Business Law

Opinion No. 76 / 3F

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. Vernon W. Haas
Attorney at Law
2408 East Main Street
Ventura, California 93003

Dear Mr. Haas:

The request for an interpretive opinion, contained in your letter dated March 4, 1976, as supplemented by your letters dated May 12, 1976, May 21, 1976, and June 18, 1976, has been considered by the Commissioner. Your letters raise the question whether the Agreements between Mr. Engineer, Inc., a California corporation . (“Mr. Engineer”) , and persons referred to therein and hereinbelow as “Agents” are “franchises” within the definition of Section 31005 and subject to the provisions of the Franchise Investment Law (“Law”).

You have represented that Mr. Engineer, pursuant to the Agreements, will authorize its Agents to sell to customers the “time” of persons having engineering, technical, office and other specified experience and qualifications who are under contract with Mr. Engineer. The Agents will pay Mr. Engineer a fee for the appointment as sales agents and for various material including sales brochures, business cards, and other items which Mr. Engineer deems necessary for Agents’ sales activities. All purchase orders for the “time” of the persons under contract will be in the name of Mr. Engineer and Mr. Engineer will invoice customers and collect money due. The Agents will receive specified commissions based on the amount of “time” sold.

You have further represented that Mr. Engineer is not presently engaged in business and is only a “corporate shell.”

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 system is substantially associated with the franchisor’s commercial 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 subfranchsor’s required to pay or agrees to pay to the right to enter into a business under a franchise agreement, Including, but not limited to, any such payment for goods and services.

In this connection, we understand you to concede that Mr. Engineer’s prescribing a marketing plan in substantial part and that a franchise fee is required from Agents. In our opinion, since all purchase orders are to be in the name of Mr. Engineer and Mr. Engineer will collect fees and supply material and business cards, the Agents’ businesses will be substantially associated with a commercial symbol of Mr. Engineer. (See Dept. of Corps. Release No. 3-F (Revised), pp. 6-7.)

Therefore, the only question which remains to be considered in determining whether the Agreements are “franchises” is whether the Agents are granted the right to engage in the business of selling goods or services. In this connection, you have suggested that the Agents will only be selling “time” and that “time” is neither “goods” or “services.”

“Service” has been defined to include, among other things, the occupation or function of serving, the work or action performed by one who serves, and disposal for use. (Webster’s Seventh New Collegiate Dictionary, 1967, p. 792.) “Time,” on the other hand, has been defined to include, among other things, the measured or measurable period during which an action, process, or condition exists or continues; the point or period when something occurs. (Ibid., p. 925.) In the instant case, Mr. Engineer will contract with persons with engineering, technical, office and other specified experience and qualifications who will work and perform activities for customers. In our opinion, since the customers will be paying for the work and other activities of these persons under contract, Mr. Engineer, pursuant to the Agreements, will be authorizing its Agents to sell “services,” which “services” are measured in “time” for the purpose of determining the amount of payments required from customers. The fact that in most cases Mr. Engineer has no knowledge of how customers use the qualifications and experience of the persons under contract and at no time does Mr. Engineer instruct or supervise such persons does not affect our conclusion that the persons are performing “services” for customers and that the Agents are authorized to sell the “services.”

In conclusion, it is our opinion that the Agreements between Mr. Engineer and Agents are “franchises” within the definition of Section 31005 and are subject to the provisions of the 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: Sacramento, California
November 3, 1976

By order of 
Commissioner of Corporations

By __________________ 
Assistant Commissioner
Office of Policy

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