Speer v. Quinlan, In and For Lewis County

• Decision Date: 23 October 1973
• Docket Number: 11133,Nos. 11118,s. 11118
• Parties: Raymond G. SPEER, Plaintiff, v. Daniel A. QUINLAN, Judge of the Second Judicial District Court of the State ofIdaho, IN AND FOR the COUNTY OF LEWIS, Defendant. Raymond G. SPEER, Plaintiff-Appellant, v. Olive J. SPEER, Defendant-Respondent.
• Court: Idaho Supreme Court

Page 314

525 P.2d 314

96 Idaho 119

Raymond G. SPEER, Plaintiff, v. Daniel A. QUINLAN, Judge of the Second Judicial District Court of the State ofIdaho, IN AND FOR the COUNTY OF LEWIS, Defendant.

Raymond G. SPEER, Plaintiff-Appellant, v. Olive J. SPEER, Defendant-Respondent.

Nos. 11118, 11133.

Supreme Court of Idaho.

Oct. 23, 1973.

On Rehearing July 26, 1974.

William J. Dee, Grangeville, for plaintiff-appellant

Michael E. McNichols, Orofino, Leo J. Driscoll, Winston, Cashatt, Repsold, McNichols, Connelly & Driscoll, Spokane, Wash., for defendant-respondent.

McQUADE, Justice.

Raymond G. Speer, appellant and petitioner for the writ of prohibition, and Olive J. Speer, respondent, were married in Seattle, Washington, in April, 1949. Four At the time of the marriage Raymond Speer was working in the restaurant business at a salary of $350 to $400 per month. Mrs. Speer was employed as a billing clerk. In 1951, appellant began working in his father's ammunition manufacturing business, Speer Products, in Lewiston, Idaho. There is some conflict as to the circumstances under which appellant began his employment in Lewiston. The district court found that there was an understanding between appellant and his father, Vernon Speer, that if appellant did well he would eventually succeed to management of the business. Appellant argues that there was no such agreement.

children were born of the marriage: Gary, born September 24, 1951; Paul, born October 10, 1952; Neal, born November 21, 1953 (now married) and Lorraine, born July 5, 1957. Because of increasing marital difficulties, the parties separated in November, 1970. In January, 1971, Raymond Speer commenced an action against Mrs. Speer for divorce. She counter-claimed requesting a divorce and an equitable division of the parties' community property. After trial, which was held January 11-14, 1972, the district judge awarded Olive Speer a divorce on the ground of extreme mental cruelty. He also made findings in regard to community property, and, based on these findings, awarded Mrs. Speer a money judgment against Mr. Speer in the amount of $371,200 secured by an equitable lien on his stock in two closely held corporations-Speer, Inc., and Westec, Inc. Before Mrs. Speer could execute her judgment by a levy sale of the stock, Raymond obtained an alternative writ of prohibition from this Court which prevented the sale of the stock pending this appeal. This appeal is taken by Raymond Speer primarily from those portions of the judgment and findings of fact and conclusions of law which deal with the amount and division of community property. The hearing on the motion to quash the alternative writ of prohibition was consolidated with the presentation on the merits of this appeal.

At the time Raymond Speer began working at Speer Products, the company was an unincorporated proprietorship. Raymond began as a general laborer in the company, worked in several different capacities, and gradually increased his responsibilities and salary. Respondent contends that from 1954 Raymond shared management responsibilities with his father. The district court found that Raymond became a comanager with his father in 1963. In that year, Vernon Speer decided to incorporate his business for estate planning purposes. Speer, Inc., was incorporated in June, 1963, and began functioning as a corporation on January 1, 1964. As part of the incorporation procedures, Vernon and Dorothy Speer (his wife) transferred all the equipment and assets of Speer Products Company, except the land and the buildings, to the new corporation. They have continued to lease the land and buildings to Speer, Inc.

The corporation initially issued 500 shares of $100 per value stock (which remain the total number of shares outstanding at the present time). The district court found that Vernon and Dorothy Speer received 498 of these shares and promissory notes in the amount of $49,520 in exchange for the assets of the proprietorship and that appellant subscribed to the other two shares. Appellant claims that Vernon and Dorothy received all 500 shares of stock.

It appears from the record that when the firm was incorporated, Raymond subscribed to two shares, but that such subscription was cancelled on December 31, 1963, and those shares were subsequently acquired by his parents who then owned all 500 shares. On that same day, Vernon and Dorothy Speer made gifts of most of the shares to Raymond and his sister, Virginia Luthy. Raymond received 320 shares and Virginia received 160 shares. Vernon Speer testified that their reason for giving Raymond twice as many shares as Virginia was that Raymond had been 'active in the business' and Virginia had not. Forrest Luthy, Virginia's husband, received 10 The original board of directors consisted of Vernon, Dorothy and Raymond. From 1966 until the present time, Vernon, Raymond, Virginia and Forrest Luthy have been the directors. As of December 31, 1963, the officers were Vernon, president; Dorothy, vice-president; Virginia, secretary and Raymond, treasurer. From 1966, until the present time, Raymond has been president; Vernon, vice-president; Virginia, secretary; and Forrest Luthy, treasurer. It was also in 1966, that Raymond began to be referred to in the minutes of the directors' meetings as general manager of the corporation. At the end of that same year Vernon officially withdrew from active management of the corporation and informed the Social Security Administration that he was working no more than twenty hours per month, which made him eligible for social security benefits. Appellant claims, however, that Vernon continues to participate actively in company affairs in his roles as officer, director, and landlord, as well as in the area of machine design.

shares and Mr. and Mrs. Speer, Sr., retained 10 shares. The latter 10 shares were divided equally between Raymond and Virginia in 1970 and 1971. Raymond now owns 325 shares or 65% of the total Speer, Inc. stock.

From 1965-1971, the number of employees in the company increased from approximately thirty to approximately sixty. The district court found that the book value of the stock per share had increased from $100.00 to $818.43. The court further found that as of August 31, 1971, the market value of the corporation had increased from no more than $400,000 in January of 1964, to $1,560,000 at the time of the trial, a net increase of $1,160,000. These findings of the district court are disputed by the appellant, but appellant apparently does not deny that there has been substantial increase in both the value of the stock and the fair market value of the corporation. In all its years of incorporation, Speer, Inc. never declared any dividends on its stock nor issued any stock dividends.

During Raymond Speer's tenure as president of Speer, Inc., the company has expanded, introducing new products, increasing sales outlets, and hiring factory representatives to market the products nationwide. In addition, the corporation has developed new accounting and marketing techniques. By the time of trial, the company had accumulated undistributed after-tax earnings of $339,493. Raymond Speer devoted much time to his job, including some evening and weekend work. Olive Speer made some contributions to the conduct of the business by the entertaining of business guests.

During the period from October, 1964 to June, 1968, the corporation paid off the long term notes held by Vernon Speer in the amount of $49,520, at a rate of $3,000 per quarter. During this same period the base salaries of Raymond Speer and his brother-in-law, Forrest Luthy were reduced in the combined amount of $12,000 per year. Although Raymond received bonuses during this period, which augmented his total income, the district court found that the reduction of his salary during the period of the payout of the notes constituted a community contribution to the growth of Speer, Inc.

During this same period of the payout of the notes, Raymond Speer received regular cash gifts from his parents which amounted to approximately $24,000 according to the finding of the district court. These gifts together with community income were deposited in Raymond and Olive Speer's joint checking account in the Valley Commercial Bank. Out of this account, the parties paid for their living expenses. In addition, money from this account was expended in the acquisition of certain securities and an interest in an aircraft hanger. Title to certain of the securities was taken in the form of a joint tenancy between Raymond and Olive Speer. The district court concluded that community income and the separate property cash gifts had Among the stocks acquired during this period are 3,000 shares of Westec, Inc., a close corporation which commenced the manufacture of pistol ammunition in 1969. Raymond Speer is president and 60% stockholder in that corporation. The district court apparently found all 3,000 shares of Westec stock (worth $3,000) to be community property although they were awarded to Raymond.

been commingled beyond the possibility of tracing which money was expended for which purpose. Therefore, applying the presumption that all property acquired by spouses during the marriage is community property, the trial court determined that the securities and the interest in the hangar were community property.

Central to this appeal are the findings of the trial judge to the effect that the enhancement in value of Raymond's stock in Speer, Inc. and of the corporation itself was predominately due to the community efforts of Raymond and Olive Speer. He cited the fact that Raymond had devoted his '* * * full attention, efforts, industry, skill (and) business acumen * * *' to the business. He also relied on the evidence of the decrease in Raymond's base salary during the period of the payment of the corporate notes and on certain credit transactions involving the corporation and the Raymond Speer com...