Billops v. Magness Const. Co.

• Decision Date: 21 July 1978
• Citation: 391 A.2d 196
• Parties: Ronald BILLOPS et al., Plaintiffs below, Appellants, v. MAGNESS CONSTRUCTION CO., a corporation of the State of Delaware, t/a Brandywine Hilton Inn, Hilton Inns, Inc., a corporation of the State of Delaware, Hilton Hotels Corporation, a corporation of the State of Delaware, and Hilton International Co., a corporation of the State of Delaware, Defendants below, Appellees.
• Court: Supreme Court of Delaware

Page 196

391 A.2d 196

Ronald BILLOPS et al., Plaintiffs below, Appellants, v. MAGNESS CONSTRUCTION CO., a corporation of the State of Delaware, t/a Brandywine Hilton Inn, Hilton Inns, Inc., a corporation of the State of Delaware, Hilton Hotels Corporation, a corporation of the State of Delaware, and Hilton International Co., a corporation of the State of Delaware, Defendants below, Appellees.

Supreme Court of Delaware.

Submitted May 12, 1978.

Decided July 21, 1978.

Upon appeal from Superior Court. Reversed and Remanded.

Thomas Stephen Neuberger, of Bader, Dorsey & Kreshtool, Wilmington, and Nicholas J. Guarente, Chester, Pa., for plaintiffs below, appellants.

B. Wilson Redfearn, John A. Elzufon and Jeffrey S. Marlin, of Tybout & Redfearn, Wilmington, for defendants below, appellees.

Before HERRMANN, C. J., and DUFFY and McNEILLY, JJ.

McNEILLY, Justice.

Plaintiffs brought suit in Superior Court against Magness Construction Co., t/a Brandywine Hilton Inn, Inc., (the franchisee), Hilton Inns, Inc., Hilton Hotels Corporation, Hilton International Co., (collectively denominated as franchisors), and Gray Magness, charging false imprisonment, invasion of privacy intentional and negligent infliction of emotional distress, battery, assault and defamation. The incident which led to the suit occurred at the defendant Brandywine Hilton Inn when the banquet director of the Inn wrongfully attempted to extort funds in addition to those previously paid by plaintiffs for the use of one of the Inn's ballrooms. The suit was dismissed as to defendant Gray Magness, and that ruling is not challenged. The motion of the corporate franchisors for summary judgment was granted after the Superior Court determined that no actual or apparent agency relationship existed between the franchisors and the franchisee, and that, therefore, no legal basis existed for holding the franchisors vicariously liable for the torts of the franchisee or its employees. We reverse.

I

Viewing the facts in the light most favorable to plaintiffs, the party opposing the motion for summary judgment, Mechell v. Palmer, Del.Supr., 343 A.2d 620 (1975), we find the following:

Ronald Billops, on behalf of certain of the plaintiffs, entered into a written contract for the rental of one-half of the Regency Ballroom of the Brandywine Hilton Inn for a social event consisting of an art exhibit, fashion show and dance. Billops paid the entire rental fee in advance, and received a receipt as evidence of the payment. On the day of the event the Brandywine Hilton banquet director wrongfully requested an additional rental payment which was refused. Thereafter, the director and other Hilton personnel harassed plaintiffs and their guests by loudly demanding the additional money, refusing to adequately heat the ballroom, impounding the art exhibit, failing to provide an adequate dance floor, summoning the State Police, and threatening to have plaintiffs arrested. The complaint alleged that the wrongful acts caused serious injury to the reputation of the plaintiffs, and their association, and also caused physical injury to several plaintiffs resulting from stress created by the incident.

The banquet director responsible for the allegedly wrongful conduct resigned his position with the Brandywine Hilton Inn six weeks after the event. Further facts concerning plaintiffs' reliance on the name Hilton, and concerning the legal and actual relationship between the various corporate defendants are developed in the body of this opinion as necessary for the application of the appropriate legal principles.

II

Plaintiffs allege the theories of actual and apparent agency for their contention that the franchisors may be held liable for the torts of the franchisee. We address each Seriatum.

A.

Actual authority is that authority which a principal al expressly or implicitly grants to an agent. Lind v. Schenley Industries, Inc., 3 Cir., 278 F.2d 79 (1960). A franchisor may be held to have an actual agency relationship with its franchisee when the former controls, or has the right to control, the latter's business. Hoover v. Sun Oil Company, Del.Super., 212 A.2d 214 (1965); Singleton v. International Dairy Queen, Del.Super., 332 A.2d 160 (1975). The vicarious tort liability of a master, or franchisor, flows from an actual agency relationship. Singleton v. International Dairy Queen, supra ; See also, 62 Am.Jur.2d Private Franchise § 16 (1972).

Franchise agreements, in general, attest to the skill of corporate counsel in reserving as many rights in the franchisor as is possible to maintain control and to protect the product and service covered by the trademark or tradename. If, in practical effect, the franchise agreement goes beyond the stage of setting standards, and allocates to the franchisor the right to exercise control over the daily operations of the franchise, an agency relationship exists. See, for example, Nichols v. Arthur Murray, Inc., 248 Cal.App.2d 610, 56 Cal.Rptr. 728 (1967) in which case the Court found that the right to control retained by the franchisor extended to the day-to-day details of the franchisee's operation, and thus, established a principal-agent relationship.

It is our opinion that there are sufficient facts of record which, along with the reasonable inferences therefrom, show day-to-day control of the business of the Brandywine Hilton Inn by the franchisors so that the latter's motion for summary judgment should have been denied leaving the issue of actual agency to be resolved at trial.

Franchisors have issued to the franchisee a detailed and in parts mandatory, operating manual which is incorporated into the franchise agreement. The manual regulates such matters as identification, advertising, front office procedures, cleaning and inspection service for guest rooms and public areas, minimum guest room standards, food purchasing and preparation standards, requirements for minimum supplies of "brand name" goods, staff procedures and standards for soliciting and booking group meetings, functions and room reservations, accounting, insurance, engineering and maintenance, and numerous other details of operation. The franchisee is required to keep detailed records in order for the franchisor to insure compliance with the manual guidelines. In addition, by an express provision of the franchise agreement, the franchisor retains the right to enter the premises of the hotel "to inspect the hotel so as to maintain the high standards and reputation of the system, the good...