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    FAIRMONT CREAMERY CO. v. STATE OF MINN., 274 U.S. 1 (1927)

    U.S. Supreme Court

    FAIRMONT CREAMERY CO. v. STATE OF MINN., 274 U.S. 1 (1927)

    274 U.S. 1

    No. 725.

    Argued Feb. 23, 1927.
    Decided April 11, 1927.

    [274 U.S. 1, 2]   Messrs. Leonard A. Flansburg and Eugene J. Hainer, both of Lincoln, Neb., for plaintiff in error.

    Mr. Charles E. Phillips, of St. Paul, Minn., for the State of Minnesota.

    [274 U.S. 1, 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 section 1, chapter 305, Laws 1921, as amended by chapter 120, Laws 1923 (G. S. Minn. 1923, 3907), which follows:

    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 butter fat for manufacture and sale, in the manner following: Said company, while engaged in the business of buying milk, cream, and butter fat 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 butter fat 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 [274 U.S. 1, 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:

    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. [274 U.S. 1, 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, 202 N. W. 714, 42 A. L. R. 548; 210 N. W. 163 (August 27, 1926); 210 N. W. 608 (October 29, 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:

    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:

    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 [274 U.S. 1, 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, 594 , 37 S. Ct. 662, 664 (61 L. Ed. 1336, L. R. A. 1917 F, 1163, Ann. Cas. 1917D, 973), this court said:

    And see Adkins v. Children's Hospital, 261 U.S. 525 , 43 S. Ct. 394, 24 A. L. R. 1238; Wolff Co. v. Industrial Court, 262 U.S. 522, 537 , 43 S. Ct. 630, 27 A. L. R. 1280. Booth v. Illinois, 184 U.S. 425 , 22 S. Ct. 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 [274 U.S. 1, 11]   might properly conclude that the public interest demanded their suppression as a class in order to avert this evil. This court said:

    The state also relies upon Otis v. Parker, 187 U.S. 606 , 23 S. Ct. 168, Purity Extract Co. v. Lynch, 226 U.S. 192 , 33 S. Ct. 44, Rast v. Van Deman & Lewis, 240 U.S. 342 , 36 S. Ct. 370, L. R. A. 1917A, 421, Ann. Cas. 1917B, 455, and Merrick v. Halsey & Co., 242 U.S. 568 , 37 S. Ct. 227. 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.

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