Washington Fire Ins. Co. v. Maple Valley Lumber Co.

• Decision Date: 06 February 1914
• Citation: 138 P. 553,77 Wash. 686
• Parties: WASHINGTON FIRE INS. CO. et al. v. MAPLE VALLEY LUMBER CO. et al.
• Court: Washington Supreme Court

138 P. 553

77 Wash. 686

WASHINGTON FIRE INS. CO. et al. v. MAPLE VALLEY LUMBER CO. et al.

Supreme Court of Washington

February 6, 1914

Department 2. Appeal from Superior Court, King County; King Dykeman Judge.

Action by the Washington Fire Insurance Company and others against the Maple Valley Lumber Company and others. From a judgment for defendants, plaintiffs appeal. Reversed.

John W Roberts and Million & Houser, all of Seattle, Paul W. Houser of Renton, and Alexander & Bundy and Hughes, McMicken, Dovell & Ramsey, all of Seattle, for appellants.

Scott & Calhoun, of Seattle, for respondents.

MAIN J.

The purpose of this action was to foreclose a mortgage.

The original parties were Washington Fire Insurance Company, a corporation, plaintiff, and Maple Valley Lumber Company, a corporation, Union Machinery & Supply Company, a corporation, J. F. Smith, and M. B. Keeney, defendants. After the action had been begun, the Maple Valley Lumber Company was adjudged a bankrupt in the United States District Court. One O. B. Wooley was elected trustee in bankruptcy, and as such trustee became a party to this action by intervention. The Fireman's Fund Insurance Company, a corporation, the Washington Trust & Savings Bank, a corporation, and W. H. Williams also intervened.

The parties to this appeal by stipulation have provided that the appeal of the Union Machinery & Supply Company may be dismissed, and the judgment as to it affirmed. M. B. Keeney and W. H. Williams did not prosecute an appeal. All the other parties have appealed as against the judgment entered in so far as it was adverse to their respective contentions.

The record is voluminous, and at attempt will only be made to epitomize the facts so far as it may appear necessary for the understanding and decision of the questions presented.

Taking about July 1, 1910, as the starting point, for some years prior to this time one D. Dierssen had been the owner of a large tract of timber land on the east side of Lake Washington. At this time the Maple Valley Lumber Company owned and operated a sawmill on the west side of the same body of water. For a period of three or four years the lumber company, through its president, J. F. Smith, had from time to time negotiated with Dierssen for the purchase of the whole or a part of the tract of timber. On March 15, 1910, the lumber company made a proposition to purchase all the merchantable timber at $3 per thousand stumpage. This proposition was declined by the owner of the timber, and further negotiations between them seem to have been abandoned.

Some time during the month of July one T. M. Tennent secured from Dierssen a tenday option upon the land and timber for the sum of $500,000. Shortly thereafter Tennent and Dierssen approached Henry Carstens, who was the president of the Washington Fire Insurance Company and the owner of practically the entire capital stock of Carstens & Earles, Incorporated, with a view to interesting him in the purchase of the property. During this interview it was made plain that Carstens would not be interested in anything other than the timber. Dierssen at this time made to him a price upon the timber only of $105,000.

Within a very few days thereafter J. F. Smith was brought to Carstens' office by Tennent. At this time Tennent stated that the timber, which was subsequently the subject-matter of the contract, had been cruised under his direction, and the total amount of merchantable timber was from 40,000,000 to 50,000,000 feet; and also stated that he had offered Dierssen the sum of $3 per thousand for the timber, and that he would be willing to pay a lump sum therefor of $125,000 or $130,000, providing he could borrow sufficient money to meet certain of his pending obligations, and also enable him to open up the timber for logging.

From this time forward Smith was repeatedly in Carstens' office discussing various propositions as to the handling of the timber, one of which, a proposed bond issue, was never consummated.

Dierssen at various times sought out Carstens in an effort to dispose of the timber to him. Carstens stated to Dierssen on one occasion that he was not then prepared to purchase the timber, but that, if he subsequently determined to do so, they could do business upon the terms proposed.

The discussions between Carstens and Smith, on the one hand, and Carstens and Dierssen, on the other, continued until about November 1, 1910, at which time Carstens told Smith to go direct to Dierssen and contract for the timber. The contract was drawn on November 9th, and executed on the 12th, in which the contract price of the timber was fixed at $105,000. At the time Smith was directed to purchase the timber direct, he stated to Carstens that he understood that Carstens was to purchase the timber himself, and then resell it to him (Smith). Carstens stated that he preferred the transaction to be between Smith or the Maple Valley Lumber Company and Dierssen direct; the reason for this being that he did not desire that the deferred payments should appear as a liability of himself or his company.

During the month of July or August, while the negotiations were pending, Carstens loaned to the lumber company some $4,000 or $5,000. When it was determined to take over the timber, Carstens informed Smith that the Washington Fire Insurance Company would make a loan of $25,000 to the lumber company, secured by mortgage upon the property of the company. Abstracts were thereupon gotten out, and the title approved to the property offered as security. On November 16, 1910, Smith and Brown, the secretary of the lumber company, came to Carstens' office, and the transactions were there completed. The Maple Valley Lumber Company and J. F. Smith executed to the Washington Fire Insurance Company their twenty-five promissory notes for $1,000 each, bearing interest at the rate of 7 per cent. per annum, and the Maple Valley Lumber Company also executed a real estate and chattel mortgage securing the notes. At the same time the Maple Valley Lumber Company executed four promissory notes for $5,000 each to Henry Carstens, each of which, except the first, bore interest at 6 per cent. per annum, payable on or before one, two, three, and four years after date, respectively. At this time a written contract was entered into between the Maple Valley Lumber Company and Henry Carstens, setting forth the agreement or understanding between the parties relative to the transaction. This agreement was as follows:

'This contract recites that, Henry Carstens having had an option or understanding with one Dierssen, under which Dierssen was willing to accept $105,000 for a certain parcel of timber known as the 'Dierssen Timber' near Renton in King county, Washington, we, the Maple Valley Lumber Company, a corporation under the laws of Washington, having desired and attempted to purchase the same timber from Dierssen for the sum of $130,000, but having been unable so to do without financial assistance, said Henry Carstens, at our request, intervened, and by negotiating for us a loan enabled us to acquire the said timber at the price we were willing to pay for the same, namely, $130,000. Now, we, the Maple Valley Lumber Company, freely admit a profit to Henry Carstens in this transaction of $20,000, fully justified by the valuable service rendered, and have this day executed to Henry Carstens our four promissory notes, bearing even date herewith, with interest at six per cent., except the first such note, which bears no interest, each one of these notes being for $5,000, payable, the first, one year from this date, and the remaining three notes at intervals of one year each. And to secure these notes we hereby stipulate, contract, and agree that, as we log the Dierssen timber, we shall and will for every thousand feet of timber cut pay upon these notes the sum of fifty cents, doing so monthly, and furnishing to Henry Carstens monthly true and correct scale bills of the amount of logs cut by us, together with such other or further evidence of this kind as he, Henry Carstens, may require; but regardless of the amount of timber so cut, the full amount of these notes, namely, $20,000, is the measure of our indebtedness to Henry Carstens, and nothing herein shall be construed as indicating or evidencing that these timber payments shall be the sole or only security for the said notes, or anywise prevent or limit the collection of the same according to the terms of the notes themselves. It is voluntarily stipulated by Henry Carstens that, if the entire series of notes be paid in full on or before two years from this date, no interest upon any of the notes shall be charged against or be collected from the Maple Valley Lumber Company. This contract privileges and binds the legal heirs, executors, or assigns of both parties hereto. Dated at Seattle this 16th day of November, 1910.'

On November 30th Carstens indorsed the four $5,000 notes without recourse, and delivered them to the Washington Fire Insurance Company.

Some two or three months subsequent to this a portion of the lumber company's mill was destroyed by fire, and soon the company became financially embarrassed, and, as already indicated, it became involved in bankruptcy proceedings in the federal court.

The...