Interpretive Opinion No. 71 / 12F
State of California Department of Corporations
Anthony R. Pierno, Commissioner
In reply refer to: File No. _____
This interpretive opinion is issued by the Commissioner of Corporations pursuant to section 31510 of the franchise investment law. It is applicable only to the transaction identified in the request therefor, and may not be relied upon in connection with any other transaction.
Mr. C. Addison Keeler, Jr.
Attorney at Law
c/o Hinman, Howard & Kattell
724 Security Mutual Building
Binghamton, NY 13901
Dear Mr Keeler:
The request for an interpretive opinion contained in your letter dated February 15, 1971, has been considered by the Commissioner. Your letter raises the question whether Franklin marketing Systems, Inc., a Delaware corporation .("Franklin"), is an "area franchisee" and "subfranchisor" of International Simulator Corporation, a New York corporation, ( "International" ) within the meaning of Section 31009 of the Franchise Investment Law and, if so, whether a single application for registration (and one proposed offering prospectus), may be filed by International and Franklin, covering the area franchise of Franklin and the franchises negotiated by Franklin on behalf of International. In our opinion whether, under the circumstances described in your letter, Franklin is such an "area franchisee" and "subfranchisor", depends on circumstances which will be set forth below. If it is, both the area franchise and the franchises negotiated by Franklin may be covered in a single application for registration.
You have represented that International has contracted with Franklin, for Franklin to act as International's exclusive United States representative and non-exclusive world-wide representative in selling, marketing and licensing driver training school franchises. We assume that these "franchises", so-called by you, have all of the characteristics specified in Section 31005 of the Law, and especially that the business of the schools is substantially associated with the trademark or other commercial symbol of International. You have stated that pursuant to its agreement with International, Franklin acts on behalf of International in dealing with prospective franchisees and submits to International payments and franchise agreements executed by franchisees for International's approval. Franklin does not conclude the franchise agreements on behalf of International. International communicantes its approval, concurrence or refusal directly to the franchisees.
You have further represented that International in its application for registration will identify the salesmen of Franklin other than California licensed real estate or security salesmen.
Section 31008 defines "area franchise" to mean any contract or agreement between a franchisor and a subfranchisor whereby the subfranchisor is granted the right, for consideration given in whole or in part for such right, to, sell or negotiate the sale of franchises in the name of or on behalf of the franchisor. Section 31009 of the Law defines a "subfranchisor'' to mean a person to whom an area franchise is granted. Therefor, if Franklin gives International a payment or other consideration for the right to negotiate the franchise agreements with International, it is our opinion that International is selling to Franklin an area franchise, and Franklin is a subfranchisor within the meaning of Sections 31008 and 31009 of the Law.
Under Section 31110, the registration requirement of the Law is applicable to the sale of this area franchise if it occurs in this state on and after April 15, 1971.
The registration requirement of section 31110 is also applicable to the sale in California on and after April 15, 1971 of franchises of International negotiated by Franklin. The application for registration of these franchises may cover any area franchise which International may sell to Franklin in California on or after April 15, 1971.
Dated: San Francisco, California
March 10, 1971
By order of ANTHONY R. PIERNO
Commissioner of Corporations
HANS A. MAT'TES
Office of Policy