Trading Stamp Plans Survive Two Supreme Court Tests

Thursday, October 11, 2007

Page 23

REMINISCING (Column)

Trading Stamp Plans Survive Two Supreme Court Tests

By ROGER M. GRACE

Thwarting the “trading stamp scheme” remained an objective of the Merchants’ and Manufacturers’ Assn. of Los Angeles even after the City Council rejected its plea in 1898 to impose a tax on the stamp companies at a rate that would cripple them.

On Feb. 10, 1899, the M & M Board of Directors voted to throw the association’s weight behind a bill, introduced in January by Assemblyman Joseph Kelley, R-Alameda, that would have outlawed any such companies in California. In essence, that would have meant driving Sperry & Hutchinson (later known as S&H) from the state, with their “green stamps” being outlawed.

At the same meeting, the directors vowed to oppose a bill regulating the practice of medicine in the state. Clout of the M & M is reflected by the response of the state senator who introduced the bill, L.H. Valentine, who assured the association by letter that he would drop the measure or let it die. A Feb. 18 article in the Times reports that Valentine “further says that the bill in opposition to trading stamps will probably go through.”

As it happened, it didn’t.

The California Supreme Court on Oct. 24, 1899, granted a writ of habeas corpus to a Sperry & Hutchinson representative in Fresno who continued operations of the local green stamp redemption center without paying a business license tax imposed exclusively on such businesses.

Writing for a unanimous panel, Chief Justice William H. Beatty said:

In support of the ordinance, it is contended that the trading stamp device is a lottery in disguise, and therefore immoral. But we cannot see that it has any resemblance to a lottery. There is in it no element of chance, and nothing in the nature of gaming. It appears to be simply a device to attract customers, or to induce those who have bought once to buy again, and in this aspect is as innocent as any form of advertising. And, besides, if it were a lottery in disguise—a mere device to cloak a gambling scheme—it would be unlawful and not the subject of a license. The ordinance, therefore, cannot be upheld on this ground. It is not an ordinance to prohibit an immoral practice or to regulate a hazardous or offensive business, or the conduct of a lawful game or public exhibition. It is, under the guise of a revenue measure, an evident attempt to put an end to the issue and redemption of trading stamps by levying a discriminating and prohibitory tax upon those dealers who resort to that method of attracting customers.

Trading stamp plans continued to draw fire—and for good reason…neither businesses nor consumers gaining anything, in the end.

On March 7, 1905, Gov. George Pardee signed into law the “Anti Trade Stamp or Coupon Act,” rendering it a misdemeanor to give trading stamps, “punishable by a fine of not less, than $20 nor more than $500 or imprisonment, in the county jail for not less than ten days nor more than six months, or by both.”

The Supreme Court on Sept. 23, 1905, invalidated the act in an opinion that granted writs of habeas corpus to two men charged with violating the provisions. Justice Thomas Bard McFarland declared:

[T]he general character of trading-stamps or coupons is a matter of common knowledge. They are somewhat different in form; and one in common use is substantially this: each time a customer purchases goods from a merchant and pays for them in cash, the merchant gives him a memorandum in writing—called a stamp or coupon—which expresses in money value a small percentage of the price of the goods bought and paid for, and entitles him, after he has accumulated a certain number of such coupons, to use them, to the extent of their face value, in payment for any other goods of the merchant which he may afterwards desire—or goods of some other person or trading company who has undertaken to redeem the coupons….We see nothing in such a stamp or coupon which is outside of the constitutional rights of citizens to make contracts concerning property; nothing which wrongfully interferes with the lawful rights of other persons; and nothing which the police power can reach as touching the public safety, the public health, or the public morals. Of course, contracts containing lotteries, advantages dependent upon chance, or any kind of gambling scheme, may be regulated or suppressed. But a trading coupon has none of these characteristics; it is not a lottery; its redemption does not depend upon chance, and it has no element of gambling of any kind….It is, therefore, a contract which, under the principles above stated, the legislature has no constitutional power to prohibit, or to seriously interfere with under the guise of regulation; and as the act in question undertakes to do this, it is unconstitutional and void.

An editorial the next day in the Fresno Republican observes, astutely, that there was no other way the court could have decided the case because “[t]he objections to stamps are business objections not moral or legal ones.”