                  ~EAYTORNEYGENERAL
                           OF -XAS

  W’ILL  WILSON
A1TORNEYGENERAL
                                    May   9, 1961


   Honorable Bill Hollowell,   Chairman
   State Affairs Committee
   House of Representatives
   Au&in, Texas
                                           Opinion No. WW-1047

                                           Re:   Constitutionality of House Bill
                                                 430, prohibiting trading stamps
   Dear Mr. Hollowell:                           and similar devices.

           This refers to your letter of April 14, 1961,   requesting our opinion
   on the constitutionality of House Bill 438.

           In essence the bill in question makes it a misdemeanor to use, issue
   or distribute in, with, or for the sale of goods, wares, or merchandise,
   any stamps, coupons, tickets, certificates,    cards, or other similar devices
   which shall entitle the purchaser to procure upon production of the stamps
   or other similar devices any goods, wares,    or merchandise.    The furnish-
   ing of stamps or other similar devices for such purpose and the redeeming
   of such stamps or other similar devices are also made unlawful. Manu-
   facturers and packers are permitted to use trading stamps or other similar
   devices under certain circumstances.

           Patently, the subject bill regulates and, in fact, prohibits certain
   businesses and occupations, as well as restricting the use of prive pro-
   perty and freedom of contract.    It is to the police power of the State that
   the Legislature’s authority to enact such statutes is referable.    12 Tex.
   Jur. Zd 415-522,  Constitutional Law, Sets. 70-71.      Hence, the central
   question posed by House Bill 438 is whether it constitutes a valid exercise
   of the police power of the State.

            It is clear that in order for House Bill 438 to be a proper aseer-
   tion of the police power it must be reasonably necessary to the protection
   or improvement of the public health, nafety, morals, good order, comfort
   and general welfare.      12 Tex. Jur. 2d 415, Constitutional Law, Sets. 70-
   111. The bill must, in other words, as was observed in Ex Parte Smythe,
   116 Tex. Crim. 146, 28 S. W. 2d 161, 162 (1930), and in Neel v. Texas
   Liquor Control Board, 259 S. W. 2d 412, 416 (Civ. App. 1953, error ref.,
Honorable Bill Hollowell,   page 2 (WW-1047)




n, 2. e. ):

         t,. . . have some reasonable relation to the subjects
         included in such power, and the law must tend, in
         a degree that is perceptible and clear toward the pre-
         vention of some offense or manifest evil, or the
         furtherance of some object within the scope of the
         police power. . . . 6 R. C. L. Constitutional Law,
         Paragraph 227. ‘I (Emphasis added. )

        It was said of the police power in Houston 81 T. C. Ry. Co. v. Dallas,
98 Tex. 396, 84 S. W. 648 ,(1905), at page 653, and quoted with approval in
Neel v. Texas Liquor Control Board, supra. Coleman v. Rhone. 222 S. W. 2d
646 (Civ. App. 1949, error ref. ) and Ex Parte Smythe, supra:

                  “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 convenience as con-
         sistently as may be with private property rights . . .
         But as the citizen cannot be deprived of his property
         without ‘Tdueprocess of law, and as a prevention by
         force of the police power fulfills this requirement only
         when the power is exercised for the purpose of accom-
         plishing; and in a manner appropriate to the accomplish-
         ment of, the purpose for which it exists, it may often
         become necessary for courts. . . to inquire as to the
         existence of facts upon which a given exercise of the
         power rests and into the manner of its exercise, and if
         there be,an invasion of property rights under the guise
         of this power, without justifying occasion, or in an un-
         reasonable, arbitrary or oppressive way, to give the
         injured parties the protection which the Constitution
         secures. ”

        Large discr,etion necessarily is vested, in the Legislature to deter-
mine not only the requirements of the public interest, but also by what
measures those interests may be properly and effectively secured.       If
there is room for a fair difference of opinion as to the necessity and
masonableness of an enactment on a subject iyiiag tithin the domain of the
police power the courts will not interfere.   12 Tex. Jur. 2d 422, Consti-
tutional Law, Sec. 76. But, as we have already pointed out, ~thejudgment ~,
of the Legislature does not conclude inquiry by the courts as to the exis-
tence of the facts essential to support the assertion of the police power.
Honorable Bill Hollowell,   page 3    (WW-1047)




         The precise question of whether there is anything so inimical to the
public, welfare in the use of trading stamps as to reasonably require probi-
bition or severe restriction of their use has not been passed on by the courts
of Texas.    However, the anti-trading stamp statutes have long afforded a
fertile field for litigation in other states.

         While there is a definite split of authority on this question, the great
majority of the State court opinions hold that statutes prohibiting and regu-
lating the use of trading stamps are unconstitutional as not being within the
 sphere of the police power under State constitutions.       Logan’s Supermarkets
v. Atkins, 202 Tenn. 448, 304 S. W. 2d 628 (1957); State v. ’White, 199 Term.
544, 288 S. W. 2d 428 (1956); Sperry & Hutchinson Co. v. Hoegh, 246 Iowa
9, 65 N. W. 2d 410 (1954); Sperry & Hutchinson Co. v. Margetts, 1.5 N. J.
 203, 104 A. 2d 310 (1954); Jolovitz v. Redington &Co.,       148 Me. 23, 88 A. 2d
 598 (1952); Sperry & Hutchinson Co. v. Hudson, 190 Ore. 458, 226 P. 2d 50
 (1951); Alabama Independent Service Station Ass’n. v. Hunter, 249 Ala. 403,
 31 So. 2d 5’71
             ~ 119571:
                .~   ,, Alabama Indeoendent Service Station Ass’n. v. McDowell.
 242 Ala. 424, 6 So.2dx 12 (1942):     Food and Grocery Bureau of Southern
 California v. Garfield, 20 &l. 2d 228, 125 P. 2d 3 (1942);       Sperry & Hutchin-
 son Co. v. McBride, 307 Mass. 408, 30 N. E. 2d 269 (1940); People v. Victor.
 287 IvIich. 506, 283 N. W. 666 (1939); Sperry & Hutchinson Co. v.
 287 Mich. 55, ,283 N. W. 685 (1939); State v. La throps -Far&s .m Co., 84
N.H. 322, 150,.Atl. 551 (1930); Lawton v. Stewa rt Dry Goads Co. and Ware
v. Sperry & Hutchinson Co., 197 Ky. 384, 247 S. W. 14 (1923); state     -.    v.
Holtgreve, 58 Utah 563, 200 Pac. 894 (1921); Denver v. Unitesd Cigar Stores
 Co. 681 Colo. 363, 189 Pac. 848 (1920);      State v. Sperry & Hutchinson Co. ,
~Minn.       387, 126 N. W. 129 (1920);    In re opini,ons of the Justices, 226
Mass. 613, 115 N. E. 978 (1917); United Cigar Ebores v. Stewart, 144 Ga.
 724, 87 S. E. 1034 (1916);                     L Hutchinson C&, 94 Neb. 785,
                              State v. ~~Spe~rryf
 144 N. W. 795 (1913): State v. Caspare, 115 k/Id. 7, 80 A tl. 607 (1911);
State v. Sperry & Hutchinson Co., 110 Minn. 378, 126 N. W. 130.(191(l);
Denver v. Frueaff, 39 Colo. 30, 88 Pac. 389 (1906); Ex Parte Drexel, 147
 Cal. 763, 82 Pac. 429 (1905); People v. Zimmerman.           102 ADD. Di.v. 103,
 92 N. Y. Supp. 497 (1905); State v. Ramseyer,      73 N.I-i. 31, Si-Atl. 958 (1904);
 Winston v. Hudson, 135 N. C. 386, 47 S. E. 1023 (1904); Young v. Commis-
 sioner, 101 Va. 197, 56 Atl. 983 (1903); People ex rel. Madden v. Dyker,
 72 App. Div. 208, 76 N. Y. Supp. 111 (1902); State v. Dalton, 22 R. I. 77,
'46 Atl. 234 (1900); Ex Parte McKenna, 122 Cal. 429, 58 Pac. 916 (1899);
 26 A. L. R. 707, Constitutionality of Trading Stamp Legislation;        134 A. L. R.
 Constitutionality of Statute Prohibiting Giving of Premiums or Trading Stamps
with Purchase of Commodities;        133 A. L. R. 1087, Constitutionality of Statute
 Prohibiting Giving of Premiums or Trading Stamps.
Honorable Bill Hollowell,   page 4     (WW-1047)




        In fact, there appears to be, no decision in the, United States since
1919, with one exception, Steffey v. City of Caeper, cited hereafter, which
has held this type of legislation to be constitutional.

         The minority view that legislation prohibiting or severely curtailing
the use of trading stamps is a valid exercise of the. state’s police Dower is
reflected in the following cares: Steffey v. Casper,                 -357 P 2d
456,(1961);   Sta te v. J. M. Seney Co., 135 Md. 437,107    z    Iq   (1919);
State ax rel.Sperry     & Hutchinsa In Co. v. Weigle, 166 Wis. 613, 166 N. W.
54 (1918); Sperry & Hutchinson Co. v. Statte, 188 Ind., 173, 122 N.E. 584,
(1919); State v. Pitney, 79 Wash. 60 8, 140 Pac. 918 (1914); State v. Under-
wood, 139 La. 288, 71 So. 513 (1916); State v. Crosby Bros. Mercantile Co.,
103 Kan. 733, 176 Pac. 321, Id. 1918. 103 Kan. 896. 176 Pac. 679 (1918):
Pitney v. State of Washington, 240 U.S. 387; Tanner v. Little, 24d U. S:.
369 (1916); Rast v. Van Denman 81 Lewis Co., 240 U.S. 342 (1916); Dis-
trict of Columbia v. Kraft, 35 App. D. C. 253, certiorari denied 218 UT
673 (1910); Laneburgh v. the District of Columbia, 11 App. D. C. 512 (1897).

         In Ed.Schuster & Co. v. Steffes, 237 Wis. 41, 295 N. W. 737 (1941),
a ~statutewhich, in effect, prohibited the use of trading stamps to avoid the
state’s fair trade act was sustained.   That case may be regarded as being
on different footing from that of a statute which, in effect, abolishes the use
of trading stamps.

         Trading stamps have been said by the courts taking the minority view
to: “appeal to cupidity and lure to improvidence, ” (the Kast case); produce
“provoked and systemized reckless buying, ” (the Tannercase);       “encourage
indiscriminate and unnecessary purchasing” and “force other merchants into
using stamps or suffer loss of trade by failure to do so” (the Pitney case).
They have been called the tools of a business which~“is a mere parasite, ‘I
(the Underwood case).     They have further been said to produce, “pernicious
and evil effects,” (the Weigle case); and to take a “large sum of money. . .
from the merchant and his customers, ” and “add to the gross cost of living
of all the people of themDistrict, ” (the Kraft case).

       ,Witness the answer to the minority view’s arguments in the following
passage from Lawton v. Stewart Dry Goode Co., 197 Ky. 394, 247 S. W. 14,
16 (1923):

              “In the first    place it is said that the, trading stamp
       or premium system       encourageeprofilgate and wasteful
       buying and operates     as a lure to improvidence.      As a
       matter of fact, it is   simply a convenient method~of allow-
Honorable Bill Hollowell,   page 5   (WW-1047)




       ing a discount for cash.    Therefore, it encourages cash
       buying and operates as an incentive to prudence and eco-
       nomy. But let us assume that it is a lure to improvidence.
       Have we reached the point where the prohibition of every
       business that leads to improvidence may be regarded as a
       proper governmental function? Nothing is more alluring
       to the purchaser than an attractive advertisement or a
       beautiful shop window, but can it be said that the merchant
       who employs such means to increase his profits may be
       put out of business because, perchance, some one may see
       the advertisement or look in the window and be induced to
       buy when he cannot afford to do so? If so, how far may the
       doctrine be carried?    Why not prohibit all forms of adver-
       tising and the sale of all articles of luxury on the ground
       that they lead to extravagence?     Why not require every mer-
       chant to restrict his stock to overalls or cotton dresses so
       as to reduce the ‘lure’ to a minimum?

                *‘Another objection is that the trading stamp intro-
       duces into business a middleman who receives a profit, not
       only from the stamps sold, but from those that are not
       redeemed, and thereby adds to the cost of the article.     If
       the middleman may be dispensed with, what is to become
       of all agents, factors, brokers, and commission merchants?
       Indeed, why not go all the way and prohibit not only all retail
       merchants, but all wholesale merchants and jobbers and com-
       pel everybody to buy directly from the manufacturer?

                “Another alleged evil is that the trading stamp or
       premium gives opportunity for fraud in values and prices.
       It is true that one may use the trading stamp or premium
       dishonestly, just as he may be dishonest in other respects,
       but we fail to see wherein the use of trading stamps or pre-
       mium affords any greater opportunity for fraud than already
       exists.   Indeed, all businesses afford an opportunity for fraud
       in values and prices, but a business that may be dishonestly
       conducted should not be prohibited because of the dishonesty
       of some who are engaged in the business.

               “Another’ contention is that the trading stamp gives
       opportunity for coercion, in that merchants are compelled to
       buy in order to compete with their rivals.    Doubtless the ‘trad-
       ing stamp company may ask one merchant to buy its stamps
                                                                         .




Honorable Bill Hollowell,   page 6   (WW-1047)




        on the ground that his competitors have bought or intend
        to buy, but that is not a form of coercion of which the
        law will take notice.   The same method of making sales
        is followed by all business houses, particularly the whole-
        salers who desire to introduce some novelty or a new line
        of goods, and, if the legislature undertook to prohibit .’
        every business whose agents indulged in the practice of
        arousing a spirit of rivalry among their customers, the
        channels of trade would soon be closed.”

       More than twenty years ago it was said of trading stamps in Sperry
8 Hutchinson Co. v. McBride, B,       at page 276:

                “Trading stamps have been in use long enough so
        that any purchaser of, merchandise who is interested in
        acquiring and converting them to his advantage cannot be
        said to be likely to be deceived as to their value.

                11. . . there is no reasonable cause to believe that
        the dealer who offers them in consideration of cash or
        approved’credit sales will resort to fraudulent practices. ”

       In People v. Victor, 287 Mich. 506, 283 N. W. 606 (1939). the Court
held unconstitutional a statute which prohibited certain classes of merchants
from giving premiums,    such as trading stamps, to promote sales.    The
Court said:

                “By giving a premium, the defendant was merely
        offering the purchasing public more for its money. Surely
        there is nothing reprehensible in that. It is apparent that
        the giving of a premium has no evil effects which the Legis-
        lature has sought to correct. . . There is no reasonable
        relation between the prohibition of the giving of a premium
        and the protection of the public health, morals, safety and
        welfare. ”

          Particular attention is due Steffey v. City of Casper, supra, since it
 is the only case in the last forty years to attempt to stem the flood of deci-
 sions against anti-trading stamp statutes.     There the Court sustained a
‘statute very much like the subject bill.    But the decision is predicated on
 ,the questionable theory that the police powers are now construed as being
 so broad as to permit the legislatures to eliminate any trade inducement
 from the market place which could conceivably cause some merchants to
Honorable Bill Hollowell,   page 7   (WW-1047)




 go out of business due to the cost of using such trade practice.    It is
.readily seen that the holdingr denotes nothing less than a surrender to
 the legislature by the courts of the authority to review the legislature’s
 use or abuse of the police powers where economic legislation is involved.

         True, the Supreme Court of the United States has in recent years
abandoned its former attitude of regulating economic legislation of the
states -- insofar as the due process clause of the Federal Constitution
is concerned.   See ~~~
                    Nebbia v. People of New York, 291 U.S. 502 (1934);
Olsen v. State of Nebraska, 313 U. S. 236 (1941).     However, the state
courts in general have not shown themselves disposed toward giving the
legislatures carte blanche to regulate economic conditions without regard
to the degree of public interest or the intent of injury to private rights.
See 45 ABAJ p. 1027 (1959); Edward v. State Board of Barbers, 72 Ariz.
108, 321 Pac. 450 (1951); Hertz Corp. v. Heltzel,           Ore.       341
P. 2d 1036 (1959); Bitholz v. City of Salt Lake, 3 U.2d385,      284P. 2d
702 (1955).   There is certainly nothing to indicate that our Texas courts
have ceased to test economic legislation, like any other legislation, against
the guarantees of due process, freedom of contract, and right of property
guaranteed by the Texas Constitution.

        Doubtless, trading stamps may be a source of annoyance to some.
The use of these+stamps may be especially worrisome and, indeed, even
costly to many merchants who feel obliged to use them in order to meet the
competition from other stores that do so. But does this reasonably neces-
sitate the assertion of the police power? In our opinion, it clearly does
not. In Spann v. Dallas, ,z,       it was observed in page 516:

               “It is with common humanity - the average of the
       people that police laws must deal. A lawful and ordinary
       use of property is not to be prohibited because repugnant
       to a particular class. ”

        Moreover, would it not be just as reasonable to outlaw advertising
or credit or “free parking” at stores and “free delivery service” or “free
gift wrapping” or any one or more of the countless other trade inducements
which are customarily utilized by merchants in a competitive business eco-
nomy. These “extras” surely add to the cost;of doing business just as do
trading stamps.    They also oblige the other merchants to do likewise in
order to hold their trade. Indeed, some merchants may not be able to meet
the competition.   But is that not what free enterprise is: the right of every
citizen to use his property as he chooses, and as best he can, without inter-
ference from the government, so long as the rights of others are not infringed
upon? And, there is no right to be free from fair competition, that “right”
Honorable, Bill Hollowell,   page 8   .(WW-1047)




and our American    right to compete honestly being mutually exclusive.

        The bill does not purport to be a “fair trade practices act” and this
opinion is not to be construed as denying the power of the legislature to
enact laws designed to eliminate unfair competitive. advantages, provided,
the means adopted by the legislature have a real and substantial relation to
the correction of the evil and the requirements of due process are other-
wise met.

        The decision in the Steffey case was also based in part on the follow-         ’
ing reasoning:

                “We see no perceptible diffzrence between the use
        of loss leaders and the use of trading stamps. . . . In
      ’ short, the legislative act under consideration herekis.
        in part at least. nothing less than a fair trade act. ‘. . . ”

        That analogy serves to defeat the bill in question rather than sustain
it because, as we pointed out in Attorney General’s Opinion WW-133 (19,57),
lose leader acts are violative of due process where they authorize criminal
prosecution. but. do not require either intent to injure competition or injuri-
oue effect on competition.    See e. g. Blain v. Engleman, 190 Md. 109, 57
A. 2d 421 (1948)~:~ Associated Merchants v. Oremesher,     107 Mont. 530, 86
P. 2d 1031 (1939.);. Wholesale Tobacco Dealers Bureau v. National Candy h
Tobacco Co., 11. CaL2d 634, 82 P. 2d 3 (1938); Commonwealth V. Zosloff,
338 Pa. 457. 12 A. 2d 67 (1940); State ex rel. Lief v. Paehard Baumgardner
*co,,    123 N. J. L. 180, 8’A. 2d 291 (1939).

        Significantly, House Bill 438 is silent as to tbe ultimate evil at
which it is ‘directed.  It fails to cite any reason why it could be to the public
interest to prohibit and restrict the use of trading stamps in the manner
provided in the bill.  We can perceive no danger to the public wepare in the’
use of trading stamps which would warrant the complete prohibition of their
use by retailers, wholesalers,      stamp companies, consumers and others who
might use such stamps.      We are left: to conclude, tbat the reason’for the enact-
ment falls among those which have been discredited by the majority of the
courts of this country.

        It follows fyom the foregoing that, in our judgment, not only the
weight of authority, but the better reasoning, preponderates in favor of the
view that House Bill 438 bears no reasonable relation to any legitimate
object w&n the scope of the police power, and, therefore, the, bill contra-
venes the due process’clause,   Section 19, Article I, of the Constitution of




                             :   ‘,
        ‘.
Honorable Bill Hollowell,   page 9   WV-1047)




Texas.

        It having been determined that Houses Bill 438 is unconstitutional on
the foregoing ground, it becomes unnecessary ,to consider other reasons
why the bill might be unconstitutional.

                                  SUMMARY

         House Bill 438, 57th Legislature,   Regular Session, 1961,
         prohibiting trading stamps and similar devices, is uncon-.
         stitutional by reason of being beyond the scope of the police
         power and in contravention of Section 19, Article I, of the
         Constitution of Texas.

                                        Yours very truly,

                                       WILL WILSON
                                       Attorney General of Texas


                                       by I+-,      h’ bd
                                          Henry G. Braswell
                                          Assistant
APPROVED:

OPINION COMMITTEE:
W. V. Geppert, Chairman

Sam Wilson
Elmer McVey
Gordon C. Cass
Iola B. Wilcox

REVIEWEDFORTHEATTORNEYGENERAL
BY:
          Leonard Passmore
