Opinion
[Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material] Rehearing 22 Cal. 621 at 631.
Appeal from the Sixteenth Judicial District.
The " Union Water Company," plaintiff, was a corporation formed under the general law for the purpose of conducting water through certain ditches to mining districts, and the Murphy's Flat Fluming Company, defendant, was also a corporation formed in the same manner for the purpose of constructing a flume to be used in mining operations. March 5th, 1858, the latter company executed to the former a mortgage, by which in consideration of the sum of $ 10,000 expressed to have been paid by the mortgagee, it conveyed " all and singular the right, title, interest, and possession, as well in equity as in law, which the said party of the first part has or may have in and to that certain sluice and flume known as the sluice and flume of the said party of the first part, situate in said County of Calaveras, at and near Murphy's Camp, and extending from Murphy's Flat to a point below on Angel's Creek, together with all right, privilege, or benefit, in and to the water passing, or to pass through said flume or sluice; and in and to the waters of Murphy's Flat; and in and to all and every the waters of Angel's Creek, and which may be or come to be in the possession of the said party of the first part, and as well the said sluice and flume when completed, and all and every part thereof, and so much thereof as is now complete, and all rights, benefits, and privileges which may accrue to the said party of the first part under a certain agreement," etc.
The consideration of the conveyance recited that, " whereas the said party of the first part is justly indebted to the said party of the second part in the sum of $ 10,000, money loaned, payable in eighteen months from the date hereof, with interest," etc. If therefore the said indebtedness should be duly paid, the conveyance should be waived; but otherwise, of force.
No note accompanied the mortgage, nor was there in it any direct promise to pay the debt.
At the time of the execution of this mortgage the flume mentioned therein was in process of construction and was completed for a distance of only 1,200 feet. May 15th, 1858, and after the flume was finished for a distance of 3,600 feet, the Murphy's Flat Company executed a second mortgage thereon to one Traver for some $ 4,000, to secure a note for that amount executed to him at the same time.
The action was commenced by plaintiff June 4th, 1862, to foreclose its mortgage, and Traver, as subsequent mortgagee, was made a party defendant. The mortgagor made no defense, Traver plead the Statute of Limitations, denied the power of plaintiff to make the mortgagee contract--and claimed that no property was covered by plaintiff's mortgage, except the portion of the flume in existence at the date of its execution.
The plaintiff had judgment for a foreclosure and sale of the whole property and application of the proceeds to its debt. The decree barred the rights of Traver in the property, and contained no direction as to the disposition of any overplus which might remain after application of the proceeds to plaintiff's debt.
From this judgment the defendant Traver appeals.
COUNSEL:
I. Plaintiff's debt was barred by the Statute of Limitations before suit was brought, and therefore no recovery could be had against the Murphy's Flat Company, to the prejudice of Traver, who plead and relied upon the Statute of Limitations as a bar to the action.
There was no note taken for themoney when loaned, nor was there any other written instrument taken or given, except the mortgage, in connection with the loan.
The mortgage recites that the money had been loaned by the plaintiff to the Murphy's Flat Fluming Company, and that the mortgage was given as security; but the mortgage itself contains no promise to pay.
To determine the character of this debt due from the Murphy's Flat Fluming Company to the plaintiff, let us suppose the mortgaged property had been totally destroyed before the time for the payment of the borrowed money had arrived, and plaintiff had wished to bring suit for the $ 10,000. To foreclose a mortgage, if the property had no existence, would be an absurdity. No Court of Equity would entertain jurisdiction the facts being known. The plaintiff, then, would have to bring suit in a Court of Law. What would be the form of action? and on what would it be brought? The mortgage contains nothing like an agreement, or promise to pay. It could not be the foundation of an action. You could not maintain debt or covenant on it; but the proper action would be assumpsit on the implied promise to pay arising from the act of borrowing. The mortgage wouldnot be the foundation of the action, but might be evidence, in connection with other evidence, of the amount borrowed, the date of borrowing, the time of payment, etc.
Upon this proposition there is a decision of this Court directly in point. In the case of Shafer v. The Bear River and Auburn Water and Mining Company , 4 Cal. 294, 295, this question was brought up in a case where the debt was as plainly recited as in this case; and the plaintiff having recovered judgment for his debt, (there was no attempt to fore-closure,) this Court set the judgment aside, and among other things, said: " There is no express covenant in the mortgage to pay the money, and no action will therefore lie, on its mere recital of the existence of a debt." This is directly in point, and shows that the declaration should have been in assumpsit, and not in covenant.
If the action must be in assumpsit, it is clear, that it is barred by the two year Statute of Limitations. The statute says: " Within two years, an action upon a contract, obligation, or liability, not founded on an instrument in writing." In this case, the obligation to pay and the ability to recover judgment for the debt, did not dependon any written instrument. The written instrument was a mere security for the payment of the debt. The debt itself existed in parol. If the debt was barred, then the mortgage, by operation of law, became a nullity. This Court has repeatedly decided that the mortgage is a mere incident of the debt. See Goodenow v. Ewer , 16 Cal. 466, and many other cases.
Suppose A is indebted to B by note, which is already overdue two years. To secure that note he executes a mortgage. When would the note be barred? Unquestionably at the end of two years from the execution of the mortgage. The mere recital that he owed an amount secured by note, already two years past due, would not extend the time of the note, but it would be barred at the same period as if no mortgage had been given. In that case it is clear the mortgage would only have an existence for two years. It would expire with the note. So in this case, the mortgage was given to secure a debt existing in parol, and expires at the end of two years; in other words, at the very time the debt would be barred if no mortgage was given.
II. The Union Water Company, as a corporation, had no right to loan money or to take mortgages.
Itis a general rule that all corporations created by statute, whether general or special, have powers strictly limited to the terms in which they are conferred. In other words, corporations being the creatures of the law, can have no powers except those expressly conferred by the law, and such as are necessary to carry into effect those that are expressly conferred. The authorities upon this point are numerous and uniform. (See Dunbar v. San Francisco , 1 Cal. 356; 6 Pick. 32; 13 Peters, 587.)
In vain will you look in our statutes for any authority conferred on a mining corporation to loan money or take securities. If the corporation had no right either to loan the money or accept the mortgage, it would seem that it could not maintain any action on the loan, and more especially is it clear that the mortgage would be absolutely void. While, possibly, there might be a question as to whether the action of assumpsit might not be maintained for money had and received, where money had been paid on a void contract, it is absolutely certain that no action can be maintained on any mortgage or other obligation given in pursuance of a void contract.
In the case of the North River Insurance Company v. Lawrence, 3 Wend. 482-485, Chief Justice Savage, in delivering the opinion of the Court, says: " It has often been decided that a corporation can do no act but such as is expressly authorized or necessarily implied in their act of incorporation. The plaintiffs might loan money on bond and mortgage, but not on note. * * * It is sufficient answer to this action that the plaintiffs, in taking the note in question, have done an act which they had no authority to do. They have no capacity to become payees or indorsers of a promissory note. They cannot, therefore, sustain a claim in that character."
Here the plaintiff had no capacity to become a mortgagee, and therefore could not maintain an action in that character.
In the case of Beach v. Fulton Bank, 3 Wend. 583, the same doctrine is more elaborately laid down and explained. The conclusion of that part of the opinion to which I refer is in these words: " And incorporated companies, having no powers except such as are granted, or necessarily incident, a company having no such power," (power to loan money,) " express or implied, has no capacity to lend money, and of course cannot sue for it."
In 7Wendell the same doctrine is laid down and enforced. That is, if a corporation not authorized by law to loan money does loan it, it amounts to an absolute forfeiture of the amount loaned. It is not merely a voidable contract, but is absolutely void. No suit can be maintained, either on the contract, or for money had and received.
The following language, being perfectly applicable to this case, is quoted from the last mentioned authority, 7 Wend. 35: " But there is a fundamental objection to plaintiffs' recovery. They have no authority, by their charter, to loan money except on bond and mortgage. (Laws of 1822, 54.) They cannot make a valid contract of loan in any other manner; and, therefore, not only the security which may be taken but the contract itself is void, and cannot be the foundation of an action. Where a corporation is prohibited from discounting notes, or taking other peculiar security, but have a general power given them by their charter to loan money, if they make a loan and take the prohibited security the security is void, but the contract of loan is valid, and the money may be recovered under the general counts; but where not only the security but the contractalso is illegal, it cannot be enforced."
If the instrument was void, it could no more be used to prejudice a third party than it could be against the mortgagor.
III. The decree, in this case, is so drawn as to for ever bar the defendant, Traver, from proceeding on his mortgage; and yet it makes no provision for paying to him any part of the proceeds of the sale under the decree, although the amount of the sale might be more than the amount of the elder mortgage. Nor does it draw any distinction between that part of the property which was created before and that created after the first mortgage.
H. O. Beatty, for Appellant
P L. Edwards, for Respondent.
JUDGES: Crocker, J. delivered the opinion of the Court. Cope, C. J. and Norton, J. concurring.
OPINION
CROCKER, Judge
On petition for rehearing, the following opinion was delivered by Crocker, J. Norton, J. concurring.
Some corrections of our former opinion are necessary, and a more full statement of our views upon one point may be proper. In the former opinion it is stated that in the absence of a direct agreement to pay the money specified in the mortgage, the mortgagee can have no personal judgment against the mortgagor. That was a point not necessary to be determined in this case, and should have been omitted, as it was not fully discussed by the parties in their briefs. The question whether an action to foreclose a mortgage is barred when the debt it was given to secure is barred, should properly have been more fully explained.
In most cases, the debt secured by a mortgage is evidenced by a writing in some form, either by a covenant or agreement to pay it in the mortgage, or by some independent written contract, such as a note, bond, or agreement. In such cases the same clause in the Statute of Limitations, fixing four years as the period of time which will bar the demand, applies to both the debt and the mortgage, and thus expressions are found in some cases of that character, to the effect that the mortgage is barred by the same lapse of time as the debt, which is correct when applied to cases where the debt and the mortgage are both evidenced by writing. In the present case, however, it appears that the debt is not evidenced by a written contract, either in the mortgage, or by a separate instrument. The Statute of Limitations does not operate as a payment or discharge of the debt, and the mortgagee still has the right to enforce any right of action arising out of the contract of the mortgagor, not barred by the statute of Limitations. In this case his right to a personal judgment against the mortgagor is barred by the statute, the contract to pay the debt not being in writing, and the action not having been commenced within two years from the time the cause of action accrued. But the debt itself not being in fact paid or satisfied, and the contract, so far as it relates to the lien upon the property, being in writing, and not barred by the Statute of Limitations relating to written contracts, the mortgagee has a right to enforce the right of action against the mortgaged property, because the action, to that extent, is " upon a contract, obligation, and liability, founded upon an instrument of writing." This right of action is not therefore barred until the expiration of four years from the time the cause of action accrued, and the action in this case having been brought within the four years, it is not barred by the statute.
The Rehearing is Denied.