## Facts

- Carlyle Chick and H. Lowell Hatch worked as managers in a lumber business operated through Lewis Korth Lumber Company, a corporation owned and controlled by K. D. Tomlinson.
- In 1963, Tomlinson and the employees orally agreed that Chick and Hatch would receive compensation including a bonus equal to 40% of Lewis Korth’s net profits above $25,000.
- Lewis Korth earned enough to pay bonuses in 1963 and 1967. In 1968, the company had record profits.
- When calculating the 1968 bonus, Lewis Korth—unlike in earlier years—deducted Tomlinson’s salary and an additional bonus amount for Tomlinson before computing the employees’ 40% share.
- Also in 1968, Lewis Korth intentionally devalued its lumber inventory by more than one million board feet, reducing reported gross profits by more than $70,000.
- Chick and Hatch claimed the new deductions and the inventory valuation method conflicted with the parties’ understanding and with generally accepted accounting principles.
- Tomlinson and Lewis Korth contended the inventory write-down was a common business practice in successful years to guard against later price drops and expected wage demands.
- The trial court found for Chick and Hatch, recalculated profits for bonus purposes without the disputed adjustments, and held both Lewis Korth and Tomlinson liable. The defendants appealed.

## Issues

1. Whether Lewis Korth’s 1968 deductions for Tomlinson’s compensation and the inventory devaluation were permissible in computing “net profits” under the parties’ oral bonus agreement.
2. Whether the corporate form could be disregarded so Tomlinson could be held personally liable for the unpaid bonus obligations.
3. Whether the trial court’s award of interest required modification.

## Decision

- The Idaho Supreme Court upheld the trial court’s interpretation of the oral profit-sharing agreement and its recalculation of 1968 net profits for bonus purposes.
- The court agreed that the inventory devaluation and first-time deductions for Tomlinson’s compensation were not justified for determining the employees’ profit-share under the agreement.
- The court affirmed imposing personal liability on Tomlinson by disregarding the corporate entity based on his domination and control and the inequitable result that would follow from treating the corporation as separate in this dispute.
- The court affirmed the judgment in substantial part but reversed and remanded in part for further proceedings on the interest component of the award.

## Legal Principles

- The terms of an oral profit-sharing bonus agreement, including the meaning of “net profits,” may be determined from the parties’ course of performance and the method historically used to compute the bonus.
- A party may not change profit computations in a way that departs from prior practice and functions to reduce the other party’s contractual share, absent proof that the change matches the agreement.
- Inventory valuations used to determine profit for a contractual bonus may be rejected when they depart from accepted accounting methods and are used to depress profits for bonus calculations.
- A court may disregard the corporate entity and impose personal liability when (1) there is such unity of interest and ownership that the corporation and the individual are not meaningfully separate, and (2) treating them as separate would result in fraud or an unjust outcome.
- Interest awards may require additional findings or recalculation where the record does not support the basis or timing used by the trial court.

## Conclusion

In *Chick v. Tomlinson*, the Idaho Supreme Court held that managerial employees were entitled to profit-share bonuses based on “net profits” as the parties had historically calculated them, rejecting new deductions for Tomlinson’s compensation and an intentional inventory write-down that reduced profits in a record year, and it allowed veil piercing to hold Tomlinson personally liable while sending the case back for limited correction of the interest award.


Chick v. Tomlinson, 531 P.2d 573 (1975)