lb: Y GICNERA
April 2'1,1959
Honorable Reagan R. Huffman, Chairman Opinion No. WW-609
Liquor Regulations Committee
House of Representatives Re: Constitutionality of
Austin, Texas ?&use Bill 353, 56th Legisla-
ture, relating to establish-
ment of minimum sales price in
the sale of spiritous liquors.
Dear Sir:
Your request of March 25, 1959 reads as follows:
"Please consider this letter as a request from
the House of Representatives Liquor Regulation Com-
mittee for a Constitutional Opinion on the enclosed
House Bill 353 by Representative,Day.
"By unanimous vote of the above Committee this
Bill has been sent to ybu for'your opinion'as to
its constitutionality. This Committee would also
humbly request your opinion as to!whether this Bill
would be constitutional If amended to ,statethat no
retail liquor dealer could sell under wholesale
prices."
We will turn our consideration to your first question, namely,
whether the Bill as written is constitutional.
Article 666-57 of Section 1, H. B. 353, reads as follows:
"ARTICLE 666-57 - POLICY OF TEE STATE: It is
hereby declared to be'the policy of the State of
Texas to stabilize liquor prices for,the purpose of
stabilizing public revenues and an end of avoiding
price wars which would materially affect the re-
venues of the State, attempts at monopolies and the
demoralization of the legally controlled sales of
liquors in this State which grows out of unfair pricp
manipulations."
The following quotations are taken from House Bill 353 as pertain-
ing to the setting of a minimum price:
Honorable Reagan H. Huffman, Page 2. (~~-609)
"ARTICLE 665-58 - SALE ANI IMPROPER PRICES PRO-
HIBITEDD: No wholesaler or retailer of spiritous or
vinous liquors as they are defined in Article 666-3A
of this chapter, shall sell any such liquors in this
State, except at the prices herein fixed.
"ARTICLE 666-59 - THE WHOLESALER'S SELLING
PRICE: The wholesaler's selling price to the retail-
er shall be his cost as defined in this Act, plus a
minimum mark-up of 13% of cost on liquor, cordials,
liqueurs, specialties, sparkling and still wines, and
he shall deliver such liquors to the retailers at
such price without additional price for delivery.
"ARTICLE 666-60 - RETAILER'S SELLING PRICE:
The retailer's selling price shall be his cost as
defined in this Act, plus a minimum mark-up of 305 of
cost on liquors, cordials, liqueurs and specialties,
and 50% on all wines.
'ARTICLE 666-61 - WHOLESALER'S COST DEFINED:
The cost to the wholesaler is the actual invoiced
price which he pays for the merchandise, and as de-
termined by the Board's Administrator, plus State and
Federal taxes, plus actual freight and cartage cost
incurred in delivery to him.
"ARTICLE 666-62 - RETAILER'S C0ST.DEFINF.D: The
cost to the retailer is the actual invoiced price
which he pays to the wholesaler.
"ARTICLE 666-63 - SELLING PRICE DISPLAYED BY RE-
TAILER - DISCOLWS: No retailer shall expose any of
such alcoholic beverages for.sale without showing the
selling price thereof in easily read figures, and it
shall be unlawful for any retailer to offer such
merchandise for sale at any other figure, except that,
in case lots (of not less than 2.40 gallon) the re-
tailer may grant a discount of not more than 10% of
such retail prices.
"ARTICLE 666-6~ - SALE AT REDUCEDPRICES:
Wholesalers and retailers may make close-out sale or
sales of damaged goods at reduced prices under such
regulations as t&Board's Administrator shall pre-
scribe.
*t~~~~~~ 666-65 - REBATES, LOANS, OR GIFTS - AC-
.
Honorable Reagan R. Huffman, Page 3. (w-609)
CESS TO BOOKS AND RECORDS: Any rebates, loans,
gifts or other special inducements offered, given,
or accepted by either wholesaler or retailer, shall
be considered evasions of the requirements of this
Act, and the Board's Administrator and his agents
shall have full access to all of the books and re-
cords of wholesalers and retailers and common car-
riers at all times for the purpose of detecting
and proving such evasions.."
Under the Texas Liquor Control Act, Article 666-41,Vernon's
Annotated Penal Code, these provisions are to be enforced by both civil
and criminal sanctions.
Section 19 of Article 1 of the Texas Constitutionreads:
"No citizen of this State shall be deprived of life,
liberty, property, privileges, or immunities, or in any
manner disfranchised, except by the due course of the
law of the land." '
Due process of law not only includes procedural protection, but
also substantive protection. It is a direct constitutional restraint upon
the substance of legislation and means that a legislative curtailment of
personal or property rights must be justified by a resultant benefit to the
public welfare. Thus the due process guaranty does,not restrain the State
in the exercise of its legitimate police powers. See City of New Braunfels
v. Waldschmit, lop T. 302, M7.S. W. 303 (1918). Houston & Tex. Cent. Ry..
co. v. Dallas, 98 T. 396, 84 S.W. 648 (1905). Both liberty and property
are subject to the exercise of these powers.
Nevertheless, the exercise of the police powers is not unrestrict-
ed, but is limited to enactments having reference to the public health,
comfort, safety and welfare. It must not be arbitrary, unreasonable, or
patently beyond the necessities of the case, and the means which it employs
must have a realiand substantial relation to the object sought to be at-
tained. See Spann v. City of Dallas, 111 T. x50/235 S.W. 513 (1921),
Houston & T. C. Ry. Co. v. City of Dallas, supra; American Federation of
LBbor v. Mann, Civ. App., 188 S.W.2d 276 (1945).
The Federal Constitution, in the fifth and fourteenth amendments,
also provides against deprivation of life, liberty or property without due
process of law, the fourteenth amendment by its language being applicable
to prevent the states from carrying out such a deprivation. It has been
held by Texas Courts that the clause of the Texas Constitution, to the
extent that it is identical with'the fourteenth amendment, has placed upon
the powers of the state legislature the same restrictions as those which
have been held,to be imposed by the language of that amendment of the
Federal Constitution. Mellinger v. City of 'Houston,68 T. 37,3SW.2@ (1887 ‘1.
Honorable Reagan R. Huffman, Page 4. (w-609)
In Neel v. Texas Liquor Control Board, 259 S.W.2d 312 (Civ.App.
1953),the Court announced these guides as to the validity of regulations
under the state's police power.
"'The police power of the state extends only to such
measures as are reasonable, and the general rule is
that all police regulations must be reasonable under all .,
circumstances. In every case it must appear that the
means adopted are reasonably necessary and appropriate
for the accomplishment of a legitimate object falling
within the domain of the police power. A statute to be :~.'.
within this power must be reasonable in its operation
upon the persons whom it affects asd not unduly op-
pressive. The validity of a police regulation therefore
primarily depends on whether under all the existing cir-
cumstances the regulation is reasonable or arbitrary
and whether it is really designed to accomplish a purpose
properly falling within the scope of the police power.'
6 R.c.L., Constitutional Law, Paragraph 226.
"We take the following from the Case of Houston &
T. c. R. CO. v. Dallas, 98 Tex. 396, 84 S.W 648 653,
70 L.R.A. 850: 'The power is not an arbitrary on:, but
has its limitations. It is commensurate with, but does
not exceed, the duty to provide for the real needs of
the people in their health, safety, comfort, and conven-
ience as consistently as may be with private property
rights. As those needs are extensive, various, and in-
definite, the power to deal with them is likewise broad,
indefinite, and impracticable of precise definition or
limitation'.
"It has been further stated: 'In order to sustain
legislative interference by virtue of the police power,
under either a statute or a minicipal ordinance, it is
necessary that the act should have some reasonable re-
lation to the subjects included in such power, and the
law must tend, in a degree that is preceptible and
clear, toward the preservation of the public welfare,
01‘toward the prevention of some offense or manifest
evil, or to the furtherance of some object within the
scope of the police power. * * *' 6 R.C.L., Constitu-
tional Law, Paragraph 227."
In Attorney General Opinion O-3242 these principles were ap-
plied to hold fixed minimum prices for barber services unconstitutional be-
cause "first, there was not a discernable, substantial and legitimate rela-
tion between the means adopted by the bill and the legitimate object of
the exercise of the police power, to wit, the protection or the improvement
of the public health, safety, morals, or general welfare."
.
Honorable Reagan R. Huffman, Page 5. (~-609)
In Schwegmann Brothers v. Louisiana Board of Alcoholic Beverage
Control, 216 La. 148 43 SO. 2d 248 14 A.L.R. 2d 680 (La. Sup. 1949),
the Louisiana Suprem; Court had bef&e it a very similar statute which
reads in part as follows:
"(6) 'Cost', invoice price to dealer plus ~
freight or cartage, if not included in the invoice,
without any deduction for any discounts or conces:
sions of any kind, plus all taxes . . .
"Section 24 . . . .
"(a) The wholesaler's minimum selling price
to a retailer shall be his cost, as herein de-
fined, plus 15s on liquor; 20s on cordial liquers.
and specialties; and 15% on sparkling and still
wines.
"(b) The retailer!?minimum selling price shall
be his cost, as herein defined, plus 33 l/3$ on li-
quor, 45% on cordials, liquers and specialties; and
50% on sparkling and still wines.".
In applying the principles announced in the Neel case, supra, the
Louisiana Supreme Court in the Schwegmann Brothers case page 258 had this
tom say:
"Now, in applying the above test, the following
questions must be answered: Is there a real and sub-
stantial relation between the mandatory minimum mark
ups of the statute and the preventing of injury to the
economic, social and moral well being of the people of
the state? Are those means (the mark ups) reasonably
necessary and appropriate for the accomplishment of
the legitimate object or purpose which the statute
announces (regulation and control of the,traffic)?
"Appellants, of course;answer these~questions in
the affirmative, they maintain that the minimum mark
ups are designed, in'the interest of temperance, to prd-
tect the people from the temptations of cheap liquor due
to cut-throat competition; to eliminate excessive con-
sumption of strong drink that results from price wars;
and to prevent certain moral abuses brought about by low
liquor prices. Appellee, onthe other hand, answers
in the negative. It states, to quote from counsel's
brief, as follows: 'Act 360, it is submitted, is aimed
at the ordinary hazards of competition incident to any
business; price competition and credit risks. It bears
no real and substantial relation to the public welfare,
Honorable Reagan R. Huffman, Page 6. (~~-609)
but is preferential legislation for certain favor-
ed groups in the liquor industry.'
II. . .
"But assuming for the sake of argument that
liquor price wars are possible of occurrence in
this state and that stringent regulations to pre-
vent them are needed, we do not agree that the
mandatory mark ups provided by Act 360 of 1948 con-
stitute appropriate means for the achievement of
that purpose. True, these are fixed percentages
that the wholesale and retail dealers must add to
their costs (the enforcement of the addition is
charged to the Louisiana Board of Alcoholic Beve-
rage Control) resulting usually in uniform
prices on the effected beverages among the dealers
of each class . . . . Nevertheless the statute omits
the stipulation of a mandatory mark up for the
manufacturer or distiller respecting his sales to
the wholesaler, and, by reason of the omission, such
producer (or producers) very easily might instigate
and sustain the occasion of a price war. There is
nothing in Act 360 of 1948, or otherwise to our
knowledge, to prevent a distiller (or a combination
of distillers) from placing his product on the
'market at mere cost plus tax (without profit) in
competition with others who seek profits on their mer-
chandise. If such is done, and it is possible to do,
the purchasing wholesaler and his vendee, the retailer,
need only add to their respective costs the required
mark ups, and there could result the discussed cut
throat competition and price war (with cheap liquor
to the consumer) which the statute, appellants maintain,
purposes to avoid.
. . .
"From all of which we conclude that the provi-
sions of Act 360 of 19948which relate to the mandatory
tiinimummark u;s (Sections l(s), 24 and 26) do not
tend, in a degree that is perceptible and clear,&to-
ward the accomplishment of the announced purpose of
the statute, namely the regulation and control of
the liquor traffic so that it 'may not cause injury
to the economic, social and moral well-being of the
people of the State.' They, in other words, are
inappropriate for the achievement of the legitimate
object described in the statute. Accordingly, we
hold that such provisions are manifestly unreasonable
,’
:.
Honorable Reagan R. Huffman, Page 7. (~-609)
within the contemplation of the state's police power,
and,hence, are unconstitutional in that they violate
the due process clauses of our state and federal
constitutions."
Article 666-2 of the Texas Liquor Control Act contains the
object and purposes for which the Act was passed. This Section reads as
follows:
"This entire Act shall be deemed an exercise of
the police power of the state for the protection of
the welfare, health, peace, temperance, and safety of
the people of the state, and all its provisions shall
be liberally construed for the accomplishment of that
purpose".
Now, in looking at the announced objects of House Bill 353 as
contained in Article 666-7, as above set out, we find the announced objects
to be:
(1) To stabilize liquor prices for the purpose of stabilizing
public revenues;
(2) Avoiding price wars which materially affect revenues;
(3) Attempts at monopolies and demoralization of legally con-
trolled sales of liquors which grow out of unfair p&e manipulations.
As above noted the liquor field is regulated under the state's
police power. Therefore, the questionpresents itself as.to whether H. B.
353 is a ligitimate exercise of this power. As was stated in the Neel
case, supra, it must appear that the means adopted are reasonably neces-
sary and appropriate for the accomplishment of a ligitimate object falling
within the domain of the police power.
As to whether the police power can be used to stabilize public
revenues and avoid price wars which would materially affect the revenues,
the following principles would seem important. The police power cannot be
used for the purpose alone of raising revenue. 9 Tex. Jur. p. 513. While
the police power is exercised only forthe purpose of promoting the public
welfare, and, although this end may be"attained by taxing or licensing
occupations, the object must always be regulation and not the raising of
'revenue. 16 c.J.s., p. 891. Insofar as the announced objects or purposes
of H. B. 353 are directed at stabilizing revenues, it would be the use of
the police power for the purposes and.objectives which do not lie within
such power and would therefore be an unwarranted use thereof. With regard
to the announced objects or purposes of "avoidtig price wars" and "attempts
at monopolies and demoralization of the legally controlled sales of li-
quors in this State which grow out of unfair price manipulations", we.find
Honorable Reagan R. Huffman, Page 8. (w-609)
that the means of requiring a minimum percentage mark up at the wholesale
and retail level as adopted by Il.B. 353 has no discernible, substantial, and
logical relation to the legitimate objects of the exercise of the police
power, to wit, the protection or improvement of the public welfare, health,
peace, temperance and safety. Since the bill omits the manufacturer or
distiller from price regulation, such manufacturers or distillers are pro-
vided the power to easily instigate or sustain the occasion of a price war,
which by reason of the wholesalers and retailers being required to have a
minimum mark up would be carried directly to the public (see discussion
taken from Schwegmann Brothers case, supra, page 6 of this opinion).
All adjustment of prices through competition would thus be thwarted.
The,conclusion necessarily follows then that R. B. 353 does not
meet the required test for a valid exercise of the police power since, as
above pointed out, the means adopted are not ,reasonablynecessary and ap-
propriate for accomplishment of a legitimate object falling within the
domain of the police powers.
It should be pointed out that H. B. 353 does not include all the
elements of legislation popularly known as "Fair Trade" ads and that this
opinion does not rule on the constitutionality of any other such legislation.
As to those portions of R. B. 353 which do not apply to a minimum
mark up requirement, namely, maximum number of licenses; locations within
five mile limits; cancellation of unused licenses; renewal of permits; and
location on same streets; we find no authority holding that such regulations
are an unreasonable regulation under the police power.
We turn now to your second question in which you ask our opinion
as to "whether this bill (H.B. 353) would be constitutional if amended to
state that no retail liquor dealer could,sell under wholesale prices".
We cannot pass on the constitutionality of a provision which has
not yet been drafted and presented to us for examination.
SUMMARY
The provisions of H.B. 353 that
pertain to the establishment
and enforcement of a minimum
sales price of spiritous liquors
for wholesalers and retailers
are not a valid exercise of the
police power. The provisions
regulating maximum number of li-
censes; locations within five
mile limits; cancellation of
. ,,
Honorable Reagan R. Huffman, Page 9. (~~-609)
unused licenses; renewal of per-
mits; location on same streets;
are constitutional.
Very truly yours,
WILL WILSON
Attorney General
..
By:
&H:aw
APPROVED:
OPINION COMMITTEE:
Geo. P. Blackburn, Chairman
C. K. Richards
C. Dean Davis
Elmer McVey
PaulW. Floyd, Jr.
REVIEWED FOR THE ATTORNEY GENEBAL
BY:
W. V. Geppert