Opinion ID: 1370822
Heading Depth: 1
Heading Rank: 2

Heading: community guarantees of corporate credit

Text: In April, 1969, appellant and respondent delivered to the Bank of Idaho a continuing guarantee which purported to bind their community and separate property up to a liability limit of $200,000, as security for a line of credit extended by that bank to Speer, Inc. Virginia and Forrest Luthy signed a similar guarantee with a similar liability limit at that time. Formerly, Vernon and Dorothy Speer had been guarantors for the line of credit. On December 31, 1969, the Valley Commercial Bank of Clarkston, Washington, made a commercial loan of $15,000 to Speer, Inc., and a personal loan to Raymond Speer in the amount of $45,000. Raymond reloaned this sum to Speer, Inc. The community thereafter subordinated its $45,000 claim against Speer, Inc., to the claims of the Bank of Idaho against the corporation. The $45,000 loan was subsequently assumed by Speer, Inc., and apparently repaid in full. The district court designated these two transactions as contributions of the community to the growth of Speer, Inc. Appellant contends that the continuing guarantee was a mere formality, which was required because of his position with the company, rather than in reliance on community assets. He further notes that the guarantee had been in effect only a short time at the time of trial and that, in any event, the Luthys were equally bound and not merely the Raymond Speer community. In regard to the $45,000 loan he directs our attention to the Idaho case Shovlain v. Shovlain [20] for authority on the question of the classification of credit acquisitions during marriage. In Shovlain, this Court held that borrowed funds should be classified as separate or community property, depending on whether the separate or community estate continues to be the primary source of future repayment. [21] We are asked to apply this reasoning to the $45,000 loan for which Speer, Inc. was allegedly the primary source of future repayment. We agree with appellant. The Speers and the Luthys divided the responsibility and in addition the guarantee was not in effect through the greater part of the time period we are considering. In regard to the $45,000 loan, it appears that a formal pledge of collateral by Mr. Speer was never executed. Apparently, the deposit by Raymond Speer of a certain stock certificate with the bank was primarily to secure other personal loans to Mr. Speer, rather than the $45,000 loan. The fact that the loan was a personal one to Mr. Speer appears to have been merely a device to avoid exceeding the legal limit in extending credit to Speer, Inc. Therefore, use by the corporation of the funds acquired in the two credit transactions did not create a community interest in the corporation.