E. I. DuPont De Nemours & Co., Inc. v. Garrison

• Decision Date: 06 April 1942
• Docket Number: 28298.
• Citation: 124 P.2d 939,13 Wn.2d 170
• Court: Washington Supreme Court
• Parties: E. I. DuPONT DE NEMOURS & CO., Inc., v. GARRISON et al.

124 P.2d 939

13 Wn.2d 170

E. I. DuPONT DE NEMOURS & CO., Inc., v. GARRISON et al.

No. 28298.

Supreme Court of Washington

April 6, 1942

Department 1.

Action by E. I. DuPont de Nemours & Co., Inc., against Arthur M Garrison and his wife and another to recover on a note. From a judgment for plaintiff, named defendant and his wife appeal.

Affirmed.

Appeal from Superior Court, Yakima County; Robert J. Willis, judge.

Cheney & Hutcheson, of Yakima, for appellants.

Bonsted & Nichoson and F. C. Palmer, Jr., all of Yakima, for respondent.

DRIVER Justice.

Plaintiff brought this action on a promissory note made by defendant Grandview Inland Fruit Company, a corporation and endorsed by defendant Arthur M. Garrison. A trial to the court resulted in a judgment in favor of the plaintiff and against all of the defendants except Loyola Garrison individually. Mr. and Mrs. Garrison as a marital community, have appealed.

Appellants' assignments of error raise the question: Did the endorsement create a community liability or only a separate liability of the husband? They contend that the liability was separate for two reasons:

(a) The stock of the corporation, all of which stood in the name of Mr. Garrison, had been purchased with his separate funds and property, hence was his separate property; and (b) that, at the time of the making of the note, the corporation was hopelessly and irretrievably insolvent and defunct; and, therefore, as the husband's endorsement could not possibly have resulted in any benefit to the community, it did not legally obligate the community.

There is no substantial dispute as to the pertinent facts. They will be brought out in our discussion of appellants' two contentions, which will be considered in the order stated.

First, was the stock of the defendant corporation community or separate property? Appellants were married in May, 1926. Since the beginning of the year 1925, Mr. Garrison had been engaged in the business of buying, selling, packing, and shipping fruit at Grandview, in Yakima county, first with a copartner, and then individually after dissolution of the partnership in the spring of 1926. At the time of the marriage, he testified, he had invested in this business approximately $5,000 in cash. Thereafter, he continued on an individual basis until late in 1927, doing a brokerage business for the most part. He used his cash resources to buy fruit, which he then resold, but the scale of his operation was such that he found it necessary to borrow heavily from fruit companies on purchase contracts. His indebtedness at one time reached a total of $45,000. Sometimes, he made profits on transactions; at other times, lost 'plenty.' He handled several hundred car loads of fruit, and his capital turnover was repid, '* * * it was turning every day some days,' he testified. In carrying on the business, his original capital of $5,000 was combined with money borrowed from banks and other sources. During this period, neither he nor the community had any other source of income.

In the fall of 1927, Mr. Garrison had about $5,000 in cash, and, with this, he purchased one-third of the stock of a corporation named the C. F. Schaefer Company. In 1932, he exchanged this stock for the company's warehouse, packing equipment and other properties at Grandview. At the same time, the defendant corporation was organized, and Mr. Garrison transferred all the Schaefer assets to the new company for 150 shares (one-half) of its corporate stock. There was one other stockholder, who also held 150 shares, but the corporation purchased his stock in 1935, and, except for one qualifying share, it was not reissued. Mr. Garrison was the president and manager of the defendant corporation and, from August, 1935, until February, 1938, he devoted his entire time to its service. His salary was $150 to $200 a month. The promissory note which is the basis of the present action was a renewal of a prior note dated December 18, 1937, given to take up an open account for lead arsenate insecticide purchased by defendant corporation from the respondent in the spring of 1937.

Property owned by either husband or wife Before marriage or acquired afterwards by gift, bequest, devise, or descent, with the rents, issues, and profits thereof, is his or her separate property. Rem.Rev.Stat.§§ 6890, 6891. All other property acquired after marriage by either spouse is community property. Rem.Rev.Stat. § 6892. Property acquired by purchase during the marriage status is presumed to be community property, and the burden rests upon the spouse asserting its separate character to establish his or her claim by clear and satisfactory evidence. Ballard v. Slyfield, 47 Wash. 174, 91 P. 642; Denny v. Schwabacher, 54 Wash. 689, 104 P. 137, 132 Am.St.Rep. 1140; In re Slocum's Estate, 83 Wash. 158, 145 P. 204; Seaton v. Smith, 186 Wash. 447, 58 P.2d 830. The status of property, either real or personal, is to be determined as of the date of its acquisition. Heintz v. Brown, 46 Wash. 387, 90 P. 211, 123 Am.St.Rep. 937; Katterhagen v. Meister, 75 Wash. 112, 134 P. 673; In re Binge's Estate, 5 Wash.2d 446, 105 P.2d 689; Conley v. Moe, 7 Wash.2d 355, 110 P.2d 172, 133 A.L.R. 1089.

Separate property continues to be separate through all of its changes and transitions as long as it can be clearly traced and identified, and its rents, issues, and profits remain separate property. In re Brown's Estate, 124 Wash. 273, 214 P. 10; Rogers v. Joughin, 152 Wash. 448, 277 P. 988; State ex rel. Van Moss v. Sailors, 180 Wash. 269, 39 P.2d 397; In re Binge's Estate, supra.

The stock of the defendant corporation was acquired after the marriage of the appellants and, therefore, presumptively, was community property. To overcome the presumption, appellants sought to show that the stock was purchased indirectly with the $5,000 separate cash which Mr. Garrison had at the time of his marriage in May, 1926. But can that fund ' be clearly traced and identified' through all its changes and transitions? Particularly, can it be traced to, and identified with, the $5,000 which was used to purchase the stock of the Schaefer Company in the fall of 1927?

Appellants did not attempt to trace a connection through any specific, tangible property. On cross-examination, when asked 'in what way' his separate capital had been invested, Mr. Garrison testified: 'Well, you got to have working capital, you know; that's principally what it was.

'Q. Well, was it invested in any fixed assets? A. Later it was; when I went in C. F. Schaefer Company, yes.

'Q. I mean, when you were in business in 1925 in Grandview, 1926, 1927. A. No, there wasn't much capital investment then. * * *'

Obviously, the money which was used to purchase the Schaefer stock was not the same money which Mr. Garrison owned in May, 1926. In the meantime, he had been operating a business which had substantially no assets or invested capital, other than cash, and one that, as was stated in Salisbury v. Meeker, 152 Wash. 146, 277 P. 376, 'did not within itself have the potential power to produce rents, issues, or profits.' In a fruit brokerage enterprise, such as Mr. Garrison was conducting, the personal element is a very important one. His capital was converted from cash to fruit, and from fruit to cash, many, many times. There were substantial losses, followed by compensating profits. His separate property, consisting of $5,000 in cash, was indiscriminately mixed with borrowed funds, aggregating at one time $45,000 as has been stated. These funds, borrowed after marriage, were not acquired by gift, bequest, devise, or descent, nor were they the rents, issues, or profits of separate property. Clearly, under the ciscumstances of the present case, such borrowings belonged to the community. 11 Am.Jur. p. 193, § 30, p. 220, § 69; and see Main v. Scholl, 20 Wash. 201, 205, 54 P. 1125; Heintz v. Brown, 46 Wash. 387, 90 P. 211, 123 Am.St.Rep. 937, supra; United States Fid. & Guar. Co. v. Lee, 58 Wash. 16, 107 P. 870; Katterhagen v. Meister, 75 Wash. 112, 134 P. 673; Walker v. Fowler, 155 Wash. 631, 285 P. 649.

So far as the record discloses, prior to the purchase of the Schaefer Company stock, no effort was made to conduct the fruit brokerage business as a separate entity apart from the affairs of the community, nor to segregate the husband's separate funds from the community funds. There was no separate bank account. The husband drew no set salary. How much was used for family living expenses or other community purposes is not disclosed. As the trial court remarked in its memorandum opinion: 'The fact that Mr. Garrison possessed $5,000 at the end of 1927, which is the same amount that he had when he was married in 1926, is merely a coincidence.'

This court has repeatedly and consistently held that, where separate funds have been so commingled with community funds that it is no longer possible to distinguish or apportion them, all of the commingled fund, or the property acquired thereby, is community property. Yesler v. Hochstettler, 4 Wash. 349, 30 P. 398; Doyle v. Langdon, 80 Wash. 175, 141 P. 352; In re Buchanan's Estate, 89 Wash. 172, 154 P. 129; In re Carmack's Estate, 133 Wash. 374, 233 P. 942; In re Gulstine's Estate, 166 Wash. 325, 6 P.2d 628. The following language of In re Carmack's Estate, 133 Wash. page 380, 233 P. 942, 944, quoted from Jacobs v. Hoitt, 119 Wash. 283, 205 P. 414, is equally appropriate here: "Its separate and community natures have become so confused that the court cannot apportion them, and the favor with which community property is regarded and the presumptions in favor of it are such that we must agree with the trial court that these funds in bank are the property of the community. * * *"

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