lb: Y GICNERA 

April 2'1, 1959 

Honorable Reagan R. Huffman, Chairman Opinion No. WW-609 

Liquor Regulations Committee 

House of Representatives Re: Constitutionality of 

Austin, Texas ?&use Bill 353, 56th Legislature, relating to establishment of minimum sales price in 

the sale of spiritous liquors. 

Dear Sir: 

Your request of March 25, 1959 reads as follows: 

"Please consider this letter as a request from 

the House of Representatives Liquor Regulation Committee for a Constitutional Opinion on the enclosed 

House Bill 353 by Representative,Day. 

"By unanimous vote of the above Committee this 

Bill has been sent to ybu for'your opinion'as to 

its constitutionality. This Committee would also 

humbly request your opinion as to!whether this Bill 

would be constitutional If amended to ,state that no 

retail liquor dealer could sell under wholesale 

prices." 

We will turn our consideration to your first question, namely, 

whether the Bill as written is constitutional. 

Article 666-57 of Section 1, H. B. 353, reads as follows: 

"ARTICLE 666-57 - POLICY OF TEE STATE: It is 

hereby declared to be'the policy of the State of 

Texas to stabilize liquor prices for,the purpose of 

stabilizing public revenues and an end of avoiding 

price wars which would materially affect the revenues of the State, attempts at monopolies and the 

demoralization of the legally controlled sales of 

liquors in this State which grows out of unfair pricp 

manipulations." 

The following quotations are taken from House Bill 353 as pertaining to the setting of a minimum price: 
Honorable Reagan H. Huffman, Page 2. (~~-609) 

"ARTICLE 665-58 - SALE ANI IMPROPER PRICES PROHIBITEDD: No wholesaler or retailer of spiritous or 

vinous liquors as they are defined in Article 666-3A 

of this chapter, shall sell any such liquors in this 

State, except at the prices herein fixed. 

"ARTICLE 666-59 - THE WHOLESALER'S SELLING 

PRICE: The wholesaler's selling price to the retailer shall be his cost as defined in this Act, plus a 

minimum mark-up of 13% of cost on liquor, cordials, 

liqueurs, specialties, sparkling and still wines, and 

he shall deliver such liquors to the retailers at 

such price without additional price for delivery. 

"ARTICLE 666-60 - RETAILER'S SELLING PRICE: 

The retailer's selling price shall be his cost as 

defined in this Act, plus a minimum mark-up of 305 of 

cost on liquors, cordials, liqueurs and specialties, 

and 50% on all wines. 

'ARTICLE 666-61 - WHOLESALER'S COST DEFINED: 

The cost to the wholesaler is the actual invoiced 

price which he pays for the merchandise, and as determined by the Board's Administrator, plus State and 

Federal taxes, plus actual freight and cartage cost 

incurred in delivery to him. 

"ARTICLE 666-62 - RETAILER'S C0ST.DEFINF.D: The 

cost to the retailer is the actual invoiced price 

which he pays to the wholesaler. 

"ARTICLE 666-63 - SELLING PRICE DISPLAYED BY RETAILER - DISCOLWS: No retailer shall expose any of 

such alcoholic beverages for.sale without showing the 

selling price thereof in easily read figures, and it 

shall be unlawful for any retailer to offer such 

merchandise for sale at any other figure, except that, 

in case lots (of not less than 2.40 gallon) the retailer may grant a discount of not more than 10% of 

such retail prices. 

"ARTICLE 666-6~ - SALE AT REDUCED PRICES: 

Wholesalers and retailers may make close-out sale or 

sales of damaged goods at reduced prices under such 

regulations as t&Board's Administrator shall prescribe. 

*t~~~~~~ 666-65 - REBATES, LOANS, OR GIFTS - AC- 
. 

Honorable Reagan R. Huffman, Page 3. (w-609) 

CESS TO BOOKS AND RECORDS: Any rebates, loans, 

gifts or other special inducements offered, given, 

or accepted by either wholesaler or retailer, shall 

be considered evasions of the requirements of this 

Act, and the Board's Administrator and his agents 

shall have full access to all of the books and records of wholesalers and retailers and common carriers at all times for the purpose of detecting 

and proving such evasions.." 

Under the Texas Liquor Control Act, Article 666-41, Vernon's 

Annotated Penal Code, these provisions are to be enforced by both civil 

and criminal sanctions. 

Section 19 of Article 1 of the Texas Constitutionreads: 

"No citizen of this State shall be deprived of life, 

liberty, property, privileges, or immunities, or in any 

manner disfranchised, except by the due course of the 

law of the land." ' 

Due process of law not 

also substantive protection. It 

the substance of legislation and 

only includes procedural protection, but 

is a direct constitutional restraint upon 

means that a legislative curtailment of 

personal or property rights must be justified by a resultant benefit to the 

public welfare. Thus the due process guaranty does, not restrain the State 

in the exercise of its legitimate police powers. See City of New Braunfels 

v. Waldschmit, lop T. 302, M7.S. W. 303 (1918). Houston & Tex. Cent. Ry.. 

co. v. Dallas, 98 T. 396, 84 S.W. 648 (1905). Both liberty and property 

are subject to the exercise of these powers. 

Nevertheless, the exercise of the police powers is not unrestricted, but is limited to enactments having reference to the public health, 

comfort, safety and welfare. It must not be arbitrary, unreasonable, or 

patently beyond the necessities of the case, and the means which it employs 

must have a realiand substantial relation to the object sought to be attained. See Spann v. City of Dallas, 111 T. x50/235 S.W. 513 (1921), 

Houston & T. C. Ry. Co. v. City of Dallas, supra; American Federation of 

LBbor v. Mann, Civ. App., 188 S.W.2d 276 (1945). 

The Federal Constitution, in the fifth and fourteenth amendments, 

also provides against deprivation of life, liberty or property without due 

process of law, the fourteenth amendment by its language being applicable 

to prevent the states from carrying out such a deprivation. It has been 

held by Texas Courts that the clause of the Texas Constitution, to the 

extent that it is identical with'the fourteenth amendment, has placed upon 

the powers of the state legislature the same restrictions as those which 

have been held,to be imposed by the language of that amendment of the 

Federal Constitution. Mellinger v. City of 'Houston, 68 T. 37,3SW.2@ (1887 ‘1. 
Honorable Reagan R. Huffman, Page 4. (w-609) 

In Neel v. Texas Liquor Control Board, 259 S.W.2d 312 (Civ.App. 

1953), the Court announced these guides as to the validity of regulations 

under the state's police power. 

"'The police power of the state extends only to such 

measures as are reasonable, and the general rule is 

that all police regulations must be reasonable under all ., 

circumstances. In every case it must appear that the 

means adopted are reasonably necessary and appropriate 

for the accomplishment of a legitimate object falling 

within the domain of the police power. A statute to be : ~.'. 

within this power must be reasonable in its operation 

upon the persons whom it affects asd not unduly oppressive. The validity of a police regulation therefore 

primarily depends on whether under all the existing circumstances the regulation is reasonable or arbitrary 

and whether it is really designed to accomplish a purpose 

properly falling within the scope of the police power.' 

6 R.c.L., Constitutional Law, Paragraph 226. 

"We take the following from the Case of Houston & 

T. c. R. CO. v. Dallas, 98 Tex. 396, 84 S.W 648 653, 

70 L.R.A. 850: 'The power is not an arbitrary on:, but 

has its limitations. 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 consistently as may be with private property 

rights. As those needs are extensive, various, and indefinite, the power to deal with them is likewise broad, 

indefinite, and impracticable of precise definition or 

limitation'. 

"It has been further stated: 'In order to sustain 

legislative interference by virtue of the police power, 

under either a statute or a minicipal ordinance, it is 

necessary that the act should have some reasonable relation to the subjects included in such power, and the 

law must tend, in a degree that is preceptible and 

clear, toward the preservation of the public welfare, 

01‘ toward the prevention of some offense or manifest 

evil, or to the furtherance of some object within the 

scope of the police power. * * *' 6 R.C.L., Constitutional Law, Paragraph 227." 

In Attorney General Opinion O-3242 these principles were applied to hold fixed minimum prices for barber services unconstitutional because "first, there was not a discernable, substantial and legitimate relation between the means adopted by the bill and the legitimate object of 

the exercise of the police power, to wit, the protection or the improvement 

of the public health, safety, morals, or general welfare." 
. 

Honorable Reagan R. Huffman, Page 5. (~-609) 

In Schwegmann Brothers v. Louisiana Board of Alcoholic Beverage 

Control, 216 La. 148 43 SO. 2d 248 14 A.L.R. 2d 680 (La. Sup. 1949), 

the Louisiana Suprem; Court had bef&e it a very similar statute which 

reads in part as follows: 

"( 6) 'Cost', invoice price to dealer plus ~ 

freight or cartage, if not included in the invoice, 

without any deduction for any discounts or conces: 

sions of any kind, plus all taxes . . . 

"Section 24 . . . . 

"(a) The wholesaler's minimum selling price 

to a retailer shall be his cost, as herein defined, plus 15s on liquor; 20s on cordial liquers. 

and specialties; and 15% on sparkling and still 

wines. 

"(b) The retailer!? minimum selling price shall 

be his cost, as herein defined, plus 33 l/3$ on liquor, 45% on cordials, liquers and specialties; and 

50% on sparkling and still wines.". 

In applying the principles announced in the Neel case, supra, the 

Louisiana Supreme Court in the Schwegmann Brothers case page 258 had this 

tom say: 

"Now, in applying the above test, the following 

questions must be answered: Is there a real and substantial relation between the mandatory minimum mark 

ups of the statute and the preventing of injury to the 

economic, social and moral well being of the people of 

the state? Are those means (the mark ups) reasonably 

necessary and appropriate for the accomplishment of 

the legitimate object or purpose which the statute 

announces (regulation and control of the, traffic)? 

"Appellants, of course;answer these~questions in 

the affirmative, they maintain that the minimum mark 

ups are designed, in'the interest of temperance, to prdtect the people from the temptations of cheap liquor due 

to cut-throat competition; to eliminate excessive consumption of strong drink that results from price wars; 

and to prevent certain moral abuses brought about by low 

liquor prices. Appellee, onthe other hand, answers 

in the negative. It states, to quote from counsel's 

brief, as follows: 'Act 360, it is submitted, is aimed 

at the ordinary hazards of competition incident to any 

business; price competition and credit risks. It bears 

no real and substantial relation to the public welfare, 
Honorable Reagan R. Huffman, Page 6. (~~-609) 

but is preferential legislation for certain favored groups in the liquor industry.' 

II . . . 

"But assuming for the sake of argument that 

liquor price wars are possible of occurrence in 

this state and that stringent regulations to prevent them are needed, we do not agree that the 

mandatory mark ups provided by Act 360 of 1948 constitute appropriate means for the achievement of 

that purpose. True, these are fixed percentages 

that the wholesale and retail dealers must add to 

their costs (the enforcement of the addition is 

charged to the Louisiana Board of Alcoholic Beverage Control) resulting usually in uniform 

prices on the effected beverages among the dealers 

of each class . . . . Nevertheless the statute omits 

the stipulation of a mandatory mark up for the 

manufacturer or distiller respecting his sales to 

the wholesaler, and, by reason of the omission, such 

producer (or producers) very easily might instigate 

and sustain the occasion of a price war. There is 

nothing in Act 360 of 1948, or otherwise to our 

knowledge, to prevent a distiller (or a combination 

of distillers) from placing his product on the 

'market at mere cost plus tax (without profit) in 

competition with others who seek profits on their merchandise. If such is done, and it is possible to do, 

the purchasing wholesaler and his vendee, the retailer, 

need only add to their respective costs the required 

mark ups, and there could result the discussed cut 

throat competition and price war (with cheap liquor 

to the consumer) which the statute, appellants maintain, 

purposes to avoid. 

. . . 

"From all of which we conclude that the provisions of Act 360 of 19948 which relate to the mandatory 

tiinimum mark u;s (Sections l(s), 24 and 26) do not 

tend, in a degree that is perceptible and clear,&toward the accomplishment of the announced purpose of 

the statute, namely the regulation and control of 

the liquor traffic so that it 'may not cause injury 

to the economic, social and moral well-being of the 

people of the State.' They, in other words, are 

inappropriate for the achievement of the legitimate 

object described in the statute. Accordingly, we 

hold that such provisions are manifestly unreasonable 
,’ 

:. 

Honorable Reagan R. Huffman, Page 7. (~-609) 

within the contemplation of the state's police power, 

and,hence, are unconstitutional in that they violate 

the due process clauses of our state and federal 

constitutions." 

Article 666-2 of the Texas Liquor Control Act contains the 

object and purposes for which the Act was passed. This Section reads as 

follows: 

"This entire Act shall be deemed an exercise of 

the police power of the state for the protection of 

the welfare, health, peace, temperance, and safety of 

the people of the state, and all its provisions shall 

be liberally construed for the accomplishment of that 

purpose". 

Now, in looking at the announced objects of House Bill 353 as 

contained in Article 666-7, as above set out, we find the announced objects 

to be: 

(1) To stabilize liquor prices for the purpose of stabilizing 

public revenues; 

(2) Avoiding price wars which materially affect revenues; 

(3) Attempts at monopolies and demoralization of legally controlled sales of liquors which grow out of unfair p&e manipulations. 

As above noted the liquor field is regulated under the state's 

police power. Therefore, the questionpresents itself as.to whether H. B. 

353 is a ligitimate exercise of this power. As was stated in the Neel 

case, supra, it must appear that the means adopted are reasonably necessary and appropriate for the accomplishment of a ligitimate object falling 

within the domain of the police power. 

As to whether the police power can be used to stabilize public 

revenues and avoid price wars which would materially affect the revenues, 

the following principles would seem important. The police power cannot be 

used for the purpose alone of raising revenue. 9 Tex. Jur. p. 513. While 

the police power is exercised only forthe purpose of promoting the public 

welfare, and, although this end may be"attained by taxing or licensing 

occupations, the object must always be regulation and not the raising of 

' revenue. 16 c.J.s., p. 891. Insofar as the announced objects or purposes 

of H. B. 353 are directed at stabilizing revenues, it would be the use of 

the police power for the purposes and.objectives which do not lie within 

such power and would therefore be an unwarranted use thereof. With regard 

to the announced objects or purposes of "avoidtig price wars" and "attempts 

at monopolies and demoralization of the legally controlled sales of liquors in this State which grow out of unfair price manipulations", we. find 
Honorable Reagan R. Huffman, Page 8. (w-609) 

that the means of requiring a minimum percentage mark up at the wholesale 

and retail level as adopted by Il. B. 353 has no discernible, substantial, and 

logical relation to the legitimate objects of the exercise of the police 

power, to wit, the protection or improvement of the public welfare, health, 

peace, temperance and safety. Since the bill omits the manufacturer or 

distiller from price regulation, such manufacturers or distillers are provided the power to easily instigate or sustain the occasion of a price war, 

which by reason of the wholesalers and retailers being required to have a 

minimum mark up would be carried directly to the public (see discussion 

taken from Schwegmann Brothers case, supra, page 6 of this opinion). 

All adjustment of prices through competition would thus be thwarted. 

The,conclusion necessarily follows then that R. B. 353 does not 

meet the required test for a valid exercise of the police power since, as 

above pointed out, the means adopted are not ,reasonably necessary and appropriate for accomplishment of a legitimate object falling within the 

domain of the police powers. 

It should be pointed out that H. B. 353 does not include all the 

elements of legislation popularly known as "Fair Trade" ads and that this 

opinion does not rule on the constitutionality of any other such legislation. 

As to those portions of R. B. 353 which do not apply to a minimum 

mark up requirement, namely, maximum number of licenses; locations within 

five mile limits; cancellation of unused licenses; renewal of permits; and 

location on same streets; we find no authority holding that such regulations 

are an unreasonable regulation under the police power. 

We turn now to your second question in which you ask our opinion 

as to "whether this bill (H.B. 353) would be constitutional if amended to 

state that no retail liquor dealer could,sell under wholesale prices". 

We cannot pass on the constitutionality of a provision which has 

not yet been drafted and presented to us for examination. 

SUMMARY 

The provisions of H.B. 353 that 

pertain to the establishment 

and enforcement of a minimum 

sales price of spiritous liquors 

for wholesalers and retailers 

are not a valid exercise of the 

police power. The provisions 

regulating maximum number of licenses; locations within five 

mile limits; cancellation of 
. ,, 

Honorable Reagan R. Huffman, Page 9. (~~-609) 

unused licenses; renewal of permits; location on same streets; 

are constitutional. 

Very truly yours, 

WILL WILSON 

Attorney General 

. . 

By: 

&H:aw 

APPROVED: 

OPINION COMMITTEE: 

Geo. P. Blackburn, Chairman 

C. K. Richards 

C. Dean Davis 

Elmer McVey 

PaulW. Floyd, Jr. 

REVIEWED FOR THE ATTORNEY GENEBAL 

BY: 

W. V. Geppert