In re Cascade Fixture Co.

• Decision Date: 07 April 1941
• Docket Number: 28258.
• Citation: 8 Wn.2d 263,111 P.2d 991
• Court: Washington Supreme Court
• Parties: In re CASCADE FIXTURE CO. v. BOERSEMA et al. SEATTLE ASS'N OF CREDIT MEN

111 P.2d 991

8 Wn.2d 263

In re CASCADE FIXTURE CO.

SEATTLE ASS'N OF CREDIT MEN v. BOERSEMA et al.

No. 28258.

Supreme Court of Washington

April 7, 1941

Department 2.

Proceeding in the matter of the dissolution of the Cascade Fixture Company, wherein claims were filed by the Seattle Association of Credit Men, Jay Boersema, and others.From a judgment determining priorities and allowing the claims, the Seattle Association of Credit Men appeal.

Judgment reversed with instructions.

MILLARD J., dissenting.

Appeal from Superior Court, King County; James T Lawler, judge.

Croson Johnson & Wheelon, of Seattle, for appellant.

Philip Tindall and Donald L. Gaines, both of Seattle, and Smith Troy and Geo. G. Hannan, both of Olympia, for respondents.

SIMPSON, Justice.

This appeal involves the priority of claims filed with the receiver of Cascade Fixture Co., an insolvent corporation.

Cascade Fixture Co. was in the business of manufacturing and selling certain articles of merchandise.Prior to March, 1938, the fixture company experienced financial difficulties in the conduct of its business and owed debts to approximately one hundred and fifteen creditors.On the fourth day of that month it gave to the Seattle Association of Credit Men, a corporation, as trustee for the creditors, a chattel mortgage upon its assets in the sum of $16,000.Thereafter, the fixture company continued to do business in its accustomed manner for about one and one-half years, at the end of which time a receiver was appointed to liquidate its affairs as part of dissolution proceedings.The property was sold by order of the court, and the amounts received at the sale were paid into court to be applied upon various claims filed with the receiver.The amount realized from a sale of the assets was $4,775, of which $1,200 was received from the sale of merchandise.In addition, $216.41 was realized by the receiver from accounts receivable.

Among the claims filed and allowed were those of King county for personal taxes in the sum of $625.68; the United States for taxes, $610.82; the State of Washington for sales, business and occupational taxes, $428.94; the State of Washington for industrial insurance taxes, $38.25; the State of Washington for unemployment compensation taxes, $509.71--making a total of tax claims filed in the sum of $2,213.40.

A landlord's lien was filed for $300, the Seattle Association of Credit Men filed a claim for the $11,781.45 still due upon its mortgage, and the claims of various workmen employed by the fixture company for work performed subsequent to the filing of the mortgage were also filed.

After the claims were filed with the receiver, the court proceeded to determine their priorities.It decided that the claims should have priority as follows: King county for taxes, the United States for taxes, the state for sales, business and occupational taxes, industrial insurance tax, labor and landlord's liens, the state for unemployment compensation tax, and the claim of the Seattle Association of Credit Men.After the entry of an order allowing the claims as just indicated, the Seattle Association of Credit Men appealed.

The assignments of error call in question the correctness of the order made by the trial court holding that the labor claims and the claim of the state for unemployment compensation taxes were superior to that of appellant.

The labor liens were claimed under the provisions of Rem.Rev.Stat.§ 1149, which gives laborers in factories the right to assert liens for their wages earned within six months prior to the time of filing.

This court passed upon that statute in Fitch v. Applegate,24 Wash. 25, 64 P. 147.We held that laborers' liens for work performed after the filing of a mortgage upon the property in question were not liens which had a priority over that of the properly filed mortgage.

That case was cited in Rothweiler v. Winton Motor Car Co.,92 Wash. 215, 158 P.737, 738, to show that 'the Legislature had no thought of destroying prior liens of an independent character.'

In Cashmere Valley Bank v. Pacific Fruit & Produce Co.,198 Wash. 363, 88 P.2d 579, 580, this court again expressed its view relative to the lien of the chattel mortgage, and in the course of the opinion stated: 'Any question as to the priority of a chattel mortgage, properly executed and properly and timely filed as the statute prescribes, over subsequently asserted liens is foreclosed in this state.'This holding was reaffirmed in Loudon v. Cooper,3 Wash.2d 229, 100 P.2d 42.

Under the authority cited, it is obvious that the lien of a chattel mortgage properly executed and filed in accordance with the statutes is a lien superior to labor liens arising thereafter.Respondents assert, however, that the purpose for which the mortgage was given, namely, that of securing the creditors which the mortgagor had at that time, and the language employed in the mortgage made it, in effect, an assignment for the benefit of creditors.We cannot so hold.

While it is true that the mortgagor was insolvent when it made the mortgage and there was a provision that the mortgagee could, at its option, take possession of and manage the mortgaged property, we are convinced, from a reading of the general language of the mortgage instrument and from an examination of the activities of the parties, that the transaction actually was a mortgage transaction, rather than an assignment for the benefit of creditors.The intention of the parties is of compelling importance in ascertaining the true nature of these transactions, and where, as here, it is clear that it was not intended that an absolute transfer of the debtor's property be made to the creditors, but that the debtor should continue in business under a security arrangement with the creditors, we cannot hold that the transaction was other than that which it purported to be.6 C.J.S., Assignments for Benefit of Creditors, p. 1223, § 4, g, and cases therein cited.

Respondents next contend that the mortgage was invalid as to the stock of goods, due to the fact that the proceeds of the shifting stock of goods were not applied to reduce the mortgage debt.

The mortgage provided that the mortgagor should pay the net balance of the proceeds of the sale of merchandise to the mortgagee, and that an accounting should be had on the 15th day of each month during the life of the mortgage, with a minimum of $250 per month to be paid by the mortgagor toward the reduction of the debt.

Although the amount by which the indebtedness was reduced falls short of the amount which would be reached had the $250 minimum amount been paid each month, the evidence is silent on the question, and there is no showing that there was a failure to pay over to the mortgagee all net amounts which were realized from the sale of merchandise.We have on several occasions upheld as valid mortgages of the type here involved, provided there is a provision for an application of the proceeds of the sale of the merchandise to the mortgage debt and for regular accountings.Benham v. Ham,5 Wash. 128, 31 P. 459, 34 Am.St.Rep. 851;Miller v. Scarbrough,108 Wash. 646, 185 P. 625;State Bank of Connell v. John Deere Plow Co.,123 Wash. 167, 212 P. 148;General Mercantile Co. v. Waters,127 Wash. 481, 221 P. 299;Spokane Merchants' Ass'n v. Mussellman,134 Wash. 116, 234 P. 1033;Tahoma Finance Co. v. Shannon,138 Wash. 90, 244 P. 271.There was nothing shown in the record Before us which would render the mortgage invalid, the mere failure to actually reduce the mortgage to the agreed level not being enough, per se, to afford us a basis for finding that the transaction was void as being in fraud of creditors.Simpson v. Combes,107 Wash. 575, 182 P. 566.

Respondents also urge that the mortgage, by its terms, puts labor liens ahead of the mortgage lien.

The mortgage required the mortgagor to insure the mortgaged property against loss by fire, and to pay '* * * all taxes and claims, or charges for rent or labor, which could become a lien against said property and take precedence over this mortgage.'

Respondents contend that even though the rule set forth by this court has been that prior mortgages, properly filed are superior to labor liens, the parties here, by the language quoted, showed that they intended that the labor liens should enjoy priority over the mortgage lien.We cannot so construe the language in question.The case of Cashmere Valley Bank v. Pacific Fruit &amp Produce Co., supra, involved the respective priorities of a previously filed chattel mortgage and of common law liens for material furnished and services performed.It should be noted that the mortgagor incurred the later liens pursuant to a covenant in the mortgage which required that he secure the material and services in question, but we still held that the mortgage lien enjoyed priority.In the case at bar, even though the mortgagor may have covenanted to pay the insurance, rent, and labor charges, such charges were not thereby elevated to a position superior to that of the mortgage.The clause 'which could become a lien against said property and take precedence over this mortgage' adds nothing to the strength of the covenant, from the standpoint of priorities, and we do not regard it as having been intended to constitute a realignment of priorities.We are of the opinion that it was only intended to be a protective measure to require the mortgagor to pay all such bills which might give rise to valid liens, and was not intended...