Opinion
As Modified Jan. 24, 1928.
Hearing Granted by Supreme Court March 5, 1928.
Appeal from Superior Court, Alameda County; J. D. Murphey, Judge.
Action by Evelyn Ellis Smith against J. F. Carlston. From a judgment for defendant, plaintiff appeals. Affirmed.
COUNSEL
James F. Peck and John H. McDaniels, both of San Francisco, and W. B. Bunker, of Oakland (C. M. Peck, of Oakland, of counsel), for appellant.
Fitzgerald, Abbott & Beardsley, of Oakland, for respondent.
OPINION
STURTEVANT, J.
The plaintiff commenced an action against the defendant to recover a judgment for money. Thereafter the plaintiff filed an amended complaint. The defendant pleaded thereto by filing a general and special demurrer. The demurrer was sustained, with leave to amend. The plaintiff having failed to amend within the time allowed, a judgment was entered against her, and she has appealed, bringing up the judgment roll.
As stated by the plaintiff, the question presented on the appeal involves the construction of certain writings. On January 17, 1922, the plaintiff executed and delivered documents which she calls Exhibits A, C, and D. Exhibit A was as follows:
"Exhibit A.
"88,487.00 Oakland, Calif., Jan. 12, 1922.
"On or before one year from date, without grace, for value received, I promise to pay to the order of J. F. Carlston, at my office in the city, the sum of eighty-eight thousand four hundred and eighty-seven and no/100 dollars, payable in United States gold coin, with interest in like gold coin, from date until paid at the rate of six (6) per cent. per annum, payable June 30th and December 31st; and if not so paid to compound and become a part of the principal, and bear interest thereafter at the same rate.
"Evelyn Ellis Smith.
"And as collateral security for the payment of the above note, and the interest to grow due thereon, I have deposited with J. F. Carlston the following property, to wit: Cert. 79 for 50,000 shares West End Cons. Mining Co. stock; Cert. 225 for 25,000 shares West End Cons. Mining Co. stock; Cert. 8366 for 25,000 shares West End Chemical Co. stock.
"And should said note or any part thereof, or the interest to grow due thereon, remain due and unpaid after the same should have been paid, according to the tenor of said note, I hereby irrevocably authorize and empower said J. F. Carlston, or his assigns, to sell and dispose of the above described property, or any part thereof, at public or private sale, with or without previous notice to me of any such sale, and from the proceeds arising therefrom, to pay the principal, interest, charges, and the cost of sale, and the balance, if any, to pay over to me or my representatives, upon demand. In case of deterioration of any of the above securities, or fall in the market value of the same, I hereby promise and agree to reduce the amount of said note, or to increase the security in proportion to such deterioration or decrease of value in default of which this note shall be considered due under the above stipulation. On the payment of the above note, interest and charges, according to the terms thereof, this agreement shall be void, and the above described securities returned to me.
Evelyn Ellis Smith."
Exhibit D is a promissory note in exactly the same form and words except it is for the principal sum of $75,000. It purports to be secured by the same securities.
Exhibit C is as follows:
"Exhibit C.
"1. This agreement, made and entered into by and between J. F. Carlston of the city of Oakland, county of Alameda, state of California, party of the first part, and Evelyn Ellis Smith, of the same city, county and state, party of the second part, witnesseth:
"2. That the said Evelyn Ellis Smith has been requested by the said J. F. Carlston to execute two promissory notes; one in the amount of seventy-five thousand dollars ($75,000), payable on or before one year after date, dated January 12, 1922; one for eighty-eight thousand, four hundred eighty-seven dollars ($88,487), payable on or before one year after date, dated January 12, 1922, as a renewal of three notes heretofore given by Evelyn Ellis Smith to the said J. F. Carlston, as follows:
"3. One for fifty-five thousand, eight hundred and 84/100 dollars ($55,800.84), payable on demand, dated February 25, 1921; two for fifty thousand dollars ($50,000) each, payable on demand dated February 25, 1921. Said last three notes are secured, first by a promissory note of the F. M. Smith Securities Company, dated February 28, 1918, for the amount of one hundred thirty-four thousand, five hundred eighty-six and 62/100 dollars ($134,586.62), which said Securities Company note is itself secured by 1,980 shares of stock of the Realty Syndicate; 100 shares of preferred stock of Oakland Traction Company; second by 100,000 shares stock of West End Consolidated Mining Company; and
"4. Whereas the said J. F. Carlston has requested that the above two notes to be given as a renewal of the said three notes now outstanding, be secured by additional shares of stock, to be divided as follows: Fifty thousand (50,000) shares West End Consolidated Mining Company and fifty thousand (50,000) shares West End Chemical Company stock, which last named one hundred thousand shares of stock are hereinafter referred to as ‘100,000 additional shares.’
"5. Now, therefore, it is hereby agreed by and between the parties hereto, that in consideration of said Evelyn Ellis Smith granting the request of J. F. Carlston, the said J. F. Carlston will on or before the due date of the said two renewal notes to be executed as above, accomplish a renewal of the said two notes for a further similar period of one year, making the last named expiration date two years from the date hereof; and it is further agreed by the said J. F. Carlston, that in addition to extending the time as hereinbefore stated, he will, and hereby does guarantee and agree to release from the pledge so securing said notes and return to said Evelyn Ellis Smith the 100,000 additional shares of stock at such time as the said notes shall be paid by said Evelyn Ellis Smith, or at such time as said notes shall be returned to said J. F. Carlston, and under any circumstances said 100,000 additional shares shall be released and returned to Evelyn Ellis Smith not later than the due date of the said notes executed herewith.
"6. That said J. F. Carlston further, in consideration of the premises, agrees and guarantees that should the said 100,000 additional shares, or any thereof, be sold under the said pledge thereof by any person whomsoever, that the said J. F. Carlston will account to and pay to the said Evelyn Ellis Smith for such of the said 100,000 additional shares as are so sold or as are not returned to her as herein agreed, at the rate of three dollars ($3.00) per share for each share of said 100,000 additional shares of stock which may be so sold or which may not be returned to her, as aforesaid.
"7. The said J. F. Carlston further agrees to immediately deliver to said Evelyn Ellis Smith upon the execution of said two notes herewith the above-mentioned note of the F. M. Smith Securities Company and the collateral securing it.
"Executed in duplicate.
"In witness whereof, the said parties hereto have hereunto set their hands and seals this 17th day of January, 1922.
"[Signed] J. F. Carlston. [Seal.]
"[Signed] Evelyn Ellis Smith. [Seal.]" On December 31, 1922, the plaintiff executed and delivered two promissory notes, Exhibits B and E. Those notes are in exactly the same form as Exhibits A and D, but are dated December 31, 1922, and each is payable on demand. Each purports to be secured by the same security as Exhibits A and D. The complaint recites that Exhibits A and D were surrendered on December 31, 1922, and Exhibits B and E were thereupon executed and delivered. (The italics and the number to paragraphs are ours.)
In her complaint the plaintiff alleged that the defendant "never returned to plaintiff the said 100,000 shares of stock. ***" In her brief she makes the contention that the promise of the defendant "was one for alternative performance, i. e., to return the shares or to pay $3 per share." Thereupon she argues that she was entitled to judgment in the sum of $300,000.
The statement quoted from the brief is not sustained by the record. It is but the conclusion of the plaintiff, drawn from the recitals contained in the written instruments which have been hereinabove set forth.
In so far as a sale is concerned, the statement contained in paragraph 6 of Exhibit C, "that the said J. F. Carlston will pay *** $3 per share," stands alone and it is in no way fortified as showing or tending to show a sale as of any date. The function of interpretation is at all times to ascertain the mutual intention of the parties. That intention will be ascertained from the writing, if possible. To accomplish that result the court will endeavor to give force and effect to every part of the contract. However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract. Where there are several provisions or particulars, such a construction is, if possible, to be adopted as to give effect to all. The rules forbid the seizure upon some isolated provision in order to compel a certain result. 6 Cal.Jur. 258, § 165. The incident follows the principal, and not the principal the incident. Looking back at the instruments which we have set forth, it is at once apparent that the parties were attempting to form an agreement regarding the borrowing of money on promissory notes secured by collateral. Although as an incident the instrument contained a covenant by the defendant that under certain circumstances he "will pay," those words will be restricted to the main purpose of the contract. As courts have power to construe, but have no power to make, contracts for the parties, the passage relied on may not be construed into a sale of any kind. In the case of Westcott v. Thompson, 18 N.Y. 363, the facts were that a brewer sold 67 barrels of ale to a retailer, upon an agreement that the barrels should be returned after the ale should be drawn from them, but if any were not returned, the retailer should pay $2 apiece for them. The court held that the property in the barrels remained in the brewer, and that the agreement to pay $2 apiece for them if not returned was intended to fix the damages for the loss of such as the retailer should be unable to return. In the case of Wilmington Trans. Co. v. O’Neil, 98 Cal. 1, 32 P. 705, the Wilmington Company rented to O’Neil a lighter at $50 per month. Among other things, it was provided that if the lighter should be "lost or damaged to the extent that it cannot be put in the same good condition as when received, the party of the second part, to pay the party of the first part, the sum of $3,500 for said lighter Wilmington." There, as here, it was contended that the contract provided for a sale. Regarding such a contention, at page 7 (32 P. 707) the court remarked:
"I therefore think the sum of $3,500 was not intended as a penalty, but was intended as stipulated damages, unless the agreement may be construed to be a sale of the lighter on the condition that it should be lost, which seems absurd. *** If the property in the lighter remained in the plaintiff until it ‘was lost and destroyed,’ how could it pass to the defendant after the lighter was totally lost-sunk to the bottom of the ocean, or totally consumed by fire? If it could pass under such circumstances, I think the agreement fails to express an intention to that effect."
The court cited with approval Westcott v. Thompson, supra.
In the case of D. M. Osborne & Co. v. Josselyn, 92 Minn. 266, 99 N.W. 890, the Supreme Court of Minnesota was considering a contract which, among other things, contained this covenant:
"The party of the first part (plaintiff) sells and the party of the second part (defendants) buys the Osborne Columbia corn harvesters listed," etc. (Italics ours.)
After considering the terms of the entire contract, "taking it up by its four corners, ***" the court reached the conclusion that the instrument created the relation of principal and agent and was not a contract to buy and sell.
In cases involving loans, secured by collateral deposits, similar questions have been presented. In nearly every one of the cases the facts disclosed that there were detached statements which, if they stood alone, would indicate a sale. However, the courts have repeatedly held that the contract must be construed as a whole and from that we must ascertain the main purpose of the contract and not rest our determination on one or two detached statements. In re Grand Union Co. (C. C. A.) 219 F. 353; Western Underwriting & Mortgage Co. v. Valley Bank (C. C. A.) 237 F. 45, 50; Mitchell v. Cramp (C. C. A.) 8 F.2d 481; Shelley v. Byers, 73 Cal.App. 44, 60, 61, 238 P. 177; Hughes v. Harlam, 166 N.Y. 427, 60 N.E. 22, 24; Continental Credit Co. v. Ely, 91 Conn. 553, 100 A. 434, 437; Barker Piano Co. v. Commercial Security Co., 93 Conn. 129, 105 A. 328, 330; American Lumber Co. v. Quiett Mfg. Co., 162 N.C. 395, 78 S.E. 284.
That the parties, in the action which we are considering, might have created an alternative contract if they had used appropriate language to that effect, will not be disputed. Some contracts of that kind are cited by the plaintiff. Stevens v. Hertzler, 109 Ala. 423, 19 So. 838; Pearson v. Williams, 24 Wend. (N.Y.) 244; Baker v. Wentworth, 17 Me. 347; Austin v. Seligman (C. C.) 18 F. 519; Bianchi v. Nash, 1 M. & W. 545; Tennessee River Transp. Co. v. Kavanaugh, 93 Ala. 324, 9 So. 395; Haskins v. Dern, 19 Utah, 89, 56 P. 953; Guss v. Nelson, 200 U.S. 298, 26 S.Ct. 260, 50 L.Ed. 489. In each and all of the cases just cited it will be found that the contract of the parties contained appropriate language of sale or conveyance, which language led the court to the conclusion that, among other things, one of the purposes of the contract was to sell or convey.
The plaintiff says the stock was mining stock and subject to great fluctuation. That fact is of no help in deciding the case. If the stock was worth not to exceed $3 when Exhibit C was written, and if it was worth $30 when "the due date of the said notes executed herewith" (paragraph 5) arrived, it would scarcely be argued that then and under those circumstances the defendant would be entitled to demand that the plaintiff pay her notes, principal, and interest, and that she accept $300,000 for stock which at that time would be worth ten times that amount. Neverthless, such arguments have been made. In the case of Taylor v. Burns, 8 Ariz. 463, 76 P. 623, the court was considering a written instrument. The facts in favor of the appellant were stronger than the facts in this case. In that case the writing, among other things, contained the covenant "that the said party of the first part *** sells to the said party of the second part. ***" At page 624 (8 Ariz. 467), it is said:
"The only question involved is the construction to be given the agreement between Taylor and Burns. The contention of the appellant is that the agreement amounted to a sale to him of the mines for a given and valid consideration expressed in the instrument. The contention of counsel for the appellees is that, from the instrument as a whole, it clearly amounts to nothing more than a power of attorney authorizing Taylor to negotiate the sale of the claims upon the terms stated in the agreement, revocable at will. Upon the latter contention, it was admitted by the appellant that, if the instrument was revocable at the will of Burns, such revocation was made by Burns on February 27, 1903.
"It is a settled rule of construction of instruments of this character that the intention of the parties must govern, as this intention is evidenced by a consideration of the entire instrument. Williams v. Paine, 169 U.S. 76, 18 S.Ct. 279, 42 L.Ed. 658. ‘The elementary canon of interpretation is not that particular words may be isolatedly considered, but that the whole contract must be brought into view and interpreted with reference to the nature of the obligations between the parties, and the intention which they have manifested in forming them.’ O’Brien v. Miller, 168 U.S. 287, 18 S.Ct. 140, 42 L.Ed. 469. Tested by this rule, the agreement cannot be construed as a conveyance."
Later the case was appealed to the United States Supreme Court. 203 U.S. 120, 27 S.Ct. 40, 51 L.Ed. 116. Mr. Justice Brewer, writing the opinion, at page 125 (27 S.Ct. 41), said:
"Nowhere in the instrument does the party of the second part assume any obligations, except the general one in the third paragraph, by which both parties mutually agree to aid each other in the negotiation and sale of the mining claims. The instrument does not in terms grant or convey. The nearest approach to a word of conveyance is ‘sells.’ This is more apt in describing the passing of the title of personal than of real property. Not that this is decisive, for not infrequently it is held to manifest an intent to convey the title to the property named, whether real or personal. But when the purpose of the transaction is stated the word will ordinarily have no more effect upon the title than is necessary to accomplish the purpose. " (Italics ours.)
The plaintiff disclaims any attempt to plead a cause of action as for damages. All such theories therefore may be passed without further discussion. No claim is made that the plaintiff was attempting to plead a cause of action sounding in equity. If it were made, the opinion written by the United States Circuit Court of Appeals in Western Underwriting & Mortgage Co. v. Valley Bank, supra, would be a complete answer. In that case, after holding that the contract was not one of sale but was one of deposit for security, the court continued, and at page 50 the court said:
"*** and, under any theory of this case, the complainant cannot recover assets remaining in the Valley Bank until it has first repaid to that bank the amount due as a deficiency on account of the debts of the Union Bank & Trust Company paid by the Valley Bank."
Finally, we will assume that plaintiff was attempting to plead a cause of action based on a covenant. Taking the documents which were executed January 17, 1922, together, and looking at them as a whole, it is clear that the contract was one for the loan of money secured by the deposit of collateral as security for the repayment of the money so loaned, and that, until the money was repaid, neither the collateral nor the proceeds would be returned to the plaintiff. The repayment of the money loaned was clearly a condition. However, the plaintiff does not allege that she has paid the notes or any part thereof, nor does she allege that she has duly performed all the conditions on her part. This omission on her part was fatal. L. A. Gas & Elec. Co. v. Amal. Oil Co., 156 Cal. 776, 778, 106 P. 55. We are aware that it is her contention that she claims that she was relying on paragraph 6 of Exhibit C. In so doing she assumes the contract was severable. Whether it was, or was not, is a question of interpretation.
The intent of the parties is to be ascertained from a consideration of the language employed and the subject-matter of the contract. L. A. Gas & Elec. Co. v. Amal. Oil Co., supra. We have no hesitancy in saying that the contract before us was not severable in the respect in which the plaintiff contends. By the expressed language of each note the defendant was authorized to receive and hold, and, under certain circumstances, to sell, the collateral. Wherein paragraph 6 provides that, not later than the due date of the notes executed herewith, "the defendant will pay," the language is no stronger than had it been "the defendant will return." Neither covenant changed the expressed covenants of the notes that the defendant took and held the collateral as security and that he had the power to sell.
Whether looked upon as an action for damages, or in equity, or an action on the contract, the complaint did not state facts sufficient and the demurrer was properly sustained.
The defendant earnestly contends that each and every ground stated in his special demurrer was sound. We think it is not necessary to consider each attack. However, the defendant calls to our attention the fact that notes Exhibits B and E have been executed in place and stead of notes Exhibits A and D. He then argues that there has been a novation. The plaintiff replies that the notes first mentioned are the renewal notes provided for in paragraph 5 of Exhibit C. Conceding such to be the facts, we will pass to a consideration of at least one of the attacks made by the special demurrer. The last attack was:
"It does not appear and cannot be ascertained therefrom whether it is meant to allege that the sale referred to in paragraph V thereof was made by persons to whom defendant had pledged the stock referred to in said paragraph, or whether it is meant to allege that said sale was made by persons to whom said defendant had assigned one of the notes executed to him, and if so, which one of said notes. "
If we read with care all of the papers hereinabove set forth, it is apparent that Exhibit C provides that the "additional shares" will be returned "not later than the due date of the said notes executed herewith" (that is, Exhibits A and D). Nothing to the contrary being alleged, we must assume that they were so returned. Furthermore, on the face of the papers it would appear that the "additional shares" were returned and thereafter that they were redeposited as security on the later notes, Exhibits B and E. But the return of the "additional shares" at the time Exhibits B and E were executed, would wholly discharge the defendant under his covenants contained in Exhibit C. It was therefore material to the defendant to know whether the sale referred to in paragraph 5 of the complaint occurred by reason of the pledge given to secure the earlier notes, Exhibits A and D, or Exhibits B and E. The demurrer was interposed for the purpose of bringing forth that information. It follows that the ruling on the demurrer was properly made for the additional reason just stated.
The judgment is affirmed.
We concur: KOFORD, P. J.; NOURSE, J.