Gulf Oil Corp. v. Mays

• Decision Date: 10 October 1960
• Citation: 164 A.2d 656,401 Pa. 413
• Parties: GULF OIL CORPORATION, a Pennsylvania Corporation, Appellee, v. Claude E. MAYS, Individually and Trading as Mays Gulf Service, Appellant.
• Court: Pennsylvania Supreme Court

Page 656

164 A.2d 656

401 Pa. 413

GULF OIL CORPORATION, a Pennsylvania Corporation, Appellee, v. Claude E. MAYS, Individually and Trading as Mays Gulf Service, Appellant.

Supreme Court of Pennsylvania.

Oct. 10, 1960.

Rehearing Denied Nov. 22, 1960.

Harry W. Speidel, Geo. B. Balmer, Snyder, Balmer & Kershner, Raymond C. Schlegel, Reading, for appellant.

Richard A. Bausher, Reading, John T. Clary, Philadelphia, Stevens & Lee, Reading, George B. Clothier, Roy D. Jackson, Jr., Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, for appellee.

Before CHARLES ALVIN JONES, C. J., and BELL, MUSMANNO, BENJAMIN R. JONES, COHEN, and EAGEN, JJ.

COHEN, Justice.

On September 15, 1955, Claude E. Mays purchased a gasoline service station in Berks County and began trading as Mays Gulf Service (Mays). On the same date Mays and Gulf Oil Corporation (Gulf) entered into a sales agreement whereby Mays agreed to purchase from Gulf all his requirements of 'Gulf motor fuels' for resale at his gasoline station but not 'less than 90,000 gallons of such motor fuels per annum.' The contract was to extend fifteen years.

From the time the sales agreement was entered into until the time of hearing in the court below, Mays purchased more than the minimum required gallonage of Gulf motor fuels each year.

When Mays and Gulf entered into the sales agreement, Gulf had no Fair Trade agreements with any of its retail dealers. On January 12, 1959, Gulf, acting pursuant to the Pennsylvania Fair Trade Act, ¹ entered into Fair Trade agreements with its retail dealers establishing minimum retail prices for the sale of Gulf motor fuels. ² Mays did not sign an agreement with Gulf. Each nonsigning retail dealer, including Mays, was duly notified that Gulf had entered into these agreements with other dealers and advised of the terms thereof. All Gulf's retail dealers, including those who had not signed agreements, with the exception of Mays, observed and complied with the stipulated prices.

Despite warnings by Gulf, Mays continued to sell such fuels at prices one cent less than the stipulated prices.

On March 26, 1959 Gulf filed an equity action against Mays in the Common Pleas Court of Berks County Seeking to enjoin him from continuing to sell Gulf motor fuels at less than the stipulated prices. After a hearing, a preliminary injunction was denied. The matter then went to final hearing and, on December 30, 1959, a final injunction decree was entered by a divided court. This decree permanently enjoined Mays from selling Gulf motor fuels at less than the stipulated prices and is the basis of this appeal.

Mays' contentions are three-fold: (1) by reason of the sales agreement of 1955, etc., Mays became a dealer in a 'captive' status and hence not within the Fair Trade Act provision; (2) in the absence of proof of any specific damage caused by Mays' sales of Gulf motor fuels at less than the stipulated prices, Gulf is not entitled to injunctive relief; (3) the chancellor erred in his refusal to permit Mays to show that in 1958--prior to Gulf's Fair Trade agreement--when he sold Gulf motor fuels at Gulf's then recommended prices, he suffered a loss of business.

The accepted purpose of a fair trade act 'is to prevent predatory price-cutting and cutthroat competition, and to protect owners and public alike against unfair practices in the distribution of articles of standard quality under a distinguished brand or mark.' Sinclair Refining Company v. Schwartz, 1959, 398 Pa. 60, 63, 157 A.2d 63, 64. Such legislation has withstood the challenge of transgressing the 'due process' and 'equal protection' clauses of the 14th Amendment on the ground that it is an appropriate exercise of the state police power reasonably calculated to prevent price-cutting and 'loss-leader' practices which debase the good-will of a product known by its brand or trademark, injuring both the distributor and public in general. Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 1936, 299 U.S. 183, 57 S.Ct. 139, 81 L.Ed. 109.

Under the Pennsylvania Fair Trade Act, both 'signers' and 'non-signers' ³ alike are bound to observe the minimum resale price set by a fair-trade distributor when a valid fair-trade contract has been entered into within the Commonwealth. Legitimization of such contracts, however, is completely dependent upon strict compliance with the Pennsylvania Fair Trade Act, and, where interstate commerce is affected, there must also be compliance with the federal fair trade legislation, since both at common law and under the Sherman Anti-Trust Act minimum resale price main-tenance contracts were held to be illegal per se as unreasonable restraints of trade. Dr. Miles Medical Co. v. John D. Park & Sons Co., 1911, 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502; Schwegmann Bros. v. Calvert Distillers Corp., 1951, 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035.

Since the appellee is engaged in interstate commerce its fair trade program must first be exempted from federal condemnation by the Miller-Tydings Amendment of § 1 of the Sherman Act ⁴ and the McGuire Amendment of § 5(a) of the Federal Trade Commission Act, ⁵ in order that the Pennsylvania Fair Trade Act may validly apply, United States v. McKesson & Robbins, Inc., 1956, 351 U.S. 305, 310-311, 76 S.Ct. 937, 100 L.Ed. 1209; Schwegmann Bros. v. Calvert Distillers Corp., supra; Esso Standard Oil Company v. Secatore's, Inc., 1 Cir., 246 F.2d 17, certiorari denied 1957, 355 U.S. 834, 78 S.Ct. 54, 2 L.Ed.2d 46, as well as comply with the Pennsylvania statute. Cf. Burche Co. v. General Electric Company, 1955, 382 Pa. 370, 115 A.2d 361.

The Miller-Tydings Amendment, and in almost identical language the McGuire Amendment, provides, in relevant part, that the federal antitrust legislation shall not 'render illegal, contracts or agreements prescribing minimum prices for the resale of a commodity which bears, or the label or container of which bears, the trade mark, brand, or name of the producer or distributor of such commodity and which is in free and open competition with commodities of the same general class produced or distributed by others, when contracts or agreements of that description are lawful as applied to intrastate transactions, under' the applicable state law. But both amendatory acts provide that the grant of immunity from federal proscription 'shall not make lawful any contract or agreement, providing for the establishment or maintenance of minimum resale prices on any commodity herein involved * * * between persons, firms, or corporations in competition with each other.' The Pennsylvania Act provides: 'No contract relating to the sale or resale of a commodity which bears, or the label or content of which bears, or the vending equipment from which said commodity is sold to the consumer bears the trade-mark, brand or the name of the producer or owner of such commodity, and which is in fair and open competition with commodities of the same general class produced by others, shall be deemed in violation of any law of the State of Pennsylvania * * *.' (Emphasis supplied.)

In the instant case, the sole consideration given to the aspect of competition between the parties or competition of the product with others in its class is the assertion by the appellee in its complaint that 'Gulf brand gasoline is sold to the consuming public by retailers, including defendant, from vending equipment which bears Gulf's trade marks and brands, and is in fair and open competition throughout Pennsylvania with gasolines of the same general class produced by others' and the admission thereto by the appellant in his answer. The record is otherwise devoid, undoubtedly because of the admission, of any evidence which shows the assertion to be the fact. Even though the admission here is made in an adversary proceeding, still the state's interest in seeing that unlawful price fixing is not indulged in is of such importance that the mere admission by the adversary is not sufficient to provide the essential prerequisites necessary to invoke the statutory rights and exemptions provided by the act.

It is important to bear in mind that absent the protective federal and state legislation minimum resale price maintenance contracts will be unenforceable as contrary to our basic anti-monopoly philosophy of unfettered competition in the market of goods and services. Eminent authorities are highly critical of this exempting legislation on the grounds that it relieves distributors whose inventory consists largely of 'fair-trade' products from the pressures and tribulations of price competition, and in general facilitates price fixing efforts on the manufacturing and distributive levels, contrary to the most elementary principles of a dynamic free enterprise system. ⁶ The inclusion in the Fair Trade Acts of the provisos that the commodity must be 'in free and open competition' with similar products and that competitors could not enter into fair trade agreements was to assure that these dangers of horizontal price fixing would be held to a minimum. Accordingly, in order to protect the consuming public from any possible price exploitation, it is of the utmost importance that the distributor seeking the benefits of fair trade establish in fact that he has complied with these statutory prerequisites.

So far as gasoline distributors are concerned, such proof is not without difficulties. In Esso Standard Oil Company v. Secatore's Inc., supra, the gasoline company not only supplied its gasoline to retail dealers but also sold direct to some ultimate consumers consisting mostly of operators of fleets of trucks. The court concluded that the gasoline company was in competition with the 'non-signer' retailer defendant who also did substantial business with operators of fleets of motor vehicles, and held that retail price maintenance agreements between the gasoline company and third parties were illegal under the federal legislation and could not...