Opinion
Rehearing Denied Nov. 23, 1928.
Hearing Granted by Supreme Court Dec. 20, 1928.
Appeal from Superior Court, Alameda County; Warren V. Tryon, Judge.
Action by the Webster Manufacturing Company against Charles W. Byrnes and others, in which defendant named interposed a cross-complaint. Judgment for plaintiff, and defendants appeal. Reversed. COUNSEL
James F. Peck and Peck, Bunker & Peck, all of Oakland, and H. H. McPike, of San Francisco, for appellants.
Clarence M. Hawkins, of Oakland, for appellant and cross-complainant.
Clark, Nichols & Eltse, of Berkeley, for respondent.
OPINION
CAMPBELL, Justice pro tem.
This case grows out of the following facts: On March 21, 1925, Western Milling Company, later named Oakland Terminal & Elevator Corporation, executed three deeds of trust upon the real property involved in this action. The first deed of trust secured the trustor’s promissory note in the principal sum of $210,000, dated March 21, 1925, and made payable to plaintiff on or before January 1, 1926. The note was not paid when due, and on May 11, 1926, after notice given, the trustee named in the deed of trust sold the real property to plaintiff; the sale being pursuant to the terms of the deed of trust. When the note was made, Western Milling Company owed plaintiff, the Webster Manufacturing Company, in excess of $210,000, to wit, $210,655.47. The second deed of trust is referred to in the record, but is not directly involved here. It ran in favor of E. H. Nielsen Company and Macdonald Engineering Company, and secured another note of the trustor also dated March 21, 1925. The third deed of trust secured a note in the principal sum of $200,000 likewise dated March 21, 1925, and made by the same trustor in favor of J. T. Williams, Lee B. Hawkins, and William N. Wholey. This third deed of trust named B. O. Sawyer and George Rushforth as trustees. Sawyer died, and the payees named in this $200,000 note assigned the note to Charles W. Byrnes. The deed of trust in favor of plaintiff included all of the property of the public utility, consisting of its warehouse, buildings, equipment, and land upon which the same were situated, and was made to secure a note given to refund notes aggregating $90,000, conditional sales contracts aggregating $61,629.64, and the remainder of the $210,000 note was to repay moneys advanced to pay insurance, taxes, etc. This deed of trust was by agreement to be a first deed of trust on the property and was recorded ahead of the other deeds of trust. No foreclosure or sale ever occurred under the third deed of trust made to secure the $200,000 note, and it was stipulated that this deed of trust was recorded last and that it was never foreclosed. Byrnes, after obtaining the assignment of this note, disregarded the security of the deed of trust which had been made to secure it-evidently considering it void for lack of permission given by the railroad commission for its execution-and on February 24, 1926, and prior to the sale of the property to plaintiff filed suit on the note against Western Milling Company and caused a writ of attachment to be issued and levied upon the real property. This suit was not contested, and on April 20, 1926, Brynes took personal judgment by default therein, and on May 24, 1926, the sheriff of Alameda county, under a writ of execution, sold, subject to redemption, the real property to Charles W. Byrnes. Immediately following this sale, plaintiff brought this action to quiet its title to the real property so sold under execution, including as defendants Byrnes, the purchaser at the execution sale, and Williams, Hawkkins, and Wholey, beneficiaries under the third deed of trust, and Rushforth, the surviving trustee thereunder. Byrnes in his answer relies upon the execution sale as his claim of title, while Williams, Hawkins, Wholey, and Rushforth filed a separate answer in which they rely upon the third deed of trust.
It was stipulated at the trial that Western Milling Company was a public utility on and after March 21, 1925 (the date the notes and deeds of trust were executed); that at and from that time it owned an elevator in which is stored property and did thereby facilitate transportation of such property by common carriers. This made it a public utility as to such property (section 2 [aa], Public Utilities Act, Stats. 1915, pp. 115, 118; Extra Session Stats. 1911, pp. 18, 21). It was further stipulated that the railroad commission had never given its consent to the making of the $210,000 note nor to the making of the deed of trust mentioned nor to the procurement of the judgment which Byrnes procured. Judgment was entered decreeing plaintiff to be the owner in fee of the real property in question, and quieting its title against the claims of defendants and all persons claiming under them, or any of them, and from such judgment defendants have appealed.
Appellants contend that the deed of trust under which plaintiff claims was void as having been made without the order of the railroad commission and because the note was given for the refunding of indebtedness and not made for proper purposes; that both the note and the deed of trust securing the same are void; and that, if either is void, the Webster Manufacturing Company obtained no title to the property by virtue of the trustee sale under the deed of trust.
The Public Utility Act of California, in force at the time, so far as it bears on the question here presented, provides:
"Section 51(a). No railroad corporation, street railroad corporation, pipe line corporation, gas corporation, electrical corporation, telephone corporation, telegraph corporation or water corporation shall henceforth sell, lease, assign, mortgage or otherwise dispose of or encumber the whole or any part of its railroad, street railroad, line, plant or system, necessary or useful in the performance of its duties to the public, *** without having first secured from the commission an order authorizing it so to do."
"Section 52(a). The power of public utilities to issue stocks and stock certificates, and bonds, notes and other evidences of indebtedness and to create liens on their property situated within this state is a special privilege, the right of supervision, regulation, restriction and control of which is and shall continue to be vested in the state, and such power shall be exercised as provided by law and under such rules and regulations as the commission may prescribe."
"Section 52(b). A public utility may issue stocks and stock certificates, and bonds, notes and other evidences of indebtedness payable at periods of more than twelve months after the date thereof, for the following purposes and no others, namely, for the acquisition of property, or for the construction, completion, extension or improvement of its facilities, or for the improvement or maintenance of its service, or for the discharge or lawful refunding of its obligations, or for the reimbursement of moneys actually expended from income or from any other moneys in the treasury of the public utility not secured by or obtained from the issue of stocks or stock certificates, or bonds, notes or other evidences of indebtedness of such public utility," within five years next prior to the filing of an application with the commission for the required authorization, "for any of the aforesaid purposes except maintenance of service and replacements, in cases where the applicant shall have kept its accounts and vouchers for such expenditures in such manner as to enable the commission to ascertain the amount of moneys so expended and the purposes for which such expenditure was made; provided, that such public utility, in addition to the other requirements of law, shall first have secured from the commission an order authorizing such issue and stating the amount thereof and the purpose or purposes to which the issue or the proceeds thereof are to be applied. *** A public utility may issue notes, for proper purposes and not in violation of any provision of this act, *** payable at periods of not more than twelve months after the date of issuance of the same, without the consent of the commission, but no such note shall, in whole or in part, be refunded by any issue of stocks or stock certificates," or other evidence of interest or ownership, "or of bonds, notes of any term or character or any other evidence of indebtedness, without the consent of the commission."
"Section 52(d). All stock and every stock certificate," or other evidence of interest or ownership, "and every bond, note or other evidence of indebtedness, of a public utility, issued without an order of the commission authorizing the same then in effect, shall be void."
Section 51 (a) of the Public Utilities Act was amended in 1927 (Stats. 1927, p. 78) so as to include warehousemen and other utilities, and consequently the question here presented will not arise under the act as amended.
In the Matter of Russell, 163 Cal. 672, 126 P. 875, Ann. Cas. 1914A, 152, it is said that the first step in the interpretation of a statute is to consider the conditions existing prior to its adoption so as to ascertain its objects and purposes.
The Public Utilities Act is existent for and because of certain definite reasons, causes, and purposes. It is not hasty legislation enacted in the crisis of time or occasion; but, on the contrary, it is the reaction of the public to long years of oppression from public utilities and misuse of the powers and purposes of such institutions. The act represents the considered, measured, and determined policy of the public to regulate and control the actions of such institutions in their conduct towards the public, and competition between the utilities themselves. It is the intent that investors be secured by regulated and approved securities issued; that credits be allowed only in certain approved lines and classifications; that the money gathered from stockholders and security holders be used only for approved and proper purposes. People v. Willcox, 207 N.Y. 86, 100 N.E. 705. 45 L. R. A. (N. S.) 629. The California Utilities Act, like similar acts in other states, was for a purpose and because of abuses from which the public suffered. It states a policy of this state and declares a rule of conduct for all public utilities named therein. Its purposes are manyfold, and among them are: To remove the operation of public utilities from the realm of common business and place such operation in the domain of permitted, restricted, and regulated business; to place such institutions and their activities within the sovereign control of the state.
The California act, as we have seen (section 52 [a], Public Utilities Act), declares that the power of public utilities to create liens on their property is a special privilege. Authority as to the meaning of "special privilege" is not needed, so well is it understood, but from and after the declaration of the people, the business of a public utility became something more, other and different than a common business. The people have placed public utilities among that class of business existing at sufferance, and in addition declared that certain powers may only be exercised "as provided by law." The phrase "as provided by law" means a law of a similar kind; that is, a statute. In re Campbell, 138 Mich. 597, 101 N.W. 828. The act then means that authority to exercise the power must be found in the statute. Such authority is found in our Public Utilities Act, but it is coupled with the burden that certain acts must be done by and with the consent of the commission and that unless so done the acts are void. There is no intent in the legislative department that this result be obviated or avoided either by contract or by construction. It is the plain intent of the Legislature that no power in issuing notes or evidences of indebtedness shall be exercised except as provided in the statute.
It is urged in support of the judgment that as the note is payable at a period of less than twelve months from the date it was made, no question arises as to its validity; that under section 51 (a) of the act it is provided that certain classes of public utilities may not sell, lease, or otherwise dispose of or incumber their properties, or any portion thereof, without authorization from the railroad commission, and that as the classes of public utilities so mentioned do not include warehousemen, they are not covered by that section; that section 52 was intended to provide in general terms and for general purposes for the issuance of securities and the creation of other obligations, while section 51 (a) was intended to deal with sales or incumbering of properties by making them security for such obligations; that the special provisions of section 51 (a) govern the general provisions of section 52 relating to the issuance of securities and the creation of other obligations.
It is fundamental that, if possible, a statute or code section should be construed so as to give meaning and effect not only to the statute or code section as a whole, but to each and every part thereof. 23 Cal.Jur. 758, and cases cited. If we conclude that warehouse companies may execute deeds of trust without obtaining the permission of the railroad commission for the reason that warehousemen are not mentioned in section 51 (a), wherein it is provided that certain specified corporations shall not sell, lease, assign, mortgage, or otherwise dispose of or encumber their properties without obtaining an order from the commission, we render meaningless section 52 (d), providing that "all stock and every stock certificate, and every bond, note or other evidence of indebtedness, of a public utility, issued without an order of the commission authorizing the same then in effect shall be void," providing, of course, a deed of trust is an evidence of indebtedness. If, on the other hand, it be held that warehouse companies are not controlled by section 51 (a), but that evidences of indebtedness issued by any character of public utilities are void unless issued in conformity with the other sections of the act, effect is given to each section of the act.
"Evidence of indebtedness" is a generic term. That it is synonymous with securities is so stated by Bouvier in his Law Dictionary, wherein he defines "securities" as "written assurances for the return or payment of money. Evidences of Indebtedness." "Evidence of indebtedness" is defined in Rapalje & Lawrence Law Dictionary, vol. 1, p. 469: "Evidence of debt-a written instrument or security for the payment of money, importing on its face the existence of a debt. Evidence of Indebtedness." In Renton v. Gibson, 148 Cal. 655, 84 P. 188, it is said:
"‘Security’ is a word of broad import. Certain trust-deeds in real estate are recognized by our decisions, by which trust-deeds the legal title passes to the trustee, with power of sale. In all respects these deeds and transfers of title are ‘security, but they are not mortgages. A mortgage by which no title whatsoever passes, and whereby but a lien upon the property is acquired, is likewise ‘security."’
In Cincinnati, H. & D. Ry. v. Kleybolte et al., 80 Ohio St. 311, 88 N.E. 879, "securities" is held to be synonymous with "evidence of indebtedness." The California Legislature uses the terms "securities" and "evidences of debt" as synonymous as follows:
"Pledgee’s Sale of Securities. -A pledgee cannot sell any evidence of debt pledged to him, except the obligations of governments, states, or corporations; but he may collect the same when due." Civ. Code, § 3006.
Under this section it has been held that mortgages are securities or evidences of debt which the pledgee cannot sell. Revert v. Hesse, 184 Cal. 300, 193 P. 943.
The construction placed upon the act by the officers upon whom was imposed the duty of executing it, while not conclusive of the question under consideration, is entitled to great weight. Riley v. Thompson, 193 Cal. 773, 778, 227 P. 772; Riley v. Forbes, 193 Cal. 740, 745, 227 P. 768.
The railroad commission has placed a construction upon the act which gives effect to each section. As warehouse companies are not named in section 51 (a), wherein certain specified corporations may not sell or lease their properties without authorization from the commission, it has held that warehouse corporations may sell or lease their properties without such order. In re Associate Terminals Company, 15 C. R. C. 963; In re Imperial Grain & Warehouse Company, 5 C. R. C. 94; In re Southern California Warehouse & Distributing Company, 23 C. R. C. 362. This holding is not in conflict with section 52 (d), prohibiting the issuing of "evidence of indebtedness" without an order from the commission, nor is it at variance with any other provision of the act.
The railroad commission, however, with but one exception, which will later be noted, has consistently passed upon applications to mortgage and execute trust deeds by warehouse, wharf, and elevator corporations, which are not enumerated in section 51 (a) of the act. In Re Sacramento Warehouse Company, 4 Ops. & Ords. R. R. Com. 949, the opinion recites:
"Heretofore, on December 26, 1913, applicant executed its two certain promissory notes, one for the sum of $10,000.00 and one for the sum of $50,000.00 payable to the Sacramento Bank, and also its deed of trust to secure the same. The first note was payable on December 26, 1914, and the second on December 26, 1915. As the commission’s consent was not secured, the second note and also the deed of trust (italics ours) are void, under the provisions of section 52 of the Public Utilities Act."
In Re Los Angeles Warehouse Company, 4 Ops. & Ords. R. R. Com. 1149, the commission authorized the issuance of a note for $150,000, and also authorized the execution of a deed of trust on the corporation’s properties. In Re De Fremery Wharf & Land Company, 5 Ops. & Ords. R. R. Com. 382, the commission took jurisdiction over both the note and mortgage and issued its order permitting the execution of the mortgage. In Re Lancaster Feed & Fuel Company, 7 Ops. & Ords. R. R. Com. 880, the commission authorized the purchase of a warehouse and the issuance of a purchase price note and the execution of a mortgage to secure the same, and in the same matter (8 Ops. & Ords. R. R. Com. 19) took jurisdiction of a supplemental application solely to pass upon the form of the mortgage and to direct its execution. In Re Los Angeles Harbor Warehouse Company, 12 Ops. & Ords. R. R. Com. 549, the warehouse company was granted authority to execute a mortgage to secure a promissory note or notes of the face value of $33,000. In Re Hollister Warehouse Company, 16 Ops. & Ords. R. R. Com. 610, permission was granted to the company to issue its one-day note for $25,000 and to secure the note by a mortgage to be substantially in the same form as the mortgage attached to the petition, and in this instance it will be noted the note was payable in less than one year. In Re Grange Warehouse & Storage Company, 16 Ops. & Ords. R. R. Com. 218, permission was granted to execute a deed of trust to secure bonds. In Re Murietta Valley Elevator Company, 26 Ops. & Ords. R. R. Com. 843, the company was granted permission to execute a mortgage to secure its promissory note in the sum of $7,500. In Re Davies Warehouse Company the commission assumed jurisdiction by supplemental order to authorize the execution of a mortgage or deed of trust, and In Re Richards Trucking and Warehouse Company, 28 C. R. C. 377, the company was given authority to execute a first mortgage substantially in the same form as that filed to secure a note in the sum of $35,000 and to execute two deeds of trust substantially in the same form as those filed, to secure notes in the sum of $10,000 and $13,500 for the purpose of paying and refunding its outstanding indebtedness.
As stated, the commission in one warehouse case made the statement that it was not necessary for the warehouse utility to obtain the order of the commission to mortgage its property. This was in respect to the Alpaugh Warehouse & Milling Company, 8 C. R. C. 509, decided in 1915. There the applicant was a very small concern, having issued but 170 shares of stock at $5 per share. It owed $2,700 as a balance due the contractor who built its warehouse at a cost of $3,075 and had borrowed $2,700 on a one-year note to pay this balance. Aside from this one isolated instance, the commission in all warehouse cases has assumed jurisdiction and passed upon the applications to mortgage or execute deeds of trust.
Giving the act as it stood the interpretation placed upon it by the railroad commission-and which interpretation gives effect to each section and which interpretation we think to be correct-public utilities mentioned in section 51 (a) could not sell, lease, assign, mortgage, or otherwise incumber their properties without obtaining the order of the commission. Other public utilities could sell or lease their properties without the order of the commission, but could not without obtaining its consent execute deeds of trust, mortgages, or evidences of indebtedness or issue notes, excepting notes payable at periods of not more than twelve months after the date of issuance, but which notes could not be refunded by other notes or evidence of indebtedness of any character.
Western Milling Company, being a public utility and so declared to be in the Public Utilities Act, and having executed its deed of trust, which is an evidence of indebtedness, without having obtained the order of the commission authorizing its execution, such deed of trust is void, and the sale thereunder passed no title.
The provisions of the Public Utilities Act declaring void evidence of indebtedness issued without the order of the railroad commission, approving the same, were enacted by the Legislature in response to a public demand and constitute a firm expression of public policy. The rule therefore announced in Berka v. Woodward, 125 Cal. 126, 57 P. 779, 45 L. R. A. 420, 73 Am. St. Rep. 31, is apropos here:
"This, then, is the undoubted rule, that when a contract is expressly prohibited by law, no court of justice will entertain an action upon it, or upon any asserted rights growing out of it. And the reason is apparent, for to permit this would be for the law to aid in its own undoing. *** ‘If the plaintiff cannot open his case without showing that he has broken the law, the court will not assist him, whatever his claim in justice may be upon the defendant.’ And this must be so, for, while as a matter of private justice between individuals it would be but fair that one under such an illegal contract should restore the consideration or should make the payment, the rights of the public are superior to any such private considerations, and the public’s right is that the fountains of justice shall remain unpolluted."
In view of the foregoing, discussion of the remaining points is unnecessary.
The judgment is reversed.
We concur: TYLER, P. J.; KNIGHT, J.