|Legal Opinion: |
Text of Document: October 16, 2002
You have the following question: Can the owner of an establishment sell beer under a beer permit held by the previous owner of the establishment who will continue to be an employee of the establishment?
Under the facts related to me, the answer is no.
Those facts are that Ms. C was operating an establishment that sold off premises beer under the authority of a county permit when the territory in which the establishment was located was incorporated into the City. The establishment was operated under the name of _____. However, recently Ms. C sold all her interest in that business to another party. Ms. C proposes to continue working in the establishment, and the party to whom Ms. C sold the business alleges that he is entitled to sell beer in the establishment under the authority of her beer permit. Mr. J. issued an opinion that those facts do not result in the transfer of the beer permit. I must respectfully disagree with him. My opinion is that under that arrangement an assignment of the permit does occur, and that from a legal standpoint, there is no distinction between the assignment and transfer of the permit. In either case, such action on the part of Ms. C is illegal.
Section 1 of the city’s beer ordinance generally prohibits the sale of beer in the city, but sections 2 and 3 provide as follows:
Section 2. Those persons within the City who held a valid permit from the county on January 10, 1993 shall be exempted from section 1 of this ordinance. However, the exception shall apply only to those establishments listed on those beer permits on that date.
Section 3. Beer permits held under this ordinance are not transferrable to any other person or establishment, and shall be for off premises sale only. [Emphasis is mine.]
The clear intent of this ordinance was to restrict the beer permit to the person and to the establishment that held the beer permit at the time the city was incorporated in 1992, for the purpose of eliminating by attrition the only beer permit in the city. As the preamble of the beer ordinance indicates:
WHEREAS, the city is desirous of prohibiting the sale of beer within the city except on the part of those persons who held a valid permit from the county on January 10, 1992, and except only in the establishments listed on those beer permits on that date....
Mr. J is correct that beer permits can be issued to persons who are not owners of the real estate, but generally such persons are lessees or otherwise renters of the real estate. But under the facts, the party who purchased all Ms. C’s interests in the establishment proposes to sell beer there under Ms. C’s beer permit, with Ms. C being an employee of the establishment.
Almost exactly the same situation arose in McBride v. State, 259 S.W.2d 533 (1953). I will quote from that case extensively. There, in the Tennessee Supreme Court’s words:
In Henry County near the City of Paris there is a place that sold beer known as the Sportsman’s Inn. It was operated by the plaintiff in error [McBride], who also owned the real estate upon which it was located and paid the help in dispensing beer and other products in the place. Sometime in July, 1950, a permit was issued for the Sportsman’s Inn in the name of S.N. Holly. Holly testifies that he was operating this place for the plaintiff in error but that in October, 1951 he turned his permit into the county judge. The permit was issued to the Sportsman’s Inn, S.N. Holley. The name of the plaintiff in error nowhere appeared upon such permit. There was no revocation of such permit by the County Court or any other authorized body. [At 534]
“The case,” continued the Court, “involves the question of whether or not one may sell beer upon a permit issued in the name of another or in other words, whether a permit to sell beer is assignable.” [At 535] [Emphasis is mine.]
The answer was no, said the Court, which first pointed out that the question had never been answered in Tennessee up to that time, but that it was the law that one beer permit cannot be transferred from one location and used in another. From there the Court reasoned that:
Upon principle, it would seem that the same rule should apply to the identity of the person to whom the permit was issued and that a permit issued to one person might not be used lawfully by another, despite the fact that the location remained the same. County courts or those under them issuing permits are prohibited from issuing permits to aliens or to convicted violators of the prohibition law. If it were possible for “A” to secure a permit in his name which he was going to let “B” use then this prohibition in the statute would be absolutely worthless. The same reason applies to the assignablility of such permits.
The plaintiff in error has no permit in his own name. Inferentially he never sought one. The record shows though that his other-in-law did seek a permit, inferentially for this same location, and was denied a permit. The plaintiff in error seeks to justify his operation of this establishment under a permit issued to Holly. Clearly this proposed transfer of the use of the permit issued to Holly designating the Sportsman’s Inn by the plaintiff in error would be a good ground for the revocation of the permit. It seems to us that the purported use or transfer of this permit from Holly to the plaintiff in error did not vest in the plaintiff in error any right or permit to sell beer at this location and that for doing so he was properly convicted for selling beer without a permit. It is very clear that under the statute that one applying for a permit to be used by another must state that fact in his application. The present record shows that was not done and we think the issuance of the permit in the name of Holly did not confer upon the plaintiff in error any rights therein whatsoever. [At 534-35] [Emphasis is mine.]
McBride is still good law, and is broad: “a beer permit issued to one person might not be used lawfully by another, despite the fact that the location remained the same.” That case and that language was cited with approval by the Tennessee Supreme Court in MAPCO Petroleum v. Basden, 774 S.W.2d 598 (Tenn. 1989), in which it was held that a beer permit did not survive a corporate merger. As the Court pointed out in that case:
In the case at bar, MAPCO has no permit in the corporate name and took no steps to seek a new permit to sell beer in accordance with T.C.A. § 57-5-104. That section requires the making of an application and the obtaining of a permit before one can lawfully sell or distribute beer in a city or a county. The purpose of the statute is to allow the beer board in this case to review and evaluate the qualifications and moral character of the applicant. [At 600]
A successful argument that Ms. C is entitled to allow the party who purchased the establishment to sell beer under the authority of her beer permit would allow her to do the same thing with successive owners of the establishment, presumably for as long as she lives. That cannot be the law, and I think both McBride and MAPCO make that clear. Indeed, in MAPCO, the Court observed that, “Plaintiff admits that a contractual assignment or sale of a permit is invalid under Tennessee case law.” [At 599] I do not know any of the parties involved in this question; for that reason I would certainly not impute any bad motives to any of them. I cannot say that a contractual arrangement, written or unwritten, was made between Ms. C and the party who purchased her business for the latter to continue employment so that the business could continue to sell beer under her permit, but the opportunity and invitation for such mischief was and is there, and the McBride Court was obviously aware of that potential problem.
As I told you on the telephone the other day, I doubt that the party who bought the establishment in question would even have standing to argue that Ms. C has the right to continue to exercise her beer permit in an establishment in which she has no interest except that of an employee. MAPCO also supports that conclusion. There the Court also held that MAPCO Petroleum had no standing to sue the City of Boliver when the latter revoked the beer permit of its predecessor corporation; it had no beer permit and had not applied for one. The party who purchased the business from Ms. C stands in a worse position than did the plaintiff in MAPCO: he holds no beer permit, and has not applied for one. More important, he is not even entitled to such a permit, those being restricted to those persons and establishments that held a valid county beer permit as of January 10, 1992. He bought the business having legal notice of the city’s beer ordinance, and of the law governing the assignment and transfer of beer permits.
Presumably Ms. C herself would have standing to argue that she should be entitled to continue her beer permit for a business that she has sold, but under the facts and McBride and MAPCO, I think she would carry a heavy burden of making her case.
Incidentally, the city’s governing body should revoke Ms. C’s beer permit on the ground that she has sold her business. That should be done only after proper notice and hearing. Please call me on that subject when that step becomes necessary, better sooner than later.
Sidney D. Hemsley
Senior Law Consultant