Court Opinion

ID: 9447329
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:32:17.488851+00
Date Added: 2024-06-11T17:30:59.751927
License: Public Domain

WHITAKER, Judge
(dissenting).
I am unable to agree with the majority. The retailer paid the purchase price not for a refrigerator alone, but for one that had already been advertised nationally and which the seller agreed to assist in advertising locally. Hence, when the seller remitted to the advertising medium or to the retailer his agreed contribution to the cost of local advertising, he was doing nothing more than fulfilling the obligation for which the purchase price was paid. He was paying for something he had agreed to deliver as part consideration for the purchase price.
A refrigerator on his floor was worth but little to the dealer unless his customers knew he had it. What he paid for was the refrigerator itself and the manufacturer’s assistance in letting people know he had it in stock. A refrigerator unadvertised locally was worth something to the dealer, but advertised locally it was worth considerably more. This added value, gained through local advertising, paid for in part by the manufacturer, was what the dealer purchased. The advertising of the article was an integral part of what the dealer bought, quite as much so as the frame, the doors, and the freezing unit. The advertising gave to the article the element of desirability, just as did the paint and the chrome on it. The advertising, both national and local, cooperated with the paint and the chrome to make people want it. Since it was bought for resale, this was its most valuable element to the dealer.
The obligation of the manufacturer to assist in advertising it locally was a part of the consideration for which the sales price was paid and, hence, the discharge of this obligation by payment of the agreed amount could not be an “allowance” to the dealer. An “allowance”, as used in the Act, must work a “readjustment” or reduction in the sales price. There has been no reduction in the sales price. The manufacturer still has the amount paid it when the sale was made and has delivered no more than it agreed to deliver, to wit, a refrigerator and a part of the cost of putting the refrigerator on display locally. A refrigerator on display was what the dealer wanted, not one hidden in its basement. This is what it paid for and this is what the manufacturer gave him.
Section 3441(a) provided that in determining the sales price there should be excluded “a transportation, delivery, insurance, installation, or other charge (not required by the foregoing sentence to be included).” Manufacturers insisted that the cost of national advertising was a “charge” to be excluded from the manufacturer’s sales price, but this court held to the contrary in Ayer Co. v. United States, 38 F.Supp. 284, 93 Ct.Cl. 386. The Court of Appeals of the 8th Circuit was of like opinion, United States v. F. W. Fitch Co., 141 F.2d 380, but the 7th Circuit had held otherwise in Campana Corp. v. Harrison, 114 F.2d 400. The Supreme Court settled the controversy in F. W. Fitch Co. v. United States, 323 U.S. 582, 65 S.Ct. 409, 89 L.Ed. 472. It held in that case that what the manufacturer sold was a nationally advertised product and that the advertising was an integral part of the product sold and could not be separated from it, whether or not charged for separately, and, hence, that there was no basis for excluding the cost of it from the sales price. I see no distinction between a manufacturer’s national advertising and its advertising done through the instrumentality of its dealers scattered throughout the country from the Atlantic to the Pacific, and from the Great Lakes to the Gulf. When this advertising through dealers is taken as a whole, as it must be, it is indeed national advertising by the manufacturer of its product. The manufacturer knows *934this local advertising will enhance the value of its product, as well as benefit the dealer and, hence, it is willing to share the cost. Indeed, plaintiff calls it its “cooperative advertising plan.” This is to say that the retailer and the manufacturer “go in together” to do something for their mutual benefit, to advertise that the manufacturer’s product is obtainable at the store of the dealer, and that it is a superior product. This helps the retailer sell the product, and the manufacturer to sell other products..
I reiterate: What the manufacturer sells is not an unknown product, but one nationally advertised and one which he obligates himself to assist in advertising locally up to a stated amount. In each case, the manufacturer incurs an additional cost to enhance the value of the product. In each case, the purchaser must pay this additional cost in order to obtain the product. An advertised product is what is sold, whether advertised nationally or locally. Hence, the cost of neither is to be excluded from the sales price.
Before the manufacturer ever sells the refrigerator it sets up on its books an account to take care of the cost of local advertising. The amount charged to the account is 1% percent of the “suggested cash installed price.” This, of course, is taken into account by the manufacturer in fixing his sales price. When it pays this cost, it is discharging an obligation it assumed when it demanded the sales price. The sales price is no more to be readjusted on that account than for the cost of advertising in a national magazine or the cost of the frame, or the doors, or. the freezing unit. They are all an integral part of the thing sold.
This is contrary to the view of the District Court for the Southern District of Indiana in Servel, Inc. v. Smith, 54 F.Supp. 436. ■ Local advertising was involved in this case, but the opinion did not distinguish between local and national advertising. Judge Evans, acting as District Judge, expressly refused to follow our decisioit in Ayer Co. v. United States, supra, where national advertising was involved, but did follow Campana Corp. v. Harrison, 7 Cir., 114 F.2d 400, and the District Court’s opinion, 52 F.Supp. 292, in F. W. Fitch Co. v. United States, supra, which also involved national advertising. However, the Court of Appeals, 8 Cir., 141 F.2d 380, reversed the District Court in F. W. Fitch Co. v. United States, and the Supreme Court affirmed the Court of Appeals. Servel, Inc. v. Smith and Campana Corp. v. Harrison have, therefore, been overruled.
What I have said is in harmony with the principle underlying the decision in Ford Motor Co. v. United States, 156 F.Supp. 554, 140 Ct.Cl. 487. In that case the manufacturer sold its product with an expressed 90-day warranty. No one could purchase the product without this warranty. The manufacturer attempted to claim a tax refund by reason of its reimbursement of its dealers for the expense they incurred in fulfilling the manufacturer’s warranty agreement. This court held that these payments were not a reduction in the sales price, but rather were the fulfillment of the manufacturer’s part of the bargain, to wit, a machine in which no defects would appear in 90 days. When this promise was fulfilled, the purchaser merely received what it had paid for in the first instance. When a manufacturer pays an expense which it has promised to pay at the time of the original sale, it can never be a reduction in the sales price. Its payment is, in fact, a part of the consideration for the sales price. Cf. General Motors Corp. v. United States, 163 F.Supp. 854, 142 Ct.Cl. 842.
I am authorized to say that JONES, Chief Judge, joins in this dissenting opinion.