Kuchta v. Allied Builders Corp.

• Decision Date: 24 November 1971
• Citation: 98 Cal.Rptr. 588,21 Cal.App.3d 541
• Court: California Court of Appeals Court of Appeals
• Parties: Joseph G. KUCHTA et al., Plaintiffs and Respondents, v. ALLIED BUILDERS CORPORATION, Defendant and Appellant. Civ. 10966.

Page 588

98 Cal.Rptr. 588

21 Cal.App.3d 541

Joseph G. KUCHTA et al., Plaintiffs and Respondents, v. ALLIED BUILDERS CORPORATION, Defendant and Appellant.

Civ. 10966.

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

Nov. 24, 1971.

[21 Cal.App.3d 544] Bernard Mattison, Beverly Hills, for defendant and appellant.

Joseph L. Armijo, Jr., Carson, for plaintiffs and respondents.

OPINION

KERRIGAN, Acting Presiding Justice.

The plaintiffs, Joseph G. Kuchta and Gertrude Ann Kuchta, sued the defendants Allied Builders Corporation (Allied) and its franchisee, Raphael (Ralph) Weiner, ¹ for the purpose of recovering damages for fraud and breach of a building contract wherein the franchisee agreed to construct an outdoor patio and living area in the rear yard of plaintiffs' home. The jury returned with the following verdicts: (1) $5,585 in general damages against Allied and Weiner jointly and severally; (2) $3,750 in punitive damages against Allied alone; and (3) an additional $3,750 punitive damages against Weiner individually. Judgment was entered accordingly, and only Allied appeals.

Allied raises the following issues in seeking to invalidate the judgment: (1) Weiner was an independent contractor, not an agent and, therefore, Allied may not be held liable for Weiner's fraud or breach of contract; (2) the trial court improperly denied Allied's motion to compel plaintiffs to make an election between it and Weiner; (3) the punitive damage award against the franchisor was invalid as a matter of law; and (4) the court erred in refusing to render an instruction on damages offered by the defendants.

Weiner was a franchisee of Allied Builders. He was engaged in the construction business in the Orange County area with his principal officer in Anaheim. Plaintiffs owned a home in nearby Los Alamitos. In August 1966 they saw a sign on the lawn of a neighbor's home indicating that Allied Builders had just constructed and completed and outdoor living area on the premises. They also saw Allied Builders' advertisement in their local paper.

Plaintiffs desired an outdoor living area added on to their home and attemped to find an Allied listing in their local phone book. Being unable to reach a local outlet, plaintiffs phoned Allied Builders in Los Angeles, and the party answering the phone responded, 'Allied Builders.' Plaintiffs talked to the vice-president of Allied Builders ² and explained that they wanted an addition constructed on their home. The vice-president told the they should contact the branch office in Anaheim and gave plaintiffs Weiner's number. Plaintiffs phoned the Anaheim office and two days later Weiner appeared. He represented that he was from Allied Builders.

On September 2, 1966, plaintiffs entered into a written agreement with Allied Builders System, wherein the franchisee, as contractor, agreed to furnish all labor, materials, equipment and supplies necessary to construct the outdoor living area at the rear of plaintiffs' home for the sum of $5,671. Plaintiffs approved plans and specifications relating to the addition. These plans called for the construction of a covered patio. The plans contained the provision that all construction would conform with local and state codes and that Allied would obtain the necessary building permits for the improvement.

The plans were submitted by Weiner to the Orange County Building & Safety Department, but were not approved. Plaintiffs' lot was zoned so that no structure other than a six-foot fence could be built within five feet of any boundary between two properties. The roof and side of the proposed patio were violative of the Orange County zoning ordinance in that they would extend to the west property line itself. The plans also called for a plexiglass structure more than six feet in height which would shade the patio. This structure would be illegal in that it, too, would extend to the property line.

Without plaintiffs' knowledge or consent, a second set of plans was presented to the Building Department, omitting the illegal roof, side supports, and shade structure. The amended plans depicted only an uncovered patio living and dining area. Plaintiffs were never informed before construction commenced that the Building Department had disapproved the initial plans calling for a roof over the patio. Nevertheless, Weiner's general manager and responsible managing officer (R.M.O.)--the person designated in the state contractor's license as franchisee--had the roof and other improvements constructed in close proximity to the wall with full knowledge that such construction was in violation of both the building codes and zoning ordinances. The addition was completed as originally agreed upon in December 1966.

After completion, the roof over the addition began leaking and plaintiffs called Allied's vice-president in the Los Angeles main office and voiced their complaint. Weiner called that evening and made arrangements to repair the roof.

In May 1967 plaintiffs received a notice from the Orange County Building and Safety Department advising them that the roof and other improvements along the west wall were in violation of the code and ordering the removal thereof. Eventually it became necessary for plaintiffs to demolish all the improvements along the west wall and restore the property to its original condition.

Allied Builders first attacks the $5,585 compensatory damage award on the ground that the evidence is insufficient to establish an agency relationship between it and Weiner. The franchise agreement contained a provision that no agency relationship was created by the grant of the franchise. In effect, Allied Builders is contending that Weiner was an independent contractor and, therefore, it could not be vicariously liable for either his breach of contract or fraud. On the other hand, the trial court instructed the jury on the elements of agency, and the jury obviously determined that Weiner was either an actual or ostensible agent.

The law is clear that a franchisee may be deemed to be the agent of the franchisor. (Shoopman v. Pacific Greyhound Lines, 169 Cal.App.2d 848, 856, 338 P.2d 3; Nichols v. Arthur Murray, Inc., 248 Cal.App.2d 610, 56 Cal.Rptr. 728; Beck v. Arthur Murray, Inc., 245 Cal.App.2d 976, 54 Cal.Rptr. 328.) In the field of franchise agreements, the question of whether the franchisee is an independent contractor or an agent is ordinarily one of fact, depending on whether the franchisor exercises complete or substantial control over the franchisee. (Holland v. Nelson, 5 Cal.App.3d 308, 318, 85 Cal.Rptr. 117; Nichols v. Arthur Murray, Inc., Supra, 248 Cal.App.2d pp. 612--614, 56 Cal.Rptr. 728.)

In the case under review, there was evidence that Allied Builders exercised strong control over Weiner. The franchise agreement itself gave Allied Builders the right to control the location of the franchisee's place of business, to prescribe minimum display equipment, to regulate the quality of the goods used or sold, to control the standards of construction, to approve the design and utility of all construction, and to assign persons to see that the franchisee performed according to the franchisor's standards. Additionally, Allied enjoyed the right of inspection over the franchisee's plans and specifications, the franchisee's work in progress, and finished jobs, as well as the right to train Weiner's salesmen. Moreover, Allied Builders was entitled to share in the profits of the franchisee and to audit Weiner's books. These elements of control were sufficient to support an implied finding of agency. (Holland v. Nelson, Supra, 5 Cal.App.3d 308, 318, 85 Cal.Rptr. 117.)

The trial court also properly instructed the jury on the doctrine of ostensible agency. An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is really not employed by him. (Civ.Code, § 2300.) Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess. (Civ.Code, § 2317.)

There was formidable evidence establishing Weiner's ostensible authority. When Los Angeles, they were referred by the plaintiffs first contacted Allied Builders in vice-president to Allied's 'branch office' in Anaheim. The vice-president characterized the Los Angeles office as the 'main office.' Both the main office and the branch office answered their phone in the same manner, to wit, 'Allied Builders.' Both the franchisor and the franchisee did business under the same name at that time, to wit, Allied Builders System. The contract listed 'Allied Builders System' as the contractor. Both...