Sears v. Western Thrift Stores of Olympia, Inc.

Decision Date12 September 1941
Docket Number28330.
Citation10 Wn.2d 372,116 P.2d 756
CourtWashington Supreme Court

Action by Carlton Sears, an individual doing business under the firm name and style of the Rexall Drug Company, and others against the Western Thrift Stores of Olympia, Incorporated, a corporation, and another, for an injunction and damages resulting from the alleged violation by defendants of the Washington Fair Trade Act. From a judgment for the plaintiffs, defendants appeal.


MILLARD and STEINERT, JJ., and ROBINSON, C.J., dissenting.

Appeal from Superior Court, Thurston County; D. F Wright, judge.

L. B Donley, of Aberdeen, for appellants.

Caldwell, Lycette & Diamond, John N. Sylvester, and John S. Lynch Jr., all of Seattle, for respondents.

SIMPSON Justice.

In this case plaintiffs sought to recover damages and to secure an injunction because of a violation by defendants of the Washington Fair Trade Act.

The complaint alleged that plaintiffs were retail merchants selling certain named articles of merchandise under contract with various manufacturers by the terms of which the retail price was agreed upon; that defendants, with full knowledge of the contracts entered into by plaintiffs and the manufacturers, sold the articles named in the contracts at a price less than the amount fixed by those instruments; and that the defendants knowingly and wilfully offered for sale and advertised other commodities produced by the manufacturers at prices below that fixed by the contracts.

Defendants demurred upon all the grounds mentioned in Rem.Rev.Stat. § 259 [P.C. § 8346].

The parties then entered into a stipulation which reads: '* * * that in the event that the court over-ruled the demurrer of the defendants to the said complaint of the said plaintiffs that the defendants would not plead further and that the court should enter judgment in accordance with the prayer of the complaint and the law in the premises and that judgment for damages should be limited in the nominal sum of One ($1.00) Dollar.'

Thereafter, judgment was entered overruling the demurrer and enjoining the defendants from selling certain specified articles at a price less than that fixed by the contract made between plaintiffs and the manufacturers of those articles. Defendants have appealed.

The assignments of error are in overruling the demurrer to the complaint, and in entering judgment in favor of plaintiffs and against defendants.

The purpose of the instant case is to test the constitutionality of the fair trade act, Rem.Rev.Stat. (Sup.), § 5854-11 to § 5854-16 [P.C. § 7109-51 to§ 7109-56].

Does the act represent a valid exercise of the legislative power?

If it does, we cannot hold it to be invalid merely because it may be an unwise law and of questionable expediency, or because it may be unable to correct the supposed evils that it is intended to remedy, or because of any other objection directed to its wisdom. This court is interested only in whether there has been a subversion of rights as guaranteed by the constitution.

In considering the questions presented in this case, we start with the presumption in favor of the validity of the act. The burden of pointing out the provisions of the act which are in conflict with the organic law rests upon those who assail it. Failing in this, the act must stand.

When the constitutionality of an act of the legislature is involved, the question of legislative power is fundamental to the inquiry. In this connection, it will be remembered that the power of the legislative body is supreme except as it is limited by the constitution. When, therefore, the legislature has passed an act, it possesses that binding force and effect named therein unless it is clearly in conflict with the fundamental law. With these conceptions, let us proceed to examine the act and its relation to our constitution.

Fair trade acts have been passed in forty-five states in the union. In addition, Congress passed the Miller-Tydings amendment, Public Act No. 314, Seventy-fifth Congress, to the Sherman Anti-Trust Act in 1937, 15 U.S.C.A. § 1. For all practical purposes, this amendment bears a great similarity to the various state fair trade acts.

In a case comment, 34 Mich.Law Rev. 691, the author succinctly states the reason for the enactment of fair trade legislation: 'It will be recalled that this practice [retail price cutting], which began its phenomenal growth shortly Before the beginning of the present century, created what many believed to be two serious evils. Because it made the price of nationally advertised products vary from store to store and city to city, it forced the producer of such goods into virtual competition with himself, allowed others to capitalize on his extensive advertising campaigns, and eventually lowered his article in the eyes of the consumer. But worse than this, it drove to the wall many small retail merchants who, because of large overheads and small turnovers, could not compete. This latter not only seriously affected the public but deprived the trade-mark owner of available markets and tended to fetter competition in the retail trade.'

The Washington Fair Trade Act, Laws of 1935, chapter 177, first enacted as a two year emergency measure and re-enacted in 1937, Laws of 1937, chapter 176, as permanent, represents an attempt on the part of the legislature to eliminate certain business practices. Its avowed purpose is expressed in the title: 'An Act to protect trademark owners, distributors and the public against injurious and uneconomic practices in the distribution of articles of standard quality under a distinguished trade-mark, brand or name.' Laws of 1937, chapter 176.

The act is unambiguous and quite simple. In it is found a legislative declaration legalizing a contract whereby the producer or owner of a commodity, which bears his trade-marks, brands or name may make an agreement that the buyer of such commodity will not resell it except at the price stipulated by the vendor, and that such buyer require that his vendee will not resell except at the original stipulated price. The act further provides that anyone wilfully and knowingly advertising, offering for sale, or selling any of the contracted articles at less than the price named in the contract shall be guilty of unfair competition and may be enjoined by a suit in equity and may also be subject to an action at law for damages.

Appellants contend that the effect of the statute is to prohibit any person from reselling a commodity except at a price fixed by the producer, and that the contracts in question are in direct conflict with Article XII, § 22, of our state constitution which reads: ' Monopolies and trusts shall never be allowed in this state, and no incorporated company, copartnership, or association of persons in this state shall directly or indirectly combine or make any contract with any other incorporated company, foreign or domestic, through their stockholders, or the trustees, or assignees of such stockholders, or with any copartnership or association of persons, or in any manner whatever, for the purpose of fixing the price or limiting the production or regulating the transportation of any product or commodity. The legislature shall pass laws for the enforcement of this section by adequate penalties, and in case of incorporated companies, if necessary for that purpose, may declare a forfeiture of their franchise.' (Italics ours.)

On the other hand, respondents construe this section as to include only those contracts fixing prices which are entered into as an attribute or a component part of a monopoly or combination. In addition, respondents contend that a distinction must be drawn between two types of price fixing agreements: (1) A horizontal arrangement and (2) a vertical arrangement. The former is defined as an agreement among competing producers, manufacturers, etc., establishing a minimum price at which they shall sell their similar commodities. While the latter, as provided by the act, is a contract between a producer, manufacturer, etc., and a reseller establishing the minimum price of a commodity: (1) Which bears the trade-mark, brand or name of the producer or owner of such commodity, and (2) which is in fair and open competition with commodities of the same general class produced by others.

In reference to vertical arrangements, the court in Ely Lilly & Co. v. Saunders, 216 N.C. 163, 4 S.E.2d 528, 535, 125 A.L.R. 1308, makes the following observation: 'The agreements authorized by the law are vertical, between manufacturers or producers of the particular branded commodity and those handling the product in a straight line down to and including the retailer; not horizontal, as between producers and wholesalers or persons and concerns in competition with each other in dealing with like commodities. The law does not authorize cross agreements between competitors. Whatever agreements are permitted, all face one way; they apply only to commodities produced by the manufacturer, bearing his trade-mark, brand, or name, and then only if they are in free and open competition with commodities of the same general class produced or distributed by others.' Horizontal price fixing is an illegal restraint of trade under the Sherman Anti-Trust Act and an unfair practice under the Federal Trade Commission Act, 15 U.S.C.A. § 41 et seq. That the fair trade act was not meant to legalize horizontal agreements is established by § 4, Rem.Rev.Stat. (Sup.) § 5854-14: 'This act shall not apply to any contract or agreement between producers or between wholesalers or between retailers as to sale or resale prices.' Thus we are confronted with the...

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