, 1892-07-21
KING COUNTY.


Appellants right to sue cannot be ques
toned, as he was the trustee named in tbs
mortgage, and was the proper party to in
stltute foreclosure, whether he held the
legal title to any of the notes or not. The
court below found the mortgage, which
covered both real and personal property tc
be void as against the credit
Ors of the Huron Lumber Com.
pany, because after the execution OF
the mortgage, which was made to secure
pre-existing debts, the company, by agree
ment with appellant, or rather his cestui
que trust the Boston National Bank, con-
tinued its business in every respect in the
same manner as it had done prior to the
execution of the said mortgage, selling
lumber from its yard for cash and on
credit, selling goods from its store in the
usual course Of trade, applying the pro-
ceeds of said sales in the ordinary course
of its business, and in the payment of prior
debts as well as current debts, other than
those secured by the mortgage; and that
there was no change made in conducting
its business. All of which was done with
the knowledge and consent Of the Boston
National Bank, none of the proceeds of
the business being applied upon the mort
gage debts.
The substance of this finding is scarcely
contested by the appellant. He challenges
examination Of the evidence in the case for
any showing that the Boston National
bank ever agreed or consented to the doing
of any of the things found to have been
done either before, at or after the execution
Of the mortgage; and without reviewing
the testimony it may be conceded that there
is no such showing. But he does not DENY
that these things were done, and we think
we see upon the face of the mortgage itself
the agreement that Just such things should
be done.
The mortgage recites that the mortgagor
Ia engaged in the business of logging and
procuring logs and timber, and manufact-
urlng lumber of all kinds, and buying and
selling the same, and the products thereof,
and is the owner of certain lands, tim Der
lands, timber, saWmills, railroads, cars,
rolling stock engines, tools, appliances,
utensils, buildings, stores, shops, fran
chises and other rights and property in
King and SnOhOmish counties.
The operative and descriptive parts of
the mortgage covers all Of this property
without particular description, and further
includes "all other property of said party
of the first part, of whatever kind or ma
ture now held or hereafter to be acquired, /"
and all legal and equitable claims as well.
The next Important provision is that the
notes then held by the bank and Ball, and
all the renewals and extensions of them
are to be secured and that no renewal or
extension shall be construed as payment of
the existing notes, which were demand
notes. No time for payment was men
TONED in the mortgage.
Finally there was the following stipula-
ton;
a. Until default be made by said party
of the first part in the payment etc. ETC.,
the said party of the first part, its success
sors or assigns, shall be suffered and per-
mitted to possess, operate and enjoy all
and every of the property and premises
hereby conveyed, with all the appurte-
nances, rights, privileges, immunities and
franchises hereinbetOre mentioned; and
TO carry on the business of logging, manu-
featuring and selling logs, lumber and
manufactures thereof; and may cut and
remove any timber and trees standing on
lands owned by the party Of the first part,
and any other timber or trees owned by
said party of the first part, in the ordinary
course Of the business Of logging, selling
logs, timber, lumber, and the manufactures
thereof; and the cutting and removing of
any such logs, trees or timber shall not be
deemed waste or a violation of any of the
covenants or agreements herein contained,
but the proceeds of all such sales after
deducting the actual expenses of operating
and carrying on the business of said COM
pany shall be paid to the party of the
second part on the debts hereby secured. I"
1t seems to us that the irresistible con-
clusion from the stipulations must be that
the mortgage was designed to act as shield
PbAaNNADAA
creditors while it prosecuted its ordinary
business for an indefinite length of time
since the provision with regard to renewals
would continue the existence of the mort
gage at the will of the parties to it, to at
least the time when the statute of limita-
tlons would run against it. This will not
do In the case OF an insOlVent corporation
no matter what the good faith of its cred
1tor IS. When it has reached point where
its debts are equal to or greater than its
property, and it cannot pay in the ordinary
course, and its business is no longer profit
able it ought to be wound up and its assets
distributed. Therefore no device can re-
ceiYe the countenance of the courts, which
provides for an indefinite continuance of
its corporate life under the protection OF a
mortgage against the protest of those who
are entitled to share in its property, be it
much or little. The hindrance and delay
contemplated by the terms of the instru-
ment ought to render it null and void, and
this constitutes an additional ground to
that assigned by the court below, for 80
treating it.
Such an instrument is not within the
liberal but just construction given TO chat
tel mortgages in Ephraim v. Kelleher,
(May 9Th, 1922, nor does the determine
ton of the question whether it is fraudu-
lent or not require use of the principle that
fraud is question of fact and not of pre-
sumption. The paper itself speaks and
provides for the hindrance and delay
which the law does not permit whether
the subject matter of the mortgage be real
or personal property. 1t is argued that no
hindrance or delay was intended by the
mortgage because he brought his fOreClo-
sure suit within two weeks after he re-
ceiYed it. But he need not have brought
1t for two months or two years, as he saw
tit, 1t was the pressure of other creditors
besieging the company's Office until the
president ''went wild" that preoipitated
the action.
But for another reason we should hold
this mortgage bad. The indebtedness
evidenced by the notes was long overdue;
the directory of the company could not
agree; the business was practically stopped /;
and the corporation was insOlvent. The
insolvency was formally adjndged fifteen
days after the mortgage was made upon
the petition of the appellant himself. In
that time no material change took place in
the cOmpany's affairs. For many months
il had been embarrassed, could pay moth
ing upon its debts, and was merely using
up its property without profit or working
expenses. Ball, who was a director, knew
all this, and it is useless to argue that a
creditor of the dignity of a National Bank
was not informed. Under these circum-
stances a court of equity in this state ought
not to enforce any voluntary preference at
tempted by the directors of q corporation,
II is cited to us that ia Nyman v. Berry, %
Pac. Rep, 557, we upheld q general assign
ment made by a corporation. So we did.
But there were no preferences in that assign
ment. But had there been preference it
would not necessarily follow that the assign
ment should fail, although the preferences
would. Much has been said by courts
about this matter of preferences by insol-
vent corporations, and we are urged to
hold with those which uphold them, on the
ground that inQgmuch oOTnunOn Ia us
assignment which contained them was
good, and as we have held that corpora
ton can make common law assignment
the logic Of the position is that insolYent
corporations may make preferences. But
we cannot lose sight of the settled rule con.
corning the property of insolvent corpora
tiOns, viz, that it is a trust fund for credit.
--Larai-. LLa-a 4. !. q. a.E..-a-.na LaA.--.-.-