Opinion No. 79 / 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. Victor D. Adamo
Attorney at Law
Nederlander, Dodge & McCauley, P.C.
1930 Buhl Building
Detroit, Michigan 48226

Dear Mr. Adamo:

The request for an interpretive opinion contained in your letter dated January 19, 1979, as supplemented by your letter dated February 27, 1979, has been considered by the Commissioner. Your letters raise the question whether franchises to be offered and sold by Electric Auto Corporation (“EAC”) will be offered or sold “in this state”, so as to subject the offer and sale of the franchises to the registration requirement of the Franchise Investment Law ( “Law”) .

You have represented that EAC is engaged in the business of establishing franchise distributorships. EAC has not registered its franchises for sale in California. EAC has persuaded an investment banking firm from Hong Kong, Mashand Investments Ltd. (“Mashand”), to assist in the financial arrangements for EAC distributorships. Because of Mashand’s correspondent banking connections, Mashand has expressed its desire to close transactions in San Francisco.

You have further represented that the franchises would not be located in California and no franchisees would be residents of California. In addition, the sale of franchises would not be arranged in California. The closing of the transaction in San Francisco would involve the signing of the franchise documents and the payment of franchise fees. It is anticipated that the franchisee, the franchisor, and a representative of the investment banker would be present at the closing to sign the necessary documents to establish a franchise.

Section 3101B(a) of the Law defines “sale” to include every contract or agreement of sale of, contract to sell, or disposition of, a franchise or interest in a franchise for value. Subdivision (b) of that section defines “offer” to include every attempt to dispose of, or solicitation of an offer to buy, a franchise or interest in a franchise for value. Section 31013 provides that; (1) an offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this-state, (2) an offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed, (3) an offer to sell is accepted in this state when acceptance is communicated to the offeror in this state, (4) acceptance is communicated to the offeror in this state when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed.

Rule 310.100.1 exempts from the registration requirement of Section 31110, any offer or sale of a franchise to a resident of a franchise state, territory or country who is neither domiciled in this state to the knowledge of the seller nor actually present in this state, if the franchised business is not to be operated, wholly or partially, in this state, and if the sale of such franchise is not in violation of any law of the foreign state, territory or country concerned.

In our opinion, the signing of the franchise documents and the payment of the franchise fees involve a “sale” within the meaning of Section 31018 (a). Even assuming that all negotiations and other acts necessary to consummate the sale of the franchise have occurred outside of California, it is our opinion that the formality of signing the franchise agreement and payment of the franchise fees constitute the final acts necessary for acceptance of either an “offer to buy” or an “offer to sell” a franchise. It is of no consequence that the offer to sell or the offer to buy originated outside the State of California when the final acts of acceptance occur in California. Accordingly, it is our opinion that the “closing”, as described by you, will involve either acceptance of an offer to buy in this state or acceptance of an offer to sell in this state within the meaning of Section 31013.

The exemption provided by Rule 310.100.1 is not available in the instant case because, as you have indicated, the buyer of the franchise will be actually present in California for the time necessary to effectuate the “closing”.

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
March 30, 1979

By order of 
WILLIE R. BARNES
Commissioner of Corporations

By __________________ 
ROBERT E. LA NOUE
Assistant Commissioner
Office of Policy
(916)322-3553