Court Opinion

ID: 6758779
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:29:37.105311+00
Date Added: 2024-06-11T16:02:32.032753
License: Public Domain

Douglas, J.,
dissenting. In my opinion, the Board of Tax Appeals acted neither unreasonably nor unlawfully in finding that the transfer of artwork was not supported by consideration and resultantly did not constitute a “resale” as that term is used in R.C. 5739.01(E)(1). I believe the Tax Commissioner properly levied a sales and use assessment on the artwork purchased by appellant, and, thus, I dissent.
The majority finds, in part, that the transfers of artwork by appellant to its outside suppliers were accompanied by adequate consideration because the transfers were made pursuant to bilateral requirements contracts. Even if I were to agree that sufficient legal detriments arise out of a requirements contract so as to constitute adequate consideration, I would nevertheless be unable to join the majority. The facts of this case simply do not support the existence of a requirements contract.
This court, in Fuchs v. United Motor Stage Co. (1939), 135 Ohio St. 509, paragraph two of the syllabus, defined a requirements contract as follows:
“A contract in writing whereby one agrees to buy, for sufficient consideration, all the merchandise of a designated type which the buyer may require for use in his own established business * * *.” (Emphasis added.)
The facts of this case clearly demonstrate that appellant made no promises to buy all of a needed named commodity from one supplier. The majority acknowledges this lack of exclusivity in footnote three, when it states as follows: “In a small number of cases, appellant purchased its requirements of the same finished packaging materials from more than one supplier.”
The majority, without citing any authority, then states: “This does not necessarily destroy the requirements nature of each contract because the supplier, individually, may have been able to fulfill appellant’s total re*78quirements for only one of its many plant locations, although producing and providing the materials to appellant at a capacity rate. * * *”4
I disagree. Without the element of exclusivity, there is simply no legal detriment suffered and there is thus no consideration. Professors Calamari and Perillo so recognized when they stated that “[a] promise by which one party agrees to purchase all his requirements of a given product from the other is supported by consideration. If no other detriment can be located, it will be found in the promisor’s surrender of his privilege of purchasing elsewhere.” (Emphasis added.) Calamari & Perillo, Law of Contracts (2 Ed. 1977) 166, Section 4-19. Professor Corbin’s analysis is similar. “A promise to buy of another person or company all of some commodity or service that the promisor may thereafter need or require in his business is not an illusory promise; * * *. The promise contains one very definite element that specifically limits the promisor’s future liberty of action; he definitely promises that he will buy of no one else. If he needs or requires or uses any of the named commodity, he must buy it from the one specified.” (Emphasis added.) Corbin on Contracts (1952) 225-226, Section 156.
Appellant has not surrendered its privilege to buy elsewhere; nor has appellant promised to buy a specified item from one supplier only. Appellant’s promises are illusory. The lack of exclusivity distinguishes both Coca-Cola Bottling Corp. v. Kosydar (1975), 43 Ohio St. 2d 186 [72 O.O.2d 104], and General Mills Fun Group, Inc. v. Lindley (1982), 1 Ohio St. 3d 27, from General Motors Corp. v. Kosydar (1974), 37 Ohio St. 2d 138 [66 O.O.2d 304], a case relied on heavily by the majority. It likewise distinguishes the instant case from General Motors.
The majority also found that the qualification process, the exclusive use element, and the confidentiality requirement supplied the necessary consideration for the transfers of the artwork. These promises are likewise illusory. Rather than constituting consideration for the artwork transferred, these bases are, in actuality, prerequisites to the awarding of the contract for packaging or advertising materials. The record *79demonstrates that a supplier must show, prior to even being considered as a potential supplier, that it can produce the quantity and quality prescribed by appellant. This showing must be made independent of receipt of the artwork. The qualification process, then, is a precondition to being considered as one of appellant’s suppliers; it is not undertaken in exchange for artwork. Indeed, no legal detriment is suffered by a supplier should it fail to qualify as one of appellant’s potential suppliers.
Nor do the promises to use the artwork only to produce appellant’s products constitute consideration for the transfer of the artwork. Since only appellant’s products are depicted in the artwork, the artwork cannot be used to produce materials for anyone else, as the board so aptly noted. Nor do the suppliers suffer any legal, detriment as a consequence of the exclusive-use requirement. As discussed above, since the suppliers may produce material for others, the agreement lacks the element of exclusive dealing found essential in San-A-Pure Dairy Co. v. Bowers (1962), 173 Ohio St. 469 [20 O.O.2d 103], General Motors, supra, and Coca-Cola, supra.
The confidentiality requirement is also a condition precedent to the receipt of a contract from appellant rather than consideration for the transfer of the artwork. If this requirement is breached, the supplier, pursuant to the terms of the contract, will simply lose possession of the artwork. No legal detriment is suffered thereby.
Based on the foregoing, it is clear that transfer of the artwork by appellant to its suppliers was gratuitous. No consideration was freely bargained for and given in exchange for the artwork. There was no charge for the artwork and there were no promises to do something detrimental.
It being my opinion that appellant-taxpayer is not exempt from Ohio sales and use taxes by virtue of the “resale” provision of R.C. 5739.01(E)(1) and 5741.02(C)(2), I dissent.
Locher, J., concurs in the foregoing dissenting opinion.

I would stress that the majority, in making this statement has relied on the facts in the record as interpreted by the appellant. The record in this case is unclear as to how business is allocated between suppliers. The majority agrees with the following interpretation of the record as set forth in appellant’s reply brief: “A P&G supplier provides P&G’s requirements for a specified size or sizes of a single product at only one of P&G’s many plants.” I would note in contrast that the appellee interprets the record as follows: “It [P&G] then allocates the business for a specific item among up to 15 or 20 suppliers and enters into requirements contracts for the production of the item for a term of one year.”
In this regard, the first paragraph of the syllabus in Citizens Financial Corp. v. Porterfield (1971), 25 Ohio St. 2d 53 [54 O.O.2d 191], is instructive:
“The Supreme Court reviews decisions of the Board of Tax Appeals on questions of law. It is not the function of this court to substitute its judgment for that of the Board of Tax Appeals on factual issues, but only to determine from the record whether the decision rendered by the board is unreasonable or unlawful. * * * [Citations omitted.]”