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Glaser v. Downes

Decided: August 22, 1972.


Kole, J.c.c. (temporarily assigned).


The Director of the Division of Taxation of the State of New Jersey is seeking a permanent injunction against defendant prohibiting his distribution of more than one S. & H. or Plaid Trading Stamp for each ten cents of motor fuel purchased at defendant's Esso service station. It is conceded that defendant has been issuing three such trading stamps for each ten cents of fuel purchased.

The State contends that under Sperry & Hutchinson Co. v. Margetts , 25 N.J. Super. 568 (Ch. Div. 1953), aff'd 15 N.J. 203 (1954), the distribution of more than one trading

stamp for each ten cents of motor fuel purchased violates N.J.S.A. 56:6-2(e) since it constitutes a "rebate, allowance, concession or benefit" permitting unlawfully the obtaining of motor fuel "from a retail dealer below the posted price or at a net price lower than the posted price applicable at the time of the sale." It claims that Margetts sets forth the limit beyond which the issuance of trading stamps becomes such an illegal rebate, allowance, concession or benefit.

In Margetts the transaction before the court involved the issuance of trading stamps at the rate of one stamp for each ten cents of motor fuel purchased. The court reasoned that such stamps constituted a cash discount in the amount of 2.08% on every purchase and defined a cash discount as "a term of payment merely, not a price adjustment; it is a mode of financing, not a reduction in the price." It stated that a cash discount is a financial inducement to the customer to pay bills on or before the date specified in a sales invoice, a reward for prompt payment (usually 1% or 2% if the bill is paid in ten days) and, therefore, a nonoperating item rather than a deduction from the sales price.

The State argues alternatively, as follows:

(1) Since Margetts involved what the court considered a little better than a 2% cash discount, a trade practice long established, the giving of trading stamps in excess of one for each ten cents purchased of motor fuel violates such established trade practice. Accordingly, it is argued, it ceases to be a mere cash discount and becomes a rebate prohibited by the statute.

(2) The cash discount theory of Margetts should be reexamined because, in fact, it was based on an erroneous economic concept, there being no true cash discount involved at the retail level.

Taking up the State's second argument first, there is ample evidence in this case from the expert witnesses for both the State and the defendant indicating that, at least under present economic theory, the cash discount principle is inapplicable to retail sales and is truly only applicable to

sales from a manufacturer to a wholesaler or retailer, or from a wholesaler or distributor to a retailer. The experts indicate that these are the only situations where credit is extended and where it is beneficial to the seller, in exchange for prompt payment of bills, to afford the purchaser a 1% to 2% cash discount. They testified that at a retail gasoline station there is really no trade incentive to the retailer to give a cash discount by way of trading stamps or otherwise, since the purchaser is always paying cash at the time of purchase. Their testimony would also support a finding that there is no real relationship between a cash discount and the very flexible discount rate that member banks pay from time to time to the Federal Reserve Bank for moneys borrowed. There is also evidence which would substantiate a finding that one stamp now represents a 2 I/2%-3% "cash discount," (assuming it is such a discount) and that such stamps are used to stimulate business -- i.e. , as a promotional or incentive device to bring in more business in places in which they are given. As in Margetts , this percentage is based on the value of the merchandise which may be obtained therefor by way of redemption at the stamp centers. The cash redemption value of each stamp, redeemable by the trade stamp company, is one mill -- or $1.20 for a book of 1200 stamps.

It may very well be, as the State contends, that the theory of Margetts should be reconsidered in the light of the evidence in this case and that, therefore, the giving of even one trading stamp for ten cents of motor fuel should be considered illegal under the statutory provision as a rebate.*fn1 But such a re-evaluation of Margetts cannot be made

by a trial court; it is bound by the Supreme Court decision in that case. Russ v. Metropolitan Life Ins. Co. , 112 N.J. Super. 265, 284 (Law Div. 1970).*fn2 Moreover, the constitutionality of the statutory provision here involved was later upheld in Fried v. Kervick , 34 N.J. 68 (1961), and at that time the Supreme Court, in effect, reaffirmed its decision in Margetts. It stated that the ban on rebates and discounts from the posted price since Margetts had not proved as successful as was expected and that this lack of success might be due to the discussion in the Chancery Division opinion in Margetts casting doubt on the constitutionality of that enactment. It indicated that "removal of those doubts may provide the panacea" (at 83). Additionally, the Legislature appears to have acquiesced in the Margetts holding that trading stamps should not be considered unlawful rebates under a later statute involving the regulation of pharmacists. See Supermarkets Gen. Corp. v. Sills , 93 N.J. Super. 326, 333 (Ch. Div. 1966) involving L. 1965, c. 120 (N.J.S.A. 45:14-12, subd. f).

Obviously the hoped for panacea has not been provided by holding N.J.S.A. 56:6-2(e) constitutional, since the evidence in this case indicates that retail price wars in the gasoline industry continue by way of giveaways and other devices, as well as by the giving of more than single trading stamps.

Under the circumstances, as far as the State's contentions are concerned, the court is limited to determining whether the giving of more than a ...

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