Crawford v. Seattle, R. & S. Ry. Co.

• Court: Washington Supreme Court
• Writing for the Court: PARKER, J.
• Citation: Crawford v. Seattle, R. & S. Ry. Co., 150 P. 1155, 86 Wash. 628 (Wash. 1915)
• Decision Date: 11 August 1915
• Docket Number: 12779,12901.
• Parties: CRAWFORD v. SEATTLE, R. & S. RY. CO. et al. PEABODY v. CALHOUN et al. PEABODY, HOUGHTELING & CO. v. SAME.

150 P. 1155

86 Wash. 628

CRAWFORD v. SEATTLE, R. & S. RY. CO. et al.

PEABODY v. CALHOUN et al.

PEABODY, HOUGHTELING & CO. v. SAME.

Nos. 12779, 12901.

Supreme Court of Washington, En Banc.

August 11, 1915

Appeal from Superior Court, King County; A. W. Frater, Judge.

Action by William R. Crawford against the Seattle, Renton & Southern Railway Company and others, in which Scott Calhoun and another were appointed receivers. Thereafter Augustus S Peabody, as trustee for the holders of bonds of the railroad and Peabody, Houghteling & Co. each sued the receivers. From a judgment for plaintiffs in the first action, the receivers appeal, and from a judgment denying plaintiffs full relief in the latter, they appeal. Affirmed as to the first action, and as to the second reversed and remanded, with directions.

Harold Preston and Scott Calhoun, both of Seattle for appellants.

Peters & Powell, Hyman Zettler, and Higgins & Hughes, all of Seattle, for cross-appellants.

Will H Thompson, of Seattle, amicus curiae.

PARKER J.

There are here involved two separate claims of creditors filed in the superior court for King county in the receivership proceedings of the Seattle, Renton & Southern Railway Company, an insolvent corporation, the affairs of which are being wound up in these proceedings.

The claim of Augustus S. Peabody, as trustee for the holders of the bonds of the railway company, is sought to be made a preferred claim against all of the property of the railway company by virtue of a trust deed given to secure the payment of the bonds. While this claim is sought to be enforced in the receivership proceedings, the trustee seeks, in effect, the foreclosure of the trust deed as a mortgage, a sale of the property in the hands of the receivers, and the payment of his claim from the proceeds thereof in preference to all other creditors of the railway company.

The claim of Peabody, Houghteling & Co. is that of a general creditor, and rests upon notes evidencing a loan made by them to the railway company, which loan was secured by the pledging of all of the shares of the capital stock of the railway company by the owners thereof, William R. Crawford and John B. Berryman, as evidenced by collateral agreements executed by the railway company, Crawford, Berryman, Peabody, Houghteling & Co., and Augustus S. Peabody, as trustee.

These claims were separately heard and determined in the superior court. The claim of Augustus S. Peabody, as trustee, under the bonds and trust deed securing them was allowed by the superior court in full, including interest at the rate specified therein, as a preferred lien upon the property in the hands of the receivers. From the order entered so allowing this claim the receivers have appealed. The superior court allowed upon the claim of Peabody, Houghteling & Co. only the amount of money they actually parted with in making the loan to the railway company upon its notes, and disallowed all claim for interest as provided for in the notes. From the order so entered upon this claim Peabody, Houghteling & Co. have appealed.

The principal defense made in the superior court by counsel for the receivers against the allowance of these claims, as it is also made here, is that the contracts upon which the claims are rested are usurious under the laws of Illinois, and that such contracts are referable to and governed by the laws of Illinois. The superior court rendered its decision as to each claim upon the theory that the contracts were referable to, and governed by, the laws of Illinois; that the interest provided for in the bonds, together with the bonus or discount reserved, was not in amount sufficient to make that transaction usurious under the laws of Illinois; but that the interest provided for in the notes, together with the bonus or discount reserved, was sufficient to make that transaction usurious under the laws of Illinois. The highest rate of interest permitted to be contracted for under the laws of Illinois is 7 per cent., and when any higher rate of interest is contracted for with reference to the laws of that state the whole of such interest so contracted for is forfeited, and the lender is entitled to recover only the principal sum so loaned. The learned trial judge concluded that the interest contracted for in the bond transaction, including the bonus or discount reserved, did not exceed 7 per cent., but that the interest so contracted for in the note transaction did exceed 7 per cent. We may concede for present purposes that the interest contracted for in the note transaction, together with the bonus or discount reserved, amounted to approximately 8 per cent. The interest contracted for in the bond transaction did not in any event exceed 7 3/4 per cent. The highest rate of interest permitted to be contracted for under the laws of Washington is 12 per cent. Rem. & Bal. Code, § 6251. The main question here for determination is: Were these contracts made with reference to the laws of Illinois or the laws of Washington? If the former should be found controlling, it would then be necessary for us to deal with some additional questions. If the latter be found controlling, such fact will dispose of both claims in favor of Augustus S. Peabody, as trustee, and Peabody, Houghteling & Co.

The two appeals are presented here together in the same briefs and by the same counsel. The controlling facts relative to both claims touching the question of whether the laws of Illinois or the laws of Washington are decisive of the question of usury are not materially different as we view them. Indeed, counsel do not seem to seriously contend that there is any substantial difference so far as this question is concerned. We shall notice the facts which are substantially the same as to each claim and which we regard as decisive of each. The Seattle, Renton & Southern Railway Company is a Washington corporation having its principal place of business during its entire existence in the city of Seattle. Until the appointment of receivers for it upon its becoming insolvent it owned and operated a street and interurban electric railway wholly within King county, in this state. It never maintained any agency or place of business outside of this state. Peabody, Houghteling & Co. are now, and were at all times here involved, a partnership, with their place of business at Chicago. They are purchasers of and dealers in bonds and other securities. Augustus S. Peabody, one of the trustees named in the deed of trust here involved, is a member of the firm of Peabody, Houghteling & Co. In January, 1908, William R. Crawford, the president of the railway company, went to Chicago for the purpose of negotiating a loan for the railway company in order to make necessary improvements and betterments of its property and refund its outstanding indebtedness. In February, 1908, he entered into a tentative agreement at Chicago in behalf of the railway company with Peabody, Houghteling & Co. for a loan of $1,000,000 for the railway company, to be evidenced by bonds of the railway company, and to be secured by a trust deed upon all the property of the railway company. We need not here notice in detail the terms of this tentative agreement, since they became merged in the final contract evidenced by the provisions of the trust deed and the bonds issued thereunder. The trust deed and bonds were accordingly prepared by Peabody, Houghteling & Co. at Chicago, and dated as of May 1, 1908. The trust deed was signed and acknowledged at Chicago by the trustees First Trust & Savings Bank of Chicago and Augustus S. Peabody on June 4, 1908. It was then forwarded by Peabody, Houghteling & Co., together with $600,000 of the bonds, to the railway company, at Seattle, Wash., where the trust deed was duly signed and acknowledged by the railway company on June 15, 1908, the railway company at the same time signing the bonds so forwarded to it, all in pursuance of resolution of the board of trustees of the railway company made in that behalf. The signed bonds and the trust deed were then forwarded to the trustees at Chicago, where the bonds were delivered by the trustees to Peabody, Houghteling & Co. after they were identified by indorsement thereon by the trustees as being bonds secured by the trust deed, such indorsement being made as provided by the terms of the trust deed. Peabody, Houghteling & Co. then paid the railway company for the bonds by sending direct to the railway company at Seattle, New York exchange amounting to $125,804.68, by paying and satisfying outstanding bonded indebtedness of the railway company which had been incurred by it in the course of its business, which indebtedness was evidenced by bonds then at Chicago, and by paying expenses incident to the examination of the railway company's property and the title thereto at Seattle which became security for the loan under the provisions of the trust deed and the bonds. The remainder of the bonds here involved secured by the trust deed were thereafter signed, delivered, and paid for in a similar manner.

We now notice the provisions of the trust deed and the bonds constituting the contract here involved, which we regard as shedding light upon the question of the intention of the parties as to whether they made this contract with reference to the laws of the state of Illinois or with reference to the laws of the state of Washington. The general purpose of the loan is recited in the trust deed as follows:

'Whereas, said company desires to borrow money for the transaction of its business and the exercise of its corporate rights and privileges, the refunding of its funded debt, and the funding of its unsecured indebtedness, the construction of tracks and the equipment thereof, the extension and

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