Chick v. Tomlinson

• Decision Date: 04 February 1975
• Docket Number: No. 11414,11414
• Citation: 531 P.2d 573,96 Idaho 483
• Parties: Carlyle CHICK and H. Lowell Hatch, Plaintiffs-Respondents, v. K. D. TOMLINSON and Lewis Korth Lumber Company, Inc., a WashingtonCorporation, Defendants-Appellants.
• Court: Idaho Supreme Court

Page 573

531 P.2d 573

96 Idaho 483

Carlyle CHICK and H. Lowell Hatch, Plaintiffs-Respondents, v. K. D. TOMLINSON and Lewis Korth Lumber Company, Inc., a WashingtonCorporation, Defendants-Appellants.

No. 11414.

Supreme Court of Idaho.

Feb. 4, 1975.

Robert L. Aldridge, Anderson, Kaufman, Anderson & Ringert, Boise, Jerome G. Arnold, Hunt & Arnold, Duluth, Minn., for defendants-appellants.

James W. Givens, Lewiston, for plaintiffs-respondents.

The previous opinion, filed December 4, 1974, regarding this case is withdrawn and this opinion is substituted therefor.

DONALDSON, Justice.

In 1963, Carlyle Chick and H. Lowell Hatch, hereinafter called respondents, began owrking at appellant Lewis Korth Lumber Company for K. D. Tomlinson, appellant. Prior to taking a managerial position in that company, a corporation owned by Tomlinson, Chick worked for a time at another corporation, Beard and Company, also owned by Tomlinson. Hatch, during 1962, was simultaneously employed by Tomlinson for Tomlinson Lumber Sales and by a Mr. Davenport for Tri-Lakes Lumber Company. Tomlinson owned Tomlinson Lumber Sales, but not TriLakes. Each corporation paid one-half of Hatch's salary. The assets of Tri-Lakes were subsequently purchased by Tomlinson upon the bankruptcy of Tri-Lakes. Following the bankruptcy, Hatch was guardian protector of the inventory of Tri-Lakes and was paid by Tomlinson through Lawrence Warehouse which was storing the inventory. Hatch subsequently occupied the managerial position at Lewis Korth Company.

In return for their efforts at Lewis Korth Lumber Company, respondents were to each receive $500 per month salary, certain expenses, and bonuses gauged by the profits of the company. These terms were set by oral agreement. It is agreed by all parties that funds for the bonuses were to be those monies representing 40% of all net profits above the first $25,000. The dispute is found in the determination and distribution of those funds. Although the respondents were employed at Lewis Korth from 1963 to 1971, profits sufficient to fund the bonus program were made only in 1963, 1967, and 1968. The bonus for 1963 was $8,500 each while the 1967 Figure was $6,500 each. Neither of these amounts is in question. However 1968 was an excellent year for the lumber business and the relatively large profits for that year are the basis for this dispute.

Appellant Tomlinson contends that the 1968 net profit figure was $77,326.82, which resulted in $20,930.72 available for distribution by the bonus plan, i. e. 40% of profits after the first $25,000.00. The trial court amended the net profit figure to $194,323.96, with $67,729.58 for distribution. The trial court arrived at this sum by disallowing deductions of $25,000 for Tomlinson's salary and of $20,000 for a bonus reserve fund taken by Tomlinson from the net profit. The trial court also disallowed an accounting procedure utilized by Tomlinson wherein the closing lumber inventory of Lewis Korth Lumber Company was intentionally understated by over one million board feet. This procedure had the effect of reducing the profit by $71,997.14, which was subsequently added back in by the trial court in arriving at its figure of $67,729.58, net profit for distribution.

The trial court then determined that the oral bonus agreement required that the $67,729.58 be evenly divided between Chick and Hatch (less a $4,600 set-off for an advance received by Chick). Because the action was brought to recover unpaid bonuses for all three years, the trial court held Chick to be entitled to $44,264.79, with interest at the rate of 6% per annum from January 1, 1968, on the sum of $15,000 (1963 and 1967 bonuses) plus interest at the rate of 6% per annum from January 1, 1969 on the sum of $29,264.79 (1968 bonus), and Hatch to be entitled to judgment in the sum of $48,864.79 with interest at the rate of 6% per annum from January 1, 1968, on the sum of $15,000 (1963 and 1967 bonuses) and interest at the rate of 6% per annum from January 1, 1969, on the sum of $33,864.79 (1968 bonus). Finally the trial court held that K. D. Tomlinson and Lewis Korth Lumber Company would be jointly and severally liable for those money judgments.

From these findings of fact and conclusions of law, this appeal is taken.

Appellant assigns as error the trial court determination that K. D. Tomlinson be personally liable for the sums due respondents under the bonus agreement. Tomlinson contends that respondents were employed by Lewis Korth Lumber Company, not himself, and thus should be allowed to look only to the corporation for remuneration. Moreover, Tomlinson continues, by dealing with the corporate entity, e. g., accepting corporate payroll checks, the respondents are estopped from now rejecting the corporate entity. Jolley v. Idaho Securities, Inc., 91 Idaho 373, 414 P.2d 879 (1966).

The Idaho rule on disregarding the corporate entity is well summarized in Surety Life Ins. Co. v. Rose Chapel Mortuary, Inc., 95 Idaho 599, 514 P.2d 594 (1973), wherein the Court stated as follows:

'It is the general rule that the conditions under which a corporate entity may be disregarded vary according to the circumstances of each case. Automotriz Del Golfo De California v. Resnick, 47 Cal.2d 792, 306 P.2d 1 (1957). However, two requirements for application of the doctrine are (1) that there be such a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2), that if the acts are treated as those of the corporation an inequitable result will follow, Jolley v. Idaho Securities, Inc., 90 Idaho 373, 414 P.2d 879 (1966); 18 Am.Jur.2d 561, Corporations, § 15 (1965); 18 C.J.S. Corporations § 6, p. 376 (1939); Fletcher, Corporations, § 41, at page 166 (1963). As this Court stated in Tom Nakamura, Inc. v. G. & G. Produce Company, 93 Idaho 183, 457 P.2d 422 (1969), quoting with approval from Hayhurst v. Boyd, 50 Idaho 752, 300 P. 895 (1931):

"'To warrant casting aside the legal fiction of distinct corporate existence * * * it must also be shown that there is such a unity of interest and ownership that the individuality of such corporation and such person had ceased; and it must further appear from the facts that the observance of the fiction of separate existence would, under the circumstances, sanction a fraud or promote injustice.'' 93 Idaho at 185, 457 P.2d at 424.'

95 Idaho at 601, 514 P.2d at 596.

In the case before the Court the record readily illustrates the merger of identity of Tomlinson and his various enterprises. The trial court's Findings of Fact 25 and 26 read as follows:

'25. The record in this case is replete with evidence that the corporation and K. D. Tomlinson was one and the same person. Tomlinson was the sole stockholder and president of the corporation and there was no evidence of any meetings of the Board of Directors nor any corporate action taken by the directors, either approving or disapproving any of the actions of its president. In fact, the contracts and agreements executed by Tomlinson on behalf of the corporation were never submitted to the Board of Directors for their approval. The unilateral attempt to take a $25,000.00 salary in the year 1968 for the first time is additional evidence of the fact that Tomlinson alone ran and controlled the corporation and acted without regard to its corporate existence. As previously pointed out, the president revised the inventory to suit his ideas of a proper business practice without ever sanctioning such action with any Board of Directors or other officers.

'26. In the dealings between Lewis Korth Lumber Co. and other corporations, owned and cortrolled by Tomlinson, it was evident that funds were transferred, accounts paid or allowed to accrue, interest paid or not paid, and intercompany claims satisfied without any action thereon by any officer or director of any of said corporations except Tomlinson.' (citation of authority omitted.)

In essence, Tomlinson was running a oneman show. The identities have indeed merged, thus satisfying the first part of the rule in Surety Life.

The record clearly establishes that the case before the Court also meets the second part of that rule. Here, as in Surety Life, '(t)o adhere to corporate distinctions which the incorporators, directors and stockholders do not even recognize and follow, other than by maintaining separate accounting books for each corporation, would * * * produce substantial inequities.' 95 Idaho at 602, 514 P.2d at 597. The record discloses that the Lewis Korth Lumber Company is in a tenuous position in regard to gathering the cash necessary to meet the oblegation. This factor, when combined with the company's spotty profit record, indicates that the respondents' opportunities of enforcing the money judgment would be impaired by a denial of Tomlinson's personal liability. As the trial court noted, Tomlinson presonally hired the respondents, eventually assigned them to Lewis Korth Lumber Company, and issued to them promissory notes bearing his signature for the 1963 and 1967 bonuses. To allow Tomlinson to deny liability and force respondents to look solely to the company for remuneration would clearly result in an injustice.

Tomlinson's contention of estoppel is based on the rule in Jolley that when one deals with a corporation as such...