Byham v. National Cibo House Corp., 769

• Decision Date: 23 July 1965
• Docket Number: No. 769,769
• Parties: , 23 A.L.R.3d 537 Frank D. BYHAM v. The NATIONAL CIBO HOUSE CORPORATION.
• Court: North Carolina Supreme Court

Page 225

143 S.E.2d 225

265 N.C. 50, 23 A.L.R.3d 537

Frank D. BYHAM v. The NATIONAL CIBO HOUSE CORPORATION.

No. 769.

Supreme Court of North Carolina.

July 23, 1965.

Jerry L. Jarvis and R. Roy Mitchell, Jr., Raleigh, for plaintiff.

Hofler, Mount & White, by L. H. Mount and W. O. King, Raleigh, for defendant.

MOORE, Justice.

Appellant questions the validity of the service of summons on defendant, a foreign corporation, by service on the Secretary of State in accordance with the provisions of G.S. § 55-146(a)(b), and challenges the constitutionality of G.S. § 55-145(a)(1) as applied in this case.

This action was commenced 13 August 1964. The verified complaint alleges in substance these facts: Plaintiff is a resident of North Carolina. Defendant is a Tennessee corporation and is engaged in the selling and maintaining franchises for a chain of food and eating establishments known as 'Cobo Houses,' and servicing and supervising in part the establishments franchised and put in operation. Defendant solicited by mail and newspaper advertisements franchise owners in North Carolina. In consequence plaintiff contacted defendant relative to a franchise for the Durham, North Carolina, area. On 17 February 1964 plaintiff and defendant entered into a contract in writing whereby plaintiff became owner of such franchise, and plaintiff paid defendant the franchise fee of $2950. Prior to the execution of the contract, defendant, through its agents and through brochures, publications and advertisements, represented to plaintiff that he 'could secure a franchise, lease, equip, open and begin operating a 'Cibo House' in the Durham, North Carolina, area for approximately' $5000. After the execution of the contract, plaintiff discovered it would require a minimum of $10,000. The representation was false to the knowledge of defendant and its agents and was made with the intent to deceive plaintiff and induce him to sign the contract. The said representation did in fact deceive plaintiff, and in reliance thereon plaintiff did sign the contract and pay the franchise fee to his hurt and damage. He is entitled to rescind the contract and recover the sum of $2950 paid defendant. At all of the times referred to in the complaint and at the time of the institution of this action, defendant was transacting business in North Carolina and had not secured a certificate of authority therefor from the Secretary of State. The contract was executed by plaintiff in North Carolina and was to be 'partly performed' within the State.

As indicated above, service of summons was had by service on the Secretary of State of North Carolina in accordance with the provisions of G.S. § 55-146(a), (b).

Defendant entered a special appearance and moved to quash the service of process and for dismissal of the action on the ground that the court had not acquired jurisdiction of the person of defendant, asserting that the Secretary of State was not a process agent of defendant in North Carolina, defendant not having transacted business in the State, and the purported service of process contravenes the Due Process and Equal Protection Clauses of the Fourteenth Amendment to the Constitution of the United States.

The court heard evidence and the arguments of counsel and made the following findings of fact and conclusions:

'2. The said contract between plaintiff and defendant became binding on both parties as of February 28, 1964, and was to be performed within the State of North Carolina.

'3. The defendant * * * does not hold a Certificate of Authority from the Secretary of State of North Carolina to transact business in this State.

* * *

* * *

'5. The Superior Court of Durham County acquired jurisdiction over the defendant under the authority of North Carolina General Statutes 55-145(1).

'6. Under the facts before the Court, North Carolina General Statutes 55-145(1) is not offensive to the due process clause of the Constitution of the United States.'

The court denied the motion, ruling that jurisdiction of defendant had been acquired. Defendant filed exceptions and appealed.

The appeal raises two questions.

I.

Did the court err in finding as a fact that the contract was to be performed in North Carolina?

The 'Protected Territory Franchise Agreement' was introduced in evidence. It had been signed by the plaintiff and an agent of defendant on 17 February 1964 and 'accepted' by defendant at its home office in Memphis, Tennessee, on 28 February 1964. It has a provision that it is effective only when so accepted. It contains, among others, these provisions: The territory covered is Durham, North Carolina, and the life of the franchise is 10 years with the right of renewal for an additional 10-year period upon conditions. Plaintiff is to operate one or more 'Cibo Houses' in the territory for sale, at retail, pizza, Italian style foods and related items, and specialize in 'carry out' service. The name, style and design of the 'houses' outdoor signs, uniforms of waitresses, etc., are to conform to those of other 'Bico Houses' of the Chain, as specified by defendant. Menus and specifications for preparation and service of food, as furnished and changed by defendant from time to time, must be followed exclusively. Only such food ingredients, goods, supplies, chinaware, equipment and fixtures as are approved by defendant are to be used, and these are to be purchased from defendant or sources approved by defendant. Plaintiff is to be given instructions, and may spend a week or more in a training school and in an operating 'Cibo House' in preparation for opening and operating such business. After opening, plaintiff is 'to provide free on-the-job training to other franchise owners or their employees as requested by' defendant. When plaintiff's 'house' is opened defendant is to provide a 'staff member' for a week to assist in establishing procedures, and training personnel. Plaintiff is to keep complete and accurate records according to a system devised by defendant, make montly reports to defendant of gross receipts and financial status, and pay defendant, in addition to the franchise fee and indebtedness for items purchased, 3% of the gross receipts of the business. Defendant is to have the right at any time to examine plaintiff's books and records and to inspect the premises and operations. There are strict provisions in case of any default on the part of plaintiff in the performance of the contract on his part. Plaintiff is to adhere to defendant's advertising policy. Defendant will pay one-half the cost 'of any approved cooperative advertising or sales promotion that is deemed advisable and profitable' by the defendant.

Mr. Kimpel, Vice President of defendant, testified 'that the food and supplies which were purchased by the franchise operators from defendant * * * were delivered by common carrier; that it was the practice of the defendant * * * to send an employee to assist the purchasers of franchises in establishing a location and to assist them in the operation of the franchise business for the week of the opening; that other aspects of the franchise were performed by the defendant in Memphis, Tennessee.'

It is clear that the business to be operated under the franchise agreement was to be operated entirely in Durham, North Carolina. All of the acts and duties of plaintiff were to be performed in Durham. Defendant reserved and retained the right to sellect the location, set up the business, establish procedures during the opening week, control policy, maintain general supervision throughout the life of the franchise, inspect the books, premises and operations, control all of the forms and details of the business, furnish supplies and equipment, and control advertising. Defendant was to take 3% of the gross receipts, and have exclusive control of the sales to plaintiff of needed goods and supplies. There is ample evidence to support the court's finding that the contract was to be performed in North Carolina. The fact that defendant was to cause goods and supplies to be shipped by common carrier from points outside the State to Durham for use in the business does not fix the place of defendant's performance of the contract at points outside the State. '* * * with respect to contracts for delivery of specific articles, the usual * * * place of business of the obligor is the place of performance, where no place is expressed.' 17A C.J.S. Contracts § 357, p. 359. Furthermore, the contract not only designated the place of performance but limits its performance to the Durham area.

II.

Upon the facts and circumstances disclosed by the record, does the assumption of in personam jurisdiction of corporate defendant by the North Carolina court pursuant to G.S. § 55-145(a)(1) offend the Due Process Clause of the Constitution of the United States?

G.S. § 55-145(a)(1)--enacted in 1955--provides: 'Every foreign corporation shall be subject to suit in this State, by a resident of this State * * *, whether or not such foreign corporation is transacting or has transacted business in this State and whether or not it is engaged exclusively in interstate or foreign commerce, on any cause of action arising as follows: (1) Out of any contract made in this State or to be performed in this State * * *.' It is conceded that plaintiff is a resident of North Carolina and defendant is a foreign corporation.

This is the first case which has reached this Court directly involving G.S. § 55-145(a)(1). Former cases involving substituted service of process of foreign corporations have dealt with the question whether there was a showing of transactions of business sufficient to subject them to such process and to confer in personam jurisdiction on the North Carolina courts. Spartan Equipment Co. v. Air Placement Equipment Co., 263 N.C. 549, 140 S.E.2d 3; Farmer v. Ferris, 260 N.C. 619, 133 S.E.2d 492; Reverie Lingerie, Inc. v. McCain, 258 N.C. 353, 128 S.E.2d 835; Babson v....