Pereira v. Pereira
1909 Cal. LEXIS 509, 156 Cal. 1, 103 P. 488 (1909)
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Rule of Law:
A contract between spouses that liquidates damages for a future marital wrong to facilitate a divorce is void as against public policy. When a spouse's separate property capital is used in a business, profits generated during the marriage must be apportioned between the separate estate (a reasonable rate of return on the capital) and the community estate (the value of the spouse's labor).
Facts:
- On September 23, 1904, the plaintiff wife filed for divorce from the defendant husband on the ground of extreme cruelty.
- Shortly thereafter, the parties reconciled and resumed their marital relationship.
- On November 1, 1904, the wife dismissed her divorce action.
- On November 4, 1904, the parties executed a contract providing that if the husband later committed another marital offense giving the wife cause for divorce, he would pay her $10,000.
- This $10,000 payment was stipulated to be in full satisfaction of all future claims for alimony, property, costs, and support, with the wife waiving all other claims to the husband's property.
- At the time of marriage, the husband owned a business and capital worth approximately $15,500, which was his separate property.
- On January 21, 1905, the wife filed a new action for divorce, alleging new acts of extreme cruelty by the husband.
Procedural Posture:
- The plaintiff wife sued the defendant husband for divorce in the superior court (trial court).
- The trial court rendered an interlocutory judgment of divorce in favor of the plaintiff.
- In its judgment, the trial court declared the parties' property settlement contract void and awarded the plaintiff three-fifths of what it determined to be community property.
- The defendant husband appealed the interlocutory judgment to the Supreme Court of California.
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Issue:
Is a contract between spouses that prospectively liquidates damages for a potential, future marital offense and settles all future claims for alimony and property division void as against public policy?
Opinions:
Majority - Shaw, J.
No, a contract between spouses that pre-emptively liquidates damages for a potential, future marital offense and settles all future claims for alimony and property division is void as against public policy. Such contracts are considered 'contra bonos mores' (against public morals) because they have for their object the dissolution of the marriage contract or facilitating that result. The court reasoned that the agreement encouraged the husband to commit marital wrongs by providing him with a fixed, pre-negotiated liability, thereby undermining the state's interest in preserving the marriage. It was not a valid settlement of a past wrong, as the parties had already reconciled before its execution. Furthermore, the court found error in the trial court's classification of property. The trial court incorrectly designated all profits from the husband's business as community property. The court held that the husband's separate capital invested in the business should have been credited with a reasonable rate of return, with that amount remaining his separate property. The remaining profits, attributable to the husband's skill and labor during the marriage, are community property. The failure to make this apportionment required a reversal on the property division issue.
Analysis:
This landmark decision establishes two critical principles in California family law. First, it solidifies the public policy against contracts that facilitate or encourage divorce, holding that agreements which pre-emptively settle claims arising from future marital misconduct are unenforceable. This prevents parties from 'licensing' future wrongs for a fixed price. Second, and more famously, the case establishes the 'Pereira rule' for apportioning the appreciation of a separate property business. This approach, which allocates a fair return on the initial investment to separate property and the remainder to the community, remains a primary method for property division in divorces involving closely-held businesses started before marriage.
