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CIAMPI v. RED CARPET CORPORATION OF AMERICA

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Court of Appeal, First District, Division 2, California.

Gary CIAMPI et al, Plaintiffs, Cross-Defendants and Appellants, v. RED CARPET CORPORATION OF AMERICA et al., Defendants, Cross-Complainants and Respondents.

AO29624.

Decided: April 25, 1985

Nick T. Reckas, San Francisco, for plaintiffs, cross-defendants and appellants. Pettit & Martin, John L. Boos, Joan M. Price, Samuel Wong, San Francisco, for defendants, cross-complainants and respondents.

INTRODUCTION

Gary Ciampi (Ciampi), Joan Ciampi, and their partner Richard Calton formed an investment corporation, Realcor Investment Group, Inc. (Realcor), in the spring of 1977 and bought four Red Carpet Corporation of America (Red Carpet) real estate franchises in San Mateo County.   The Ciampis bought Calton's share of Realcor in December of 1977 and proceeded thereafter to manage the four franchises.   The franchise operations ran into financial difficulties and Ciampi arranged to terminate one of the franchise offices in April of 1978.   The financial condition of the remaining franchises did not improve and Red Carpet subsequently terminated them for non-payment of franchise and other fees.   The Ciampis and Realcor then brought suit against respondents Red Carpet (the franchisor), John Brady (the franchise salesman), James Frame (Brady's supervisor), and Anthony J. Yniguez (then president of Red Carpet).   Respondent Red Carpet cross-complained against appellants.   The jury found for respondents on both the complaint and the cross-complaint but awarded zero dollars in damages to respondent.   The trial court found for respondents on the equitable issues raised by the complaint and granted respondents Red Carpet a new trial on the cross-complaint limited to the issue of damages.   This appeal is taken from the judgment entered on the jury's verdict and from the trial court's ruling on the motion for a new trial.

APPELLANTS' CASE

Ciampi was a licensed real estate broker and in the spring of 1977 operated a realty office in San Francisco where he employed five sales agents.   He was then in the process of opening a second office in Burlingame.   Joan Ciampi ran a small graphic arts business out of the Ciampi home.

In May of 1977, Richard Calton, a friend of the Ciampis, told Ciampi that Red Carpet had just begun selling real estate franchises in San Mateo.   Calton was interested in investing in the franchises but, because he was not a licensed real estate broker, he could not buy the franchises on his own.   He succeeded in interesting Ciampi in the franchises and they arranged a meeting with the Red Carpet agents.   They met John Brady and James Frame, the Red Carpet agents, at their sales office in San Mateo.   The salesmen explained the Red Carpet system to Ciampi and Calton.   They claimed that the success of the Red Carpet franchises was mainly due to the council system which permitted brokers to pool resources and share business know-how at a local level.   Red Carpet was going to sell ten franchises in San Mateo by September 1, 1977, and would then finance a promotion of the new offices.   This promotion, called “a big splash,” would include full page advertisements in local papers and on the radio, double van advertising, and office opening parties.

The training programs provided by Red Carpet for the sales agents were claimed to greatly enhance an agent's ability to earn money for the broker.   The Ciampis were promised that Brian Roper, Red Carpet's trainer, would hold local training seminars for the sales agents on a monthly basis.   Red Carpet would also provide video equipment and training tapes that the sales agents could use to improve their sales techniques.   The purchase price of a franchise was $7,900 and 6 percent of the monthly income thereafter.   Forty percent of this 6 percent franchise service fee would be returned to the local council for advertising, promotions and training programs.   Additional franchises could be purchased for $3,500 and the monthly fee, provided these franchises were opened at about the same time as the first office.   The salesmen gave Ciampi a prospectus, a copy of the franchise agreement, and two advertising brochures before he left the meeting.

Ciampi took this material home and his wife looked it over carefully.   Calton and Ciampi were very interested in buying the franchises but Joan Ciampi was more hesitant about the investment.   A meeting was therefore arranged to explain the benefits of the Red Carpet system to her.   Joan Ciampi specifically questioned Brady about some of the assessments mentioned in the agreement.   He told her that they could not be predetermined but that they in any event were negligible.

The Ciampis and Calton decided to form an investment corporation and buy four franchises.   They believed that by having several franchises they would have greater control over the use of the local council's reserve account.   Ciampi was required to close his San Francisco office under the terms of the franchise agreement.   He attempted to convert it to a Red Carpet office but was unable to do so because his office encroached on the territory of an existing Red Carpet franchise.   The Ciampis borrowed $20,000 to invest in Realcor and Calton invested another $20,000.   They signed the franchise contracts on June 30, paid a down payment of $6,000 and signed a note for the remainder of the purchase price.   Red Carpet did not execute the contract until July 29, 1977, and all parties understood that the contract was not binding until it was signed by Red Carpet.

Appellants opened four Red Carpet offices in September of 1977.   They spent $7,000 of their own money for advertising and promotion of their “big splash.”   No other franchise offices were opened at that time and Red Carpet did not contribute to their promotion.   In October of 1977, Red Carpet closed its franchise sales office in San Mateo.   In that month Ciampi received his first billing of $1,280 assessed on his four offices by the Bay Area Council.   Ciampi claimed that he did not know he would be charged this amount each month until he saw the bill.

Red Carpet initially attempted to place the Ciampi franchises in the San Francisco local council but Ciampi objected to this assignment.   San Francisco brokers did not advertise in the newspapers a San Mateo broker would use and he felt that it would be disadvantageous for him to be a member of that particular local council.   On September 8, 1977, Red Carpet notified him that he would be operating as an “outlying council” while they decided whether a San Francisco Peninsula Council should be created.   Ciampi was not satisfied with this arrangement and did not sign the outlying council agreement as requested by Red Carpet.   Red Carpet was to deposit $1,000 per franchise into the local council reserve account when the franchises opened.   They deposited $4,000 dollars in Ciampis' account in December of 1977, but then claimed that that amount also included their reimbursement for the “big splash” promotion.   Ciampi learned after he had purchased the franchises that Red Carpet would not advance funds for office signs but would instead reimburse franchisees for their installation of acceptable signs.   He also learned that the video equipment and training tapes he had been promised had to be purchased from Red Carpet.

The prospectus suggested that a franchisee would need about $2,500 in working capital to open a franchise.   Appellants spent a great deal in excess of this amount on their franchises.   In December of 1977, Realcor arranged to borrow $40,000 to cover anticipated operational expenses for the franchises.   Calton, however, decided to end the partnership.   He offered to buy the Ciampis' interest in the franchises but Ciampi was unable to accept this offer because he had no other source of income and because Calton intended to continue running the franchises using Ciampi's real estate broker's license.   The Ciampis borrowed money to buy Calton's share of Realcor.   The bank thereafter would not lend them more than $15,000 to finance their businesses.   They fell behind on their payments to Red Carpet.   In April of 1978, Ciampi arranged to terminate one of the franchises and to apply the down payment he had made on that franchise to his indebtedness on the other franchises.   He subsequently fell further behind on payments due to the franchisor.   Red Carpet eventually moved to terminate the remaining three franchises.

RESPONDENTS' CASE

Brady met Calton at McArthur Park restaurant in San Francisco.   In the course of a social conversation he mentioned that he was selling Red Carpet realty franchises in San Mateo.   Calton subsequently contacted Brady and told him that he and Ciampi were interested in buying franchises in San Mateo.   They met briefly in San Mateo and discussed the Red Carpet system.   Ciampi was given a prospectus and a copy of the franchise agreement and he signed a receipt for these documents.   He was not given any advertising brochures at that time but Brady did give him a directory listing Red Carpet brokers.   Frame suggested that Ciampi and Calton review the franchise agreement with a lawyer and speak with other franchisees in the Red Carpet system.   They did discuss Red Carpet's plans to open ten franchises in San Mateo at this meeting but Calton testified that it was understood that this was a projection rather than a commitment.

Calton proceeded to investigate the Red Carpet system.   He spoke with several Red Carpet brokers and asked people at a shopping center how they rated Red Carpet in comparison with other large realtors.   They met with the Ciampis' attorney and went over the franchise agreement before they signed it.

Brady claimed that he explained the assessments and the deductions to be made from the 40 percent service fee at the meeting Joan Ciampi attended.   Calton testified that Ciampi learned about the assessments, the deductions, and the cost of the training programs before the contract was executed.   He claimed that he and Ciampi discussed whether or not they should proceed with the contracts in light of the additional costs.   They both believed that the investment would prove profitable and decided to buy the franchises.   Ciampi read and initialed the integration clause in the contract and he understood the content of the contracts he signed.

Red Carpet introduced evidence that they initially assigned the Ciampi franchises to the San Francisco local council in accordance with the franchise agreement.   Ciampi, however, wanted to control the funds in his reserve account and preferred to be a San Mateo council by himself.

In August of 1977, Brady helped Ciampi put on a “career night” to attract new sales agents.   At Ciampi's request he brought copies of three advertising brochures to distribute to prospective employees.   Calton, Frame, and Brady agreed that Ciampi had not been provided with copies of these brochures at the meeting in June or at any time before the career night.

Red Carpet offered a number of training programs in the greater Bay Area during the time Ciampi was a Red Carpet broker.   Evidence was introduced which showed that many of Ciampi's employees had attended these training programs.

Calton testified that he became dissatisfied with Ciampi's management of the business.   In his opinion Ciampi did not have the expertise to manage more than one office.   He therefore suggested that they terminate their partnership.   He offered to buy out the Ciampis' interest in the franchises, to divide up the offices or to sell his interest to Ciampi.   He testified that his offer to buy was not predicated on his continued use of Ciampi's real estate broker's license but that he had other brokers who were interested in working with him.   Calton believed that the franchises would have been successful if he had been allowed to manage them.

The Ciampis were behind on their payments to Red Carpet almost from the beginning of their operation of the franchises.   They progressively fell further and further behind on their payments.   Ciampi was at all times very interested in retaining his interest in the franchises and in April arranged to terminate one of the franchises in order to retain his interest in the other three franchises.   Red Carpet applied the franchise down payment to his indebtedness on the other franchises and set up a payment plan on the remaining balance.   The Ciampis subsequently failed to make any monthly payments to Red Carpet and Red Carpet terminated the other three franchises.

The Ciampis did not cease operating as a Red Carpet broker nor did they return items relating to the Red Carpet trademarks and copyrights to Red Carpet when their franchises were terminated.   They continued to operate as a Red Carpet broker until Red Carpet obtained an injunction in November of 1978.   At that time the Ciampis owed Red Carpet $5,545 in franchise fees, $10,760 in Bay Area Area Council Assessments, and $12,656 in continuing service fees.

I

Appellants sought relief for alleged violations of the Franchise Investment Law Act (Corp.Code, § 31000 et seq.),1 hereinafter Franchise Act, in their fifth and sixth causes of action of their fourth amended complaint.   They assert as error the trial court's failure to adequately instruct the jury on the law of the Franchise Act.

 This court must, to determine if a proposed instruction should have been given, review the record in the light most favorable to appellant.   (Costa v. A.S. Upson Co. (1963) 215 Cal.App.2d 185, 187, 30 Cal.Rptr. 66.)   Thus, for purposes of the following discussion, any conflicts in the evidence have been resolved in appellants' favor.

Appellants testified that they signed the contracts to buy four franchises and paid consideration to Red Carpet on June 30, 1977.   They claimed that as of that time they had not been told all the material facts which the Franchise Act requires the franchisor to disclose to a prospective franchisee.   Appellants would not have agreed to buy the franchises had they been apprised of all the material facts, and they suffered damages as a result of their purchase.

A.

Appellants argued that respondents had a duty under the Franchise Act to disclose the following facts to them before June 30, 1977:  (1) That sizeable deductions would be made from the portion of the service fee returned to the local councils to pay for the administrative expenses of the Red Carpet Council system.   This deduction allegedly decreased significantly the amount of money available to the franchisee for advertising purposes;  (2) that an assessment, which typically ranged between $300 and $1,000 per month per franchise would be levied on appellants' franchises.   This assessment in fact increased the cost of operating the Ciampi franchises by $1,280 a month;  (3) that if Red Carpet did not succeed in selling additional franchises in San Mateo appellants would not receive the main benefit of a Red Carpet franchise, to wit, the benefit of pooling their resources and business knowledge with other local brokers;  (4) that Red Carpet would not finance the “big splash” promotion but instead would reimburse appellants for some of their expenses in arranging a “big splash”;  (5) that this reimbursement would be made from the $1,000 per franchise Red Carpet had obligated itself to deposit in the local council's reserve account when the franchises opened rather than in addition to this amount;  (6) that Red Carpet would not advance funds for franchise office signs but instead would reimburse franchisees who purchased and installed acceptable signs at their offices;  (7) that the video equipment and training tapes promised appellants would not be made available free of charge;  (8) that unless Red Carpet succeeded in selling additional franchises in San Mateo, no training programs would be held in San Mateo but would instead be held at less convenient (from appellants' perspective) locations in the greater Bay Area;  and (9) that Red Carpet had not contributed money to local councils in the past and had no intention of contributing such funds in the future.

Respondents introduced evidence that appellants had been apprised of most of these facts before the contracts were executed.   They introduced evidence that appellants had read and initialed provisions in the contracts to the effect that the entire agreement of the parties was embodied in the contract and that no additional representations had been made by the franchisor's sales agents.   They argued to the jury that they had satisfied their obligations under the Franchise Act by making the requisite disclosures to appellants before the contract became binding on July 29, 1977.   Appellants sought to have the court tell the jury which facts the Franchise Act required the franchisor to disclose.   They sought to have the jury instructed that this information must be provided to the prospective franchisee 48 hours before he manifests his intention to buy the franchises and that the franchisor could not escape responsibility for violations of the Franchise Act by inserting integration or exculpatory clauses in the contract.   These instructions were refused.

The legislative intent of the Franchise Act is set forth in section 31001.   It provides in pertinent part that “California franchisees have suffered substantial losses where the franchisor or his representative has not provided full and complete information regarding the franchisor-franchisee relationship, the details of the contract between franchisor and franchisee․  [¶] It is the intent of this law to provide each prospective franchisee with the information necessary to make an intelligent decision regarding the franchises being offered.”

The Franchise Act requires the franchisor to deliver a copy of the prospectus and franchise agreement at least 48 hours before the prospective franchisee manifests his intention to buy the franchise.  (§ 31119.) 2  It provides that a civil action can be brought against any person “who offers or sells” a franchise without submitting a complete and accurate application to the Commissioner of Corporations.  (§§ 31300, 31200.) 3  “Offer” is defined as “includ[ing] every attempt to dispose of, or solicitation of an offer to buy, a franchise or interest in a franchise for value.”  (§ 31018.)

 Appellants argue that section 31300 creates civil liability for any material misrepresentations or omissions of material facts in the prospectus and franchise agreement.   They claim that both of these documents must be delivered to the prospective franchisee at least 48 hours before he pays consideration or executes the agreement, whichever occurs first.   Appellants requested an instruction on section 31300 which provided in part that the franchisor was obligated to “disclose truthfully and completely in writing” certain items to the prospective franchisee 48 hours before consideration was paid.   This instruction was refused.4

Respondents argue that no private right of action exists for a franchisor's failure to comply with section 31119 and that the franchisor in any event can comply with the section by delivering the requisite documents regardless of any inaccuracies contained therein.   Under the interpretation of the Franchise Act suggested by respondents, the franchisor can comply with section 31300 as long as the requisite disclosures are made to the prospective franchisee before the contract is formally executed.   If respondents' position were adopted, a franchisor could submit a misleading prospectus to a prospective franchisee who in reliance thereon might make substantial expenditures to qualify as a franchisee (e.g. closing existing businesses, buying or leasing space for the franchise outlet, borrowing funds, etc.).   The franchisor could put off disclosing the more unpleasant truths about the investment until the prospective franchisee had strong economic incentives not to withdraw from the contract.   The franchisor would suffer no liability under the Franchise Act so long as the requisite disclosures were made before the contract was formally executed regardless of the amount of damage caused the prospective franchisee.

 Section 31300 has not previously been interpreted in California case law.   The state of Minnesota, however, enacted a Franchise Act patterned on the California Franchise Act.  (Braun, Policy Issues of Franchising (1984) 14 Sw.U.L.Rev. 155, 206, fn. 207.)   The Minnesota Franchise Act contains a provision worded similarly to section 31300.  (Minn.Stat. § 80C.02.)   The Minnesota courts interpreted this provision to require the franchisor to be in compliance with the requirements of the Franchise Act when it first contacts a prospective franchisee about the franchises it intends to sell.  (Martin Investors Inc. v. Vander Bie (Minn.1978) 269 N.W.2d 868, 873;  Chase Manhattan Bank, N.A. v. Clusiau Sales (Minn.1981) 308 N.W.2d 490, 492.)   The interpretation adopted by the Minnesota courts would comport with the expressed legislative purpose of the California Franchise Act which requires that the prospective franchisee be provided with the information needed to make an informed decision about the investment.  (§ 31001.)   Logically, in order to effectuate the legislative intent in enacting the Franchise Act, section 31300 must reasonably be understood to require that the franchisor be in compliance with the provisions of that section when it first contacts the prospective franchisee about its franchises.   In this case, potential liability for violations of section 31300 attached when respondents met with appellants on June 2, 1977, to discuss the sale of the Red Carpet franchises.   Respondents should not have been permitted to argue to the jury that disclosures made at a later date satisfied the requirements of the Franchise Act.   While subsequent disclosures might affect the amount of damages caused a prospective franchisee, such disclosures cannot be used to avoid liability for a violation of section 31300.

 Section 31300 provides that a franchisee may sue for damages caused by misrepresentations made by the franchisor in his application to sell franchises.   The disclosures in the application for permission to sell franchises form the basis of the information that is to be contained in the prospectus.  (Damon, Franchise Investment Law (1971) 2 Pacific L.J. 27, 41.)   It is apparent that the Legislature realized that an offer to sell a franchise might be made in advance of the deadline for delivering a prospectus to the prospective franchisee and intended to provide a remedy for any misrepresentations made in the early stages of the sales effort by enacting section 31300.   It is also apparent that the Legislature did not intend that any offer be made less than 48 hours before the prospective franchisee decided to buy a franchise.  (§ 31119.)   Appellants proffered an instruction which stated that requisite disclosures should have been made at least 48 hours before appellants paid consideration on June 30, 1977.   This instruction was a correct statement of law and should have been given to the jury.

 The jury in this case may well have concluded that although Red Carpet was not in compliance with the Franchise Act in June of 1977, it could not be found liable because it made the requisite disclosures by the end of July.   It is reasonably probable that the jury would have reached a different verdict had it been properly instructed on this issue.   The instructional error was therefore prejudicial and the judgment on the fifth cause of action must be reversed.  (People v. Watson (1956) 46 Cal.2d 818, 836, 299 P.2d 243.)

3

Appellants assert additional instructional errors on their fifth cause of action.   These questions are discussed here because they may arise on retrial.

3

 The court properly reserved its decision on the equitable issues raised by the complaint until after the jury decided the legal issues.   (Southern Pac. Transportation Co. v. Superior Court (1976) 58 Cal.App.3d 433, 436–438, 129 Cal.Rptr. 912.)   The court modified sections 31300 and 31200 to delete any reference to recission from the jury instruction.   This modification was proper.

3

 Appellants sought to have section 30001, which expresses the legislative intent behind the Franchise Act, read to the jury.   The legislative intent is helpful in interpreting the meaning of a statute.   (Lewis v. Ryan (1976) 64 Cal.App.3d 330, 333, 134 Cal.Rptr. 355.)   The jury's function is to apply the law as given by the court to the facts as they find them, they are not to interpret the statute.   The court properly refused this instruction.

3

 Appellants also requested that section 31125 subdivision (b), be read to the jury.5  The Franchise Act does not create a right of private action for violations of section 31125 and the request was properly denied.  (§ 31304.)   They also requested that section 31123 6 be read to the jury.   This section provides that the franchisor must report any major modifications made in the franchise registration material.   Under section 31300 the franchisee may sue for damages caused by any violation of section 31200.   Section 31200 provides that the franchisor must comply with section 31123.   It thus appears that a private right of action was intended for damages caused by a franchisor's violation of section 31123.   This instruction was, however, properly refused because appellants failed to present any evidence that the franchisor made any modifications to the franchise agreement.   Appellants attempted to prove that the outlying council status assigned to them was a modification of the franchise agreement.   The evidence instead showed that they were offered the right to participate in a local council in San Francisco or the option of participating in an outlying council if they preferred.  (See discussion, section II, post.)   Because appellants failed to produce evidence of any modification to the agreement, the court correctly refused the proposed instruction.  (Petersen v. Rieschel (1953) 115 Cal.App.2d 758, 766, 252 P.2d 986.)

B.

In their sixth cause of action appellants sought to recover for damages caused by alleged misrepresentations and omissions of material facts made by the franchise salesmen and found in the advertising materials they claimed they received in June 1977.

The agents allegedly told them that video equipment and training tapes would be available for their use but failed to tell appellants that they had to be purchased from the franchisor.   They stated that training seminars would be held in San Mateo at least once a month.   They claimed that Red Carpet would sell ten franchises by September 1, 1977, and that Red Carpet would then host a “big splash” promotion for the new franchises.   They did not tell appellants that the “big splash” would be paid out of the local council's reserve account.   They did not tell them that if no additional franchises were sold appellants would have to fund the promotional event themselves.   The agents represented that the real benefit of the Red Carpet system was the local councils.   They used the San Jose local council as an example.   Red Carpet returns about $25,000 a month to that particular local council's reserve account.   It is a large local council and the brokers exchange information on financing techniques and aid each other in training new employees.   The salesmen did not mention that if Red Carpet failed to sell additional franchises in San Mateo these benefits might not be available to appellants.   The salesmen represented that the assessment fees were of a negligible amount when in fact appellants were billed $1,280 per month for their four franchises.

 Appellants requested that the court read sections 31301 and 31201 7 to the jury.   The court refused these instructions.   Instead, the court instructed the jury that appellants could recover for damages caused by misrepresentations made in the prospectus and in the advertising materials but failed to inform them that appellants also could recover for damages caused by misrepresentations made by the salesmen.   Section 31301 is intended to provide a remedy for such misrepresentations.  (Damon, The Franchise Investment Law, supra, at p. 48.)   The court by refusing to correctly instruct the jury on appellants' theory on the sixth cause of action committed reversible error.  (Phillips v. G.L. Truman Excavation Co. (1961) 55 Cal.2d 801, 808, 13 Cal.Rptr. 401, 362 P.2d 33;  Ng v. Hudson (1977) 75 Cal.App.3d 250, 261, 142 Cal.Rptr. 69.)

Respondents were also permitted to argue that the provisions in the contract which stated:  “NO SALESMAN, REPRESENTATIVE OR OTHER PERSON HAS THE AUTHORITY TO BIND OR OBLIGATE THE COMPANY IN ANY WAY ․” and “REPRESENTATIONS.   NO REPRESENTATIONS, GUARANTEES OR WARRANTIES OF ANY KIND WERE MADE BY RED CARPET TO INCLUDE THE EXECUTION HEREOF OR IN CONNECTION HEREWITH EXCEPT AS SPECIFICALLY SET FORTH IN WRITING IN THIS AGREEMENT” precluded the jury from finding respondents liable under the Franchise Act.

Section 31512 of the Franchise Act provides:  “Any condition, stipulation or provision purporting to bind any person acquiring any franchise to waive compliance with any provision of this law or any rule hereunder is void.”   Appellants assert that this section prevents a franchisor from inserting a standard integration clause into a contract to avoid responsibility for misrepresentations made to the prospective franchisee in the course of the sale.   Respondents argue that the clauses in the contract do not purport to waive any provisions of the Franchise Act, and that section 31512 was therefore irrelevant to the issues before the jury.

 The clear and stated purpose of the Franchise Act is to discourage franchisors and their agents from misrepresenting the nature of the franchise to prospective investors.  (§ 31001.)   This purpose would be ill served if the franchisor could avoid responsibility for misrepresentations by inserting a standard integration clause into a contract drafted by the franchisor.   Contract law abounds with examples of individuals who have signed contracts containing such provisions not believing that the provisions would be enforced.   The law is generally reluctant to permit them to deny the validity of those provisions at a later date.  (3 Corbin, Contracts (1964) §§ 578, pp. 402–412.)   The Legislature, however, intended to provide greater protection for prospective franchisees.  (Damon, Franchise Investment Law, supra, at p. 53.)   Section 31512 must, therefore, be understood to void such provisions for purposes of determining liability under the Franchise Act.   The court should have given appellants' proposed instruction on this section.

3

Appellants also claim that the trial court erred by instructing the jury that if respondents could show that “the plaintiff knew or should have known of the falsehoods or misleading statements contained in the prospectus or advertisements” they would not be liable for violating the Franchise Act.   This was a correct statement of respondents' burden under section 31301.

 Section 31301 provides that “[a]ny person who violates Section 31201 shall be liable to any person (not knowing or having cause to believe that such statement was false or misleading) who, while relying on such statement shall have purchased a franchise․”  The statement contained in the parenthesis would have no meaning if a franchisor could only be relieved of liability by proof that the franchisee knew of the misrepresentations.   Such a result would have obtained if the Legislature had worded section 31301 in the manner in which section 31300 is worded.   If possible, significance should be given to every phrase in a statute.  (Select Base Materials v. Board of Equal. (1959) 51 Cal.2d 640, 645, 335 P.2d 672.)   The trial court correctly determined that the most reasonable interpretation of the language in section 31301 was that respondents could be relieved of responsibility for misrepresentations appellants knew or should have known were false.

3

Appellants correctly assert, as discussed above, that some of the instructions requested on the Franchise Act should have been read to the jury.   These errors were prejudicial and the judgments on appellants fifth and sixth causes of action should be reversed.

II–VIII 8

The judgment of the trial court is reversed as to the fifth and sixth causes of action.   In all other respects, the judgment is affirmed.

FOOTNOTES

1.   Unless otherwise indicated all further references are to the Corporations Code as it read in June of 1977.

2.   Section 31119 provides as follows:  “It is unlawful to sell any franchise in this state which is subject to registration under this law without first providing to the prospective franchisee, at least 48 hours prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least 48 hours prior to the receipt of any consideration, whichever occurs first, a copy of the prospectus, together with a copy of all proposed agreements relating to the sale of the franchise.”

3.   Section 31300 provides as follows:  “Any person who offers or sells, a franchise in violation of Section 31101, 31110, 31200, or 31202, shall be liable to the franchisee or subfranchisor, who may sue for damages caused thereby, and if such violation is willful, the franchisee may also sue for rescission, unless, in the case of a violation of Section 31200 or 31202, the defendant proves that the plaintiff knew the facts concerning the untruth or omission, or that the defendant exercised reasonable care and did not know, or, if he had exercised reasonable care, would not have known, of the untruth or omission.”Section 31200 provides as follows:  “It is unlawful for any person willfully to make any untrue statement of a material fact in any application, notice or report filed with the commissioner under this law, or willfully to omit to state in any such application, notice, or report any material fact which is required to be stated therein, or fail to notify the commissioner of any material change as required by Section 31123.”

4.   Appellants also sought to have section 31119 read to the jury.   The Legislature, however, in explicit and unambiguous language restricted the right of private action for violations of the Franchise Act to certain specified sections.  (§ 31304.)   Section 31119 was not one of these sections at the time appellants purchased their franchises and the trial court properly denied the requested instruction.   It is noted that section 31300 was amended in 1980 to provide that a franchisor who offers a franchise in violation of section 31119 may be liable to the franchisee.   (Amended by Stats.1980, ch. 534, § 3, p. 1458.)

5.   Section 31125 provides as follows:  “(a) An application for registration of a material modification of an existing franchise or of existing franchises shall be in such form and contain such information as the commissioner may by rule prescribe, and shall be accompanied by a proposed disclosure form as specified in subdivision (b).   Such an application may be included with an application pursuant to Section 31111 or 31121.”

6.   Section 31123 provides as follows:  “A franchisor shall promptly notify the commissioner in writing by an application to amend the registration, of any material change in the information contained in the application as originally submitted, amended or renewed.   The commissioner may by rule further define what shall be considered a material change for such purposes, and the circumstances under which a revised offering prospectus must accompany such application.”

7.   Section 31301 provides as follows:  “Any person who violates Section 31201 shall be liable to any person (not knowing or having cause to believe that such statement was false or misleading) who, while relying upon such statement shall have purchased a franchise, for damages, unless the defendant proves that the plaintiff knew the facts concerning the untruth or omission or that the defendant exercised reasonable care and did not know, (or if he had exercised reasonable care would not have known) of the untruth or omission.”Section 31201 provides as follows:  “It is unlawful for any person to offer or sell a franchise in this state by means of any written or oral communication not enumerated in Section 31200 which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.”3

8.   See footnote * ante.

SMITH, Associate Justice.

KLINE, P.J., and ROUSE, J., concur.

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