A Valuable Exception to the Statute of Frauds

The California Statute of Frauds (Civil Code § 1624) can be a conclusive defense to a breach of oral contract claim because it can bar the claim regardless of its validity and support by evidence.  If the subject contract fails within the Statute, the agreement must be in writing and executed by the party to be charged or it is invalid, unless there is an exception.

In the recent decision of Zakk v. Vin Diesel, the actor's argument that the Statute barred the claim by producer George Zakk was rejected by the Appellate Court, in a decision that clarifies the application of the Statute to an agreement that by its terms is not to be performed within a year from the making thereof.

Zakk claimed he was entitled to be paid $275,000 as an executive producing fee, and receive an executive producer credit, for the sequel to the film entitled xXx,a film Zakk had worked on and developed.  Zakk sued Diesel, and his production company, for breach of an oral contract, and quantum meruit, among other causes of action. 

The trial court found that Zakk's claim for breach of an oral contract (and its derivative claims) was barred by the Statute, and the quantum meruit claim was barred by the statute of limitations.

Zakk ran Diesel's production company, One Race Films, from its inception, and he was responsible for developing projects and managing them to conclusion.  Zakk did not receive a salary, reimbursement for expenses, or any other compensation for his daily work. 

Instead, he claimed he had an oral and/or implied-in-fact agreement with Diesel and One Race Films which provided that for each motion picture in which (a) Diesel would star in and act in the capacity as producer in, and (b) Zakk helped develop and/or worked on while running the operations of One Race Films, including sequels based thereon, Zakk would, unless otherwise agreed, receive a fee that ranged from $250,000 to $275,000, and an executive producer or producer credit on screen and in promotional materials on a Most Favored Nation (MFN) basis with other executive producers or producers. 

Zakk's complaint alleged there was a considerable amount of precedent that evidences the oral and/or implied-in-fact agreement, and he listed six original films and one sequel for which he was paid and given executive producer or co-producer credit. 

The first film, Strays, was produced in 1997; the last original film listed, Find Me Guilty, was produced in 2006. The one sequel listed, Riddick (which was a sequel to the 2004 original film, The Chronicles of Riddick) was produced in 2013, and Zakk received an executive producer fee and credit for the sequel even though his relationship with Diesel and One Race had terminated in 2007. 

With regard to the film xXx, which was produced in 2002, the complaint alleged Zakk worked on and helped develop xXx. Accordingly, with respect to xXx and any sequel of xXx that would be starring and produced by Diesel, Zakkk alleged that One Race Films, and/or Revolution Studios (the production company) agreed to provide Zakk with an Executive Producer credit and $275,000 executive producing fee in exchange for his services.

Zakk alleged that by virtue of the services that Zakk provided in connection with xXx (i.e., working on the picture and helping to develop it), Zakk fully performed all of his obligations under the oral or implied-in-fact agreement that Zakk had with Diesel and One Race Films, thereby entitling Zakk to an Executive Producer credit and $275,000 producing fee.

Zakk alleged a cause of action for quantum meruit contending that defendants requested that Zakk perform services for their benefit in connection with the xXx film franchise and promised to pay Zakk the reasonable value of those services (which is alleged to be no less than $2 million), and that Zakk performed those services. 

Oral contracts that by there terms are not to be performed within one year fall within the Statute, but the promissee’s (in this case Zakk) full performance of all of his obligations under the contract takes the contract out of the Statute, and no further showing of estoppel is required.  In other words, Zakk’s allegation that he fully performed his obligations under the alleged oral contract was enough to avoid the Statute.

To the extent cases hold that avoidance of the Statute requires the promisee to satisfy the elements of estoppel (i.e., showing extraordinary services by the promisee or unjust enrichment by the promisor), they do not apply to the category of contracts not to be performed within a year. Where the contract is bilateral but has been fully performed by one party, the remaining promise is taken out of the Statute, and the party who performed may enforce it against the other.

Some cases required that the plaintiff must show more than full performance in order to avoid the Statute, and they involved oral contracts to make a will (or to devise property in a will) or contracts not to be performed during the lifetime of the promisor. Where an oral agreement to make or not to revoke a will is alleged after promisor is deceased and unable to testify, there is an opportunity for the fabrication of testimony concerning the existence of the agreement. Sound policy requires some form of written evidence that such an agreement actually exists.  The concern about fabrication of testimony is significantly lessened where all parties to the alleged contract are able to testify as to its existence or nonexistence, such as in the Zakk v. Diesel case. 

The statute of limitations on a cause of action for quantum meruit for personal services usually begins to run when those services or the relationship between the parties terminate, but that is not always the case. Where services are provided with the understanding that payment for those services will be made at some time after the termination of those services or upon some contingency, the statute of limitations does not begin to run until that time arrives or contingency occurs.  The statute of limitations does not begin to run against a claim until it matured and could be enforced, regardless of whether the time fixed was reasonable or unreasonable. 

Zakk alleged that defendants agreed to pay him the reasonable value of the services he performed “when the xXx Sequel was released.” He also alleged that the sequel was released “on or about January 20, 2017.” Therefore, the two-year statute of limitations on his quantum meruit cause of action did not begin to run until January 20, 2017, and the trial court erred in finding that his claim, filed on March 17, 2017, was time-barred.

LESSONS:

1.         Always get a contract in writing, and if you can't, keep detailed records of performance of the agreement.

2.         The statute of frauds is a powerful defense, but the promissee's performance of an oral agreement may be sufficient to avoid the bar of the statute of frauds, depending on the nature of the oral agreement and the evidence.

3.         The prior conduct of the parties may be treated as precedents, and can be valuable evidence supporting or defeating an oral contract claim.

4.         Where money is concerned, reliance on the promissor's good faith may be misplaced.

Partnership Decisions Require Majority Agreement

In the recent case of Jarvis v. Jarvis Partnership, Jarvis Properties was a limited partnership that owned a two parcels of land. Its two general partners, brothers Todd Jarvis and James Jarvis, each owned a 50 percent interest in the partnership, which is less than the majority consent required to act on behalf of the Partnership under California Corporations Code, § 15904.06(a). The general partners could not agree on what to do about the parcels, and their partnership agreement did not address the question of what occurs in the event of a decision-making deadlock. Therefore, they turned to the courts. 

James Jarvis filed actions for partition by sale of the parcels, naming Todd Jarvis and Jarvis Properties as defendants.Todd hired a lawyer to represent him in the partition actions, and he also hired a separate lawyer, William Roscoe, III, to represent the Partnership. 

James objected to having Roscoe represent the Partnership, and he filed a motion to disqualify Roscoe on the ground that Roscoe was not authorized to act by the requisite majority of the general partners. James was concerned that Roscoe was not acting in the best interests of the Partnership and would run up unnecessary litigation costs and deplete the partnership’s limited assets, to the detriment of the Partnership. 

James filed a motion to disqualify Roscoe from representing the Partnership because Roscoe lacked authority from a majority of the general partners to represent the Partnership. James stated that Todd selected Roscoe to represent the Partnership over his express objection, and that Roscoe had taken the position that his representation of the Partnership is to be directed solely by one general partner (Todd), and in direct contravention of the direction of the other equal general partner (James). 

Citing Corporations Code section 15904.06(a), James argued that because there was more than one general partner, Roscoe needed the authority of a majority of the general partners.

Under the California Uniform Limited Partnership Act of 2008 (ULPA), a limited partnership is an entity distinct from its partners.  A limited partnership has the powers to do all things necessary or convenient to carry on its activities, including the power to sue, be sued, and defend in its own name and to maintain an action against a partner for harm caused to the limited partnership by a breach of the partnership agreement or violation of a duty to the partnership.

Lack of clarity over who is authorized to oversee the engagement of the attorney for a partnership places the lawyer in a position where he or she cannot follow one partner’s instruction without violating the other partner’s instruction. It is not a conflict of interest, because the lawyer has only one client, the partnership. 

It is, instead, a conflict of authority within the partnership over who oversees and instructs the partnership’s lawyer. The lawyer’s duty of loyalty requires the lawyer to act at a client’s direction. A lawyer cannot act without the client’s authorization. Nor can the lawyer take over the decision making for a client absent authority to do so. 

The partnership agreement governs relations among the partners and between the partners and the partnership, and if the partnership agreement is silent, the ULPA governs such relations.  The motion to disqualify was based on section 15904.06(a), which is part of the ULPA. It provides that each general partner has equal rights in the management and conduct of the limited partnership’s activities. Except as expressly provided in this chapter, any matter relating to the activities of the limited partnership may be exclusively decided by the general partner or, if there is more than one general partner, by a majority of the general partners. 

The Appellate Court understood the term “majority” to mean more than 50 percent. Neither Todd nor James alone constituted a majority of the general partners sufficient to decide matters relating to the Partnership, including the selection of counsel and the conduct of the litigation. Thus, neither the partnership agreement nor the applicable UPLA statutes resolved the issue of whether Roscoe’s representation of the Partnership was authorized or lawful. 

The California Corporations Code provides a mechanism for breaking corporate deadlocks. When a corporation “has an even number of directors who are equally divided and cannot agree” on the management of corporate affairs so that the corporation’s “business can no longer be conducted to advantage” or there is “a danger that its property or business will be impaired or lost,” section 308(a), authorizes a court to appoint a “provisional director” to break the deadlock, regardless of the terms of the articles or the bylaws and whether or not an action for involuntary winding up or dissolution of the corporation is pending. An action for such appointment may be brought by any director or by the holders of not less than one third of the voting power in the corporation. The provisional director “acts as a ‘tiebreaker’ when a deadlock exists.

There are no comparable provisions in the ULPA that authorizes a court to appoint a provisional general partner in the case of a deadlocked limited partnership. 

In the Appellate Court's view, James raised legitimate points regarding Roscoe’s duty of loyalty, not as between multiple clients, but as to his representation of the Partnership. Since Todd selected Roscoe, was paying Roscoe, and was directing the litigation, there is the appearance that Roscoe may advance Todd’s interests over James’s interests, which may not necessarily be in the best interests of the Partnership.

The Appellate Court concluded the trial court did not err when it granted the motion to disqualify Roscoe as the attorney under the circumstances in that case.  

LESSONS:

1.  Always have a written partnership or co-ownership agreement when two or more persons own real property.

2.  The agreement should include terms regarding what occurs in the event of a decision-making deadlock by the owners/partners.

Elements of Prescriptive Easement

In the recent case of Ditzian v. Unger, the California Court of Appeal reviewed the trial court's granting of a prescriptive easement allowing Unger and his invitees (including Airbnb guests) to use a path ("Path") that runs along the parties' property line, and then crosses the land of Unger and another neighbor to access sand dunes in MacKerricher State Park in Mendocino County.  Unger erected a fence that blocked Ditzian's use of the Path to access the dunes, and Ditzian filed the lawsuit requesting a prescriptive easement to use the Path. The trial court’s judgment awarding the easement was affirmed by the Appellate Court for reasons that are applicable to many property boundary disputes.

Ditzian argued he had acquired a prescriptive easement through “open, notorious, continuous, and adverse” use of the path for “an uninterrupted period of five years” by Ditzian and the predecessor owners of Ditzian's property. 

Unger admitted the prior owners of the Ditzian property had accessed the state park dunes by using the Path.A son of the predecessor owners of Ditzian's land testified that when he visited his parents, he used the Path almost every day. Another prior owner testified that when she lived on the property (and during previous visits to the property), she used the Path several times a week, until Unger put up a fence. Previously, she had encountered no obstacles and had never been told she could not walk on the Path, either the part crossing Unger's land or the part crossing the other neighbor's parcel. 

Ditzian began hosting vacation renters at his property through Airbnb, and by the time of trial, 146 separate Airbnb reservations had been made. 

The trial court ruled that Ditzian had made the showing required to establish a prescriptive easement on the Path. Among other things, the court credited the testimony of the prior owner's son that he and his parents regularly traversed the Path dating as far back as 1998. Reflecting on a site visit to the property, the trial court observed that hiking out to the dunes is the greatest highlight of living on or visiting the property. Enjoyment of that natural resource is presumably why the parties bought the property in the first place, and it would be more startling and unexpected if no one ever bothered to hike out to the dunes on a regular basis. 

The court also observed the Path was “very evident” and “well-trodden,” and it was “obvious” the Path had long been used to access the dunes. The trial court rejected the contentions of Unger that the Airbnb rentals substantially increased the burden of the easement, or that the doctrine of unclean hands justified denial of the requested easement. 

The trial court entered judgment in favor of Ditzian, granting him “an easement along the pathway which originates on their land and traverses that of defendant along the boundary line between the two properties”, and the judgment specified that the easement extended to Ditzian, his personal invitees, and business invitees, but only while such business invitees are residing on the property.

Unger argued Ditzian should not have been granted an easement permitting the Airbnb guests to cross his land because the trial court erred in interpreting evidence of the Ditzian's own ‘personal’ use of the Path as proof establishing prescriptive rights for his paying guests. However, Unger had not demonstrated that allowing Airbnb guests to use the easement imposed a substantial increase or change of burden on Unger's land. The incremental increased burden was modest and consistent with the pattern formed by the adverse use by which the prescriptive easement was created.

Unger emphasized the potential for a large number of annualAirbnb visitors, but the court focused on whether the easement itself would have substantially increased use, and the issue was whether having other people residing on the property from time to time transformed the scope of the easement and the burden it imposed. 

The trial court did not abuse its discretion in declining to award Ditzian the easement on the basis of the unclean hands doctrine. The unclean hands rule does not call for denial of relief to a plaintiff guilty of any past improper conduct; it is only misconduct in the particular transaction or connected with the subject matter of the litigation that is a defense. The bar applies only if the inequitable conduct occurred in a transaction directly related to the matter before the court and affects the equitable relationship between the litigants. Because Ditzian's failure to obtain a permit before hosting Airbnb guests is not directly connected with the prescriptive easement claim, the trial court was upheld in rejecting the unclean hands defense. 

Finally, Unger argued the use of the Path was not adverse in light of the testimony that Ditzian's predecessors were granted permission to use a differentpath across the land. There is no authority that permission to use one path constitutes permission to use a different path, and Unger cited no evidence Ditzian was given permission to use the Path.Unger cited no evidence that hegave Ditzian or the previous owners permission to cross his property using the Path, or on any path. Moreover, Ditzian were not required to present evidence that he actually communicated his easement claim to Unger. 

Continuous use of an easement over a long period of time without the landowner’s interference is presumptive evidence of its existence, and in the absence of evidence of permissive use, a prescriptive easement may be granted. In other words, continuous use over a long period of time constitutes communication of the claim of right.

LESSONS:

1.         Owners of land in those circumstances that suggest ambiguity regarding the property line or use of property, regardless of the structures on the land such as fences or hedges, should consider hiring a surveyor to determine the legal boundaries.

2.         The essential element is "adverse use", and permission to use the disputed land can defeat a prescriptive easement claim.  It may be a better practice to expressly allow permission to use the disputed land in a written document termed a license, as such permission and license can then be withdrawn, and no prescriptive easement right may arise.

3.         Evidence of continuous use of a portion of land over a long period of time may constitute communication of a claim of right to use the land, and if the land's owner objects, he has a 5 year period before the use may ripen into a prescriptive easement.

4.         After the prescriptive easement was created, no barrier could be erected to prevent use of the easement by the claimant, or his invitees, including Airbnb guests.

5.         This case is another illustration of the importance of time in deciding disputed claims, and Unger should have inquired as to the use of the Path when he purchased his land.   He may have been able to obtain a reduced purchase price because of the presumptive existence of the prescriptive easement over the Path.

Including Late Fees May Render Eviction Notice Defective

In the recent decision of Del Monte Properties v. Dolan, the Superior Court's Appellate

Division ruled that late fees in a notice of eviction were invalid liquidated damages, 

thereby rendering the notice defective, and causing the defendant Tenant to prevail at the unlawful 

detainer trial.

In Del Monte, the 3-day notice to pay rent or quit demanded rent in the correct amount of$600, as 

well as a late fee in the amount of $50, for a total of $650. 

The notice was based on a lease that contained a fairly common provision for charges for late 

payments and returned checks, as follows:

"6. Late charge; returned checks:  

              

  A. Tenant acknowledges either late payment of Rent or issuance of a  returned check 

may cause Landlord to incur costs and expenses, the exact amount of which are 

extremely difficult and impractical to determine. These costs may include, but are not 

limited to, processing, enforcement and accounting expenses, and late charges imposed 

on Landlord.  If any installment of Rent due from Tenant is not received by Landlord 

within 5 calendar days after the date due, or if a check is returned, Tenant shall pay to 

Landlord, respectively, an additional sum of $50.00 as a Late Charge and $25.00 as a 

NSF fee for the first returned check and $35.00 as a NSF fee for each additional returned check, 

either or both of which shall be deemed additional Rent.            

  

 B. Landlord and Tenant agree that these charges represent a fair and reasonable estimateof the costs Landlord may incur by reason of Tenant’s late or NSF payment. Any Late 

Charge or NSF fee due shall be paid with the current installment of Rent."       

At the unlawful detainer trial, witnesses testified about the late fee, and the court found infavor of the Landlord. It ordered the lease forfeited, awarded possession of the premises 

to the Landlord, awarded damages for “past-due rent” of $650, and holdover damages of $140, for a 

total judgment of $790.  

On appeal, the Tenant argued:

1. The 3-day notice cannot support a judgment for unlawful detainer because it contained a demand 

for an invalid late fee which is prohibited by California Civil Code §1671; and

2. The late fee cannot be justified as liquidated damages because the losses caused by latepayment of rent were not extremely difficult or impractical to determine, and Landlord 

failed to show that the amount of liquidated damages charged were the result of a 

reasonable endeavor to approximate those losses.                                        

In considering the first argument, the Appellate Court considered late fees as liquidated 

damages, and recognized that the proponent of a liquidated damages provision in a 

residential lease bears the burden of proving its validity under Civil Code §1671. 

While presumptively invalid, liquidated damages may be imposed when, from the 

nature of the case, it would be impracticable or extremely difficult to fix the actual 

damage caused by a breach. (Civil  Code §1671(d).) 

The parties may agree upon an amount that shall be presumed to be the amount of 

damage sustained by a breach. (Civil Code §1671(d).)        

However, Courts will look beyond the language of the contract to determine the actual  

circumstances of a liquidated damages clause.  The parties agreement to an invalid 

liquidated damages clause does not insulate it from attack under Civil Code §1671. 

The losses caused by the late payment of residential rent are limited to interest and 

administrative costs of collecting and accounting for the late rent. Landlord failed to 

prove that the actual losses caused by late payment of rent were extremely difficult or 

impracticable to determine. Moreover, an agreement of the parties to the term setting the amount is 

not enough. 

At trial, Landlord testified about the types of losses caused by late payment of rent, but 

it was little more than a reference to the language of the lease. Landlord did not 

articulate specific facts showing why the  circumstances of this case justify liquidated 

damages to compensate losses caused by late payment. 

Because Landlord failed to meet its burden to show that the losses caused by late 

payment of rent were extremely difficult or impracticable to determine, liquidated 

damages were not justified under Civil Code §1671.     

As a separate and independent basis for finding the eviction notice defective, Landlord 

failed to meet its burden to show that the late fee was the result of a reasonable endeavor 

to approximate actual losses caused by late payment of rent. 

To be valid under Civil  Code §1671, a liquidated damages clause must be the result of a reasonable 

endeavor to approximate actual losses caused by the breach that is being 

compensated. Setting the liquidated damages to a percentage of the contract price 

demonstrates a purpose other than compensating losses. Some analysis of actual losses is required 

prior to setting the amount. Post-hoc rationalization will be rejected. 

Landlord did not show the late fee passes the reasonable endeavor test. First, Landlord

admitted at trial that the $50 late fee was set at a percentage of the contract price. 

Second, Landlord admitted at trial that Landlord never attempted to calculate 

the amount of losses caused by the late payment of rent. If no effort was made to estimate the actual 

losses, then the resulting fee cannot approximate the losses. 

A 3-day notice that overstates the amount of rent owed does not support an unlawful 

detainer, and is fatal to an unlawful detainer complaint.  The notice upon which the complaint was 

based was defective because it included an invalid late fee, and it can not 

support a judgment for unlawful detainer.

Therefore, the Tenant won round one of the dispute because of the late fee of $50 in the 

3-day notice.

LESSONS:

1. A provision in a residential lease for charging late fees will be given careful 

consideration by the Court, and it may be prudent to limit the claim for damages in a 

3-day notice to the unpaid rent.

2. If a party insists on requesting late fees, it may be necessary to articulate specific facts showing 

why the circumstances of the case justify liquidated damages to compensate for losses caused by the 

late payment.

3. The Landlord should not lose sight of the main goal of an unlawful detainer action 

which is to restore possession to the Landlord, and including a demand for insignificant 

late fees in the 3-day notice is an unnecessary risk to the entire case.

4. A Tenant may be able to defeat the Landlord at trial if the 3-day notice was defective

by including a late fee claim that cannot be supported, but as the Landlord can re-file 

the action based upon a corrected notice, a Tenant may benefit more by raising the issue 

to make a settlement.