Blum v. Engelman

Delaplaine, J., delivered the opinion of the Court. The purpose of this suit is to restrain violation of the Unfair Sales Act of Maryland, and the constitutionality of the Act has been challenged. Laws of 1941, ch. 330, Laws of 1943, ch. 803, Code Supp. 1943, Art. 83, secs. 111-115. The suit was instituted in Circuit Court No. 2 of Baltimore City by Benjamin Engelman and David Engelman, trading as M. Engelman & Sons, who have been selling cigarettes at retail at 27 North Howard Street.

They allege in their bill of complaint that Abraham Blum, trading as Ben’s Cut Rate Store at 305 North Eutaw Street, has been selling Camel, Chesterfield, Lucky Strike and Old Gold cigarettes at $1.43 per carton, while the cost of these brands to him was $1.54. They further alleged that he has been selling them below cost with intent .to injure them and destroy competition. They prayed that he be enjoined from selling cigarettes at less than cost, as defined by the Unfair Sales Act. Defendant demurred to the bill on the ground that the Act places upon a lawful occupation unusual restrictions which arbitrarily interfere with private business, and hence the Act violates the Fourteenth Amendment of the Constitution of the United States and Article 23 of the Maryland Declaration of Rights.

The chancellor overruled the demurrer, and defendant appealed from that order. The Unfair Sales Act, like the Fair Trade Act, is aimed at price-cutting. The Fair Trade Act is said to have grown out of a contest of small retailers and independent wholesalers against a practice of chain stores and large department stores of cutting prices on nationally advertised products in order to attract customers with the ¹¹² object of selling them Other merchandise along with the “loss leaders.” In 1939 the constitutionality of the Maryland Fair Trade Act (Laws of 1937, ch. 239, Code 1939, art. 83, secs. 102-110), was challenged, but the Court of Appeals held it constitutional and enforceable. Goldsmith v. Mead Johnson & Co., 176 Md. 682 , 7 A. 2d 176 , 125 A. L. R. 1339.

The first Unfair Sales Act in Maryland took effect on June 1, 1937. Laws of 1937, ch. 211. The Act was repealed and superseded by another Act two years later. Laws of 1939, ch. 248.

The Act of 1939 made an offer to sell or sale of merchandise as less than cost a misdemeanor punishable by a fine not exceeding $500. The Act also gave to any aggrieved dealer the right to obtain an injunction to restrain a violation or threatened violation thereof. In. 1940 the Court of Appeals held the Act unconstitutional. Darnel Loughran Co. v. Lord Baltimore Candy & Tobacco Co., 178 Md. 38, 52 , 12 A. 2d 201 .

The 1939 Act was annulled on account of two provisions. One of these provisions was to the effect that sales “at prices which cannot be justified by existing market conditions” should not be used as a basis for computing costs. Laws of 1939, ch. 248, sec. 115 (d). This provision required a dealer to- make a survey of “existing market conditions,” and thereupon determine whether such conditions justified a certain price, and from that price the cost was to be computed.

The dealer’s computation was not conclusive, and accordingly if. his analysis' of “existing market conditions” was not correct,; and it-was determined in a judicial proceeding-that the: conditions did not justify the price, then, even though he honestly believed that his survey justified that price, his computation would be rejected, and he would stand as a violator of- the law; . The other provision made it unlawful to offer for sale orr-sell any merchandise at less than cost “with the inte,nt,. effect or result of unfairly diverting trade from or otherwise injuring a - competitor.” Laws of 1939, ch. 248, sec. 116... -That provision failed to provide a definite ¹¹³ standard by which the dealer could ascertain whether he was complying with the law, because it was impossible to know whether a sale would have the “effect or result” of injuring a competitor somewhere within the State. The Act violated the rule that the application of a penal statute or the right to injunctive relief should not be a matter of uncertainty and conjecture. It is well settled that a statute which prohibits the doing of an act in terms so vague that persons of ordinary intelligence must necessarily guess at its meaning and differ as to its application violates the constitutional guarantee of due process of law.

State v. Magaha, 182 Md. 122 , 32 A. 2d 477 . The Act of 1939 did not provide a reasonably ascertainable standard of guilt, and thus was not sufficiently explicit to enable a person of ordinary intelligence to ascertain with a fair degree of certainty what sales it intended to prohibit. In 1941 the Legislature repealed the 1939 Act and passed the existing Act. Laws of 1941, ch. 330.

The 1941 Act corrected both of the defects. In the first place, Section 112 definitely defines “cost to the retailer” as the invoice price of the merchandise or the replacement cost, whichever is lower, less all trade discounts except customary discounts for cash, to which shall be added (1) freight charges not otherwise included in the invoice or replacement cost, (2) cartage to the retail outlet if performed or paid for by the retailer, and (3) a