Norfolk Motor Exch. Inc v. Grubb

• Decision Date: 21 March 1929
• Citation: 147 S.E. 214
• Parties: NORFOLK MOTOR EXCHANGE, Inc. v. GRUBB.
• Court: Virginia Supreme Court

147 S.E. 214

NORFOLK MOTOR EXCHANGE, Inc.

v.GRUBB.

Supreme Court of Appeals of Virginia.

March 21, 1929.

Error to Circuit Court of City of Norfolk.

Action by the Norfolk Motor Exchange, Inc., against J. G. Grubb. Judgment for defendant, and plaintiff brings error. Affirmed.

Michael Cooper, of Norfolk, for plaintiff in error.

W. M. Grant and Tazewell Taylor, both of Norfolk, for defendant in error.

HOLT, J. This is an action in assumpsit to recover a balance due on account of a corporate stock subscription.

The plaintiff corporation is a Virginia company, and was chartered on March 11, 1925. Its charter was lodged in the clerk's office of the corporation court of the city of Norfolk on March 26. The purposes for which it was formed, as there set out, were: "To buy, sell and engage generally in the business of dealing in used automobiles and auto vehi-cles generally and accessories thereto"—purposes unobjectionable and legitimate.

The defendant subscribed to 50 shares of stock and paid on account $400. On May 9, 1925, he notified the company that, having been advised by counsel that its plan was illegal and against the statutes of Virginia, he would have nothing further to do with it. This was before organization was perfected. Afterwards, and on May 16, he confirmed that notice by letter. It was disregarded, and this action was brought to recover the balance of $4,600 due on the face of his subscription.

There was a demurrer to the evidence, and a verdict for the full amount of the plaintiff's claim, subject to the demurrer. The demurrer was sustained, and final judgment entered for the defendant. To this judgment a writ of error has been awarded.

The corporation, on the face of its charter, was a legitimate enterprise, but its sting lies in the contract of subscription. That contract is in conventional form, with this exception:

"There is attached' hereto a form of bylaws which shall be adopted by the corporation upon its organization, and the said bylaws are to be deemed a contract between the said corporation and its stockholders, as well as a contract between the subscribers to its stock, and also a contract between all its stockholders. Said by-laws have been read by the undersigned, and each of the undersigned assents to the same, and agrees, each with the other, and with the corporation to be formed, that he will abide by and observe the same."

Among its by-laws, these are of special importance:

"(d) Used Car Agreement. By becoming a stockholder in this corporation, each stockholder agrees that he will not engage directly or indirectly in the business of buying, selling and dealing in used motor vehicles in the city of Norfolk, Virginia, Portsmouth, Virginia, Newport News, Virginia, Hampton, Virginia, Princess Anne county, Virginia, Nansemond county, Virginia, Southampton county, Virginia, Isle of Wight county, Virginia; Elizabeth City county, Virginia, and Warwick county, Virginia, during the time that he is a stockholder in this corporation as herein contemplated, excepting however, herefrom demonstrating cars and used cars on hand at the time he first becomes a stockholder."

"(g) Price of Cars. Each stockholder shall furnish the corporation the base prices of used cars of the makes represented by him, but this corporation is not to be required to take over any such car at any such base price, and the price at which any such car is to be taken over by the said corporation shall be fixed by the manager of the corporation, with the right in any stockholder to appeal from the determination of the manager as to such price to the board of directors of this corporation, whose decision in the matter shall be final."

It is further provided that each stockholder shall pay to the corporation, for every breach of these conditions, $500 as liquidated damages.

Their purpose, and their only purpose, was to prevent competition among the subscribers in the community in which they normally traded, and to narrow the market of those who desired to sell secondhand cars. They bound themselves not to purchase such automobiles at all, and the customer who wished to buy was prevented from trading in his used car. He could take it to the plaintiff corporation, where it was appraised by that corporation's expert at a sum not to exceed that fixed by the dealer, and, when its value was thus ascertained, the customer had to take it or leave it. His right to deal directly with the seller was in this manner shut off.

The underlying intent of this is not far to seek. It was an attempt to solve the used car problem from the standpoint of the dealer only. Automobile dealers, generally, to the extent that it is possible, confine their operations to the sale of cars; but it frequently happens that the possible purchaser has one already in use, which he wishes to turn in as a credit on a new car. The dealer usually does not want to buy at all, but is forced to do so in order to make the sale. It is to his interest to pay as little as possible, and the prospective purchaser, as a matter of course, wants to get all that he can. The allowance made to him is often a controlling factor, and determines, not only the question of purchase, but the car to be bought. The corporation in judgment was formed to lessen that pressure, and to deprive the buyer of his right to trade with freedom. No argument is needed to show that all of this is in restraint of trade and designed to prevent competition. Into this scheme something more than a majority of the automobile dealers in Norfolk entered.

Section 165 of the Constitution of Virginia provides that the General Assembly shall enact laws preventing trusts, combinations, and monopolies, inimical to the public welfare.

Pursuant to this mandate, section 4722 of the Code of 1924 (Michle), and subsections (5) and (6), were adopted. Among other things, it was there declared that combinations in restraint of trade or of competition in the sale of merchandise or commodities are unlawful. In subsection 21, it was said that this act should be liberally construed in order to protect the people of the commonwealth, but that it should not apply, unless the combinations and agreements are unreasonable or inimical to the public welfare. This last provision, which is included in subsection 21, was amended in 1926 (Acts 1926, p. 314), and now reads:

"The provisions of this act shall be liberally construed in order effectually to secure the enforcement of the provisions hereof for the protection of the people of the commonwealth, but the act shall apply only to those trusts, combinations and monopolies which are unreasonable or inimical to the public welfare, as hereinbefore defined, and are prohibited and penalized under the provisions of any law of the United States, or would be prohibited and penalized under the provisions of any law of the United States if their activities extended to interstate as well as intrastate commerce."

From this it appears that our Legislature, in a general way, intended that those Code provisions noted should be so construed as to place them, as near as may be, in line with federal anti-trust laws, and as a necessary corollary it follows that we should adopt the "rule of reason" as it has been developed by the federal courts in the construction of cognate federal statutes—not that these decisions control, as they would, were those statutes themselves under construction, but because they are highly persuasive.

Plaintiff has cited and relied upon Standard Oil Co. v. United States, 221 U. S. 1, 31 S. Ct. 502, 55 L. Ed. 619, 34 L. R. A. (N. S.) 834, Ann. Cas. 1912D, 734 and United States v. American Tobacco Co., 221 U. S. 106, 31 S. Ct. 632, 55 L. Ed. 663, as authority for the application of that rule in this case.

For the defendant it is said that they have no application, that the contract of subscription is unlawful upon its face, and that no "rule of reason" and no other rule ever sanctions the enforcement of unlawful contracts.

Being in writing, its construction is for the court. "The province of construction lies wholly within the domain of ambiguity." Hamilton v. Rathbone, 175 U. S. 414-421, 20 S. Ct. 155, 158 (44 L. Ed. 219). If it is too plain to misunderstand, there is nothing to construe.

In George Van Camp & Sons Co. v. American Can Co., 49 S. Ct. 112, 73 L. Ed.——, decided by the United States Supreme Court ...