Chapter 7.8 - Franchise Dealers Fair Practices

California Business and Professions Code — §§ 21140-21149

Sections (8)

Repealed and added by Stats. 1981, Ch. 90, Sec. 6.

For purposes of this chapter, the following terms shall have the following meanings:

(a)“Franchise” means any contract between a refiner and a distributor, between a refiner and a retailer, between a distributor and another distributor, or between a distributor and a retailer, under which a refiner or distributor authorizes or permits a retailer or distributor to use, in connection with the sale, consignment, or distribution of gasoline, diesel, gasohol, or aviation fuel, a trademark which is owned or controlled by such refiner or by a refiner which supplies fuel to the distributor which authorizes or permits such use. The term “franchise” includes the following:

(1)Any contract under which a retailer or distributor is authorized or permitted to occupy leased marketing premises, which premises are to be employed in connection with the sale, consignment, or distribution of fuel under a trademark which is owned or controlled by such refiner or by a refiner which supplies fuel to the distributor which authorizes or permits such occupancy.

(2)Any contract pertaining to the supply of fuel which is to be sold, consigned, or distributed under a trademark owned or controlled by a refiner, or under a contract which has existed continuously since May 15, 1973, and pursuant to which, on May 15, 1973, fuel was sold, consigned, or distributed under a trademark owned and controlled on such date by a refiner.

(3)The unexpired portion of any franchise, as defined by the preceding provisions of this paragraph, which is transferred or assigned as authorized by the provisions of such franchise or by any applicable provision of state law which permits such transfer or assignment without regard to any provision of the franchise.

(b)“Franchisor” means a refiner or distributor who authorizes or permits, under a franchise, a retailer or distributor to use a trademark in connection with the sale, consignment, or distribution of fuel.

(c)“Franchisee” means a retailer or distributor who is authorized or permitted, under a franchise, to use a trademark in connection with the sale, consignment, or distribution of fuel.

(d)“Refiner” means any person engaged in the refining of crude oil to produce fuel, and includes any affiliate of such person.

(e)“Distributor” means any person, including any affiliate of such person, who either purchases fuel for sale, consignment, or distribution to another, or receives fuel on consignment for consignment or distribution to his or her own fuel accounts or to accounts of his or her supplier, but shall not include a person who is an employee of, or merely serves as a common carrier providing transportation service for, such supplier.

(f)“Retailer” means any person who purchases fuel for sale to the general public for ultimate consumption.

(g)“Marketing premises” means, in the case of any franchise, premises which, under such franchise, are to be employed by the franchisee in connection with the sale, consignment, or distribution of fuel.

(h)“Leased marketing premises” means marketing premises owned, leased, or in any way controlled by a franchisor and which the franchisee is authorized or permitted, under the franchise, to employ in connection with the sale, consignment, or distribution of fuel.

(i)“Contract” means any oral or written agreement. For supply purposes, delivery levels during the same month of the previous year shall be prima facie evidence of an agreement to deliver such levels.

(j)“Trademark” means any trademark, trade name, service mark, or other identifying symbol or name.

(k)“Fuel” means gasoline, diesel, gasohol, or aviation fuel.

(l)“Affiliate” means any person who, other than by means of a franchise, controls, is controlled by, or is under common control with, any other person.

§ 21140.1

Amended by Stats. 1981, Ch. 90, Sec. 7.

Notwithstanding the terms of any franchise, a franchisee shall not be precluded from purchasing fuel from any available source if the franchisor is unable or refuses to supply the franchisee with fuel.

Failure to deliver contracted, agreed upon, or requested quantities of fuel within 72 hours of such specified contract time, agreement, or request shall constitute an inability or refusal to supply a franchisee. Requests for deliveries of fuel may be telephoned to the franchisor, except that when the franchisee intends to seek fuel from another supplier pursuant to Section 21140.1 should the franchisor be unable or refuse to supply him or her, a request for fuel must be made in writing to a franchisor at least 48 hours before desired delivery.

Once such notice has been given, and the franchisor has failed to deliver contracted, agreed upon, or requested quantities of fuel no further written request shall be required from the franchisee until such time as the franchisor notifies the franchisee in writing that the franchisor is prepared to deliver contracted, agreed upon, or requested quantities of fuel.

Nondelivery of fuel by the franchisor due to accident, fire, theft or other similar acts shall not constitute an inability or refusal to supply the franchisee.

If the franchisee sells fuel supplied from a source other than the franchisor, the franchisee shall prominently post a sign disclosing this fact to the public on each pump dispensing fuel purchased from other than the franchisor. The sign shall not be smaller than 8″ x 10″ with letters not less than three inches in height.

This provision shall not be construed to permit a franchisee to purchase more fuel than may be allowed by any federal statute or regulation.

§ 21140.2

Amended by Stats. 1999, Ch. 523, Sec. 1. Effective January 1, 2000.

From the effective date of this section it shall be illegal for any franchisor by any action to require a franchisee to purchase only those tires, batteries, motor oil, and other automotive accessories sold by the franchisor. A franchised retail gasoline dealer may sell any tires, batteries, motor oil, and other automotive accessories as may be available to him or her for retail sale.

§ 21140.3

Amended by Stats. 1999, Ch. 523, Sec. 2. Effective January 1, 2000.

The franchisor’s executive officer, representative, or agent of the franchisor who negotiates any contract in violation of this chapter or who otherwise coerces a franchisee in violation of this chapter shall be subject to a civil penalty of up to one hundred thousand dollars ($100,000) for each offense. That penalty, reasonable attorney fees and costs of the suit shall be assessed and recovered in a civil action brought by the Attorney General or by any district attorney, county counsel, or city attorney in any court of competent jurisdiction. If brought by a district attorney or county counsel, the entire amount of the penalty shall be paid to the treasurer of the county in which the judgment was entered. If brought by the Attorney General, one-half of the penalty, attorney fees, and costs of the suit shall be paid to the treasurer of the county where the action was brought and one-half shall be paid to the State Treasurer. If brought by a city attorney, one-half of the penalty, attorney fees, and costs of the suit shall be paid to the treasurer of the county and one-half to the city.

§ 21140.4

Added by Stats. 1974, Ch. 498.

Any person who is injured in his business or property by reason of a violation of this chapter may sue therefor in any court having jurisdiction in the county where the defendant resides or is found, or any agent resides or is found, or where service may be obtained, without respect to the amount in controversy, and to recover three times the damages sustained by him, and shall be awarded attorneys’ fees together with the costs of the suit. Any action brought pursuant to this section shall be commenced within four years after the cause of action accrued.

§ 21140.6

Added by Stats. 1979, Ch. 972.

(a)On and after January 1, 1980, it shall be unlawful to include in any franchise agreement any term which provides for the termination of the franchise by the franchisor upon the death of the franchisee if the franchisee, prior to his demise, designates a successor-in-interest in a form prescribed by and delivered to the franchisor.

(b)For the purposes of this section, “successor-in-interest” shall be restricted to either a surviving spouse or adult child of the franchisee, provided that such spouse or child, at the time of the franchisee’s death, shall meet the reasonable qualifications then being required of dealers by the franchisor for the operation of such service stations.

(c)This section shall not apply to a “trial franchise” as defined in the Petroleum Marketing Practices Act (Public Law 95-297).

(d)The designated successor-in-interest shall be allowed 21 days after the death of the franchisee to give written notice of his or her election to assume and operate the franchise. The notification shall contain such information regarding business experience and creditworthiness as is reasonably required by the franchisor. The successor-in-interest must offer to assume the franchise in writing three days (excluding Saturdays, Sundays, and holidays) after such election and must commence operation of the franchise within 10 days after it has been assumed.

(e)Franchisors may require that franchisees desiring to designate a successor-in-interest pursuant to this section deposit with the franchisor at the time of such designation such sum as would be reasonably estimated to be necessary to compensate the franchisor for rent for a period of 21 days. This deposit is intended to compensate the franchisor in the event the designated successor-in-interest fails for such period after the death of the franchisee to assume the franchise obligation. Any unearned portion of such deposit resulting from the successor-in-interest assuming responsibility for the franchise sooner than 21 days after the date of the franchisee’s death, or from the temporary operation of the facility by the franchisor during such 21 days, shall be refunded by the franchisor to the estate or legal representative of the deceased franchisee. In addition to such deposit, the franchisor may require a franchisee desiring to qualify under this section to arrange for the discharge or performance of other franchise obligations such as, but not limited to, insurance, but excluding any obligation to be open to the public, for a period of up to 21 days after his demise.

(f)The franchise available to the successor-in-interest pursuant to this section is intended to be no greater than or less than the franchise as it existed in the name of the deceased franchisee at the time of such franchisee’s death. This section is not intended to expand or diminish the rights of franchisors or franchisees under either federal or state law.

(g)A franchisee may designate a primary and one alternate successor-in-interest. The alternate, if one is designated, shall have no rights under this section in the event of any exercise of rights by the primary successor-in-interest. If an alternate desires to assume and operate the franchise in the event the primary successor-in-interest fails to do so, the alternate must give notice of such election and otherwise comply with paragraph (d) of this section.

(h)Unless otherwise specifically provided herein, any actions to be performed by the franchisor or by the successor-in-interest hereunder shall in each instance be performed within a reasonable time.

(i)Unless the franchisor otherwise agrees in writing, there shall be no operation of the franchise following the death of the franchisee by anyone (other than the franchisor for its own account) until all parts of the franchise have been expressly assumed as herein provided, including, but not limited to, such items as lease or leases, products agreement, loaned equipment agreement, federal and state environmental law compliance agreements, licensing, and tax permits.

(j)Following the death of a franchisee, and prior to the operation of the franchise by the successor-in-interest as herein provided, the franchisor shall have the option to operate the franchise by contract or otherwise for its own account without obligation or duty to the heirs or estate of the deceased franchisee or to the successor-in-interest except for the obligation to account to the heirs or the estate of the deceased franchisee for the inapplicable portion of any prepaid rent or other sums prepaid to the franchisor, and for any physical inventory salvaged from the franchise and used or sold by the franchisor.

(k)If the successor-in-interest assumes the franchise and there has been no intervening operation of the franchise by the franchisor, the successor-in-interest shall account to the heirs or estate of the deceased franchisee for the value or other disposition of personal property of the franchisee located at or related to the franchise.

(l)The liability for failure to comply with this section shall be limited to those damages provided by Section 3300 of the Civil Code. Any action pursuant to this section shall be commenced within one year after the cause of action accrued.

(m)In the event any provision of this section is deemed void or unenforceable, the remaining portions, to the extent severable, shall be given effect.

§ 21148

Amended by Stats. 1999, Ch. 523, Sec. 3. Effective January 1, 2000.

(a)Notwithstanding the terms of any franchise, a franchisor may not withhold its consent to the sale, transfer, or assignment of the franchise by the franchisee to another person unless the franchisor demonstrates in writing to the franchisee within 45 days of receiving the application, or required paperwork, from the potential buyer any of the following:

(1)The proposed purchaser of the franchise has less business experience and training than that normally required by the franchisor of prospective franchisees.

(2)The proposed purchaser of the franchise has less financial resources than that normally required by the franchisor of prospective franchisees.

(3)The proposed purchaser of the franchise does not satisfy the then-current uniformly applied requirements, if any, of the franchisor applicable to prospective franchisees.

(4)The proposed purchaser of the franchise operates a franchise under an agreement with a franchisor other than the franchisor to whom the sale, transfer, or assignment is proposed, if the then-current uniformly applied requirements, if any, of the franchisor precludes prospective franchisees from operating a franchise under an agreement with another franchisor.

(5)The franchisee has not offered in writing to sell, transfer, or assign the franchise to the franchisor on terms and conditions which are the same as those of the sale, transfer, or assignment of the franchise to the proposed purchaser; and the franchisee has not allowed the franchisor at least 30 days in which to either accept or decline the franchisee’s written offer, prior to the sale, transfer, or assignment of the franchise to the proposed purchaser.

(b)Notwithstanding the terms of any franchise, a franchisor may not withhold its consent to the sale, transfer, or assignment of the franchise by the franchisee to another person for the purposes of diminishing the market value of the franchise.

(c)Notwithstanding the terms of any franchise, a franchisor may not withhold its consent to the sale, transfer, or assignment of the franchise by the franchisee to another person because that other person is of foreign origin or is non-English speaking as long as the prospective franchisee is able to adequately communicate with the franchisor and the appropriate federal, state, and local governmental agencies concerning matters of management, operations, environmental compliance, and public safety.

(d)If the franchisor consents to the sale, transfer, or assignment of the franchise to a prospective purchaser, the franchisor may require the franchisee to pay a transfer fee to the franchisor, provided the amount of the fee is reasonable when compared to the sale price of the franchise and provided the fee is not required in an effort to frustrate the proposed sale.

§ 21149

Added by Stats. 1980, Ch. 698, Sec. 2.

Notwithstanding the terms of any franchise, the franchisor may not prohibit or prevent the sale, transfer, or assignment of the franchise to a corporation if both of the following conditions are satisfied:

(a)The franchisee has a controlling interest in the corporation.

(b)The franchisee offers in writing to personally guarantee the corporation’s performance of its obligations under the franchise.