Dakin, M. G.

Malone, Wex S.

English

Louisiana State University: DigitalCommons @ LSU Law Center

Louisiana Law ReviewVolume 3 | Number 4May 1941The Louisiana Fair Trade Act and InterstateTransactions: The Krauss Company CaseM. G. DakinWex S. MaloneThis Comment is brought to you for free and open access by the Law Reviews and Journals at LSU Law Digital Commons. It has been accepted forinclusion in Louisiana Law Review by an authorized editor of LSU Law Digital Commons. For more information, please contact kreed25@lsu.edu.Repository CitationM. G. Dakin and Wex S. Malone, The Louisiana Fair Trade Act and Interstate Transactions: The Krauss Company Case, 3 La. L. Rev.(1941)Available at: https://digitalcommons.law.lsu.edu/lalrev/vol3/iss4/7LOUISIANA LAW REVIEWof property lies in the fact that the donor's heirs can revoke thedonation for non-performance of the charge and thus defeatthe rights of the beneficiary altogether.11'" This danger can beavoided. The donor can deprive his representatives of the powerto revoke the legacy, leaving them only the power to requirespecific performance.11CONCLUSIONFrench lawyers and their clients can create, and in manyinstances have created, property interests which in complex-ity rival those established in common law jurisdictions. Suchdevices as the "permitted" substitutions, the donation aveccharge, the stipulation pour autrui, the alternative conditionallegacy, the usufruct, the fiducia and the fondation lend them-selves to almost infinite complication, and evidence that not onlythe common law property system, but the civilian system as well,is sadly in need of drastic reform.' Complex "future interests"and their civilian equivalents, which today prop up the privi-leged few just as the substitution fidgicommissaire once did thefeudal aristocracy of France, might well be relegated to historyand remembered only for their resistance to necessary reform.F. HODGE O'NEAL *THE LOUISIANA FAIR TRADE ACT AND INTERSTATETRANSACTIONSThe Krauss Company CasePlaintiff, a manufacturer, instituted an action in the federaldistrict court seeking to enjoin defendant, a retailer, from sellingthe plaintiff's trade-marked goods at less than the minimumprice fixed by fair trade agreements which plaintiff had madewith more than a hundred retail dealers in Louisiana under Act13 of 1936,1 popularly known as the Louisiana Fair Trade Act.114. A contract containing a stipulation pour autrwi can be used to ac-complish many of the results obtained by the donation avec charge; but thestipulation pour autrut can be used only inter vivos.115. Le Paulle, op. cit. supra note 6, at 1137.116. Louisiana's property system is far simpler than either those ofcommon law origin or that of France. Even in Louisiana, however, there isneed for considerable reform.* Member of the Louisiana Bar.1. Dart's Stats. (1939) H 9809.1-9809.6.[Vol. IIICOMMENTSAlthough the defendant was not a party to any of the above con-tracts, he was nevertheless subject to suit for having "wilfullyand knowingly" sold the article for less than the price stipulated.2Held, relief denied. The Fair Trade Act, as interpreted in theinstant case, authorizes only contracts which provide that theproduct shall not be resold "except at the price stipulated by thevendor,"8 and the contracts in question exceeded this authorityby providing that the goods should not be resold at a price lessthan the minimum price prescribed by the plaintiff. Since thecontracts exceeded the protection of the Fair Trade Act, they areinvalid under the state statutory provisions forbidding contractsin restraint of trade.4 Mennen Company v. Krauss Company,Limited, 37 F. Supp. 161 (S.D. La. 1941).The effect of Judge Borah's decision in the instant case is tosound the death knell of resale price maintenance contracts inLouisiana for many practical purposes. Most of the commoditiesaffected by these agreements have moved in interstate commerce;hence the agreements must conform to the terms of the Miller-Tydings amendment in order to avoid being regarded as illegalunder the Sherman Anti-Trust Act.5 This amendment exceptsfrom the ban of the Sherman Act agreements prescribing mini-mum prices for the resale of a commodity., Manufacturers sellinginto Louisiana have sought to safeguard themselves from federalattack by employing in their contracts terms which conformmeticulously to the language of the amendment. They now findthemselves in the unhappy predicament of being unable to steera safe course between Scylla and Charybdis: If their contractsconform to the federal requirements they will overstep the pro-tection afforded by the state Fair Trade Act as interpreted byJudge Borah, and hence will run afoul of the Louisiana prohibi-tions against contracts in restraint of trade. On the other hand2. La. Act 13 of 1936, § 2 [Dart's Stats. (1939) § 9809.2].3. Id. at § 1(1) [Dart's Stats. (1939) § 9809.1(1)].4. La. Const. of 1921, Art XIX, § 14; La. Act 90 of 1892 [Dart's Stats.(1939) §§ 4924-4931]; La. Act 11 of 1915 [Dart's Stats. (1939) §§ 4905-4923].5. 26 Stat. 209 (1890), as interpreted in Dr. Miles Medical Co. v. John D.Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911). Dunn, Re-sale Price Maintenance (1923) 32 Yale L. J. 676.6. 26 Stat. 209 (1890), as amended by 50 Stat. 693 (1937), 15 U.S.C.A. § 1(Supp. 1940): "Every contract, combination In the form of trust or other-wise, or conspiracy, in restraint of trade or commerce among the severalstates, or witb foreign nations, is hereby declared to be illegal: Provided,That nothing herein contained shall render illegal contracts or agreementsprescribing minimum prices for the resale of a commodity .... " (Italicssupplied.)1941]LOUISIANA LAW REVIEWif they draft their agreements in conformity with the state FairTrade Act and stipulate the exact price at which the commodityshall be resold, they will lose the protection of the Miller-TydingsAmendment and be subject to prosecution under the ShermanAnti-Trust Act as interpreted by the Supreme Court in the caseof Dr. Miles Medical Company v. John D. Park & Sons Company.7The rationale advanced in the instant case is that the FairTrade Act is in derogation of common right8 and must be strictlyconstrued. Since this act permits only contracts which providethat the buyer will not resell the commodity "except at the pricestipulated by the vendor," no authority is granted to enter intoagreements whereby the resale may be made at any price desiredby the retailer so long as a minimum price or "floor" is main-tained. The court felt that in some way the principles of faircompetition as expressed in the Louisiana statutes wouldbe outraged unless every retailer were compelled to sell the com-modity at exactly the same price., In answer to the above, itmay be said that a contract which allows the free interplay ofcompetition above a prescribed minimum price should be lessonerous to free competition than a stipulation by which the manu-facturer is enabled to saddle the market with a single retail priceof his own choosing. An instructive analogy is found in thosecases which have upheld the power of the state to prohibit thesale of a commodity at a price below cost.9 The ground mostfrequently advanced in defense of such statutes is that they donot effect a regimentation of prices, but merely fix a level abovewhich competition is permitted to function freely.10 This latter isgenerally regarded as a less drastic restraint upon free competi-a7. 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911).8. Cf. Hamiltori, Common Right, Due Process and Antitrust (1940) 7 Lawand Contemp. Prob. 24.9. See, for example, Louisiana Unfair Sales Act, La. Act 338 of 1940[Dart's Stats. (Supp. 1940) § 4931.1-4931.8]. These statutes are sometimesknown as Unfair Practice Acts [I.e., California, Cal. Gen. Laws (Deering,1937) Act 87811.10. "The present statute ... in its true sense ... is not a price fixingstatute at all. It merely fixes a level below which the producer or distribu-tor may not sell with intent to injure a competitor. In all other respects priceis the result of untrammelled discretion." Wholesale Tobacco Dealers Bureauof Southern California v. National Candy & Tobacco Co., 11 Cal. (2d) 634,655, 82 P.(2d) 3, 15 (1938)."[The Montana Unfair Practice Act] fixes a minimum price only, leav-ing in the seller the discretion to sell at ivhatever price above that hechooses. The minimum price is fixed not as an end in Itself, but to preventruinous price-cutting injuring or destroying competitors." Associated Mer-chants of Montana v. Ormesher, 107 Mont. 530, 543, 86 P.(2d) 1031, 1033 (1939).[Vol. IIICOMMENTStion than rigid price fixing. The same idea is applicable in resaleprice maintenance by a manufacturer or distributor..1Furthermore, it is hardly realistic to assume that the Louisi-ana legislature intended to permit price-fixing only upon the con-dition that every retailer be compelled to sell at exactly the sameprice. This assumption ignores the circumstances attendant uponthe nation-wide enactment of Fair Trade Laws. For a number ofyears such acts had been urged upon the legislatures of thevarious states, but without success, because of a fear that statutesauthorizing the fixing of prices through contract would be heldunconstitutional under the due process clause of the FourteenthAmendment. 12 When the pioneer Illinois act"3 was upheld by theUnited States Supreme Court in the case of Old Dearborn Dis-tributing Company v. Seagram-Distillers Corporation" in 1936,.that act was immediately copied slavishly by a dozen or morestates and enacted into law. Louisiana was one of those states.It is reasonable to believe that the idea uppermost in the mindsof the legislators was the enactment of a statute which wouldmeet the pressing demand for resale price maintenance, andwhose constitutionality was assured. The Illinois act, which waseffective, and which also had run the gauntlet of the SupremeCourt, appeared to meet both specifications. It validated con-tracts which provided "that the buyer will not resell such acommodity except at the price stipulated by the vendor." Thissame provision appeared verbatim in the Fair Trade Acts of11. "Such statutes [Fair Trade Acts] permit the owner of trade-markedarticles to fix the resale price of such articles. The basic purpose of such astatute and the one here involved [the California Unfair Practice Act] isthe same. Both are aimed primarily at cut price retailing and the ruinoususe of loss leaders. The Fair Trade Act alms to correct the evil from aboveby legalizing resale price maintenance, by penalizing all who sell trade-marked articles in disregard of the owner's contract even though not partiesto It. The present statute operates from below and is broader in scope."Wholesale Tobacco Dealers Bureau of Southern California v. National Candy& Tobacco Co., 11 Cal. (2d) 634, 655, 82 P.(2d) 3, 15 (1938).12. It was generally believed that the right of the owner of property tofix the price at which he will sell it was an inherent attribute of the propertyitself, and as such was within the protection of the Fifth and FourteenthAmepdments. Chas. Wolff Packing Co. v. Court of Industrial Relations, 262U.S. 522, 43 S.Ct. 630, 67 L.Ed. 1103, 27 A.L.R. 1280 (1923); Tyson and Brother-United Theatre Ticket Offices v. Banton, 273 U.S. 418, 47 S.Ct. 426, 71 L.Ed.718, 58 A.L.R. 1236 (1927); Ribnik v. McBride, 277 U.S. 350, 48 S.Ct. 545, 72L.Ed. 913, 56 A.L.R. 1327 (1928); Williams v. Standard Oil Co., 278 U.S. 235, 49S.Ct. 115, 73 L.Ed. 287, 60 A.L.R. 596 (1929); New State Ice Co. v. Llebmann,285 U.S. 262, 52 S.Ct. 371, 76 L.Ed. 747 (1932). See Old Dearborn DistributidgCo. v. Seagram-Distillers Corp., 299 U.S. 183, 192-193, 57 S.Ct. 139, 143-144, 81L.Ed. 109, 118 (1936).13. fll. Rev. Stat. Ann. (Smith-Hurd, 1935) c. 121 1/2, § 188.14. 299 U.S. 183, 57 S.Ct. 189, 81 L.Ed. 130 (1936).1941]LOUISIANA LAW REVIEW [Vol. IIIfifteen states."5 Until the present decision no one had contendedthat this type of provision precluded the making of agreementswhich fixed merely a minimum resale price." It is interesting tonote, however, that seven states1" which have adopted the Illinoisact have pretermitted the problem by substituting the phrase"at less than the minimum price stipulated by the vendor" inplace of the phrase "except at the price stipulated." Furthermore,in the more recent model law recommended by the NationalAssociation of Retail Druggists, which has been adopted in nine-teen states,1 8 this altered phraseology is incorporated. 9oWithin the Louisiana act itself there is substantial evidencethat the legislature was not of the opinion that price-fixing wouldbe permissible only "if every retailer should be compelled to sell15. Arizona, Ariz. Code Ann. (1939) § 74-201-74-206; California, Cal. Gen.Laws (Deering, 1937) Act 8782; Illinois, Ill. Rev. Stat. Ann. (Smith-Hurd,1935) c. 121 %; Iowa, Iowa Code (1935) § § 9884-gl-9884-g7; Kentucky, Laws1936-37, c. 24; Louisiana, La. Act 13 of 1936 [Dart's Stats. (1939) § 9809];Massachusetts, Mass. Ann. Laws (Supp. 1938) c. 93, § 14a et seq.; Michigan,Mich. Stat. Ann. (Henderson, Supp. 1938) § 19,321 et seq.; Mississippi, Miss.Gen. Laws (1938) c. 348; New Mexico, N. M. Stat. Ann. (Courtright, Supp.1938) § 145-107 et seq.; New York, Unconsol. Laws (Thompson's 1939) § 2201et seq.; North Dakota, N. D. Laws (1937) c. 126; Tennessee, Tenn. Code Ann.(Michle, 1938) § 6770-1 et seq.; Washington, Wash. Code Ann. (Pierce, Supp.1937) § 7109-51 et seq.; Wisconsin, Wis. Stat. (1937) § 133.25 et seq.16. It is clear that the Miller-Tydings Amendment was drafted with theIllinois type statute in mind. It was the prototype of the Fair Trade Actsin effect in 1937, and the purpose of the Amendment was to implement theprovisions of these acts by removing the barrier to their applicatiq toInterstate transactions. 81 Cong. Rec. 9699-9700 (1937).17. Colorado, Colo. Stat. Ann. (Michie; Supp. 1938) c. 165; Maine, Me.Laws (1937) c. 204; Michigan, Mich. Stat. Ann. (Henderson, Supp. 1938) 119,321 et seq.; New Hampshire, N. H. Pub. Laws (1937) c. 184; Ohio, OhioCode Ann. (Baldwin, 1936) § 6402-2 et seq.; Oklahoma, Okla. Stat. Ann.(1938) tit. 78, § 41 et seq.; South Carolina, S. C. Laws (1937) no. 206.18. Alabama, Ala. Laws (1939) H.B. 102; Arkansas, Ark. Dig. Stat. (Pope,1937) § 5606 et seq.; Connecticut, Conn. Gen. Stat. (Supp. 1937) c. 138a;lrida, Fla. Laws (1937) c. 18-395; Georgia, Ga. Laws (1937) 800; Idaho,Idaho Laws (1937) c. 240; Indiana, Ind. Stat. Ann. (Burns, Supp. 1940) c.66, § 301 et seq.; Kansas, Kan. Laws (1937) c. 165; Maryland, Md. Ann. Code(Flack, 1939) Art. 83, §§ 103-110; Minnesota, Minn. Stat. Ann. (Mason, Supp.1938) § 3976.51 et seq.; Montana, Mont. Laws (1937) c. 42; Nebraska, Neb.Comp. Stat. (Kyle, Supp. 1937) § 59-1101 et seq.; North Carolina, N. C. Laws(1937) c. 350; Oregon, Ore. Comp. Laws Ann. (1940) § 43-401 et seq.; SouthDakota, S. D. Code Ann. (1939) c. 54:0401 et seq.; Utah, Utah Rev. Stat.(Supp. 1939) tit. 95, c. 3, §§1-10; Virginia, Va. Code Ann. (Michie, Supp. 1938)§ 1463(j); West Virginia, W. Va. Code Ann. (Michie & Sublett, 1937) §4678(1) et seq.; Wyoming, Wyo. Rev. Stat. (Supp. 1940) c. 117, art. 6, §1601-612.19. The language of the Model Act is as follows:"Sec. 2. No contract ... shall be construed to violate any provision ofthe general statutes by reason of any of the following provisions which maybe contained in such contract:""B. That the buyer will require from any dealer to whom he may resellsuch commodity an agreement that he will not, in turn, resell at less thanthe minimum price stipulated by the seller."COMMENTSthe commodity at exactly the same price." Section 2 of the act,under which this suit was brought, provides that "wilfully andknowingly advertising, offering for sale or selling any commodityat less than the price stipulated in any contract ... is unfair com-petition and is actionpble .... -20 No mention is made here orelsewhere in the act of sanctions imposed for reselling the com-modity at more than the price stipulated. The conclusion appearsinescapable that the legislature had in mind only minimumprices. It is most unlikely that the lawmakers would authorize aprice-fixing agreement without providing protection for thatagreement in all areas of its operation.The soundness of resale price maintenance from an economicviewpoint is by no means established. However, if 'an abandon-ment of the practice is desirable, such a movement should ema-nate from the legislature. The decision in the instant case, becauseof its drastic effect upon resale price maintenance in interstatetransactions, deserves a careful reconsideration. An interpreta-tion of the Louisiana act more consonant with the legislative his-tory of fair trade statutes and more in keeping with the interstateaspects of resale price maintenance is greatly to be desired.M. G. DUm*WEX S. MALONEtTHE LOUISIANA BLUE SKY LAW"It is better to close the barn door before the horse is stolen."This homely proverb epitomizes the purpose of regulatory BlueSky Laws which have been enacted in almost every state. Suchstatutes purport to prevent promotional frauds by providing fora close scrutiny of new stock or bond issues prior to their beingoffered to the public. Then too, the Federal Securities Act'regulates securities which are offered or delivered through themails or interstate communications. These statutes afford thebuying public much needed protection, and when properly ad-ministered do not impose an undue burden on the sale ofsecurities.20. La. Act 13 of 1936, § 2 [Dart's Stats. (1939) § 9809. 2].* Assistant Professor of Business Administration, Louisiana State Uni-versity.t Assistant Professor of Law, Louisiana State University.1. 48 Stat. 74 (1933), 15 U.S.C.A. § 77 (Sdpp. 1940).19411

The Louisiana Fair Trade Act and Interstate Transactions: The Krauss Company Case

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The Louisiana Fair Trade Act and Interstate Transactions: The Krauss Company Case

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