State v. Eau Claire Oil Co.

• Decision Date: 30 June 1967
• Citation: 151 N.W.2d 634,35 Wis. 2d 724
• Parties: STATE of Wisconsin, Respondent, v. EAU CLAIRE OIL CO., Inc., Appellant.
• Court: Wisconsin Supreme Court

Page 634

151 N.W.2d 634

35 Wis.2d 724

STATE of Wisconsin, Respondent, v.EAU CLAIRE OIL CO., Inc., Appellant.

Supreme Court of Wisconsin.

June 30, 1967.

Wilcox & Wilcox, Eau Claire, for appellant.

Bronson C. La Follette, Atty. Gen., George F. Sieker, Asst. Atty. Gen., Douglas W. Milsap, Madison, for respondent.

CURRIE, Chief Justice.

Defendant raises the following three issues:

(1) Is sec. 100.30(2)(j), Stats., 1963, requiring that the advertised price of each element of a combined sale must have at least a six percent markup, constitutional?

(2) Is the last sentence of sec. 100.30(4), Stats., making evidence of an offer of sale, or sales, at less than cost prima facie evidence of intent to induce the purchase of other merchandise, or to unfairly divert trade from a competitor, or otherwise injure a competitor, constitutional?

(3) In determining defendant's cost of the claimed loss leader items, as such cost is defined in sec. 100.30(2)(a), Stats., should there be deducted the 12-cent value of the trading stamps the purchaser waives with respect to the concomitant four-dollar purchase of gasoline?

Constitutionality of Sec. 100.30(2)(j), Stats.

Sec. 100.30(2)(j), Stats., requires that where an item of merchandise is sold in combination with or on condition of the purchase of another item, and each is separately priced, such separate price is subject to the six percent markup provision of sec. 100.30(2)(a).Defendant rests its attack on the constitutionality of sub. (2)(j) on two grounds, viz.:

1.The economic reason for upholding the constitutionality of an Unfair Sales Act, such as sec. 100.30, Stats., does not exist with respect to a combination sale where there is an overall profit to the seller.

2.It is arbitrary and unreasonable to prohibit such a combination sale of two items where there is an overall profit to the seller and permit another seller to give free an item in connection with a sale of another item so long as an overall profit also results.

In State ex rel. Miller v. Manders ¹this court held:

'This court has previously held that the protection of economic interests of the general public falls within the scope of promotion of the general welfare, and thereby affords a basis for the exercise of the police power.State v. Ross(1951), 259 Wis. 379, 384, 48 N.W.2d 460, andState ex rel. Saveland P. H. Corp. v. Wieland(1955), 269 Wis. 262, 267, 69 N.W.2d 217.'

Nebbia v. People of State of New York² established the principle that a state legislature has the constitutional power to regulate prices for a purpose which promotes the general welfare.

One of the earliest cases, and the leading case upholding the state's power to enact an unfair sales act, is Wholesale Tobacco Dealers Bureau of Southern California, Inc. v. National Candy & Tobacco Co.³In that case the California supreme court upheld the constitutionality of the California Unfair Practices Act of 1913, as amended, stating:

'It has now become firmly established that the police power of the state extends not only to the preservation of the public health, safety and morals, but also extends to the preservation and promotion of the public welfare.In recent years the state, in promoting and advancing the general welfare of its citizens, has frequently and properly used this power to promote the general prosperity of the state by the regulation of economic conditions.* * * (Emphasis supplied.)⁴

'That * * * the fostering of free, open and fair competition and the prohibition of unfair trade practices is in the public welfare is obvious, and requires no further citation of authority.'(Emphasis supplied.)⁵

The court went on to explain the principles of Nebbia v. People of State of New York, supra, and found the Unfair Practices Act to be a sufficient compliance therewith, even as a price-fixing act.The court expressed the view that nevertheless the act was not of a 'price-fixing' nature, on the theory that the prohibition against sales below cost merely fixed a floor beneath which prices may not be set, the seller's discretion in fixing his price remaining otherwise untrammeled.

Since the Wholesale Tobacco Dealers decision, supra, courts including Wisconsin have generally held such statutes to be within the power of the legislature.⁶Two relatively recent United States supreme court decisions, Safeway Stores, Inc. v. Oklahoma Retail Grocers Association, Inc., ⁷ and United States v. National Dairy Prods. Corp.⁸ reflect general acceptance of the ideas upon which state acts are based.

Defendant reads State v. Ross ⁹ as holding that the legislative justification for sec. 100.30, Stats., is based upon the theory that a sale at a loss is the thing which is against public policy.From this premise it argues that its combination sales at issue here are not at a loss because it realizes an overall profit.Therefore, it is argued there is no economic justification for the requirement of sub. (2)(j) of sec. 100.30, Stats., that each separately priced item must reflect the required minimum markup of six percent.

Some courts have held that the statutory prohibition against selling below cost bears no true relation to the protection of fair competition in distribution and that it imposes unreasonable and unnecessary restrictions thereon.¹⁰Law review commentators have also criticized the wisdom and economic soundness generally of statutes prohibiting loss leader sales.¹¹

However, the United States supreme court recently refused to pass judgment on the correctness of economic policy underlying provisions of a state Unfair Sales Act.In Safeway Stores, Inc. v. Oklahoma Retail Grocers Association, Inc.¹² it was contended that Oklahoma's Unfair Sales Act violated the Fourteenth amendment because it permitted a retail seller who was selling at, or close to, cost to give trading stamps while it prohibited another retailer to grant a cash price reduction equivalent to the value of the trading stamps, if such reduction resulted in a selling price below cost.It was argued that for the state to differentiate between the two situations was a constitutionally impermissible discrimination.The court refused to find the act unconstitutional stating:

'Certainly this Court will not interpose its own economic view or guesses when the State has made its choice.'¹³

The preamble set forth in sub. of sec. 100.30, Stats., states inter alia, 'The practice of selling certain items of merchandise below cost in order to attract patronage is generally a form of deceptive advertising and an unfair method of competition in commerce.'By enacting sub. (2)(j), it must be assumed the legislature deemed sales below cost of an item as a loss leader equally objectionable to the stated preamble objective whether the seller depends upon the loss leader item to voluntarily induce the purchase of other merchandise, the profit on which more than covers the loss on the loss leader, or whether the seller makes sure this is the case by requiring a tied in sale of other merchandise.This is a legislative policy determination with which the courts should not interfere.As this court said in Gottlieb v. Milwaukee:¹⁴

'We as a court are not concerned with the merits of the legislation under attack.We are not concerned with the wisdom of what the legislature has done.We are judicially concerned only when the statute clearly contravenes some constitutional provision.Chicago & N.W.R. Co. v. La Follette(1965), 27 Wis.2d 505, 521, 135 N.W.2d 269.'

We turn now to defendant's contention that it is arbitrary and unreasonable to require each of the items of a combination sale which are separately priced to be sold at a price which is not below cost as defined by sub. (2)(a) of sec. 100.30, Stats., while permitting merchandise to be given away in connection with the sale of other merchandise so long as the selling price of the latter is sufficient to cover its cost plus the cost of the gift.¹⁵

Again it is a legislative and not a judicial determination whether a combination sale in which an overall profit is realized by the seller, but in which one of the separately priced items is sold at a loss, is more objectionable from the standpoint of harm to competing sellers than the combination sale and gift at an overall profit.Callmann offers this explanation for such difference in treatment in Unfair Sales Acts:

'It would be the rare case in which a seller attempts to drive a competitor out of business by means of gifts and premiums.One who offers a gift or premium is more interested in increasing his business than in injuring his competitor.These methods of attracting trade are not sufficiently offensive to be regarded as a weapon in the economic fight.'¹⁶

It is our considered judgment that sub. (j) of sec. 100.30, Stats., is not unconstitutional as applied to defendant's combination sales so as to prohibit any separately priced item being advertised or sold at a price below cost as

defined by sub. (2)(a).Constitutionality of the Legislative

Presumption of Intent Contained in Sec. 100.30(4), Stats.

Defendant attacks the constitutionality of the last sentence of sub. (4) of sec. 100.30, Stats., which provides:

'(4) * * * Evidence of any advertisement, offer to sell, or sale of any item of merchandise by any retailer or wholesaler at less than cost as defined in this section shall be prima facie evidence of intent to induce the purchase of other merchandise, or to unfairly divert trade from a competitor, or to otherwise injure a competitor.'

Originally this sentence of the act read:

'Proof of any such advertising, offer to sell or sale by any retailer * * * in contravention of the policy of this section shall be prima facie evidence of a violation hereof.'

In referring to the original wording the court in State v. Twentieth Century Market ¹⁷ declared 'it is not within the province of the legislature to declare an individual guilty of a crime.'Thereafter ...