Source: https://law.justia.com/cases/california/supreme-court/2d/71/907.html
Timestamp: 2019-04-20 10:10:33+00:00

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CLIFFORD L. MERRILL et al., Plaintiffs and Respondents, v. DEPARTMENT OF MOTOR VEHICLES et al., Defendants and Appellants.
Young & Young and W. Herbert Young for Plaintiffs and Respondents.
The Department of Motor Vehicles (Department) appeals from a judgment granting a writ of mandate commanding it to set aside a decision denying an application for a motor vehicle dealer's license.
Clifford L. Merrill and Harold E. Morris, dba The Merchandiser, a copartnership (Merchandiser), operate what is commonly known as a membership discount house. In addition to selling furniture, appliances and household goods, Merchandiser offers new automobiles to its members by means of an arrangement with several franchised automobile dealers whereby the dealers sell automobiles to customers referred by Merchandiser for less than the normal retail price.
The record shows that Merchandiser's method of doing business was substantially as follows. It would obtain from its member-customer upon a printed form a detailed description of the type of automobile and accessories which the member desired to purchase. Its salesman would then fill in the wholesale price of the car and the accessories, adding a markup which had been agreed upon between Merchandiser and the dealer. The salesman would give one copy of the form to the customer in a sealed envelope, send one copy to the dealer and keep one copy. The customer would then take the envelope to the dealer who would quote to the customer the price contained therein. If the customer found the price satisfactory and decided to purchase the car, he would sign all contracts with, and pay the purchase price to, the dealer directly. The latter would pay Merchandiser a commission.
On March 3, 1965, the Department wrote a letter to Merchandiser which informed it that it had been engaged in activity which rendered it a motor vehicle dealer within the provisions of section 285 of the Vehicle Code fn. 1 and advised it that it must desist from such activity unless it obtained a license. (§ 11700.) Merchandiser thereupon filed with the Department an application for a license--which application was proper in form and included all information required by [71 Cal. 2d 911] law. (§ 11704.) With the application Merchandiser filed a bond as required by law. (§ 11710.) The Department informed Merchandiser that the application would be denied and, at Merchandiser's request, scheduled a hearing in the matter. (§ 11708.) On February 11, 1966, a hearing was held in conformity with the Administrative Procedure Act (Gov. Code, § 11500 et seq.; see Veh. Code, § 11708, subd. (b)), and the matter was submitted on stipulated facts together with certain testimony.
On April 11, 1966, the hearing officer issued a proposed decision recommending denial of the application, and this decision was subsequently adopted by the Department. Six grounds for denial of the application were stated in the decision, each of which was declared to constitute reasonable cause for such denial. (§ 11702). fn. 2 Three of these, however, were essentially restatements of the three basic grounds, which were these: (1) that Merchandiser's activity was "most akin" to that of a motor vehicle salesman as that term is defined by section 675, subdivision (a) (1), and "issuance of a dealer's license would permit [Merchandiser], by said referrals to many dealers, to gain an unfair economic advantage over those licensed motor vehicle salesmen whose activities are confined to one licensed dealership pursuant to the provisions of section 11806 of the Vehicle Code"; fn. 3 (2) that Merchandiser's "present and intended future status, with reference to having no inventory of a stock of motor vehicles [71 Cal. 2d 912] for sale to the public, fails to meet the requirements of section 285 of the Vehicle Code in conjunction with section 11701 of said Code fn.  in that [it does] not now, and will not in the future qualify as a bona fide motor vehicle dealer"; and (3) that the issuance of a license to Merchandiser would be beyond the jurisdiction of the Department because the Legislature has not "authorized a type of license for the type of activity respondents now practice or intend to practice in the future."
 Applying these principles to the case at bench, it is clear that the right or interest affected by the Department's decision is not a "vested" right within the meaning of the Jockey Club and McDonough cases. (Cf. Val Strough Chevrolet v. Bright, supra, 269 Cal. App. 2d 855, 860.) Therefore no limited trial de novo was authorized by law, and the function of the trial court was to determine whether the Department, in denying Merchandiser's application for a dealer's license, had committed errors of law. Insofar as this determination concerned a review of the evidence in support of the findings of the Department, the trial court was required to uphold such findings if they were supported by substantial evidence. Our scope of review on appeal is identical to that of the trial court.
It is not disputed herein that Merchandiser falls within the definition of a "dealer" which is set forth in section 285, subdivision (a), of the Vehicle Code (See fn. 1, ante.) It is equally clear that Merchandiser may not "act as a dealer" (§ 11700) unless and until it procures a license and certificate from the Department in accordance with section 11701. The latter section, which we have set forth in relevant part above (fn. 4, ante), requires that an applicant for a dealer's license and certificate "submit proof of his status as a bona fide ... dealer" to the Department; and section 11702, which [71 Cal. 2d 917] authorizes the Department to refuse to issue a license and certificate "for reasonable cause shown" (fn. 2, ante), has been interpreted by it to authorize such refusal when the applicant fails to demonstrate that he is a "bona fide dealer." It is not contended that this interpretation is improper.
 Looking to the entire statutory scheme governing the licensing of automobile dealers (Veh. Code, div. 5, ch. 4, art. 1) we observe that the primary concern therein manifested is that the public be protected from unscrupulous and irresponsible persons in the sale of vehicles subject to registration under the code. This concern is furthered by various provisions seeking to insure, in the words of the Department's brief, "the honesty and integrity of automobile dealers." Thus it is provided that the Department may, generally speaking, refuse to issue a license to a previously licensed person whose previous license has been revoked or suspended for cause (§ 11703, subds. (a) through (c)), or who has been convicted of a crime involving moral turpitude (§ 11703, subd. (d)). A license may be refused to one who has illegally used or permitted use of special license plates issued under a former dealer's license, has commited fraud in making application for the registration of a vehicle, has failed to deliver to a transferee a properly indorsed certificate of ownership, has illegally used a dealer's report of sale (see § 4456), has knowingly dealt in stolen vehicles, has failed to provide and maintain a clear physical division between his dealer's business [71 Cal. 2d 919] and other businesses conducted at the place of business, has violated certain statutory provisions dealing with the registration of motor vehicles, has violated certain statutory provisions dealing with stolen and stored vehicles, has violated certain duly published regulations issued pursuant to statutory provision, or has submitted a subsequently dishonored check or draft in payment of an obligation or fee due the state. (§§ 11703.1, 11705.) An existing license may be suspended or revoked on the same grounds (§ 11705) and may be temporarily suspended when such action is deemed by the Department to be "in the public interest" (§ 11706).
Finally, section 11713 of the code sets forth 14 kinds of activity on the part of a dealer which are unlawful and constitute cause for revocation or suspension of a license (see § 11705). Among these are specifically detailed varieties of misleading or false advertising (subds. (a) through (d), (k)), addition of unauthorized costs to the selling price (subd. (g)), employment of unlicensed salesmen (subd. (h)), [71 Cal. 2d 920] delivery of improperly equipped vehicles (subd. (i)), and tampering with the odometer on any motor vehicle (subd. (n)).
As we have suggested, we consider that the dominant concern of this statutory scheme is that of protecting the purchaser from the various harms which can be visited upon him by an irresponsible or unscrupulous dealer. It is within this context that we now address ourselves to the specific phrase whose interpretation is here in question.
"Bona fide" is of course a Latin term whose literal English translation is the compound adjective "good faith." Webster's Third New International Dictionary (1961) indicates that it is or has been used in three different senses. The first of these signifies an absence of fraud or deceit and is used in connection with promises or representations--e.g., a bona fide contract. The second imparts sincerity or "earnest or wholehearted intent"--e.g., a bona fide proposal or suggestion. The third expresses genuineness or authenticity and is the antithesis of the spurious or counterfeit--e.g., a bona fide Renoir.
 Viewing the term "bona fide" within the entire statutory scheme in which it appears, we conclude that it is there used in the first lexical sense adverted to above--to wit, that of honesty, fair dealing, and freedom from deceit. There are two basic reasons for this interpretation.
First, we observe that the Legislature in its wisdom has set forth in section 285 of the code an extremely broad definition of the term "dealer," and has excluded from the scope of that definition five categories of persons, including salesmen. (See fn. 1, ante.) Through this arrangement of definition and exclusion the Legislature has intimate control over who shall be and who shall not be a "dealer" within the meaning of the code--at any time the Legislature may enact additional exclusions and thereby contract the scope of the term. It has not, however, chosen to exclude persons in Merchandiser's category, i.e., discount houses, and therefore Merchandiser is clearly a "dealer" within the meaning of the code. There is here no question that Merchandiser is "just what it purports to be"--that is, a "dealer"--because it falls within the statutory definition and does not fall within any exclusion. Therefore, because the Legislature has itself undertaken to prescribe who shall be an authentic and genuine "dealer," its use of the term "bona fide" to modify the term "dealer" must have reference to some quality other than authenticity. That quality, as we have suggested, is honesty and fair dealing.
Our second reason for reaching this conclusion is also grounded upon our view of the whole statutory scheme. As we have indicated the dominant concern of the scheme is that of protecting purchasers from irresponsible and unscrupulous persons in the sale of automobiles. It is wholly consistent with and in furtherance of that concern that the Legislature has provided in section 11701 that an applicant submit proof of his bona fides "as may reasonably be required." (See fn. 4, ante.) This requirement simply allows the Department to determine whether an applicant possesses those qualities of reliability and honesty which the statutory scheme is intended to foster.
In the case at bench the Department found that Merchandiser [71 Cal. 2d 922] was not a "bona fide dealer," and that therefore reasonable cause existed to refuse it a license, because it lacked an inventory of motor vehicles for sale to the public.  What we have said above, however, makes it clear that a dealer can be found lacking in bona fides within the meaning of the statute only if he is found lacking in the qualities of honesty and reliability for which the statutory scheme manifests concern.  Although the presence of an inventory might be considered one of the usual indicia of reliability in a dealer, we think it clear that a stock of new cars is not a necessary concomitant to "bona fide" dealership, for one lacking an inventory might demonstrate the reliability and honesty requisite to that status in other ways. fn. 16 In the absence of any evidence or finding to the effect that Merchandiser lacks such honesty and reliability as is requisite to "bona fide" dealership, the conclusion of the Department that Merchandiser is not a "bona fide dealer" cannot be sustained. The trial court properly determined that the decision of the Department cannot be supported on this ground.
The Department's decision was also based upon the ground that if Merchandiser were issued a dealer's license it would thereby gain an unfair economic advantage over licensed motor vehicle salesmen, whose activities are confined to one licensed dealership. (§ 11806.) To state an effect of granting the application, however, is not to state a ground for denial thereof. As the trial court found, all motor vehicle dealers have an economic advantage over salesmen.  Although the nature of Merchandiser's advantage differs from that enjoyed by most dealers, i.e., those having an inventory of vehicles, the present statutory scheme clearly does not prohibit such a situation. The trial court properly concluded that the existence of Merchandiser's economic advantage over salesmen was not reasonable cause for refusal of a license, and that the decision of the Department cannot be supported on this ground.
The third ground upon which the Department's decision was based was that it had no jurisdiction to issue a license to Merchandiser because the Legislature had not "authorized a type of license for the type of activity respondents now practice or intend to practice in the future." What we have said [71 Cal. 2d 923] above makes it clear that this ground rests upon an erroneous interpretation of the statutory scheme. The trial court properly found that the Department had jurisdiction in the premises.
For the foregoing reasons we have concluded that the Department's stated grounds for refusing to issue a dealer's license and certificate to Merchandiser were legally insufficient to support its decision, and that the trial court therefore properly issued its writ of mandate. (See Code Civ. Proc., § 1094.5, subd. (b).) The judgment must therefore be affirmed.
We do not here consider the two possible grounds of refusal which were raised for the first time in the mandate proceeding. (See fns. 6 and 7, ante, and accompanying text.) As to the ground of lack of franchise, the Department has stated in its briefs that it does not require a franchise in order to obtain a dealer's license, and we assume that this position is taken in light of decisions in other states holding that such a requirement would be unconstitutional. (See Killingsworth v. West Way Motors, Inc. (1959) 87 Ariz. 74 [347 P.2d 1098]; Ohio Motor Vehicle Dealers' & Salesmen's Licensing Board v. Memphis Auto Sales (1957) 103 Ohio App. 347 [142 N.E.2d 268]; Signore v. Rizzolo (1950) 9 N.J. Super. 539 [75 A.2d 757]; Nelsen v. Tilley (1939) 137 Neb. 327 [289 N.W. 388].) We express no present opinion on this point. As to the ground of lack of an "established place of business," we think that the findings of the trial court allow and contemplate that evidence dealing with this matter may be produced and considered by the Department in the course of any subsequent proceedings undertaken pursuant to the judgment of the trial court.
FN 1. Section 285 provides: " 'Dealer' is a person not otherwise expressly excluded by Section 286 who: (a) For commission, money, or other thing of value, sells, exchanges, buys, or offers for sale, negotiates or attempts to negotiate, a sale or exchange of an interest in, a vehicle subject to registration under this code, or induces or attempts to induce any person to buy or exchange an interest in a vehicle and, who receives or expects to receive a commission, money, brokerage fees, profit, or any other thing of value, from either the seller or purchaser of said vehicle, or (b) Is engaged wholly or in part in the business of selling vehicles or buying or taking in trade, vehicles for the purpose of resale, selling, or offering for sale, or consigned to be sold, or otherwise dealing in vehicles, whether or not such vehicles are owned by such person."
Section 286 excludes from the definition of "dealer," generally speaking, (a) financing institutions and public officials holding vehicles in the course of contractural arrangements or under legal duty; (b) wholesalers; (c) salesmen employed by dealers; (d) exporters; and (e) persons disposing of vehicles acquired for their own use. It is not contended that Merchandiser falls into any of these categories.
Unless otherwise indicated, all section references hereafter are to the Vehicle Code.
FN 2. Section 11702 provides: "The department may issue, or for reasonable cause shown, refuse to issue a license and certificate to any applicant applying for a manufacturer's, transporter's, or dealer's license and certificate."
FN 3. Section 675, subdivision (a) (1) provides: "(a) 'Vehicle salesman' is a person not otherwise expressly excluded by this section, who: (1) Is employed as a salesman by a dealer as defined in Section 285, or who, under any form of contract, agreement, or arrangement with a dealer, for commission, money, profit, or other thing of value, sells, exchanges, buys, or offers for sale, negotiates, or attempts to negotiate a sale or exchange of an interest in a vehicle required to be registered under this code; ..."
Section 11806 at the time here relevant provided: "A vehicle salesman, as defined herein, shall not engage in such activity other than for the account of or for and on behalf of a single employer, who shall be a licensed dealer."
FN 5. Section 1094.5, subdivision (b), which we shall set forth in full infra, provides inter alia that the trial court may base its issuance of the writ upon a "prejudicial abuse of discretion," on the part of the administrative agency.
FN 6. Although the decision of the Department did not state lack of franchise as one of the grounds for refusal, Merchandiser in its petition for a writ of mandate alleged that such lack was "the real underlying basis and reason" for the Department's action.
FN 9. See Dare v. Board of Medical Examiners (1943) 21 Cal. 2d 790, 795-801 [136 P.2d 304].
FN 12. See generally Beverly Hills Federal Sav. & Loan Assn. v. Superior Court, supra, 259 Cal. App. 2d 306, 312-318; 3 Witkin, Cal. Procedure (1954) Extraordinary Writs, §§ 16, 18, pp. 2484-2486, 2488-2490.
FN 16. It has not been contended in this proceeding that Merchandiser is deficient in those qualities relevant to its bona fides--or that its lack of inventory has an effect upon its honesty and trustworthiness.

References: v. 
 § 11500
 § 11708
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 art. 1
 § 4456
 § 11705
 § 1094
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