Hon. Dorsey B. Hardeman 

Chairmen 

Opinion No. M- 57 

Committee on State Affairs 

Texas Senate 

Austin, Texas 

Re: Constitutionality of Senate 

Bill 255, as amended. 

Dear Senator Rardeman: 

You have requested our opinion 

mended, would be constitutional if 

its present form. 

a8 to whether S. B, 255, ar 

enacted by the Legislcrture in 

In essence this bill prohibits 

wholesale or retail, below the cost 

the salt of mtrchandlet, at 

thereof when such sale is made 

with the purpose or intent to in;lure competition. The stated purDO&S of the bill ie "to saftmard the DUbllC aaainet the creation 

br p,erpetuation of monopolies and to foster ana encourage compttition 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 of Texas. See 

Section 26, Article I of the Texas Constitution. See also, Attorney 

Ceneralls Opinion WW-1043 (1961 which is concerned with legislation closely analogous to the b 1 11 now presented. 

Thirty-one states have enacted laws prohibiting sales below 

co&, and no such law has been held unconstitutional Insofar as the 

power of the legislature to prohibit such sales is concerned. However, the constitutionality of any act of this nature can only be 

evaluated by examining its provisions in detail - 

” +mven where the power has been conceded 

specif~c’provlsions have been Invalidated. There Is 

thus substantial indication that the real problem Is 

one of draftsmanship, of choosing among diverse statutory 

pitfalls and yet accompllsh/Zng7 effective regulation.” 

52 Harv.L.Rev. 1142 (1939) Et page 1144. See more 

recent casts collected In Lane Distributors v. TiltOn, 

81 A.2d 786, pages 795-796 (New Jersey S.Ct. 1951), 

accord. 

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Hon. Dorsey B. Hardeman, Page 2 (M-57 ) 

The precise f&ctors, on which the constitutionality of a statute 

of this nature turns, are for the most part suggested in an analysis 

contained in 52 Harv.L.Rev. 1142 (1939). These factors are listed 

in a numerical order below with a discuss1on,following each. The 

points are to a large extent overlapping but provide a convenient 

frame of reference for discussion: 

the ci,e %? 

- The act struck down by the Texas Supreme Court in 

an Antonio Retail Grocers v. LafferQ, 297 S.W.2d 813 

(Tex,S.Ct. lg>v) was limit d I 

proposed bill, on the othei haid:! 

ffect to grocery stores alone. The 

spplies to all retailers and wholesalers. The act is therefore not unconstitutE81 for promoting 

discrimination against any particular trade group and the Lafferty 

case is easily distinguished. 

2c. F%== - 

Since many.sales below cost cannot be considered 

as unfair ra e practices but are the result of errors in inventory 

control, variation in supply and demand, competitive forces or a 

combination of the above factors, and further, since a strict prohibition against all sales below cost would require a merchant to 

absorb losses which the public interest in preventing monopolization 

or promoting competition would not reasonably require; - statutes of 

this nature must exempt such transactions as: close-outs in good 

faith of part or all of the owner’s stock; bona fide sales of seasonal, 

perishable, or deteriorated goods to prevent total loss to the vendor; 

and sales made under court order to protect creditors and sales made 

to meet legal competition. These requirements 8re met in Sections 

8 and 9 of the Proposed Senate Bill 255, as amended. 

3. Defi~nition of Cost - Under the proposed bill, cost Is presumed to be lower of Invoice or market, less any discounts frown 

invoice, plus freight, 8 deemed cost of cartage-and any taxes which 

are directly attributable to an item (not corporate frsnchise, 

incame and ad valorem taxes - i.e, the definition does not include 

“overhead taxes” which would not normally be allocated to the sale 

of any particular product). 

It would be difficult for 8 merchmt accused of violation to 

seriously argue that he was prejudiced by application as a 

tion of his actual expenses) of the dtf1nit1on provide (J ior Rg;y 

under the proposed bill. 

The problem of allocating overhead costs - i.e. of assigning 

general expenses to particular products and periods - has traditionally 

proved a source of dlfflculty in drafting a constitutional definition 

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Hon. Dorsey B. Hardeman, Page 3 (M- 57 ) 

of “cost” since’ Sny resolutlon of the problem, a8 a 

must be somewhat arbitrary. 

. See discussion 57 Y+le .~- 

practical matter, 

law Journal391 

st page 394; 52 Harvard Law Review 1142 at page 1147. Such constitutional problems as are inherent In allocating general ovtrhtad 

expenses have been avoided under Senate Bill 255, as amended, by 

giving the benefit of all doubts to one accused of violation - his 

costs are assumed to include no general overhead. 

4. Intent - The absence of intent as 8 prerequisite to a finding 

of violatY6iii?% held to Invalidate an earlier proposed act of this 

nature. Attorney General’s opinion WW-125 (1957). As proof of intent is required to sustain any litigation authorized by the act now 

proposed, we find no reason to review WW-123, but simply note it is 

inapplicable here. 

5. Remedies - Senate Bill 255, 8s amended, dot8 not provide 

for criminal penalties s 

The presence or absence of such penalties has frequently been 

cited as being an important consideration In determining the conrtltutionallty of 8 bill of this nature. 

See 52 Harv.L.Rev. 1142 (1939) at page 1145: 

n 

cost to mei P 

ere the exemption Lfor salts below 

competition7 is not expressly limited to 

legal competition, the i&y is opened to frustration 

of the statute if 811 members of the trade may as a 

dbfense assert that they were meeting each other’s llleg81 prices- On the other hand, there is hardship 

in making the seller ascertain at his peril whether 

competing prices are legal. It might be sensible here 

to distinguish between defenses in criminal and injunctive proceedings making bona fid 

- 

b 11 f df t 

ormer but not to the latter. err e(;pzsi: :%:d.y 

See also McCormick on Evidence (West 19%) pq 661; 

Validity of Statutory Prtsumptlons~ 

I! *The distribution in civil casts of the burden 

of pleading, as between plaintiff and defendant, carrying 

with It usually the burden of 

the burden of persuasion9... 

plaintiff under the P 

roceeding with evidence and 

need not be placed upon the 

constitu ion7 mince there is no 

reason for special protection o? o?E party to the civil 

- 275- 
. . 

Hon. Dorsey B. Hardeman, Page 4 (M- 57 ) 

case rather than the other 

cases. . o 

as there Is in criminal 

11 .In the,realm of criminal proceedings, however, 

the rule’is quite different. The traditional common law 

procedure emphasized that the burden of evidence and the 

burden of persuasion are upon the government to establish 

the guilt of the accused.” 

Accord, Twin City Candy and Tobacco Co. Inc. v. B. A. Weisman 

%iOWB: 

CCH, lg6? Trade Regulation Reports, p9 tJ)3$ 7OU, in Part as 

“Except as to criminal prosecutions where a defendant enjoys a presumption of Innocence and the burden 

is on the state, we suggest that the difficulty of proof 

. ‘.may be overcome constitutionally by the adoption of 

a statute which makes 8 sale below cost prima facie evidence of predatory intent or effect. While there is 8 

divlsion of opinion with respect to the validity of such 

a provision, the weight of authority, and we believe the 

better reasoned decisions, hold there is no constitution81 

impediment to requiring that in a civil case the vendor 

must prove his below cost sales were made without predatory 

intent or effect.” (March 20, 1967.) 

As above etsted, the proposed bill 8s amended does not contain 

criminal sanctions - thus further doubts as to its constitutionality 

may be removed. 

Civil penalty sections such as have been provided for tnforcement in the proposed bill (along with Injunctive relief and damages) 

are brought to trial under the civil rules of evidence; both the 

accused and the state are in the same positions &a litigants in 

civil actions; and, therefore, the presumptions of innocence need 

not be in full force and effect. Barrington v. State, 407 S.W.2d 

467 (Tex.S.Ct. 1.966); Cert. den. U.S. -(F e b . 19b7 1. 

Pursuant to the above discussion we answer your qW?atiOn as 

follows : 

S. B. 259, as amended, meets all tests of constitutionality, 

which are normally applied to “Unfair Sales $egislatlonn cmnd, if 

enacted, will be constitutional. 

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Hon. Dorscy B. Hardernan, Page 5 ,,(N- 57 ) 

SUMMARY 

S. B, 255, as' amended, would be constitutional 

if enacted into law by the Legislature.. 

v&d’ truly yours, 

Prepared by Larry S. Craddock 

Assistant Attorney General, 

APPROVED: 

OPINION COMMITTEE 

Hawthorne Phillips, Chairman 

W. V. Geppert, Co-Chairman 

Thomas Mack 

Robert Owen 

Kerns Taylor 

Jack Sparks 

STAFF LEDALASSISTAIiT 

A, J. Carubbi, Jr. 

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