Sperry & Hutchinson Co. v. Hudson

• Decision Date: 17 January 1951
• Citation: 226 P.2d 501,190 Or. 458
• Parties: SPERRY & HUTCHINSON CO. v. HUDSON, Corporation Commissioner, et al.
• Court: Oregon Supreme Court

Page 501

226 P.2d 501

190 Or. 458

SPERRY & HUTCHINSON CO. v. HUDSON, Corporation Commissioner, et al.

Supreme Court of Oregon, En Banc.

Argued Dec. 19, 1950.

Decided Jan. 17, 1951.

Thomas C. Stacer, Asst. Atty. Gen., argued the cause for appellants. With him on the brief was George Neuner, Atty. Gen.

R. R. Bullivant, Portland, argued the cause for respondent. On the brief were Freed & Failing and Pendergrass, Spackman & Bullivant, all of Portland, Charles Wesley Dunn and Casey, Beinecke & Chase, all of New York City.

TOOZE, Justice.

By this suit, The Sperry and Hutchinson Company, a New Jersey corporation, licensed to do business in Oregon, as plaintiff, seeks an injunction against Maurice Hudson, Corporation Commissioner of the State of Oregon, and George Neuner, Attorney General of the State of Oregon, as defendants, to restrain the attempted enforcement by defendants of the Oregon Securities Law (more commonly known as the 'Blue Sky Law') against the trading stamp plan operated by plaintiff; also, to obtain a declaratory judgment that such trading stamp plan, or any part thereof, is not a 'security' within the meaning of Oregon's Blue Sky Law. §§ 80-101 to 80-131, O.C.L.A., as amended.

The lower court entered a decree that plaintiff's trading stamp system, and the various portions thereof, are not subject to the provisions of the Blue Sky Law, and that neither said trading stamp system, nor any part thereof, is a 'security' within the meaning of such law, and registration under the law is not required; also, a decree permanently enjoining the defendants from enforcing or attempting to enforce any of the provisions of said law against the plaintiff with respect to its trading stamp system. From this decree, the defendants appeal.

The plaintiff was incorporated under the laws of New Jersey in 1900, and, in 1905, it was first authorized to transact business in the state of Oregon, and since that time has continuously carried on its operations in this state. Its principal office is located in New York City, but it maintains offices in the several states in which it does business.

The business of plaintiff consists in the licensing and operation of a trading stamp system. Retail merchants are licensed to make use of the plan. All types of retail outlets are among its customers. In Oregon, approximately 1300 merchants make use of the system, and in the nation at large, some 24,000. These include auto dealers, drug stores, grocery stores, hardware stores, jewelry stores, gas service stations, variety stores, department stores, florists, and others.

Basically, the plan operated by plaintiff is a cash discount system. It is but one among many systems employed by retail merchants to increase trade, encourage cash transactions, and build up good will, all of them termed generally as 'trade stimulators.'

As the basis of its system and the operation thereof, plaintiff first enters into a written contract with the merchant. In this contract plaintiff is designated as the 'Licensor' and the merchant, as the 'Licensee.'

Under this contract the plaintiff agrees: to license and authorize the merchant to install and use in connection with his business the plaintiff's 'Cooperative Cash Discount System,' and to use its 'S. & H. Cooperative Discount Stamps' as cash discount symbols or tokens in carrying out the plan; to print the name and business address of the Licensee an any directory of merchants using its system issued and distributed in the city; to furnish Licensee with advertising signs for use inside and outside his store to make known to the public that he has adopted plaintiff's system; to furnish Licensee with its cash discount symbols or tokens in the form of S. & H. trading stamps; to furnish for distribution its merchandise redemption catalogues and its stamp books, in which customers of the merchant may paste and accumulate said stamps; and to redeem the said stamps by giving in exchange therefor merchandise of the customers' selections, as described in said catalogues and subject to the conditions printed in the catalogues and stamp books.

On his part, the merchant, as Licensee, agrees: to adopt and use plaintiff's system, including its cash discount symbols or tokens furnished for use during the term of the agreement; to advertise the adoption and use of plaintiff's system by window displays and other displays in and about the store, using such advertising signs as shall be furnished by plaintiff from time to time; and also, to advertise the fact of the use of such system in all newspaper or other advertisements published by or for him; to order and receive from plaintiff its said cash discount symbols or tokens in certain specified lots, the lots consisting of pads, each pad containing 5000 stamps; to pay the plaintiff for the use of its system an amount measured by the number of pads of stamps ordered and delivered at the rate of $15 per pad, payable on delivery of same; to offer said stamps to all customers who make cash payments, and when accepted by the customers, to issue to them one of said stamps for each ten cents, represented in such payments, as a discount in consideration of the payment of cash when made either C.O.D. or, at the option of the merchant, on or before the 15th proximo, and only for redemption by the plaintiff; not to sell or dispose of the plaintiff's stamps in any manner except as provided in the contract.

Both parties to the contract mutually agree that the property in and title to said stamps and advertising shall remain in plaintiff and shall not, in any event, pass to the merchant or any other person, firm, or corporation; that upon termination of the contract, the merchant shall cease to use any unissued stamps then remaining in his hands and shall return to plaintiff all advertising signs and all of said unused stamps; and plaintiff agrees to repay the merchant any amount theretofore paid by him for its services and use of its system, measured by the number of stamps remaining unissued and so returned, provided same are undetached from the original pads, and the merchant shall inform his customers that any stamps theretofore issued by him and then outstanding will be redeemed by the plaintiff.

The trading stamp in question is green in color and about one-half the size of an ordinary postage stamp; on the face of it is printed the legend: 'Sperry and Hutchinson Co-operative Discount Stamp--10'; also, as indicated upon the sample in evidence, certain identification letters and numbers appear, printed in red. The reverse side of the stamp bears no writing, but is glued for use in pasting in the stamp savings book.

The stamp savings book is merely a convenient method adopted for preserving the stamps and for redemption purposes. It consists of 40 pages, exclusive of cover, and each page is designed for pasting 30 stamps. One thousand two hundred stamps, therefore, complete the book, and for redemption, completed books are the medium used for determining the merchandise to which the customer is entitled. On the inside of the cover page is printed a notice to collectors of stamps. They are advised that neither the stamps nor the books are sold to merchants, collectors, or any other persons, and that title thereto remains in plaintiff; that the stamps are issued as evidence of cash payment to the merchants issuing same; that the only right the collector acquires in said stamps is to paste them in the book and present them for redemption; that they are not transferable except with the written consent of plaintiff; that to prevent their further use, they must be pasted in the book.

The catalogue issued by plaintiff describes the several articles of merchandise available for redemption purposes, each article requiring one or more books or parts of books of stamps. This catalogue is changed from time to time. On the inside of the back cover page are printed instructions respecting redemption, and containing the statement: 'Because of changing market conditions over which we have no control, we reserve the right to increase or decrease the number of S. & H. Green Stamp books required or to withdraw any article without notice. Should you, for reasons above, order any article which we cannot supply as listed, we will notify you of this fact so that another selection may be made. We always advise a first and second choice.'

In a practical sense, the issuance of these trading stamps to cash customers is simply a method adopted for giving these purchasers a discount for cash. By the use of these stamps discounts are available on small purchases. As explained by the witness Shirer, vice president of plaintiff corporation: 'There is no coin small enough to give a discount on a ten or fifteen cent purchase.' By the issuance of one of these stamps for each ten cent purchase, such a discount is made possible.

In the operation of plaintiff's system, merchandise sold to cash customers is at the regular, established retail prices, the purchaser paying for each article of merchandise the same price required to be paid by those buying on credit. Of course, the primary purpose of this discount system is to encourage cash transactions. It is unnecessary to detail the many advantages accruing to the merchant from cash dealings. To give a discount for cash payments is a long-established mercantile practice. The manufacturer allows such discount to the jobber and wholesaler, and the jobber and wholesaler, to the retailer. To pass this on to the customer of the retailer is but providing a benefit to him who, in the last analysis, pays all bills.

It is the contention of defendants that this system as outlined, particularly the written contract thereunder, is within the definition of 'security' as set out in § 80-102, O.C.L.A., as amended.

Section 80-102, O.C.L.A., as amended by ch. 148, Oregon Laws, 1941, provides:

§ 80-102. When used in this act the following terms shall,...