Ephraim v. Kelleher

• Decision Date: 06 May 1892
• Court: Washington Supreme Court
• Parties: EPHRAIM v. KELLEHER ET AL.

29 P. 985

4 Wash. 243

EPHRAIM v. KELLEHER ET AL.

Supreme Court of Washington

May 6, 1892

Appeal from superior court, King county; I. J. LICHTENBERG, Judge.

This was an action by S. Ephraim against W. T. Kelleher and others for foreclosure of a mortgage. From a judgment foreclosing as to the defendant Kelleher, but refusing to foreclose as to the other defendants, plaintiff appeals. Reversed.

Thompson, Edsen & Humphreys, for appellant.

Allen & Powell, Preston, Carr & Preston, and Pennfather & Williamson, for respondents.

ANDERS, C.J.

From August, 1889, until March 13, 1890, appellant and W. T Kelleher were partners doing business as retail dry goods merchants in the city of Seattle, in this state, under the firm name and style of W. T. Kelleher & Co. On February 28 1890, the firm, being indebted, settled with their creditors by paying half of their indebtedness in cash, and giving their firm notes for the balance to Schweitzer & Co., of San Francisco, who represented all of their creditors. There were four of these notes, each for the sum of $3,133.80, and amounting in the aggregate to $12,534.20. On March 13, 1890 the firm of Kelleher & Co. was dissolved by mutual consent. By the terms of the agreement of dissolution, Ephraim retired from the firm, and Kelleher was to retain all the stock of goods then on hand, and all other firm assets, and promised and agreed to pay all of the copartnership notes and debts, and to save Ephraim harmless from all liability on account thereof. It was also agreed between them that Ephraim should retain the same control of the business that he had before the dissolution until the notes and debts of the firm for which he was liable should be paid; but it appears from the evidence that that part of the agreement was disregarded, and that, in fact, the business was thereafter conducted exclusively by Kelleher. Notice of the dissolution was given by publication in the newspapers and personally to those with whom the firm had formerly dealt, but the firm name of Kelleher & Co. was retained by Kelleher after the dissolution. Ephraim remained in Seattle after the dissolution a greater part of the time, until about July 20 or 25, 1890, at which time he concluded to go to his home in California to remain. Before leaving, however, he entered into an agreement with Kelleher whereby the latter was to give him a chattel mortgage upon the entire stock of goods then in his store in Seattle, and upon the fixtures, and all his book accounts and notes, to indemnify him against his liabilities upon the notes to Schweitzer & Co., then amounting to $9,401.40, (one of the notes having been paid,) and upon an indebtedness of Kelleher of $465 to Newhall Sons & Co., and of $300 to the Merced Woolen Mill Company, for which he had agreed to be responsible. The mortgage was executed according to this agreement by Kelleher and wife, on July 28, 1890, and delivered to Ephraim's agent, who caused it to be recorded on August 11, 1890. A day or two subsequent to the recording of the mortgage the respondents Fleischener, Mayer & Co. and Newstadter Bros., respectively, commenced actions against Kelleher in the superior court of King county, in which action writs of attachment were issued and placed in the hands of respondent McGraw, who was sheriff of King county, by virtue of which he levied upon and took possession of the property and goods belonging to said Kelleher, and covered by the said mortgage. Appellant, Ephraim, thereupon commenced an action to foreclose his chattel mortgage, and asked to have the same declared to be a lien prior to the attachment liens of the defendants, and prayed for the appointment of a receiver to take charge of and sell the property under the direction of the court. A receiver was accordingly appointed, who sold the property, and now holds the proceeds subject to the order of the court. As a defense to the action, the attaching defendants alleged in their answer that the mortgage was given without consideration, and was executed and delivered by Kelleher for the purpose of hindering, delaying, and defrauding his creditors, and the said defendants, and that the same was fraudulent and void as to the defendants and the creditors of Kelleher. After the institution of the foreclosure proceedings a number of other creditors of Kelleher commenced actions against him, in which writs of attachments were issued and levied on the same goods, for the recovery of their respective claims and demands, several of whom, by leave of the court, intervened in the foreclosure suit, and likewise contested the validity of the mortgage. On September 23, 1890, and before judgment was rendered against him in any of these actions, Kelleher made a general assignment of all his property for the benefit of his creditors under the act of March 6, 1890. An assignee was appointed, who duly qualified, and thereafter intervened in the foreclosure suit, and asked to have the mortgage declared fraudulent and void as to the creditors of Kelleher. After the making of the assignment a motion was filed by plaintiff to dissolve the attachments, which motion was overruled, and the court proceeded to try the case upon the issues thus raised. Subsequent to the commencement of his action to foreclose the mortgage, the plaintiff, Ephraim, paid or secured the payment of the Schweitzer & Co. notes described in the mortgage. Upon the trial the court gave judgment in favor of Ephraim, and against Kelleher, for the sum of $10,916 and costs, and in favor of the assignee and the interveners, and against the plaintiff for their costs. As a conclusion of law from the facts found, the court stated that, as to the assignee and creditors of Kelleher, the mortgage sued on was fraudulent and void, and that the proceeds of the property in the hands of the receiver should be delivered to the assignee as assets under the assignment. The plaintiff excepted to all the conclusions of law stated by the court, except that which stated that the plaintiff was entitled to judgment against the defendants, and moved the court to so change the conclusions of law as to state that the mortgage should be foreclosed as against all of the defendants. The court denied the motion, and the plaintiff duly excepted. Judgment was thereupon entered in accordance with the conclusions of law stated by the court, and the plaintiff appealed to this court.

Following the description of the property, the mortgage recites, in substance, that it is given to secure, indemnify, and hold harmless the mortgagee from all liability, loss, or damage accruing, directly or indirectly, by reason of the failure or refusal of the said W. T. Kelleher to pay off and satisfy the whole or any part of the amount due or to become due upon all or any of the aforesaid promissory notes, or upon all or any of the aforesaid accounts, or upon all or any of the claims of the creditors of the original firm of Kelleher & Co. for whose benefit the aforesaid promissory notes were executed. It also sets forth the fact that the parties thereto had been partners; that the firm was dissolved by Kelleher purchasing the interest of Ephraim, the giving of the notes to Schweitzer & Co. for the benefit of their creditors, and the agreement of Kelleher to pay the firm liabilities. The mortgage also contains the following provisions: "And it is agreed, if the mortgagors shall fail to cause said promissory notes, and each of them, to be duly paid off satisfied, and canceled, or shall fail or refuse to cause the aforesaid account of Schweitzer & Co. to be paid off and satisfied, or shall fail or refuse to cause the aforesaid account in favor of the Merced Wool Mill Company to be paid off and satisfied, or if the aforesaid stock, goods, wares, merchandise, and fixtures, or any part thereof, shall be levied upon by any writ of attachment, execution, or other proceedings, or shall come into the hands of any sheriff, assignee, receiver, administrator, executor, or other officer, or if all or any one of the aforesaid promissory notes shall fall due and remain unpaid, then, and in that event, the mortgagee may immediately take possession of said property, goods, wares, merchandise, fixtures, book accounts, and promissory notes, using all force necessary so to do, and may immediately proceed to sell the same, in the manner provided by law, and from the proceeds may pay the whole amount due, or thereafter to become due, upon each and all of the aforesaid promissory notes, and upon the account of the aforesaid Newhall Sons & Company, and upon account of the said Merced Woolen Mill Company; and also, from the proceeds aforesaid, pay and satisfy the reasonable costs and expenses of selling said stock, appropriating the proceeds thereof to the purposes aforesaid, and for the payment of reasonable and proper attorneys' fees, in the sum of ten per cent. of the amount of said stock so taken and sold; and, further, that in the event that the mortgagee shall at any time deem himself to be insecure by reason of the failure of said W. T. Kelleher to pay and satisfy the aforesaid notes and accounts, or from any other cause, then the said Ephraim shall have the right to take possession of said property, and sell the same, in the same manner, for the same purposes, and with the same power, as hereinbefore granted." No provision is made in the instrument for selling the mortgaged goods by the mortgagor, but the proof shows that at the time the mortgage was given it was understood and agreed between the parties that Kelleher should have the right to sell the goods in the usual course of trade, and use part of the proceeds to pay for such new goods as might be required to keep up the stock, and to defray the expenses of conducting the business,...