The plaintiff brings this action for a declaratory judgment declaring Chapter 303 of the Session Laws of 1955 of North Dakota unconstitutional and void and for a restraining order or temporary injunction enjoining the defendants from taking any steps or instituting any action or bringing any proceedings of any kind for the enforcement of said Chapter 303 until the final determination of this action. An order to show cause was served on the defendants why such temporary injunction should not be issued and at such hearing an injunction pendente lite was issued by the trial court.
When the temporary injunction was issued it was agreed by the parties that the defendants demur to plaintiff's complaint and that the issues be submitted to the trial court on briefs. The trial court overruled the demurrer. The defendants did not answer but elected to stand on their demurrer, and the trial court rendered judgment holding said Chapter 303 to be unconstitutional and void. From this judgment the defendants have appealed to this court and demand a trial de novo.
The Statute challenged is as follows:
"Relating to unfair trade practices in the dairy industry.
"Be It Enacted by the Legislative Assembly of the State of North Dakota:
"Approved March 11, 1955."
The appellants contend that the trial court erred in holding said Chapter 303 unconstitutional. They argue that the practices prohibited by said Chapter are unfair; that they have a direct tendency to create a monopoly and to stifle competition; and that the inhibitions contained in the statute are reasonable regulations of unfair trade practices under the police power of the State.
The complaint of the plaintiff-respondent alleges that it is a foreign corporation and that it has complied with and is authorized
The complaint alleges further:
That the plaintiff is and has been for many years engaged in this State in the business of manufacturing, processing, selling, and distributing dairy products including milk, cream, butter, cheese, ice cream, frozen desserts, sherbets and other edible products having some of such articles in their principle ingredients.
That the plaintiff is extensively engaged in the manufacture, distribution and sale of its products to retail dealers scattered throughout the entire State of North Dakota including dealers in Burleigh County, North Dakota; that in carrying on its business throughout the State and in Burleigh County it engages in the following transactions, dealings, agreements and contracts with its retail dealer customers; in a large number of instances it has furnished and is furnishing to retail customers signs advertising plaintiff's products for such retail customers for display, on which in some cases the advertising material identifying the retail customer of his business covers less than one-third of the space or cost of such sign and in other cases more than one-third of the space or cost of the sign is devoted to advertising material and matter used to identify such retail customer; and that as to one character of sign or the other the plaintiff is clearly in violation of Section 1, subd. 2, subsec. b of the Act above referred to, but owing to the ambiguity in the wording of the Section plaintiff is unable to say as to which of such signs it is in violation.
That on occasions plaintiff makes loans of money to retail dealer customers, without the security of a chattel mortgage on dairy refrigeration, storage, display or selling equipment, at the plaintiff's customary rate of six per cent per annum, when the financial credit alone or security other than that prescribed by statute of such customer, in the judgment of the plaintiff, warrants such a loan, and that Section 1, subd. 2, subsec. d of the Act above referred to declares such loans illegal and denies the plaintiff the right to make any further loans without the security of such a chattel mortgage as is required by statute.
That at the present time it has existing a great number of contracts between itself and its retail dealer customers involving the various kinds of transactions described in the statute, and that all of such contracts and arrangements now in force are declared illegal and void by Section 2 of said Act, and that all contracts and agreements of similar character which plaintiff in the course of its business, would make in the future with its retail dealer customers are declared by Section 2 of said Statute to be illegal and void.
The complaint further alleges that said Chapter 303 is unconstitutional and void in that it is arbitrary and unreasonable, has no rational relation to the prevention of any offense or evil and is not in the interest of the public health, safety, morals, or welfare; that it deprives plaintiff of its liberty of contract, impairs the obligation of its existing contracts and deprives plaintiff of its property without due process of law all in violation of Section 13, Article 1 of the Constitution of the State of North Dakota providing that no person shall be deprived of life, liberty and property without due process of law; and in violation of Section 16, Article 1 of the Constitution of the State of North Dakota providing that no law impairing the obligation of contract shall ever be passed; and in violation of the 14th Amendment to the Constitution of the United States providing that no state shall deprive any person of life, liberty or property without due process of law or deny to any person the equal protection of the law.
And in the case of Asbury Hospital v. Cass County, 72 N.D. 359, at page 392, 7 N.W.2d 438, 456, this court held:
The first question for consideration is whether or not the respondent is injuriously affected by the operation of the statute challenged. The appellants having elected to stand on their demurrer in this action thereby admit the truth of all facts well pleaded in the complaint. We are of the opinion that the complaint alleges facts which sufficiently show that the plaintiff-respondent has been injuriously affected in its business operations by the provisions of the statute challenged. The inquiry then follows whether the rights of the respondent thus affected are such as are protected by the constitutions of the State and of the United States.
The appellants in this case have not pointed out any vice or injurious consequence to the public resulting from the contracts or transactions of the respondent which would require preventive legislation under the police power of the state. They have not pointed to any practice by the respondents which would stifle competition or create a monopoly in the dairy industry. The trade practices prohibited by said Chapter 303 have been followed for many years in the past and the dairy industry has expanded and become an important economic factor in the state.
Respondent's complaint states that at the present time it has a great number of existing contracts between itself and retail dealer customers involving the various kinds of transactions described in the Statute all of which contracts are now in force; but under the provisions of Section 2, of said Chapter 303 are illegal and void.
Under Subdivision 2, Subsection d, of Section 1 of said Chapter 303 it is unlawful for a wholesaler to loan or underwrite loans to a retailer except that vendors may help retailers to buy dairy refrigeration, storage, display, and selling equipment, when the loan is for no more than ninety percent of the purchase price, secured by a chattel mortgage bearing interest at five percent and payable in not more than thirty-six months. Under the statute quoted the wholesaler is prohibited from extending credit without taking a chattel mortgage and is limited to a rate of interest less than the statutory contract rate. It would be illegal and in violation of said statute to extend credit for more than thirty-six months regardless of the financial ability of the retailer to whom such credit was extended.
Subdivision 2, Subsection g, Section 1 of said Chapter makes it illegal to:
Subdivision 2, Subsection c, of said Statute makes it unlawful to:
The appellants argue that the dairy industry is affected with a public interest and that
The general rule as to the enactment of legislation under the police power of the State is stated in 16 C.J.S., Constitutional Law, § 195, pp. 940-941-942 as follows:
With reference to the liberty of contract the rule is stated as follows: in 16 C.J.S., Constitutional Law, § 210, p. 1067:
In the case of State v. Cromwell, 72 N.D. 565, 9 N.W.2d 914, 920, this court held unconstitutional a statute requiring photographers to take an examination and procure a license in order to follow their occupation. We quote from the opinion:
It is necessary that the Statute such as the one under consideration here, in order to be valid, must be aimed at some evil or sinister purpose such as injury to competition, destruction of competition or creation of a monopoly. The Supreme Court of the United States so held in the case of Fairmount
The court said further:
It is true, of course, that the legislature may, under the police power of the state, enact fair and reasonable regulations governing trade practices employed by those engaged in an industry affected with a public interest; but such regulations must not be arbitrary and discriminatory so as to interfere with legitimate property rights. Such regulations must have a real and substantial relation to some objectionable activity which is detrimental to the general welfare of the public. The governing principle to be followed by legislatures in the enactment of regulatory statutes is stated in Chicago, B. & Q. Ry. v. State of Illinois, supra, as follows:
The respondent states in its brief that it "is not involved with the provisions of Section 1, subd. 2, subsecs. a, c, f, and h, as in its business those sections are not violated." Since those provisions are not challenged it is not necessary to determine their validity and we refrain from doing so. This leaves for consideration subsections b, e, d, and g, of Section 1, subd. 2.
It is the contention of appellants that the practices prohibited by said subsection restrict competition and tend to create a monopoly. Subsection b, prohibits the wholesaler from furnishing, giving, lending, selling or renting to a retailer any advertising materials or matter except material or matter advertising the wholesaler's own products, providing that not more than one third of the space or cost of the advertising material or matter be used to identify the retailer. This subsection prohibits not only the furnishing of signs or advertising material, but also the renting, lending, or selling on any terms whatsoever any such advertising. The wholesaler cannot under any circumstances furnish advertising material, no matter how reasonable the rate, except within the limitation of the statute. There is no showing in the record that the transactions prohibited by
Subsection c, prohibits payments by a wholesaler of money, credit, gifts or loans to retailers as rental for the storage or display of dairy products on the premises where they are offered for sale. Under this subsection the products of the wholesaler may be sold by a retailer at his place of business but he cannot accept payment for storage or display of the products of the wholesaler.
Subsection d, prohibits a wholesaler from making loans or underwriting loans to a retailer when the loan is for more than ninety percent of the purchase price; and where a loan is made it cannot be made for more than thirty-six months and must be secured by a chattel mortgage bearing interest at five percent.
It is difficult to see that the trade practices prohibited by subsection d, would stifle competition or tend to create monopolies. It would rather do the opposite. Except for the inhibitions in the statute the wholesaler could extend credit on more liberal terms to a retailer who might need financial assistance and thus enable him to continue in business. Any loan made by a wholesaler to a retailer on the strength of the credit of the retailer or secured by mortgage on any other class of property than the special dairy refrigeration equipment, is illegal under said section. It is not specified in the statute, nor is there any evidence in the record that such a loan bears a relation to any injurious trade practice shown to exist in the dairy industry.
Subdivision g, of said Chapter 303 prohibits wholesalers from giving credit to any retailer in excess of thirty days payable in fifteen days thereafter. This provision clearly is a restriction upon a wholesaler's right to extend credit to a retailer in accordance with legitimate business practices.
It appears that the respondent has numerous existing contracts between itself and retail dealer customers involving the various kinds of transactions, all of which contracts under the provisions of Section 2 of said Chapter 303 are illegal and void if the validity of the statute is sustained.
The trade practices prohibited by subsections b, d, e, and g, of said Chapter 303 are not in themselves objectionable. They are legitimate business transactions between wholesalers and retailers. There are no relevant facts in the record showing that these practices have had a tendency to restrict competition or to create monopolies. Neither is there any evidence in the record that the practices prohibited bear any reasonable relation to any vice or evil affecting the public health, morals, or general welfare.
The provisions of said Chapter 303 challenged by respondent are all-inclusive condemnations of all acts prohibited without specifying that such acts are connected with any unjust discrimination, or with any agreement restricting competition, or creating a monopoly. We think the following statement from the opinion of the Supreme Court of the United States in the case of Tyson & Bros. etc. v. Banton, 273, U.S. 418, 47 S.Ct. 426, 432, 71 L.Ed. 718, is applicable to the issues in the instant case.
We arrive at the conclusion that subdivisions b, d, e, and g, of Section 1, subd. 2, Chapter 303, 1955 Session Laws of North Dakota, are arbitrary and unreasonable restrictions upon lawful business practices; that no showing has been made that said sections have any reasonable relation to practices restricting competition or creating monopolies in the dairy industry; that the enforcement thereof would result in the impairment of respondent's right of contract and property rights, and, that the statutes challenged are violative of Sections 13, and
The judgment of the district court held Chapter 303 Session Laws of 1955 unconstitutional in its entirety. Since we have not passed on the validity of certain parts of said Chapter the judgment of the district court is modified to conform to this opinion and as so modified it is affirmed.
GRIMSON, C. J., and JOHNSON, BURKE and MORRIS, JJ., concur.