Tappan Motors, Inc. v. Volvo of America Corp. , 444 N.Y.S.2d 938 ( 1981 )

In an action, inter alia, for a permanent injunction, defendants appeal from a judgment of the Supreme Court, Westchester County (Beisheim, J.), entered September 16,1980, which, after a nonjury trial, inter alia, enjoined them from terminating plaintiff Tappan Motors, Inc., as a franchised Volvo dealer and dismissed the defendants’ counterclaim for damages. Judgment reversed, on the law and the facts, with costs, plaintiff’s complaint is dismissed, the parties’ “sales agreement” is declared terminated and defendants’ counterclaim for money damages is reinstated and remitted to the Supreme Court, Westchester County, for trial. Since November of 1960, Tappan Motors, Inc. (Tappan) has been a regularly franchised Volvo dealer. This franchise relationship was most recently reaffirmed in a contract, denominated a “sales agreement”, dated May 8,1973, which provided, inter alia, the following: Paragraph 1(G) — “Dealer will use its best efforts to promote and develop sales and service of Company Products in its Area of Responsibility.”; and Paragraph IV, clause 8 — service parts “A. Dealer at all times will keep in Dealer’s place of business an inventory of Service Parts of an assortment and in quantities that are necessary to meet the current and reasonably anticipated service requirements of Dealer’s customers.” Insofar as is here pertinent, the agreement also provided for its termination at the behest of the distributor upon 30 days’ written notice in the event that the dealer fails to correct any default in performance of its responsibilities under the foregoing provisions within 60 days after written notice of such default. By letter dated July 18,1979, defendant Volvo of America Corporation informed Tappan that it believes that the latter was in default of various obligations under the aforementioned sales agreement, and that it had 60 days within which to correct the named defaults. Subsequently, by letter dated September 25, 1979, Volvo informed Tappan of its belief that the dealer had not corrected the various defaults and that, pursuant to contract, their sales agreement would be terminated effective November 5, 1979. As a result of this letter Tappan commenced the instant action and, after a lengthy trial, Trial Term agreed with plaintiff that Volvo was not justified in terminating their agreement. We disagree. The applicable statute is section 197 of the General Business Law, which provides: “Termination of contracts for sales of motor vehicles. No manufacturer or distributor, or any agent of such manufacturer or distributor, shall terminate any contract, agreement, or understanding or renewal thereof for the sale of new motor vehicles to a distributor or dealer, as the case may be, except for cause.” (Emphasis supplied.) As written, section 197 of the General Business Law is apparently intended to protect not only automobile dealers, but also those members of the buying public who purchase their wares. Thus, it was declared by the Legislature, in amending article 11-A of the General Business Law (of which § 197 is a part), that: “the sale of motor vehicles to the public in [this] state under the franchise system includes more than the mere transfer of title[, it] being a continuing obligation of the manufacturer, distributor and dealer to the buying public affecting the public interest; that the termination or failure of the established relationship between the manufacturer, distributor and dealer without cause or good faith denies to the general buying public its right to availability of continuing post-sale mechanical and operational service and precludes the relationship, expected and implied at the time of sale, between the buyer and the seller necessary to insure safe operating condition of the vehicle. The legislature further finds and declares that the distribution and sale of motor vehicles in the state under the franchise system vitally affects commerce, the general economy of the state and the welfare of the citizens of the state requiring the exercise of its police power to insure the public welfare, to regulate commerce, to establish guidelines for enforcement of a fair and equitable balance between parties to such franchises, and to provide judicial relief from unfair and inequitable practices affecting the public interest.” (L 1970, ch 582, § 1.) Consistent with the foregoing, it is our view that in order to accomplish its salutary purpose, section 197 of the General Business Law should be read as precluding a distributor such as Volvo from terminating a franchised dealer either in bad faith or in the absence of good cause shown (cf. General Business Law, § 197-a), and that such authority as may exist to the contrary should not be followed (see, e.g., P. J. Grady, Inc. v General Motors Corp., 472 F Supp 35; Cycleway, Inc. v Kawasaki Motors Corp., U.S.A., 77 Mise 2d 829). Accordingly, any indication that Volvo was acting in bad faith or for inconsequential, vindictive or coercive reasons would be fatal to its defense of this action. Applying the foregoing considerations to the case at bar, we find from the evidence presented at trial (1) that Tappan had repeatedly experienced problems in servicing Volvo automobiles, (2) that Tappan’s facilities were neither as large nor as clean as Volvo required, (3) that some of the specialized tools required for servicing Volvos were missing from Tappan’s premises, (4) that certain of Volvo’s factory service manuals were also missing, (5) that Volvo customers at Tappan were subjected to inconvenience and excessive waiting times for repairs, (6) that Tappan failed or refused to keep an adequate inventory of Volvo parts, (7) that Tappan delayed installation of a computer system for the control of its parts inventory until after its termination was scheduled to take effect, and (8) that Tappan repeatedly complained about its allocation of automobiles and threatened to dissuade customers from purchasing a Volvo elsewhere if Tappan could not supply them with the Volvo model of their choice. These factors, considered jointly, were more than sufficient to justify Volvo’s decision to terminate Tappan’s franchise pursuant to the contract and in accordance with section 197 of the General Business Law. Moreover, there is no indication that Volvo acted other than in good faith in deciding to terminate the instant contract. Lazer, Gulotta and Margett, JJ., concur.