Klosterman v. Mason County Cent. R. Co.

• Decision Date: 23 February 1894
• Citation: 36 P. 136,8 Wash. 281
• Court: Washington Supreme Court
• Parties: KLOSTERMAN v. MASON COUNTY CENT. R. CO. ET AL. (WHEELER ET AL., INTERVENERS.

36 P. 136

8 Wash. 281

KLOSTERMAN v. MASON COUNTY CENT. R. CO. ET AL. (WHEELER ET AL., INTERVENERS.

Supreme Court of Washington

February 23, 1894

Appeal from superior court, Mason county; Mason Irwin, Judge.

Action by John Klosterman, doing business as Klosterman & Co. against the Mason County Central Railroad Company and Allen C. Mason. Wheeler, Osgood & Co. and O. F. Cosper intervened. From the judgment, defendants and interveners appeal. Reversed.

James Wickersham and Henry S. Tremper, for appellants.

Allen &amp Powell, for respondent and interveners.

ANDERS J.

The Mason County Central Railroad Company was incorporated in the year 1888 under and by virtue of the laws of the then territory of Washington. The objects for which it was formed as indicated in its articles of incorporation, were to build and operate a railroad from Shelton, in Mason county, to some point on the Chehalis river, and to carry on a general lumbering and sawmill business at said town of Shelton. It would seem, however, that the contemplated railroad was not designed or intended as a road for general traffic, but simply as a means of transportation of logs to the company's mill. The corporation, anticipating an extensive demand for lumber, purchased a large quantity of timber land, mostly in Mason county, and constructed and equipped, for logging purposes, about six miles of railroad such as is commonly used by mill companies. Its entire property, including mill and appurtenances, lands and railroad, cost in the neighborhood of $125,000. But in conducting its business the company found it necessary, from time to time, to borrow money, which it did, from various persons and companies, and mortgaged its property to secure the payment thereof. These loans were made by and through the appellant Allen C. Mason, who was a loan broker at Tacoma, but not a stockholder in the appellant corporation. The promissory notes secured by these mortgages, except several, for small amounts, which were given to Mason himself, were indorsed by Mason before delivery to the mortgagees. In July, 1891, this mortgage indebtedness amounted to some $50,000, while, according to the evidence in the record, the entire property of the corporation had so depreciated in value that at that time it was not worth more than that sum, even if it could have been sold in the market at all. In addition to the mortgage securities upon which Mason was liable, the company owed Mason $10,000, which he had advanced to it, and for which he held no security. Being otherwise unable to pay this indebtedness, the company, on July 27, 1891, in consideration thereof, and the payment to it of $1,200 in cash, sold and conveyed to said Mason all of the property covered by mortgage,-in fact, practically, all of the property then owned by it. The deed even purported to convey all the franchises and privileges of the company, but it appears from the testimony of its president that the company did not intend to convey any of its corporate privileges, and that he did not notice, at the time the deed was executed, that it was therein so stated. It appears that when this deed was executed the railroad company owed other parties, but of that fact Mason had no knowledge whatever. Among its creditors was the respondent, Klosterman, who held a claim against it, for something over $300, for goods sold and delivered. And it further appears that on July 20, 1891, he commenced an action against the railroad company to recover the amount of his claim, but neither Mason nor the defendant corporation had any knowledge of it until after the execution of the deed, on the 27th of July. On August 27, 1891, judgment was obtained against the defendant for the sum of $323.99 and costs, taxed at $15.80. Thereafter, execution was issued, and returned "No property found." Thereupon, the respondent, Klosterman, as Klosterman & Co., began this action against the appellants to set aside the deed of July 27, 1891, and to subject the property therein described to the payment of his judgment; and for cause of action alleged in his complaint, among other things, "that the said conveyance was without consideration, was made in secret trust for said company, and was made with the intent on the part of said company and of said Allen C. Mason to hinder, delay, and defraud creditors of the Mason County Central Railroad Company, and especially this plaintiff," and "that the said company has no other property, subject to execution, out of which the plaintiff's judgment could be satisfied, and is wholly insolvent, and was so insolvent at the date of the aforesaid conveyance, and the defendant Allen C. Mason well knew the fact." A general demurrer to the complaint was interposed and overruled, after which a trial was had upon the issues tendered by the complaint; and the court, notwithstanding it found, as a fact, that it did not appear that Mason knew of the defendant corporation's debts, other than those for which he had become personally liable, and that at the time of the transfer to Mason the property conveyed to him was not worth more than the amount of the indebtedness for which he had become responsible, adjudged the conveyance void, and the property therein mentioned subject to the lien of the plaintiff's judgment. From this judgment and decree the defendants appealed.

It is contended by the appellants that the respondent had a complete and adequate remedy at law, under chapter 6, tit. 8, of the Code of Procedure, by proceedings supplementary to execution, and was, therefore, not entitled to equitable relief. But, without reviewing the authorities cited, we think that an inspection of the statutes above mentioned will clearly show that the remedy therein provided is not adequate for the purpose of canceling and setting aside a fraudulent conveyance of real estate. As was said by the supreme court of Colorado in Allen v. Tritch, 5 Colo. 226: "The right of a judgment creditor to equitable relief in case of the fraudulent transfer of real estate by the judgment debtor is well settled. *** No like or equivalent remedy can be had by proceedings supplemental to execution, and it exists, unimpaired, as before the adoption of the Code." It may be conceded that, whenever such proceedings are clearly adequate to afford the relief demanded, they are exclusive, and a substitute for former remedies; but, where they are not, resort may still be had to a court of equity for relief in all cases falling within the settled jurisdiction of that court. Freem. Ex'ns (2d Ed.) 394; Ludes v. Hood, 29 Kan. 49; Bump, Fraud. Conv. (3d Ed.) 530.

We think the objection of appellants that the complaint fails to state a cause of...