State ex rel. W. E. Dooley & Co. v. Superior Court , 128 Wash. 253 ( 1924 )

Fullerton, J.

This is an original application made to this court for a writ of prohibition.

The facts, as we gather them from the record, are in substance these: The Seattle Electrical Supply Company is a corporation organized under the laws of this state. Prior to July 23, 1923, it was a going concern engaged in the electric supply business in the city of Seattle. Long prior to the date named, it acquired, and now owns certain real property situated in the city of Seattle. On February 24, 1922, it mortgaged this property to the Penn Mutual Insurance Company to secure a loan made to it by that company. On December 7, 1922, the relator, W. E. Dooley & Company, recovered a judgment against the electric company, and on December 9th thereafter filed in the cause in which the judgment was entered an application for the appointment of a receiver for the electric company, alleging as grounds therefore that the electric company was insolvent. At the time of the filing of this application, the electric company filed a motion for a new trial of the action in which the relator was awarded a judgment. This motion was taken under advisement and finally denied by the court on April 15,1923. Following, the denial of this motion, the application for a receiver was- renewed and the application granted. As such receiver the court appointed one Fred W. Hastings, who immediately qualified as such, and took into his possession all of the property of the electric company, including the real property before mentioned.

In October, 1923,’subsequent to the appointment of the receiver for the electric company, and subsequent to the time the receiver as such had taken the property of that company into possession, the relator caused an execution to issue on its judgment, caused the same to be placed in the hands of the sheriff, who made a levy or purported levy on the real property mentioned, and proceeded to advertise the same for sale. Thereupon the receiver petitioned the court for an order recalling the writ of execution and restraining the relator from selling the real property. He further alleged that the relator’s judgment was not a lien upon the real property, and asked that the court so adjudge, and that he as receiver be directed and permitted to sell the property free and clear of the purported lien of such judgment. The relator answered the petition, taking issue on its allegations, and contending that the judgment was a lien upon the real property of the electric company first and superior to any right of the receiver therein, and first and superior to the rights of the general creditors of the electric company. These contentions were controverted in a reply filed by the receiver.

When the cause was called for. hearing in the superior court, that court declined for the time being to determine the issues in controversy between the relator and the receiver, but finding that it was essential to the interest of all of the parties that the real property of the insolvent be sold immediately, entered an order empowering and directing the receiver to sell the property subject to the lien of the mortgage of the Penn Mutual Insurance Company, a certain lien of one E. L. Tapert, and the lien of the unpaid taxes and assessments thereon, but free and clear of the lien or claim of lien of the judgment of the relator; further ordering that the proceeds of the sale be held by the receiver in a separate fund and that the lien of the relator, if any it has, be transferred to the fund to await the final determination by the court of the respective rights of the parties; further directing and ordering that the relator withdraw its writ of execution, and that the sheriff proceed no farther in the execution thereof. The relief sought by the present proceeding is a writ prohibiting the receiver from selling the real property under this order of the court.

The question presented by the record is a narrow one. No review of the merits of the order complained of is sought, nor could it be had in this form of proceeding. The question is simply, did the court act with-} out or in excess of its jurisdiction in making the order{ In support of the contention that it did so, counsel for the relator call attention to the statutes which provide that a judgment shall be a lien on the property of the judgment debtor from and after its entry, and draw the conclusion therefrom that it is not within the power of the court to relieve the property therefrom and maké it a charge upon another fund, even though the fund be one derived from the sale of the property. But the statute cited has refereace_to normal conditions — conditions where th§4nterests involved are those between the debtor and the creditor — not to those where the insolvency of the debtor — intervenes jurd"the court is called upon to conserve the property so as to make it go as far as it will in the payment of the insolvent’s obligations. Unquestionably, in insolvency proceedings the court has power to direct á sale of the insolvent’s property, and if the court in the exercise of its soundj discretion finds it to be to the best interests of all con-J eemed that the real property be sold free from encumj brances, there would seem to be no substantial reason why the court may not so direct. To do so is but toj, carry-out the purpose of the insolvency proceedings.'! It is to conserve the property for the benefit of the , general creditors, and it works no injury to the judg/; ment- creditor if, as in this instance, his right of liei|: is made a charge upon proceeds to be derived from the,; sale/

The authorities may be in conflict on the question, but the general rule-is stated in 14A C. J. 1006, in the following language:

“A rule that land should not be decreed to be sold until the amount of the liens thereon and their order of priority have been fixed and established may be departed from where the reason for it ceases and its application would work injury rather than benefit to those interests which it was designed to advance and protect.” '

So in the same volume at page 1008, it is said:

“The court may order the sale of property of an insolvent corporation, subject to encumbrances, or, if it has jurisdiction of the lienors, it may order the property sold discharged from liens, and direct distribution of the proceeds according to the rights of the parties.”

In Pilliod v. Angola R. & P. Co., 46 Ind. App. 719, 91 N. E. 829, the court, speaking of the power of a court administering the property of an insolvent corporation to direct a sale of the property, used this language:

“When the court entertained the petition of the general creditors for the enlargement of the powers of the receiver, it took into its jurisdiction all the title to all the property of the insolvent corporation, and it is this title which is sold by the receiver, and in proceedings of this character the court has the power and authority to direct the sale in any manner it may see proper. It may sell the property of an insolvent corporation subject to liens that are upon the same; or if it has the lien holders before it — and has jurisdiction over them —it may order the property sold by its officers discharged from the lien, as was done in this case, and direct the distribution of proceeds in accordance with the rights of the parties.”

See, also, First National Bank of Cleveland v. Shedd, 121 U. S. 74; Bank v. Trigg Co., 106 Va. 327, 56 S. E. 158.

The relator argues, however, that our own case of Cherry v. Western Washington Industrial Express Co., 11 Wash. 586, 40 Pac. 136, announces the contrary rule. But an examination of the facts of the case will show that it has no bearing on the question here presented. In that case the judgment creditor was not made a party to the insolvency proceedings, and we held, because he was not made a party, “his rights should not have been determined or inquired into in that action.” There is language in the opinion which, if read apart from the facts, might seem to sustain the contention of the relator, but the distinguishing feature between that case and the present case is that the court there sought to make orders affecting the rights of the judgment creditor without jurisdiction over his person, while in the present case it had such jurisdiction. Cases from this court having a more direct bearing upon the question presented, although not directly in point, are: State ex rel. Schwabacher Bros. & Co. v. Superior Court, 11 Wash. 63, 39 Pac. 244; State ex rel. Krisch v. Superior Court, 36 Wash. 91, 78 Pac. 461.

Our conclusion is that the trial court did not exceed its jurisdiction in making the order here in question. The order of this court will, therefore, he that the alternative writ of prohibition heretofore issued be quashed and a peremptory writ denied.

Main, C. J., Bridges, and Mitchell, JJ., concur.