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Court of Appeal, First District, Division 4, California.

ASSOCIATED CREDITORS' AGENCY, a corporation, Plaintiff and Appellant, v. Richard F. DAVIS et al., Defendants and Respondents.

Civ. 32331.

Decided: February 25, 1974

John G. Evans, Robert G. Witser, San Francisco, for plaintiff-appellant. Fitzsimmons & Hawthorne, Oakland, for defendants-respondents.

Appellant Associated Creditors' Agency brought this action, as assignee, to collect numerous accounts which had been incurred in the operation of a bar and restaurant at a public golf course. Appellant seeks payment of the accounts by respondents, the four general partners who operated the golf course as lessees. The trial court rendered judgment for respondents upon finding that there was no agency relationship, actual or ostensible, between respondents and the persons who actually operated the bar and to whom credit had been extended by appellant's assignors. We reverse the judgment as to several causes of action, where there was uncontradicted evidence of ostensible agency.

Upon obtaining their lease of the golf course, respondents applied to the Department of Alcoholic Beverage Control (hereinafter ‘ABC’) for a general on-sale retail liquor license to be used for a bar and restaurant to be operated at the golf course. By a ‘concession agreement’ dated October 3, 1966, respondents arranged that two other persons, Padovan and Abowd, were to pay respondents for the privilege of operating a bar and restaurant on the leased premises. The liquor license was to remain in the names of respondents, but it was agreed that Padovan and Abowd were to control the operation of the bar and restaurant. Abowd dropped out of the picture after a few months.

A few weeks after operations commenced, ABC concluded that the operation of the bar and restaurant as contemplated by the agreement was contrary to the statute which prohibits an unlicensed person from exercising the privileges of a liquor license. (Bus. & Prof.Code, § 23300.) Accordingly, on March 6, 1968, the ABC commenced administrative proceedings against respondents. The matter was ultimately disposed of by a fine of $500 and it was agreed that respondents would transfer their license to the actual operators of the bar and restaurant. (See Bus. & Prof.Code, § 23095.)

Meanwhile, from December 1966 until March 1968, Padovan operated the bar and restaurant at the golf course. Padovan became insolvent and ceased operations in March 1968; he thereafter petitioned in bankruptcy. The present appeal involves eight accounts of wholesale liquor distributors, five of wholesale food vendors, and the account of the Pacific Gas and Electric Company for utility service, all incurred in the operation of the bar and restaurant.

The assignment of the privilege of operating under a liquor license which was attempted by the concession agreement was unlawful. (Teachout v. Bogy (1917) 175 Cal. 481, 486–487, 166 P. 319.) By a 1971 amendment to section 23787 of the Business and Professions Code, restaurant operations may now be sublet. But at the time the concession agreement was executed, a sublease of the restaurant facilities was also unlawful. (See 29 Ops.Cal.Atty.Gen. 95; cf. Farmer Bros. Co. v. Kiernan (1957) 149 Cal.App.2d 867, 868–869, 309 P.2d 69; Harem Corp. v. State Bd. of Equalization (1948) 87 Cal.App.2d 915, 198 P.2d 48.)

Appellant contends that absolute liability should be imposed on respondents as a consequence of their violation of the statute. Such liability, according to appellant, should be imposed in order to promote public policy. Although the primary purpose of the Alcoholic Beverage Control Act is to protect general public interests (Greene v. Brooks (1965) 235 Cal.App.2d 161, 169, 45 Cal.Rptr. 99), a subsidiary purpose is to protect the creditors of licensees. (See generally Bus. & Prof.Code, § 23001.) This concern for creditors is illustrated by the requirement that a license be transferred through escrow to permit the payment of creditors out of the purchase price of the license. But appellant's theory does not depend merely upon the unenforceability of an unlawful contract as between the parties thereto, and the statute contains no provision for awarding damages to private parties as a penalty for unlawful dealings under color of a license. No tort theory was presented to the trial court.

The appeal therefore turns on the question whether there is substantial evidence supporting the trial court's finding that Padovan was not the agent of respondents. Agency may be either actual or ostensible. (Civ.Code, § 2298.) Appellant argues that Padovan was as a matter of law the agent of respondents under both theories. The existence of agency is generally a question of fact to be resolved by the trial court. (Burr v. Capital Reserve Corp. (1969) 71 Cal.2d 983, 995, 80 Cal.Rptr. 345, 458 P.2d 185.) ‘[T]he familiar rule that the trier of fact is the sole judge of the credibility of the witnesses and the weight of the evidence, is applicable [citation].’ (Hartong v. Partake, Inc. (1968) 266 Cal.App.2d 942, 961, 72 Cal.Rptr. 722, 734.)

The trial court's findings must be sustained if supported by substantial evidence. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881–882, 92 Cal.Rptr. 162, 479 P.2d 362.) But an appellate court may determine whether agency exists as a matter of law if only one conclusion is factually supportable. (Mantonya v. Bratlie (1948) 33 Cal.2d 120, 128–129, 199 P.2d 677; 6 Witkin, California Procedure (2d ed. 1971) Appeal, §§ 255, 256, pp. 4247–4248.)

Actual Agency

Substantial evidence supports the trial court's determination that Padovan was not respondents' actual agent.1 Padovan was actually a tenant conducting his own business on premises leased from respondents. He capitalized his own business. He hired and fired his own employees and paid their withholding and social security taxes. Padovan did his own advertising. He obtained his own sales tax permit, his own federal retail liquor dealer's stamp, and his own dance permit. The bar and restaurant complex was named ‘Padovan's on the Green.’ Padovan obtained an Employer's Permit from the Department of Employment in the name, ‘Joseph A. Padovan, Padovan's on the Green, sole proprietor.’ Padovan decided which liquor and food wholesalers to deal with and made all arrangements with them.

Appellant also argues that respondents should have been held liable under the doctrine of undisclosed principal. (See, e. g., Gardiner v. Gaither (1958) 162 Cal.App.2d 607, 618, 329 P.2d 22; 1 Witkin, Summary of California Law (8th ed. 1973) § 147, pp. 749–750.) But Padovan was not the actual agent of respondents; hence respondents were not undisclosed principals.

Ostensible Agency

Three elements must be proved before a third party may recover from a principal under an ostensible agency: representations by the ostensible principal, justifiable reliance thereon by the third party, and change of position or injury resulting from the reliance. (Civ.Code, §§ 2300, 2315, 2317; Hartong v. Partake, Inc., supra, 266 Cal.App.2d 942, 960, 72 Cal.Rptr. 722.) The element of justifiable reliance requires the third party's belief in the existence of the agency to be a reasonable belief. (Civ.Code, § 2334.)

The trial court found that respondents ‘made no representation in the way of statements or conduct, directed to Creditors (or to [appellant] as Creditors' representative) by which Creditors or [appellant] could reasonably have believed that [respondents] were operating the bar and restaurant or that Padovan, as the operator thereof, was the agent of [respondents].’ Uncontradicted evidence shows that respondents did not tell anyone that they owned Padovan's on the Green; they never dealt with the food and liquor wholesalers. Nevertheless, the finding is contrary to the evidence. Respondents, having obtained the liquor license in their own names, permitted the license to be displayed to liquor salesmen. Without any restriction they allowed Padovan to use the license in operating the bar. Merchants selling to licensed businesses are aware that an unlicensed person cannot lawfully operate a bar. Respondents' acts therefore constituted representations that they were Padovan's principals.

The trial court also found that all creditors extended credit to Padovan and looked to him for payment though they knew respondents were the licensees. This is a finding that the creditors did not rely on respondents' representations that Padovan was their agent. The evidence on reliance must be examined for all the creditors; we take up first the accounts of the eight liquor wholesalers.

All the liquor wholesalers involved in this case subscribed to the ‘Business Extension Bureau,’ an organization which disseminates information about applicants for and holders of liquor licenses, when they began to service the bar. The bureau regularly publishes information concerning prospective liquor licenses; inferably such information was published during the construction of the golf course indicating the progress of construction and the date when the bar would begin operation. When a license is issued, the bureau sends out a notice listing the name and address of the licensee, the license number, the trade style, and the type of license. The day respondents' liquor license was issued, the bureau sent to each wholesaler a notice of respondents' license; the notice listed the licensee as ‘Willow Park Public Golf Course, R. F. Davis, et al.’ On the basis of this information, the wholesalers began to sell to the bar.

Wholesale liquor dealers operating in the Bay Area communicate with one another concerning customer credit. Inferably such information was exchanged regarding the ownership and operation of the business here in question.

In addition to the above evidence which applies to all the liquor wholesalers, other evidence applied to particular wholesalers:

H. Berman & Co.

Records were kept in the name, ‘Richard F. Davis, G. P., et al., 17007 Redwood Road—Padovan's, Castro Valley, California.’ The invoices contained the same name. A credit check had been run on respondents prior to the issuance of the liquor license.

Juillard Alpha Liquor Company

The company ledger card listed the proprietor as a limited partnership with 4 general and 20 limited partners; it listed respondents by name. In a column headed ‘Remarks,’ the ledger card contained the notation, ‘Joe Padovan Mgr.’ The name on the invoice was ‘Padovans.’ The credit manager testified how the credit limit was established:

‘Q. Did you have any particular facts which you relied on in making that limit? A. Well, the fact that there were four general partners of substance, gentlemen of substance. Furthermore, the fact that the account paid its bills very well up to that point.

‘Q. As a matter of fact, isn't it true in your business it is not too often when you would makes a limit of that amount?

‘A. This is true. We were delighted to have four general partners on the license.’

Max Sobel Wholesale Liquors

The credit manager testified that credit was established on the basis of the reputation of two of the general partners. Ledger and invoices were in the name, ‘Padovan's on the Green.’ (There was evidence that trade names are commonly used on liquor accounts as a matter of convenience, even if the trade includes the name of a nonowner. One reason for this is to assist drivers in making deliveries.)

Rathjen Bros. of Oakland

The account was opened in the name, ‘Padovan's on the Green’; invoices read the same. There was no testimony about the basis for extending credit, other than that applicable to all the liquor wholesalers as a group.

Haas Brothers

The ledger card listed Willow Park Golf Course and names of respondents; invoices read Padovan's on the Green, but credit was extended on the basis of respondents' standing.

Bauch Liquors, Inc.

Invoices and statements bore the name, ‘Padovan's on the Green, Joe Padovan’ and the number of respondents' license. No testimony was presented concerning the basis for extending credit, except that applicable to all the liquor wholesalers.

Vicks Distributing Co.

Invoices were in the name, ‘Padovan's on the Green.’ The salesman who opened up the account testified that he examined the license and noted the number and names when he took the initial order. There was no testimony concerning the basis for extending credit.

J. G. Molakides and Sons, Inc.

The ledger bore the names, ‘Willow Park Public Golf Course’ and ‘R. F. Davis, et al.’

This evidence leads to the conclusion that the liquor wholesalers believed they were selling on the security of respondents' license. All the wholesalers learned from the Business Extension Bureau that respondents held the license for the bar; upon this information they began to service the bar. The testimony by representatives of the wholesalers and the wholesalers' records show they assumed they were dealing with the licensee. The only conclusion that can be drawn from the evidence is that the liquor wholesalers relied on respondents as principals and incurred business losses based on that reliance. (Cf. Luce v. Sutton (1953) 115 Cal.App.2d 428, 252 P.2d 352.)

There was no evidence that any of the five food vendors or the Pacific Gas and Electric Company relied on the appearance that respondents were principals.

With respect to the cause of action reflecting the accounts assigned by H. Berman & Co., Juillard Alpha Liquor Company, Max Sobel Wholesale Liquors, Rathjen Bros. of Oakland, Haas Brothers, Bauch Liquors, Inc., Vicks Distributing Co., and J. G. Molakides and Sons, Inc., the judgment is reversed. With respect to all other causes of action the judgment is affirmed.

I agree with the opinion in so far as it reverses the judgment in the matter of claims of dealers in liquor, but I place my concurrence on the proposition that there was an actual agency relationship, although this was created not by contract but by operation of law. I doubt that if the conventional theory of ostensible agency were applied the judgment could be reversed against the findings of the trial judge, at least as to some of the suppliers.

Business and Professions Code sections 23300 and 23355 forbid the exercise of the privilege granted to a licensee under the Alcoholic Beverages Control Act by anyone else. Therefore, it seems to me the licensees could not surrender control to Padovan. They had control over all his acts which a licensee (as licensee) might perform. This control in practice may have been abandoned, but in legal contemplation it remained as a right and duty of the licensees. The Legislature has shown its concern for creditors of licensees by requiring transfer of licenses through escrow so that creditors may file claims. (Bus. & Prof.Code, § 24074.) There does not seem to be good reason why the creditors should be protected by legislative action at the time of a legal transfer and unprotected at the time of a purported transfer in fact made in violation of law. Many, if not all, of the outstanding debts were incurred after the Department of Alcoholic Beverage Control had informed respondents of the violation.

Because the licensing extended to restaurant operations at the time provisions were sold, the same reasoning would apply to suppliers of food and I would also reverse the judgment in so far as it denies recovery to vendors of food. (Appellant does not assert that the judgment should be reversed as to the claim of Pacific Gas and Electric Company.)


1.  Civ.Code, § 2269: ‘An agency is actual when the agent is really employed by the principal.’

CHRISTIAN, Associate Justice.

RATTIGAN, Acting P. J., concurs.