Plaintiff franchisees sought damages from defendant franchisor based upon claims that the franchisor's agent and subagent fraudulently induced them into signing distribution contracts. The Superior Court of Santa Clara County found that the franchisor was liable for the false representations because of the ostensible authority vested in the subagent, through his relationship with the agent of the franchisor. The franchisor appealed.
Franchisor knew that its agent had hired a subagent, and that the subagent was working for the agent. The agent authorized the subagent to use the franchisor's marketing materials and logo in selling distributorships to the franchisees. A principal was bound by the acts of its agent and subagent, whom were vested with ostensible authority as defined by Cal. Civ. Code §§ 2317 and 2300, when the franchisees in good faith, and without want of ordinary care, paid for the distributorships based upon the subagent's misrepresentations. Cal. Civ. Code § 2334. The court reasoned that the evidence supported the judgment against theCorporate attorney Los Angeles franchisor because the agent had the authority to hire the subagent, the franchisor knew its name and materials were used, and even when the franchisor knew of the subagent's activities it failed to take immediate action. None of the franchisees had any experience or familiarity with franchising, while the franchisor held itself out as an expert. Furthermore, none of the subagent's statements were preposterous, some were borne out by the franchisor's materials, and the initial successful transactions justified the franchisees' reliance on the subagent's authority. The court affirmed the judgment in favor of the franchisees because the franchisor's agent and subagent had ostensible authority when the false representations were made, and the franchisees' reliance was reasonable, in good faith, and their recovery was not barred by such independent investigations as they made. Finally, the damages were fairly calculated. By an application for writ of habeas corpus, petitioner prisoner challenged the validity of the ordinance under which he was convicted of carrying on within the City of Los Angeles a business where spirituous and vinous liquors were sold in quantities less than one gallon without first procuring a license. The prisoner also claimed that the trial court had been abolished by Cal. Const. art. 6, § 1 and art. 22, § 1 (1879), or lacked jurisdiction. The prisoner urged that the mayor should have been disqualified from serving as the judge. The ordinance imposed a license fee of $ 50 per month, provided that a license could not be issued without a permit, delegated to the clerk of the city council the power to issue licenses and to the board of police commissioners the power to issue and revoke permits, and declared that violations were punishable as misdemeanors. The court rejected all the prisoner's arguments and dismissed the writ. The court held that the city had the power to impose licenses for regulation, revenue, or both under Cal. Const. art. 11, §§ 11 and 12 (1879) and Los Angeles, Cal., Charter art. 1, § 5; that the ordinance was properly authenticated under Los Angeles, Cal., Charter art. 12, § 2 and Cal. Pol. Code § 1031; and that inclusion of the order for publication in the ordinance did not affect the validity of the order or the ordinance. The court could not say as a matter of law that the fee was oppressive, unreasonable, or prohibitory of trade and found that the city's power to regulate under Cal. Const. art. 11, § 11 included the power to prescribe punishments for the violation of its regulations. The court dismissed the writ of habeas corpus and remanded the prisoner.
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