Austin, Arthur D.

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Law and the Balance of Power. By Stewart Macaulay

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BOOK REVIEWLAW AND THE BALANCE OF POWER. By Stewart Macaulay.t NewYork: Russell Sage Foundation, 1966. Pp. xix, 224.The effects and the import of industrial concentration have gen-erated voluminous commentary. Most of the studies deal with theproblem in an antitrust setting or in terms of the structural altera-tions that might occur and their resultant impact on the nationaleconomy. Poised precisely in the center of a universal concern withindustrial aggrandizement is the automobile industry. It carries allthe bench marks that invite legislative and judicial scrutiny-oli-gopolistic market composition, immense material resources, a historyof expansion, and the possession of brute market power. ProfessorMacaulay addresses his study to the tensions exuded by the latterforce. More specifically, he focuses on the unique and frequentlyturbulent relationship between automobile manufacturer and fran-chised dealer.The public views the dealer as an integral part in the manufac-turer's distribution system. To the consumer, producer and dealervisually and tactiley merge into the symmetry and design of theautomobile.1 The manufacturer views the relationship quite differ-ently. To him the dealer represents nothing more than a sales in-strumentality who bears no burden of risk and who should thereforebe happy to have the opportunity to market a heavily advertised pre-sold item. On the other hand, the dealer feels that he is exploitedin that he must bear the risks of investment without counterbalancingrights of control over his destiny. Professor Macaulay's book is asuccessful endeavor, via a five stage analysis, to give some coherenceto this labyrinth of cross-pressures and embranglements.Dealers initially endeavored to meet manufacturers' bargainingpower with private legal action-usually based upon breach of con-tract. A lack of express mutuality of obligation and a general refusalby the courts to inject into the contract any implied obligations, suchas a promise by manufacturers to use their substantial powers int Professor of Law, University of Wisconsin.IFor another perspective of the auto industry see R. NADER, UNSAFE AT ANY SPEED(1965)."good faith," deprived dealers of any chance of success in privatelitigation. In addition, the disparity in bargaining power allowedthe manufacturers to continue to insist upon "termination at will"agreements. The dealers next resorted to collective private action,utilizing with little success the association technique. The thirdstage in the conflict encompasses the use of existing legislation andvarious efforts by dealer representatives to have state and federalcurative laws enacted.Macaulay only summarily discusses the use of federal statutespredating the Dealer's Day in Court Act. 2 The space that he devotesto this form of action focuses primarily on the codes of fair competi-tion that were developed under the depression-inspired NationalIndustrial Recovery Act. Unfortunately, he swiftly glosses overdealer utilization of trade regulation statutes. Admittedly thedealers were generally unsuccessful, but the ratiocination and tonefrom several of the decisions serves to provide valuable insights intothe texture of the relationship.The favorite and most logical basis for attack is for the dealerto allege the existence of a tie-in. For example, where a ChevroletMotor Company contract specified that the dealer sell and use forrepair only General Motors parts, it was argued that Chevrolet partswere "tied" to Chevrolet cars and to the franchise.3 If the dealerwanted the automobiles, he was obligated to purchase replacementand repair parts. In acknowledging the presence of a tying arrange-ment, but nevertheless denying relief, the Seventh Circuit invokedthe anomolous view of the automotive distribution process that pre-vails among the general public in justifying the imposition of addi-tional burdens on the dealer: "In the minds of the owners, the cars areidentified and associated with the manufacturer."4 According to thistheory, therefore, since the manufacturer bears the risk of goodwillloss, he should have the right to dictate the use of repair and replace-ment parts.The irony of the situation is that the dealers have been forced tofinancially support advertising funds whose acknowledged purposeis to create and perpetuate the manufacturer identity image. Lincoln-,15 U.S.C. §§ 1221-25 (1964).8 Pick Mfg. Co. v. General Motors Corp., 80 F.2d 641 (7th Cir. 1935), aff'd per curiam,299 U.S. 3 (1936) (action brought by a General Motors competitor).Id. at 643.1070 DUKE LAW JOURNAL [Vol. 1967:1069Mercury Dealers Advertising Funds (LMDA's), established by FordMotor Company, were designed to coordinate local advertising effortsin order to achieve uniform and economical coverage. Membershipwas compulsory. To finance the project Ford assessed each new car,turning the funds over to the local LMDA's.5 All advertising washandled by Kenyon and Eckhardt, an agency who also did Lincoln-Mercury institutional advertising. A North Carolina dealer attackedthe plan on two grounds: first, in his view, the dealers were forcedto buy advertising programs as a means of assuring the continuanceof the franchise; and secondly, he contended that Ford conspired torestrain trade in the sales of cars and advertising. The district courtdismissed the tying arrangement allegation on the highly ques-tionable reasoning that "All of the tying cases.., involve efforts bya defendant to tie one of his own products to the sale of another ofhis products-never to the sale of somebody else's product . . .-The Fourth Circuit predicated its refusal to overturn the trial court'sdenial of restraint of trade primarily on the grounds that "only thosearrangements which unduly or unreasonably restrain commerce areforbidden."7  The higher cost of autos resulting from advertisingwas considered to be de minimus.The dealers lack of success in obtaining relief through the traderegulation statutory complex is surprising in view of the contempo-rary liberality of interpretation in that area. In post World War IIantitrust decisions, tying arrangements that involved fields otherthan the auto industry have received curt and preemptory treatment.Perhaps the unique quality of the dealer-manufacturer relationshipaccounts for the difference in judicial treatment: It could be argued5General Motors, as a result of Justice Department pressure, no longer requires com-pulsory dealer contribution to national advertising. The Wall Street Journal, Dec. 4,1956, at 2, col. 2.6 Miller Motors, Inc. v. Ford Motor Co., 149 F. Supp. 790, 806 (M.D.N.C. 1957),aff'd, 252 F.2d 441 (4th Cir. 1958). For a criticism of the "single vendor" definition ofthe tying arrangement see Austin, The Tying Arrangement: A Critique and Some NewThoughts, 1967 Wis. L. REv. 88.7 Miller Motors, Inc. v. Ford Motor Co., 252 F.2d 441, 446 (4th Cir. 1958) (em-phasis in original). The Fourth Circuit concluded that a lack of these elements dis-tinguished the present case from United States v. General Motors Corp., 121 F.2d 376(7th Cir.), cert. denied, 314 U.S. 618 (1941), where the Justice Department was successfulin sustaining charges that General Motors "made use of their monopoly over the supplyof General Motors cars and their power over the economic fate of General Motorsdealers, to force GMAC on dealer-purchasers and retail purchasers of General Motorscars, in effect tying the GMAC finance conditions and restrictions to the wholesalepurchase and retail sale of General Motors cars." Id. at 402.Vol. 1967: 1069] 1071BOOK REVIEWthat any time the goodwill or national image of the auto manufac-turer is jeopardized, there appears a sublimal presumption in favorof the manufacturer's activities. And undoubtedly the passage of theDealer's Day in Court Act 8 has diluted much of the thrust of traderegulation implementation. One court used a congressional findingthat the "antitrust laws [do] not afford automobile dealers a remedyagainst inequitable and oppressive use of the manufacturers' superioreconomic power ... ". ." as subsidiary support in denying a dealerantitrust recovery. It might be noted that thus far the Governmenthas enjoyed something less than total success in defining and con-taining the functional boundaries of the franchise technique. It isa problem that will undoubtedly draw continuing court attention.The most significant result of dealer lobbying, and the focus ofMacaulay's study, was the enactment of the Automobile DealerFranchise Act of 1956.10 . The result of intense and bitter dealer-manufacturer skirmishing in and out of congressional hearings, allof which Macaulay succinctly describes in detail, the Act providesfor the recovery of damages when the manufacturer fails to "act ingood faith in performing or complying with any of the terms orprovisions of the franchise, or in terminating, cancelling, or not re-newing the franchise....,11According to Professor Macaulay, the Act produced dual responseactivity, one formal and the other informal. The latter response,considered by the author to be the fourth stage of the dealer-manu-facturer struggle, was manifested by manufacturers creating addi-tional due process safeguards upon which dealers could rely in can-cellation cases, expanding avenues of communication, and in ageneral over-hauling and revising of the franchise agreements. Theseconcessions were significantly greater than the benefits achieved informal confrontation with manufacturers under the federal Dealer'sDay in Court Act,'2 which Macaulay discusses, along with the effectsof local legislation, in the "Fifth Stage."The main obstacle to the successful implementation of the Auto-mobile Dealer Franchise Act is that dealers have thus far been unableto obtain a favorable court interpretation of "good faith." Macaulay' 15 U.S.C. §§ 1221-25 (1964).' Nelligan v. Ford Motor Co., 262 F.2d 556, 559 (4th Cir. 1959).1o 15 U.S.C. §§ 1221-25 (1964).-1 15 U.S.C. § 1222 (1964).12 15 U.S.C. §§ 1221-25 (1964).DUKE LA4W JOURNAL [Vol. 1967: 10691072concludes that "It now appears almost certain that the Good FaithAct will be construed to give a dealer a remedy only where he canprove coercion."1 3 In addition, the courts have approved many ofthe more significant provisions in the franchise agreement and conse-quently have diluted much of the thrust of a contract of adhesionargument.14Macaulay's analysis of federal and state legislation (the latterprobe focusing primarily on the Wisconsin treatment) is thoroughand scholarly enough to influence future judicial decision making.However, the essence of the book is its endeavor to relate the pres-sures and methodology of private action groups and informal pro-cedures to the strictures of legislative and judicial formality. Theultimate effect of the Good Faith Act and state laws has been tocreate a viable and functionable private review system. Macaulaypresents a lucid portrait of this process and its impact upon theconsumer-dealer-manufacturer. Yet, assuming the interplay of thesetensions, the question nevertheless remains-what is the nature ofthe dealer-manufacturer relationship?The impact and compulsion of externals precludes contouringthe relationship into one of the recognized legal definitional niches.The nature of the product-second only to the home as a financialinvestment-the brute size of the industry, and saturation advertisinghave all operated to efface the role of the dealer. The fact that in thefinal analysis the ultimate risk of sales loss falls on the manufacturerhas undoubtedly had its influence. It is therefore quite possiblethat a new legal relationship is in the process of crystallization.And although the new field will draw substantial lifeblood from areassuch as antitrust, agency, and from legislation such as the Good FaithAct, the main sense of direction will still come from contract law.It is difficult to determine whether Macaulay agrees with theabove conclusions. On one hand he acknowledges that his studyreveals "the long process by which legislatures removed automobilemanufacturer-dealer relations from the domain of general contractlaw and created a new area of law."' 5 It would appear that ProfessorFriedman's residual theory of contracts, whereby the field of contract1" S. MAcAuLAY, LAW AND THE BALANCE OF POWER 106 (1966).14 The contract of adhesion argument could be raised under the "unconscionable"contract provision of § 2-302 of the Uniform Commercial Code.15 S. MACAULAY, supra note 13, at 197.Vol. 1967: 1069] BOOK REVIE W 10731074 DUKE LAW JOURNAL [Vol. 1967:1069is inexorably being reduced through the creation of new areas,1" hasbeen embraced by Macaulay. If so, it is a very tentative and weakembrace, for he observes that though "contract law itself may havelost much of its subject matter... many of its ideas continue to besignificant in what may be called the 'newly developing nations' ofthe law."'17By way of explanation it should be noted that the residual theoryis used to explain the contemporary concern of the courts with therelative equities of the contracting parties. An emerging economicenvironment demanded that contract principles be applied on a con-sistent and predictable basis. Abstraction, so it is argued, dominatedcontract resolution. However, as the economy matured and as por-tions of contract law were legislatively and judicially segregated intofields of specialization, e.g., sales, antitrust, insurance, courts wererelieved of the burden of maintaining predictability and could there-fore shape a result to coincide with the individual needs of thelitigants.As mentioned, Macaulay's findings neither refute nor support theresidual theory. He admits that a certain amount of contract pre-emption has occurred through legislation, but at the same time henotes that "some of the traditional ideas upon which old-fashionedclassroom contract law is based reemerge to govern these new statutesand their application.... ."isThis inconclusiveness prompts a small seed of suspicion as to thevalidity of the residual theory. If Professor Friedman's study did notdemonstrate otherwise (which it does as far as Wisconsin is con-cerned), one might wonder whether contract commentators have notfallen into the error of assuming the existence of a "pure" or "per-fect" theory of contracts. Perhaps contract scholars are relating toa model, existing in the never-never land of abstraction, which is heldout as perfection much in the same fashion as the debunked theoryof pure competition. 19 In other words, has contract law actually lost16 "The law of contract, then, is residuary; it applies to those agreements that arenot subject, in whole or in part, to special legal treatment, by virtue of some specialstatute or legal rule.... L. FRIEDMAN, CONTJaLr LAw IN AMERICA 17 (1965).1? S. MACAULAY, supra note 13, at 199.28 S. MACAULAY, supra note 13, at 4.19 Professor Friedman makes this analogy: "The law of contract is, therefore, roughlycoextensive with the free market. Liberal nineteenth-century economics fits in neatlywith the law of contracts so viewed. It, too, had the abstracting habit." L. FRIEDMAN,supra note 16, at 20-21. However, Friedman adds a disclaimer: "In fact, there wasVol. 1967: 1069] BOOK REVIEW 1075its vitality in the realities of day-to-day commercial transactions?One might say, and without further study it would be nothing morethan merely a comment, that with the branching off and developmentof new areas such as the one discussed by Professor Macaulay, theperimeter of contract law is actually expanding.ARTHUR D. AUSTIN*never any point at which the law of contracts corresponded exactly with such aneconomic theory." Id. at 21.* B.S. 1958 University of Virginia; LL.B. 1968 Tulane University; Assistant Professorof Law, Cleveland-Marshall Law School of Baldwin-Wallace College.

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Law and the Balance of Power. By Stewart Macaulay

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