author: Steere, J.

text:
    TURNER v. CALUMET & HECLA MINING CO.
    1. Corporations — Trust Relations — Officers and Directors. .
    Where a number of stockholders of a corporation combine so as to control the affairs of the corporation as they deem proper they become for all practical purposes the corporate entity and assume the trust relation occupied by the corporation towards its stockholders. The corporation itself holds its property as a trust fund for the stockholders, who have a joint interest in all its property and effects; the relation between it and its members is for all practical purposes that of trustee and cestui que trust.

      2. Same — Duties—Agency.
    There is an inherent obligation on the part of a director that he will in no manner use his position to advance his personal interest as distinguished from the interest of the corporation.
    3. Same — Voting Trust — Intercorporate Relations.
    While a party may act in the double relation of agent for two principals, one corporation may not acquire the control of another for the purpose of entering into favorable contracts, etc., by securing voting control of the stock by proxies and electing its own directors directors of the subordinate company, so as to work an injury to its minority stockholders.
    4. Same — Directors, Board or — Injunction.
    Where the Calumet & Hecla Mining Company acquired about one-third of the stock of the Osceola Mining Company and for the purpose of subordinating the affairs of the Osceola Mining Company to its interest and by securing proxies obtained sufficient votes to elect its directors as directors of the Osceola Company, and where the board ■ appointed the manager of the Calumet & Hecla Company as the manager of the Osceola Company, and operated the company for the benefit of the Calumet & Hecla Company, and the evidence showed their purpose to be to operate the second company in the interest of the Calumet & Hecla Company, the trial court was warranted in restraining the Calumet & Hecla Company from voting for the directors of such company as directors of the Osceola Company, and in finding the control so exerted illegal.
    Appeal from Ingham; Wiest, J.
    Submitted January 19, 1915.
    (Docket No. 10.)
    Decided July 23, 1915.
    Bill by Charles M. Turner against the Calumet & Hecla Mining Company and another for an injunction and other relief. From a decree for complainant, defendants appeal.
    Affirmed.

      Allen F. Rees and Thomas N. Perkins {Rees, Robinson & Petermann, of counsel), for appellant.

      Rollin H. Person {Stone & Wieder, of counsel), for appellee.
   Defendants appealed from a decree of the Ingham county circuit court, in chancery, granting an injunction restraining the Calumet & Hecla Mining Company from voting at meetings of the Osceola Mining Company stockholders for directors who are directors of the Calumet & Hecla. An able and exhaustive opinion was filed by the learned circuit judge who rendered the decree, from which the following excerpts will best serve to indicate the nature of the case, result reached, and the most salient-reasons given therefor:

“Complainant as a stockholder of the Osceola Consolidated Mining Company, filed the bill herein against defendants, to relieve the Osceola Company and himself as a stockholder therein from illegal domination he charges the Calumet & Hecla Company exercises over the Osceola Company and his rights.
“Defendants deny the charges of illegal domination, and insist that whatever has been done is legal.
“The Calumet & Hecla and the Osceola are mining companies organized under the laws of this State. The Calumet & Hecla owns about one-third of the stock of the Osceola. At the annual elections of the Osceola Company for some time past the Calumet & Hecla has procured proxies from other stockholders, so that with its own stock it has been able to and has cast the majority vote for directors of the Osceola Company. The Calumet & Hecla has cast this majority vote for persons a majority of whom have at the same time been its own officers and directors.
“The directors so elected have chosen as executive officers for the Osceola Company the same persons holding executive offices in the Calumet & Hecla Company, and have chosen the general manager of the Calumet & Hecla Company as general manager of the Osceola. The Calumet & Hecla Company has thus acquired complete run of the Osceola Company, makes contracts with it as it wills, operates its mines under the management of its common directors, common officers, and common manager, and sells its product, keeping, however, the name of the corporation for business purposes. * * *
“At the outset this court is warned, through its regard for the rights of property vested in the Calumet & Hecla Company in its ownership of stock in the Osceola Company, to be careful not to let the decision go upon the mere dissatisfaction of a minority stockholder with the policy and business management of the majority.
“The law of this State grants rights to all stockholders and regulates the control to be exercised over the corporate property. * * * If the intent and purpose of the law relating to corporations has been observed in the case at bar, then there exists no reason for interference at the behest of complainant, and he must be left to bear as best he can his misfortune not to_ be with the majority. This court has no concern with the management of the corporate affairs of the Osceola, unless such management is unlawful or fraudulent. * * *
“It is clear upon this record that the Calumet & Hecla bought stock of the Osceola Company in order to prolong its own profitable business existence, to provide a profitable and continuing employment for its extensive' and valuable mining equipment, having particular view to the time when its own ore deposits will become exhausted, and intending by way of control of the Osceola Company to compel that company to make use of the Calumet & Hecla equipment and organization to the advantage and profit of the Calumet & Hecla. It must be admitted that the equipment and organization of the Calumet & Hecla may be made available for use by the Osceola, through contracts between the companies; but it is insisted by complainant that the purpose of the Calumet & Hecla is being carried out and accomplished through the will of the Calumet & Hecla alone.
“The same interests now defending the action of the majority stockholders attempted a consolidation of the Calumet & Hecla and the Osceola and other mining companies, and this court by preliminary injunction restrained such proposed consolidation. * * * The proposed consolidation has been abandoned, but it is complained by complainant that the Calumet & Hecla has indirectly accomplished the same advantage over the Osceola it sought to obtain in the proposed consolidation. The Calumet & Hecla Company made an unsuccessful attempt to bring the Osceola Company into a joint venture with it by way of cónsolidation. That effort failed, but to all intents and purposes the Osecola Company is now controlled by the Calumet & Hecla. The Calumet & Hecla has assumed the exercise of a power belonging to the majority in electing .its directors directors of the Osceola Company. * * *
“The object of the purchase [of the Osceola stock] was to acquire the voting power it would give the Calumet & Hecla in the Osceola meetings, and the power so purchased has been so used that it has culminated as was intended in the control of the Osceola and its subserviency to the Calumet & Hecla. * * * It must be admitted by all that the majority stockholders may not use their power to defraud, oppress, or injure the minority. This statement involves the consideration of what the majority may not rightfully do, and, in case they exceed their powers, whether the transgression operates to defraud, oppress, or injure the minority.' It is true the minority must bow to the will of the majority, so long as the majority keep within the law, and it is. equally true that the majority may not be a law unto themselves. * * *
“That the purpose of the Calumet & Hecla, in purchasing stock of the Osceola, was to circumvent separate and independent management of the Osceola, is manifest. The purpose as declared by the officers of the Calumet & Hecla leaves no question upon the purpose of the purchase. But it is said that the means used, that is, the purchase of the stock, was lawful, because permitted by the laws of the State. So we have a lawful purchase of stock, incited by the desire and employed as a means of working a domination by one corporation over another, and for the declared purpose of advantage to the purchaser. * ' * * The evidence shows a successful effort upon the part of the Calumet & Hecla to obtain control of the management of the Osceola Company for purposes inimical to the Osceola. * * * The Osceola has now no life, no plans, no management, no policy, no officers executive in nature, and no future, except as willed by the Calumet & Hecla. The Osceola Company was at one time a competing company with the Calumet & Hecla, but it is such no longer; its independence has been destroyed; its existence has become one of name only, and all of its corporate functions have been assimilated by the Calumet & Hecla, to be handled at will through the Calumet & Hecla directors seated upon the Osceola directory. It is true that the corporate name of the Osceola is maintained, and ostensibly its functions and its property remain to that corporation, but in reality it is made to serve the ends of the Calumet & Hecla to a point only short of amalgamation. * * *
“What justification can be advanced for the seating of the Calumet & Hecla directors and officials- in control of the Osceola and vesting them with power to manage the Osceola Company as the Calumet & Hecla wills? The justification given is that the Calumet & Hecla has purchased stock of the Osceola Company, and through its voting power, so acquired and aided by willing stockholders of the Osceola Company, has risen to the control of that company. This, then, brings us to the position contended for by defendants, that if the Calumet & Hecla wants to control the Osceola Company, and can compass such control, then such control is legal, and its motives and intentions are beyond the impeachment of minority stockholders. * *
“The fact that the Calumet & Hecla does not hold a majority of the stock of the Osceola Company is of no significance. The significant thing is that the holding it has and its use of the same has given it control of the Osceola. The result would be the same if the Calumet & Hecla held less stock and could induce other stockholders to join with it in voting to surrender the corporation and its destiny, through its control and management, into the hands of the Calumet & Hecla. Some rights of stockholders are inviolable and beyond the mere will of the majority, and come to the stockholders by law and not through the grace of their fellow stockholders, and, so coming, they abide beyond the will of any majority.
“ ‘When a number of stockholders combine, to constitute themselves a majority, in order to control the corporation as they see fit, they become, for all practical purposes, the corporation itself, and assume the trust relation occupied by the corporation towards its stockholders. Although stockholders are not partners, nor strictly tenants in common, they are the beneficial joint owners of the corporate property, having an interest and power of legal control in exact proportion to their respective amounts of stock. The corporation itself holds its property as a trust fund for the stockholders, who have a joint interest in all its property and effects, and the relation between it and its several members is, for all practical purposes, that of trustee and cestui que trust.’ Reid on Corporate Finance, § 214.
“The distinction between the Calumet & Hecla ownership of stock, and its rights and obligations as a stockholder, and its control of the Osceola Company through its directors and officers, must be kept in mind. There was a radical change in its relation to the Osceola Company the moment it succeeded $b having the Calumet & Hecla directors made directors of the Osceola. As a stockholder it had a right to vote for a particular policy of management, but as director it became subject to another rule than that of self-interest.
“A director is a trustee (as defined later on) for the entire body of stockholders, and both good morals and good law imperatively demand that he shall manage all the business affairs of the company coming before him, with the sole view to promote the common interest, and not his personal interest, and he cannot directly or indirectly use his position so as to derive any personal profit or advantage not common to all his co-shareholders. By assuming the office he undertakes to give his best judgment in the interests of the corporation in all matters in which he acts for it, untrammeled by any hostile interests in himself or others. There is an inherent obligation on his part that he will in no manner use his position to advance his own interest as an individual as distinguished from that of the corporation. Bird Coal, etc., Co. v. Humes, 157 Pa. 278 [27 Atl. 750, 37 Am. St. Rep. 727]. * * *
“It takes no great degree of perception to gather that the purchase of the stock would avail nothing toward furthering the aims of the Calumet & Hecla, unless the matter was pressed to the point of control, and such control has been obtained, and the Calumet & Hecla directors dictate the policy and manage the Osceola with as much authority and with the same agencies as the Calumet & Hecla. The end sought has been accomplished, and the Calumet & Hecla directors of the Osceola are such for the advantage and benefit they can make that company render the Calumet & Hecla. The welfare and ultimate destiny of the Calumet & Hecla, and not that of the Osceola, demanded that the Calumet & Hecla get control of the Osceola and make it a ‘feeder’ to the Calumet & Hecla, and to that end control has been acquired through the common directors and officers. * * *
“Complainant insists that directors are in the eye of the law trustees, while defendants insist that they are not. * * * I am satisfied that directors are agents of a grade nearly approaching that of trustees, and that the duties and obligations resting upon them are, in the main, such, so far as fidelity and good faith are concerned, as are exacted of trustees. * * * The best authority is to the effect that directors, while not trustees, have assumed a relation best to be tested and governed by the rules of conduct exacted of trustees, and this has led many courts to style them trustees. But the characterizing of directors by a mere term is of small moment. In the matter of corporate policy, representative duties, fiduciary relations, and general obligation, directors are to be held to the same rules of good faith and fairness toward their corporation as trustees are held in the management of a trust. * * *
“The Calumet & Hecla is an old and very successful mining company, and it has perfected an organization and equipment enabling it to carry on all branches of the mining industry, and the time will come when this organization and equipment, by reason of the limit to the paying rock of the company, will become practically worthless, unless it can be brought about that other companies must make use of the same. To provide against the time when its own demands will not furnish work for its organization and equipment, as well as for present profitable employment, the Calumet & Hecla has schemed and brought about the election of its directors to the directory of the Osceola, in order that such directory, seated at the Osceola table of authority, might so manage the Osceola as to make contracts between that company and the Calumet & Hecla, for the management of the Osceola and the employment of the organization and equipment of the Calumet & Hecla.
“Such directors have a double commission — one open, and the other secret; one of real agency, and the other in appearance only; one emanating from their first master, the Calumet & Hecla, and the other coming from the same power, but worked out through its stockholding in the Osceola Company. ,
“It has been held in this State that a party may act in the double relation of agent for two principals. Michigan State Co. v. Railroad Co., 101 Mich. 14, 28 [59 N. W. 646]. * * * But no case in this State holds that an agency with power to act for two corporations may arise out of the schemes practiced by the Calumet & Hecla Company — to get its agents made agents of the Osceola Company for the express purpose of thereby being able to make contracts between the two corporations at all times as willed by the Calumet & Hecla. * * * There is a vast difference between an agent selected by two principals capable of and actually acting, and of directors selected through the voting power of stock of one corporation in another, and selected for the purpose of so managing the helpless corporation that such contracts may be made with it as will so encompass it that it must manage to prolong the business life and promote the financial welfare of the selecting company. In such case there is in the eye of the law but one principal or master, and the colorable act of having the directors elected by the helpless corporation fools no one, because it does not cover up the purpose of having them elected.
“The weight of authority in this country is to the effect that two corporations may have the same directors, who are active agents transacting the business between the corporations, and such dealings are not void, in the absence of fraud or bad faith. Cases may be found, however, pro and con upon this question, and are collated in the footnote to San Diego, etc., R. Co. v. Pacific Beach Co. [112 Cal. 53, 44 Pac. 333], 33 L. R. A. 788.
“* * * But such directors may not be the confessed agents for the advantage of one corporation, and act for the other for the purpose of making possible contracts wanted for the advantage of the corporation sending them there. Contracts between corporations having common directors are to be closely scrutinized by the courts when brought in question in a suit, for no court can presume the elements of fairness to exist when the badge of adverse and conflicting interest affirmatively appears.
“The case at bar cannot be disposed of upon the abstract determination of law that two corporations may have common directors and make legitimate contracts with each other. If the courts look with suspicion upon contracts made between corporations having common directors, it does not follow that the inquiry is to be limited to determining whether a particular contract shall stand or be declared void. If the suit is one to relieve the dominated corporation from the grip fastened by the contract, the court may well stop at the point where the wrong has been righted; but in a suit by a stockholder to save his rights as such from the designs of others, the court, when the evil is apparent, should not await the consummation of the threatened wrong, or only untie the victim that the bond may be put on anew. If the whole wrong has been accomplished, then there is small occasion for the court of equity to intervene, and the-party complaining may well be remitted to his action at law; but where the wrong is intended to be a continuing one, then the court of equity should enjoin its continuance.
“The complainant is not bound to wait until the Osceola Company has sustained substantial damage and then bring suit for compensation. * * * When the control has been acquired, solely in order to benefit the dominant corporation, and such intent and purpose has been made manifest, then the law will not permit the dominant corporation to propose, and accept, make, and carry out, contracts between such corporations, and will prevent by injunction the further election of the directors of the dominant corporation to preside over the destinies of the servient corporation. * * * A trustee or agent will never be permitted to deliberately place himself in a position where self-interest and duty to another will conflict, and then be heard to say: That fraud is under no circumstances to be presumed; the presumption is that all men are honest.’ * * * For, when he assumes a position demanding and requiring good faith and fairness, and comes to it with the "intention of using the position to aid another that sent him there, he has invited assault; and his self-interest, and that of his first master, render it no hardship to let him establish the difficult fact that he has been true to his trust. And this is what the court meant in the case of Clute v. Barron, 2 Mich. 192, when it said:
“ ‘The subject of constructive frauds, which arises from some confidential or fiduciary relation between parties, is discussed with much learning and ability by Mr. Story in his commentaries on equity. * * * “That whenever confidence is reposed, and one parly has it in his power, in a secret manner, for his own advantage, to sacrifice those interests which he is bound to protect, he will not be permitted to hold any such advantage.” The doctrine thus broadly stated will necessarily include not only trustees, but alí others occupying a like relation.’
“For the court to say to complainant to prove the fraud charged would result in this- case, and in all others of like character, in permitting the relation to continue, because the proof is within the’ hands of defendants.
“When it appears that a director is in fact interested adversely to one corporation, in a case where he insists on acting for both, then his acts stand no higher in court than the purpose for which he acted. * * * The courts look upon contracts made by common directors with suspicion, and when it appears that the common directors are so only in name, and in fact have been made such directors of one corporation, by another corporation, to represent both, in order that through them one corporation and its property can be made a ‘feeder’ to the other, and thereby prolong its profitable business existence, the presumption of fairness gives way to the presumption that what was intended to be done has been done, and the whole scheme comes under the condemnation of the law, and should be declared an unlawful usurpation by the offending corporation. * * *
“As a stockholder, complainant has a right to insist that the corporation shall not be taken over by another corporation, except in a manner authorized by law. It is admitted by counsel for the Calumet & Hecla that existing contracts, consummated by the common directors, are voidable at the election of the Osceola Company; but it is insisted that this affords no proof upon which any stockholder therein may be heard. That the Osceola Company, while under its present domination, cannot and will not ask to have the contracts between it and the Calumet & Hecla declared void, is apparent, and is saying no more than that it is not to be expected that the Calumet & Hecla control of-the Osceola will ask to have contracts the Calumet & Hecla have been to such pains to bring into being set aside. * * *
“The admissions made by the officers of the Calumet & Hecla of the purpose of the company in acquiring the stock of the Osceola Company, supplemented by the acts of the Calumet & Hecla Company and its neglect to show fairness and good faith in the making of the contracts between the two corporations, compel this court to find for the complainant.
“It is not true that, because directors are seated, there must follow the presumption of fairness, regardless of how and for what confessed purpose they were seated. * * * The Calumet & Hecla directors were elected directors of the Osceola Company by the Calumet & Hecla Company, and it makes no difference that the Calumet & Hecla Company had not stock enough in its own name to accomplish its purpose, for it appears that its purpose has been brought about by its voting power in the Osceola, aided by proxies it voted along with its own holdings of stock. * * * The mischief the law attempts to guard against is patent, and so opposed to all principles of equity that the court is bound to prevent its continuance.
“But it is said that to prevent it by forbidding the stockholders to vote for designated individuals, or a class, is to take away a right given by the law, and deprive the stockholders of the lawful right of franchise and of property. It does no such thing. It is based upon an abuse of the right of franchise, and is to prevent further abuse along the same line. _ The question here presented is that of whether the directors or agents of the Calumet & Hecla shall be permitted to continue as the directors of the Osceola. * * * If the court has no power to enjoin, then the complainant must be remitted to his action at law.
“ ‘The United States Supreme Court long since accepted as settled law, both in England and the United States, that courts of equity in both countries have a jurisdiction over corporations, at the instance of one or more of the stockholders, to apply preventive remedies by injunction, to restrain those who administer them from doing acts * * * lessening * * * the value of their shares, * * * if the acts intended to be done create whatever the law denominated a breach of trust.’ Reid on Corporate Finance, § 207.
“Complainant asks that the Calumet & Hecla be restrained from voting in the Osceola meeting for directors who are directors of the Calumet & Hecla. The relief is granted.
“Complainant .also asks that the Calumet & Hecla be restrained from voting its stock at all in the Osceola meetings. .This cannot be granted. The statute permits the Calumet & Hecla to own the stock of the Osceola Company, and in so holding the stock the Calumet & Hecla has all the rights of a stockholder, and this court has neither the power nor the disposition to confiscate such property right.
“I have considered the question of whether the Calumet & Hecla should be restrained from voting for persons for directors of the Osceola who are stockholders merely in the Calumet & Hecla, and have reached a conclusion that to do so would be going somewhat beyond the necessities of the case. I recognize the possibilities of continuing the Calumet & Hecla authority oyer the Osceola in case common stockholders are made directors of the Osceola; but if this happens, and the situation as. presented upon this record continues, the remedy must come after the event and not before. The complainant as a stockholder of the Osceola Company has a right to have the Osceola corporation proceed under its own corporate powers and management within the intent and purposes of a corporation competing with and free from the unlawful domination of the Calumet & Hecla.
“The complainant is granted a decree as above set forth, with his costs to be taxed.”

Steere, J.

(after stating the facts). Since this suit was appealed, a companion case, entitled Hyams v. Mining Co., involving substantially the same evidence, issues, and purpose, has been decided by the United States Circuit Court of Appeals. The opinion rendered in that case (221 Fed. 529, 137 C. C. A. 239) reviews practically the same controlling evidence and questions of law presented by this record, with similar conclusions and like decree as reached and rendered by the trial court in this case. After consulting the authorities cited and a careful examination and comparison of the records and opinions in the two cases, we find no occasion to disturb the decree rendered by the Ingham county circuit court, in chancery.

The same is hereby affirmed, with costs.

Brooke, C. J., and Kuhn, Bird, and Moore, JJ., concurred. Stone and Ostrander, JJ., did not sit.

The late Justice McAlvay took no part in this decision.


source: Caselaw Access Project

license: Public Domain

text:
    LAMBRECHT v. GRAMLICH.
    Deeds — Building Restrictions — Equity.
    The purchaser of land under a‘deed containing no building restrictions is not hound by conditions of a restrictive character in subsequent conveyances of the vendor, affecting surrounding property.
    Appeal from Wayne; Hosmer, J.
    Submitted January 27, 1915.
    (Docket No. 133.)
    Decided July 23, 1915.
    Rehearing denied October 29, 1915.
    Bill by Richard G. Lambrecht and others against Amos E. Gramlich and others for an injunction, etc. From a decree for defendants, complainants appeal.
    Affirmed.

      William Van Dyke, for complainants.

      James H. Pound, for defendants.
   Steere, J.

Complainants, who are interested as residents and lot owners in Scovel’s subdivision, city of Detroit, filed this bill to enjoin threatened violation of alleged building restrictions claimed to rest , upon a lot of said subdivision, located at the southeast corner of Scotten and Tireman avenues, upon which defendant Gramlich was about to erect a store and flats building. In 1908 one Philip Bingman purchased from Scovel lots of said subdivision numbered 29 to '34, inclusive, of block 9, free from any restrictions as to use. These lots are located on the east side of Scot-ten avenue, and are each 30 feet in width, except lot 34, which is an unequal-sided corner lot having a frontage of 16.65 feet on Scotten and 165.91 feet on Tire-man avenue, widening to a rear width of 87.75 feet back of Scotten upon a parallel alley. Bingman placed these lots for sale with the real estate firm of Lambrecht, Kelly & Co. whose subagent, Sorge, soon negotiated a sale of lot 34 to defendant Amos Gramlich. These negotiations were conducted upon the premises, which were then vacant. This was the first one of those lots sold.' Sorge claimed to have informed Gramlich that buildings upon the lots would be restricted to dwellings, not closer than 18 feet from the front lot line. This is denied by Gramlich, who testified that he not only bought the lot free of restrictions, as a prospective business location, but had no knowledge of any claim to the contrary until he started to build. After the preliminary agreement, he was directed to the office of Lambrecht, Kelly & Co. to close up the matter and get his contract. Lambrecht drew the contract and closed the deal with him on April 28, 1909, Bingman being present and signing the agreement when the first payment was made. Bingman and Lambrecht claim they at that time advised him of building restrictions, which,he denies, but the contract was then drawn, signed, and delivered free of restrictions, while whatever had been agreed upon was fresh in the minds of the contracting parties and presumably was embodied in the written agreement. Gramlich paid $125 down, and was to pay the balance in stated installments, payments to be made at the office of the real estate firm through which he bought. He took immediate possession and has remained in open, notorious, and continuous possession, either in person or by tenants, receiving ground rent for a small office building upon the premises during much of the time. At the time of his purchase the Bingman lots were all vacant, and there were few buildings on the subdivision in that locality. On October 12, 1909, Bingman, unknown to defendants, conveyed lot 34 to John C. Wright and wife, by a deed which contained the following restrictions:

“It being understood that all buildings erected upon said lot shall set back 18 feet from the front of said lot line and to be used for dwelling purposes only.”

In November, 1909, the Wrights conveyed this lot to C. H. Howard by a deed without restrictions. Howard served notice upon Gramlich that he had “bought my contract,” as Gramlich states it, and he was advised by the real estate firm to which he had previously made payments to thereafter make them to Howard, which he did until March 4, 1912, when, his payments being completed, Howard gave him a deed of the property without restrictions, and an abstract tracing the title down to Bingman. In the spring of 1912, after he had paid up and received his deed, Gramlich visited lot 34 with a surveyor and measured it out preparatory to building upon it. He at that time saw and talked with complainant Smith, who owned lot 33, and told him what he intended to do, and later showed him plans of the intended building. In those conversations Smith told him that property was restricted, which Gramlich contended could not be the case- as to his lot, for his abstract, contract, and deed made no mention of it. He also was seen by Lambrecht, who insisted restrictions on the property prohibited the proposed building, which he again denied. He later let a contract for the building, and was. restrained from proceeding by a preliminary injunction issued upon the filing of this bill. He was a traveling salesman, absent from Detroit much of the time, and testified that prior to his taking steps to build he knew of no restriction in any contracts or conveyances of these lots, or any general plan to limit use of the property to residential purposes only; that this was his first real estate deal, and he had no knowledge of any conveyance of the lot by Bingman to the Wrights, but had confidence in Howard, whom he knew and to whom they had told him to make payments; that he supposed a deed from Howard was sufficient, saw that his abstract, contract, and deed contained no restrictions, and first learned of the deed from Bingman to Wright containing a restriction after this suit was begun. Complainants showed that the remaining Bingman lots were disposed of with restrictions in the deeds or contracts, which had been complied with, all lots of said group, except 34, having upon them dwelling houses fronting on Scotten avenue, 18 feet back from the lot line, as also 14 other lots fronting on said avenue in the same block, Scotten avenue between Scovel place and Tireman avenue being occupied for residence purposes only. As before stated, lot 34 had a frontage of less than 17 feet on Scotten avenue and over 165 feet on Tireman. Gramlich’s proposed building, of brick veneer, fronting about 80 feet on Tireman avenue, with three dwellings, or flats, facing in that direction and a drug store on the corner, the Scotten side, or front, being 13.65 feet. Upon full and final hearing of the case the trial court dismissed complainants’ bill.

It is shown, without dispute, that Bingman bought this group of lots without any restrictions, and shortly thereafter sold lot 34 to Gramlich, giving him a land contract without restrictions. When this first lot was sold by him, all of the lots were unoccupied. According to plaintiffs’ testimony there were but four houses in the block on that side of the street, while Gramlich claims but one. If anything was said at that time of a general plan of restrictions as to these lots, no purchaser had accepted or acted upon it, nothing had been or was then done to carry out such plan, and Bingman himself, then under obligations to no one to observe and enforce it, immediately repudiated it, so far as Gramlich was concerned, by giving him a contract without restrictions. His right and title to the lot originated when he received his contract and took possession, and his possession was notice of whatever rights he had, and in that particular protected him as fully as would recording his contract. Whatever Bingman decided to and did do afterwards in regard to restrictions could not qualify or restrict Gramlich’s rights unless by accepting and becoming a party to it he estopped himself from subsequently denying it. We agree with the trial court that no conduct on his part is shown which would operate as ah estoppel. He was the first purchaser by contract without restrictions in a group of lots upon which there were no restrictions and no improvements. Such a case bears no relation to one where a subsequent purchaser, with notice, of a lot in a generally restricted subdivisión, which is clearly shown to have been developed and improved as a residential district under a general plan, maintained from its inception, evidenced by written instructions in most of the conveyances, fully understood, accepted, complied with and acted upon by all purchasers to a point where it is. enforceable inter se as to all the then owners.

Counsel for complainants contends, as a controlling and important legal proposition of general interest, that:

“If, in one of these contracts, the restriction is omitted, and the vendee is innocent of knowledge of the restriction, and then the vendor and original owner of the subdivision deeds other lots subject to the restriction, and finally deeds the balance of the lots by warranty deed containing the building restriction”

—the vendee in the land contract, who later receives an unrestricted deed pursuant to the terms of his contract from the grantee of the original subdivider, or grantor, and contractor with him, cannot violate or ignore the restriction which necessarily appears in his chain of title to the fee, and therefore, as Bingman deeded reciprocal easements of restriction in lot 34 to others, which were of record before Gramlich took the deed to it from Howard, he had constructive notice of and was bound by the restrictions in the Wright deed, given after his contract. In that connection it is urged for the court to hold otherwise would be disastrous because:

“Thousands of lots are being sold in Detroit on land contracts in restricted subdivisions, and after the lots are thus sold they are deeded by the subdivider to some party who assumes the contracts and receives the payments and eventually gives the deed.”

What has happened or may happen with others cannot be included as an influencing consideration in this case. It is manifest that under our recording laws, with reasonable care and consistency in conveyancing and recording, the evil suggested is easily avoided. If the subdividing grantors and their agents have indulged in loose conveyancing, and so juggled titles as to work the injury to purchasers of lots suggested by counsel, the courts can only deal with the individual cases as they arise. The law cannot be shaped to help irregular and doubtful practices which may prevail in a certain locality.

A complete answer to the proposition in this case is that Gramlich was in possession of his lot before and during all the time Bingman was disposing of the other lots with restrictive conveyances, and there could be no purchasers without constructive knowledge of his rights, which were measured by the contract under which he held possession. .

The decree of the lower court is affirmed, with costs.

Brooke, C. J., and Kuhn, Stone, Ostrander, Bird, and Moore, JJ., concurred.

The late Justice McAlvay took no part in this decision.


author: Beooke, C. J. Ostrander, J.

text:
    PEOPLE, for use of T. B. TOWNSEND BRICK & CONTRACTING CO., v. BOWEN.
    Principal and Surety — Municipal Corporations — Bonds—Public Buildings — Surety Bond — Extension of Time.
    A surety company having executed a statutory bond for a municipal contractor conditioned upon bis paying sub-contractors, laborers, etc., was not released from its obligation on the indemnity agreement wbicb was given for a money consideration, where the contractor paid for part of the materials furnished by a material man, and, the surety not consenting, gave a note for ninety days to plaintiff for the remainder of his account. Some evidence of injury to the surety is essential to such release.
    Error to Lenawee; O’Mealey, J.
    Submitted April 12, 1915.
    (Docket No. 49.)
    Decided July 23, 1915.
    Assumpsit by the T. B. Townsend Brick & Contracting Company against William F. Bowen and another on a surety bond. Judgment for plaintiff. Defendants bring error.
    Affirmed.

      Keena, Lightner, Oxtoby & Hanley, for appellants.

      Charles L. Robertson, for appellee.
   Beooke, C. J.

On April 8, 1911, defendant Bowen entered into a contract with the city of Adrian to furnish the labor and material to carry out and complete the paving on East Maumee street, in said city, for a stipulated sum. He furnished a bond, with the defendant the American Bonding Company as surety, in the sum of $5,000, conditioned as follows:

“Now the condition of this obligation is such that if the said William F. Bowen shall pay to any subcontractor, or by any such contractor or sub-contractor, as the same may become due and payable, of all indebtedness which may arise from said contract to a sub-contractor, or party performing labor or furnishing materials, or any sub-contractor, or any person, firm, or corporation, on account of any labor performed or material furnished in the erection, repairing or ornamentation of such building, improvement, or works, then this obligation shall be void; otherwise the same shall be in full force and effect.”

In accordance with the contract, the plaintiff furnished to said Bowen a considerable quantity of brick to be used upon said paving job. Some payments bn account thereof were made by said Bowen, but on August 24, 1911, there was an unpaid due balance of $1,729.86. On that date Bowen executed a promissory note at 90 days, for $1,700. This note was executed by Bowen at the request of the plaintiff without the knowledge or consent of the surety, the defendant American Bonding Company. Bowen has since been adjudicated a .voluntary bankrupt, and the note has not been paid. Suit was brought by the plaintiff against the defendant bonding company upon the bond, resulting in a judgment in favor of plaintiff, which is now reviewed in this court.

It is the contention of counsel for appellants that the case is governed by the holding of this court in Little v. Grant, 188 Mich. 60 (100 N. W. 1006). That case was one in which the bond was executed by individual gratuitous sureties, and, applying the strietissmi juris rule, the bondsmen were held to be released. It is"the appellants’ claim that the extension of time granted by the use plaintiff to Bowen without notice to or consent from it worked a release of its liability upon the bond. The record contains no evidence that the extension of time granted by the plaintiff to Bowen actually operated to the injury of the defendant bonding company. It seems clear that the old rule applicable to private gratuitous bondsmen is not applicable, where the bond is furnished by a surety company for hire. This view of the rule is indicated by our holding in Cox v. Fidelity & Deposit Co. of Maryland, 157 Mich. 59 (121 N. W. 494), where this court used the following language:

“We think the rule of law that bondsmen are treated as a favored class should receive extremely cautious application to contracts like the one at bar, which is but one of a very large and rapidly growing class where the surety undertakes its liability for hire, and purely as a matter of business, and not of accommodation.”

And further by our holding in the case of Crystal Ice Co. v. Surety Co., 159 Mich. 102, 106 (123 N. W. 619).

An examination of the following collection of Federal and State authorities will be found to demonstrate the unanimity of the decisions upon this question: Chaffee v. Fidelity & Guaranty Co., 128 Fed. 918 (63 C. C. A. 644); Atlantic Trust, etc., Co. v. Town of Laurinburg, 163 Fed. 690 (90 C. C. A. 274); Baglin v. Guaranty & Surety Co. (C. C.), 166 Fed. 356; United States, etc., Guaranty Co. v. United States, 178 Fed. 692 (102 C. C. A. 192); United States v. Fidelity & Guaranty Co., 178 Fed. 721; Guaranty Co. v. Pressed Brick Co., 191 U. S. 416 (24 Sup. Ct. 142); Lesley v. Kite, 192 Pa. 268 (43 Atl. 959); Young v. Bonding Co., 228 Pa. 373 (77 Atl. 623); Philadelphia v. Fidelity & Deposit Co., 231 Pa. 208 (80 Atl. 62, Am. & Eng. Ann. Cas. 1912B, 1085); Rule v. Anderson, 160 Mo. App. 347 (142 S. W. 358); Boppart v. Surety Co., 140 Mo. App. 675, 683 (126 S. W. 768); Hull v. Bonding & Insurance Co., 86 Kan. 342 (120 Pac. 544); Brandrup v. Surety Co., 111 Minn. 376 (127 N. W. 424). See, also, cases cited in note to George A. Hormel & Co. v. Bonding Co., 112 Minn. 288 (128 N. W. 12, 33 L. R. A. [N. S.] 513), and in note to Am. & Eng. Ann. Cas. 1912B, 1087.

The judgment is affirmed.

Kuhn and Moore, JJ., concurred with Brooke, C. J.

Ostrander, J.

(concurring). The condition of the bond is that the contractor shall pay all indebtedness which may arise from said contract, as the same may become due and payable, following the statute. It appears that, by agreement between the contractor and the plaintiff, payment was to be made on the 10th of each month for all material shipped the preceding month. Between April 8 and May 2, 1911, plaintiff furnished the contractor 400,000 paving blocks at $18 a thousand; plaintiff paying the freight. The net balance due plaintiff was $4,729.86. The whole account was due June 10,1911. The contractor paid $1,000' on each of the days May 9th, June 8th, and July 8th, leaving a balance due of $1,729.86. Plaintiff thereafter requested the contractor to execute his 90-day note, drawing 6 per cent, interest, and on August 24, 1911, the contractor did execute his note for $1,700, due in 90 days, bearing interest at 6 per cent. The contractor abandoned his contract with the city of Adrian, which the city completed, and, upon settlement being made, nothing was found to be due to the contractor from the city. Plaintiff demanded payment after the note became due from the contractor and from the defendant surety of the amount of its account ; the surety refusing payment for the reason that the note was executed and delivered after the account became due without its knowledge or consent. After this suit was begun, the contractor was adjudged a voluntary bankrupt and has received his discharge in bankruptcy. As is stated in the opinion of Mr. Justice Brooke, it does not appear affirmatively that the surety was injured by the action of the plaintiff. It is undoubtedly true that the courts have rather uniformly refused to apply, in favor of sureties organized and incorporated for the purpose of executing such bonds for pay, the strict rule which favors private and gratuitous sureties. But as was said by Mr. Chief Justice Fuller, in Guarantee Co. v. Savings Bank & Trust Co., 183 U. S. 402, 419 (22 Sup. Ct. 124, 181):

“This rule cannot be availed of to refine away terms of a contract expressed with sufficient clearness to convey the plain meaning of the parties, and embodying requirements, compliance with which is made the condition to liability thereon.”

I know of no decision which has gone so far as to hold that a contract stipulation of a condition, or of certain action, as a precedent to the liability of a surety company, may be disregarded and the surety, whatever the consequences to it, be held liable. This and all other cases of similar character must be determined according to the particular facts disclosed, and they cannot be determined by the mere application of a rule, whether we call it a general rule or .otherwise. There is no rule which will, in all events, hold the surety liable. A material variation of the contract, which the surety guarantees shall be performed, must be a defense open as well to a corporate as to a private surety. And I think the question to be answered in this case is: Has there been a material variation of the contract? If there has been, then, where the surety is able to show affirmatively an injury arising out of the variation, it should be released.

A somewhat similar case is Guaranty Co. v. Pressed Brick Co., 191 U. S. 416 (24 Sup. Ct. 142). In that case the bond was given to secure performance of a contract made with the secretary of the treasury of the United States. The brick company granted to the contractor an extension/of time of payment for brick used in performing the contract. The statute of the .United States required the bond to be given “with the additional obligations that such contractor or contractors shall promptly make payments to all persons. * * * ” The Circuit Court held that the extension did not relieve the surety. The Circuit Court of Appeals certified to the Supreme Court two questions, viz.:

“First. Hid the action of the brick company on October 1,1898, in taking two promissory notes, one for the sum of $1,275, and the other for the sum of $2,508.10, for the amount of the brick company’s account, then due and payable, one of said notes running for 30 days and the other for 60 days, and each bearing 10 per cent, interest per annum from date, operate to discharge the United States Fidelity & Guaranty Company from its liability, assumed under the provisions of the aforesaid bond, to pay to the Golden Pressed & Fire Brick Company the amount of said indebtedness ?
“Second. Did the extension of the time of payment of the balance due from said McIntyre on October 1, 1898, by the taking of two notes in the manner and form aforesaid, operate to discharge the United States Fidelity & Guaranty Company of its liability to pay the amount of said indebtedness to the brick company, irrespective of the question whether said guaranty company did or did not sustain an actual loss or damage on account of such extension?”

Both questions were answered in the negative; the court saying, among other things:

“The facts of this case do not call for an expression of opinion as to whether, if an unusual credit were given, and in the meantime the principal obligor had become insolvent, or the surety were otherwise damnified by the delay, it might not be exonerated; since neither of these contingencies supervened in this case, we are remitted to the naked proposition whether the giving of a customary credit, with no evidence of loss thereby occasioned, is sufficient to discharge the surety. We find no difficulty whatever in answering this question in the negative. The rule of strictissimi juris is a stringent one, and is liable at times to work a practical injustice. It is one which ought not to be extended to contracts not within the reason of the rule, particularly when the bond is underwritten by a corporation, which has undertaken for a profit to insure the obligee against a failure of performance on the part of the ■principal obligor. Such a contract should be interpreted liberally in favor of the subcontractor, with a view of furthering the beneficent object of the statute. Of course, this rule would not extend to cases of fraud or unfair dealing on the part of a subcontractor, as was the case in United States v. Bonding & Trust Co., 89 Fed. 925 [32 C. C. A. 420], or to cases not otherwise within the scope of the undertaking.”

The strictissimi juris rule is a rule of construction, and a relaxation of the rule affects construction. Ought the contract in question here to be so construed that the action of the plaintiff in extending the time of payment of the contract debt, must be considered a material variance? I think the reasoning of the opinion from which I have quoted, as well as the reasoning of many of the cases cited by Mr. Justice Brooke, require a negative answer. I therefore concur in affirming the judgment.

Steere and Stone, JJ., concurred with Ostrander, J. Bird, J., did not sit.

The late Justice McAlvay took no part in this decision.


text:
    AMERICAN FIDELITY CO. v. R. L. GINSBURG SONS’ CO.
    1. Insurance — Agency—Authority—General Agents.
    The general agents of a foreign insurance company who had the management of local business throughout the State, and of the business of local brokers and agents, and who had blank forms of contracts that they were authorized to issue, were not entitled to set limitations upon their general authority contained in instructions from the company to the agents, but not known to the insured, and defendant’s claim that it had waived cancellation, denied by the agents, raised an issue of fact for the jury.
    2. Same — Cancellation—Notice.
    Unless an explicit and unconditional notice of cancellation is given by the insurer, strictly in pursuance of the conditions of the policy, it is not sufficient to terminate the insurer’s liability.
    3. Same — Fraud—Application—Accident Indemnity.
    Where defendant secured, through general agents in the State, a policy of employer’s liability insurance, which, because of tbe number of accidents, tbe agents later notified defendant that they would be compelled to cancel, but that the company might carry the risk if defendant would pay higher premiums, and they ikould later take up the matter with the insurer, if acceptable to defendant, “or otherwise we are obliged to give notice of 5 days in accordance with the terms of policy numbered,” etc., and one of the defendant’s officers requested that the subject of an increased rate be taken up with the insurer, and the agents agreed to do so, later advising defendant that the company would continue the policy to its expiration, but when defendant notified them to discontinue it, that it had placed the insurance elsewhere, there *was no such cancellation by the insurance company as to avoid the new policy for fraud, defendant representing in its application for the second policy that it had not had any liability insurance canceled within three years.
    Error to Wayne; Van Zile, J.
    Submitted April 6, 1915.
    (Docket No. 3.)
    Decided July 23, 1915.
    Rehearing denied December 22, 1915.
    Assumpsit by the American Fidelity Company against the R. L. Ginsburg Sons’ Company for money paid out under a policy of indemnity insurance, to protect defendant against litigation. Judgment for defendant on a directed verdict. Plaintiff brings error.
    Affirmed.

      Oxtoby & Wilkinson, for appellant.

      Lucking, Helfman, Lucking & Hanlon (A. J. Groesbeck, of counsel), for appellee.
   Steere, J.

The parties to this action are both foreign corporations authorized to transact, and engaged in, business in this State. Defendant is incorporated’ under the laws of New York, and had been for years engaged in the junk business, dealing in scrap iron, steel, and other metals, having yards for that purpose located at Mt. Elliott avenue and Franklin street, in the city of Detroit, where it maintains a force of employees. Plaintiff is a Vermont insurance company, with an agency in Detroit, and as a part of its regular business insures employers against liability for accidents to their employees. It on June 28, 1910, first issued defendant a policy of that nature, designated “Manufacturer’s Employees’ Liability Policy,” insuring defendant against liability for accidents to its employees at said yards, which after a time was surrendered and canceled, the premium rate having been increased, and a new policy of like kind, dated September 8, 1910, was issued in its place, which is the one directly involved here.

This policy, as the one preceding it, was issued “in consideration of the premium and the statements set forth in the application” for it, expressly providing as one of its conditions that:

“No assignment of interest, voluntary or otherwise, and no erasure or change of this policy as originally printed, or waiver of any of its terms, conditions or statements, shall be valid unless indorsed hereon and signed by the president, one of the vice presidents, or one of the secretaries of the company. Notice to or knowledge by any agent or other person shall not be held to effect a waiver of any of the terms, conditions or statements hereof.”

Defendant’s written application for said insurance, which was attached to and made á part of the policy, contained the following:

“No company has canceled or refused to issue any liability, elevator, or boiler insurance to the insured during the past three years, except as follows: None.”

Between August 16, 1910, and October 7, 1911, inclusive, several of defendant’s employees suffered accidental injuries, two of which resulted in death. Plaintiff without objection assumed the burden of adjusting, or litigating, defendant’s liabilities by reason of such accidents, and paying damages when determined, according to the terms of its policy, until July 30, 1911, when learning for the first time, as was claimed, that defendant’s application was untruthful, it caused the following letter to be written by its attorney and sent to defendant:

Detroit, Mich., August 1,1911. “R. L. Ginsburg Sons’ Company,
“542 Franklin Street,
“Detroit, Mich.
“Dear Sirs:
“I write you on behalf of the American Fidelity Company, regarding the manufacturer’s liability policy issued to you on June 28,1910. This policy was issued by the company to you in consideration of certain statements set forth in your application, a copy of which application was a part of the policy. The application sets forth that the insurance applied for was to be based upon certain statement of facts, which statement was made as a warranty. Statement 14: ‘No company has canceled or refused to issue any liability, elevator, or boiler insurance to the insured during the past three years, except as follows: None.’
“Relying upon the correctness of this statement, the company issued this policy to you. We learned yesterday that your liability policy in the London Guarantee & Accident Company, which covered the period from August 4, 1909, noon, to August 4, 1910, noon, was canceled by the London Guarantee & Accident Company on or about June 22, 1910, the cancellation to become effective June 28, 1910.
“The American Fidelity Company wishes me to notify you that it must stand upon the warranty contained in your application for its policy, and does not therefore consider itself obligated under its policy to furnish the protection otherwise provided for.”

On August '9,1911, two actions for personal injuries of employees were pending against defendant in the Wayne county circuit court, one of which plaintiff was defending and the time for appearance of defendant in the other had arrived.

In conferences over differences foreshadowed by the above letter and anticipated resulting litigation, it was agreed by the parties hereto and their respective counsel that complications were such as rendered it advisable to co-operate in defense of pending suits against defendant for personal injuries and the adjustment of other claims of like nature which had been made or were expected, and defer litigation between themselves over the policy until those matters were disposed of. Pursuant to such understanding a stipulation was entered into, on August 9, 1911, reciting the differences which had arisen and the pending suits and claims in regard to which it was deemed advisable to work in harmony, and agreeing that, without prejudice to the rights of either party with reference to plaintiff’s liability under the policy, those matters as to third parties in which they were mutually interested should be first worked out to a conclusion, along practically the same lines as though no question as to this policy or difference between the parties themselves existed, before this litigation was initiated.

Subsequently stipulations of like nature were made in relation to other claims, there being five in all, which in the course of time were adjusted and finally fully disposed of by the parties working under said stipulations. After all those matters were out of the way, this action in assumpsit was begun by plaintiff on June 20, 1912, to recover money paid by it in connection with such adjustments according to the policy, with interest. Its declaration alleged in proper form the invalidity of the policy, for the reasons stated, the agreements entered into between the parties in relation thereto, and plaintiff’s expenditures in that connection. Defendant pleaded the general issue and gave notice of recoupment for moneys which it had paid out, with interest, under those agreements, alleging that said policy was valid, and, therefore, by the agreements, plaintiff was liable to defendant for the advances it had thus made. The amounts paid by each are not in dispute, and it is conceded that the right of each to recover the amount claimed is contingent upon the validity or invalidity of said policy.

The case was tried before a jury, and resulted in a directed verdict in favor of defendant for the amount claimed under its plea of recoupment. It was shown upon the trial that prior to insuring with plaintiff defendant carried employees’ accident insurance with the London Guarantee & Accident Company, Limited, having a policy issued to it on August 4, 1909, for one year, which by its terms the company could cancel on five days’ notice to -the insured, and which plaintiff claims the London Company refused to continue and canceled under the terms of the policy at or about the time defendant made application for insurance with plaintiff, stating in said application that no company had canceled or refused to issue it liability insurance during the preceding three years.

Defendant contends there was no absolute cancellation by the London Company of its policy, under its terms and within the meaning of the statement in its application to plaintiff for insurance, and also that all which occurred in that connection was well known to and understood by plaintiff’s State agent, who solicited the insurance of defendant, prepared the application, and issued the policy in question. It appears, undisputed, that C. B. Erringer, State agent of plaintiff, and located in Detroit, had, during the spring of 1910, solicited business for his company from officials of defendant with whom he was acquainted, having at one time, when acting for another company, written similar insurance for defendant. He testifies that he made several trips up there and talked insurance, telling them he could give them a better rate than they were paying (which was then 45 cents per $100) :

“Because the American Fidelity Company did not belong to what is called the so-called combine of liability insurance companies. These other companies that were issuing this kind of insurance were in a kind of combination, * * * as I understood it, and represented to my customers. * * * I wanted that business, certainly. I wanted to take it away from the company that had it. * * *”

The circumstances which enabled these efforts to bear fruit are in outline as follows:

The insurance firm of Raymond. & Raymond, of Detroit, was the general agent for the London Company, and, on June 22, 1910, Mr. Harper, a special agent in charge of the business of that firm, wrote defendant as follows:

“Gentlemen:
“We regret that we find it necessary to retire our policy with your company, which otherwise would expire on August 4, 1910, on account of the numerous accidents which have made our present rate inadequate to the loss we have sustained.
“We find the first aid medical bills alone amounted to considerable money, and the nature of the injuries have caused us to make expensive investigations and settlements. We might say for your information that this agency have the only scrap iron dealers carried by this company anywhere in the United States, as past experience has proven the hazard almost impossible for any company to underwrite with any chance of profit. We find other companies are having the same experience, and while we are advised by our home office to let all risks of this kind alone in the future, we ourselves, as agents, may prevail upon the company to rewrite your risk, provided, however, we are to secure a rate of $1 per $100 of compensation as against a rate of 45 cents which we now secure.
“Should our suggestion as to the increase of rates be acceptable to you, we will thank you to so advise us immediately, whereupon we shall take the matter up with our company, for their approval, or otherwise we are obliged to give notice of 5 days in accordance with the terms and conditions of the policy numbered B-17993, that on and after June 28th, at. 12 o’clock noon, this company will not entertain any claim or claims made under said policy of insurance.
“Awaiting your early advices, should our suggestion meet with your approval, we remain,
“Yours very truly,
U “-- ' )
“General Agents.”

On June 22d a Mr. Jacobson, representing defendant, talked with Harper over the telephone in reference to the contents of this letter and an extension of 'the policy as proposed. Of this conversation Harper testifies:

“The extension that was under discussion in our first talk was thirty days. That is what would be known as a dollar rate; a dollar a hundred. It was my endeavor at the time, if possible, to secure the dollar rate until the expiration of the policy and then persuade the assured to continue with me at a dollar rate, if the company felt that they could make money on the risk. * * * He told me he had been considering the letter which he had sent me, and that they were desirous of having the extension of their present .policy, in order to give them time to make other arrangements, and he wanted me to take up with our company immediately the matter, and secure their sanction to an extension. * * * I told him I would take it up with the company immediately by wire, which I did.”

Harper thereupon exchanged telegrams with the Chicago office upon the subject. The replies which he received were interpreted by him as authorizing the extension. It is contended by plaintiff that they did not. Neither these telegrams nor the letter from the company directing cancellation of the policy in the first instance, as reported in Harper’s letter to defendant, were shown to Jacobson, or any of defendant’s representatives, so far as disclosed. Their information on the subject was what the London Company’s State agent wrote or told them. Asked why he did not communicate to Jacobson the contents of a telegram from the company, Harper replied:

“Well, because I told him I could take care of him until the expiration of his policy, and that was as far as I went with him.”

Following the telephone conversation, on June 27th, Jacobson, in confirmation of it, sent Raymond & Raymond the following letter:

“The London Guarantee & Accident Company,
“Raymond &'Raymond, Agents,
“Detroit, Mich.
“Gentlemen:
“We have your letter of the 22d inst., and have noted same carefully. In connection with this we have talked to you to-day over the telephone, and have advised you to carry our insurance in accordance with the policy given you, except that we have authorized you to increase the rate from 45 cents to a dollar per hundred for the term of one month from June 28, 1910. Please see that this matter is taken care of, and as soon as we get all matters in shape in connection with further insurance we will be glad to confer with you.
“Yours truly,
“R. L. Ginsburg Sons’ Co.,
“C. D. Jacobson.”

On the same day defendant wrote Erringer:

“We are now considering a new liability policy for our institution, and would like to have you advise us just what you can do on the same.”

Erringer promptly went after the business and offered a rate of 33 cents per hundred, which was accepted. He was familiar with the situation, and on the 28th went to defendant’s place of business, went through the plant, obtained such information as he desired, made pencil memoranda, issued to defendant what he called a “binder,” returned to his office, filled out an application and policy upon the regular blanks, and issued the first policy, of June 28th.

Jacobson testifies that he fully informed Erringer of the letter from the London Company’s agent, of June 22d, proposing to terminate their policy, which would be five days from the 23d as he interpreted it, because they considered the rate too low and demanded an increase, of the communication with Harper, and their negotiations in regard to the subject. Erringer denies that anything was said to. him at that time in regard to the London Company. This, if material, would, of course, be an issue of fact. Having arranged for insurance with Erringer, Jacobson then had a conversation with Harper over the telephone, informing him, as he claims at Erringer’s suggestion, that they had made other arrangements for their insurance and it was not necessary to do anything further. Of this Harper says:

“The morning of the 28th I had a further talk with Jacobson by telephone. He called me up, and I told him I had received instructions from the home office by telegram that I could continue his policy in full force until the expiration of the date, and that that would help them, and it would probably leave us all with a little better feeling, and he said that was not necessary; that he had made other arrangements to place his insurance elsewhere. I asked him with whom he placed it, and he told me with Erringer, of the American Fidelity, so he told me not to do anything further with the matter and I dropped it there. * * * It [the policy] ceased on June 28th, but it was left to the option of R. L. Ginsburg Company whether they wanted it continued to its expiration; that is, we were ready to eliminate our cancellation letter.”

He also states:

“We were perfectly willing on that morning to let the policy run on until August 4th. It was Jacobson that gave me directions that I should let it expire on June 28, 1910.
“Q. Well, as a matter of fact, Mr. Jacobson discontinued the policy on behalf of R. L. Ginsburg Sons’ Company, rather than your office; isn’t that true?
“A. Yes, sir.”

After his conversation with Jacobson, Harper called Erringer by phone and testifies that he said:

“You are probably aware of the fact that we have carried the R. L. Ginsburg Company, and I, losing the business, as I understand from the assured, to you, I was naturally interested in knowing what rate you secured. He told me it was none of my business. * * * I said possibly he was aware or not aware of the fact we had canceled the R. L. Ginsburg policy by letter, and naturally, losing the business to him when I had a counter proposition up, I wondered what rate he wrote it at.”

Of this conversation Erringer says:

“I remember somebody calling me up and wanting to know what we had renewed the business for, stating that they were the London Guarantee & Accident Company and wanting to know what rate we wrote it for. I told them I did not consider that necessary to give them that information. * * *
“Q. Now, referring to counsel’s question with regard to the talk that you had with Harper, do I understand you to say that Mr. Harper did not tel! you that the London Guarantee policy was canceled?
“A. I don’t remember of him saying that, if it was Mr. Harper that I talked to.”

Having secured this insurance at 88 cents a hundred, Erringer later demanded a larger rate, as the other company had, to which defendant was obliged to, or did, concede, resulting in the first policy of June 28th being canceled, and the new policy, the one in question here of September 8th, being issued at the rate of $1 a hundred. Erringer filled out a new application and issued this policy, countersigned by him as the former one. No application for either policy was ever signed by defendant, though each policy had, as before stated, a copy of the application attached to and made a part of it. Erringer, as general State agent, was supplied with blank policies stamped with the name of the president of the company, which he filled out and issued as he obtained business.

Plaintiff’s assignments of error cover the propositions that there was an unequivocal cancellation by the London Company of its policy on June 28th; that defendant had no right to vary the statement of facts made as warranties in its application embodied in the policies, issued to it by plaintiff, by oral testimony as to Erringer’s knowledge that they were untrue, and, such testimony being inadmissible, a verdict should have been directed for plaintiff; that, even if such proof was competent, the question of Erringer’s knowledge was one of fact for the jury to decide. It must be conceded in the outset that, if plaintiff has failed to show the statement in the application relative to cancellation is untrue, it cannot recover, and the other points presented need not be considered.

The fraudulent misrepresentation upon which plaintiff relies to avoid this policy is that no company had “canceled or refused to issue any liability, elevator, or boiler insurance to the insured during the past three years,” etc. Clearly no company is shown to have refused. On the contrary, plaintiff’s testimony shows that the London Company’s State agent was proposing to sell defendant liability insurance, but asking a higher rate, giving a notice of cancellation of the previous policy on the ground that the rate was not adequate, coupled with a condition and suggested alternative.

Limit of authority or instructions from the company to Raymond & Raymond, not made known to defendant, cannot govern. It is to be borne in mind that Raymond & Raymond were general State agents of the London Company, as was Erringer of plaintiff. They were intrusted with the general management of the insurance business of their company throughout the State, having charge of local insurance brokers, solicitors, and agents; they were supplied with blank forms, and could make contracts and issue policies for their company; their powers could be assumed as coextensive with the business intrusted to their care when acting within the scope of their real or apparent authority. Insurance Co. v. Wilkinson, 13 Wall. (U. S.) 222. The cancellation of this policy is not determined by private instructions received from the company by them, but on the notice which they gave defendants. Such notice, to be effectual, must be according to the provisions of the policy, and must also have been peremptory, explicit, and unconditional. Richards on Insurance (3d Ed.), p. 384.

The so-called letter of cancellation, of June 28th, from the State agents, does, not stand this test. Claiming the then rate to be inadequate and regretting the necessity of retiring defendant’s policy, the letter proposes a rate deemed adequate and suggests negotiations upon that basis, offering to take the matter up with “our company” if the suggestion is acceptable, “or otherwise” (in case they are not advised it is acceptable) “we are obliged to give notice. * * * Awaiting your early advices, should our suggestion meet with your approval, we remain,” etc. “Or” and “otherwise,” in the connection used, have substantially the same meaning (suggesting “on the other hand”), and their joint use, strictly speaking, only amounts to emphasizing by redundance the thought conveyed. They serve to so disjunctively co-ordinate the two propositions that each in turn excludes the other, and obscures certainty as to either. That it was not intended by the man who wrote it as final and unconditional is indicated by his statement:

“We were perfectly willing on that morning to let the policy run on until August 4th. It was Jacobson that gave me directions that I should let it expire on June 28th.”

This points in the finality to a transaction of surrender by mutual agreement rather than of arbitrary cancellation.

Plaintiff’s claim is that a material false representation as to previous insurance rendered its policy to defendant void from the beginning. Upon this proposition it was said long ago, in Carter v. Boehm, 3 Burr. (Eng.) 1905:

“The question, therefore, must always be, ‘whether there was, under all the circumstances at the time the policy was underwritten, a fair representation, or a concealment, fraudulent, if designed, or, though not designed, varying materially the object of the policy, and changing the risque understood to be run.’ ”

The alleged false representation in this case falls far short of measuring up to those requirements. For the reasons stated, we are unable to conclude that there was an unconditional, distinct, and peremptory notice given defendant of cancellation of the London Company’s policy, or that the statement in defendant’s application to plaintiff, as written by the latter’s State agent, was false and fraudulent.

The judgment is affirmed.

Brooke, C. J., and Kuhn, Stone, Ostrander, Bird, and Moore, JJ., concurred.

The late Justice McAlvay took no part in this decision.


author: Brooke, C. J.

text:
    HOGAN v. HOGAN.
    1. Specific Performance — Contracts—Cancellation of Instruments — Deeds.
    Where complainants brought suit for the specific performance of an alleged oral contract between themselves and their father, providing that complainants should have all of his property, both real and personal, at his death, if they would remain at home and help pay off the mortgage on the farm, and other obligations, and also for the cancellation of a deed conveying 80 acres of the land in violation of said contract, and where defendant denied the making of the contract, evidence reviewed and held, sufficient to sustain the contract.

    2. Same — Breach of Contract — Part Performance — Injunction.
    Where complainants had performed their part of the contract for 13 years, and the further performance was made impossible by the conduct of defendant, it was held, that complainants were entitled to a decree setting aside said deed and enjoining defendant from disposing of or incumbering his real or personal property, except as his personal necessities might require.
    Appeal from Ionia; Davis, J.
    Submitted April 13, 1915.
    (Docket No. 66.)
    Decided July 23, 1915.
    Bill by Daniel Hogan and others against Patrick M. Hogan and another for the specific performance of an oral contract. From the decree entered, both parties appeal.
    Modified and affirmed.

      George E. Nichols and Frank C. Miller (A. R. Locke, of counsel), for complainants.

      Hawley & Eldred, for defendants.

       As to right to specific performance or injunction during lifetime of one who has conveyed or is about to convey property in violation of his agreement to leave the same, at his death, to the complainant, see note in 18 L. R. A. (N. S.) 218.
      As to right of specific performance of oral contract to devise or convey land in consideration of performing services or furnishing support, where no possession is taken, or improvements made, see notes in 15 L. R. A. (N. S.) 466; 38 L. R. A. (N. S.) 752.
      As to specific performance of contract to leave property in consideration of services or support, see note in 44 L. R. A. (N. S.) 733.

   Brooke, C. J.

The complainants in this cause are three of the children of the defendant, Patrick M. Hogan. The other defendant, Dennis J. Hogan, is a fourth child of Patrick M. Hogan. Besides the three complainants and the defendant Dennis, there were four others, as follows: Bridget, born in 1871, now, dead; Margaret, born in 1874, now a widow; James, born in 1875; and Mary, born in 1882. The three complainants were born, respectively,' Daniel in 1881, Katherine in 1885, and Patrick in 1886.

The family history is somewhat peculiar in that, of the eight children, only three were ever married— Bridget, Margaret, and Dennis. Bridget being dead, five of those now living remain unmarried, and Margaret, as before stated, is now a widow. Defendant Patrick M. Hogan, with his wife and family, lived upon a farm in the township of North Plains, in Ionia county, consisting of about 150 acres. His wife died in May, 1898. His elder children, Bridget, Margaret, and James, left home at different dates, and when James started for himself his sister Mary went with him as housekeeper. There remained at home, of the children, defendant Dennis and complainants Daniel, Katherine, and Patrick. This was the situation in May, 1901.

The financial situation of defendant Patrick M. Hogan, in April, 1901, appears to have been as follows: He was the owner of about 150 acres of land, and he was indebted in the sum of approximately $5,000; a portion of this indebtedness growing out of a protracted lawsuit which he had carried on with one O’Connor for two or three years prior thereto. While the record does not conclusively establish the fact that at that time Patrick M. Hogan was insolvent, it does show that he was largely indebted and was not possessed of a very large amount in excess of his obligations. He was at that time (May, 1901) 67 years of age, somewhat crippled, and unable to perform hard menial labor. Complainants were then, respectively, aged, Daniel, nearly 20 years; Katherine, about 16 years; and Patrick, about 14 years. It appears that at this time (May, 1901) Margaret was about to leave home and get married. It is the claim of the complainants that a consultation was then had in the nature of a family conference at which were present complainants Daniel, Katherine, and Patrick, together with Margaret, Mary, and Bridget, and the defendant Patrick M. Hogan. Complainants claim that upon that occasion complainant Daniel told his father that, in the- situation that then existed, there appeared to be nothing to induce him to stay at home, and that it was his intention to go out and work by the month. Daniel himself testifies that he intended to stay with his father until he was 21 years of age, and so stated at the time of the conference. Being advised of the intention of Daniel, it is the claim of complainants that the defendant Patrick M. Hogan agreed with the three complainants that if they would stay at home and help him pay off the mortgage upon the real estate, and his other obligations, at his death they should have, not only the real estate, but such personal property as might be accumulated. Bridget O’Mara being dead, of those then present at the interview there remain complainants Daniel, Katherine, and Patrick, besides Mary and Margaret, and the defendant. The three complainants and their two sisters, Mary and Margaret, testify to what their father said upon that occasion. While they use slightly different language in expressing the agreement which it is alleged was entered into on that day, there is no disagreement as to the basic fact that an agreement was made and that its tenor was as above stated. Added to that is the testimony of the other son, James, who had left home at the age of 19, who says, referring to conversations he had with his father:

“He always claimed they (complainants) were working for themselves, and what he had would be theirs.”

It appears, and the record discloses, that in 1902 James purchased the so-called Fox farm — a farm of 80 acres lying near to or adjoining the home farm. He testifies that he purchased it for his brothers, the complainants Daniel • and Patrick, and that he paid down upon the purchase price the sum of $1,000, $500 of which he himself furnished, and $500 of which was raised upon his note, signed also by his father. He gave a mortgage of $2,000 on the property, which completed the purchase price. He claims to have paid the interest on this mortgage up to the year 1909, when he deeded it to his father, defendant Patrick M. Hogan. Explaining the fact that he deeded this farm to his father, instead of his brothers, James testified that:

“The boys and I talked it over different times. They told me any time father wanted it to let father have it; let it go in with the rest.”

The defendant Patrick M. Hogan absolutely denied the making of the contract in question. In his answer, however, he says:

“This defendant, further answering, denies: That said complainants are entitled to the relief, or any part thereof prayed for, in said bill of complaint. That, while such is the case, nevertheless this defendant has at all times been willing and is now willing, and hereby offers, to compensate said complainants liberally and fully for all services they have ever performed upon said farm or for the use and benefit of this defendant since they each and severally arrived at the age of 21 years.”

Some time prior to the 1st of January, 1914, the relations between the complainants and the defendant Patrick M. Hogan appear to have become somewhat strained, and on the 20th day of December, 1913, the defendant Patrick M. Hogan deeded the Fox farm to his son Dennis J. for an expressed consideration of $3,000. Some time either shortly before or shortly after said transaction, the defendant Patrick M. Hogan took up his residence with defendant Dennis J. Hogan, and on January 7, 1914, complainants filed their bill of complaint herein. They pray for specific performance of their alleged contract with their father Patrick M. Hogan, and that the deed made by him to his son Dennis J. Hogan may be set aside and canceled. The learned circuit judge who heard the case filed no written opinion, but a decree was entered containing the following language:

“The court having taken the same under advisement, and after due consideration, did adjudge and determine, and. does hereby find and determine, that no agreement upon which a specific performance could be compelled and the various parties be granted the equities belonging to them has been alleged or proven, and, upon any agreement of either party claimed by them to have been made, there can be no decree for specific performance.
“The court further finds and determines that complainants have strong equities, and that each have for several years, both before and since their majority, rendered very laborious services for said defendant, Patrick M. Hogan, and for which services so rendered for him by said complainants he has derived large profits and been greatly benefited, and for which he has from time to time promised to pay them, and for several years last past has stated to them that he would reward them liberally for the services so rendered by them and each of them.”

An award was provided to the complainants in the sum of $10,500, but specific performance was denied. From this decree both parties appeal.

On behalf of complainants it is strenuously urged that the circuit court should have determined, under the testimony, that the contract, as alleged, was entered into between the complainants and defendant Patrick M. Hogan; but, in the event that it is determined that the circuit court was right in finding that no such contract was entered into, complainants claim that the allowance of $10,500 is too small by several thousand dollars. Counsel for complainants base their argument on this branch of the case upon the assumption that in May, 1901, when the alleged contract was entered into, defendant Patrick M. Hogan was possessed of property of value to an amount of not more than $6,000 in excess of his liabilities. The record disclosed that, at the time of the hearing, he was possessed of real estate, including the Fox farm, valued at $17,500; personal property, including the farm implements, valued at about $4,000; and cash on hand to the amount of $2,500 — a total of $24,000. They claim on behalf of complainants, and we think the record fairly shows, that this increase (of $18,000) in the value of the estate of Patrick M. Hogan during the 13 years which elapsed between the making of the contract and the date of the filing of the bill, was due in a very large measure to the energy and industry of the complainants. Some portion of it is undoubtedly attributable to unearned increment.

The learned circuit judge having failed to file an opinion in the case, we are not advised of his reasons for denying the relief prayed, except as they may be inferred from the decree itself. Taking the testimony of all the parties as it appears in this record, we have no hesitation in reaching the conclusion that the making of the alleged contract was proven by the overwhelming weight of the evidence. In reaching this conclusion, we do not lose sight of the fact that the three complainants who testified to the contract were vitally interested in its establishment. They had, however, no greater interest in maintaining it than the defendant Patrick M. Hogan had in destroying it, so that confining consideration of the case to the parties alone, and assuming all the parties to be of equal credibility, a court should without hesitation hold that the complainants have maintained the burden of proof. But the matter does not rest here. The version of the contract given by complainants received the strongest confirmation through the testimony of their sisters Mary and Margaret, who were present at the time it was alleged it was made, and who must be held to have been testifying against interest when they gave evidence in support of the contract. This is likewise true of the testimony of James, who, while not present at the time the contract was made, swears that he became aware of it soon after, and spoke of it with his father, the defendant Patrick M. Hogan. We believe, then, that the contract was made as alleged.

Starting with this fact in mind, and remembering that the relations between the complainants and their father Patrick M. Hogan had become so strained as apparently to preclude their continued joint residence upon the farm in question, what relief should be granted complainants?

Defendant Patrick M. Hogan is now 81 years of age. If he were now dead, the case would, of course, present no difficulty under previous decisions of this court. Twiss v. George, 33 Mich. 253; Lamb v. Hinman, 46 Mich. 112 (6 N. W. 675, 8 N. W. 709); Carmichael v. Carmichael, 72 Mich. 76 (40 N. W. 173, 1 L. R. A. 596, 16 Am. St. Rep. 528); Taft v. Taft, 73 Mich. 502 (41 N. W. 481); Bird v. Pope, 73 Mich. 483 (41 N. W. 514); Putman v. Tinkler, 83 Mich. 628 (47 N. W. 687); Kleinow v. Kleinow, 126 Mich. 365 (85 N. W. 1134); Howe v. Benedict, 176 Mich. 522 (142 N. W. 768).

The refusal of the defendant Patrick M. Hogan to further reside with the complainants, whether justified or not by their conduct toward him, obviously makes it impossible for them to further perform their part of the contract. This fact, however, should not deprive them of the fruits of 13 years of hard and unremitting toil. Nor do we think that to grant complainants the relief prayed will work any hardship to defendant. So long as he lives he has the right to control for his own purposes, not only the personal property, but the real estate. It is only at his death, when his necessities are at an end, that the contract steps in and disposes of what remains, according to its tenor. The restriction upon his power of alienation was one of his own making and was for a valuable consideration, which has been, so far as is possible, performed by the complainants greatly to his advantage.

We think a decree should be entered in this court providing as follows:

(1) The deed from defendant Patrick M. Hogan to Dennis J. Hogan should be set aside and held for naught.

(2) Defendant Patrick M. Hogan should be perpetually enjoined from aliening or incumbering, except as his personal necessity might require, any of the lands mentioned in the pleadings.

(3) The personal property, including the cash on hand, and now in the possession of defendant Patrick M. Hogan, belongs to the complainants, subject to the right of Patrick M. Hogan to the use of such portion thereof as is necessary for his proper maintenance and support.

(4) Patrick M. Hogan is entitled to the immediate possession of the personal property upon the farm and the farm itself during his lifetime, and such possession, must be surrendered by the complainants upon his demand.

(5) Upon the death of Patrick M. Hogan, said real estate and such personal property as has not been used and consumed by said Patrick M. Hogan, for his proper maintenance and support will become the absolute property of the complainants.

(6) The complainants to recover costs of both courts to be taxed.

Kuhn, Stone, Ostrander, Bird, Moore, and Steerb, JJ., concurred.

The late Justice McAlvay took no part in this decision.