HOGUE v. SUPERIOR UTILITIES

• Decision Date: 25 October 1949
• Docket Number: No. 5176,5176
• Citation: 53 N.M. 452,210 P.2d 938
• Parties: HOGUE et al. v. SUPERIOR UTILITIES, Inc., et al.
• Court: New Mexico Supreme Court

53 N.M. 452

210 P.2d 938

HOGUE et al.

v.SUPERIOR UTILITIES, Inc., et al.

No. 5176.

Supreme Court of New Mexico.

Oct. 25, 1949.

[210 P.2d 938, 53 N.M. 453]

Glen G. Hilford, Hot Springs, for appellants.

Douglass K. Fitzhugh, Hot Springs, for appellees Superior Utilities, Inc., and Jane Sickle Lewis.

McGHEE, Justice.

The appellants owned all of the stock of the defendant corporation, which operates a gas distribution system in Hot Springs, New Mexico. They sold the stock to the defendant George W. Lewis pursuant to a contract entered into on March 27, 1946, and received in payment therefor cash, property, the assumption by the corporation of a mortgage due an Albuquerque bank the payment of which had been guaranteed by them, and the note of the corporation to the plaintiffs for $18,973.87 payable $1,000 annually beginning April 1, 1947, secured by mortgages on the personal and real property of the corporation.

Later the corporation issued certificates for nine shares of its stock to George W. Lewis, eight shares to his wife, Jane Sickle Lewis, and one share to his brother, Carlton T. Lewis.

Default was made in the interest payments due on October 1, 1947, and January 1, 1948, and the plaintiffs declared the entire indebtedness due under an acceleration clause in the mortgages and filed an action seeking their foreclosure, and also asked reimbursement for $600 paid on the mortgage to the Albuquerque bank.

The defendant corporation and Jane Sickle Lewis answered admitting the executionand delivery of the note and mortgages but claimed that it was ultra vires and void, and that the corporation received no consideration therefor. By cross complaint it sought the recovery of $2,443.50 in meter deposits left with it by customers but which the plaintiffs had in their possession until it was applied on the note. It also sought the recovery of $906 paid by it as a commission for the benefit of the plaintiffs, and also the sum of $1,777.85 it had paid on the note before suit was filed.

The defendant Lunsford filed a disclaimer and the complaint was dismissed as to him. The plaintiffs also dismissed their complaint against the defendants Cunningham, El Paso National Bank and Harrison.

It was stipulated that the note and mortgages were executed and delivered by the defendant corporation without submission to or the permission of the Public Service Commission of the State of New Mexico, as required by Sec. 72-506, N.M.S.A.1941. The trial court concluded that they were therefore void under the provisions of Sec. 72-511, N.M.S.A.1941 and cancelled them. It also gave the corporation judgment against the plaintiffs for the sum of $2,443.51 representing the meter deposits in their hands at the time of the transfer ofthe stock which they had credited on the note, but denied recovery as to the other items set up in the cross complaint.

Apparently the parties to the stock transaction were not aware of the fact that the permission of the Public Utility Commission was required before a public utility could mortgage its property to secure an indebtedness due in more than eighteen months until about the time the defendant filed a motion for a summary judgment, and the plaintiffs then asked permission to amend and set up that the defendant George W. Lewis was the sole owner of the stock of the corporation at the time of the execution and delivery of the note. Ruling on the motion was deferred until the hearing when another motion was filed asking that they be allowed to make George W. Lewis a party and asking that they be given a vendor's lien on the stock. The motion was denied by the trial court.

Sec. 72-301, N.M.S.A.1941, declares the public policy of this state as to the regulation of public utilities and reads as follows:

'72-301. Declaration of policy.-(A) Public utilities as hereinafter defined, are affected with the public interest in that, among other things,

'(1) A substantial portion of their business and activities involves the rendition of essential public services to large numbers of the general public.

'(2) Their financing involves the investment of large sums of money, including capital obtained from many members of the general public.

'(3) The development and extension of their business directly affects the development, growth, and expansion of the general welfare, business and industry of this state.

'(B) It is the declared policy of this state that the public interest, the interest of consumers, and the interest of investors require the regulation and supervision of such public utilities to the end that reasonable and proper services shall be available at fair, just, and reasonable rates, and to the end that capital and investment may be encouraged and attracted so as to provide for the construction, development and extension of proper plants and facilities for the rendition of service to the general public and to industry.'

The applicable section of our statutes relating to the issuance of stocks, securities and indebtedness are Sections 72-506, 72-508, and 72-511, N.M.S.A.1941, and read as follows:

'72-506. Issuance, assumption, or guarantee of securities.-The power of a public utility to issue, assume or guarantee securities, and to create liens on its property situated within this state is a special privilege, hereby subjected to the supervision and control of the commission as hereinafter in this act (§§ 72-301-72-1105) setforth. A public utility, when authorized by order of the commission and not otherwise, may issue stocks and stock certificates and may issue, assume or guarantee other securities payable at periods of more than eighteen (18) months after the date thereof,for the following purposes and no other: For the acquisition of property; for the construction, completion, extension or improvement of its facilities; for the improvement or maintenance of its service; for the discharge or lawful refunding of its obligations; for the reimbursement of moneys actually expended for said purposes from income or from any other moneys in the treasury not secured by or obtained from the issue, assumption or guarantee of securities, within five (5) years next prior to the filing of an application with the commission for the required authorization; or for any of the aforesaid purposes.'

'72-508. Exempted securities.-A public utility may issue securities, other than stock or stock certificates, payable at periods of not more than eighteen (18) months after the date of issuance of same, and secured or unsecured, without application to or order of the commission, but no such securities so issued shall in whole or in part be refunded by any issue of stocks, stock certificates or other securities having a maturity of more than eighteen (18) months, except on application to and approval of the commission.'

'72-511. Securities void unless approved.-All securities issued, assumed or guaranteed without application to and approval of the commission, except the securities mentioned in section 20 (§ 72-508) of this act, shall be void.'

As we held in Delgado v. Delgado, 42 N.M. 582, 82 P.2d 909, 118 A.L.R. 1175, ordinarily where parties to illegal contracts are in pari delicto, a court will leave them where it finds them, whether the contract is executory or executed, refusing relief to both. There is, however, an exception to this...