DEPARTMENT No. 1. [Filed July 26,1880.] No. 6481. JOHN DAVIS, APPELLANT, VS. THE ROCK CREEK LUMBER, FLUME, AND MINING COMPANY, RESPONDENT. SETTING ASIDE DEFAULT-DISCRETION. There is no abuse of discretion on the part of a Court in setting aside a default, and permitting an answer to be filed. CORPORATIONS-AUTHORITY OF AGENT. The law will not permit one who acts in a fiduciary capacity to deal with himself in his individual capacity; and hence where a corporation contemplates borrowing money, and to that end authorizes the president and secretary to execute the necessary notes and mortgage, the former will not be permitted to purchase and assume the debts in the name of "A. Wolf & Co.," of which firm he was a member, and then execute the notes and mortgage in suit. Appeal from the District Court of the Second Judicial District, Butte County. Gray & Gale, for appellant. Harrison & Harris and J. M. Burt, for respondent. Ross, J., delivered the opinion of the Court. The complaint alleges that on the 14th day of June, 1877, the defendant corporation, for a valuable consideration, executed to A. Wolf & Co. three several promissory notes, each for the sum of $4,328.33, making in the aggregate the sum of $12,985; and, to secure the payment of the notes, executed on the same day to Wolf & Co. a mortgage upon the property of the corporation. The notes and mortgage were afterwards assigned to the plaintiff; and not having been paid, this action was instituted to foreclose the mortgage. McGrath, who held a subsequent mortgage from the corporation, was made a party defendant. He answered, denying that the defendant corporation ever executed the notes and mortgage mentioned in the complaint, and setting up his own mortgage. The default of the defendant corporation was entered, which was afterwards, on motion based upon affidavits, set aside by the Court, and an answer permitted to be filed by the corporation. By its answer the latter also denied that it ever executed, or caused or authorized to be executed, the notes and mortgage set out in the complaint as the basis of the plaintiff's action. We think there was no abuse of discretion on the part of the Court in setting aside the default and permitting the answer to be filed. The record shows that there were five trustees of the corporation, and that these trustees held all of its capital stock. The A. Wolf of the firm of A. Wolf & Co., to whom the notes and mortgage were given, was one of the trustees and the president of the corporation; and he, as president, together with one Fairbanks, as secretary, executed them on behalf of the corporation. As the basis of their authority so to do, the plaintiff offered and read in evidence at the trial a resolution of the Board of Trustees, in words and figures as follows: "At a meeting of the trustees of the Rock Creek Lumber, Flume, and Mining Company, held the 15th day of June, 1877, the following resolution was offered and unanimously adopted -the following trustees being present: A. Wolfe, E. McGrath, H. A. Fairbanks, C. Wright, J. F. Dana: It is unanimously resolved, by the trustees of the Rock Creek Lumber, Flume, and Mining Company, a corporation, to borrow $12,985; and to secure the payment of said sum of money to execute a mortgage upon the property of said corporation; said sum of money to be applied to the payment of the debts of said corporation; and to this end A. Wolf, president, and H. A. Fairbanks, secretary of said Rock Creek Lumber, Flume, and Mining Company, are hereby directed and authorized to make, execute, and deliver, and on behalf of said corporation, and as its act and deed, a mortgage upon said corporation property, and to affix to said mortgage and the notes which it secures the corporate name of said corporation. "H. A. FAIRBANKS, Secretary. It will be observed that the complaint alleges that the notes and mortgage was executed on the 14th day of June, 1877; whereas the resolution does not appear to have been adopted until the day following, June 15th. If therefore the plaintiff be held bound by the allegations of his complaint in this particular, there would appear no authority whatever for the execution of the notes and mortgage. It was said, however, at the argument that they were not in fact executed until after the adoption of the resolution; and Fairbanks, the secretary and a witness for the plaintiff, testified that they "were executed in pursuance of the resolution or order of the trustees." We shall so treat them for the purposes of this decision. Fairbanks, who was the only witness introduced on the trial, also testified that "A. Wolf did not borrow any money for the corporation that I know of, but purchased and assumed said debts in the name of A. Wolf & Co., and for the payment of which said notes and mortgage were executed." The resolution did not authorize or contemplate the execution of the notes and mortgage for any such purpose. It authorized and contemplated the borrowing of $12,985, and to that end authorized and directed the president and secretary to execute for and in the name of the corporation the necessary notes, together with a mortgage upon the corporate property. To borrow the money, and to execute the notes and mortgage of the corporation to secure its payment, was the sole power conferred on the president and secretary by the resolution. This they did not do, nor attempt to do, so far as the record shows. Instead, the president "purchased and assumed said debts in the name of A. Wolf & Co.," of which firm he was at the time a member, and then proceeded, in connection with the secretary, to execute the notes and mortgage in suit. This was clearly unauthorized by the resolution adopted by the Board of Trustees. (Kohler vs. Black River Falls Iron Company, 2 Black's R. 719.) But apart from this consideration, the transaction in question cannot be upheld. The law, for wise reasons, will not permit one who acts in a fiduciary capacity thus to deal with himself in his individual capacity The position of A. Wolf as a member of the firm' of A. Wolf & Co., and his position as a trustee and the president of the corporation defendant, were inconsistent and conflicting. In purchasing the debts of the corporation in his individual capacity, it was to his interest to buy them at as great a discount as possible. The greater the discount, the greater the gain. If he succeeded in purchasing the debts at any discount, to that extent he secured to himself not common to all of the stockholders. To permit this to be done would be to permit the violation of one of the plainest principles of equity applicable to trustees. In this particular case it does not appear that Wolf secured the demands against the corporation at any discount; neither does it appear that he did not. Nor does the policy of the law permit any inquiry into that question. Occupying as he did the position of trustee, he should not have put himself in a position adverse to his cestuis que trust. One cannot faithfully serve two masters whose interests are diverse. (Andrews vs. Pratt, 44 Cal. 309; San Diego vs. S. D. and L. A. R. R. Co., 44 Cal. 106; Wilbur vs. Lynde, 49 Cal. 290; Pickett vs. School District No. 1, 25 Wis. 552; Cumberland Coal Co. vs. Sherman, 30 Barb. 553; Aberdeen Railway Co. vs. Blakie, 1 McQueen, 461; Field on Corp., Secs. 174 and 175, and authorities there cited.) Respecting the point made to the effect that the transaction was ratified by the corporation, it is sufficient to say that, even if it admitted of ratification, there was no evidence of such ratification. (Cumberland Coal Co., 30 Barb. 575, and authorities there cited.) It results from these views that the Court below was right in sustaining the defendant's objections to the notes and mortgage. Judgment and order affirmed. We concur: McKinstry, J., McKee, J. DEPARTMENT No. 1. [Filed July 26, 1880.]· A. MONTGOMERY, APPELLANT, VS. JONAS SPECT ET AL., RESPONDENTS. EQUITY OF REDEMPTION. An equity of redemption is inseparably connected with a mortgage. The right to foreclose and the right to redeem are co-existent; and until the remedy to foreclose may be barred, the right to redeem may be exercised. INDEBTEDNESS ESSENTIAL TO A MORTGAGE. It is essential to a mortgage that there should be a debt to be secured. If the relation of debtor and creditor remains, and a debt subsists between the parties, then the conveyance must be regarded as a security for the payment, and be treated in all respects as a mortgage. Appeal from the District Court of the Tenth Judicial District, Colusa County. W. F. Goad and W. C. Belcher, for appellant. MCKEE, J., delivered the opinion of the Court: Whether a deed absolute in form be a mortgage is a question of intention to be inferred from all the facts and circumstances of the transaction in which the deed was executed, taken in connection with the conduct of the parties after its execution. In such cases the central fact to be found is the existence of an indebtedness at the time of the transaction, and a continuation of the relation of debtor and creditor. If that fact be found, the inference deducible from it is that the deed was not made to transfer the title to the land described in it, but was made for the purpose of securing the debt which the grantor owed to the grantee. It is essential, says the Court in Hanley vs. Hotaling, 41 Cal. 23, that there be an agreement either expressed or implied on the part of the mortgagor, or some one in whose behalf he executes the mortgage, to pay to the mortgagee a sum of money. So in Suarely vs. Pickle, 39 Gratt. 35, the Court of Appeals of Virginia says: "That it is essential to a mortgage that there should be a debt to be secured. It may be antecedent to, or created contemporaneously with, the mortgage." The only inquiry, then, necessary to be made is, whether the relation of debtor and creditor remains, and a debt still subsists between the parties. If it does, then the conveyance must be regarded as a security for the payment, and be treated in all respects as a mortgage. (Robinson vs. Copsey, 2 Edw. Ch. 138; Slee vs. Manhattan Co., 1 Paige, 56. The fact of a subsisting debt, to secure the payment of which a deed of real property may be given, must be proved like any other fact in a case. "But," as Mr. Justice Gaston says in McDonald vs. McLeod, 1 Ired. Eq. 227, "in examining transactions between borrowers and lenders, and between necessitous men and their creditors, Courts of equity, aware of the unequal relation of the parties, and of the facility by which the former may be surprised into improvident arrangements, and of the moral coercion which the latter can exercise over their apparent freedom of action, are particularly attentive to any circumstances tending to show an inconsistency between the form of an act and the intent of the parties, and will take great pains to get at the substance of what was done or intended to be done by them." Examining by these rules the facts and circumstances of the transaction in which the deed in the case in hand was executed, we think that the fact of an indebtedness between the grantor and grantee in the deed is fairly established by a preponderance of evidence. The defendant owed to the plaintiff an antecedent debt, which was secured by a mortgage upon a portion of the premises now in controversy. Upon that mortgage debt the plaintiff had brought an action of foreclosure, and obtained a decree, in which the Court found that there was due and owing to the plaintiff $6,648.87, |