Fisher Flouring Mills Co. v. Swanson

• Decision Date: 13 December 1913
• Citation: 137 P. 144,76 Wash. 649
• Court: Washington Supreme Court
• Parties: FISHER FLOURING MILLS CO. v. SWANSON.

137 P. 144

76 Wash. 649

FISHER FLOURING MILLS CO. v. SWANSON.

Supreme Court of Washington, En Banc.

December 13, 1913

Appeal from Superior Court, King County; King Dykeman, Judge.

Suit by the Fisher Flouring Mills Company against C. A. Swanson. Judgment for defendant, and plaintiff appeals. Reversed.

Hastings & Stedman, Higgins, Hall & Halverstadt and Hyman Zettler, all of Seattle, for appellant.

John E Humphries and Charles E. Remsberg, both of Seattle, and Wm A. Johnson, of Everett, for respondent.

ELLIS J.

In this action, the plaintiff seeks to enjoin the defendant from selling flour manufactured by the plaintiff at less than the retail price fixed by the plaintiff in a contract of sale made with the defendant, and to recover damages in the sum of $1,000. The complaint alleges, in substance: That the plaintiff is a Washington corporation with its principal place of business at Seattle, where it has erected a large manufacturing plant and installed special machinery for manufacturing a special brand of flour known as 'Fisher's Blend of Patent Flour.' That the cost of manufacturing this flour is greater than that of ordinary flour. That the plaintiff has widely, and at great expense advertised this flour as a blended flour, pure, wholesome, and of unusual excellence, and has used certain copyrighted designs and the above trade-name to acquaint the public with the flour, so that it has become widely known as of unusual excellence and as of higher price than the ordinary patent flour, and large quantities of it are sold in Seattle and King county. That it is necessary to operate the mill to its full capacity in order to continue the business at a profit. That the flour is sold in all of its markets in constant and keen competition with many other brands of patent flour of all qualities, and the quantity of plaintiff's flour so sold is only a very small part of the pure blended flour and of the quantity of ordinary patent flour sold in each of such markets.

That it is necessary to sell the flour through all retail dealers in each community rather than through one or two, as may be profitably done with ordinary patent flours, so that the good will of the retail dealers is necessary to the success of the company. That in order to keep this good will it is necessary to maintain a minimum retail price offering a reasonable profit to the retailer. That, if the uniform minimum price is not maintained, the reputation of the flour will be injured, the good will of the dealers lost, and the plaintiff will be prevented from operating its mill at a profit. That the defendant conducts a retail grocery store in Seattle, and on or about October 3, 1911, entered into an oral contract with the plaintiff, agreeing to purchase from the plaintiff a car load of this flour at the uniform wholesale price, and further agreeing not to sell the flour at less than a certain minimum retail price. That these prices were the same as the wholesale and retail prices maintained by the plaintiff and its other customers, and permit no more than a reasonable profit. That, according to the contract, the plaintiff delivered an installment of the flour on this purchase; the defendant accepting therewith a written invoice containing the following stipulation: 'Retail prices. Our flour is sold on condition, which is made a part of the consideration of the sale of said goods, that the purchaser, if he retails the same, will maintain our fixed minimum retail selling prices, and if he wholesales them, they are sold subject to the same conditions. Nothing in the above conditions shall prevent the purchaser from fixing the selling price in excess of the above lists when cost of transportation or other local conditions necessitate the same.' That, since the delivery of the flour to the defendant, he has violated the agreement by selling the flour at less than the agreed price, and has widely advertised such sales, which price is less than the general retail price of all the other patent flours so sold in Seattle and the state of Washington. That his purpose in so doing is to attract customers to his store, and that he has threatened to continue this practice. That the defendant's action in this respect is causing damage to the plaintiff by injuring the reputation of the flour with the public and destroying its sale to retailers in Seattle and throughout the state. That, by reason of defendant's action, other retailers are threatening to follow his example, which will curtail the sales of the flour and cause irreparable damage to the plaintiff. That it has already decreased the sales of the flour, by rendering it unpopular with the retailers, to the plaintiff's damage in the sum of $1,000. That the plaintiff has no adequate remedy at law. The defendant demurred to the complaint upon the ground that it does not state a cause of action, and that the court has no jurisdiction of the subject-matter. The demurrer was sustained, and, the plaintiff electing to stand upon its complaint, the action was dismissed. The plaintiff appeals.

A single question is presented: Has a manufacturer, who has given a reputation to particular goods which he creates, the right to fix in his contract of sale to retailers a reasonable minimum price at which those goods shall be sold to consumers?

It may be premised as a postulate that a manufacturer who has imparted a reputation to his goods may lawfully employ any means to secure the legitimate benefits of that reputation not inhibited by statutory enactment or inimical to a sound public policy.

It is not claimed, on the one hand, that the contract in question is inhibited by any statute of this state. No question of interstate commerce in involved. We are therefore not here concerned with the Sherman Anti-Trust Act (Act July 2, 1890, c. 647, 26 Stat. 209 [U. S. Comp. St. 1901, p. 3200]). Nor is it claimed, on the other hand, that the fact that the article sold was under a trade-name or in a trade dress, or the fact that it was manufactured by a patented process, affords the contract any immunity from invalidity which it would not otherwise possess. These things must be regarded as immaterial to this discussion. No question of public service corporations is involved. What we shall say has no application to contracts of corporations charged with public functions or duties as such.

The question is thus reduced to the inquiry whether at common law the contract here involved is violative of any canon of public policy. In considering this question, much confusion may be avoided by marking the distinction not always observed in the adjudicated cases between those contracts which, since the earliest history of the law on the subject, have been designated as 'contracts in restraint of trade,' and those more correctly designated as 'contracts in restraint of competition.' The term 'contracts tracts in restraint of trade' has so long been applied to undertakings not to pursue a particular profession, trade, or business, and has so thoroughly acquired that conventional significance, as to render its use in any other connection confusing. The rules relating to such contracts are of long standing and thoroughly established. Such contracts are valid only when restricted as to time and to place, and when reasonably necessary to the protection of the party in whose interest they are made. Conversely stated, such contracts, when without limit as to time or place, are invalid. Long v. Towl, 42 Mo. 545, 97 Am. Dec. 355. The broader doctrine inhibiting, as contrary to public policy, all contracts which, by any other means, tend unreasonably to restrict competition, is of much more recent development, and is much less thoroughly settled. This doctrine has to do with the rules of public policy relating to control of markets. See note to Harding v. American Glucose Co., 182 Ill. 551, 55 N.E. 577,

64 L. R. A. 738, 74 Am. St. Rep. 238, 239; Noyes, Intercorporate Relations, § 336; 2 Eddy, Combinations, §§ 719, 722; Cooke, Combinations, Monopolies & Labor Unions (2d Ed.) § 160.

This broader doctrine is primarily directed against monopoly in any form, and seeks to protect the public interest by holding invalid all contracts by which monopoly of a given market may be either created or sustained, or, as such, made profitable to its beneficiaries, where the right to make them is not incidental to a legal monopoly such as is accorded by the patent laws. With these last we are not here concerned. It is manifest that in case of such contracts the public interest is not conserved by mere limitations either as to time or space. The public interest can only be secured by a prohibition of all contracts having a tendency to create or foster monopoly by a control of any given market. Noyes Intercorporate Relations (2d Ed.) § 357. Since limitations of time and space do not serve as the test of the validity of contracts in restraint of competition, the test must be sought in the reason which underlies the rule of public policy. It must be found in the tendency of the given contract to control the given market. If the contract has that tendency, it is against public policy. If it does not have that tendency, it is not. In applying this test, the public interest is always the first and controlling consideration. A contract or combination creating a general--that is to say, complete--restraint or restriction, however slight, within a given market, is essentially invalid because it must either result from, or tend to produce, a monopoly. Its inevitable tendency is to destroy competition. Under an economic system founded upon competition, every general restriction--that is, every restriction covering all or a controlling fraction of a given commodity--is essentially...