Sperry & Hutchinson Co. v. Margetts, C--1626

• Decision Date: 13 April 1953
• Docket Number: No. C--1626,C--1626
• Citation: 96 A.2d 706,25 N.J.Super. 568
• Parties: SPERRY & HUTCHINSON CO. v. MARGETTS et al.
• Court: New Jersey Superior Court

Page 568

25 N.J.Super. 568

96 A.2d 706

SPERRY & HUTCHINSON CO. v. MARGETTS et al.

No. C--1626.

Superior Court of New Jersey

Chancery Division.

April 13, 1953.

Markley & Broadhurst, Jersey City (Casey, Beinecke & Chase, of the New York Bar, New York City, of counsel, and on the brief), for plaintiff.

Theodore D. Parsons, Atty. Gen., (Joseph A. Murphy, Asst. Deputy Atty. Gen., of counsel), for defendants.

Bilder, Bilder & Kaufman, Newark (Sanford Freedman, Newark, of counsel), for Amicus curiae, New Jersey Gasoline Retail Dealers Ass'n and Allied Trades, Inc. and others.

GOLDMANN, J.S.C.

This action is brought to determine the application and constitutional effect of the act regulating the retail sale of motor fuels (L.1938, c. 163, as amended; N.J.S.A. 56:6--1 et seq.) upon the right of retailers of motor fuels, licensees of plaintiff, to issue plaintiff's 'S. & H. Cooperative Discount Stamps' to their customers in consideration of cash payment of the posted price.

Plaintiff demands judgment: (1) that the issuance of such stamps, in the manner stated in the complaint, be declared not illegal or prohibited by the act; (2) that the act, if construed to prohibit such practice, be declared to be to that extent unconstitutional; (3) that defendant state officials be enjoined from interfering with said stamp practice of plaintiff and its licensees; (4) that the court determine whether the actions of plaintiff's licensees, in issuing said stamps, violate the act, and (5) whether the act, as construed by defendants, is valid and constitutional.

The pertinent provisions of the act are set out in N.J.S.A. 56:6--2(a) and (e), and N.J.S.A. 56:6--3. N.J.S.A. 56:6--2(a) and (e) provide:

'(a) Every retail dealer shall publicly display and maintain on each pump or other dispensing equipment from which motor fuel is sold, in the manner regulated by the State Tax Commissioner, a sign stating the price per gallon of the motor fuel sold by said dealer from such pump or other dispensing equipment. All taxes, State and Federal, imposed with respect to the manufacture or sale of motor fuel shall be included in the price shown on said sign, but said sign shall contain a statement of the amount of taxes included in said price, or, without specifying the amount thereof, said sign shall state that taxes are included in said price. A retail dealer shall not sell at any other price than the price, including tax, so posted. Any such price when posted shall remain posted and in effect for a period of not less than twenty-four (24) hours.

'(e) No rebates, allowances, concessions or benefits shall be given, directly or indirectly, so as to permit any person to obtain motor fuels from a retail dealer below the posted price or at a net price lower than the posted price applicable at the time of the sale.' (Italics ours.)

N.J.S.A. 56:6--3 provides that any retail dealer who fails to post and publicly display, in the manner required, a sign stating the price per gallon of all motor fuel sold by him, or who violates any other provision of N.J.S.A. 56:6--2, shall upon conviction be subject to the penalties therein specified, including a fine and suspension of his license (revocation upon a second or subsequent offense).

Plaintiff, a New Jersey corporation, has for more than half a century been in the business of licensing retail merchants throughout the United States to use its 'cooperative cash discount system' and the 'S. & H.' discount stamps as tokens in connection therewith. The licensee orders stamps from the licensor at stated rates ($2.50 to $3 per thousand, depending upon the number of stamps ordered), and offers them to his customers making cash payments, one stamp for each ten cents paid 'as a discount in consideration of the payment of cash when made either C.O.D. or at the option of the Licensee on or before the 15th proximo, and only for redemption by the Licensor.' The company furnishes each licensee with stamp books in which his customers may paste and accumulate stamps issued to them, and it redeems the stamps, when collected, in the manner prescribed.

In the southern area of New Jersey plaintiff offers what is known as the 'S. & H.' merchandise method of stamp redemption, whereby the customers may select merchandise from catalogues in redemption of the stamps accumulated by them. The merchandise offered in redemption of a filled stamp book, containing 1200 stamps issued upon cash purchases of $120, has a value of about $2.50 and represents a cash discount of 2.08%. In the northern area plaintiff offers its 'C. & M.' or cash and merchandise method of redemption, whereby the licensee gives customers his own merchandise worth $2 in exchange for a filled stamp book-- in effect a cash discount of about 1.66%. These books are later turned in by the merchant and redeemed by plaintiff at $2 each in cash.

At the time this action was instituted, plaintiff had 21,000 licensees in 39 states. There were 163 in New Jersey (69 in the southern and 94 in the northern area), a total of about 5,000 in the neighboring states of New York, Pennsylvania and Maryland, and about 2,200 in New England. The licensees include department stores, dry goods, hardware, drug, grocery and show stores, and, in some states, gasoline filling stations where motor vehicle accessories and supplies and motor fuel are sold at retail and services rendered.

Customers of licensees may accumulate 'S. & H.' stamps by dealing with any merchant in New Jersey who issues them, and have them redeemed as described. This introduces the so-called 'cooperative' factor into the system.

Enforcement of the act (N.J.S.A. 56:6--1 et seq.) is entrusted to the defendant officials. Plaintiff claims that they, through their assistants and agents, have warned plaintiff and its New Jersey licensees that while they may issue plaintiff's stamps with sales of motor vehicle accessories and supplies, or for services, they may not issue them with sales of motor fuel--that to do so violates the provisions of N.J.S.A. 56:6--2(e) and subjects them to the penalties imposed by the act.

Plaintiff alleges that the issuance of cash discount stamps by retailers to their cash purchasers of motor fuel does not constitute or effect any rebate, allowance, concession or benefit, so as to permit any person to obtain motor fuels from a retail dealer lower than the posted price. It desires that licensees who operate filling stations may issue 'S. & H.' stamps freely to all cash customers, irrespective of the nature of their purchases. The company claims it is difficult to put a cash discount system into successful operation at a filling station when motor fuel sales are excluded.

Plaintiff alleges that it has built up valuable goodwill in New Jersey in connection with the use of its cash discount stamp system. Inability to use the system freely in connection with sales of motor fuel has deprived it of a substantial amount of business and, it is claimed, will continue to cause irreparable loss and injury unless defendants are restrained from interfering.

By their amended answer defendants allege that the issuance of 'S. & H.' stamps results in giving the buyer a rebate, allowance, concession or benefit, thereby enabling him to obtain gasoline from a retail dealer below the posted price, and so violates N.J.S.A. 56:6--2; that the distribution of gasoline at retail has become an integral part of the economic life of the State, affecting the welfare and prosperity of its people and producing substantial revenue through gasoline taxes; that the business has become afflicted with fraudulent practices operating to destroy competition, defrauding the public depriving the State of tax revenue and introducing chaos among retailers composing the industry; that the 1938 act (c. 163; N.J.S.A. 56:6--1 et seq.) was adopted to regulate various phases of the retail sale of gasoline and to eliminate the evils existing by reason of the business practices of some retailers, including the practice of giving purchasers of gasoline rebates, allowances, concessions or benefits, with resultant price wars and the adulteration, misbranding and bootlegging of gasoline; that N.J.S.A. 56:6--2(e) was designed to eliminate such practices and was a reasonable exercise of the legislative power in relation to the gasoline business, in order to promote the general welfare, health, safety and prosperity of the people.

The amended answer repeats these contentions in another form, as three separate defenses: (1) the issuance of stamps amounting to a cash discount is prohibited by N.J.S.A. 56:6--2(a); (2) such practice is further prohibited by N.J.S.A. 56:6--2(e); and (3) that prior to the 1938 law, retailers had perpetrated fraud upon the State by purchasing motor fuels without paying taxes due thereon, so that the State was deprived of revenues and incurred heavy expenses in checking upon the purchase and sale of bootleg motor fuels; that as a result, the State, to protect its citizens, facilitate the collection of taxes and prevent fraudulent practices and abuses, enacted N.J.S.A. 56:6--1 et seq. in the interest of the public welfare.

After issue joined, New Jersey Gasoline Retail Dealers Association and Allied Trades, Inc. and approximately 313 individual members of its members asked leave to intervene. The motion was denied, leave being given to file a brief Amicus curiae and present oral arguments at the conclusion of the hearing.

Two matters call for preliminary attention: (1) defendants' motion to dismiss the complaint, made at the beginning of the trial and renewed at the close of plaintiff's case, and (2) plaintiff's motion at the close of its case to add Berkowitz, a retail gasoline dealer, as party plaintiff.

In support of their motion to dismiss defendants urge that no justiciable controversy exists--that plaintiff is not entitled to maintain an action under the Declaratory Judgment Act (R.S. 2:26--66 et seq.,...