of the state of Washington; and whereas, it is intended to dam said slough at some convenient point, not higher up than the bridge, or not lower down than the section line between section 31 in township 34 and section 6 in township 33 in range 3 in said county; and whereas, the construction of such dam will cut off steamboat navigation of said slough above the proposed dam; and whereas, certain individuals have warehouses for the storage of grain located upon said slough, or the arms thereof, and said parties may have cause of action against said proposed drainage district when the same shall have been organized; and whereas, it is of importance to said individuals that said drainage district be organized, and certain individuals residing within the territory of said proposed drainage district decline to sign the petition of said proposed drainage district or assist in causing the same to be organized, unless a waiver of damages by reason of the construction of said dam to be made by the said individuals so interested: Now, therefore, we, the undersigned hereby waive any and all right or claims to damages by reason of the construction of said dam and cutting off of the navigation of said slough, or any of the arms or branches thereof, and will bring no action for such damages, providing all of the following named individuals sign this waiver."

Appellants offered to prove that when they signed the above waiver, one Rudene who was interested in establishing the drainage district, and who was afterwards elected one of the commissioners of the district, represented to appellants that, in case they signed said waiver, no assessments for benefits would be made against their lands, and that upon such representation appellants signed the waiver, and that this was the sole consideration therefor. The court received evidence to the effect that appellants told Rudene that they would not receive any benefits, and that Rudene agreed with them. The gist of the evidence upon this point is stated by Mr. Armstrong, one of the appellants, as follows: "He [Mr. Rudene] said that we were the only ones that stood in the way and would flood the Beaver marsh. and that country all out, so we gave in and did not want to stand in the way of a large vicinity in the Beaver marsh, and that is the reason we gave our granaries. and now they want to tax us. He said that if we were not benefited we would not be taxed, and of course we talked it over that we would not be benefited any there, and he agreed with us, and that led us to believe we never would be taxed." The court, upon motion of respondents, struck out all the evidence relating to damages on account of the warehouses. Appellants contend upon this appeal that the court erred in striking this testimony, and in holding that the contract above set out is a binding waiver of

damages. We think the court properly struck out the evidence for several reasons: First, the evidence does not show that Mr. Rudene agreed that appellants should not be taxed if they were benefited; second, this was not the consideration expressed in the written waiver, and was clearly not the sole consideration; and, third, Mr. Rudene at no time had any authority to release any one from the payment of benefits. At least, there is no showing of such authority in the record before us.

Appellants also contend that the contract of waiver is not binding upon the appellants, because the waiver is not based upon a valid consideration. The contract of waiver states the consideration as follows: "It is of importance to said individuals [meaning these appellants and others] that said drainage district be organized and certain individuals residing within the territory of the said proposed drainage district declined to sign the petition of said proposed drainage district or assist in causing the same to be organized unless a waiver of damages by reason of the construction of said dam be made by the several individuals so interested." Two considerations were here named; one as an advantage to the appellants, and the other, to obtain the signatures of necessary parties who refused to sign the petition unless such waiver was made. Either of these considerations was sufficient to make the waiver binding upon the appellants. 9 Cyc. 330; 6 Am. & Eng. Enc. of Law (2d Ed.) p. 721; 1 Parsons on Contracts (8th Ed.) p. 468 et seq. Staver & Walker v. Missimer, 6 Wash. 173. 32 Pac. 995, 36 Am. St. Rep. 142.

We think there is no merit in either of the questions presented, and the judgment is therefore affirmed.

DUNBAR, ROOT, HADLEY, FULLERTON, and CROW, JJ., concur.

(44 Wash. 79)

MCAVOY v. JENNINGS. (Supreme Court of Washington. Sept. 25, 1906.)

1. FRAUDULENT CONVEYANCES-INSOLVENCY. In a suit to set aside a trust deed as a fraud on the grantor's creditors, it must be alleged and proved that the grantor was insolvent at the time it was made, or that an execution has been issued and returned nulla bona, which implies insolvency.

[Ed. Note.-For cases in point, see vol. 24, Cent. Dig. Fraudulent Conveyances, §§ 128, 140, 790.]

2. ASSIGNMENT FOR BENEFIT OF CReditors— CONDITIONS-RELEASE OF CLAIMS.

An insolvent debtor being entitled to prefer his creditors, a deed of a debtor's property to a trustee, for the purpose of having the same sold and applying the proceeds ratably among a list of creditors was not void, because it contained a condition that, before any of the creditors should be entitled to receive his pro rata under the terms of the deed, he should

deliver to the trustee a release of all claims against the debtor.

[Ed. Note.-For cases in point, see vol. 4, Cent. Dig. Assignments for Benefit of Creditors, §§ 154-164.]

3. SAME "SALES-IN-BULK" LAW-APPLICATION.

A deed of trust of a debtor's assets to a trustee for the benefit of creditors was not within Laws 1901, p. 222, c. 109, regulating sales in bulk.

4. SAME.

Where a deed of trust for the benefit of creditors failed to comply with Laws 1901, p. 222, c. 109, regulating sales in bulk, the purchaser became trustee for the benefit of all the creditors.

Appeal from Superior Court, King County; R. B. Albertson, Judge.

Action by C. E. McAvoy against the Harkins Company and I. H. Jennings, garnishee. From a judgment for plaintiff, the garnishee appeals. Reversed.

Gray & Stern, for appellant. John W. Roberts, for respondent.

DUNBAR, J. On November 19, 1903, M. J. Harkins, I. W. Harkins, and E. E. Harkins, copartners under the firm name of the Harkins Company, executed with I. H. Jennings, the appellant herein, a certain agreement in writing. This agreement was to the effect that the Harkinses had been carrying on a general grocery business, and had incurred debts which were enumerated in a list of creditors attached to the agreement, stating that, desiring to pay off such debts, they turned over their property to Jennings on the condition that he should collect the book accounts, sell the property and, after deducting the expenses of such business, apply the proceeds remaining equally and ratably among the list of creditors, with this provision: "Provided, however, that each creditor, before being entitled to receive his pro rata under the terms of this agreement, shall deliver to the party of the second part a release of all claims against the said parties of the first part." This agreement in full may be found in the case of McAvoy v. Jennings, 39 Wash. 109, 81 Pac. 77. The instrument was signed, sealed, and executed by the Harkins Company and by Jennings, and the list of creditors for whose benefit the transfer was made was attached. Immediately upon the execution of this agree ment, Jennings took possession of the assets mentioned therein, sold the tangible property, and proceeded with the collection of the book accounts. The American Savings Bank & Trust Company was one of the creditors included in the list attached to the trust deed. After the transfer to Jennings had been made, the bank assigned its claim to McAvoy, the respondent herein, who commenced an action in the superior court of King county to reduce the claim to judgment against the members of the Harkins Company. In that action McAvoy caused Jennings to be summoned as garnishee. Jen

nings answered, denying any indebtedness to the defendants, or the possession of any property belonging to them; but, by way of further and explanatory answer, set forth fully the trust deed and all other facts above recited, and showed that, at the time of the service of the writ of garnishment upon him, he had in his hand the sum of $850, which he was prepared to pro rata among the creditors in accordance with the terms and conditions of the written agreement, and asked for a discharge. The plaintiff filed an affidavit controverting the answer of the garnishee, in which he admitted all the affirmative facts recited by the garnishee, but alleged that the transaction between the Harkins Company and Jennings was fraudulent and void as to creditors, because it was without consideration and because there had been no compliance with the "sales-in-bulk" law. The controverting affidavit further denied that the transfer was made with the consent of all the creditors, or that the plaintiff or his assignor had knowledge of, or consented to, or ratified, the transfer; alleged that the transfer was made to hinder, delay, and defraud creditors; and prayed that the garnishee be held upon his answer. and that judgment be rendered against him in favor of plaintiff. Upon this issue a tria) was had before the court, but there was no testimony advanced which it is necessary to consider; so that the case must be determined upon the character of the written agreement itself. The court decided in favor of plaintiff and against the garnishee for the full amount of plaintiff's judgment against the original defendants. From the judgment entered against the garnishee defendant, this appeal is prosecuted.

Without setting up the findings of fact and conclusions of law, we will proceed at once to discuss the legal propositions involved. It is contended by the appellant that. inasmuch as there is no allegation in the controverting affidavit of the respondent, and no proof offered to show that the defendants the Harkins Company were insolvent at the time this trust deed was made. the appellant will not be heard to assail the validity of the deed. And unquestionably that has been the uniform holding of this court. This was decided in Wagner v. Law, 3 Wash. St. 500, 28 Pac. 1109, 29 Pac. 927, 15 L. R. A. 784, 28 Am. St. Rep. 56, in which the court quoted approvingly from Pearson v. Maxfield, 51 Iowa, 76, 50 N. W. 77, where it was said: "If at the time of the issuance of the execution, the execution debtor had other property out of which the execution could have been satisfied, plaintiff should have levied upon such property instead of upon the property in question. which could be effectually reached only through the aid of a court of equity." This court added: "Of course, if it is necessary to prove insolvency it is necessary to allege it, as the defendant has a right to prepare

his defense with reference to the allegations of the complaint, * we decide that this kind of an action cannot be sustained without an allegation and proof that there was no other property of the judgment debtor at the time of the conveyance out of which the creditor could satisfy his judgment or claim, and that, therefore, the complaint does not state facts sufficient to constitute a cause of action." See, also, Hamilton Brown Shoe Co. v. Adams, 5 Wash. 333, 32 Pac. 92, where it was said by this court: "If this. is to be regarded as an action to set aside a fraudulent conveyance, the complaint is plainly insufficient, for it is neither based upon a return of nulla bona, nor an allegation that there was no other property out of which plaintiff's claim could be satisfied. Courts will not enter into an investigation of the merits or demerits of a conveyance at the instance of any petitioner, until it appears that he has some interest in the determination of that question, and he cannot have any practical interest if the debtor has other property which will respond to his execution. His right is limited to the satisfaction of his claim; it does not extend to enforcing its satisfaction out of some particular property of the debtor." There must be either an allegation of insolvency or an allegation of the issuance of an execution and return of nulla bona, which implies insolvency.

But, lest the action should be commenced again, and these allegations made, we think it best to determine the main question in the case, viz., was the agreement above set forth void by reason of the proviso therein that each creditor before being entitled to receive his pro rata should deliver to the party of the second part a release of all his claims? Upon this question there is a hopeless division of authority; but, while this particular question has never been decided by this court, we have decided uniformly that an insolvent debtor had a right to prefer creditors. This rule was first laid down in Turner v. Iowa National Bank, 2 Wash. St. 192, 26 Pac. 256, where it was decided that, under the laws of this state, a debtor in failing circumstances could mortgage his entire property to secure bona fide debts to a portion of his creditors, and leave the debts due other creditors unsatisfied, the court in the course of its remarks saying: "There is no law in this state to prevent a debtor, even though he be in failing circumstances, from paying or securing a portion of his creditors, so long as he does so in good faith, although he should dispose of his entire property in that way, and leave other debts unsatisfied." There is no question raised in this case that the debts which were sought to be paid were not honest debts, or that there was any attempt to defraud any other creditors by the payment of dishonest debts; but the sole contention is that the debtor had no right to stipulate

that the creditor, as a condition of receiving his pro rata, deliver to the debtor a release of all claims against him. To the effect that the debtor had the power in this state to prefer his creditors, see, also, Ephraim v. Kelleher, 4 Wash. 243, 29 Pac. 985, 18 L. R. A. 604; Benham v. Ham, 5 Wash. 128, 31 Pac. 459, 34 Am. St. Rep. 851; Furth v. Snell, 6 Wash. 542, 33 Pac. 830; Samuel v. Kittenger, 6 Wash. 261, 33 Pac. 509. And this same doctrine was reannounced in Vietor v. Glover, 17 Wash. 37, 48 Pac. 788, 40 L. R. A. 297, in a case where practically the same transaction was had as in the case at bar. There it was again said: "It is the established law of this state that an individual, although insolvent or in failing circumstances, may pay or secure one or more creditors to the exclusion of others equally meritorious, even if by doing so he exhausts the whole of his property." It was also said that the manner of giving the preference was immaterial, that it might be given by deed or in any mode which effects a legal transfer of the property, and that partners had the same right that individuals haveciting Bump on Fraudulent Conveyance (3d Ed.) p. 186. It was further said: "The right to prefer manifestly involves the right to designate the creditors, or class of creditors, to be preferred; and it therefore follows that the only ground on which the unpreferred creditors can justly complain is that the claims of the preferred creditors are not bona fide and real." Then, if an insolvent debtor has a right to prefer one class of creditors to the extent of the absolute exclusion of another class, by a diversion of the funds of the estate by payments made to the preferred class which exhausts such funds, it must follow that he has a right to make such payments upon such terms as he sees fit to impose. If the terms are not agreed to by the creditor, the only result is that he will not become a preferred creditor. In this instance, if the respondent's assignor, the bank, had not been incorporated in the agreement by being placed upon the list of creditors to whom the payments should be made, he could not have complained under the law which has been announced by this court. He certainly is not in any better position by reason of his having been placed among the creditors. The right, in the absence of a fraud upon the creditors by payment of claims which are not bona fide, to make such payments as the debtor sees fit to make, It seems to us must logically carry with it the right to make the agreement which is the basis of this action.

The contention that the transfer was void by reason of its being in contravention of what is termed the "sales-in-bulk" law (chapter 109, p. 222, Laws 1901), is untenable, for the reason that this was not a sale within the contemplation of that act. The object of that law was to prevent the vendor, generally a retail merchant, from escaping his re

sponsibilities to his creditors by disposing of all his stock, pocketing the proceeds, and leaving his creditors without redress. But in this case Jennings did not purchase the stock, and, under the terms of the agreement, was not to pay any portion of the value of the stock, of which he took possession, to the owners. But he simply acted as a trustee, so far as the goods assigned to him went, for the benefit of the creditors. Even if the transaction could be construed to fall within the scope and contention of that act, the fact that it failed to comply with all of the provisions of the act would not render all of the proceeds available to the respondent to the exclusion or injury of all the other creditors; for, under such circumstances, the purchaser would simply be held to be a trustee for the benefit of all the creditors, Fitz Henry v. Munter, 33 Wash. 629, 74 Pac. 1003; Kohn v. Fishbach, 36 Wash. 69, 78 Pac. 199, 104 Am. St. Rep. 941. The other minor objections raised to the validity of the agreement, we think, are without force.

This judgment must be reversed, and the respondent will be allowed, if he sees fit, to receive his pro rata distribution of the estate under the terms of the agreement.

A railroad subscription contract provided that the road should begin at or near Wallula Junction and extend easterly by way of Eureka Flat to Walla Walla. The road, as built, was commenced at Hunt's Junction, which was a mile from Wallula Junction, and when constructed the main line covered a distance of 54 miles and a branch line of about 19 miles. There was also evidence that the territory known as "Eureka Flat" was several miles in width, commencing about six miles south of Eureka Station, and extending thence for 25 miles in a northeasterly direction. Held that, whether the road was begun "at or near Wallula Junction," as required by the contract, was for the jury.

2. SAME CONSTRUCTION.

Where a railroad subscription contract provided that the road should begin near Wallula Junction, and extend thence easterly by way of Eureka Flat to Walla Walla, etc., the contract did not require that the head of Eureka Flat should be located on the main line, but the contract was complied with by construction of a standard gauge railroad from a point at or near Wallula Junction to Walla Walla by way of Eureka Flat as a locality, with either a main or branch line to the head of the flat. [Ed. Note.-For cases in point, see vol. 41, Cent. Dig. Railroads, §§ 34, 85, 105.] 3. SAME-PERFORMANCE BY CORPORATION.

Where a contract required plaintiff to construct a certain railroad in consideration of defendants' subscription, and it became necessary for plaintiff to organize a corporation to construct such road in order to condemn a right of way, in which corporation plaintiff held a ma

jority of the stock, the construction of the road by the corporation constituted a sufficient compliance with the contract.

4. SAME-SUBSTANTIAL PERFORMANCE.

Where a railroad subscription contract provided that defendants would pay $2,000 to plaintiff in aid of the enterprise when the road was completed, and required plaintiff to build the road and transport produce over the same at certain rates, plaintiff was only bound to prove a substantial as distinguished from a strict performance of the contract in order to recover the subscription.

[Ed. Note. For cases in point, see vol. 41, Cent. Dig. Railroads, §§ 34, 85, 105.]

Rudkin, J., dissenting.

Appeal from Superior Court, Walla Walla County; Mitchell Gilliam, Judge.

Action by G. W. Hunt against C. B. Upton and others. From a judgment for plaintiff, defendants appeal. Affirmed.

Sharpstein & Sharpstein, for appellants. Williams, Wood & Linthicum, Garrecht & Dunphy, and Wm. T. Muir, for respondent.

CROW, J. This action was commenced in September, 1893, to recover the sum of $2,000 and interest upon the following contract: "Walla Walla, W. T., April 1, 1888. Whereas, G. W. Hunt is contemplating the construction of railroads for the purpose of furnishing additional and cheaper transportation for that portion of Washington territory lying south of Snake river, and parts of Umatilla county, Oregon, and is soliciting assistance therein; and whereas, the undersigned is desirous of obtaining such transportation; therefore, in consideration that said G. W. Hunt or his assigns, shall within nine months from the date hereof, build and put in operation in the usual manner a standard gauge railroad, beginning at or near Wallula Junction, Washington Territory, and extending thence eastwardly, via, Eureka Flat to Walla Walla, Washington Territory, the said road to extend to the head of Eureka Flat and to be completed there by December 1, 1888, and to the city of Walla Walla, W. T., by January 1st, 1889, and shall transport or cause to be transported to some convenient harbor of shipment, at tide water on Puget Sound, all produce of the country that I shall desire to ship after the construction of said road, at a rate not to exceed the rate on such produce charged from Walla Walla to Portland, on other railroads. And to aid in the execution of said enterprise, I promise to pay G. W. Hunt or his assigns, the sum of two thousand dollars, one half of the same to be due and payable, when said railroad is constructed and put in operation between said Wallula and said Walla Walla, via, Eureka Flat, and the remaining half in one year from that date, said sum to be payable in cash or good and merchantable wheat, at the rate of not less than fifty cents per bushel, delivered at any depot or shipping-station on said railroad. The last payment to bear in