1. A state law (G.S. Minn., § 3907) punishing anyone engaged in
the business of buying milk, cream, or butterfat for manufacture or
sale who discriminates between different localities of the state by
buying such commodities in one locality at a higher price than he
pays for the same commodity in another locality, allowance being
made for any difference in actual cost of transportation from
locality of purchase to that of manufacture or sale, infringes the
liberty of contract guaranteed by the Fourteenth Amendment. P.
274 U. S. 8.
2. Such a weeping inhibition cannot be sustained as a means of
preventing some buyers from attempts to destroy competition or
secure a monopoly in the business by paying excessive prices. P.
274 U. S. 9.
3. It is the duty of the Court to inquire into the real effect
of any statute duly challenged because of interference with freedom
of contract, and to declare it invalid when it has no substantial
relation to any evil which the state has power to suppress, but is
a clear infringement of private rights. P.
274 U. S. 11.
168 Minn. 381 reversed.
Error to a judgment of the Supreme Court of Minnesota sustaining
a conviction of the Creamery Company of "unfair discrimination" in
purchasing butterfat for manufacture and sale.
See also
162 Minn. 146 and 168 Minn. 378.
Page 274 U. S. 3
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
The Supreme Court of Minnesota sustained the conviction of
plaintiff in error, a corporation of that state charged with
violating § 1, Chapter 305, Laws 1921, as amended by chapter 120,
Laws 1923 (Minn.G.S.1923, § 3907), which follows:
"Any person, firm, copartnership, or corporation engaged in the
business of buying milk, cream, or butterfat for manufacture or for
sale of such milk, cream or butterfat, who shall discriminate
between different sections, localities, communities, or cities of
this state by purchasing such commodity at a higher price or rate
in one locality than is paid for the same commodity by said
person,
Page 274 U. S. 4
firm, copartnership, or corporation in another locality, after
making due allowance for the difference, if any, in the actual cost
of transportation from the locality of purchase to the locality of
manufacture or locality of sale of such milk, cream, or butterfat,
shall be deemed guilty of unfair discrimination, and, upon
conviction thereof, shall be punished by a fine not exceeding one
hundred dollars, or by imprisonment in the county jail for not
exceeding 90 days."
Chapter 468, Laws 1909, prohibited discrimination in prices
between localities "with the intention of creating a monopoly or
destroying the business of a competitor." The Act of 1921 forbade
such discrimination with "the purpose of creating a monopoly, or to
restrain trade, or to prevent or limit competition, or to destroy
the business of a competitor." Section 1. The Act of 1923,
supra, eliminated purpose as an element of the
offense.
The cause was begun in Cottonwood County by a complaint which
alleged: that the Fairmont Creamery Company, on June 11, 1923, at
the village of Bingham Lake, Cottonwood County, committed the crime
of unfair discrimination in the purchase of butterfat for
manufacture and sale in the manner following: said company, while
engaged in the business of buying milk, cream, and butterfat for
manufacture and sale and while maintaining regularly established
stations for purchases at Madelia, Mountain Lake, Bingham Lake, and
other villages for shipment to Sioux City, Iowa, there to be
manufactured and sold, did wrongfully, unlawfully, and unfairly
discriminate between said localities by paying a higher price for
butterfat at some stations than at others, after due allowance for
transportation costs. And, more particularly, on June 11, 1923, the
company purchased cream at Madelia for 38 cents per pound, and on
the same day purchased cream of like quality at Mountain Lake and
Bingham
Page 274 U. S. 5
Lake for 35 cents per pound, all being intended for
transportation to Sioux City, Iowa, there to be manufactured and
sold. On that day, the cost of transportation from Madelia to Sioux
City was higher than from the other places.
Bingham Lake, Mountain Lake (in Cottonwood County), and Madelia
(in Watonwan) are villages of Southern Minnesota, about 120, 130,
and 160 miles, respectively, northeast of Sioux City, and are
connected therewith by a single direct railroad line.
At the trial, the accused company offered testimony to show:
"That, during the last nine years, the price paid for butterfat
in the southern half of Minnesota at the different towns has varied
in each town; that the variation has been from one cent to eight
cents; that such price is exclusive of transportation charges; that
such variation is the normal condition of the market in the sale of
cream and butterfat, and is the result entirely of competitive
conditions; that, in certain localities, there are many more
competitors than there are in others; that the quality of cream
differs in different localities; that the equipment and efficiency
of creameries in the various localities differ, and that each of
these things enters into the price that is paid for the butterfat
in the particular locality where the sale is made, and that this
variation in price in each town in the southern half of Minnesota
existed on the 11th day of June, 1923, and that such variation is
constant, and has existed for nine years previous to that time, and
that these variations in price are due entirely to the economic
conditions in each locality, and to competition."
The trial court excluded this evidence as immaterial, and the
Supreme Court approved. We may therefore treat the facts stated as
though established and held to have no bearing on the question of
guilt or the validity of the enactment.
Page 274 U. S. 6
Defense was made on several grounds: that the venue was
improperly laid in Cottonwood County; that the statute conflicted
with the federal Constitution by denying equal protection of the
laws and liberty to contract, and that it unduly interfered with
interstate commerce.
The cause has been before the Supreme Court of Minnesota three
times. 162 Minn. 146, 168 Minn. 378 (August 27, 1926); 168 Minn.
381 (October 27, 1926). Two opinions discuss the merits of the
controversy; the last affirmed conviction upon the earlier
ones.
Replying to the objection that venue was improperly laid in
Cottonwood County, locality of the lower price, the supreme court
said:
"The gist of the offense is the discrimination between different
localities by paying different prices in different localities after
making due allowance for the cost of transportation from the point
of purchase to the point of sale or manufacture. The statute
chooses to define the offense by referring to a higher price at one
point than at another. It might define it by referring to the
payment of a lower price at one point than another. The offending
fact is that the same. . . . The offending fact is that there are
sales at different prices, and thereby discrimination."
It next held that the statute did not deny equal protection to
those engaged in buying cream for manufacture or sale, since they
properly might be treated as a distinct class, and subjected to
peculiar regulations.
Concerning the claim that the statute undertakes to deprive
plaintiff in error or property and liberty of contract without due
process of law, contrary to the Fourteenth Amendment, the court
said:
"There have developed in the state a large number of so-called
centralized creameries, which buy in different localities. We take
it that the defendant is one. In addition, there are cooperative
creameries and independent creameries, not usually maintaining
other buying stations,
Page 274 U. S. 7
though some may. There is in the law nothing to prevent them
doing so. We do not understand that the buying stations are
commonly localized plants. (Counsel for the state say that creamery
statistics for 1923 show then operating in the state 628
cooperative creameries, 127 independent or individual ones, and 48
'centralizers.') Often the buyer represents the creamery as an
adjunct of his other business. Often his compensation is through a
commission. He may have a place to receive the product, or it may
be delivered directly to the railroad station. A centralized
creamery, supplied with ample capital and facilities, has the
ability and meets the temptation to destroy competition at a buying
station by overbidding, absorbing the resultant losses, if any,
through the profits of its general business, and, when competition
is ended, to buy on a noncompetitive basis. If it does all this
successfully, it has a monopoly, and may or may not treat producers
justly. The statute seeks to prevent the destruction of competition
by forbidding overbidding, unless the dealer makes prices at other
buying points correspond, after proper allowances for the cost of
transportation. If the statute is obeyed, destroying competition is
expensive. The statute limits the right of the creamery to contract
at its buying points on a basis satisfactory to itself and its
patrons. The state must concede this, and it does."
"The dairy industry, measured in money, is a large, perhaps just
now the largest, productive industry of the state. . . . It is not
surprising that, in the marketing of so great a product, coming
from so wide an area of production, under conditions such as
obtain, those engaged in the industry claim abuses for which they
seek legislative remedy. The exercise of the police power is not
confined to measures having in view health or morals of the
community. The welfare of a great industry and the people engaged
in it may be guarded. "
Page 274 U. S. 8
To the contention that the statute unduly burdens interstate
commerce, the court replied:
"A statute may indirectly or incidentally affect interstate
commerce, as local police measures frequently do, without offending
the commerce clause. . . . The defendant is a Minnesota
corporation. The product which it purchased might have gone as well
to a point in Minnesota for manufacture or resale. It so happened
that it went to Iowa. The statute is not unconstitutional as an
interference with interstate commerce."
Counsel for the state concede that the statute requires buyers
to pay the same price for like commodities at all points of
purchase, after proper allowances for transportation; also, that it
inhibits plaintiff in error from meeting local competition by
increasing the price only at that place; also, from varying
purchase prices to meet normal trade conditions.
They further admit that the state may not arbitrarily interfere
with the right of one conducting a lawful business to contract at
will; but they say that the federal Constitution does not guarantee
absolute freedom of contract, and the state may prohibit
transactions not in themselves objectionable when, within reason,
this may seem necessary in order to suppress substantial evil.
It seems plain enough that the real evil supposed to threaten
the cream business was payment of excessive prices by powerful
buyers for the purpose of destroying competition. To prevent this,
the statute undertook to require every buyer to adhere to a uniform
price fixed by a single transaction.
As the inhibition of the statute applies irrespective of motive,
we have an obvious attempt to destroy plaintiff in error's liberty
to enter into normal contracts, long regarded not only as essential
to the freedom of trade and commerce, but also as beneficial to the
public. Buyers in competitive markets must accommodate their bids
to
Page 274 U. S. 9
prices offered by others, and the payment of different prices at
different places is the ordinary consequent. Enforcement of the
statute would amount to fixing the price at which plaintiff in
error may buy, since one purchase would establish this for all
points, without regard to ordinary trade conditions.
The real question comes to this: may the state, in order to
prevent some strong buyers of cream from doing things which may
tend to monopoly, inhibit plaintiff in error from carrying on its
business in the usual way heretofore regarded as both moral and
beneficial to the public and not shown now to be accompanied by
evil results as ordinary incidents? Former decisions here require a
negative answer. We think the inhibition of the statute has no
reasonable relation to the anticipated evil -- high bidding by some
with purpose to monopolize or destroy competition. Looking through
form to substance, it clearly and unmistakably infringes private
rights, whose exercise does not ordinarily produce evil
consequences, but the reverse.
In
Adams v. Tanner, 244 U. S. 590,
244 U. S. 594,
this Court said:
"Because abuses may, and probably do, grow up in connection with
this business, is adequate reason for hedging it about by proper
regulations. But this is not enough to justify destruction of one's
right to follow a distinctly useful calling in an upright way.
Certainly there is no profession, possibly no business, which does
not offer peculiar opportunities for reprehensible practices, and
as to every one of them, no doubt, some can be found quite ready
earnestly to maintain that its suppression would be in the public
interest. Skillfully directed agitation might also bring about
apparent condemnation of any one of them by the public. Happily for
all, the fundamental guaranties of the Constitution cannot be
freely submerged if and whenever some ostensible justification is
advanced and the police power invoked. "
Page 274 U. S. 10
Concerning a price-fixing statute,
Tyson & Bro. v.
Banton et al., 273 U. S. 418,
recently declared:
"It is urged that the statutory provision under review may be
upheld as an appropriate method of preventing fraud, extortion,
collusive arrangements between the management and those engaged in
reselling tickets, and the like. That such evils exist in some
degree in connection with the theatrical business and its ally, the
ticket broker, is undoubtedly true, as it unfortunately is true in
respect of the same or similar evils in other kinds of business.
But evils are to be suppressed or prevented by legislation which
comports with the Constitution, and not by such as strikes down
those essential rights of private property protected by that
instrument against undue governmental interference. One vice of the
contention is that the statute itself ignores the righteous
distinction between guilt and innocence, since it applies wholly
irrespective of the existence of fraud, collusion, or extortion (if
that word can have any legal significance as applied to
transactions of the kind here dealt with --
Commonwealth v.
O'Brien & Others, 12 Cush. 84, 90), and fixes the resale
price as well where the evils are absent as where they are present.
It is not permissible to enact a law which, in effect, spreads an
all-inclusive net for the feet of everybody, upon the chance that,
while the innocent will surely be entangled in its meshes, some
wrongdoers also may be caught."
And see Adkins v. Children's Hospital, 261 U.
S. 525;
Wolff Co. v. Industrial Court,
262 U. S. 522,
262 U. S. 537.
Booth v. Illinois, 184 U. S. 425,
much relied upon by counsel for the state, sustained the validity
of an act forbidding options to sell or buy property at a future
time, ultimate delivery being intended. The evident purpose was to
prevent gambling contracts. The Supreme Court of Illinois pointed
out that gambling was commonly incidental to dealings in futures,
and held the legislature
Page 274 U. S. 11
might properly conclude that the public interest demanded their
suppression as a class in order to avert this evil. This Court
said:
"A calling may not, in itself, be immoral, and yet the tendency
of what is generally or ordinarily or often done in pursuing that
calling may be towards that which is admittedly immoral or
pernicious. If, looking at all the circumstances that attend, or
which may ordinarily attend, the pursuit of a particular calling,
the state thinks that certain admitted evils cannot be successfully
reached unless that calling be actually prohibited, the courts
cannot interfere unless, looking through mere forms and at the
substance of the matter, they can say that the statute enacted
professedly to protect the public morals has no real or substantial
relation to that object, but is a clear, unmistakable infringement
of rights secured by the fundamental law."
The state also relies upon
Otis v. Parker, 187 U.
S. 606,
Purity Extract Co. v. Lynch,
226 U. S. 192,
Rast v. Van Deman & Lewis, 240 U.
S. 342, and
Merrick v. Halsey & Co.,
242 U. S. 568. But
all those cases recognize the duty of the court to inquire into the
real effect of any statute duly challenged because of interference
with freedom of contract guaranteed by the Fourteenth Amendment,
and to declare it invalid when without substantial relation to some
evil within the power of the state to suppress and a clear
infringement of private rights.
We need not consider other points advanced by plaintiff in
error.
The judgment of the court below must be reversed, and the cause
remanded for further proceedings not inconsistent with this
opinion.
MR. JUSTICE HOLMES, MR. JUSTICE BRANDEIS, and MR. JUSTICE STONE
dissent.