Source: http://fl.bna.com/fl/19980915/16463.htm
Timestamp: 2019-04-20 14:23:54+00:00

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Appeal from a judgment of the Superior Court of Orange County, Robert J. Polis, Judge. Reversed and remanded.
Wasser, Rosenson & Carter, Dennis M. Wasser, Lyon & Lyon, Robert C. Weiss, Roy L. Anderson, Crosby, Heafey, Roach & May, Peter W. Davis and James C. Martin for Defendant and Appellant.
Keker & Van Nest, John W. Keker, Karin Kramer, Wendy J. Thrum and Helene M. Linker for Plaintiff and Respondent.
The trial judge instructed the jury that the reasonable value of the plaintiff's services was either the value of what it would have cost the defendant to obtain those services from someone else or the "value by which" he had "benefitted [sic] as a result" of those services. The instruction allowed the jury to reach a whopping number in favor of the plaintiff -- $84 million -- because of the tremendous growth in the value of the business over the years.
As we explain later, the finding that the couple had no contract in the first place is itself somewhat suspect because certain jury instructions did not accurately convey the law concerning implied-in-fact contracts. However, assuming that there was indeed no contract, the quantum meruit award cannot stand. The legal test for recovery in quantum meruit is not the value of the benefit, but value of the services (assuming, of course, that the services were beneficial to the recipient in the first place). In this case the failure to appreciate that fine distinction meant a big difference. People who work for businesses for a period of years and then walk away with $84 million do so because they have acquired some equity in the business, not because $84 million dollars is the going rate for the services of even the most workaholic manager. In substance, the court was allowing the jury to value the plaintiff's services as if she had made a sweetheart stock option deal -- yet such a deal was precisely what the jury found she did not make. So the $84 million judgment cannot stand.
On the other hand, plaintiff was hindered in her ability to prove the existence of an implied-in-fact contract by a series of jury instructions which may have misled the jury about certain of the factors which bear on such contracts. The instructions were insufficiently qualified. They told the jury flat out that such facts as a couple's living together or holding themselves out as husband and wife or sharing a common surname did not mean that they had any agreement to share assets. That is not exactly correct. Such factors can, indeed, when taken together with other facts and in context, show the existence of an implied-in-fact contract. At most the jury instructions should have said that such factors do not by themselves necessarily show an implied-in-fact contract. Accordingly, when the case is retried, the plaintiff will have another chance to prove that she indeed had a deal for a share of equity in the defendant's business.
The important facts in this case may be briefly stated. Anthony Maglica, a Croatian immigrant, founded his own machine shop business, Mag Instrument, in 1955. He got divorced in 1971 and kept the business. That year he met Claire Halasz, an interior designer. They got on famously, and lived together, holding themselves out as man and wife -- hence Claire began using the name Claire Maglica -- but never actually got married. And, while Claire worked side by side building the business, Anthony never agreed -- or at least the jury found Anthony never agreed -- to give Claire a share of the business. When the business was incorporated in 1974 all shares went into Anthony's name. Anthony was the president and Claire was the secretary. They were paid equal salaries from the business after incorporation. In 1978 the business began manufacturing flashlights, and, thanks in part to some great ideas and hard work on Claire's part (for example, coming out with a purse-sized flashlight in colors), the business boomed. Mag Instrument is now worth hundreds of millions of dollars.
In 1992 Claire discovered that Anthony was trying to transfer stock to his children but not her, and the couple split up in October. In June 1993 Claire sued Anthony for, among other things, breach of contract, breach of partnership agreement, fraud, breach of fiduciary duty and quantum meruit. The case came to trial in the spring of 1994. The jury awarded $84 million for the breach of fiduciary duty and quantum meruit causes of action, finding that $84 million was the reasonable value of Claire's services.
Preliminarily we must deal with the problem of fiduciary duty, as it was an alternative basis for the jury's award. We cannot, however, affirm the judgment on this basis because it is at odds with the jury's factual finding that Anthony never agreed to give Claire a share of his business. Having found factually that there was no contract, the jury could not legally conclude that Anthony breached a fiduciary duty.
The reason is that fiduciary duties are either imposed by law or are undertaken by agreement, and neither way of establishing the existence of a fiduciary duty applies here. As to the former, the fact that Claire and Anthony remained unmarried during their relationship is dispositive. California specifically abolished the idea of a "common law marriage" in 1895 (see Elden v. Sheldon (1988) 46 Cal.3d 267, 275) and that, if it is not too harsh to say it, was clearly the substance of Claire and Anthony's relationship. They had a common law marriage.
As our Supreme Court said in Elden, "[f]ormally married couples are granted significant rights and bear important responsibilities toward one another which are not shared by those who cohabit without marriage." (Ibid.) The court noted, in that context, that a variety of statutes impose rights and obligations on married people. One set of such imposed rights and obligations, for example, is Family Code sections 1100 through 1103, which both establish a fiduciary duty between spouses with regard to the management and control of community assets (Fam. Code, § 1100, subd. (e)) and provide for remedies for a breach of that duty (Fam. Code, § 1101).
It would be contrary to what our Supreme Court said in Elden and to the evident policy of the law to promote formal (as distinct from common law) marriage to impose fiduciary duties based on a common law marriage. Indeed, in the context of this case the potential for anomalous results is readily apparent. For example, in family law matters involving dissolution of marriage, punitive damages are not available to remedy breaches of fiduciary duty in the management and control of community property (though there are, of course, other remedies). Punitive damages, however, are sometimes available in other breach of fiduciary duty cases. (See, e.g., Heller v. Pillsbury Madison & Sutro (1996) 50 Cal.App.4th 1367, 1390.) It is unthinkable, given California's abolition of common law marriage, that an unmarried, cohabiting partner should have a more powerful remedy than a spouse.
But the threshold requirement that there be a benefit from the services can lead to confusion, as it did in the case before us. It is one thing to require that the defendant be benefited by services,See footnote 5 it is quite another to measure the reasonable value of those services by the value by which the defendant was "benefited" as a result of them. See footnote 6 Contract price and the reasonable value of services rendered are two separate things; sometimes the reasonable value of services exceeds a contract price. (See B. C. Richter Contracting Co., supra, 230 Cal.App.2d at p. 500.) And sometimes it does not.
At root, allowing quantum meruit recovery based on "resulting benefit" of services rather than the reasonable value of beneficial services affords the plaintiff the best of both contractual and quasi-contractual recovery. Resulting benefit is an open-ended standard, which, as we have mentioned earlier, can result in the plaintiff obtaining recovery amounting to de facto ownership in a business all out of reasonable relation to the value of services rendered. After all, a particular service timely rendered can have, as Androcles was once pleasantly surprised to discover in the case of a particular lion, disproportionate value to what it would cost on the open market.
The jury instruction given here allows the value of services to depend on their impact on a defendant's business rather than their reasonable value. True, the services must be of benefit if there is to be any recovery at all; even so, the benefit is not necessarily related to the reasonable value of a particular set of services. Sometimes luck, sometimes the impact of others makes the difference. Some enterprises are successful; others less so. Allowing recovery based on resulting benefit would mean the law imposes an exchange of equity for services, and that can result in a windfall -- as in the present case -- or a serious shortfall in others. Equity-for-service compensation packages are extraordinary in the labor market, and always the result of specific bargaining. To impose such a measure of recovery would make a deal for the parties that they did not make themselves. If courts cannot use quantum meruit to change the terms of a contract which the parties did make (see Hedging Concepts, Inc., supra, 41 Cal.App.4th at p. 1420), it follows that neither can they use quantum meruit to impose a highly generous and extraordinary contract that the parties did not make.
Watson v. Wood Dimension, Inc. (1989) 209 Cal.App.3d 1359 is a little closer, because it allowed a recovery based on a contemplated commission. But it is still off the mark because the commission was specifically agreed to by the parties.
In Wood Dimension a stereo speaker manufacturer hired the friend of a lost customer to wine and dine the customer's general manager. The parties orally agreed that the friend would be paid three percent commission, but they didn't agree on how long the commission might extend after the plaintiff was terminated from employment. As this court noted, there is no reason a court may not consider an agreed price when ascertaining the reasonable value of services. (Id. at p. 1365.) Of course, in the case before us, there was no agreement and no agreed price.
Telling the jury that it could measure the value of Claire's services by "[t]he value by which Defendant has benefited as a result of [her] services" was error. It allowed the jury to value Claire's services as having bought her a de facto ownership interest in a business whose owner never agreed to give her an interest. On remand, that part of the jury instruction must be dropped.
The statute of limitations for quantum meruit claims is two years (see Code Civ. Proc., § 339 [action upon an "obligation" . . . not founded upon an instrument of writing]), but Claire seeks payment for services rendered since 1971. Anthony contends that her claim for all but the last two years' worth of services must necessarily fail in light of that fact; Claire argues that the statute of limitations only began to run with the termination of her services. The problem presents the challenge of parsing the exact nature of the circumstances in a particular case (see Robinson v. Chapman (1929) 98 Cal.App. 278, 281), since fine gradations can lead to wildly divergent results, as illustrated by two very similar cases to this one from a bygone era, Mayborne v. Citizens T. & S. Bank (1920) 46 Cal.App. 178 and Corato v. Estate of Corato (1927) 201 Cal. 155. Claire is not the first person without a contract or marriage to devote his or her efforts to a fellow cohabitant and later seek compensation for them.
In Mayborne, the plaintiff cared for a well-to-do gentleman with the understanding that she would get paid the reasonable value of her services upon their termination and the gentleman's death. (See Mayborne, supra, 46 Cal.App. at p. 181.) The statute of limitations did not restrict her claim because the parties' understanding showed an expectation of payment upon termination. (Id. at p. 181.) See footnote 7 Hence she could sue for the lot.
By contrast, the lack of an expectation of payment on termination made all the difference in Corato, where the plaintiff worked in her cohabitant's board and lodging house, with no expectation of payment on termination. Rather, the plaintiff regularly sought immediate payment for her services, but would end up going away mollified with an indication that she would get paid "sometime." (See Corato, supra, 201 Cal. at p.160.) This went on for something like 20 years, until the cohabitant died. Under those circumstances, said the high court, the presumption that an employee is hired by the month controlled, and therefore any right of action accrued with each passing month, hugely reducing the plaintiff's recovery. (Id. at pp. 160-161.) The plaintiff was entitled to only the last two years' worth.
Lazzarevich reflects the contours of Claire and Anthony's own relationship here. They might not have been married, but they certainly acted married. While the special solicitude the law shows for formal marriage and putative relationships (i.e., where a person believes, in good faith, that he or she is married) means that Claire did not acquire the same substantive rights as a married person (see Elden v. Sheldon, supra, 46 Cal.3d at p. 275), the "common law marriage" nature of her relationship with Anthony certainly shows that, like a married person, any need to sue to assert whatever rights she did have would be expected to accrue at the termination of the relationship, not when some hypothetical paycheck might ordinarily come due.
Any other result simply does not accord with the reality of the situation as the parties experienced it. Accordingly, on remand, the statute of limitations will not limit Claire's quantum meruit claim.
As we have shown, the quantum meruit damage award cannot stand in the wake of the jury's finding that Claire and Anthony had no agreement to share the equity in Anthony's business. But the validity of that very finding itself is challenged in Claire's protective cross-appeal, where she attacks a series of five jury instructions, specially drafted and proferred by Anthony. See footnote 10 These instructions are set out in the margin. See footnote 11 We agree with Claire that it was error for the trial court to give three of these five instructions. See footnote 12 The three instructions are so infelicitously worded that they might have misled the jury into concluding that evidence which can indeed support a finding of an implied contract could not.
The problem with the three instructions is this: They isolate three uncontested facts about the case: (1) living together, (2) holding out to others as husband and wife, (3) providing services "such as" being a constant companion and confidant -- and, seriatim, tell the jury that these facts definitely do not mean See footnote 13 there was an implied contract. True, none of these facts by themselves and alone necessarily compel the conclusion that there was an implied contract. But that does not mean that these facts cannot, in conjunction with all the facts and circumstances of the case, establish an implied contract. In point of fact, they can.
-- the nature of title taken in those rental properties could all support a finding there was an implied agreement to share the rental property acquisitions equally.
We certainly do not say that living together, holding out as husband and wife, and being a companion and confidant, even taken together, are sufficient in and of themselves to show an implied agreement to divide the equity in a business owned by one of the couple. However, Alderson clearly shows that such facts, together with others bearing more directly on the business and the way the parties treated the equity and proceeds of the business, can be part of a series of facts which do show such an agreement. The vice of the three instructions here is that they affirmatively suggested that living together, holding out, and companionship could not, as a matter of law, even be part of the support for a finding of an implied agreement. That meant the jury could have completely omitted these facts when considering the other factors which might also have borne on whether there was an implied contract.
On remand, the three instructions should not be given. The jury should be told, rather, that while the facts that a couple live together, hold themselves out as married, and act as companions and confidants toward each other do not, by themselves, necessarily show an implied agreement to share property, those facts, when taken together and in conjunction with other facts bearing more directly on the alleged arrangement to share property, can show an implied agreement to share property.
The judgment is reversed. The case is remanded for a new trial. At the new trial the jury instructions identified in this opinion as erroneous shall not be given. In the interest of justice both sides will bear their own costs on appeal.
Footnote: 1 See Black's Law Dictionary (5th ed. 1979) at page 1119.
Footnote: 2 See, e.g., Earhart v. William Low Co. (1979) 25 Cal.3d 503, 518 ("Where one person renders services at the request of another and the latter obtains benefits from the services, the law ordinarily implies a promise to pay for the services."); Palmer v. Gregg (1967) 65 Cal.2d 657, 660 ("The measure of recovery in quantum meruit is the reasonable value of the services rendered, provided they were of direct benefit to the defendant."); Hedging Concepts, Inc. v. First Alliance Mortgage Co. (1996) 41 Cal.App.4th 1410, 1419 ("A quantum meruit or quasi-contractual recovery rests upon the equitable theory that a contract to pay for services rendered is implied by law for reasons of justice . . . . ").
Footnote: 3 Claire attempts to distinguish Toney on the ground that the plaintiff there did not seek damages, but to establish his rights in a particular piece of real property. It is a distinction without a difference. The Toney court relied on section 662 of the Evidence Code, which consists of two sentences, neither of which are limited to just real property: "The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof." There is no difference, in substance, between asserting that an unmarried partner has breached a fiduciary duty to hold property -- not just real property -- in trust for the other and asserting direct rights in that property. In either case, the critical feature is whether the unmarried partner ever agreed to act as trustee in the first place. On that point the jury sided with Anthony, not Claire. Claire never quite explains how Anthony could breach a fiduciary duty to her without first having a contract to either hold property on her behalf or to own property jointly with her.
In Weiner v. Fleischman (1991) 54 Cal.3d 476, the Supreme Court distinguished Toney from a case of fraudulent concealment. (Id. at p. 486.) In the case before us there is no fraudulent concealment because Anthony never agreed to hold property for Claire.
Footnote: 4 The doctrine can become trickier when an actual contract is involved. See Hedging Concepts, Inc. v. First Alliance Mortgage Co., supra, 41 Cal.App.4th 1410, 1419-1420 (quantum meruit recovery cannot conflict with terms of actual contract between parties, lest the court in effect impose its own ideas of a fair deal on the parties).
Footnote: 5 Or, as the case may be, goods. However, in the present case we are only dealing with Claire's services.
Footnote: 6 Here is the exact language of the plaintiff's jury instruction at issue: "Plaintiff may be compensated for the reasonable value of services rendered to Defendant and Mag Instrument, Inc. either by awarding Plaintiff: [¶] 1. The reasonable value of what it would have cost Defendant to obtain the services Plaintiff provided from another person; or [¶] 2. The value by which Defendant has benefited as a result of the services rendered by Plaintiff."
Footnote: 9 The trial court had conveniently made findings as to the value of the plaintiff's services during the relevant period.
Footnote: 10 We are aware of no standard jury instructions dealing directly with implied contracts arising out of cohabitation between unmarried people.
You cannot find an agreement to share property or form a partnership from the fact that the parties held themselves out as husband and wife. The fact that unmarried persons live together as husband and wife and share a surname does not mean that they have any agreement to share earnings or assets.
. . .The fact the parties are living together does not change any of the requirements for finding an express or implied contract between the parties.
Providing services such as a constant companion and confidant does not constitute the consideration required by law to support a contract to share property, does not support any right of recovery and such services are not otherwise compensable.
In California, there are various obligations imposed upon parties who become legally and formally married. These obligations do not arise under the law merely by living together without a formal and legal marriage.
Footnote: 12 The third and fifth instructions in footnote 11 are simple truisms.
Footnote: 13 The first instruction says "does not" mean there is an agreement, the second says the jury "cannot find" an "implied" agreement, and the fourth says "does not support any right."
Neither do we address the quantum of proof necessary to support recovery on a quantum meruit theory or attempt to divine the dividing line between services which may be so gratuitously volunteered under circumstances in which there can be no reasonable expectation of payment and services which do qualify for recovery in quantum meruit. These matters have not been briefed and may be left for another day.

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