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deliver to the trustee a release of all claims against the debtor.

[Ed. Note. For cases in point, see vol. 4, Cent. Dig. Assignments for Benefit of Creditors, §§ 154-164.]

3. SAME "SALES-IN-BULK" LAW-APPLICA

TION.

A deed of trust of a debtor's assets to a trustee for the benefit of creditors was not within Laws 1901, p. 222, c. 109, regulating sales in bulk.

4. SAME.

Where a deed of trust for the benefit of creditors failed to comply with Laws 1901, p. 222, c. 109, regulating sales in bulk, the purchaser became trustee for the benefit of all the creditors.

Appeal from Superior Court, King County; R. B. Albertson, Judge.

Action by C. E. McAvoy against the Harkins Company and I. H. Jennings, garnishee. From a judgment for plaintiff, the garnishee appeals. Reversed.

Gray & Stern, for appellant. John W. Roberts, for respondent.

DUNBAR, J. On November 19, 1903, M. J. Harkins, I. W. Harkins, and E. E. Harkins, copartners under the firm name of the Harkins Company, executed with I. H. Jennings, the appellant herein, a certain agreement in writing. This agreement was to the effect that the Harkinses had been carrying on a general grocery business, and had incurred debts which were enumerated in a list of creditors attached to the agreement, stating that, desiring to pay off such debts, they turned over their property to Jennings on the condition that he should collect the book accounts, sell the property and, after deducting the expenses of such business, apply the proceeds remaining equally and ratably among the list of creditors, with this provision: "Provided, however, that each creditor, before being entitled to receive his pro rata under the terms of this agreement, shall deliver to the party of the second part a release of all claims against the said parties of the first part." This agreement in full may be found in the case of McAvoy v. Jennings, 39 Wash. 109, 81 Pac. 77. The instrument was signed, sealed, and executed by the Harkins Company and by Jennings, and the list of creditors for whose benefit the transfer was made was attached. Immediately upon the execution of this agree ment, Jennings took possession of the assets mentioned therein, sold the tangible property, and proceeded with the collection of the book accounts. The American Savings Bank & Trust Company was one of the creditors included in the list attached to the trust deed. After the transfer to Jennings had been made, the bank assigned its claim to McAvoy, the respondent herein, who commenced an action in the superior court of King county to reduce the claim to judgment against the members of the Harkins Company. In that action McAvoy caused Jennings to be summoned as garnishee. Jen

nings answered, denying any indebtedness to the defendants, or the possession of any property belonging to them; but, by way of further and explanatory answer, set forth fully the trust deed and all other facts above recited, and showed that, at the time of the service of the writ of garnishment upon him, he had in his hand the sum of $850, which he was prepared to pro rata among the creditors in accordance with the terms and conditions of the written agreement, and asked for a discharge. The plaintiff filed an affidavit controverting the answer of the garnishee, in which he admitted all the affirmative facts recited by the garnishee. but alleged that the transaction between the Harkins Company and Jennings was fraudulent and void as to creditors, because it was without consideration and because there had been no compliance with the "sales-in-bulk" law. The controverting affidavit further denied that the transfer was made with the consent of all the creditors, or that the plaintiff or his assignor had knowledge of, or consented to, or ratified, the transfer; alleged that the transfer was made to hinder, delay, and defraud creditors; and prayed that the garnishee be held upon his answer. and that judgment be rendered against him in favor of plaintiff. Upon this issue a trial was had before the court, but there was no testimony advanced which it is necessary to consider; so that the case must be determined upon the character of the written agreement itself. The court decided in favor of plaintiff and against the garnishee for the full amount of plaintiff's judgment against the original defendants. From the judgment entered against the garnishee defendant, this appeal is prosecuted.

Without setting up the findings of fact and conclusions of law, we will proceed at once to discuss the legal propositions involved. It is contended by the appellant that. inasmuch as there is no allegation in the controverting affidavit of the respondent, and no proof offered to show that the defendants the Harkins Company were insolvent at the time this trust deed was made. the appellant will not be heard to assail the validity of the deed. And unquestionably that has been the uniform holding of this court. This was decided in Wagner v. Law, 3 Wash. St. 500, 28 Pac. 1109, 29 Pac. 927, 15 L. R. A. 784, 28 Am. St. Rep. 56, in which the court quoted approvingly from Pearson v. Maxfield, 51 Iowa, 76, 50 N. W. 77, where it was said: "If at the time of the issuance of the execution, the execution debtor had other property out of which the execution could have been satisfied, plaintiff should have levied upon such property instead of upon the property in question. which could be effectually reached only through the aid of a court of equity." This court added: "Of course, if it is necessary to prove insolvency it is necessary to allege 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 a fraudulent conveyance, the complaint is plainly insufficient, for it is neither based pon 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 appears 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 claims? Upon this question there is a hopeless division of authority; but, while this particular question has never been decided by this court, we have decided uniformly that an insolvent debtor had a right to prefer creditors. This rule was first laid down in Turner v. Iowa National Bank, 2 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 failing 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 dektor 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. 243, 29 Pac. 985, 18 L. R. A. 604; Benham v. Ham, 5 Wash. 128, 31 Pac. 459, 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 meritorious, 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 haveciting 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 re

sponsibilities to his creditors by disposing of all his stock, pocketing the proceeds, and leaving his creditors 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.

MOUNT, C. J., and CROW, HADLEY, and FULLERTON, JJ., concur.

(44 Wash. 124)

HUNT v. UPTON et al. (Supreme Court of Washington. Oct. 13, 1906.) 1. RAILROADS-LOCATION - CONTRACTS-SUBSCRIPTIONS 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 25 miles in a northeasterly direction. Held 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 vol. 41, Cent. Dig. Railroads, §§ 34, 85, 105.] 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

jority 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.

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.

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 railroad aforesaid, until paid at the rate of six per cent. per annum. This agreement to be deposited with the executive committee of the Walla Walla Board of Trade, to be delivered by them only on compliance by said G. W. Hunt with the terms hereof on his part. Should said G. W. Hunt or his assigns fail to complete said railroad within the time designated, this agreement to be null and void. [Signed] C. B. and Wm. H. Upton. Attest: J. C. Painter." The plaintiff G. W. Hunt alleged that all of the conditions of said contract had been performed upon his part. The defendants admitted the execution of said contract, but, in substance, denied the other allegations of the complaint. Several affirmative defenses were pleaded, but as no evidence was admitted in support thereof, their consideration was withdrawn from the jury. From a judgment in favor of the plaintiff, this appeal has been taken.

It appears from undisputed evidence that said road was commenced at a point known as Hunt's Junction, about one mile from Wallula Junction, that it was built thence in a northeasterly direction to Eureka Station. located within that certain territory known as "Eureka Flat," and that it was thence extended in a southeasterly direction to Walla Walla. It further appears that a branch line was built from Eureka Junction in a northeasterly direction to Pleasant View. which the respondent contends is located at the head of Eureka Flat. There is no serious contention but that the road, as built. was completed to Pleasant View, and also to Walla Walla within the stipulated time. Nor is there any serious contention but that it maintained freight rates, and rendered service to the public, as required by the contract, at all times prior to the commencement of this action. The road, as constructed, was not built by G. W. Hunt personally. He organized a corporation known as the "Oregon & Washington Territory Railroad Company," in which he owned substantially all of the capital stock; a few shares being held by others to perfect the organization, and said corporation built the road. He contends that he was obliged to act through the agency of said corporation, as he had to obtain a right of way; and that, being unable to secure the same by purchase, he had to acquire it through said corporation under the right of eminent domain. He also contends that, in building the road through the agency of the Oregon & Washington Territory Railroad Company, he, in fact, built it himself; he being the promoting cause in securing its construction. The trial court instructed the jury that it was for them to determine from the evidence, as an issue of fact, whether Hunt's Junction was "at or near Wallula Junction." The appellants at the trial contended, and now contend that, as Hunt's Junction was one mile from Wallula Junction, it was not at or near said

point, and that the respondent did not perform the conditions of the contract which required him to begin said road at or near Wallula Junction; that by reason thereof the appellants' motion for a nonsuit interposed at the proper time, should have been | granted; and that the court erred in said instruction. We have carefully examined the evidence, and, after considering the same in the light of all of the surrounding circumstances, and with due regard to the general location, direction, and length of the road as built, think the court committed no error in submitting said issue to the jury. The main line of the road from Hunt's Junetion to Eureka Station covered a distance of about 23 miles, and from Eureka Station to Walla Walla a distance of about 31 miles. The distance upon the branch line from Eureka Station to Pleasant View was about 19 miles. The evidence shows that the territory known as "Eureka Flat." being several miles in width, commenced about six miles southwest of Eureka Station, which was located thereon, and extended thence about 25 miles in a northeasterly direction to, or possibly a short distance beyond, Pleasant View. The evidence as to whether Pleasant View, the northeasterly terminus of the branch road, was at the head of Eureka Flat, was conflicting, and, this issue being properly submitted to the jury, was decided in favor of the respondent. On the trial the appellants contended that the contract contemplated the building of one continuous main line of road from some point at or near Wallula Junction, through Eureka Flat, to the head of said Flat, and thence to Walla Walla. In other words, that the head of Eureka Flat was to be located on the main line, and that no branch line was contemplated. This would require the building of a continuous road, running first in a northeasterly direction to Walla Walla, the only termini being at Wallula Junction and Walla Walia. The evidence, which includes a map of said territory, indicates that such a line would in its general route approximate two sides of a triangle enclosing an acute angle at or near Pleasant View. The court, in instructing the jury, charged: "It is the duty of the court to interpret and construe this contract, and you must be bound by the construction of it given by the court, and I instruct you that it is not a contract to construct and operate a main line of raliroad from a point at or near Wallula Junction, Wash., to Walla Walla, Wash. by way of the head of Eureka Flat, but it is a contract to construct a standard gauge railroad from a point at or near Wallula Junction, Wash., to Walla Walla, Wash., by way of Eureka Flat as a locality, and to extend either by a main or a branch line, a standard gauge railroad to the head of Eureka Flat." The appellants have assigned error upon this instruction. We think the court's interpretation of the contract was right.

way construction seem to be especially in-
volved. The principal case upon which the
appellants seem to rely is that of Town of
Birch Cooley v. First National Bank, supra.
in which it appears that a municipal corpora-
tion had voted bonds in aid of the construc-
tion of a railway, thereby imposing an in-
debtedness upon all of its taxable property.
The court held a strict compliance with all of
the terms of the subscription contract to be
a necessary condition precedent to the issue
of said bonds, and in the course of its opinion,
after stating the rule of substantial compli-
ance, as applied to building and similar con-
tracts, said: "This rule of substantial com-
pliance, however, does not apply to contracts
for the issuing of municipal bonds to aid in
the construction of a railway; for they are
not within the reason of the rule. In such
cases, whether the bonds are delivered or not.
neither the railroad nor any part thereof ever
becomes the property of the municipality; but
the ownership thereof remains unimpaired in
the railroad company. It parts with nothing.
Railway Co. v. Thompson, 24 Kan. 182. The
issuing and delivery of the bonds in such a
case as this one are, and can only be, author-
ized by the vote of a majority of the electors
of the municipality, and no officers thereof
can modify or waive the conditions upon
which the electors vote to authorize the de-
livery of the bonds.
* Again, where a
majority of the voters of a town, whether
they own any property therein or not, are
authorized to, and do conditionally, incumber
all of the property within the limits of the
town to provide a bonus to a railroad com-
pany, strict performance of all of the con-
ditions should be exacted of it." Later on in
its opinion the court quotes with approval the
following language from State v. City of Min-
neapolis, 32 Minn. 501, 21 N. W. 722: "It
hardly needs the citation of authorities to
sustain the proposition that, when a mu-
nicipal corporation votes its bonds to aid the
building of a railroad on certain terms and
conditions, it is entitled to a strict and full
compliance with all these terms and candi-
tions on the part of the railroad company be-
fore the latter is entitled to the bonds."

The principal contention upon which the|porations in voting subsides in aid of railappellants rely for a reversal is that the respondent is not entitled to recover, as the road was not built by him or his assigns, but was built by the Oregon & Washington Territory Railroad Company. The court instructed the jury that, if the respondent procured the road to be constructed by said company, he had thereby complied with his contract in that regard. We think this construction of the contract was proper. The object of the appellants in making their subscription was to obtain a road which would secure them reasonable freight charges and service in shipping their produce. There can be no question but that the respondent was the procuring and promoting cause in the construction of the road. He could not secure the necessary right of way, and was therefore compelled to organize a corporation to exercise the right of eminent domain. not only owned substantially all of the capital stock of the said corporation. but he caused it to be organized, for the express purpose of obtaining the necessary right of way and constructing the road in compliance with the terms of the contract of subscription. We see no reason why he could not do this. Nor do we understand why the appellants should not be liable to him upon such performance. The court further instructed the jury as follows: "Before you can find for the plaintiff you must find from the evidence that there was a substantial compliance with the conditions of the written instrument; and, in arriving at your conclusions as to whether he has substantially met the conditions put upon him by this contract, you have a right to consider all the surrounding circumstances, the character of the country, and the character and number of the population. In other words, you must try to put yourselves in the position of the parties at the time the contract was made, and decide what was their intention." The appellants now contend that prejudicial error was committed in giving this instruction. They insist that a strict performance of the contract was necessary in every respect, and that a substantial compliance therewith was not sufficient. They claim (1) that the road should begin at Wallula Junction and not one mile therefrom; and (2) that it should have been built by the respondent, personally, or by his assignees, and not by any corporation not his assignee. In support of this contention, for a strict and technical performance of the contract, they cite, with others, the following cases: Town of Birch Cooley v. First Natl. Bank (Minn.) 90 N. W. 789; M. K. & C. Ry. Co. v. Thompson, 24 Kan. 170; Virginia T. R. R. Co. v. Lyon County, 6 Nev. 68; Winona v. Minnesota Railway Construction Company, 27 Minn. 415, 6 N. W. 795, 8 N. W. 148. These cases, upon a casual examination, might appear to sustain the position assumed by appellants, but in all of them the rights and powers of municipal cor

From this language it is apparent that a strict rule was invoked on behalf of a municipal corporation, which had endeavored to impose a burden of indebtedness upon all of its taxable property. No financial obligation of any municipal corporation is in question in this action. Although the contract here involved provides for a subsidy in aid of railroad construction, nevertheless it is between private individuals, and affects their rights only. It neither involves the power of taxation nor the right of a municipality to issue its bonds in aid of railway construction. In Virginia, etc., R. R. Co. v. Lyon Co., supra, cited by appellants, the court recognized the rule that a substantial compliance with the terms of a subsidy contract was suf

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