delivered the opinion of the Court.
This is an appeal from a decree permanently enjoining defendant “from advertising, offering to sell, or selling at wholesale any item of merchandise at prices less than cost to him as defined in the Unfair Sales Act, Article 83, sections 111 to 115 inclusive * * *, with intent to injure a competitor or competitors, or destroy competition, unless such advertisement, offer to sell or sales are made in accordance with and pursuant to the provisions of section 114 * * The court filed an opinion which fully discusses the facts and the law of the case, but the decree does not, by reference, embody the opinion as part of the decree. At the argument, when attention was called to the scope of the decree, defendant’s counsel said that he had not objected to this feature of the decree
*590
because he thought the decree would not be enforceable. We need not comment on the tactics of the parties, or their underlying strategy, in this respect. It is, however, to be noted that the decree
(a) is
a sweeping, abstract prohibition of violation of the act, without mentioning any conduct which is found to constitute a violation
(New York, New Haven and Hartford Rail Road Company v. Interstate Commerce Commission,
This suit was instituted against defendant by Wholesale Grocers Association of Maryland. A demurrer to the bill was sustained, presumably on the ground that the association had no standing to sue.
Dvorine v. Castleberg Corporation,
The three plaintiffs, Frey, Sachs and Rudo, and defendant are all wholesale grocers in Baltimore. Defendant has been in business, trading as Capital Wholesale Grocery Company, since 1944. Since May 13, 1947 he has also been trading as Self-Service Wholesale Grocery Company. The Capital business is conducted in the usual way, including purchase from manufacturers of goods which are delivered to defendant’s warehouse, solicitation of orders by telephone and by personal calls of salesmen, delivery of goods sold, extension of credit, collection of accounts, bookkeeping and keeping other records. Self-Service business is essentially similar to “cash and carry” retail business. The customer takes from bins and assembles the merchandise he desires, *592 carries it to the front of the building, where the price is tabulated on a cash register tape, and pays for it. Defendant has eight employees (including his son-in-law, a salesman), viz., two salesmen, an office clerk, two drivers and three helpers, who work principally or solely for Capital and two who work principally for Self-Service, handling merchandise from the platform to the bins. The two businesses are conducted in the same building, the two trade names are on the outside of the building.
All merchandise is purchased and paid for, and all salaries and other expenses are paid, in the name of Capital. There is one bank account, in Capital’s name. The bank book shows two deposits each day; one is Capital’s receipts, the other Self-Service’s. In the cash receipts book the cash for each day is segregated between Capital and Self-Service. For the year ended January 31,1949 gross sales were $1,819,185, $571,667 for Capital, $1,247,517 (68.58 per cent of the total) for Self-Service. Defendant owns -the building and charges $4,800 rent as an expense. In an allocation of expenses between Capital and Self-Service for the year ended January 31, 1949, prepared by defendant’s accountant, $3,600 rent was allocated to the warehouse (three-fourths of the space) in proportion to sales, 68.58 per cent, $2,468, to Self-Service, $1,131 to Capital, $1,200 to the office (one-fourth of the space), ten per cent, $120, to Self-Service, $1,080 to Capital. Defendant’s total expenses, $40,771, which is 2.24 per cent of sales, were allocated, $14,872, which is 1.192 per cent of sales, to Self-Service, $25,895, which is 4.53 per cent of sales, to Capital. Most expenses were allocated, either all to Capital or all to Self-Service, or in proportion to sales, 68.58 per cent to Self-Service; some, applicable almost exclusively to Capital, ten per cent to Self-Service, or ten per cent to both (in proportion to sales), all the rest of Capital. Defendant’s son-in-law receives $75 weekly ($3,900 a year), and more at the end of the year, but what he gets is not charged as an expense of the business. Another statement, without itemization or allocation of expenses, but with sales, *593 cost of goods sold and comparable figures for three prior years, shows a total of $41,539 expenses (a difference of $768), and shows $28,625 discounts received on cash purchases. For the calendar year 1948 the cost to plaintiff Sachs of doing business was approximately nine per cent of gross sales, of which delivery expense was $26,604, sales were $1,210,579, discounts received $17,178. As otherwise expressed by him, his selling expense, and likewise his delivery expense, each were between 2.50 and 2.75 per cent. For the fiscal year ended June 30, 1948, the total of net sales by Frey was $3,802,741, the cost of salesmen’s salaries and commissions equivalent to 2.53 per cent, cost of delivery 1.25 per cent, cash discount received, $53,073; sales by Rudo, $3,098,366, salesmen’s salaries and commissions 2.52 per cent, cost of delivery 2.9 per cent, cash discount received $43,810.
The first Unfair Sales Act in Maryland, Acts of 1937, ch. 211, was repealed and superseded by Acts of 1939, ch. 248, which was held unconstitutional in
Daniel Loughran Company v. Lord Baltimore Candy and Tobacco Company,
Section 112 of the act provides: “112. When used in this Act the following terms shall have the following meanings: ****** (b) ‘Cost to the Wholesaler’ shall mean the invoice cost of merchandise to the wholesaler or the replacement cost of the merchandise to the wholesaler, whichever is lower; less all discounts except customary discounts for cash, to which shall be added: (1) Freight charges not otherwise included in the invoice cost or replacement cost of the merchandise as herein set forth. (2) Cartage to the retail outlet if performed or paid for by the wholesaler, which cartage cost, in the absence of proof of a lesser cost, shall be deemed to be *594 three-fourths (8/4) of one per cent. (1%), of the cost of the merchandise to the wholesaler, as herein set forth, after adding thereto freight charges, but before adding thereto cartage. (3) A mark-up to cover in part the cost of doing business, which mark-up in the absence of proof of a lesser cost, shall be two per cent'. (2%) of the cost to the wholesaler, as herein set forth, after adding thereto freight charges and cartage, but before adding thereto the mark-up. * * *” [Italics supplied.]
Section 113 provides that “* * * no wholesaler shall, with such intent [to injure a competitor or competitors, or destroy any competition], advertise, offer to sell, or sell at wholesale any item of merchandise at less than cost to the wholesaler, as defined in this Act. Evidence of any advertisement, offer to sell or sale of any item of merchandise by any retailer or wholesaler at less than cost to him, shall be prima facie evidence of intent to injure a competitor or competitors, or destroy competition. Upon complaint of any person claiming to be injured, the Circuit Court of any county and the Circuit Courts of Baltimore City shall have jurisdiction to enjoin any such retailer or wholesaler from the commission of any act prohibited by the provisions of this Act.” [Italics supplied.] Section 114 provides that the provisions of the act “shall not apply to advertisement or offers to sell, or sales at retail or sales at wholesale * * * (h) Where the price of merchandise is made in good faith to meet competition”. The questions presented on this appeal relates to the construction or validity of the above italicized portions of sections 112 and 113 and the above quoted portion of section 114. The only change made in section 112 by the Act of 1943 was change of the mark-up from one to two per cent.
When defendant began the Self-Service business, he mailed printed circulars, showing prices, to a list of all the grocers in the telephone directory. Later he increased his list to about 1,900 of the 3,000 grocers in Baltimore. Some customers buy both from Capital and Self-Service, according as they prefer to get the benefit, *595 or to save the expense in price, of delivery and credit. Many manufacturers sell directly to retailers at the same net prices (for like quantities, whether carload lots or less) and cash discounts as to defendants and other wholesalers. Defendant says his prices are made to meet such competition, though few or none of his customers are in a position to buy in carload lots as wholesalers do. Many manufacturers also give to retailers, and to wholesalers, an “advertising allowance”, conditioned upon the doing of newspaper advertising by the retailers or by the wholesalers’ customers, measured not by the cost or amount of the advertising, but by purchases, e.g., six, ten or fifteen cents per case. Defendant gets no advertising allowance because he does no newspaper advertising and has no organization of customers who do. Plaintiffs do get such allowances. For the calendar year 1948 Sachs received $6,032 (less $742) from “Merit Advertising”, a name referring to an organization of customers of his, and paid only $3,330 as direct advertising expense. Most manufacturers allow discounts of two per cent, some 1.5 per cent, for cash.
For fifteen of the twenty-nine items of merchandise mentioned in the bill and in the evidence defendant’s Self-Service price was exactly the same as the invoice price to him, after deducting any trade discount, but before deducting the discount for cash (two per cent in fourteen cases, 1.5 per cent in one). In other words, these prices were practically equivalent to invoice price, less a two per cent discount for cash, plus a two per cent mark-up. For seven items the Self-Service price is more than the invoice price, for six of the seven less than two per cent more. For the remaining seven items the Self-Service price is less than the invoice price, for four of the seven less than two per cent less. Capital sells at Self-Service prices plus, in some instances two per cent, in other instances ten cents per case. Whether Capital sales at these prices were made for cash is not altogether clear.
*596 The lower court says that, after taking of testimony in September and October, 1949, “the trial was indefinitely postponed to permit the parties to endeavor to simplify the factual situation by stipulations, after submitting to each other the evidence relating to the facts which they respectively proposed to prove.” The trial was resumed on April 25, 1950. Most of the -facts were proved by stipulations.
Plaintiffs contend, and the court in effect held, that defendant violated the act by making Self-Service sales at less than invoice price to him (without deducting discounts for cash) plus two per cent mark-up, and also by making Capital sales at less than invoice price plus 2.765 per cent mark-up, in both instances with intent to injure competitors, and that these prices of defendant are not justified as “made in good faith to meet competition”. Defendant says that, properly construed and applied, the act does justify his prices as “made in good faith to meet competition”, and that, as construed and applied to him by the lower court, the act is arbitrary, unjustly discriminatory, and unconstitutional, because it denies him the right, in making Self-Service prices to make allowance for the fact that customers pay cash and their purchases are not delivered, and requires him, in making prices, to add the same mark-ups, two per cent in Self-Service prices, 2.765 per cent in Capital prices, which are required of plaintiffs, though his expenses (he says) are only 2.24 per cent for his business as a whole, and 1.192 per cent for Self-Service and 4.53 per cent for Capital, and Sachs’s expense of doing business is nine per cent, or between five and 5.5 per cent for selling and delivery, and Frey’s salesmen’s expense and delivery expense was 3.78 per cent and Rudo’s 5.42 per cent. In other words, the mark-up required of defendant “to cover in part the cost of doing business” is (he says) his actual cost of doing business or much nearer actual cost than is required of plaintiffs.
Regarding the evidence as to defendant’s expenses the court says, “I think in the present state of the proof *597 the apportionment of the expenses cannot be accepted and yet there is no way for the court, from the evidence, to make any change therein. It cannot arbitrarily be assumed that because Self-Service had 68.58 per cent of the dollar volume of sales it should be charged the same proportion of certain expenses. All the apportionments were made by the accountant pursuant to directions of defendant. As no details of the basis were furnished by either witness, it is simply impossible to reach a conclusion with respect to the reasonableness thereof. * * * The combined operating expenses of both branches of the business were found to be incomplete and the method of apportioning the expenses was found to be unsatisfactory and unacceptable. Therefore, it is impossible for the court to determine the cost of doing business of either branch. * * * The third point relates to the effect of the cash discount. Because the list of operating expenses is not accurate or at least is incomplete and the apportionment thereof is not acceptable, the effect of the cash discount should not be determined in this case.” When the trial judge has seen and heard the witnesses, special weight is given to his findings of fact. But seeing and hearing witnesses does not help much in determining the credibility of the multiplication tables. This case does not turn on questions of veracity. Differences between our view of the facts and the trial judge’s are due to our putting less stress on the imperfections in defendant’s accounting and more on the undisputed facts, and perhaps to difference as to the force or validity of the statutory presumption in section 118, and difference as to which and how much of the warring philosophies of various state and federal legislation is reflected in the Unfair Sales Act.
Plaintiffs undertook to prove their case mainly through defendant, his accountant and his records. They were at liberty to ask explanation, or to call witnesses of their own, as to allocations or accounting questions that needed explanation. Without doing either they cannot expect us to disregard, as inaccurate or incomplete, defendant’s
*598
expenses of his entire business either because of the $768 difference mentioned or the omission of the son-in-law’s $3,900 drawings. Nor can the act be supposed to require the impossible,
e.g.,
perhaps, that defendant “produce accurate data as to the operating expenses of each branch of his business”. In an article cited by plaintiffs at the argument and in their brief, authorities on accounting are quoted, Professor Patón to the effect that reconciliation of “the various concepts of cost and methods of measuring costs * * * looks like a hopeless task” and
Van Sickle
on
Cost Accounting
to the effect that it is possible to have several different costs estimated “in accordance with accepted cost accounting theory and practice” and “there is no such thing as an exact cost”.
Richard, H. Lovell, Sales Below Cost Prohibitions: Private Price Fixing Under State Law,
57
Yale Law Journal
391, 395. Cf.
Lewis v. Cumberland,
It is not arbitrary to assume that certain expenses were proportionate to the sales of defendant’s two businesses. To apportion other expenses ten per cent and ninety per cent, or 6.8 per cent (sixty-eight per cent of ten per cent) and 93.2 per cent, may be arbitrary in the sense that it cannot be proved that ten per cent or 6.8 per cent should not be five per cent or fifteen or twenty per cent, but it is reasonable to suppose that truck drivers, who bring in some merchandise (not unloaded from the railroad siding at defendant’s warehouse) for both businesses, but are principally engaged in making deliveries *599 to Capital customers, and office space and employees are of little use to Self-Service, which makes no deliveries, gives no credit and therefore keeps no books except the daily record of cash receipts. This case does not depend upon the exactness or accuracy of defendant’s allocation of expenses between Capital and Self-Service. His total expenses for both businesses were 2.24 per cent of sales. If $3,900 and $768 were added, the total would still be less than 2.5 per cent. Manifestly his Self-Service expenses were substantially less, and his Capital expenses substantially more, than the average expenses of both, and the expenses of either were less than plaintiffs’ expenses.
To say that Self-Service was selling below cost because it did not charge itself with, but gave its customers the benefit of, non-existent expenses which it saved by selling for cash and making no deliveries, would be as arbitrary and unfair as to require one dealer to charge as much for short tons as others charge for long tons. It would be hardly less arbitrary to say that defendant was selling below cost, but not plaintiffs, because this conclusion can be reached by ignoring the differences between their actual costs and using the same arbitrary mark-up which is equal or much nearer to defendant’s actual costs than it is to plaintiffs’ larger costs, and also including in costs cash discounts not actually paid but deducted from payments by both plaintiffs and defendant.
In
Blum v. Engelman,
In this respect the history of sales below cost and the declared purpose, if not the real purpose or the effect, of state Unfair Sales Acts is quite different from the history and purpose of the Miller-Tydings Act and Fair Trade Acts. Congress has made no exception to the Sherman Act to permit price-fixing under the state Unfair Sales Acts. The Robinson-Patman Act (1936), 15 U. S. C. A., § 13, amending section 2 of the Clayton Act (1914), is somewhat similar to Unfair Sales Acts, but does not purport to authorize price-fixing; it has confused the problems of doing business, and enforcing the law, under the Sherman Act, the Clayton Act and the Robinson-Pat-man Act. In effect, it sometimes seems that one will violate the Sherman Act by maintaining prices or the Robinson-Patman Act by cutting prices. The purpose (whatever has been the effect) of the Clayton Act and the Robinson-Patman Act was to supplement the Sherman Act, not in any respect to repeal or supersede it. It has, however, long been considered that destructive competition, by selling below, cost or at discriminating prices, like prevention of competition by price-fixing, tends to monopoly and in the end to high prices. Before and after the Sherman Act some state anti-trust acts had been enacted, and before the Clayton Act state acts forbidding discrimination in prices with intent to injure a competitor.
Central Lumber Company v. South Dakota,
236 U. S.
*601
157,
In Maryland both the legislature and this court have indicated that the purpose of the Unfair Sales Act was to prevent intentionally destructive competition and not by indirection to permit price-fixing in violation of the Sherman Act. In the Act of 1941 the preamble recites that “the practice of selling certain items of merchandise below cost in order to attract patronage is generally a form of deceptive advertising and an unfair method of competition in commerce”; and “such practices cause commercial dislocation, misleads [szc.] the consumers, works back against the farmers, directly burdens and obstructs commerce, and diverts business from dealers who maintain a fair policy”; and “bankruptcy among merchants who fail because of the competition of those who use such methods result in unemployment, disruption of leases, and non-payment of taxes and loans, and contribute to an inevitable train of undesirable consequences, including economic depression”; and “such practice is a medium of eliminating weaker competitors, thus tending to create monopolies”. There is no evidence that defendant has ever made use of “loss leaders”, the prime evil mentioned in the preamble. Indeed, though the act is applicable in the same terms to retailers and to wholesalers, it is difficult to see how a wholesaler, especially one who does no newspaper advertising himself or through his customers, could use “loss leaders”. There may be many retail customers sufficiently unsophisticated *602 to go to buy “loss leaders” and stay to be deceived by them. But retailers themselves could hardly be deceived by a wholesaler by such a trick of their own trade. Moreover, the evil practice of selling below cost is usually ascribed to the strong as “a medium of eliminating weaker competitors, thus tending to create monopolies”. In the instant case the combined volume of both of defendant’s businesses is much less than the volume of the business of either Frey or Rudo.
The title of the article above-mentioned, cited by plaintiffs,
“Sales Below Cost Prohibitions: Private Price-Fixing Under State Laws”,
embodies the author’s thesis that, whatever the declared purposes of Unfair Sales Acts, their real purpose and their effect is to facilitate price-fixing in violation of the Sherman Act. Some of the courts which have sustained the constitutionality of such acts have expressly held that they are not price-fixing laws.
Wholesale Tobacco Dealers Association v. National Candy and Tobacco Company
(1938),
In
Blum v. Engelman, supra,
in reaching the conclusion above-quoted, we said, “It is acknowledged that price-cutting is not an evil in itself. On the contrary, the more intense the competition the greater the likelihood of advantage to the buying public. In fact, there is no reason why a merchant under ordinary circumstances should not have the right to make an absolute gift to his customers if he desires to show generosity or advertise his business. It is only when the object of price-cutting is sinister that the sale of goods at less than cost may constitute an economic evil. Freedom of contract is subject to legislative regulation in the interest of public health, safety, morals or welfare. But such legislation must not be unreasonable, arbitrary, or capricious, and the means selected must have a real and substantial relation to the object sought to be attained. Within these limitations the State is free to adopt whatever economic policy may reasonably be deemed to promote public welfare, whether by promoting free competition by statutes aimed at monopolies or by curbing harmful competition
*604
by fixing minimum prices.
Daniel Loughran Company v. Lord Baltimore Candy & Tobacco Company,
In Daniel Loughran Company v. Lord Baltimore Candy and Tobacco Company, supra, the Unfair Sales Act of 1939 was held unconstitutional. In Blum v. Engelman, supra, we said, “The 1939 Act was annulled on account of two provisions. One of these provisions was to the effect that sales ‘at prices which cannot be justified by existing market conditions’ should not be used as a' basis for computing costs. Laws of 1939, ch. 248, sec. 115 (d). This provision required a dealer to make a survey of ‘existing market conditions,’ and thereupon determine whether such conditions justified a certain price, and from that price the cost was to be computed. The dealer’s computation was not conclusive, and accordingly if his analysis of ‘existing market conditions’ was not correct, and it was determined in a judicial proceeding that the conditions did not justify the price, then, even though he honestly believed that his survey justified that price, his computation would be rejected, and he would stand as a violator of the law.
“The other provision made it unlawful to offer for sale or sell any merchandise at less than cost ‘with the intent, effect or result of unfairly diverting trade from or otherwise injuring a competitor.’ Laws of 1939, ch. 248, sec. 116. That provision failed to provide a definite standard by which the dealer could ascertain whether he was complying with the law, because it was impossible to know whether a sale would have the ‘effect or result’ of injuring a competitor somewhere within the State. The Act violated the rule that the application of a penal statute or the right to injunctive relief should not be a matter of uncertainty and conjecture. It is well settled that a statute which prohibits the doing of an act in terms so vague that persons of ordinary intelligence must necessarily guess at its meaning and differ as to its application violates the constitutional guarantee of due
*606
process of law.
State v. Magaha,
In
Serrer v. Cigarette Service Company,
For the reasons already stated, which are in accord with the opinion in the Server case, we conclude that *609 the Unfair Sales Act, particularly section 112, as embodied in section 113, is unreasonable, arbitrary and unjustly discriminatory, as between plaintiffs and defendant. We so conclude with respect to defendant’s Self-Service business, and also with respect to his Capital business if the evidence can be regarded as showing that Capital sales, delivered on credit, were made at prices below “cost” computed in accordance with section 112. If the evidence can be so regarded, then defendant is selling “below cost”, not below his actual cost, but below “cost” determined by an arbitrary formula, which swells his actual cost by ignoring actual cash discounts received and diminishes plaintiffs’ actual costs to the extent that they are greater than defendant’s. If it be said that any discrimination between defendant and plaintiffs or other competitors is removed by section 114, which exempts from the act prices “made in good faith to meet competition”, then the act ceases to be an act to prohibit sales below cost and becomes a price-fixing act, which arbitrarily increases prices of the most efficient and economical dealer and permits prices to be there fixed.
Plaintiffs indeed contend that “to meet competition” must be construed as meaning “to meet lawful competition”, so that one could not make — or justify — a price to meet competition without first proving that his competitor’s price was not “below cost”, as defined, or otherwise unlawful. The Supreme Court, in very different circumstances, has put such a construction upon the materially different provision in the Robinson-Patman Act.
Federal Trade Commission v. Staley Company,
(1945),
We hold, therefore, that the act, as between defendant and plaintiffs, is in conflict with the Constitution of this state. Article 23, Declaration of Rights. Defendant ■contends (1) that there is no evidence of injury to plaintiffs, (2) that the provision in section 113 as to prima facie evidence of intent is unconstitutional, and (3) that in any event his prices were “made in good faith to meet competition”. Our conclusion as to section 112, as embodied in section 113, makes it unnecessary to pass upon these contentions. We intimate no opinion as to any of them.
Decree reversed with costs, and bill dismissed.