade provisions, which we have said are unconstitutional, authorized protection of a gross profit to wholesalers and retailers within the limits prescribed by §§ 46--9--5 and 46--9--6. Because both the minimum markup section of the Liquor Control Act and that of the Cigarette Act purport to prohibit below-cost sales, in principle at least, the minimum markup section of the Liquor Control Act would appear on its face to be a valid exercise of police power under the holding of Rocky Mountain Wholesale. In practice, however, the...