THEAYRCORNEY GENERAL
OFTE~AS
AUSTIN ~.TEXAS
May 1, 1961
Hon. Bill Hollowell, Chairman Opinion No. WW-1043
State Affairs Committee
House of Representatives Re: Constitutionality of House
Austin, Texas Bill No. 47 Known as the
Sales Limitation Act.
Dear Mr. Hollowell:
With respect to your request for an opinion on the constitution-
ality of the proposed “Sales Limitation Act” incorporated in House Bill
No. 47, we submit the following.
In essence this bill prohibits the sale of merchandise below the
cost thereof when such sale is made with the purpose or intent to injure
competitors or destroy competition, It contains paragraphs providing
a definition of “cost basis” of merchandise sold and provides that proof
of one or more acts of selling any article or produce at less than the
cost there,of to such vendor together with proof that the person so selling
failed or refused to sell all or any part of his entire stock of said article
or produce at the advertised price thereof to any willing purchaser in
sny quantity requested and for which payment in cash is tendered, is pre-
sumptive evidence of the purpose or intent to injure competitors or des-
troy competition.
The stated purpose of the bill is “to safeguard the public against
the creation or perpetuation of monopolies and to foster and encourage
competition by prohibiting unfair, dishonest, deceptive, destructive and
fraudulent practices by which fair and honest competition is destroyed and
prevented. ” Such a purpose is a legitimate object for the exercise of the
police power of the state. See cases collected in annotations at 118 ALR
506 and 128 ALR 1126.
The history of legislative enactments in Texas, similar to the
one under consideration, has been wrought with adverse decisions. One
of the first such bills limited its effe,ct to grocery stores, and such a
Hon. Bill Hollowell, page 2 (WW-1043)
limitation provided an unreasonable and arbitrary classification and the
same was found unconstitutional. San Antonio Retail Grocers v. Lafferty,
156 Tex. 474, 297 S. W. 2d 813 (1957). Following the court’s decision
another such bill was introduced in the Legislature and the classification
complained of in the Lafferty case was eliminated, but when the same was
presented to this office for review, it was also found unconstitutional.
Attorney General Opinion WW-123, May 16, 1957. One of the main reasons
set forth in WW-,123 holding the second bill unconstitutional was that “the
operative provisions of the bill were not limited to situations where limited
sales are made with an intent to injure competition or where that effect
is achieved. ‘I
The question of intent or effect has been a part of every statute
upheld by the courts of other jurisdictions , and in many cases the courts
have considered such an element to be an essential ingredient to validity.
See e. g. Blum v. Engleman, 190 Md. 109, 57 A. 2d 421 (148); Associated
Merchants v. Ormesher, 107 Mont. 530, 86 P.2d 1031 (1939); Wholesale
Tobacco Dealers Bureau v. National Candy 81 Tobacco Co., Cal. 2d
, 82 P.2d 3 (1938). only two cases have been found where the
statute before the court did not require a wrongful intent or an injurious
effect, and in each the statute was held to be violative of due process re-
quirements for that reason. Commonwealth v. Z&off, 338 Pa. 457, 13 A.
2d 67 (1940); State ex rel. Lief v. Packard-Baumgardner & Co., 123 N. J. L.
180, 8 A. 2d 291 (1939).
In the bill before upsthe question of intent is well taken care of
in Section 4 thereof, “it is unlawful for any person engaged in the distri-
bution or sale of merchandise of general use or consumption to sell such
merchandise at less than the cost thereof to such vendors with the purpose
or intent to injure competitors or destroy competition, ” and in hour opinion
meets all the tests laid down in the cases cited above. (Emphasis added. )
Section 5 of the proposed bill provides that:
“Proof of one or more acts of selling any
article or produce at less than the cost thereof
to such vendor together with protif that the per-
son so selling failed or refused to sell all or any
part of his entire stock of said article or produce
at the advertised price thereof to any willing
purchaser in any quantity requested and for which
payment in cash is tendered, is presumptive
, .
Hon. Bill Hollowell, page 3 (WW-1043)
evidence of the purpose or intent to injure
competitors or destroy competition. ‘I
It is contended that the above quoted Section of the bill creates
an unconstitutional evidentiary presumption and violates due process of
law provided in Article 1, Section 19 of the Texas Constitution and the
14th Amendment of the United States Constitution.
“It is competent for a legislative body to pro-
vide by statute or ordinance that proof of cer-
tain facts shall be prima facie presumptive
evidence of other facts, if there is a natural
and rational evidentiary relation between the
facts proved and those presumed; such statutes
or ordinances are within the well settled power
of the legislature to change the rules of evid-
ence and do not infringe upon the rights of the
judiciary nor violate the provisions of the Fed-
eral or State Constitution. ” People v. Fitzgerald
(1936), 14 Cal. App. 2d 180, 58P2d 718 (writ of
certiorari denied 1936) 299 U.S. 593, 81 L. Ed.
437.
We are unable to find any law enacted in the several states having
laws covering unfair trade practices that contains a provision identical to
Section 5 of the bill under consideration.
The California statutes dealing with unfair sales practices contain
a somewhat similar provision to Section 5 of the proposed Sales Limitation
Act.
Section 5 [California Act] provides that in all
actions brought under the provisions of the
statute the proof of one or more acts of selling
below cost, together with proof of the injurious
effect of such acts, ‘kha.ll be presumptive evi-
dence of the purpose or intent to injure com-
petitors or destroy competition. ”
The Supreme Court of California in People v. Pay Less Drug
Store, 153 P. 2d 9, upheld their Act, and particularly Section 5 thereof,
and on page 13. stated,
- ,
Hon. Bill Hollowell, page 4 (WW- 1043)
“A statutory requirement that the defendant go
forward with the evidence to rebut a prima
facie showing of guilty intent from proof of spec-
ified facts is permissible when the result has
some rational relation to those facts and the
defendant is given a fair opportunity to meet it
by evidence. Morrison v. California, 291 U.S.
82, 88, 54 S. Ct. 281, 284, 78 L.Ed. 664. That
case designates as the test of permissibility that
‘the state shall have proved enough to make it
just for the defendant to be required to repel what
has been proved with excuse or explanation, or
at least that upon a balancing of convenience or
of the opportunities for knowledge the shifting of
the burden will be found to be an aid to the act-
cuser without subjecting the accused to hardship
or oppression. “I
Against a similar attack on Section 5 of the California Act as
quoted above, the court in Mering v. Yolo Grocery and Meat Market,
127 P. 2d 985, after discussing the power of the Legislature to create
presumptions stated,
“In the present case there is a manifest connec-
tion between the fact proved and the fact presumed,
and under the construction placed upon the statute
by the state court, there appears to be no depriva-
tion of a full opportunity to present all the facts re-
lating to operations within the field, I’
Proof that a vendor, selling merchandise below cost, and then
failing to sell all or any part thereof when cash is tendered therefor, creates
in our opinion a set of facts sufficient to shift the burden to such vendor
and meets the rational connection tests as set forth above.
We conclude that House Bill No. 47 is constitutional.
‘ .
Hon. Bill Hollowell, page 5 (WW-1043)
SUMMARY
House Bill No. 47 of the 57th Legislature,
as submitted with your request, known as
the Sales Limitation Act is constitutional.
Yours very truly,
WILL WILSON
Attorney General of Texas
Gordon C. Cass
Assistant
GCC:lmc
APPROVED:
OPINION COMMITTEE:
W. V. Geppert, Chairman
J. C. Davis
Bob Rowland
Henry Braswell
REVIEWED FOR THE ATTORNEY GENERAL
BY: Leonard Passmore