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deliver to the trustee a release of all claims nings answered, denying any indebtedness against the debtor.
to the defendants, or the possession of any [Fid. Note.-For cases in point, see vol. 4, property belonging to them; but, by way of Cent. Dig. Assignments for Benefit of Creditors, 88 151-164.]
further and explanatory answer, set forth
fully the trust deed and all other facts 3. SAME-SALES-IN-BULK" LAW-APPLICATION.
above recited, and showed that, at the time A deed of trust of a debtor's assets to a of the service of the writ of garnishment uptrustee for the benefit of creditors was not on him, he had in his hand the sum of $850, within Laws 1901, p. 222, c. 109, regulating which he was prepared to pro rata among the sales in bulk.
creditors in accordance with the terms and 4. SAME. Where a deed of trust for the benefit of
conditions of the written agreement, and creditors failed to comply with Laws 1901, p. asked for a discharge. The plaintiff filed an 222, c. 109, regulating sales in bulk, the pur- affidavit controverting the answer of the chaser became trustee for the benefit of all the creditors.
garnishee, in which he admitted all the af
firmative facts recited by the garnishee. Appeal from Superior Court, King County;
but alleged that the transaction between the R. B. Albertson, Judge.
Harkins Company and Jennings was fraudAction by C. E. McAvoy against the Har
ulent and void as to creditors, because it was kins Company and I. H. Jennings, garnishee.
without consideration and because there had From a judgment for plaintiff, the garnishee
been no compliance with the "sales-in-bulk” appeals. Reversed.
law. The controverting affidavit further de Gray & Stern, for appellant. John W. nied that the transfer was made with the Roberts, for respondent.
consent of all the creditors, or that the plain
tiff or his assignor had knowledge of, or DUNBAR, J. On November 19, 1903, M.
consented to, or ratified, the transfer; alJ. Harkins, I. W. Harkins, and E. E. Harkins, leged that the transfer was made to hinder, copartners under the firm name of the Har- delay, and defraud creditors; and prayed kins Company, executed with I. H. Jennings, that the garnishee be held upon his answer. the appellant herein, a certain agreement in and that judgment be rendered against him writing. This agreement was to the effect in favor of plaintiff. Upon this issue a tria) that the Harkinses had been carrying on a was had before the court, but there was no general grocery business, and had incurred
testimony advanced which it is necessary to debts which were enumerated in a list of consider; so that the case must be detercreditors attached to the agreement, stating mined upon the character of the written that, desiring to pay off such debts, they agreement itself. The court decided in favor turned over their property to Jennings on the of plaintiff and against the garnishee for condition that he should collect the book the full amount of plaintiff's judgment accounts, sell the property and, after de- against the original defendants. From the ducting the expenses of such business, apply judgment entered against the garnishee de the proceeds remaining equally and ratably fendant, this appeal is prosecuted. among the list of creditors, with this pro- Without setting up the findings of fact vision: "Provided, however, that each credi- and conclusions of law, we will proceed at tor, before being entitled to receive his pro once to discuss the legal propositions involvrata under the terms of this agreement, shall ed. It is contended by the appellant that. deliver to the party of the second part a re- inasmuch as there is no allegation in the lease of all claims against the said parties controverting affidavit of the respondent, of the first part.” This agreement in full and no proof offered to show that the demay be found in the case of McAvoy v. Jen- fendants the Harkins Company were inso)nings, 39 Wash. 109, 81 Pac. 77. The in- vent at the time this trust deed was made. strument was signed, sealed, and executed the appellant will not be heard to assail the by the Harkins Company and by Jennings, validity of the deed. And unquestionably and the list of creditors for whose benefit that has been the uniform holding of this the transfer was made was attached. Im- court. This was decided in Wagner v. Law, mediately upon the execution of this agree. 3 Wash. St. 500, 28 Pac. 1109, 29 Pac. 927, ment, Jennings took possession of the assets 15 L. R. A. 784, 28 Am. St. Rep. 56, in
. mentioned therein, sold the tangible proper- which the court quoted approvingly from ty, and proceeded with the collection of the Pearson v. Maxfield, 51 Iowa, 76, 50 N. W. book accounts. The American Savings Bank 77, where it was said: "If at the time of & Trust Company was one of the creditors the issuance of the execution, the execution included in the list attached to the trust debtor had other property out of which deed. After the transfer to Jennings had the execution could have been satisfied, plainbeen made, the bank assigned its claim to tiff should have levied upon such property McAvoy, the respondent herein, who com- instead of upon the property in question. menced an action in the superior court of which could be effectually reached only King county to reduce the claim to judgment through the aid of a court of equity.” This against the members of the Harkins Com- court added: "Of course, if it is necessary pany. In that action McAvoy caused Jen- to prove insolvency it is necessary to allege nings to be summoned as garnishee. Jen- it, as the defendant has a right to prepare
his defense with reference to the allegations of the complaint, * * * we decide that this kind of an action cannot be sustained without an allegation and proof that there was no other property of the judgment debtor at the time of the conveyance out of which the creditor could satisfy his judgment or claim, and that, therefore, the complaint does not state facts sufficient to constitute a cause of action.” See, also, Hamilton Brown Shoe Co. v. Adams, 5 Wash. 333, 32 Pac. 92, where it was said by this court: "If this is to be regarded as an action to set aside à fraudulent conveyance, the complaint is plainly insufficient, for it is neither based iipon a return of nulla bona, nor an allegation that there was no other property out of which plaintiff's claim could be satisfied. Courts will not enter into an investigation of the merits or demerits of a conveyance at the instance of any petitioner, until it 1ppears that he has some interest in the determination of that question, and he cannot have any practical interest if the debtor has other property which will respond to his execution. His right is limited to the satisfaction of his claim; it does not extend to enforcing its satisfaction out of some particular property of the debtor." There must be either an allegation of insolvency or an allegation of the issuance of an execution and return of nulla bona, which implies insolvency.
But, lest the action should be commenced again, and these allegations made, we think it best to determine the main question in the case, viz., was the agreement above set forth void by reason of the proviso therein that each creditor before being entitled to receive his pro rata should deliver to the party of the second part a release of all his clainis? Upon this question there is a
a hopeless division of authority; but, while this particular question has never been decided by this court, we have decided uni. formly that an insolvent debtor had a right to prefer creditors. This rule was first laid down in Turner v. Iowa National Bank, ? Wash. St. 192, 26 Pac. 256, where it was decided that, under the laws of this state, a debtor in failing circumstances could mortgage his entire property to secure bona fide debts to a portion of his creditors, and leave the debts due other creditors unsatisfied, the court in the course of its remarks saying: "There is no law in this state to
" prevent a debtor, even though he be in fail. ing circumstances, from paying or securing a portion of his creditors, so long as he does so in good faith, although he should dispose of his entire property in that way, and leave other debts unsatisfied.” There is no question raised in this case that the debts which were sought to be paid were not honest debts, or that there was any attempt to defraud any other creditors by the payment of dishonest debts; but the sole contention is that the dek tor had no right to stipulate
that the creditor, as a condition of receiving his pro rata, deliver to the debtor a release of all claims against him. To the effect that the debtor had the power in this state to prefer his creditors, see, also, Ephraim v. Kelleher, 4 Wash. 213, 29 Pac. 985, 18 L. R. A, 604; Benham v. Ham, 5 Wash. 128, 31 Pac. 139, 34 Am. St. Rep. 851; Furth v. Snell, 6 Wash. 542, 33 Pac. 830; Samuel v. Kittenger, 6 Wash. 261, 33 Pac. 509. And this same doctrine was reannounced in Vietor v. Glover, 17 Wash, 37, 48 Pac. 788, 40 L. R. A. 297, in a case where practically the same transaction was had as in the case at bar. There it was again said: “It is the established law of this state that an individual, although insolvent or in failing circumstances, may pay or secure one or more creditors to the exclusion of others equally mer. itorious, even if by doing so he exhausts the whole of his property.” It was also said that the manner of giving the preference was immaterial, that it might be given by deed or in any mode which effects a legal transfer of the property, and that partners had the same right that individuals have citing Bump on Fraudulent Conveyance (3d Ed.) p. 186. It was further said: “The right to prefer manifestly involves the right to designate the creditors, or class of creditors, to be preferred; and it therefore follows that the only ground on which the unpreferred creditors can justly complain is that the claims of the preferred creditors are not bona fide and real.” Then, if an insolvent debtor has a right to prefer one class of creditors to the extent of the absolute exclusion of another class, by a diversion of the funds of the estate by payments made to the preferred class which exhausts such funds, it must follow that he has a right to make such payments upon such terms as he sees fit to impose. If the terms are not agreed to by the creditor, the only result is that he will not become a preferred creditor. In this instance, if the respondent's assignor, the bank, had not been incorporated in the agreement by being placed upon the list of creditors to whom the payments should be made, he could not have complained under the law which has been announced by this court. He certainly is not in any better position by reason of his having been placed among the creditors. The right, in the absence of a fraud upon the creditors by payment of claims which are not bona fide, to make such payments as the debtor sees fit to make, it seems to us must logically carry with it the right to make the agreement which is the basis of this action,
The contention that the transfer was void by reason of its being in contravention of what is termed the "sales-in-bulk” law (chapter 109, p. 222, Laws 1901), is untenable, for the reason that this was not a sale within the contemplation of that act. The object of that law was to prevent the vendor, generally a retail merchant, from escaping his rejority of the stock, the construction of the road by the corporation constituted a sufficient compliance with the contract. 4. SAME-SUBSTANTIAL PERFORMANCE.
Where a railroad subscription contract provided that defendants would pay $2.000 to plaintiff in aid of the enterprise when the road was completed, and required plaintiff to build the road and transport produce over the same at certain rates, plaintiff was only bound to prove a substantial as distinguished from a strict performance of the contract in order to recover the subscription.
(Ed. Note.--For cases in point, see vol. 41, Cent. Dig. Railroads, $$ 34, 85, 105.]
Rudkin, J., dissenting.
sponsibilities to his creditors by disposing of all his stock, pocketing the proceeds, and leaving his creditor's without redress. But in this case Jennings did not purchase the stock, and, under the terms of the agreement, was not to pay any portion of the value of the stock, of which he took possession, to the owners. But he simply acted as a trustee, so far as the goods assigned to him went, for the benefit of the creditors. Even if the transaction could be construed to fall within the scope and contention of that act, the fact that it failed to comply with all of the provisions of the act would not render all of the proceeds available to the respondent to the exclusion or injury of all the other creditors; for, under such circumstances, the purchaser would simply be held to be a trustee for the benefit of all the creditors. Fitz Henry v. Munter, 33 Wash. 629, 74 Pac. 1003; Kohn v. Fishbach, 36 Wash. 69, 78 Pac. 199, 104 Am. St. Rep. 941. The other minor objections raised to the validity of the agreement, we think, are without force.
This judgment must be reversed, and the respondent will be allowed, if he sees fit, to receive his pro rata distribution of the estate under the terms of the agreement.
Appeal from Superior Court, Walla Walla County; Mitchell Gilliam, Judge.
Action by G. W. Hunt against C. B. Upton and others. From a judgment for plaintiff, defendants appeal. Affirmed.
Sharpstein & Sharpstein, for appellants. Williams, Wood & Linthicum, Garrecht & Dunphy, and Wm. T. Muir, for respondent.
MOUNT, C. J., and CROW, IIADLEY, and FULLERTON, JJ., concur.
(44 Wash. 124)
IIUNT v. UPTON et al. (Supreme Court of Washington. Oct. 13, 1906.) 1. RAILROADS-LOCATION - CONTRACTS-SUB
SCRIPTIONS — PERFORMANCE — QUESTION FOR JURY.
A railroad subscription contract provided that the road should begin at or near Wallula Junction and extend easterly by way of Eureka Flat to Walla Walla. The road, as built, was commenced at Hunt's Junction, which was a mile from Wallula Junction, and when constructed the main line covered a distance of 54 miles and a branch line of about 19 miles. There was also evidence that the territory known as "Eureka Flat” was several miles in width, commencing about six miles south of Eureka Station, and extending thence for 23 miles in a northeasterly direction. Hold that, whether the road was begun "at or near Wallula Junction," as required by the contract, was for the jury. 2. SAME-CONSTRUCTION.
Where a railroad subscription contract provided that the road should begin near Wallula Junction, and extend thence easterly by way of Eureka Flat to Walla Walla, etc., the contract did not require that the head of Eureka Flat should be located on the main line, but the contract was complied with by construction of a standard gauge railroad from a point at or near Wallula_Junction to Walla Walla by way of Eureka Flat as a locality, with either a main or branch line to the head of the flat.
[Ed. Note.-For cases in point, see rol. 41, Cent. Dig. Railroads, $$ 34, 85, 103.] 3. SAME-PERFORMANCE BY CORPORATION.
Where a contract required plaintiff to construct a certain railroad in consideration of defendants' subscription, and it became necessary for plaintiff to organize a corporation to construct such road in order to condemn a right of way, in which corporation plaintiff held a ma
CROW, J. This action was commenced in September, 1893, to recover the sum of $2,000 and interest upon the following contract: "Walla Walla, W. T., April 1, 1888. Whereas, G. W. Hunt is contemplating the construction of railroads for the purpose of furnishing additional and cheaper transportation for that portion of Washington territory lying south of Snake river, and parts of Umatilla county, Oregon, and is soliciting assistance therein; and whereas, the undersigned is desirous of obtaining such transportation; therefore, in consideration that said G. W. Hunt or his assigns, shall within nine months from the date hereof, build and put in operation in the usual manner a standard gauge railroad, beginning at or near Wallula Junction, Washington Territory, and extending thence eastwardly, via, Eureka Flat to Walla Walla, Washington Territory, the said road to extend to the head of Eureka Flat and to be completed there by December 1, 1888, and to the city of Walla Walla, W. T., by January 1st, 1889, and shall transport or cause to be transported to some convenient harbor of shipment, at tide water on Puget Sound, all produce of the country that I shall desire to ship after the construction of said road, at a rate not to exceed the rate on such produce charged from Walla Walla to Portland, on other railroads. And to aid in the execution of said enterprise, I promise to pay G. W. Hunt or his assigns, the sum of two thousand dollars, one half of the same to be due and payable, when said railroad is constructed and put in operation between said Wallula and said Walla Walla, via, Eureka Flat, and the remaining half in one year from that date, said sum to be payable in cash or good and merchantable wheat, at the rate of not less than fifty cents per bushel, delivered at any depot or shipping-station on said railroad. The last payment to bear in
terest from date of completion of the rail- point, and that the respondent did not perroad aforesaid, until paid at the rate of six form the conditions of the contract which per cent. per annum. This agreement to be required him to begin said road at or near deposited with the executive committee of the Wallula Junction; that by reason thereof Walla Walla Board of Trade, to be delivered the appellants' motion for a nonsuit interby them only on compliance by said G. W. posed at the proper time, should have been Hunt with the terms hereof on his part. granted ; and that the court erred in said inShould said G. W. Hunt or his assigns fail struction. We have carefully examined the to complete said railroad within the time evidence, and, after considering the same in designated, this agreement to be null and the light of all of the surrounding circumvoid. [Signed] C. B. and Wm. H. Upton. stances, and with due regard to the general Attest: J. C. Painter.” The plaintiff G. location, direction, and length of the road as W. Hunt alleged that all of the conditions built, think the court committed no error in of said contract had been performed upon his submitting said issue to the jury. The part. The defendants admitted the execu
main line of the road from Hunt's Junetion of said contract, but, in substance, de- tion to Eureka Station covered a distance of nied the other allegations of the complaint. about 23 miles, and from Eureka Station to Sereral affirmative defenses were pleaded,
Walla Walla a distance of about 31 miles. but as no evidence was admitted in support The distance upon the branch line from thereof, their consideration was withdrawn
Eureka Station to Pleasant View was about from the jury. From a judgment in favor 19 miles. The evidence shows that the terof the plaintiff, this appeal has been taken. ritory known as "Eureka Flat.” being several
It appears from undisputed evidence that miles in width, commenced about six miles said road was commenced at a point known
southwest of Eureka Station, which was loas Hunt's Junction, about one mile from
cated thereon, and extended thence about Wallula Junction, that it was built thence in
2.5 miles in a northeasterly direction to, or a northeasterly direction to Eureka Sta- possibly a short distance beyond, Pleasant tion, located within that certain territory
View. The evidence as to whether Pleasant known as "Eureka Flat," and that it was
View, the northeasterly terminus of the thence extended in a southeasterly direction
branch road, was at the head of Eureka to Walla Walla. It further appears that a
Flat, was conflicting, and, this issue being branch line was built from Eureka Junc- properly submitted to the jury, was decided tion in a northeasterly direction to Pleasant
in favor of the respondent. On the trial the View, which the respondent contends is lo
appellants contended that the contract concated at the head of Eureka Flat. There is
templated the building of one continuous no serious contention but that the road, as
main line of road from some point at or near built, was completed to Pleasant View, and Wallula Junction, through Eureka Flat, to also to Walla Walla within the stipulated the head of said Flat, and thence to Walla time. Vor is there any serious contention: Walla. In other words, that the head of but that it maintained freight rates, and ren- ; Eureka Flat was to be located on the main dered service to the public, as required by
line, and that no branch line was contemthe contract, at all times prior to the com- plated. This would require the building of mencement of this action. The road, as con
a continuous road, running first in a northstructed, was not built by G. W. Hunt per
easterly direction to Walla Walla, the only sonally. He organized a corporation known termini being at Wallula Junction and Walla as the "Oregon & Washington Territory Rail-Walia. The evidence, which includes a map road Company,” in which he owned substan- of said territory, indicates that such a line tially all of the capital stock; a few shares would in its general route approximate two being held by others to perfect the organiza- sides of a triangle enclosing an acute angle tion, and said corporation built the road. He at or near Pleasant View. The court, in incontends that he was obliged to act through structing the jury, charged: “It is the duty the agency of said corporation, as he had to of the court to interpret and construe this obtain a right of way; and that, being un- contract, and you must be bound by the conable to secure the same by purchase, he had struction of it given by the court, and I into acquire it through said corporation un- struct you that it is not a contract to conder the right of eminent domain. He also
struct and operate a main line of raliroad contends that, in building the road through from a point at or near Wallula Junction, the agency of the Oregon & Washington Ter- Wash., to Walla Walla, Wash. by way of the ritory Railroad Company, he, in fact, built head of Eureka Flat, but it is a contract to it himself; he being the promoting cause construct a standard gauge railroad from a in securing its construction. The trial court point at or near Wallula Junction, Wash., to instructed the jury that it was for them to Walla Walla, Wash., by way of Eureka Flat determine from the evidence, as an issue of as a locality, and to extend either by a main fact, whether Hunt's Junction was "at or or a branch line, a standard gauge railroad near Wallula Junction.” The appellants at to the head of Eureka Flat." The appellants the trial contended, and now contend that, have assigned error upon this instruction. as Hunt's Junction was one mile from We think the court's interpretation of the Wallula Junction, it was not at or near said contract was right.
The principal contention upon which the porations in voting subsides in aid of railappellants rely for a reversal is that the re- way construction seem to be especially inspondent is not entitled to recover, as the volved. The principal case upon which the road was not built by him or his assigns, but appellants seem to rely is that of Town of was built by the Oregon & Washington Ter- Birch Cooley v. First National Bank, supra. ritory Railroad Company. The court in- in which it appears that a municipal corporastructed the jury that, if the respondent pro
tion had voted bonds in aid of the construccured the road to be constructed by said com- tion of a railway, thereby imposing an inpany, he had thereby complied with his con- debtedness upon all of its taxable property. tract in that regard. We think this construc- The court held a strict compliance with all of tion of the contract was proper. The object the terms of the subscription contract to be of the appellants in making their subscrip- a necessary condition precedent to the issue tion was to obtain a road which would secure of said bonds, and in the course of its opinion, them reasonable freight charges and service after stating the rule of substantial compliin shipping their produce. There can be no ance, as applied to building and similar conquestion but that the respondent was the
tracts, said: "This rule of substantial comprocuring and promoting cause in the con- pliance, however, does not apply to contracts struction of the road. He could not secure for the issuing of municipal bonds to aid in the necessary right of way, and was there- the construction of a railway; for they are fore compelled to organize a corporation to
not within the reason of the rule. In such exercise the right of eminent domain. He cases, whether the bonds are delivered or not. not only owned substantially all of the cap
neither the railroad nor any part thereof ever ital stock of the said corporation, but he
becomes the property of the municipality ; but caused it to be organized, for the express pur
the ownership thereof remains unimpaired in pose of obtaining the necessary right of way
the railroad company. It parts with nothing. and constructing the road in compliance Railway Co. v. Thompson, 24 Kan. 182. The with the terms of the contract of subscrip- issuing and delivery of the bonds in such a tion. We see no reason why he could not case as this one are, and can only be, author-. do this. Nor do we understand why the ap- ized by the vote of a majority of the electors pellants should not be liable to him upon such of the municipality, and no officers thereof performance. The court further instruct- can modify or waive the conditions upon ed the jury as follows: "Before you can find “
which the electors vote to authorize the defor the plaintiff you must find from the evi- livery of the bonds. * * Again, where a dence that there was a substantial com- majority of the voters of a town, whether pliance with the conditions of the written they own any property therein or not, are instrument; and, in arriving at your conclu- authorized to, and do conditionally, incumber sions as to whether he has substantially met all of the property within the limits of the the conditions put upon him by this con
town to provide a bonus to a railroad comtract, you have a right to consider all the pany, strict performance of all of the consurrounding circumstances, the character of ditions should be exacted of it.” Later on in the country, and the character and number its opinion the court quotes with approval the of the population. In other words, you must following language from State v. City of Mintry to put yourselves in the position of the neapolis, 32 Minn. 501, 21 N. W. 722: "It parties at the time the contract was made, hardly needs the citation of authorities to and decide what was their intention." The sustain the proposition that, when a muappellants now contend that prejudicial error nicipal corporation votes its bonds to aid the was committed in giving this instruction building of a railroad on certain terms and They insist that a strict performance of the conditions, it is entitled to a strict and full contract was necessary in every respect, and compliance with all these terms and candithat a substantial compliance therewith was tions on the part of the railroad company benot sufficient. They claim (1) that the road fore the latter is entitled to the bonds." should begin at Wallula Junction and not From this language it is apparent that a one mile therefrom; and (2) that it should strict rule was invoked on behalf of a muhave been built by the respondent, personally, nicipal corporation, which had endeavored to or by his assignees, and not by any corpora- impose a burden of indebtedness upon all of tion not his assignee. In support of this con- its taxable property. No financial obligation tention, for a strict and technical perform- of any municipal corporation is in question ance of the contract, they cite, with others, in this action. Although the contract here the following casės: Town of Birch Cooley involved provides for a subsidy in aid of v. First Natl. Bank (Minu.) 90 N. W. 789; railroad construction, nevertheless it is beM. K. & C. Ry. Co. v. Thompson, 24 Kan. 170; tween private individuals, and affects their Virginia T. R. R. Co. v. Lyon County, 6 Nev. rights only. It neither involves the power 68; Winona v. Minnesota Railway Construc- of taxation nor the right of a municipality tion Company, 27 Minn. 415, 6 N. W. 795, to issue its bonds in aid of railway construc8 N. W. 148. These cases, upon a casual ex- tion. In Virginia, etc., R. R. Co. v. Lyon Co., amination, might appear to sustain the posi- supra, cited by appellants, the court recogtion assumed by appellants, but in all of nized the rule that a substantial compliance them the rights and powers of municipal cor- with the terms of a subsidy contract was suf