DocketNumber: No. 12065
Citation Numbers: 85 Wash. 114
Judges: Fullerton
Filed Date: 4/14/1915
Status: Precedential
Modified Date: 8/12/2021
The respondent, the Vancouver Trust & Savings Bank, brought this action against the Union Woolen Mills and its trustee in bankruptcy, W. D. Sappington, to foreclose upon certain bonds claimed by the bank to have been issued by the Union Woolen Mills and pledged to the bank as security for a loan. Issue was taken on the allegations of the complaint and a trial had, which resulted in a decree of foreclosure and order of sale. The trustee in bankruptcy appeals.
The facts are these: The Union Woolen Mills is a corporation organized under the laws of the state of Oregon. Its business was manufacturing woolen goods and fabrics, and for that purpose it had constructed two separate plants, the one located at the town of Union, in the state of Oregon, and the other at the town of Washougal, in the state of Washington. The business of the concern proved not to be prosperous, and it became largely indebted. In the early part of the year 1912, these debts became pressing, and the corporation had difficulty in procuring means necessary to carry on its current business. At this stage of its affairs, the directors of the corporation consulted with its principal creditors as to the best means of relieving the corporation from its financial straits, and it was concluded to issue $50,000 in 20-year negotiable coupon bonds of the denomina
Pursuant to the resolution, the contemplated bonds were executed payable “to the bearer, or if registered, to the registered ■ holder thereof,” together with a deed of trust running to the respondent as trustee, covering the entire property of the corporation. The bonds and deed were delivered to the respondent on March 22, 1912, at which time a written agreement was entered into between the corporation and the bank, reciting the terms and conditions upon which the bonds and deed were to be holden by the bank. Among these conditions was the following: “And the party of the second part [the Vancouver Trust & Savings Bank] agrees to extend a loan of $7,500 for 90 days to the party of the first part [the Union Woolen Mills] and hold and accept as security therefor the Union Woolen Mills Company’s note and $50,000 of the bonds issued under said mortgage or deed of trust, as aforesaid, which is to be a temporary advancement, pending the sale and delivery of said bonds.”
The board of directors of the mill company undertook to sell the bonds through dealers engaged in that business, but without success, and in fact none of them were ever sold. The business of the company did not subsequently improve, and on October 12, 1912, it was adjudged a bankrupt in the district court of the United States for the district of Oregon. The present action was begun in the month of December following.
If we understand the contentions of the appellant, he claims that the creditors of the corporation were the sole beneficiaries of the deed of trust; that upon the delivery of the deed to the respondent bank, the bank became their trustee, and thereafter neither the corporation nor the bank had authority to dispose of the bonds except by sale directly to some purchaser, and that then the proceeds of such sale must be paid to the bank and applied by it upon the obligations due the creditors. Seemingly, also, it is contended that the bank alone could issue or make delivery of the bonds, and hence any attempt on its part to deliver to itself or retain possession of them in pledge as security for any advancement made by it is void as against the rights of the creditors.
But it is our opinion that the appellant has misconstrued the effect of the deed of trust. The deed is set out in full in the record. Its length prohibits its being reproduced here, but it contains no extraordinary conditions. Its purpose was to secure the payment of the bonds in the hands of those who might become purchasers thereof, and all of its conditions were directed to that end. It contains, it is true, by way of recital, the resolution of the board of directors authorizing the issuance of the bonds. But that resolution,
“It is further understood and agreed that all recitals herein contained are made on behalf of the party of the first part, and the party of the second part assumes no responsibility as to the correctness of any statement herein contained; said party of the second part, and its successors shall have no responsibility as to the validity of this deed of trust or mortgage, nor as to the execution or acknowledgment hereof, nor as to the amount or extent of the security afforded by the property conveyed by this deed of trust or mortgage, nor for the delivery of any such bonds, and said trustee shall
The deed of trust was, therefore, in no sense an assignment for the benefit of creditors. It created no lien upon the property of the corporation in their favor. The scheme as a whole was one commonly adopted by concerns in like circumstances; its purpose was to. change its due obligations into time obligations, to procure funds to meet its current necessities, and thereby permit it to continue as a going concern. There is no question that the parties to the transaction acted throughout in the utmost good faith. At the time of the execution of the bonds, the corporation was a going concern, owning property believed to be of a value greatly in excess of its obligations. It was believed by the directors of the corporation and by the officers of the bank that its bonds could be sold. On the faith of this belief the bank consented to act as trustee of the deed of trust, and to advance to the use of the corporation a sum sufficient to meet its immediate necessities and hold the bonds in pledge until their sale and the return of its advancements. It performed its agreement and we can see no reason why the transaction was not legitimate, and why it is not entitled, since the contemplated scheme failed of fruition, to realize upon its securities.
Of the many cases cited by the appellant in support of his contentions but one requires special notice. In the main the cases cited differ so widely in their facts from the facts of the present case as to render them of but little if any assistance as guides to a correct decision of the questions involved. The case excepted is that of Shaw v. Saranac Horse Nail Co., 144 N. Y. 220, 39 N. E. 73, and is noticed because the appellant affirms that it cannot be differentiated in its facts from the present case. In that case it appears that the company
Our conclusion is that the judgment should stand affirmed, and it will be so ordered.
Crow, Ellis, Mount, and Main, JJ., concur.