Business Law

Opinion No. 75 / 4F

State of California Department of Corporations

Willie R. Barnes, Commissioner 
In reply refer to: File No. _____

This letter is not an Interpretive Opinion for the reasons stated below.

Mr. William D. Mahoney
Attorney at Law
111 West La Habra Boulevard
Post Office Box 584
La Habra, CA 90631

Dear Mr. Mahoney:

The request for an interpretive opinion, contained in your letter dated March 13, 1975, has been considered by the Commissioner. Your letter raises the question whether the so-called “Training and Licensing Agreements” {“Agreements”) between Royal International Tours ( “Royal” ) and persons referred to therein and hereinbelow as “Licensee” are “franchises” within the definition of Section 31005 and subject to the provisions of the Franchise Investment Law ( ‘”Law”).

Pursuant to the Agreement, Licensee is granted an exclusive territory in which to use the name “Royal International Tours” for a specified period of years. Licensee may not conduct, carry on or solicit any business from any are outside the territory, without prior written consent of the licensee operating in said area. Licensee agrees to pay Royal a specified sum of which a portion is allocated for training and another portion is allocated for the use of the aforementioned trade name. In addition, Licensee will pay 1% of his annual gross receipts.

The Agreement further provides that Royal will train Licensee in the business of setting up travel tours, both of an individual and group nature, which training will include, among other things, sending licensee to selected training sessions on ticketing procedures operated by various air carriers. In addition, Royal will also train Licensee in making contacts in prospective tour areas for the purpose of setting up the most attractive and desirable accommodations and scenic excursions at the best possible price. Royal will also train Licensee in making contacts for the purpose of selling tours and will assist in setting up and furnishing a travel tour office in the best location. The foregoing are mutually agreed to include “trade secrets” which Licensee will keep confidential. Licensee agrees to carry a policy of liability insurance in the amount of $100,000 and will name Royal as a named insured therein.

Section 31005 of the Law defines “franchise” to include an agreement, either oral or written, between two or more persons by which a. franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor, the operation of the franchisee’s business pursuant to such plan or symbol, such as, its trade name or trademark, and the franchisee is required to pay a franchise fee. Section 31011 defines “franchise fee” to mean any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any such payment for goods and services.

In our opinion the Agreement contains all of the essential elements of a “franchise”. In this connection, it is our opinion that the provisions for extensive training, exclusive territory, and insurance tend toward the conclusion that Royal is prescribing a marketing plan or system in substantial part (Dept. of Corps. Release 3-F (Revised) PD. 2-6). It is also our opinion that the provisions regarding the use of the trade name “Royal International Tours” indicates that the operation of Licensee’s business will be substantially associated with Royal’s commercial symbol (ibid. pp. 6-7). Moreover, it is our opinion that the requirements for the initial payment as well as the 1% annual royalty constitutes the payment of a “franchise fee” within the meaning of Section 31011 (ibid. pp. 7-12).

In conclusion, it is our opinion that the Agreements between Royal and Licensees are “franchises” within the definition of Section 31005 and are subject to the provisions of the Franchise Investment Law.

Inasmuch as interpretive opinions are issued for the principal purpose of providing a procedure by which members of the public can protect themselves against liability for acts done or omitted in good faith in reliance upon the administrative determination made in the opinion, and since there can be no such reliance where the Commissioner asserts jurisdiction with respect to a particular situation or determines that a legal requirement is applicable, advice to that effect, as contained in this letter; does not constitute an interpretive opinion.

Dated: San Francisco, California
May 27, 1975

By order of 
Commissioner of Corporations

By __________________ 
Assistant Commissioner
Office of Policy

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