Western States Construction, Inc. v. Michoff

840 P.2d 1220, 108 Nev. 931, 1992 Nev. LEXIS 171

• Court: Nevada Supreme Court
• Decided: November 5, 1992
• Docket: 19793
• Status: Published

Opinions

OPINION

By the Court,

Young, J.:

Appellant Max Michoff (“Max”) and respondent Lois Michoff (“Lois”) cohabitated for approximately nine years, although they were never married. They formed Western States Construction, Inc. during their relationship. Lois provided valuable services in the operation of the business based on Max’s representations that she was a co-equal owner. When they terminated their relationship, Lois brought this action seeking one-half of the parties’ assets. The district court entered judgment in favor of Lois and against Max and Western States Construction, Inc. For the reasons discussed herein, we affirm the judgment against Max but reverse it against the corporation.

Facts

In 1977, Lois and Max became romantically involved, even though Max was already married. At the time, Lois was employed as a prototype technician,¹ working forty hours per week and earning eleven dollars per hour. Their relationship continued, and Max divorced his wife. Lois and Max then decided to, and did, live together.

In 1979, Lois and Max moved from California to Carson City, Nevada. That same year, Lois legally changed her name to Lois Michoff.² The parties started a construction equipment rental business called L&M Rentals (named for Lois and Max). Lois obtained the business license and paid the licensing fees. The business license listed Lois as the sole owner. Max wanted Lois to be the sole owner so that his ex-wife could not make a claim against the business.³ Although Max contributed a large portion of the funds to start L&M Rentals, Lois and Max had agreed that they were co-equal owners of the business. Consequently, Lois devoted her efforts and time toward running the business, including such integral functions as bookkeeping and maintaining the equipment.

Approximately six months after starting L&M Rentals, Lois and Max discovered that they needed a contractor’s license to operate the business. Lois therefore applied for such a license but listed the name of the business as Western States Construction. Lois was listed as the owner of the business and Max was listed as the “qualified employee.” Lois testified that they had agreed that it was their company; thus, again, Lois provided much of the skill and labor necessary for the business’ success. Her services included doing all of the office work (bookkeeping, payroll, and paperwork) and assisting in the maintenance, service, and running of the equipment. The profits from the business were either invested into the business or retained as savings.

In 1983, Lois and Max incorporated the business, naming it Western States Construction, Inc. (“Western States”). Lois testified that they agreed to hold the company as co-equal owners, each owning fifty percent of the company. The articles of incorporation listed Lois and Max as the Board of Directors and the Incorporators. Also, they were the sole officers of the corporation: Lois was treasurer, and Max was president and secretary. They opened checking and payroll accounts for Western States, and both Lois and Max had authority to withdraw funds from these accounts.

Lois continued to do the bookkeeping, and she also updated the records, reviewed bids, negotiated contracts and labored in the field — performing such jobs as flagging and running heavy equipment. Whenever Western States sought a license increase, it was Lois who applied for the increase. In order to obtain the necessary contractor’s bonds from the Contractor’s Board, Lois personally guaranteed the bonds.

During their relationship, Max held Lois out as his wife. In fact, in 1984, Max entered a partnership agreement with Robert Frybarger and requested that Lois sign a consent of spouse.⁴ Max and Lois filed joint tax returns as husband and wife commencing in 1980 and continuing through 1986. For the years 1983 through 1986, they also filed tax returns under Western States, showing Lois as an officer and owner of the corporation. Moreover, Western States elected to file a sub-chapter S election on March 24, 1983. The election was signed by Lois and Max and designated the holdings of the corporation as community property.

After Lois and Max terminated their relationship (Lois apparently left Max because he had been physically abusing her), she brought this action, seeking a declaration and judgment that she owns one-half of the parties’ assets, including Western States. She alleged that she had performed valuable services based on Max’s representations that she owned one-half of the corporation. Specifically, the complaint provided:

That at all times pertinent herein, Defendant, MAX MICHOFF, represented to [Lois] that she was entitled to one-half (V2) of the assets held by Defendant, Western States Construction, Inc. In accordance with the representations, [Lois] has performed valuable services over many years last past, including those as set forth above.

That based upon the representations as aforestated, [Lois] requests a determination by this Court that she is entitled to one-half (V2) of the assets of the parties whether held solely in the name of MAX MICHOFF, Defendant Corporation, or [Lois].

After a trial, the district court found that there existed an express and an implied agreement between the parties to acquire and hold the properties as if they were married. The court ruled that the community property laws should apply by analogy and thus entered judgment in favor of Lois and against Max and Western States for one-half of the net assets of the parties less the value of the property already taken.⁵

Discussion

Max contends that Lois did not plead any contractual claims against him. We disagree. Nevada is a notice-pleading state; thus, our courts liberally construe pleadings to “place into issue matters which are fairly noticed to the adverse party.” Hay v. Hay, 100 Nev. 196, 198, 678 P.2d 672, 674 (1984). A complaint need only set forth sufficient facts to demonstrate the necessary elements of a claim for relief so that the defending party has adequate notice of the nature of the claim and relief sought. Id; see also Ravera v. City of Reno, 100 Nev. 68, 70, 675 P.2d 407, 408 (1984) (test for determining whether the allegations of a cause of action are sufficient to assert claim is whether allegations give fair notice of nature and basis of claim and relief requested).

We have previously held that allegations similar to those contained in this case were sufficient to state a cause of action for breach of an implied-in-fact contract to acquire and hold property as if the parties were married or general partners. See Hay, 100 Nev. at 198, 678 P.2d at 674. In that case, Virginia Hay alleged that she and Tom Hay had held themselves out as husband and wife, although they were not married. Id. at 197, 678 P.2d at 673. She further alleged that they had pooled their money as though they were a “marital community or a general partner.” Id. at 198, 678 P.2d at 674. Likewise, here, Lois alleged that she and Max had held themselves out as though they were married. Lois also alleged that based on Max’s representations that she was a co-equal owner of Western States, she performed valuable services. Lois’ complaint adequately apprised Max that Lois pursued an ownership interest in the assets accumulated during their relationship based on an implied contract action. See Smith v. Recrion Corp., 91 Nev. 666, 668, 541 P.2d 663, 664 (1975) (the terms of an implied contract are manifest by conduct).

Indeed, Max’s pretrial pleadings acknowledged that he understood the grounds on which Lois based her complaint. In his answer to the complaint, Max contended, as an affirmative defense, that the complaint should fail for lack of consideration. Moreover, Max submitted a hearing and a trial date questionnaire, and on each one, he stated that the nature of the action was one of contract.

Lois even confirmed her position in her trial statement:

[Lois], for the next several years, continued to act as an officer of the corporation and generally handled the corporate paperwork, bid documents, and bookkeeping for the corporation. On occasion, she even handled and operated the heavy equipment of the corporation. [Lois] was held out by [Max] as his wife to the parties, acquaintances, and friends, and she virtually acted as a co-owner of the business with [Max] providing valuable services to the business with no substantial compensation. All of the above was done on the basis of an agreement between the parties and the representations of [Max] that the MICHOFFS were and would be equal co-owners of [Western States],

(Emphasis added.) Max recognized in his trial statement that Lois based her claim on a contract action, stating: “In her Second Cause of Action Lois is apparently asserting a contractual right.”

Therefore, we conclude that under Nevada’s notice pleading rule, Max was given sufficient notice that Lois’ complaint stated a cause of action for breach of an express and an implied contract to acquire and hold property as though the parties were married.

Max also contends that to allow unmarried cohabiting parties to hold their property as though they were married violates Nevada’s strong public policy of encouraging legal marriages. We strongly disagree and emphasize that this court by no means seeks to encourage, nor does this opinion suggest, that couples should avoid marriage. Quite to the contrary, we reaffirm this state’s strong public policy interest in encouraging legally consummated marriages. However, this policy is not furthered by allowing “one participant in a meretricious relationship to abscond with the bulk of the couple’s acquisitions.” Hay, 100 Nev. at 199, 678 P.2d at 674.

Unmarried couples who cohabit have the same rights to lawfully contract with each other regarding their property as do other unmarried individuals. Id. Thus this court must protect the reasonable expectations of unmarried cohabitants with respect to transactions concerning their property rights. We therefore adopted, in Hay, the rule that unmarried cohabitants will not be denied access to the courts to make property claims against each other merely because they are not married. Id.

In Hay, we cited with approval the holding in Marvin v. Marvin, 557 P.2d 106 (Cal. 1976), which provided:

The courts should enforce express contracts between non-marital partners except to the extent that the contract is explicitly founded on the consideration of meretricious sexual services .... In the absence of an express contract, the courts should inquire into the conduct of the parties to determine whether that conduct demonstrates an implied contract, agreement or partnership or joint venture, or some other tacit understanding between the parties. The courts may also employ the doctrine of quantum meruit, or equitable remedies such as constructive trust or resulting trusts, when warranted by the facts of the case.

Hay, 100 Nev. at 199, 678 P.2d at 674 (quoting Marvin, 557 P.2d at 110). We then expressly held that the remedies in Marvin are available to unmarried cohabitants. Id. As stated in Marvin, adults who voluntarily live together “may agree to pool their earnings and to hold all property acquired during the relationship in accord with the law governing community property. ” Marvin, 557 P.2d at 116 (emphasis added).

Our brother Springer believes that the district court was misled by our statement in Hay that if unmarried cohabiting adults agree to hold their property as if they are married, “the community property laws of the state will apply by analogy.” Justice Springer concludes that “[u]nmarried persons cannot own community property, by analogy or otherwise.” Marvin, however, strongly supports our statement in Hay that the community property law may apply by analogy. While unmarried couples cannot actually own community property, this is so only because community property is a creature of statute which arises after a couple is legally married. See NRS 123.220. Yet unmarried couples are not precluded from holding their property as though they were married. See Marvin, 557 P.2d at 116. In such a case, the community property law can apply by analogy. Hay, 100 Nev. at 199, 678 P.2d at 674. Thus we hold that unmarried cohabiting adults may agree to hold property that they acquire as though it were community property.

Max next argues that Lois failed to prove the existence of a contractual agreement because she failed to show the basic elements of the contract, namely, that she did not allege a meeting of the minds and harmonious understanding as to the tenor and provisions of the agreement. As stated in Recrion Corp., 91 Nev. at 668, 541 P.2d at 664, the terms of an express contract are stated in words while those of an implied contract are manifested by conduct.

There is no evidence that the parties expressly agreed to hold their property as though they were married. The district court erred in so finding. Nevertheless, we conclude that there is substantial evidence to support the district court’s finding that Lois and Max impliedly agreed to hold their property as though they were married. In addition to living together and holding themselves out to be a married couple, this evidence included the parties filing federal tax returns as husband and wife, the parties designating that they held the Western States stock as community property in their Subchapter S election, and Max’s insistence that Lois sign a consent of spouse to effectuate a partnership he wanted to enter. The district court’s judgment against Max is therefore affirmed.⁶ Pandelis Constr. Co. v. Jones-Viking Assoc., 103 Nev. 129, 130, 734 P.2d 1236, 1237 (1987).

However, the district court erred when it entered judgment against Western States, for Western States was not a party to the contract and therefore could not be liable for Max’s breach thereof. Thus, we reverse the judgment against Western States and remand for further proceedings as to the disposition of the parties’ property.⁷

Mowbray, C. J., Rose and Steffen, JJ., concur.

1 A prototype technician builds printed circuit boards from scratch.

2 Lois claimed that she changed her name at Max’s request; he believed that if they had a woman-owned, construction-type business, they would “fare better in getting jobs.” For example, according to Lois, they could bid five percent over the low bid and nevertheless be classified as the low bidder. It is noteworthy that Max’s attorney handled the name change.

3 It is uncontroverted that Max had concealed $50,000 from his former wife and the court in which he obtained his divorce. The record, however, does not indicate whether Max had defrauded his former wife out of other assets. In any case, Max was seized with an irresistible impulse to hide some of his assets. Thus, when Lois and Max first moved to Carson City, Max formed a partnership with a local contractor and immediately placed all of his assets into this business. Thereafter, when the parties started L&M Rentals, Max transferred all of his assets to L&M Rentals. Most of the cash was then used to purchase a certificate of deposit in the name of L&M Rentals.

4 This provision provided: “We, the undersigned, being the respective wives to the parties to the foregoing partnership agreement, have read and understand said agreement executed by our husbands. Each of us hereby approves and consents to the said partnership agreement and agrees to be bound by all of its provisions.”

5 The judgment also set aside in trust the sum of $22,500, representing one-half of the potential liability facing Western States in a pending lawsuit and ordered each party to pay one-half of the debt owed for a medical bill.

6 With regard to Max, we commend the district court for its handling of this case. This case involved the sensitive area of property rights between unmarried cohabiting adults (an area which traditionally has been judicially tempered by moral views) and where the parties perhaps did not have the “cleanest” hands. The district court fairly applied the law of this state to reach an equitable result.

Lois wanted to formalize their relationship with a marriage ceremony, but Max balked. He apparently felt that his financial interests would be better served with a more informal arrangement. However, when the trial court sided with Lois, Max found that he had jumped from the frying pan of a prior marriage into perhaps the hotter fire of a contractual relationship. With hindsight, he may have fared better financially if he had been married. However, Max was, as the poet says, “The captain of [his] fate.” We cannot see any benefit — except possibly to the lawyers — in remanding this action to be repled with the parties rehashing the same facts before the trial court.

7 In the event the district court determines that the parties are to have equal ownership in Western States, the judgment would have to require that Max transfer one-half of his shares of Western States stock to Lois since all stock was issued in Max’s name. We intimate no view as to whether the district court should appoint a receiver for Western States.