Interpretive Opinion No. 71 / 40F

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 Vincent Pettit
Attorney at Law
161 North La Brea Avenue
Suite 105
Inglewood, CA 90301

Dear Mr. Pettit:

The request for an interpretive opinion contained in your letter dated May 20, 1971, has been considered by the Commissioner Your letter raises the question whether under the circumstances described therein, the offer and sale of franchises by Muralmasters, Inc. ("Muralmasters") is subject to the registration requirement of Section 31110 of the Franchise Investment Law. Based on assumptions as stated below, this question is answered in the negative.

We understand that Muralmasters is in the business of manufacturing and, through distributors appointed by it, nationally distributing a complete line of "Paint-By-The-Number" kits. The principal place of business and offices of Muralmasters appear to be located in Fountain Valley, California. You have represented that agreements with distributors are negotiated offered, accepted and signed by Muralmasters and the distributors outside of California. Muralmasters fully services and performs the agreements in the state of the distributor except that it manufactures and delivers its merchandise to them F.O.B. Fountain Valley, California.

The Franchise Investment Law imposes its registration requirement in Section 31110 upon the offer or sale of franchises "in this state", unless an exemption is available. "In this state" is defined in Section 31013 where it is provided that an offer or sale of a franchise is made in this state when an offer or sale is made in this state, or an offer to buy is accepted in this state, or if the franchisee is domiciled in this state, the franchise is or will be operated in this state. It is also provided that 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. In the instant case, we understand that all offers and sale of franchises will be negotiated, offered, and accepted by both parties outside the State of California, and we therefore conclude that the registration requirement of Section 31110 will be inapplicable to these transactions.

This conclusion is predicated on the assumption that all action of Muralmasters with regard to the negotiations and offers of the agreements, takes place outside the State of California and that no action in connection with such negotiations and offers takes place at the principal place of business of Muralmasters or elsewhere in the State of California. Under these circumstances, the offer and sale of the franchises in accordance with Section 31013, is not deemed to occur in this state merely by reason of the fast that Muralmasters maintains its principal place of business and offices in California, and that its manufacturing and delivery of merchandise takes place in this state.

We also wish to call your attention to Rule 310.100.1 adopted by the Commissioner pursuant to the emergency procedure provided in Section 11422(c), Government Code, and subject to the limitations as to effectiveness provided in Section 11422.1 of said Code. That Rule exempts from the registration requirement of Section 31110 of the Law, the offer or sale of a franchise to a resident of a foreign state, territory, or country who is neither domiciled in California to the knowledge of the seller, nor actually present in this state, if the sale of such franchise is not in violation of any law of the foreign state, territory, or country concerned.

Therefore, even if the offer or sale of a franchise by Muralmasters did occur in this state, as defined in Section 31013, it nevertheless by virtue of Rule 310.100.1 and subject to the limitations upon its effectiveness mentioned above, would not come within the registration requirement of Section 31110, if the franchisee distributor is not a resident of, and is not domiciled in, California to the knowledge of Muralmasters, and if the sale of the franchise is not in violation of any law of the foreign state concerned.

Dated: San Francisco California
June 24, 1971

By order of
ANTHONY R. PIERNO
Commissioner of Corporations

_______________________
HANS A. MATTES
Assistant Commissioner
Office of Policy