Opinion
D075136
10-30-2019
GEORGE SAUNDERS, Plaintiff and Appellant, v. DONALD R. PAULSON, Defendant and Appellant.
Garcia Reed & Ramirez and Raul B. Garcia for Plaintiff and Appellant. Williams Iagmin and Jon R. Williams for Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. SCVSS145184) APPEAL from a judgment of the Superior Court of San Bernardino, Bryan Foster, Judge. Reversed in part and affirmed in part. Garcia Reed & Ramirez and Raul B. Garcia for Plaintiff and Appellant. Williams Iagmin and Jon R. Williams for Defendant and Appellant.
George Saunders and Donald Paulson entered into an oral partnership agreement to purchase, develop, and sell real estate. After purchasing four properties, they decided to end the partnership, but disagreed about how to accomplish this. Each party then sued the other, alleging contract, tort, partition, and accounting causes of action.
The court, sitting without a jury, conducted a trial in two phases. In the first phase held in 2013, the court determined that a 2006 promissory note in which Paulson agreed to pay Saunders $199,430.51 for three of the properties was valid and enforceable. In the second phase (held three years later), the parties presented issues involving the appropriate division of the fourth property and numerous offset and accounting disputes.
In the final judgment, the court ruled mainly in favor of Saunders on the disputed issues and found he was the prevailing party. On one significant issue, however, the court ruled in Paulson's favor. The court determined Saunders did not prove his contract claims with respect to the $199,430.51 promissory note because it found Paulson was not required to pay that amount until the final dissolution of the partnership. Thus, the court found that although Saunders was entitled to reimbursement of $199,430.51, he was not entitled to prejudgment interest because the debt was not due until the final judgment.
Saunders challenges this ruling on appeal. We conclude the challenge is meritorious and reverse the judgment on the three breach of contract claims. On remand, the court shall enter judgment in favor of Saunders on these three contract claims and determine the appropriate amount of prejudgment interest to which Saunders is entitled.
These claims are: (1) default on written promise to pay debt (first cause of action); (2) breach of written contract (eighth cause of action); and (3) open book account (14th cause of action).
In his cross-appeal, Paulson contends the court erred in calculating the parties' capital accounts with respect to $56,597.56 in funds owed to Saunders, and in declining to compensate Paulson for equipment used when he performed work on Saunders's solely owned property. We conclude these contentions are without merit.
FACTUAL SUMMARY
We summarize the evidence in the light most favorable to the court's factual findings, drawing all reasonable inferences supporting those findings. (Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 481, fn. 1.) We later describe additional facts that relate to the parties' specific appellate contentions.
In 2004, Paulson and Saunders entered into their oral partnership agreement. Neither man was a real estate professional: Saunders was an optometrist and Paulsen operated an auto repair business. They agreed they would buy and sell residential properties; each would contribute funds as capital; and each would be entitled to a 50 percent interest in the partnership profits.
Between 2004 and 2006, they purchased four properties and constructed or partially constructed homes on these properties. These properties were known as Smiley Ridge, Eucalyptus, Alta Vista, and Sunset/Wabash.
By early 2006, the relationship began to deteriorate and they decided to end their partnership. In the summer of 2006, Paulson and Saunders met several times in an attempt to figure out how to terminate their joint ownership of the properties and end their business relationship. At the time, the Eucalyptus property had been sold and the partners held title to the other three properties. The two men ultimately reached an oral agreement that Paulson would pay $199,430.51 to Saunders, and in exchange Saunders would (1) execute documents transferring title of Smiley Ridge and Alta Vista to Paulson and (2) relinquish his profits from the Eucalyptus sale. They agreed they would later resolve the appropriate division of the Sunset/Wabash property. The $199,430.51 amount was calculated based on the Eucalyptus sales proceeds and the equity and debts on the other properties.
On August 9, 2006, Saunders signed and delivered a deed transferring title of Smiley Ridge to Paulson. Soon after, Saunders gave up his interest in the Alta Vista property, and Paulson remained living at this property at the time of the 2013 and 2016 trials.
To implement their oral agreement, the parties decided to meet at a bank on August 11, 2006, and Paulson would withdraw about $36,000 to give to Saunders as partial payment for the $199,430.51 amount. On that day, Saunders's wife came to the meeting instead of Saunders. Mrs. Saunders and Paulson then spoke in the bank parking lot. Mrs. Saunders was holding several pieces of paper containing calculations reflecting the parties' mutual discussions at arriving at the $199,430.51 figure.
When Paulson told Mrs. Saunders he could not withdraw the bank funds at that time, Mrs. Saunders responded that Paulson would need to sign a note reflecting his agreement to pay the $199,430.51. She told him that Saunders had already "signed over the quitclaim deed" on the Smiley Ridge property and "we had nothing." Paulson then agreed to her request. On one of the papers that Mrs. Saunders was holding, Paulson handwrote: "I Don Paulson owe George Saunders The Sum of 199.430.51, for Purchase agreement for Properties Smiley Ridge, Eucalyptus, & Alta Vista in Redlands CA" (the promissory note). Paulson signed his name immediately beneath this statement.
Four months later, Saunders sued Paulson. His complaint asserted 23 causes of action. In three of the causes of action, Saunders sought to enforce the promissory note and to compel payment of the $199,430.51 debt. (See fn. 1, ante.) Specifically, Saunders alleged that, "Since August 11, 2006, [he has] demanded on multiple occasions that defendant Paulson pay the debt of $199.430.51 relative to the Eucalyptus, Smiley Ridge and Alta Vista properties," but that "Paulson failed and refused to pay any portion of such debt to plaintiff, and there is now due, owing and unpaid from defendant Paulson to plaintiff the principal sum of $199,430.51, with interest at the legal rate . . . ."
In his amended complaint, Saunders realleged each claim, and added a 24th cause of action, seeking declaratory relief that the $199,430.51 promissory note was enforceable. In this added claim, Saunders alleged Paulson had agreed to pay this amount in exchange for Saunders's agreement to transfer title and/or rights to the three properties; Saunders had fully performed under this agreement; and the note was enforceable under theories of contract, accord and satisfaction, and/or novation.
Paulson filed a cross-complaint asserting mainly fraud causes of action, and seeking cancellation of a written instrument. The cross-complaint is not included in the appellate record.
Based on the parties' agreement, the court bifurcated the trial into two phases: the first phase would resolve Saunders's 24th cause of action seeking declaratory relief on the validity/enforceability of the $199,430.51 promissory note; and the second phase would resolve all remaining issues.
In 2013, the court held a bench trial on the first phase. During this phase, Paulson admitted he wrote and signed the promissory note, but testified he was pressured to do so and signed it only under duress. He also claimed the promissory note did not settle the parties' claims pertaining to the three properties because they had not yet finalized a complete accounting with respect to each of these properties. His counsel additionally argued the promissory note did not constitute an enforceable contract because it was vague and incomplete.
Saunders responded by testifying and presenting evidence that the promissory note by its terms was enforceable, including showing the parties had reached agreement regarding the three properties and that Saunders had fully performed his part of the bargain by transferring two of the properties to Paulson and "part[ing]" with the Eucalyptus property sale proceeds.
The court ruled in Saunders's favor, crediting his testimony and rejecting Paulson's testimony and contentions. The court orally explained it found the promissory note was enforceable, even if the parties had not resolved all the partnership issues and even if "aspects of the partnership [remain] outstanding . . . [¶] . . . [¶] . . . subject to another portion of the litigation." The court said it found a contract was formed, and it was "memorialized by the writing signed by Mr. Paulson on August 11th, in which he agreed to pay to the Plaintiff the sum of $199,[430.51]. . . . [¶] . . . [¶] . . . And from the evidence it was found that the agreement encompassed the transfer of those funds to [Saunders], the transfer of the deeds to [Paulson], and that [Paulson] would be responsible for any liens that were outstanding on the property . . . ."
Two years later, in June 2015, the court issued a statement of decision with respect to this ruling:
"A new contract had been formed between the parties to accomplish a partial windup of the partnership agreement and determine a portion of the rights and obligations outstanding. It was determined that the parties had agreed to the following terms:
"1. [Paulson] would pay [Saunders] the total sum of $199,430.51 by way of promissory note
"2. [Saunders] would transfer all his interest in the Alta Vista property and the Smiley Ridge property to defendant
"3. [Saunders] would relinquish his interest in the proceeds from the sale of the Eucalyptus property
"4. All issues and interest in the Sunset/Wabash property were specifically excluded from the agreement and excluded from any consideration in the promissory note
"5. The agreement encompassed all accounting related to the affected properties with the exception of offsets related to the alleged diversion of partnership funds by [Saunders] to non-partnership projects.
"6. The agreement was a release of all known offsets concerning the three properties involved.
"7. The agreement did not determine rights concerning Capital Accounts not affected by this transfer."
The next year, in mid-2016, the court held the second trial. During this phase, Saunders asserted only his three contract claims (first, eighth and 14th causes of action) and his accounting claim. At this trial, it was undisputed Paulson still had not paid any amount toward the $199,430.51 note, although Paulson conceded that when he wrote and signed the promissory note, Saunders immediately "transferred ownership of the three properties" to him. Saunders testified that after Paulson signed the promissory note, he made demands on Paulson to pay the $199,430.51 note and, when Paulson refused, Saunders brought the lawsuit.
The primary issues in the second trial concerned the partition of the remaining property (Sunset/Wabash), and an accounting on the proper division of the parties' remaining profits and debts. With respect to the accounting, Paulson raised several issues in seeking to offset amounts he owed to Saunders: (1) the proper treatment of $113,195.11 in loan funds obtained during the partnership (discussed in more detail in Discussion section, Part II); (2) whether the parties' monetary contributions to the partnership were loans or capital contributions; (3) Paulson's request to be reimbursed for his services working on Saunders's solely owned property (discussed in more detail in Discussion section, Part III); (4) Paulson's reimbursement claim resulting from alleged "barter" issues; (5) Paulson's claim that Saunders had diverted $73,720 from partnership assets to his own bank accounts; and (6) Paulson's claim Saunders had engaged in wrongful conduct by destroying certain records.
After a multiple-day trial in which the parties called numerous witnesses on these matters, the parties submitted written closing arguments. After issuing an initial statement of decision and considering objections to the statement, the court issued a final statement of decision. Of relevance here, in the final statement of decision, the court: (1) awarded Saunders $199,430.31 on the promissory note, but found he had not proved his breach of contract claims with respect to this note because the court found the note was not due until a final accounting of partnership assets; (2) declined to award prejudgment interest on the promissory note because of its finding that the note was not due until the final judgment; (3) found Paulson had possession of $113,195.11 in loan proceeds that belonged equally to both partners; and (4) Paulson did not prove any of his defenses or affirmative claims, including (a) his entitlement to be reimbursed for contractor-type services he provided to Saunders on Saunders's property; (b) Saunders owed money to him based on Saunders's alleged diversion of partnership funds; and (c) Saunders owed money to him based on Paulson's payment (in barter) to third parties.
The statement of decision also reflects that the parties stipulated to a procedure to divide the one remaining property still held by the partnership (Sunset/Wabash property). Under this procedure, Paulson would set the fair market price, and Saunders would choose whether to buy or sell his interest to Paulson, accepting that amount as the fair market value of the property. Paulson then set the fair market value at $900,000, and Saunders elected to sell his interest.
The court also made determinations as to each party's capital contributions, remaining amounts owed, and amounts to be credited. As explained below, the court found (1) Paulson had a net capital account of $62,087.28 (calculating his total cash contributions and then making certain adjustments, including subtracting the $199,430.51 promissory note amount and one-half of the $113,195.11 loan proceeds ($56,597.56)); and (2) Saunders had a net capital account of $400,122.44 (calculating his total cash contributions and then adding in the $199,430.51 and $56,597,56 amounts owed to him and making certain other adjustments).
In calculating the amounts for the final judgment, the court added these net capital account amounts ($62,087.28 and $400,122.44) to the loan balance on the Sunset/Wabash property ($290,000) plus back taxes ($21,020.40) to reach the total net obligations on the property ($777,230.12). The court then calculated the net equity in the property to be $126,769.88 ($900,000 minus $773,230.12), and concluded the parties were to equally divide this amount ($63,384.94 for each).
Based on these calculations and determinations, in the final judgment the court determined the Sunset/Wabash property would be sold to Paulson for $900,000, with escrow instructions providing that from the sale proceeds, Saunders is to be paid: (1) $400,122.44 (Saunders's capital account); (2) $63,384.94 (Saunders's 1/2 equity interest in the property); (3) certain mortgage interest payments made by Saunders; and (4) postjudgment interest on the $199,430.51. The court also ordered Paulson to pay all property taxes and the existing secured loan.
The court found Saunders was the prevailing party "because of the fact that there was a dispute in reference to the [$199,430.51] promissory note as to whether it ever occurred, or whether or not there was an agreement, which [he] won, which was a major issue [in] the case. And based upon that finding, [Saunders is determined to be] the prevailing party."
Both parties appeal.
DISCUSSION
I. SAUNDERS'S APPEAL
Saunders contends the court erred in refusing to award him prejudgment interest from the date of the note (August 11, 2006). We first provide additional background information relevant to this contention. We then set forth the governing legal principles and explain our conclusion that the court erred in its analysis and conclusions on this issue.
We reject Paulson's contention that Saunders forfeited this appellate challenge by failing to describe all relevant evidence in his appellate brief. (See Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.) Saunders's brief contains sufficient information to permit this court to intelligently evaluate his challenge. Additionally, the Foreman rule is discretionary and subject to exceptions, including to promote the interests of justice. (See Estate of Bonzi (2013) 216 Cal.App.4th 1085, 1107, fn. 7; Roy v. Superior Court (2011) 198 Cal.App.4th 1337, 1347.)
We likewise decline to find forfeiture based on Saunders's failure to characterize his appeal as a challenge to the court's findings on his breach of contract claims. In the context of this appeal, the prejudgment interest and breach of contract issues are factually and legally identical. We provided Paulson an opportunity to file a supplemental brief on these issues and have considered his supplemental briefing in reaching our conclusions.
A. Additional Relevant Facts
During the 10 years that the parties were litigating their disputes, Paulson never challenged that he would owe prejudgment interest on any unpaid balance found on the $199,430.51 promissory note. His bookkeeper testified that her accounting books reflected this debt and showed there was $219,000 in unpaid accrued interest on the promissory note (calculated at a 10 percent rate from August 2006 through January 2016).
However, at the conclusion of the evidence in the second phase, the court asked the parties to brief in their written closing statements whether a prejudgment interest award was appropriate. Observing that the promissory note did not specify an interest rate, the court said: "I have some question as to whether or not given the nature of the relationship between the parties, as to whether or not there was an understanding that there would be interest on that note or that the note would [not] be due until the remaining properties were disposed of, either by agreement or by sale, which we're here about."
In his briefing, Saunders argued the evidence showed payment on the note was due immediately and there was no evidence the parties had agreed the promissory note would not be due until the final property was sold. He emphasized the evidence showing he had fully performed his side of the bargain at or near the time Paulson signed the note. He noted that under California law, 10 percent interest is the appropriate rate if the rate is unspecified in the document. (See Civ. Code, § 3289, subd. (b).)
All further unspecified statutory references are to the Civil Code.
In his briefing, Paulson argued the court should not impose interest because the partners had not yet completed the "wind up process" and it would have been completed "but for the litigation which was commenced by Dr. Saunders . . . which effectively disrupted and delayed the completion of the winding up process, which has now stretched for over 10 years."
On our own motion, we have taken judicial notice of Paulson's closing-argument brief contained in the superior court file.
After considering the evidence and the parties' arguments, the court issued a proposed statement of decision. Of relevance to the prejudgment interest issue, the court stated:
"The enforceability and validity of the promissory note was determined in a bifurcated trial of December 2013. The issues of setoff, capital accounts and other issues were not determined in that proceeding.
"At trial, . . . Paulson admitted to having made no payments [under the $199,430.51 note]. . . . [¶] Saunders and his wife . . . testified that the first payment under the agreement between Paulson and Saunders was due on August 11, 2006. In the trial of 2013, [Mrs. Saunders] testified that the reason she met Mr. Paulson [at the bank] . . . was to collect the first installment of $36,759.65. [Mrs. Saunders] and Paulson both testified that at the time of the meeting . . . Paulson did not make a payment but rather at the request of Saunders signed the promissory note. Paulson testified that it was his understanding that the note was not due until the remainder of the business assets were divided. No one testified that there was ever a formal demand for payment. [¶] Saunders attempted to have Paulson sign a memo acknowledging a reduction in Paulson's remaining equity position. Paulson refused to sign.
"The court finds, that there was an acknowledgement of indebtedness as part of a general plan to divide the assets of the partnership. The promissory note did not have a due date or a designation of the rate of interest. As such it is characterized by the court as a partial division of the relative interest of the parties that would be considered in the final accounting. As such, no interest accrued on the note. The note becomes due only after . . . an agreed upon accounting or the court ordered division of the remaining
partnership assets. The court finds for [Paulson on Saunders's three contract claims]."
The court provided the parties with 10 days to object to any portion of the statement of decision.
Within 10 days, Saunders asked the court to reconsider its decision on two issues, one of which was the prejudgment interest issue. Saunders stated the evidence was undisputed that the first installment of the debt was owed on August 11, 2006, and the remaining funds were due by December 2006, and when Paulson denied that he owed those funds and refused Saunders's requests for payment, Saunders brought the lawsuit, seeking payment of those funds with interest. In support, Saunders relied on statutes providing that a promissory note is generally due immediately upon demand. (See § 1657; Cal. U. Com. Code, § 3104, subd. (a).)
Saunders also argued it would be inconsistent to find Paulson received all the benefits of the promissory note in 2006, but none of its burdens until some indefinite future time, asserting: "never, ever, in the pleadings, discovery or in any trial testimony from two trials was there any evidence or argument, at least not until closing argument, that the 'agreement' emanating from the promissory note was that Saunders agreed to be paid his money only after some indeterminate time in the future when there was a wind up of Sunset/Wabash."
In his opposition, Paulson directed the court to its findings in the statement of decision that he had testified to his "understanding that the note was not due until the remainder of the business assets were divided" (underlining and bolding omitted), and to the court's finding Saunders had never made a "formal demand" for repayment of the note.
In reply, Saunders said he did not recall any testimony by Paulson that he understood payment need not be made until the parties had completed their partnership dissolution, and any such testimony would be inconsistent with Paulson's position that there was no agreement to pay the $199,430.51. He again identified the legal principles supporting a presumption of immediate payment due. He also emphasized that Paulson had never raised this issue during pretrial or trial proceedings, and therefore Saunders was "sandbagged on this argument."
In its final statement of decision, the court adhered to its conclusion on the interest rate issue and made only one change pertaining to its prior calculation of the $199,430.51 on the parties' capital accounts (see Discussion, Part II, below).
In the final judgment, the court found Saunders did not prove his three contract claims (default on written promise to pay; breach of written contract; open book account), but awarded Saunders $199,430.51 in calculating amounts owed to him in the final partnership accounting.
B. Saunders's Appellate Contention
Saunders contends the court erred in refusing to award him any prejudgment interest on the $199,430.51 note. The court found Saunders was not entitled to interest because Paulson had no obligation to pay the $199,430.51 until the final dissolution of the partnership, which did not occur until final judgment was entered in 2016. Based on this finding, the court determined Saunders did not prove his contract claims (that Paulson had breached an agreement to pay the money) and was not entitled to prejudgment interest. Saunders contends the court's finding that he was not entitled to prejudgment interest was unsupported by the evidence, particularly in light of statutes governing the interpretation of promissory notes.
C. Legal Principles
Saunders's entitlement to prejudgment interest turns on whether the court properly determined Paulson did not breach the promissory note, i.e., that the note was not due until the parties sold the Sunset/Wabash property and completed the final accounting. This is because if Paulson breached the note, prejudgment interest would have been mandatory, and if Paulson did not breach the note, Saunders would not be entitled to prejudgment interest as no amount would have been due before final judgment.
Prejudgment interest is an element of contract damages because it compensates the plaintiff for the loss of use of property or money during the period before the judgment is entered. (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 992, fn. 16.) After proving a breach of contract claim for a specified liquidated amount, a prejudgment interest award is mandatory and not discretionary. (§ 3287; North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 828.) A party is legally entitled to prejudgment interest as part of the party's damages recovery if the damages were "certain, or capable of being made certain by calculation." (§ 3287; see North Oakland, at p. 828.)
"The test for determining certainty . . . is whether the defendant knew the amount of damages owed to the claimant or could have computed that amount from reasonably available information. [Citation.] Uncertainty as to liability is irrelevant. 'A dispute concerning liability does not preclude prejudgment interest in a civil action.' [Citation.] The certainty . . . is not lost when the existence of liability turns on disputed facts but only when the amount of damages turns on disputed facts. [Citation.] Moreover, only the claimant's damages themselves must be certain. Damages are not made uncertain by the existence of unliquidated counterclaims or offsets interposed by the defendant." (Howard v. American National Fire Ins. Co. (2010) 187 Cal.App.4th 498, 535-536.)
Under these principles, if Paulson owed some or all of the $199,430.51 on a date before the final judgment, the court erred in refusing to award prejudgment interest on this owed amount from the date the amount was due. Thus, our initial focus must be on when the debt reflected in the promissory note was due.
Promissory notes are interpreted under general contract principles. (See Piazzini v. Jessup (1957) 153 Cal.App.2d 58, 62; Shipley Co. v. Rosemead Co. (1929) 100 Cal.App. 706, 712 (Shipley); Blockman Commercial & Sav. Bank v. Ketcham (1918) 36 Cal.App. 284, 287.) "The basic goal of contract interpretation is to give effect to the parties' mutual intent at the time of contracting." (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955.) In ascertaining the parties' intent, the court applies an objective standard. (ASP Properties Group v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266.) " 'We interpret words [in a contract] in accordance with their ordinary and popular sense, unless the words are used in a technical sense or a special meaning is given to them by usage.' " (Orien v. Lutz (2017) 16 Cal.App.5th 957, 961.) " 'We consider the contract as a whole and interpret its language in context so as to give effect to each provision . . . .' " (Ibid.) We review the trial court's legal conclusions de novo, and the court's resolution of disputed extrinsic evidence under a substantial evidence standard. (Founding Members, at pp. 955-956.)
With respect to the time for performance of a contract, section 1657 provides: "If no time is specified for the performance of an act required to be performed, a reasonable time is allowed. If the act is in its nature capable of being done instantly—as, for example, if it consists in the payment of money only—it must be performed immediately upon the thing to be done being exactly ascertained." (Italics added.) Interpreting this code section, courts have long held that promissory notes are generally immediately due, unless they expressly contain a different time for payment. (Shipley, supra, 100 Cal.App. at pp. 711-712 [promissory note silent on performance date generally requires "immediate payment"]; accord Hammond Lumber Co. v. Richardson Bldg. & Engineering Co. (1930) 209 Cal. 82, 88; Leonard v. Gallagher (1965) 235 Cal.App.2d 362, 375; Rains v. Arnett (1961) 189 Cal.App.2d 337, 344.)
This same rule applies under Commercial Code provisions governing promissory notes such as the note here. California Uniform Commercial Code section 3108, subdivision (a) states: "A promise or order is 'payable on demand' if it (1) states that it is payable on demand or at sight, or otherwise indicates that it is payable at the will of the holder, or (2) does not state any time of payment." (Italics added.) Under the plain language of this code section, if a promissory note contains no time for payment, it means the money is due upon demand.
These rules are subject to the parties' oral agreement to apply a different meaning. Thus, the general rule that payment on a promissory note is due immediately can be rebutted by the parties' oral agreement making the time of payment on another date or conditional on the happening of an event. (See FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 390-397; Birsner v. Bolles (1971) 20 Cal.App.3d 635, 637-639 [finding trial court erred in excluding evidence of a collateral oral agreement that no payments would be required until the happening of certain events]; Bank of Beverly Hills v. Catain (1982) 128 Cal.App.3d 28, 30-32 [error in excluding agreement between parties that note could be paid off in installments].)
D. Analysis
In this case, the $199,430.51 promissory note did not contain any time for payment, supporting a presumption that it was due immediately. The court nonetheless considered extrinsic evidence and found (on its own motion) that the parties had understood or agreed the note would not be paid until the final partnership accounting.
We review the court's factual finding under the substantial evidence standard. We " ' "view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor . . . ." [Citation.]' [Citation.] ' "Substantial evidence" is evidence of ponderable legal significance, evidence that is reasonable, credible and of solid value.' [Citation.] We do not reweigh evidence or reassess the credibility of witnesses. [Citation.] We are 'not a second trier of fact.' [Citation.] A party 'raising a claim of insufficiency of the evidence assumes a "daunting burden." [Citation.]' [Citation.]" (Pope v. Babick (2014) 229 Cal.App.4th 1238, 1245-1246.)
In applying this standard to a court's findings in a statement of decision, a reviewing court must draw all reasonable inferences to support the court's express and implied findings. (Adhav v. Midway Rent A Car, Inc. (2019) 37 Cal.App.5th 954, 969.) If the trial court has drawn reasonable inferences from the evidence, we have no power to draw different inferences, even though different inferences may also be reasonable. (Ibid.) However, if the court unambiguously expresses the legal or factual basis for its decision, we cannot imply findings that the trial court did not make. Rather, we must determine whether the court's express findings are supported by substantial evidence. (Paterno v. State of California (2003) 113 Cal.App.4th 998, 1015.) " 'When the record clearly demonstrates what the trial court did, we will not presume it did something different[.]' " (Ibid.; see Mt. Holyoke Homes, L.P. v. Jeffer Mangels Butler & Mitchell, LLP (2013) 219 Cal.App.4th 1299, 1315, fn. 7 ["if the record clearly discloses the reasons for the trial court's ruling, we will not presume that the court relied on a different reason"]; Border Business Park, Inc. v. City of San Diego (2006) 142 Cal.App.4th 1538, 1550 [presumption of correctness "applies only on a silent record"]; Lafayette Morehouse, Inc. v. Chronicle Publishing Co. (1955) 39 Cal.App.4th 1379, 1384.)
In this case, the court stated the grounds for its factual finding that the parties had agreed the promissory note was not due until the final partnership dissolution: (1) "Paulson testified that it was his understanding that the note was not due until the remainder of the business assets were divided"; (2) "No one testified that there was ever a formal demand for payment"; and (3) "[t]he promissory note did not have a due date or a designation of the rate of interest."
On our careful and deferential review of the record, we have determined these grounds are not legally and/or factually supported.
First, as to the court's reference to Paulson's testimony that "it was his understanding the note was not due until the remainder of the business assets were divided," there was no such testimony. In response to Saunders's clear and repeated assertions in his briefs that this evidence did not exist, Paulson has not directed us to any portion of the record reflecting this testimony, nor has our independent review of the record disclosed this testimony. Moreover, even if Paulson had testified in this manner and subjectively believed he did not need to pay this amount until after the remaining business assets were divided, this belief is insufficient to overcome the presumption that the debt was immediately due, without a mutual understanding between the parties.
Evidence of the undisclosed subjective intent of the parties "is irrelevant to determining the meaning of contractual language." (Winet v. Price (1992) 4 Cal.App.4th 1159, 1166, fn. 3; accord, Reilly v. Inquest Technology, Inc. (2013) 218 Cal.App.4th 536, 554; Morrow v. Los Angeles Unified School Dist. (2007) 149 Cal.App.4th 1424, 1444; Achen v. Pepsi-Cola Bottling Co. (1951) 105 Cal.App.2d 113, 123 [contract interpretation is "not controlled in any sense by what either of the parties intended or thought its meaning to be"].) A party's "subjective statements of 'understanding' are irrelevant . . . , particularly where there is no evidence that [the other party] had the same understanding." (PV Little Italy, LLC v. MetroWork Condominium Assn. (2012) 210 Cal.App.4th 132, 157.)
There was no evidence presented showing Saunders shared an understanding that the funds were not due until the final accounting. To the contrary, within three months after the promissory note was signed, Saunders filed a complaint expressly asserting the entire promissory note was due and owing and that Paulson had breached the contract by refusing to pay it back with interest. Additionally, Saunders and his wife both testified Paulson was required to pay back at least part of the debt on August 11, and it was undisputed Saunders immediately fulfilled his side of the bargain—at or about the time that Paulson signed the promissory note, Saunders transferred title of the two properties (Smiley Ridge and Alta Vista) and gave up his rights to the profits generated from the sale of the Eucalyptus property. Paulson conceded that the note immediately transferred these assets to him and the undisputed evidence shows he continued to benefit from his ownership of these assets during the next 10 years.
Paulson cites various portions of the record to support his assertion that the court could have inferred from the evidence that the parties had agreed the note was merely an "acknowledgment" that he would owe Saunders the $199,430.51 in the future. We have reviewed these citations, and find they do not support this assertion.
Paulson relies primarily on his own testimony during the first phase of the trial suggesting the promissory note did not reflect the parties' final determination as to amounts owed for the three properties. For example, Paulson cites to his testimony in the first phase that he and Saunders did not reach a "final agreement" regarding the enforceability of the note or whether he was going to buy out Saunders on the three properties, and that many tasks needed to be completed, including appraisals, full accountings, and invoices. In his supplemental brief, he adds citations to his testimony that he signed the promissory note only because Saunders was "threatening to allow partnership property to be foreclosed" and he refused to sign a separate August 15 agreement incorporating the promissory note.
The problem with Paulson's reliance on this testimony is that the court declined to credit this evidence. The court specifically rejected Paulson's arguments that he signed the note involuntarily because of the threat of foreclosure and/or that the note did not constitute a final agreement with respect to the three properties because additional work needed to be accomplished on the accountings. In its ruling after the first phase of the trial, the court found the parties had entered into a "new contract" and had agreed: (1) Paulson would pay Saunders $199,430.51 by way of promissory note; (2) Saunders would transfer/relinquish his interests in the three properties; (3) the $199,430.51 promissory note "encompassed all accounting related to the affected properties" (except for certain claimed diverted funds which were later found not to have occurred) and (4) the $199,430.51 "was a release of all known offsets concerning the three properties." (Italics added.)
In response to Paulson's attempt to relitigate these findings in the second trial phase, the court made clear that its earlier rulings were binding on the parties:
"I already adjudicated that [the parties] reached a compromise and settlement of any disputes between the two of them in connection with the promissory note and I already adjudicated the fact that there
was, in fact, a meeting of the minds where the knowledge of everything that had occurred before. [¶] . . . [¶] I think my ruling is pretty straightforward [that] all the issues involving the promissory note in reference to the validity of the promissory note and what was owed on the promissory note were adjudicated with the exception of potential offsets that could occur for other work that was performed or adjustment of capital accounts. That is essentially what we are here about."
The court's final statement of decision does not state or suggest the court had reconsidered these issues or reevaluated its findings in the first phase of the trial. On this record, Paulson's reliance on his earlier discredited testimony that certain matters still needed to be resolved with respect to the $199,430.51 note before the parties considered it an enforceable debt does not rebut a presumption that the debt (or part of it) was immediately due.
Paulson also relies on Saunders's testimony in which he agreed there was no single document signed by the parties setting forth the terms of the partnership dissolution. This fact again does not logically support a conclusion (or a reasonable factual inference) that the parties had made a mutual decision that no amount on the note would be due until the final accounting, particularly after Saunders had fully performed his part of the bargain. Paulson testified that when he signed the promissory note and in the discussions leading to the note, the parties understood the agreement was not going to affect the parties' respective ownership in Sunset/Wabash. This testimony negates any reasonable inference that the parties had conditioned Paulson's obligations on the note to their determination as to the disposition of the Sunset/Wabash property. On this record, the fact the parties understood the partners continued to hold the fourth (Sunset/Wabash) property does not support that Paulson was not required to pay any amount on the note.
The court's second reason for its conclusion that no payment was due until the final judgment—that "[n]o one testified that there was ever a formal demand for payment"—was likewise unsupported by the record. (Italics added.) The record makes clear there was testimony that Saunders requested payment on the note. Saunders testified that before filing the lawsuit he demanded that Paulson pay the $199,430.51 note, and when Paulson did not do so, he filed the complaint. It was further undisputed that Mrs. Saunders asked Paulson to pay a portion of this debt when they met on August 11, 2006, and when Paulson refused, Mrs. Saunders asked him to write a note evidencing the debt. Additionally, Saunders's complaint, filed in December 2006, specifically alleged that Paulson owed the full amount of the promissory note and demanded payment with interest. Filing a complaint seeking recovery under a promissory note constitutes a legal demand for payment.
In any event, under California law there is no requirement for a formal demand to trigger a payment obligation under a promissory note. Courts have long held that if a contract calls for the payment of money owed by the promisor, no demand is necessary. (See § 1657; Rottman v. Hevener (1921) 54 Cal.App. 474, 483; 1 Witkin, Summary of Cal. Law (11th ed. 2017) Contracts, §§ 783, 786, pp. 841-842, 843-844.) Additionally, even if there was no demand, the fact that Paulson immediately accepted the benefits of the agreement compels the conclusion that Paulson agreed to be bound by the reciprocal obligation—compensating Saunders for performing his part of the bargain. "A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting." (§ 1589; see also id., § 3521 ["He who takes the benefit must bear the burden"].)
The court's additional reason for concluding that no prejudgment interest was owed—that the promissory note did not provide for interest or identify an interest rate—does not support a conclusion that prejudgment interest was not recoverable. Once a party establishes the right to prejudgment interest, the court must then determine the appropriate rate of prejudgment interest. (§ 3289; Teachers' Retirement Bd. v. Genest (2007) 154 Cal.App.4th 1012, 1045.) Section 3289, subdivision (b) provides: "If a contract entered into after January 1, 1986, does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after a breach."
Under this code section, a successful party is legally entitled to prejudgment interest even if the entitlement or amount of the interest is not specified on the note. (See Puppo v. Larosa (1924) 194 Cal. 717, 720; Epstein v. Frank (1981) 125 Cal.App.3d 111, 123.) Once an obligation matures, "it will draw interest from its maturity by operation of law without prior demand, and at the legal rate. In such case interest is in the nature of damages for the detention of the debt, and is not recoverable by virtue of any provision of the contract. [Citations.] When money is not paid according to the terms of a note, the holder suffers a detriment properly compensable in damages . . . . The fact that the contract provides for no interest has nothing whatever to do with the damages due after the breach of the condition for payment on the due date of the note." (Puppo, at p. 720; accord Epstein, at p. 123 ["interest is awarded in the nature of damages for the retention of the principal amount of the note and not by virtue of any provision in the note"]; Flynn v. California Casket Co. (1951) 105 Cal.App.2d 196, 208 ["when a contract for the payment of money is silent as to interest, the law awards interest at the legal rate from the time it becomes due and payable, if such time is certain or can be made certain by calculation"].)
E. Conclusion
The court found Saunders proved each element of his three contract claims except for establishing payment was due before the final judgment. We have determined the court's conclusion was based on evidence that did not exist in the record and/or on a misinterpretation of the applicable legal principles. The law presumes a promissory note is immediately payable, absent an agreement to the contrary. There was no evidence supporting that the parties had agreed Paulson would not be required to pay any amount until a final accounting. Although substantial evidence may consist of inferences, the inferences must rest on the evidence. Inferences that are the result of speculation or conjecture cannot be invoked to support a factual finding. (See Louis & Diederich v. Cambridge European Imps. (1987) 189 Cal.App.3d 1574, 1584-1585; Marshall v. Parkes (1960) 181 Cal.App.2d 650, 655.)
We reverse the court's judgment on the breach of contract claims, and remand for the limited purpose of the court determining the amount of prejudgment interest due.
While the appeal was pending, from July 2, 2019 through September 13, 2019, Saunders's attorney, Raul Garcia, was suspended from the practice of law in California for failure to pay State Bar fees and failure to comply with continuing education requirements. We therefore strike a supplemental brief filed by Garcia on August 12, 2019, during his suspension period. He was reinstated on September 13, 2019, and he therefore properly appeared at oral argument held on October 18, 2019.
II. PAULSON'S CROSS APPEAL: $113,195.11
Paulson contends the court made a "calculation error" by subtracting one-half of $113,195.11 from his capital account, and adding one-half of $113,195.11 to Saunders's capital account.
A. Additional Factual Information
During their partnership, Saunders and Paulson obtained a $113,195.11 loan secured by the Sunset/Wabash property, and the parties used this amount to purchase the Smiley Ridge property. The court found that when the parties entered into their agreement to transfer the three properties (including Smiley Ridge) in exchange for the $199,430.51, the parties decided that Paulson would keep the $113,195.11, and owe one-half ($56,597.56) of these funds to Saunders upon the final accounting of the parties' capital accounts when Sunrise/Wabash was sold.
These facts are not disputed. What Paulson challenges on appeal is the manner in which the court treated Paulson's owed amount ($56,597.56) in calculating the parties' capital accounts. In its initial statement of decision, the court subtracted $56,597.56 from Paulson's capital account and added it to Saunders's capital account (as shown in the bolding below):
| "Donald Paulson | |
|---|---|
| "Cash Contributions | $302,908.88 |
| "Equalization | $15,206.47 |
| "Capital Adjustment[50% of $113,195.11] | ($56,597.56) |
| "Promissory Note | ($199,430.51) |
| "Net Total | $62,087.28 |
| "George Saunders | |
| "Cash Contributions | $159,300.84 |
| "Equalization | ($15,206.47) |
| "Capital Adjustment | $56,597.56 |
| "Net Total | $200,691.93" (Bolding added.) |
At a July 28 hearing, the court gave the parties this initial statement of decision with these calculations, and provided the parties 10 days to challenge the decision. The court stated: "What I'm most concerned about is that if I made a mistake in the accounting, point it out to me. [¶] . . . [¶] . . . I went round and round as far as how to handle the $113,000 as to whether or not I take it all out of one or take half out of one and give half to the other one. I think I finally did it the right way, but it took me some time to figure that out because I haven't had accounting since I got an M.B.A. a long time ago. . . ."
Later in the same hearing, the court added:
"I should indicate on the record that I found [Paulson's accounting expert] Ms. Woiteshek's testimony confusing, and there were so many inaccuracies in the reports that . . . I discounted most of her testimony. [¶] I thought [Saunders's expert] Mr. Allen's testimony was much more convincing in terms of his analysis of the figures. [¶] . . . I believe his accounting analysis was correct. I disagreed with [some of his conclusions] but as far as his accounting method is concerned, I felt it was much more convincing than Ms. Woitesheck's."
Within the next 10 days, Saunders moved for reconsideration (1) on the prejudgment interest issue (discussed above); and (2) on the court's treatment of the $199,430.51 in calculating Saunders's capital account. On the second point, Saunders's counsel argued the court erred because it had subtracted this owed amount from Paulson's capital account, without adding it to Saunders's capital account. Saunders's counsel argued that by failing to simultaneously credit one partner's account and debit the other partner's account, the court "creat[ed] an imbalance in the accounting."
The court considered these issues at a September 8 hearing. After an extensive discussion, the court stated it would take a look at the issues. Paulson's counsel also briefly raised the issue of the treatment of the $113,195.11, and argued the court had double-counted this amount.
The next day, the court issued its final statement of decision, which was identical to the initial statement except the court changed the accounting treatment of the $199,430.51, agreeing with Saunders's counsel it had erred in failing to credit Saunders's capital account with this amount while at the same time deducting this amount from Paulson's capital account. The amended statement of decision contains this corrected calculation (the modification is in bold):
| "Donald Paulson | |
|---|---|
| "Cash Contributions | $302,908.88 |
| "Equalization | $15,206.47 |
| "Capital Adjustment[50% of $113,195.11] | ($56,597.56) |
| "Promissory Note | ($199,430.51) |
| "Net Total | $62,087.28 |
| "George Saunders | |
| "Cash Contributions | $159,300.84 |
| "Equalization | ($15,206.47) |
| "Capital Adjustment | $56,597.56 |
| "Promissory Note | $199,430.51 |
| "Net Total | $400,122.44" (Bolding added.) |
Seventeen days later, Paulson moved for reconsideration, arguing the court erred by crediting Saunders with the $56,597.56 in addition to subtracting that amount from Paulson's capital account, arguing it double-counted his debt. In support, Paulson submitted the declaration of his attorney, who asserted (without any supporting evidence) that the court's treatment "in effect . . . charges Paulson for his own 1/2 share of the $113,000."
In response, Saunders argued the motion was untimely as it was not filed within 10 days after the court's initial statement of decision. Saunders also presented various calculations to show the court properly determined the appropriate accounting method to treat the $56,597.56 amount.
About two months after issuing its final statement of decision, the court held a hearing on Paulson's motion. At the hearing, Paulson again attempted to persuade the court to alter its treatment of the $56,597.56 in calculating the parties' capital accounts. He repeatedly argued the court's calculation meant that Paulson "is essentially paying twice for the same amount," but he did not support this point with any factual or expert information. The court responded:
"I was convinced that there was an agreement, despite what Mr. Paulson indicated, there was an agreement that he would be on the hook for that amount in terms of the equalization necessary to take care of this. And what happened is that the way that was handled is by transferring $56,000 from him and moving it into Dr. [Saunders's capital account]. I look at it as if this was a sale outside of the partnership. Okay. [¶] And if it was a sale outside of the partnership, then he would have to pay $113,000 back to the partnership. But the way for him to do that would be to take $56,000 from his share and give it to Dr. [Saunders]. . . ."
Paulson's attorney then argued, "But half of that belongs to Mr. Paulson," and the court responded "That's correct. That's why I only had $56,000 transferred, not $113[,000]." When Paulson's counsel continued to argue that the court was double-counting in favor of Saunders, the court noted, "In calculations that were done and I included that the accounting that was done by [Saunders's] expert seemed to be more credible. That based upon that, they calculated that the actual value above and beyond the amounts of equity that each side had in there, was $113,000." After Paulson's attorney continued to argue, the court said "I'm going to deny the motion for reconsideration. I think the accounting that [Saunders] did was correct."
B. Argument
In his appellate brief, Paulson contends the "trial court committed a computational error when it inadvertently" deducted $56,597.12 from Paulson's capital account and then added the same amount to Saunders's capital account, giving Saunders a double-credit "and thereby charging the full amount of $113,597.12 against Paulson." (Italics added.) He argues that "[d]oing so was inconsistent with the trial court's prior directives at trial, the original calculations it made in its [initial] Statement of Decision . . . , and the ultimate objectives the [court] intended to embody in its final . . . Statement of Decision and resulting Judgment." (Italics added.) Paulson thus requests this court to conduct a de novo review and "reverse that portion of the trial court's award with instructions to correct that computational error on remand." (Italics added.)
The fundamental flaw in this argument is that it does not accurately reflect the record. As summarized above, the court did not "inadvertently" deduct the $56,597.12 from Paulson's capital account. It repeatedly stated it was doing so because it believed that was consistent with its substantive decision as to how to treat the $113,195.11 amount. Likewise, contrary to Paulson's statements, the court did not employ a different calculation in its initial statement of decision. As shown above, in the initial and final statement of decision, the court treated the $56,597.56 identically: it subtracted this amount from Paulson's capital account and added it to Saunders's capital account to equalize both sides of the accounting. To the extent Paulson relies on the court's oral comments when it distributed the written statement at the hearing, those oral comments are taken out of context. The court told the parties they had 10 days to object to its calculations set forth in the initial statement of decision, and the appellate record does not contain any evidence that Paulson submitted any written objections to the court's treatment of the $113,195.11 amount. Paulson then delayed until 17 days after the court issued its final statement of decision to file an objection to the $113,195.11 treatment.
Additionally, in his appellate briefing, Paulson has not cited to any evidence supporting his view of how the $113,195.11 should be treated in calculating the capital accounts. Paulson had numerous opportunities to present testimony or a declaration from an accounting expert supporting his contentions. Without such evidence, the court was not required to accept Paulson's unsupported contentions, nor are we.
Paulson's reliance on Ammerman v. Callender (2016) 245 Cal.App.4th 1058 is misplaced. In Ammerman, the probate court approved a formula known as the "changing fraction method" in determining the correct allocation of trust assets. (Id. at p. 1068.) The parties had presented experts who disagreed whether this method was the proper method to be used. (Id. at pp. 1071, 1073.) On appeal, the objectors challenged the trial court's approval of the changing-fraction method. The court reversed, finding whether the changing-fraction method was the appropriate measure of allocation depended on the trust terms, and that "[n]othing in the Trust supports the . . . use of the changing fraction method . . . ." (Id. at p. 1078.)
The Ammerman court relied on the trust provisions and the surrounding circumstances to reach its conclusion that the probate court had erred in its application of a particular formula in dividing trust assets. Here, Paulson does not point to any document or evidence in the record to support the manner in which he believes the court should have calculated the $113,195.11 division.
Paulson maintains that the court's calculation was "akin to the court announcing that it intended to split a pie evenly between Paulson and Saunders, and then taking Paulson's half of that pie and giving it to Saunders, leaving Saunders with the entire pie." This hypothetical is not necessarily analogous to the capital accounts allocation. As with the $199,430.51 calculation (which is not challenged on appeal), the court found it appropriate to subtract the owed amount from Paulson's account and add it to Saunders's account to balance the accounts. There is no showing in the record that this method constituted a legal or factual error.
III. CROSS-APPEAL: Offset Claim for Equipment Value
Paulson contends the court erred in refusing to award him a $30,100 credit for the fair market value of Paulson's use of his own equipment on Saunders's wholly owned property.
A. Additional Factual Information
During the second-phase trial, Paulson claimed he spent 722 hours working on Saunders's own property early in the partnership, including removing trees, clearing mud, cleaning footings, working on drains, backfilling a retaining wall, and using a bobcat to grade the property. Paulson testified he provided his own bobcat and backhoe in performing this work, and spent 30 hours with his bobcat in grading the property. Paulson said he did all the work at the specific request of Saunders, and Saunders agreed to pay Paulson for his labor and services.
Based on this evidence, Paulson's counsel argued Paulson was entitled to recover for the value of his 722 hours working on the property and for the fair market value of the use of his bobcat and backhoe to perform the grading services. In his closing written brief, he requested the court award $50,130 for these services and the use of Paulson's equipment.
Saunders presented evidence that contradicted Paulson's claims. He testified that Paulson spent only a total of 20 to 40 hours in performing this work, and denied he had agreed to pay Paulson for any of this work. He said Paulson "volunteered" to bring his bobcat to his property to assist in his project and did so only on one day, and Saunders never agreed to pay him for it and would not have agreed if he had been asked. Saunders said he had other ways to obtain this equipment, including from other friends who own this equipment. He considered all of Paulson's work voluntary, and never told Paulson to be there.
At trial, Paulson admitted he did not have a contractor's license while he was performing his work on Saunders's property.
In its final statement of decision, the court denied Paulson's labor and equipment claim. With respect to labor, the court determined the claim was barred by the contractor's licensing law (Bus. & Prof. Code, § 7031), finding Paulson's claimed work required a contractor's license, "thus preventing him from seeking reimbursement . . . whether at law or in equity." The court further found "Paulson was never an employee of Dr. Saunders, and therefore cannot claim compensation as an employee."
With respect to Paulson's claim to be paid for the value of his own equipment, the court stated: "Paulson testified that he used his bobcat to grade at [the property], but also used the bobcat to grade at the property [of two other individuals]. There was no testimony breaking down the labor at [Saunders's property], versus [the] other properties. In any event, this court must deny the claim for [the] equipment finding that claim is also barred under the [Contractors' State Licensing Law]."
In explaining these conclusions at the hearing, the court stated:
"As far as the work that was done on [Saunders's property] . . . , I kind of went around with this. I actually believe Mr. Paulson, that he did the work that he said he did. What I don't believe, however, is . . . that there was any type of agreement or expectation of compensation for that work. [¶] To be able to recover on the quantum meruit there has to be an expectation of remuneration for the work that was performed. I don't see any significant evidence in that regard that there ever was some type of agreement or even a conversation saying at some point they were going to do it. It appears that it took place at the time that the partnership was first forming; that they were on good terms with each other, and that Mr. Paulson was providing this labor and in an effort to help Dr. Saunders but not with any expectation of recovery on it; and it was basically a donation of goodwill in that regard."
B. Analysis
Paulson does not challenge the court's finding that his unlicensed status precluded him from recovering for his services, but contends the court erred in refusing to compensate him for the value of his equipment used on the property.
Generally, a party is precluded from recovering for work performed if the work requires a contractor's license and the party was unlicensed during any portion of the work. (Bus & Prof. Code, § 7031, subd. (a); MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co, Inc. (2005) 36 Cal.4th 412, 419.) This rule applies regardless whether the recovery is sought under a legal or equitable theory. (MW Erectors, at p. 419.)
Paulson contends he was not required to have a contractor's license to recover for the value of his equipment because he was performing functions that do not require a license: (1) as the agent's owner; or (2) as an equipment supplier. He does not cite to any portion of the factual record in making these assertions.
With respect to an agency exception, there was substantial evidence to support the court's implied finding that Paulson was not acting as Saunders's agent in providing the equipment. Further, even if Paulson was acting as Saunders's agent, Paulson does not direct us to any legal authority supporting an agency exception to the contractor's license requirement. Business and Professions Code section 7044 provides that the license requirement is not applicable to a homeowner under certain specified conditions. There is no evidence (or argument) that these specific conditions applied in this case.
With respect to the equipment-supplier function, one court has held that where a party agreed to furnish certain equipment at a specific price and that portion of the contract did not involve "building or construction activity," that party was not barred by the contractor licensing law from recovering the agreed-upon sales price for the equipment. (Johnson v. Mattox (1968) 257 Cal.App.2d 714, 719 (Johnson).) Another court held this exception does not apply if the work and the equipment were not segregated in the contract and cannot be evaluated independently. (Banis Restaurant Design, Inc. v. Serrano (2005) 134 Cal.App.4th 1035, 1047.)
In this case, Paulson's request for reimbursement for the use of his own equipment merged his labor services with the equipment used. In his closing trial brief, he argued he was entitled to $75 per hour when he was performing work with his own equipment, and $25 per hour when he was performing work without any equipment. This request reflected that Paulson was seeking to be reimbursed for his contractor-type work, and sought additional amounts when he was using his own equipment. Because his contractor work merged with his equipment-reimbursement claims, this case is distinguishable from Johnson, supra, 257 Cal.App.2d 714.
In any event, even assuming the court erred in relying on the contractor's licensing law to reject Paulson's equipment-use reimbursement claim, there was no prejudicial error. To establish a basis for reversal, an appellant is required to show "it is reasonably probable a result more favorable to the appellant would have been reached absent the error." (California Crane School, Inc. v. National Com. for Certification of Crane Operators (2014) 226 Cal.App.4th 12, 24.)
Paulson sought recovery for the value of his equipment under contract and quantum meruit theories. A contract requires a meeting of the minds that one party has agreed to pay another for the goods or services. (See Donovan v. RRL Corp. (2001) 26 Cal.4th 261, 270-271; §§ 1550, subd. 2, 1565, subd. 2.) "Quantum meruit refers to the well-established principle that 'the law implies a promise to pay for services performed under circumstances disclosing that they were not gratuitously rendered.' [Citation.] To recover in quantum meruit, a party need not prove the existence of a contract [citations], but it must show the circumstances were such that 'the services were rendered under some understanding or expectation of both parties that compensation therefor was to be made' [citations]." (Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453, 458, italics added.)
The court found that neither party expected Paulson would be compensated for this work, and particularly for the use of Paulson's equipment. Substantial evidence supports this finding. Saunders testified that there was no expectation of payment between the two men for this work, and that Saunders had several friends who owned construction equipment who would have let him use the equipment without any payment requirement.
On this record, even assuming the court erred in finding Paulson was barred under the contractor licensing law from recovering the value of his equipment used on Saunders's property, this error was not prejudicial. The record shows the court made an additional finding that Paulson did not use the equipment on Saunders's property with a mutual understanding or expectation that he would be compensated. Thus, Paulson would not have prevailed on his contract or quantum meruit theories even if a contractor's license was unnecessary.
DISPOSITION
Judgment reversed in part and affirmed in part. The court is ordered to vacate the portion of the judgment finding Saunders did not prove his three breach of contract claims (first, eighth, and 14th causes of action), and to enter judgment in favor of Saunders on these claims. The court is ordered to conduct a hearing on the appropriate amount of prejudgment interest on the unpaid $199,430.51 promissory note. In all other respects, the judgment is affirmed. The parties are to bear their own costs on appeal.
HALLER, J. WE CONCUR: HUFFMAN, Acting P. J. GUERRERO, J.