McElhone v. Geror

• Decision Date: 24 May 1940
• Docket Number: No. 32443.,32443.
• Citation: 292 N.W. 414,207 Minn. 580
• Parties: McELHONE v. GEROR.
• Court: Minnesota Supreme Court

292 N.W. 414

207 Minn. 580

McELHONE v. GEROR.

No. 32443.

Supreme Court of Minnesota.

May 24, 1940.

Appeal from District Court, Ramsey County; Albin S. Pearson, Judge.

Suit for injunction by Thomas McElhone againt Gerald R. Geror to restrain the defendant from violating the statute prohibiting unfair sales and unfair competitive trade practices. From an order overruling the defendant's demurrer to the complaint, the defendant appeals.

Affirmed.

O. A. Blanchard, of St. Paul, for appellant.

Beldin H. Loftsgaarden, of St. Paul, for respondent.

STONE, Justice.

Suit for injunction. From the order overruling his demurrer to the complaint (the trial judge having certified the question as important and doubtful) defendant appeals.

Plaintiff and defendant are competitors in the retail grocery trade. The complaint alleges that defendant was selling goods "at less than the cost thereof, for the purpose and with the effect of injuring competitors and destroying competition, including the business of this Plaintiff." The relief sought is an injunction, under L.1937, c. 116, as amended by L.1939, c. 403 ("An act to define and prohibit unfair sales and unfair competitive trade practices").

The demurrer puts in issue the constitutionality of the statute. In Great Atlantic & Pacific Tea Co. v. Ervin, D.C., 23 F.Supp. 70, the 1937 law was held unconstitutional in several respects. To remove its defects, it was amended in 1939, and as amended is now challenged.

The law has three parts. The first applies to the manufacture, production or distribution of commodities in general use or consumption. It prohibits price discrimination between different localities. The second applies to the "selling * * * of any commodity, article, goods, wares or merchandise, in wholesale or retail trade." Prohibited are sales "at less than the cost thereof * * * for the purpose or with the effect of injuring competitors and destroying competition." Part three provides penalties and authorizes injunctive relief. The second part is the one now attacked. It is said that the legislature has no constitutional power to regulate prices in retail trade. The argument is put upon the principle of freedom of contract, considered implicit in the guaranty of due process of law in the Fourteenth Amendment to the federal, and art. 1, § 7, of the state, constitution. There is also argument that the statute is unreasonable and arbitrary in operation.

1. Neither under the due proccess guaranty nor otherwise is the right to freedom of contract absolute. As with most other individual rights, it is qualified and limited by similar rights of others and those of government. Individual liberty must yield to the conflicting interest of society, acting through sovereign government. Individual will must give way to that of government when the latter is expressed in declared policy, enforced by constitutional means.

This law purposes protection of retail trade against defined and detrimental practices. Its method is to prohibit sales below cost when designed to injure, or in fact resulting in injury to, competition therein.

Long has it been thought that a chief interest of government is freedom of trade. So government has long protected it, not only from the restraint of monopoly, but also the lesser hindrance of contracts in restraint of trade. In such policy is reflected centuries of experience, resulting in the conclusion that in the interests of society competition should be unrestrained.

All laws of a democracy are but expressions of a policy drawn, correctly or otherwise, from human experience. It is therefore to be expected that the policy they express will change as new experience teaches that old policy is mistaken either in factual basis or functioning.

It is apparent that the legislature has determined (the preamble of L.1939, c. 403, is copied in the footnote¹) that unrestricted competition has resulted in damage to the public interest. Hence, the restrictions, imposed because in the judgment of the law-makers they would protect public welfare.

The measure is definitely designed to protect the weak against the strong. The strong have no unlimited constitutional power so to use their strength as to crush the weak. Therefore, in the field of trade, why is it not competent for a law bearing on all alike to bar an artificial and wholly harmful practice tending to eliminate the weak and leave the whole field to the strong? We see therein no violation of the constitutional guaranties of due process. The independent merchant, small or large, is a legitimate object of legislative solicitude. It cannot be otherwise in view of his contribution to the building of, and his present place in, our economic structure.

If the legislature may protect the public from harmful results of restraint of trade, we see no reason to deny a similar power to shield from the damaging effects of unrestricted competition. That attempt is but another evidence, either that experience is changing or that a conclusion drawn from experience is modified to fit new conditions. Implicit therein is the legislative conclusion that the absence of such restraints as are now imposed is, of itself, resulting in undesirable and preventible restraint. "So far as the requirement of due process is concerned, and in the absence of other constitutional restriction, a state is free to adopt whatever economic policy may reasonably be deemed to promote public welfare, and to enforce that policy by legislation adapted to its purpose." Nebbia v. New York, 291 U.S. 502, 54 S.Ct. 505, 516, 78 L.Ed. 940, 89 A.L.R. 1469.

2. Until recently it was thought, incorrectly, that outside the field of businesses conducted under a franchise and enterprises which, historically, were considered subject to price regulation, the fixing of prices was permissible only where the business was "affected with a public interest." Tyson & Bro. v. Banton, 273 U.S. 418, 47 S.Ct. 426, 428, 71 L.Ed. 718, 58 A.L.R. 1236; Williams v. Standard Oil Co., 278 U.S. 235, 49 S.Ct. 115, 73 L.Ed. 287, 60 A.L.R. 596. That doctrine, which put price control in a different category from other forms of state regulation, has been disapproved. In Nebbia v. New York, supra, it was said: "Price control, like any other form of regulation, is unconstitutional only if arbitrary, discriminatory, or demonstrably irrelevant to the policy the Legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty." 291 U. S. 502, 54 S.Ct. 517, 78 L.Ed. 958, 89 A. L.R. 1469.

In State v. McMasters, 204 Minn. 438, 283 N.W. 767, we sustained L.1937, c. 235, 3 Mason Minn.St., 1940 Supp. §§ 5705-31 to 5705-38 ("An act to prevent unfair competition and unfair trade practice in service trades,") empowering the governor, after survey, to fix the minimum price for haircuts.

3. The present statute prohibits sales at less than cost for the purpose or with the effect of injuring competitors and destroying competition. Intent to injure is not essential to violation. This is not fatal to the act. Sales below cost which have the effect of injuring competition may be prohibited regardless of intent.

The cases urged in support of a contrary conclusion are easily distinguishable. In Tyson & Bro. v. Banton, supra, it was said that: "It is not permissible to enact a law which, in effect, spreads an all-inclusive net for the feet of everybody upon the chance that, while the innocent will surely be entangled in its meshes, some wrongdoers also may be caught."

Those words were directed at a statute which prohibited ticket brokers from re-selling tickets at more than 50 cents in advance of the price printed thereon. It was considered that, even though the state could prevent fraud and extortion in ticket brokerage, it could not do so by arbitrarily setting the price, for such a regulation prohibited those not guilty of fraud or extortion from carrying on business in a legitimate way.

In Fairmont Creamery Co. v. Minnesota, 274 U.S. 1, 47 S.Ct. 506, 71 L.Ed. 893, 52 A.L.R. 163, it was thought that the purchase of cream at different prices was often justified by a difference in competitive conditions. Therefore, a statute forbidding such a practice was held unconstitutional (although it did prohibit a practice used by some to promote monopoly), because it also prohibited the same practice by others when justified by competitive conditions and without wrongful intent. From that defect this statute is free. In Commonwealth v. Zasloff, 137 Pa. Super. 96, 8 A.2d 801, 803, a fair trade statute was invalidated because innocent sales which, "though below cost, neither affect competition nor otherwise offend against public interest" were forbidden. It was thought that the act did not bear a fair relation to the purpose to protect fair trade practices in distribution, and was thus outside the state's police power.

In State v. Packard-Bamberger & Co., Inc., 123 N.J.L. 180, 8 A.2d 291, 293, a similar act was invalidated because it prohibited sales below cost "regardless of intent, purpose, or effect upon fair trade."

The legislature is attempting to protect retailers and the public from unfair trade practices. It is not for us to deny its conclusion of fact that sales below cost are harmful and constitute a trade practice so unfair and injurious as to require legislative attention. The act declares and implements valid policy. We cannot say that the implementation bears no relation to the purpose. So, whatever its interference with plaintiff's freedom of contract, the statute transgresses no constitutional guaranty, unless in other respects it is arbitrary or unreasonable. The police power, which is about all the power that sovereign government...