               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
