Hobbs v. Twin Falls Canal Co.

Decision Date05 July 1913
CourtIdaho Supreme Court
PartiesE. R. HOBBS, Appellant, v. TWIN FALLS CANAL CO., Respondent, and TWIN FALLS LAND & WATER CO., Appellant

POWERS OF CORPORATION-ARTICLES OF INCORPORATION-POWER TO MORTGAGE-AUTHORITY OF DIRECTORS.

1. Where H. enters into a contract with a corporation and purchases certain property, and by the terms of the contract it is stipulated and agreed that the corporation shall subsequently organize another corporation and that H. shall thereupon surrender his contract and take a certain amount of stock in the new corporation in lieu of his property and contract rights, and it is stipulated and agreed that the new corporation shall have no power or authority to execute notes and mortgages on the property of the corporation, and the new corporation is subsequently formed, and instead of the articles of incorporation providing that such corporation shall have no power or authority to execute notes and mortgages, they contain the reverse and provide that the corporation shall have the power and authority to execute notes and mortgages, and H. thereafter surrenders his original contract and accepts in lieu thereof the stock of the newly formed corporation, held, that he cannot subsequently maintain an action against the new corporation to enjoin the corporation from exercising the powers enumerated in its charter and executing notes and mortgages in accordance therewith.

2. Held, that the Twin Falls Canal Co., organized under the laws of this state and to which the original construction company the Twin Falls Land & Water Co., transferred all the water rights, canals, dams, reservoirs, easements, and franchises originally acquired and constructed, became the owner in fee of the entire irrigation system, and that the land owners who purchased water rights were merely stockholders in the corporation, and that the only voice they have in the management or control of the irrigation works and system is such voice as their stock entitles them to have in the corporation, as such, and that the directors of the corporation have the power and authority under the articles of incorporation and the statute of the state to execute mortgages upon the property of the corporation to secure loans.

3. Held, further, that a mortgage executed by the Twin Falls Canal Co., in conformity with its articles of incorporation and the state statute upon all the property of the corporation, would cover the entire canal system and water appropriations, easements, and franchises, and that in the event of a foreclosure of such mortgage and sale of the property, the purchaser would acquire such property, but that the water would still be appurtenant to the lands to which it had once been applied (sec. 4, art. 15, const.) upon payment by the land owner of reasonable rates established in conformity with law.

4. Any mortgage or other indebtedness of the Twin Falls Canal Co. must be defrayed by assessments upon the stockholders who are land owners and water users under the canal system, and it is the duty of the directors from time to time to levy assessments in accordance with law for defraying mortgage and other indebtedness as the same falls due.

5. Held, further, that the Twin Falls Canal Co. was organized under the general incorporation laws of this state, and that it was not organized under, and is not governed by, the provisions of chapter 14, title 4 of the Civil Code, which relates to and governs "religious, social and benevolent corporations."

APPEAL from the District Court of the Fourth Judicial District for Twin Falls County. Hon. Edward A. Walters, Judge.

Action to restrain and enjoin the issuance of bonds and mortgages. Judgment for defendant Twin Falls Canal Co. Plaintiff and defendant Twin Falls Land & Water Co. appeals. Affirmed.

Judgment affirmed. Costs awarded in favor of respondents.

Sweeley & Sweeley, for Appellant Twin Falls Land & Water Co., cite no authorities.

S. H Hays, for Appellant Hobbs.

There is no provision in terms in the articles of incorporation of the Twin Falls Canal Company permitting the execution of a mortgage. If that right exists, it is one that is implied from the other powers. The Twin Falls Canal Company is not one organized for profit, but really for the purpose of performing a public duty. (State ex rel. West v. Twin Falls Canal Co., 21 Idaho 410, 121 P. 1039; Kinney on Irrigation, sec. 1481; Thompson on Corp., secs. 25, 26.)

Unless expressly authorized by its charter, such a corporation cannot convey or transfer property acquired or exercised by the power of eminent domain or which is necessary to enable it to properly perform its duties to the public. Such a conveyance violates its contract with the state and is contrary to public policy and void. (1 Clark & Marshall on Corporations, p. 440, sec. 162; Jones, Corp. Bonds and Mortgages, sec. 5; South Pasadena v. Pasadena L. etc Co., 152 Cal. 579, 93 P. 490; Cook on Corporations, sec 780.)

The character of the ownership and its purpose make it impossible to give a mortgage upon the property. (McQuillin, Mun. Corp., secs. 1140-1144; Branahan v. Mayor & Common Council of San Jose, 24 Cal. 585.)

The permission to mortgage the property of an irrigation district would be destructive of the very purpose of the district in the same way that the mortgaging of the property here would be destructive to the entire purpose of the organization. (Merchants' Bank v. Escondido Irr. Dist., 144 Cal. 329, 77 P. 937.)

The respondent here is a trustee for the settlers. It has nothing to mortgage except its trusteeship. This is the fundamental reason why the property cannot be mortgaged. The trustee of a naked trust cannot mortgage the trust property. (Griffin v. Blanchar, 17 Cal. 70; sec. 1615, Rev. Codes.)

There is no implied agreement that the majority may bind the minority as to material and fundamental changes in the powers and purposes of the corporation. (Thompson on Corporations, secs. 386-406, 409-411.)

The rule that a public service corporation has no right to mortgage its property is based upon the principle that it has no right to disable itself from performing its public duties. (Mechem on Corporations, sec. 71.)

The operating company on a Carey act project is a quasi-public service corporation. (Hanes v. Idaho Irr. Co., Ltd., 21 Idaho 512, 122 P. 859.)

A. M. Bowen and J. W. Porter, for Respondent.

The Twin Falls Canal Co. is a private corporation, organized under the general laws of the state regarding private corporations, engaged in the delivery of water to its stockholders. It is similar to many other corporations over the arid west, and is commonly known as a "mutual" water company. (Wiel on Water Rights, 3d ed., secs. 1266-1269; Miners' Ditch Co. v. Zellerbach, 37 Cal. 543, 99 Am. Dec. 300; Hildreth v. Water Co., 139 Cal. 23, 72 P. 395.)

It is in no sense a public or a quasi-public corporation, nor is it a corporation engaged in public functions, such as a gas company or a water company furnishing gas or water to the public generally. It is purely a private corporation engaged in a private enterprise.

In the absence of express restrictions, a corporation undoubtedly has the power to raise money in order to carry on its business and to effect the purposes of its incorporation. It has this power without express statutory or charter authority. (Thompson on Corp., sec. 2166; 10 Cyc. 1101, 1102; Bradbury v. Canal Club, 153 Mass. 77, 26 N.E. 132, 10 L. R. A. 513; North Hudson, B. & L. Assn. v. Bank, 79 Wis. 31, 47 N.W. 300, 11 L. R. A. 845; Grommes v. Sullivan, 81 F. 45, 26 C. C. A. 320, 43 L. R. A. 419; Sioux City Terminal etc. Co. v. Trust Co., 82 F. 124, 27 C. C. A. 73; Thompson v. Lambert, 44 Iowa 239, 243.)

In the absence of charter or governing statute to the contrary, a corporation having power to borrow money may mortgage its real and personal property to secure the loan. (10 Cyc. 1182, and cases cited; Eureka Iron Works v. Bresnahan, 60 Mich. 332, 27 N.W. 524; State v. Water Co., 61 Kan. 547, 60 P. 337; City of Detroit v. Mutual Gas Co., 43 Mich. 594, 5 N.W. 1039; Thompson on Corporations, secs. 2527, 2167; Copper Bell M. Co. v. Costello, 11 Ariz. 334, 95 P. 94.)

The general statute of Idaho under which this corporation was framed (Rev. Codes, sec. 2769, as amended 1909, p. 157) gives this power.

A corporation may, for its ordinary indebtedness, or for money borrowed, where it has express or implied power to borrow money, issue its negotiable bonds as security, the same as an individual may do. (Thompson on Corp., sec. 2235; 10 Cyc. 1167.)

Even if it should be held that the corporation performs a public or quasi-public function, its right to mortgage its assets, including its franchise (other, of course, than its franchise to be a corporation), cannot be assailed. (State v. Topeka Water Co., 61 Kan. 547, 60 P. 377; Farmers' Loan & T. Co. v. Waterworks, 139 F. 661; Memphis etc. R. Co. v. Berry, 112 U.S. 609, 5 S.Ct. 299, 28 L.Ed. 831; Morgan v. Louisiana, 93 U.S. 217, 23 L.Ed. 860; Willamette Woolen Mfg. Co. v. Bank, 119 U.S. 191, 7 S.Ct. 187, 30 L.Ed. 384.)

There can be no valid objection because the mortgage in question covers all of the property of the corporation. The governing statute permits it. (10 Cyc. 1185; Thompson on Corp., secs. 1190, 2530; Miners' Ditch Co. v. Zellerbach, supra; People v. College, 38 Cal. 166; Michigan Tel. Co. v. St. Joseph, 121 Mich. 502, 80 N.W. 383; Evans v. Heating Co., 157 Mass. 37, 31 N.E. 698.)

In the absence of statutory or charter provisions to the contrary the authority to execute a mortgage is lodged exclusively in the board of directors. This is especially true where the entire management of the corporate affairs--as is the case...

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