State v. Gulf Refining Co.

• Court: Texas Court of Appeals
• Writing for the Court: McClendon
• Citation: State v. Gulf Refining Co., 279 S.W. 526 (Tex. App. 1925)
• Decision Date: 23 December 1925
• Docket Number: (No. 6880.)
• Parties: STATE v. GULF REFINING CO.<SMALL><SUP>*</SUP></SMALL>

279 S.W. 526

STATE v. GULF REFINING CO.^*

(No. 6880.)

Court of Civil Appeals of Texas. Austin.

December 23, 1925.

Rehearing Denied January 20, 1926.

Appeal from District Court, Travis County; Geo. Calhoun, Judge.

Suit by the State under the anti-trust laws against the Gulf Refining Company. Judgment for defendant, and the State appeals. Affirmed.

W. A. Keeling, Atty. Gen., and C. A. Wheeler, Riley Strickland, and Frank M. Kemp, Asst. Attys. Gen., for the State.

D. Edward Greer, Claude McCaleb, and John E. Green, Jr., all of Houston, and R. L. Batts, of Austin (H. L. Stone, Jr., of Pittsburgh, Pa., of counsel), for appellee.

McCLENDON, C. J.

This was a suit by the state of Texas against the Gulf Refining Company, a Texas corporation, (1) to enjoin the latter from further observing certain contracts with retail dealers in gasoline and lubricating oils under which the Gulf Company leased to the dealers, at a nominal rental of $1 per year, tanks and pumps for handling products of the Gulf Company; (2) to recover penalties; and (3) to forfeit the charter of the Gulf Company, if the court should deem public interest required it. The suit was based upon the allegation that the contracts were violative of articles 7796 and 7798, R. S. of 1911, commonly known as the anti-trust law. There was a trial to the court without a jury, and judgment was rendered in favor of the Gulf Company. From this judgment the state has appealed.

The state urges 19 assignments of error, supported by 6 propositions, the substance of which may be summarized in the following contentions:

First. That the contracts and their observance contravene sections 1, 3, and 5 of article 7796, in that they constitute combinations of capital, skill, or acts which create or tend to create or carry out restrictions in trade or in the free pursuit of a lawful business. That they prevent or lessen competition in the sale and purchase of merchandise, produce, or commodities, and that they preclude a free and unrestricted competition among the parties and others in the sale of such commodities.

Second. That they contravene section 1, of article 7798, in that they constitute agreements or understandings "to refuse to buy from or sell to any other person, firm, corporation or association of persons," articles of merchandise, produce or commodity.

The controlling question in the case is whether the contracts in themselves, or as observed and carried out between the Gulf Company and the several dealers, constitute, as a matter of law, violations of the above-mentioned statutory provisions. The facts in the case are without substantial dispute.

It was shown that beginning in the year 1923, and up to the time the suit was filed, the Gulf Company had entered into a large number of these contracts, which were of two kinds, one a gasoline equipment contract, and the other a lubricant equipment contract. Pertinent portions of the former of these read as follows:

"Second. That said equipment shall be used solely for the storage and handling of gasoline supplied by the party of the first part (Gulf Company) under the terms of this agreement."

"Sixth. That in case the party of the second part (dealer) shall at any time use the said equipment for any other purpose than the storage and handling of gasoline purchased from the party of the first part, or should said second party cease for thirty (30) days to purchase gasoline from the party of the first part and sell the same in his regular trade, the right to the use of said equipment shall terminate, and the party of the first part shall thereupon have the right to enter upon the said premises and remove said equipment and every part thereof.

"Seventh. This agreement shall terminate forthwith upon the sale or other disposition of the premises by the party of the second part and in any event at the end of one year from the date thereof. Upon the expiration of this agreement, the party of the first part shall have the right to enter upon said premises and remove said equipment and every part thereof."

The lubricant equipment contract was not substantially different from the gasoline equipment contract, and it will not be necessary to set out its provisions further than to note that it provided for the loan of a 65-gallon portable wheel tank and pump, and had substantially the same restrictions as to use and other provisions contained in the gasoline equipment contract.

The evidence shows that the production and sale of gasoline and lubricating oils had grown from comparatively small proportions some 20 odd years ago to one of the most important industries at the present time; that, prior to the invention of the internal combustion engine, there was very little use made of gasoline, and it was a waste by-product in the refinement of kerosene oil; that the invention of the internal combustion engine created a larger demand for gasoline, but it was not until the automobile was perfected and put in general use as a vehicle that its consumption became very extensive; that from that time on the use of gasoline and lubricating oils increased enormously from year to year, and at the time of the trial of the case the daily consumption of gasoline in Texas amounted to approximately 1,000,000 gallons; that the manner of handling the gasoline was also materially changed during this period of 20 years; that originally it was supplied to the dealer in drums or cans, and in its handling there was of necessity a great deal of waste and expense, and a very large fire hazard; that eventually there was devised the underground tank with a measuring pump attached, which was first used at the curb or sidewalk, and later in what we now know as "drive-in" filling stations; that under this manner of handling there is very little waste from leakage or evaporation, the facility with which it is distributed minimizes the labor and consequent cost of distribution, and the fire hazard is reduced to a minimum; that these pumps and tanks can be purchased by any one having sufficient capital from various dealers at a cost installed ranging from $200 to $300; that several years ago some of the larger refineries began the practice of supplying dealers with this equipment, either upon a loan, or nominal rental agreement similar to those in question, and other refineries followed; that some refineries, perhaps a large number of those of small capital, were unable financially to supply their dealers; that not all of the refineries that were financially capable of conducting their business in this manner did so, on the presumable ground that they did not find it necessary or regarded it as unprofitable; that there were no collateral agreements in connection with these contracts, and no attempts made to control the dealers in any way further than as provided by the express terms of the contract; that the competition between different refineries in the sale and distribution of gasoline and lubricating oils was very keen in the state of Texas, and probably more so than in other states; that there were some 175 or more concerns selling gasoline at wholesale in Texas which were active competitors of the Gulf Company; that of these some 5 or more were in competition generally throughout the state and the others in competition in various localities; that the Gulf Company supplied approximately 20 per cent. of the total amount of gasoline consumed in the state, and about 20 per cent. of their product, constituting approximately 5 per cent. of the total amount consumed in the state, was distributed through equipment loaned or leased under the contracts in question; that there were a number of dealers in the larger cities who had tanks and pumps of more than one concern on the same premises, but as a usual thing, and especially in the smaller communities, a dealer would use only one tank and pump, that being sufficient for his needs; that under the contracts themselves, and as carried out, the dealer was free at any time to have as many tanks and pumps on his premises of different concerns as he could arrange for, and was also free to discontinue the use of the Gulf Company equipment and cancel the contracts at will; that many dealers purchased their own equipment and used the gasoline of the Gulf and other companies through such equipment as they saw proper; that the practice of supplying the equipment under the contracts in question had had the effect of largely increasing the number of dealers and placing the products all over the state, at the rural crossroads, as well as in villages, towns, and cities; that the practice sought to be enjoined in this suit had been begun prior to 1923 by some of the Gulf's competitors, but it was not until that year and after the contracts had been held to be legal by the Supreme Court of the United States that the Gulf Company began the practice in this state.

The evidence further shows that the Gulf Company, in its 20 years of business in Texas and elsewhere, has featured and spent large sums of money in advertising its products under the trade-names of "Supreme Auto Oil" and "That Good Gulf Gasoline," under which trade-names they have become widely known, and a large demand therefor has been created. The leased or loaned equipment carries these trade-names, and the purpose of the practice in question was to put the products of the Gulf Company within easy reach of customers, and "to assure the purchaser that, when he calls for Supreme Auto Oil or That Good Gulf Gasoline, he will get products vouched for by appellee."

The Federal Trade Commission took the view that these contracts violated both section 3 of the Clayton Act (U. S. Comp. St. § 8835c) and section 5 of the Federal Trade Commission Act (U. S. Comp. St. § 8836e), and ordered 30 or more refineries and wholesalers to abandon the practice. This order was attacked in the federal courts and was held void by Circuit Courts of Appeals.

The matter finally came...