author: Montgomery, J. McAlvay, J.

text:
      In re FOX’S ESTATE.
    ON REHEARING.
    1. Executors and Administrators — Estates oe Decedents — Distribution of Personal Estate.
    The net personal estate for distribution consists of the personal property of the deceased after all debts and expenses, including debts secured by mortgage upon real estate of the deceased, have been deducted.
    2. Taxation — Inheritance Tax — Deduction of Mortgage Debt —Probate of Estates.
    The amount of personal property of an estate subject to inheritance tax under Act No. 195, Pub. Acts 1903, is determined by deducting mortgage and other debts from the personal estate. In re Fox’s Estate, 154 Mich. 5 (117 N. W. 558), overruled.
    3. Same — Statutes—Inheritance Tax.
    The form provided by Act No. 195, Pub. Acts 1903, which indicates that debts against the estate secured by mortgage are to be deducted from real property of the estate, does not change the effect of other sections of the law.
    Case made from Kent; Sessions, J., presiding.
    Submitted April 13, 1908.
    (Docket No. 59.)
    Decided September 10, 1908.
    Motion for rehearing granted May 25, 1909.
    Reargued June 14, 1909.
    Former opinion vacated December 31, 1909.
    John F. Wilkinson, deputy auditor general, appealed to the circuit court from an order of the probate court determining the amount of inheritance tax due the State from the estate of E. Crofton Fox, deceased. A judgment overruling the order of the probate court is reviewed by the estate upon a case made.
    Reversed.

      Kleinhans & Knappen (Gray & Gray, of counsel), for the motion.

      John E. Bird, Attorney General, and Thomas Ambrose Lawler, Assistant Attorney General, contra.

   Montgomery, J.

This case is reported in 154 Mich. 5 (117 N. W. 558). The facts are there sufficiently stated. A rehearing has been granted upon the question of whether, in the determination of an inheritance tax, a debt of the deceased secured by real estate mortgage should be deducted from the personal estate in determining the amount upon which the tax is to be paid. The conclusion was reached in our former opinion that no deduction should be made on account of such mortgage indebtedness. In reaching that conclusion reliance was placed upon New York decisions, which are based upon a statute similar to our statute imposing a tax on inheritance. We are convinced that in reaching this conclusion we failed to give sufficient force to the distinction which exists between New York and Michigan, as to the law for the distribution of estates. It is the undoubted rule in this State that the net personal ostate for distribution consists of the personal property of the deceased after all debts and expenses have been met, including the debts secured by mortgage upon real estate, such debts being a charge upon the personal estate, as well as unsecured debts. Larzelere v. Starkweather, 38 Mich. 96; Willard v. Van Leeuwen, 56 Mich. 15 (22 N. W. 185); Osmun v. Oakland Circuit Judge, 107 Mich. 27 (64 N. W. 949); see, also, Schouler on Executors and Administrators, §§ 430, 512; 3 Williams on Executors (7 Am. Ed.), p. 147.

The statute of New York, on the other hand, provides that:

"Whenever any real estate, subject to a mortgage executed by any ancestor or testator, shall descend to an heir or pass to a devisee, such heir or devisee shall satisfy and discharge such mortgage out of his own property, without resorting to the executor or administrator.” N. Y. Rev. Stat. (1st Ed.) pt. 2, chap. 1, tit. 5, § 4.

The cases cited from New York would indicate that the conclusion of the New York courts that the amount of a mortgage is not to be deducted from personal property in determining the amount to be taxed is based, in large part at least, upon the fact that, under the statutes of distribution, the real estate, and not the personal property, is chargeable with the debt.

In re Kene’s Estate, 29 N. Y. Supp. 1079, in overruling the appraiser who held that the mortgage should be deducted from the personal estate, and not from the real estate, the surrogate said:

‘ ‘ If this view [that of the appraiser] were correct, the mortgage would be satisfied out of the personal estate, and the devisee of the house and lot would take it free therefrom, and so be liable to the payment of the tax. In this he [the appraiser] seems to be in error. Such was the rule in England. But it was changed in this State as early as 1786, and is continued to the present day ” — citing the statute above referred to.

In re Livingston's Estate, 1 App. Div. (N. Y.) 568 (37 N. Y. Supp. 463), the real estate was subject to a mortgage, and the executor had power to use the personal estate in paying the mortgage, and he contended that the mortgage debt under the circumstances ought to be deducted from the personal estate. In overruling the contention of the executor the appellate court said:

. “ The learned surrogate, in declining to reduce the personal estate as demanded by the appellant, acted upon the principle that the mortgage debt was, under the Revised Statutes, properly payable by the heir or devisee. N. Y. Rev. Stat. (1st Ed.), pt. 2, chap. 1, tit. 5, § 4. The appellant insists that the statute (which requires mortgage debts to be paid from the real estate) is inapplicable to cases where the same persons take the realty and personalty as a blended fund. The contrary seems to us to be the correct view.”'

We are convinced that the intent and purpose of this statute was to tax the personal estate subject to such deductions as should be made directly under the general statute of distribution.

Attention has been directed to section 17 of the act (Act No. 195, Pub. Acts 1903), which prescribes the form of the order to be followed by the probate judge. This form was evidently copied from the New York statute, but can hardly be held, in and of itself, to have established a rule for fixing the amount of the inheritance tax. That is done by other provisions of the statute which render the form inserted inapplicable.

The order of the court below should be reversed and the order of the probate judge affirmed.

Blair, C. J., and Grant, Ostrander, Hooker, Moore, and Brooke, JJ., concurred with Montgomery, J.

McAlvay, J.

(dissenting). Appellant was granted a rehearing, and urges that both the circuit court and this court were in error, for the reason that the New York cases relied upon were founded upon the construction of a statute different from the statute of this State, relative to the payment of a mortgage debt upon real estate; that the statute of New York requires the heir or devisee to satisfy the mortgage out of his own property, unless otherwise provided by will, and that in Michigan the personal estate of a decedent is first chargeable with the payment of all debts. Upon a re-examination of the cases cited in the opinion of the learned trial judge, and the conclusions drawn therefrom, adopted by this court in this case (154 Mich. 5 [117 N. W. 558]), and a consideration of the briefs and oral arguments upon the rehearing, we are satisfied that the former decision was correct. The statute provides for the taxation of inheritances, transfers of property, etc., and is known as the “inheritance tax law.” The question involved does not affect the classification under the statute. The rule laid down does not discriminate between those in the same class. The statute was construed to require the deduction of the value of a mortgage upon real estate from the value of the real estate, to find the basis in computing the amount of the inheritance tax. No one is given any property by such determination, nor is any property taken from any one. The basis adopted is the only one clearly intended by the legislature, in the form of the judicial determination of the probate court of transfers subject to inheritance taxation, required by section 17, Act No. 195, Pub. Acts 1903, and does not repeal any of the statutes of this State relative to administration and distribution of estates of deceased persons, and in fixing such basis the legislature was clearly within its constitutional authority. This is not a tax upon property, but upon the transfer, and the construction given applies to all transfers of the kind in question.

It was urged, when the case was first argued, that the New York cases were based entirely upon the New York statute, and the opinion discusses the question, citing In re Livingston's Estate, 1 App. Div. (N. Y.) 568 (37 N. Y. Supp. 463); In re Offerman's Estate, 25 App. Div. (N. Y.) 94 (48 N. Y. Supp. 993); In re Pullman's Estate, 46 App. Div. (N. Y.) 574 (62 N. Y. Supp. 395), etc. From these cases it appears that the matter was discussed, and is passed upon against the present contention.


source: Caselaw Access Project

author: McAlvay, J. Grant, J.

license: Public Domain

text:
    NORRIS v. McFADDEN.
    1. Landlord and Tenant — Unfitness of Premises — Fraud — Concealment — Theater—Defense
    In an action for the rent of a building leased to the defendant for use as a theater, unfit for that purpose, and known by the landlord so to be, because of its inflammable condition and because of the action of the common council requiring certain changes, before allowing it to be used for theatrical purposes, it is not an answer to the claimed defense that the defendant might have seen the condition of the theater when, in fact, he did not know of the requirements of the common .council as to the safety of the building leased.

      3. Evidence — Hearsay—Official Records of Common Council.
    The records of such action of the common council, containing the reports of officials in the line of their duty in regulating the building in the interest of public safety, were improperly excluded as hearsay evidence, and were competent to prove the action of the municipal authorities.
    3. Landlord and Tenant — Lease—Construction—Contracts.
    Under a clause in the lease providing that certain specified changes should be made by defendant in strict accordance with the law of the State and the local ordinances, the duty of placing the building in safe condition, as required by the action of the municipality, did not devolve upon the tenant, who thereby merely undertook to make the alterations intended, in accordance with law.
    4. Same — Lease—Excuses for Nonperformance.
    Placing firemen in the building in the interest of publio safety was not a trespass which excused the plaintiff from placing his premises in suitable condition for the purposes intended by the lessee.
    5. Same — Recoupment—Damages.
    Recoupment lies for the damages sustained by a tenant because of a landlord’s default in placing the premises in suitable condition for use as a theater, notwithstanding a partial compliance with the municipal requirements,' if the jury find the tenant surrendered the premises because of the default.
    Error to Kent; Sessions, J., presiding.
    Submitted January 7, 1909.
    (Docket No. 36.)
    Decided December 31, 1909.
    Assumpsit by Mark Norris, trustee, and another against Austin McPadden for rent. A judgment for plaintiffs on a verdict directed by the court is reviewed by defendant on writ of error.
    Reversed.

      McKnight & McAllister, for appellant.

      Taggart, Denison & Wilson (Albert Crane, of counsel), for appellee.
   McAlvay, J.

Plaintiff, as trustee representing the owners of a building called the “Auditorium” in Grand Rapids, on September 6, 1904, rented the same (notincluding the basement and part of one gallery) to defendant by a lease in writing signed by the parties, for the term of one year after October 1, 1904, with the privilege of renewals from year to year for the further period of four years from its termination, by giving notice of such renewal on or before May 1st of each year. Thirteen dates were reserved by plaintiff under contracts made by him before this leasing. The property leased was to be occupied by defendant “for a roller skating rink, theater, and concert hall.” The annual rental, $4,800, was to be paid in six equal installments at times and a place stated in the lease. The lease contained the ordinary agreement by the lessee to repair, reasonable use and wear and damage by the elements excepted. Defendant went into possession of the premises, and for a time conducted a skating rink. In April, 1905, defendant gave notice of a renewal for another year, and entered into a written agreement with plaintiff on August 23, 1905, relative to contemplated changes, alterations, and scenery in said Auditorium according to plans and specifications to be approved by plaintiff. These changes consisted in certain scenery, dressing rooms, and a fly gallery, and were to comply with the statutes of Michigan and the ordinances of Grand Rapids. Twelve hundred dollars of the expense of these changes and scenery was to be allowed defendant out of rent, but to be repaid in case the lease was not renewed for the year 1906-1907. Defendant expended $2,700, including this $1,200. The Auditorium had been used for concerts and political meetings before defendant rented it, but was not fitted up for theatrical performances.

The first performance was on November 27, 1905. Plaintiff was required to promise the city building inspector certain changes before a performance was permitted. Firemen were placed by the fire marshal on the premises in the presence of the people, on account of which no performance was had, and the money was refunded to those who attended. No performance was allowed, except on special occasions, because the building was not fixed as ordered, and men in uniform on each occasion were stationed through the audience. But five performances were given. Agents would not book performances on account of the condition of the house. Defendant went out of the place in June, 1906. His claim is that he had no knowledge that the authorities had required certain things to be done by the plaintiff, for the public safety, until after he had renewed his lease and made the changes contemplated by the second agreement, and that plaintiff, having knowledge of these facts, and having agreed to comply with the demands of the authorities, leased defendant a building unsuitable for the purposes required.

In January, 1904, shortly after the Iroquois theater disaster in Chicago, a committee, which had been appointed by the common council of Grand Rapids, consisting of the ordinance committee, the board of police and fire commissioners, fire marshal and building inspector, “to examine the several opera houses, theaters and places of amusement in the city, to ascertain if such places are so constructed and operated as to comply with the requirements of the city ordinances, and what, if any, changes should be made to render them entirely safe .to the public,” reported to the council, together with a recommendation for its adoption, and that a certified copy of the report be delivered to the owners of the properties affected, and that each of them be required within 60 days after such notice to make the changes recommended. As to the Auditorium, the changes required were “ to put in a wide stairway at the northeast corner of the building from the sidewalk to the balcony and main floor, and stairs leading from the same to the ground; that call boxes be placed in the building and at least two lines of hose be placed on the main floor, two in the balcony and two on the stage, to cover all exposed woodwork in the basement with ex-pandad metal lathing and two coats of hard plaster; also a cement floor and automatic spinkler system in the entire basement. We recommend that there should be watchmen that would be acceptable to the fire marshal employed to patrol the basement during each and every occasion that the hall shall be used, until above mentioned requirements are completed.” The report was adopted, and plaintiff duly received a certified copy. The basement under the stage was occupied by tenants of plaintiff, where furniture was packed, and a furniture repair shop was conducted. Plaintiff had conferences with the city authorities after this, and put in a new exit in front in place of the iron stairway, and put in a double floor lined with asbestos, replastered the basement with metal lath, also put in iron columns in place of wooden ones. The automatic sprinkler was not put in, nor the lines of hose on the stage and balcony. This was the condition when he rented to defendant.

Afterwards, in February, 1906, the council again considered this matter, and a special committee made report as to what defendant had done and omitted to do, relative to the changes required by action taken in January, 1904. This report shows the condition in the basement under the Auditorium as to liability of fire from the inflammable nature of the material crowded into it, and the use of a gas stove within a few inches of an unprotected wooden partition. This committee recommended other and further changes to be made by plaintiff, and expressed the opinion that the condition at this place was hazardous; that the proprietors be required to make the changes required in 30 days and that a patrol of five experienced firemen, by arrangement with them, be detailed to be present during all times when audiences were convened, and in default of compliance the Auditorium be closed forthwith. Plaintiff was present and addressed the council upon the matter. After some modification as to cement floor, and the time for building a wall, the report was adopted. The matter, as far as the evidence or proof offered shows, remained in statu quo until June 11, 1906, when plaintiff sent a letter to the council, wherein he states that he is advised that the matter of the changes ordered in this building will come up for discussion, and proceeds to give his reasons why he has delayed in the matter, stating that the contracts have been let, but it had been impossible for contractors to get materials, etc., and closes by saying:

The delay in complying with the requirement of the council has not been caused by any desire on the part of the owners to delay or fail to observe reasonable requirements, but simply on account of weather conditions and inability to get the material required for the work.”

Under these conditions, the changes required by the council not having been completed, the defendant, who had gone on making the changes referred to in the agreement of August 23, 1905, relying, as he testifies, upon the promises of plaintiff made to him to complete the required changes ordered by the city authorities, went out of the building and turned the keys over to plaintiff June 19, 1906.

Upon the trial defendant offered in evidence the records of the common council of Grand Rapids to show the official action herein briefly outlined. These were objected to as hearsay and excluded. Plaintiff and defendant were the only witnesses in the case. At the close of the case plaintiff moved for an instructed verdict, which was granted by the court on the grounds:

(1) That there was no liability of the landlord for failing to show defects open to observation or reasonable investigation.
(2) That the records of the common council were not substantive proof of the facts contained in the reports, but was hearsay.
(3) That defendant was as responsible as the landlord for failure to comply with the municipal requirements by reason of the contract of August 23, 1905.
(4) That the firemen placed in the building were trespassers.

A verdict was directed for the full amount of $3,348.47. Errors are assigned upon this action of the court. The case is here upon a writ of error sued out by defendant to review this action of the court. He claims that none of the reasons of the court were sound, as a matter of law.

Defendant had no knowledge of the action of the authorities in ordering the plaintiff to comply with orders to make the building safe for the public, and plaintiff withheld such knowledge from defendant. No examination of the premises leased by defendant would have disclosed the requirements of the common council relative to the safety of the building.

The records offered in evidence were the official records of the council kept as required by law. The matter was within the province and authority of the council to consider and act upon, and the record contained the action taken by the council. The reports embodied in this record were the reports of city officials made in the line of duty and reported to the legislative body. We think the record presented was admissible as evidence under the statute of the official action of the council in regard to the regulation of the building in the interests of the public safety. Jones on Evidence, § 520; 1 Greenleaf on Evidence, § 488; Thurstin v. Luce, 61 Mich. 292 (28 N. W. 103); People v. Kemp, 76 Mich. 410 (43 N. W. 439); 3 Comp. Laws, § 10193. It was error to exclude these records.

The court held that, on account of the agreement of August 23, 1905, defendant was equally responsible with his landlord for failure to comply with the requirements of the council. This agreement had no reference to the things ordered done by the council. It was entered into nearly two years after the first action of the council, and the clause relied upon by plaintiff and construed by the court reads:

“ Said McFadden shall cause all such changes and alterations to be made of first-class materials and workmanship in accordance with the plans and specifications to be prepared as above specified and in strict accordance with the laws of the State of Michigan and the ordinances of the city of Grand Rapids. ”

These changes consisted of scenery, dressing rooms, and a fly gallery, and were put in by permission of the proper authorities, and plaintiff, when in making these changes it was discovered that the proscenium arch was a wooden truss, was notified by the authorities of that fact. He put in one of metal and tile as ordered by the authorities, and did not claim that such construction was equally obligatory upon defendant. This was the practical construction of the parties at the time. The clause in the agreement of August 23d had reference to the changes to be made by defendant therein specified, and was no undertaking on his part to conform with the orders of which he. had no knowledge. The court was in error in his construction of this agreement.

We do not take the view that the firemen were .in the building as trespassers merely. The authorities, in the interest of the public safety, had a right to take such reasonable precautions as might be necessary. It is urged that they might close the place, but could not put men in the building to protect the public from danger in case a fire broke out. We are not prepared to say that the action of the officers in putting men in the building was unreasonable or unlawful. In any event it is no defense for plaintiff.

There was some evidence in the case as to the condition of this basement other than in the reports of the officers. It is stated in the testimony of defendant, and plaintiff’s letter to the council shows, that he acquiesced in all material respects, although not with any evidence of speedy completion. The first order of the council was made January 18, 1904, and when defendant surrendered the keys June 19,1906, the requirements of this order were not completed. Defendant leased and went into possession, October 1, 1904, to occupy and use the Auditorium for “a roller skating rink, theater and concert hall.” At this time plaintiff knew, and defendant did not know, that these premises could not be used for the purposes for which they were leased, and he did not disclose that fact. These facts seem to be undisputed. The court was in error in taking the case from the jury.

Defendant pleaded recoupment for damages. He is entitled upon his theory of this case to make proof of such damages as may be proper under the pleadings and circumstances of the case, and to recover such amount as may be found, provided it is determined that he surrendered the premises because of the default of plaintiff.

The judgment is reversed and set aside, and a new trial ordered.

Blair, C. J., and Montgomery, Ostrander, Hooker, Moore, and Brooke, JJ., concurred with McAlvay, J.

Grant, J.

(dissenting). Mark Norris, one of the plaintiffs, as trustee under the will of Charles Shepard, deceased, and as executor and trustee under the will of Dorinda N. Shepard, deceased, and the other plaintiff, executed to defendant, on September 6, 1904, a lease of the Auditorium, so-called, in the city of Grand Rapids, for the term of one year from and after October 1, 1904, with the privilege of renewing the same from year to year for the further period of four years; the lessee to give the lessor written notice of such renewal on or before the 1st day of May in each year.

The Auditorium was a public hall, used for public entertainments and amusements. It contained a ground floor, balcony, and stage. The basement under the Auditorium was not used in connection with it, but was rented by plaintiffs to private parties — a part to Young & Chaffee, who carried on a furniture business in an adjacent building, and used part of the basement of the Auditorium as a packing room and storing room for mattresses, furniture, etc. Another part was leased to the Grand Rapids Evening Post, and a third part to the New Era Life Insurance Company. The lease contained no covenant to repair, or any covenant that the demised premises were suitable for the purposes stated in the lease. The lessee covenanted to make repairs. The defendant was an experienced theatrical manager, familiar with places of amusements, their construction, and the usual methods resorted to for the protection of patrons. Defendant went into possession, and from September, 1904, to April, 1905, used the building for a skating rink. In April, 1905, defendant gave plaintiff notice of his intention to renew the lease for another year. The Auditorium was not designed or equipped as a theater; it was used mainly for concerts, political meetings, and the like. Defendant desired to equip the Auditorium for theatrical exhibitions, and he and Mr. Norris as trustee on August 23,1905, entered into an agreement referring to the former lease, reciting defendant’s desire to make certain changes and alterations in the Auditorium, with a view to make it practicable for use as a theater. That agreement required the defendant to make the necessary plans and specifications for the contemplated changes, and to comply with the statutes of the State and ordinances of the city relative to the same. Defendant was likewise to procure all necessary permits for the making of such changes and alterations, and the addition of scenery. He also agreed to make these changes and alterations in accordance with the plans and specifications so prepared, and in strict accordance with the laws of the State and ordinances of the city. The agreement then proceeded to recite certain specific things that he was to do. Defendant was to pay for all these changes and alterations, Mr. Norris agreeing to allow upon rent $1,200 for such improvements, specifying the times when it should be allowed. In case defendant failed to renew his term for the year October 1, 1906, to October 1, 1907, then he was to repay Mr. Norris the amount so allowed. Defendant proceeded to make these improvements, and continued in the possession of the theater until June 18, 1906, when he abandoned the premises. This suit is brought to recover rent due under the lease and the amounts allowed defendant as rent for the improvements.

The defense is that the premises were unfit for the purposes for which they were rented; that the defendant was unable to use them; that the Auditorium had been condemned by the public authorities as unfit, unsafe, and dangerous for the purpose for which it was rented; and that these facts were concealed from the defendant. The facts upon which the defendant relies are as follows: On January 18, 1904, the building inspector and fire marshal, in accordance with a resolution of the common council, had examined the various places of amusement with a view to recommending changes for the protection of the public. They recommended that at the Auditorium there should be put in a wood stairway at the northeast corner of the building, from the sidewalk to the balcony and main floor, a stair leading from the same to the ground; that call boxes be placed in the building, and at least two lines of hose be placed on the main floor, two in the balcony and two on the stage; that all the exposed woodwork in the basement be covered with expanded metal lathing, and two coats of hard plaster; that a cement floor be put in and an automatic sprinkler system installed in the basement. This report was adopted. Mr. Norris built an exit in lieu of the stairway. He put in a double maple floor, lined with asbestos; replastered the basement on metal lath, and, discovering that there were wooden posts supporting the Auditorium floor, he took them out and put in iron columns. These were accepted by the council as sufficient. When defendant was proceeding to equip the theater under the contract of August 23, it was discovered that the present proscenium arch was a wooden truss that spanned the opening, instead of brick. This was removed and a steel truss put in its place. Mr. Norris ordered the automatic sprinkler, but the contractors would not agree to put it in within the time required, as the manufacturers of the valves could not agree to furnish them to the contractor at a specific time. The material, however, had arrived, and the sprinkler nearly completed before the defendant abandoned his contract. Telephones had been permitted by the council to take the place of the call boxes required. The two line's of hose had been installed upon the stage, but had not been installed on the main floor or the balcony. On February 13, 1906, the committee of the council, among other things, recommended that a division wall between the stage of the Auditorium and that part of the building facing on Fountain street should be constructed of either brick or tile, and carried through and above the roof. This the committee regarded as one of the most essential recommendations. The committee recommended, upon failure to comply with these requirements, that the Auditorium be closed. On June 11, 1906, Mr. Norris sent a communication to the common council, stating that he had endeavored to get the automatic sprinkler installed within the time required, that he had made a contract with the parties to put in as expeditiously as possible, and that the material was then arriving. He also reported that the contract for the hose and pipe for the main body of the Auditorium had been let for a number of weeks, and he did not understand why it had been delayed. He further reported that he was informed by the Iron Works which had the contract, that the material had arrived, and would be put in as soon as possible. He also reported that he could not put in the wall then without driving all the tenants out of the building, because he was obliged to maintain fires as late as the week before for the benefit of the tenants.

Defendant testified as follows:

“Q. What is the reason you could not carry on the theater ?
“A. Because certain improvements had not been made that were ordered.
“Q. What improvements ?
“A. Installing the sprinkler system and hose.”

The theater season was practically over, and Mr. Norris had reported to the council that all the improvements ordered would be completed before the next season opened. The common council, upon the assumption that they had the right to do so, placed several policemen in different parts of the Auditorium during the theatrical peformances. Defendant ran the place without any interference on the part of the authorities from October, 1904, to October, 1905. He commenced work under the second contract in September, and completed the work in about six weeks; his first performance being November 27, 1905. The authorities had not condemned the Auditorium or ordered it closed, or interfered with its occupancy or exhibitions. The special committee of February 13, 1906, recommended that, pending the completion of the changes which they had recommended, the board of police and fire commissioners arrange for a patrol of not less than five experienced firemen to take up and maintain positions in the basement of the Auditorium and the wings of the stage, and such other places as the fire marshal may indicate, but not in the aisles of the Auditorium, and that these men be kept on guard during all hours in which audiences are convened in the Auditorium, and that the proprietors pay the city such compensation therefor as may be agreed upon with said board. This recommendation was adopted by the council. Policemen were placed in the building in accordance with this resolution. At the close of the testimony the court directed a verdict for the plaintiff.

Does the rule of caveat emptor apply? Undoubtedly anticipating that this rule might be applied, counsel for the defendant sought to establish. the fact that Mr. Norris, the landlord, had purposely concealed conditions, known to him but not to the defendant. There is no foundation in fact for this claim. Every nook and corner of the building, its construction, its condition and basement were as open to the inspection of the defendant as to the plaintiff. The building was leased for the same purpose for which it had been occupied for many years, without protest or objection on the part of the municipal authorities. The defendant, an experienced theatrical man, must certainly be held to have been better acquainted with requirements and surroundings of a theater or place of amusement than Mr. Norris, a lawyer. He is also presumed to have known the laws of the State, and the ordinances of the city, which were as open to him as to the plaintiff. Defendant must have known that municipalities, through their common councils and boards, have certain control over such places and the right to provide reasonable rules and regulations for the protection of the public. These rules and regulations are matters of public record, and were open to the inspection of the defendant. A fire resulting in terrible loss of life had shortly before occurred at the Iroquois theater in Chicago. In all cities throughout the country theaters were being investigated by municipal authorities, and stringent rules and regulations enacted. The city of Grand Rapids was not an exception. The defendant knew, or should have known, this, and if he desired to know what those rules and regulations were before taking the lease, he could readily have done so. He cannot complain now or claim any fraud or concealment on the part of the landlord in not telling him what they were. Mr. Norris was not called upon to speak, and was guilty of concealing no fact which the law required him to state. He was guilty of no wrong in law or morals.

Defendant makes no claim that the building was defective. Every condition now complained of was open to his view. He knew the condition of the basement, or, what is equivalent in law, should have known it. He knew there was no hose in the main floor and the galleries. In other words, he saw the situation, and after his examination entered into a lease which exempted the landlord from any liability to repair, and imposed that liability upon him. In such case the rule of caveat emptor applies to a tenant. “ His eyes are his bargain.” If he desires to protect himself against the requirements of the public authorities, or against inherent and unknown defects, or against present or subsequent conditions of any kind, he must protect himself by provisions in his contract; otherwise the law gives him no remedy. In the absence of any concealment of known defects, and of any warranty that a building is in suitable condition for the purpose for which it is to be rented, the lessee must make such examination as he chooses for himself, and determine for himself whether the building is suitable for the purpose for which he desires to lease it. The law does not permit him afterwards to say, ‘ ‘ The building is not suitable or in proper condition.”

The word “demise” in the lease of a house for years “ implies a covenant for title in the estate merely; that is, of quiet enjoyment against the lessor and all that come in under him by title.” Such a lease contains no covenants against the acts of trespassers or strangers, or the requirements of public authorities having police control over the leased premises. In a leading case upon this subject, decided in 1843, the court say:

“ There is no authority for saying that these words imply a contract for any particular state of the property at the time of the demise; and there are many which clearly show that there is no implied contract that the property shall continue fit for the purpose for which it is demised.” Hart v. Windsor, 12 Mees. & W. 68.

This case is cited with approval by many of the courts of this country, and correctly states the rule. Toner v. Meussdorffer, 123 Cal. 462 (56 Pac. 39); Watson v. Almirall, 61 App. Div. (N. Y.) 429 (70 N. Y. Supp. 662); Moore v. Weber, 71 Pa. 429 (10 Am. Rep. 708); Town v. Thompson, 68 N. H. 317 (44 Atl. 492, 46 L. R. A. 748); Gallagher v. Button, 73 Conn. 172 (46 Atl. 819); Howell v. Schneider, 24 App. Cas. (D. C.) 532, and authorities there cited.

The contract of leasing contained no implication that the landlord should make changes that the common council should demand or deem expedient. The landlord had agreed to furnish nothing but the room leased in the condition in which it then was. The lessee assumed the risk of conditions which the common council might legitimately impose, or had imposed. Under this lease the rule of caveat emptor applies, and the defendant has no ground of complaint against his landlord for the condition of the building, or failure to comply with the requirements of the common council. It is proper, and just, also, to here remark that the plaintiff had substantially complied with all the requirements of the common council under their resolution and ordinance of February, 1904, except as to the sprinkler and the hose in the main floor and in the balcony.

We have substantially decided the second question presented in what has already been said upon the first, and but little need be said upon it. That question is, Did the lessor in this case impliedly warrant that the premises were tenantable and could be safely and conveniently used for the purposes for which they were rented ? That question has been settled by the decisions of this court, holding that such lease contains no implied covenant as to the condition of the demised premises or their fitness for the use intended. Clark v. Babcock, 23 Mich. 164, and authorities cited in note 3; Rhoades v. Seidel, 139 Mich. 608 (102 N. W. 1025); Hart v. Windsor, supra; Auer v. Vahl, 129 Wis. 635 (109 N. W. 529). In Hart v. Windsor, the defense was that the tenement was not reasonably fit for use, being infested with noxious insects. After stating the rule that there was no implication by law that the demised property was fit for the purpose for which it was let, the court say:

“ It is much better to leave the parties in every case to protect their interests themselves by proper stipulation, and if they really mean a lease to be void by reason of any unfitness in the subject for the purpose intended, they should express that meaning.”

Other English authorities are to the same effect, but we need not cite them. The same rule is held in the courts of the United States. Mr. Justice Gray, in Leavitt v. Fletcher, 10 Allen (Mass.), 119, said:

" It is well settled that in a lease of real estate no covenant is implied that the lessor shall keep the premises in repair, or otherwise fit for occupation.”

So it is distinctly held in Jaffe v. Harteau, 56 N. Y. 398 (15 Am. Rep. 438), that, in the absence of fraud or any agreement, there is no implied warranty that the premises are tenantable or fit for the use for which they are to be leased, citing several authorities. In Keates v. Earl of Cadogan, 10 Com. B. (N. S.) 591, the declaration stated that the demised premises were at the time of letting in a ruinous and dangerous condition, and the plaintiff was without any knowledge or information upon this subject, and that the defendant, the landlord, let the house to plaintiff without informing him of its condition. Upon demurrer the court said:

“ It is not pretended that there was any warranty, express or implied, that the house was fit for immediate occupation, but it is said that, because the defendant knew that the plaintiff wanted it for immediate occupation, and knew that it was in an unfit and dangerous state, and did not disclose that fact to the plaintiff, an action of deceit will lie. The declaration does not allege that the defendant made any misrepresentation, or that he had reason to suppose that the plaintiff would not do what any man in his senses would do, viz., make proper investigation, and satisfy himself as .to the condition of the house before he entered upon the occupation of it. There is nothing amounting to deceit; it was a mere ordinary transaction of letting and hiring.”

Same holding in Bowe v. Hunking, 135 Mass. 380 (46 Am. Rep. 471); Bennett v. Sullivan, 100 Me. 118 (60 Atl. 886); Doyle v. Railway Co., 147 U. S. 413 (13 Sup. Ct. 333). The well-nigh universal rule is that, in the absence of fraud or misrepresentation, the tenant takes the property as he finds it, and assumes all risk of its being fit for the purpose for which he rents it. We will not multiply authorities.

As between the plaintiff and defendant, lessor and lessee, no obligation rested upon the plaintiff to make the extensive improvements directed by the common council. Cooper v. Lawson, 139 Mich. 628 (103 N. W. 168). The fact, however, that he voluntarily did undertake to make them did not operate to change the terms of the original lease, and impose upon him the obligation which was not imposed by the lease. Watson v. Almirall, 61 App. Div. (N. Y.) 429 (70 N. Y. Supp. 662).

Under the defendant’s own showing, I do not think he is entitled to recover, even if the obligation had rested upon the plaintiff to comply with the resolutions of the council. He had complied with nearly all of them. The defendant was compelled to admit that he abandoned the premises because the sprinkler plant was not installed in the basement, and because the hose were not in the main floor and the balcony of the Auditorium. These were the sole causes for complaint. He knew or might have known that the sprinkler system was nearly completed, for he had access to the building, and testified that he was there some days before the abandonment. When the common council insisted on these improvements being made, Mr. Norris used due diligence to secure them. The theatrical season was practically ended, and no serious harm would result if the sprinkler plant had not been installed immediately. He had also let a contract to put in the hose, and it was not his fault that the contract had not been complied with. The contract shows that this improvement was shortly to be made. He had suffered no loss in the past, or, if he had, his remedy was by action to recover damages. As to the future, the improvements were so nearly completed as to remove all ground for any claim to an eviction. An eviction, however, must be grounded upon the violation of some duty of the landlord, and not of strangers or trespassers. Plaintiff was not responsible for placing policemen in the hall during plays. (The record does not show how many were in the hall, or how conspicuous they were, or how often they were present; neither does it show that, patrons would understand that they were present to act in case of fire.) He did not request such action by the council or give approval of it. He was in no sense a party to it. So far as this record appears, the appearance of policemen is the only act which might tend to interfere with the attendance at entertainments. But there is no evidence that it did interfere.

I think the case should be affirmed.


author: Blair, C. J.

text:
    DETROIT TRUST CO. v. DETROIT, FLINT & SAGINAW RAILWAY.
    1. Railroads — Mechanics’ Liens — Statutes.
    A manufacturer who furnishes machinery for the power plant of an electric railway is not entitled to a mechanics’ lien under 3 Comp. Laws, § 10710; Act No. 17, Pub. Acts 1903.
    2. Same — Statutes—Construotion—Mortgages — Bondholders’ Rights — Words and Phrases.
    The provisions of 2 Comp. Laws, § 6336, that the vendor and vendee of railroad equipment or rolling stock may provide by agreement for reservation of title to the property, should be construed in connection with 2 Comp. Laws, § 6426, by which after-acquired property becomes subject to a prior mortgage upon the rolling stock and equipments and other property, and the phrase “rolling stock and equipments” in the one section has the same meaning as “equipment or rolling stock” in the other; and the statutes so construed make a trust mortgage on the entire property a prior lien upon machinery furnished for the railway power house, over the rights of such vendor under a contfact reserving title.
    3. Fraud — Trust Mortgages — Bondholders’ Rights — Pledge.
    The holders of bonds of a corporation as security for materials furnished in constructing an electric railway are not precluded from sharing in the proceeds of such bonds on the foreclosure of the trust mortgage because they procured the bonds under a fraudulent statement of the purchase price in collusion with the contractors, to whom they intended to allow a secret rebate, but may participate in the division of the proceeds to the extent of their equitable claim.
    Appeal from Genesee; Wisner, J.
    Submitted October 8, 1909.
    (Docket No. 24.)
    Decided December 31, 1909.
    Bill by the Detroit Trust Company, trustee, against the Detroit, Flint & Saginaw Railway, the Praether Engineering Company, J. H. Kusell, trustee, and the Harrisburg Foundry & Machine Works for the foreclosure of a mortgage. Defendants Praether Engineering Company, J. H. Kusell, trustee, and the Harrisburg Foundry & Machine Works filed answers in the nature of cross-bills to enforce mechanics’ liens. From a decree for complainants, and dismissing the cross-bills, said defendants appeal.
    Modified and affirmed.

      Rundelt & Stockton (Edwin Henderson, of counsel), for complainant.

      Keena Lightner & Oxtoby and Carton & Bray, for defendants Praether Engineering Co. and J. H. Kusell, trustee.

      Hunt & Altland, for appellant Harrisburg Foundry & Machine Works.

      Brown, Farley & Selby, for defendant Detroit, Flint & Saginaw Railway. «
   Blair, C. J.

The Detroit, Flint & Saginaw Railway, a Michigan corporation, organized for the purpose of building and equipping an electrical railroad from the city of Saginaw, in Saginaw county, to the city of Flint, in Genesee county, by the way of Bridgeport, and a spur from there to the village of Frankenmuth, for the purpose of financing the project, on the 13th day of January, 1904, gave a trust mortgage to the complainant, the Detroit Trust Company, as trustee, to secure the issue of bonds to the extent of $1,000,000. The mortgage covered all property then owned or that might thereafter be acquired, including franchises, etc. The road was only completed as far as Franbenmuth, a distance of some 12 or 13 miles, and bonds to the extent of $410,500 in all were issued and disposed of by the company, as follows: There were $130,000 of these bonds issued on February 16, 1904; $18,000 on May 25,1904; $18,000 on July 14, 1904; $9,500 on October 6, 1904; $95,000 on December 1,1904; $30,000 on May 31, 1905; $60,000 on October 19, 1905; and $50,000 on October 19, 1905 — making a total of bonds issued of $410,500.

On October 25, 1904, a contract was made between the Reisinger-Praether Company (a copartnership composed of H. W. Reisinger, H. B. Praether, and A. G. McConnell), and the Detroit, Flint & Saginaw Railway, for the erection of a power plant for the railway company, at Bridgeport, Mich. This contract provided that the Reisinger-Praether Company was to receive for the building of the power plant and installation of machinery the cost of the same plus 10 per cent, of such cost. The contract contained the following provisions:

“All material to remain the property of the party of the first part until paid for in full in cash, or in part cash and part bonds of this railway company, as agreed on in writing between the parties to this contract prior to placing subcontracts or starting work, and as hereinbefore specified.”

On the same day, the railway company and two of its officers and directors individually entered into a security agreement with the Reisinger-Praether Company—

“To set aside, and do hereby authorize and empower our trustee, the Detroit Trust Company of Detroit, Mich., to set aside bonds of the Detroit, Flint & Saginaw Railway Company. * * * Said bonds to be held in escrow for you, and said bonds to become your absolute property in one and one-half times the amount of each note in case of default of cash payment at maturity of each respective note, with full power and authority on your part upon such default being made to withdraw from escrow one and one-half times the amount of each note in default without recourse on our part therefor or for any part thereof. And we, the undersigned, now directors and stockholders of said railway company, as additional security for the payment of said notes as they respectively fall due, hereby, in consideration of the acceptance by you of said contract, agree and bind ourselves individually to indorse said notes as the same may be issued upon presentation of same to us, and upon failure on part of the drawer of the same to pay each note at maturity thereof, whether the same be protested or not, we hereby guarantee the payment of the same, and upon payment by us of said note or notes you are to deliver to us of such bonds to one and one-half times the amount of each respective note as may be in your hands, or authorize the said trustee in writing to issue the same to us as evidence of payment on our part of each respective note when paid.”

Under this security agreement, bonds to the amount of $84,000 were deposited with the trust company from time to time during the progress of the work. On March 14, 1906, the Praether Engineering Company, assignee of the Reisinger-Praether Company, authorized the trust company to deliver $15,000 of these bonds to T. G. Sullivan, for which he paid $9,872.65. On the 29th day of May, 1903, the Harrisburg Foundry & Machine Works entered into a contract with the Reisinger-Praether Company, whereby the Harrisburg Company, as party of the first part, granted to the Reisinger-Praether Company, as party of the second part, “the exclusive right and privilege to sell the engines of the various patterns manufactured by them ” in certain territory, including Michigan.

“ The said party of the first part further agrees to furnish the engines to be sold by the said parties of the second part at their agent’s prices, as the same may be from time to time changed and modified, and to give the said parties of the second part at least thirty (30) days’ notice of any change that may occur in prices, the said parties of the first part to receive an additional sum for said engines equal to 25 % of the profits in each sale beyond the agent’s prices as may be determined by the statement or memorandum furnished by the second party with each contract placed for machinery, except in such cases where the machinery ordered from the party of the first part shall be a part of an installation of a complete power plant and the same is included in the general estimate, in which case the proportion of profits paid by the second party in excess of agent’s prices shall be on a basis of 25% of 10% of the profits on said machinery furnished by the party of the first part.”

On November 16, 1904, the Harrisburg Company delivered to the Reisinger-Praether Company a proposal, portions of which are as follows:

“Specifications for Two Fleming Standard Tandem Compound Engines for Direct Connection to 250 K. W. Railway Generators, for the Detroit, Flint & Saginaw Railway.
“To Reisinger-Praether Company,.
“Pittsburg, Pa.
Dear Sirs: It gives us pleasure to herewith submit for your kind consideration and acceptance the following proposition for furnishing you with machinery, as manufactured by the Harrisburg Foundry & Machine Works, Harrisburg, Pa., and such other work as hereinafter specified.
“ We propose and agree to furnish you * * *. The title to this machinery shall not vest in the purchaser until it is fully paid for. * * * If notes are accepted, the title to said machinery shall not pass from us until such notes, and all extensions and renewals thereof, shall have been paid. * * * The taking of security other than provided for shall not operate as a waiver of our statutory lien, and consent is given that we may, without notice, accept security, and thereafter increase, diminish, exchange, or release the same. * * * We agree to furnish the materials and work herein specified for the sum of eleven thousand six hundred fifty dollars ($11,650.00). * * * This proposal to be void unless accepted and returned on or before January 16, 1905, and is not to become binding on the Harrisburg Foundry & Machine Works until acknowledged by them at their general office at Harrisburg, Pa.
“.Respectfully submitted,
“Harrisburg Foundry & Machine Wks.,
“'By H. W. Reisinger.
“ The within proposal is hereby accepted this 30th day of December, 1904, and we hereby agree that the title to the property mentioned herein shall be and remain in the Harrisburg Foundry & Machine Works until the same shall be fully paid for. Further, upon default being made in any of the payments of the contract price of said machinery, that the said, the Harrisburg Foundry & Machine Works, are hereby given the right to enter the premises where the said machinery may be and remove the same as their personal property, without any liability whatever therefor, or for payments previously made. * * *
[Signed] “Reisinger-Praether Co.,
“By H. B. Praether.
“ Witness:-.
“January 5,1905. The foregoing proposal and acceptance are hereby acknowledged and accepted by the Harrisburg Foundry & Machine Works at general office,. Harrisburg, Pa.
“ David Fleming, Vice Prest.
[Seal.] “Attest: Abram L. Groee, Secretary.”

October 26, 1905, the Reisinger-Praether Company transferred its business to the Praether Engineering Company, including the contract with the Detroit, Flint & Saginaw Railway Company, reserving, amongst other things:

“ Contracts reserved and which do not pass under this agreement and bill of sale, the same having been assigned and transferred to H. W. Reisinger. (A) Selling contract between the Harrisburg Foundry & Machine Works and Horace W. Reisinger, H. B. Praether, and A. G. McConnell, dated May 29, A. D. 1903.”

The Reisinger-Praether Company, in the construction of the power plant, purchased all of the material used from subcontractors. The plant was completed some time in November or December, 1905, and accepted by the railway company, which gave its notes for the amount due, upon which there remains due, exclusive of interest, the sum of $53,575.90. The Harrisburg Company invoiced the engines to the Reisinger-Praether Company at $11,650, and the railway company gave its notes on the basis of this invoice price. The engines did not actually cost the Reisinger-Praether Company $11,650; but, by a secret agreement with the Harrisburg Company, they were entitled to a rebate of at least $1,139.60. On June 21, 1906, the creditors of the Reisinger-Praether Company, including the Harrisburg Company, agreed that—

' “ Mr. J. H. Kusell shall act for us in an advisory capacity. * * * It being understood that the amount due from the Detroit, Mint & Saginaw Railway is not to be settled for any sum less than the full amount of the claim of the Praether Engineering Company, without first being submitted to us and our consent in writing given thereto.”

On the 7th day of July, 1906, the Praether Engineering Company assigned all of its interest in its claim against the Detroit, Flint & Saginaw Railway Company, including its claimed mechanics’ and vendors’ liens, in trust for the following parties and the amounts due each, viz.:

The Dime Savings & Banking Co________________$10,439.40
The National Electric Co_________________________ 7,361.09
Anltman & Taylor Co........................... 10,550.83
The Harrisburg Foundry & M. Wks.............. 10,393.51
F. C. Werk__________________________-........- 3,819.38
Am. Foundry & Cons. Co........................ 5,327.73
Henry R. Worthington.......................... 405.91

On December 22, 1906, the creditors named in said agreement of July 7th entered into another agreement, wherein it was agreed:

“First. That in the execution of the said trust of July 7, 1906, the claim of the Dime Savings & Banking Company, as to which they are to have a preference over and above said other creditors, shall be and is hereby stated to be the sum of ten thousand seven hundred and sixteen dollars and twenty-two cents ($10,716.22), and that as to any other claims it may have against said Praether Engineering Company, it shall be entitled to the benefit of the securities held by said trustee, after the claims of said other creditors shall have been fully paid, principal and interest.
“Second. That in the execution of said trust after the payment of said ten thousand seven hundred and sixteen dollars and twenty-two cents ($10,716.22) to said Dime Savings & Banking Company, the said claims as hereinbefore stated of other creditors shall be paid in full if the avails of said trust shall be sufficient for that purpose, and if not sufficient the same shall be divided among said other creditors pro rata.”

On January 9, 1906, the Praether Engineering Company filed a claim of mechanic’s lien for $59,456.53. On March 10, 1906, the Praether Engineering Company filed in the office of the secretary of State the contract between the Reisinger-Praether Company and the railway company. On March 10, 1906, the Harrisburg Foundry & Machine Works filed its claim of mechanic’s lien for $10,997.40, and on June 5, 1906, it filed in the office of the secretary of State a copy of its contract of January 5, 1905, with the Reisinger-Praether Company. On the 20th day of November, 1906, the railway company, having become insolvent and having defaulted upon its bonds, the complainant filed its bill in the court below for the purpose of foreclosing the mortgage and selling the assets of the company. The Praether Engineering Company and the Harrisburg Company, after the failure of certain special proceedings (see Hogan v. Railway, 140 Mich. 101 [103 N. W. 543], 148 Mich. 283 [111 N. W. 765], 154 Mich. 478 [118 N. W. 140]), filed answers in the nature of cross-bills, to which complainant filed answers. The Harrisburg Foundry & Machine Works alleged in its cross-bill, among other things:

“That this defendant is informed and believes that said engines and machinery are so related to the operation of said defendant railway that waste would be committed if said engines should be removed from said power house; that it is to the interest of this railway property that the said engines should be kept intact in said power house.”

The relief asked for was: That defendant be paid its claim; that in default of such payment it be decreed to have a vendor’s lien; that in the event of a decree to sell the property as an entirety it be paid first; that, if it should be deemed inequitable that it should be paid first, that it should be decreed to have a statutory mechanic’s lien; that its lien upon the premises be decreed to be a prior and superior lien.

The cross-bill of the Praether Engineering Company and J. H. Kusell, trustee, contained the following allegation:

“ That these defendants are informed and believe that said engines and machinery are so related to the operation of said defendant railway that waste would be committed if said engines should be removed from said power house; that it is to the interest of said railway property that the said engines should be kept intact in said power house.”

As part of the relief asked for, the cross-bill prayed for a vendor’s lien, a mechanic’s lien, the property be sold as an entirety, and—

“That in case this court, by its decree, provides for a sale of the assets of said railway company, including the said power house and the engines and machinery therein contained, the said decree shall provide that out of the proceeds thereof there shall be first paid to these defendants the amount of their lien, or such reasonable part thereof as these defendants may be entitled to and as may be in accordance with equity. Or that, in lieu thereof, it be decreed that these defendants have title to the machinery, boilers, engines, and other property which were placed upon said real estate, in pursuance with the contract shown in Exhibit A hereto annexed; and that these defendants be permitted, by an order of this court, to remove them or such portion thereof as may not have become affixed to, and become a part of, the real estate. That said Detroit Trust Company be decreed to be the holder of the $69,000 in par value, of bonds set forth in paragraph 3 herein, for the use and benefit of these defendants, and that the same be applied, as far as may be necessary, to the payment of the amount due these defendants; and that, as to the amount of said bonds, these defendants be decreed to have a prior lien, under said trust mortgage, to the other parties to this suit and to the claims of other holders of bonds under said mortgage.”

Early in the course of the trial, the following occurred, with reference to the manner in which the engines were attached to the realty:

The Court: I understand it to be the claim from the start in this case — 1 have not read the pleadings — but it has been the claim here, and I suppose the pleadings must cover the proposition, that it would claim that this property was so attached to the freehold there that it could not be severed, and that a lien would not attach. That must have put you on your guard about your witnesses.
‘ ‘ Mr. It Esperance: Assuming that, for the purpose of argument, if the court please, I think when it comes down to an argument on that proposition that we can show to the court that the law, as construed by our court in this State and in the various States in the country and the United States court, it is held that the mere fact that the property is so attached, personal property is so attached to the realty, as to become a part, it does not in any respect deprive the vendors of that lien to which he is entitled.
The Court: I did not make any decision on that proposition. I am simply calling your attention to the propositions that were in the case.
Mr. It Esperance: We are prepared to meet that and admit that the property is (take'this on the record), admit that the engines are so attached to the realty, so attached to that power house station, as to become a fixture there.”

At the close of the case, the following occurred:

“Mr. L'Esperance: I wish to withdraw from the record in view of the examination of Mr. Woodford and Mr. Zerfoss in reference to the manner in which this property is attached to the premises, by myself, on cross-examination by. the gentlemen on the other side, my statements that these engines were so attached to the power house as to become a fixture. The question as to whether it is or is not a fixture is purely and simply a question of intention. * * *
The Court: I will have to consider it. I won’t permit its withdrawal. I will have to consider the concession with view of the withdrawal, having been made after all the witnesses are excused and the case closed.”

Much testimony was taken in open court, and the court entered a decree of foreclosure. The decree established the mortgage as a prior lien to all other liens or interests of whatsoever nature, ordered the property sold as an entirety, found that the defendants Praether Engineering Company, J. H. Kusell, and Harrisburg Foundry & Machine Works had no valid liens, that the bonds held in trust under the security agreement were obtained by fraud and deceit and should be canceled, and denied to the appealing defendants any right to share in the proceeds of the foreclosure sale.

“ * * * But it is also the intention of the court by this decree to leave to the said Praether Engineering Company, J. H. Kusell, trustee, and Harrisburg Foundry & Machine Works the rights to bring action or suit at law against the defendant, Detroit, Flint & Saginaw Railway Company, to recover the value of the machinery and appliances furnished by said parties to said Detroit, Flint & Saginaw Railway Company.”

From this decree, the defendants Praether Engineering Company, Harrisburg Foundry & Machine Works, and J. H. Kusell, trustee, have appealed to this court.

The important question which presents itself for our consideration at the threshold of the case is that which concerns the validity of the liens claimed by the appellants. The bonded indebtedness secured by the mortgage, exclusive of the $69,000 in escrow, was much greater than the total value of the railway company’s assets, and it is apparent that, unless the appellants, by virtue of their claimed liens, had acquired interests superior to those of the mortgages, they have no standing to question the decree, except as to their claimed right to share in the proceeds of the sale to the extent of the $69,000 of bonds. The validity of the claimed mechanics’ liens, apart from questions of procedure, depends upon the construction of our statute providing for such liens. See 3 Comp. Laws, § 10710, as amended (Act No. 17, Pub. Acts 1903). This statute came under the consideration of the United States circuit court of appeals, sixth circuit, on appeal from the decree of the circuit court for the eastern district of Michigan, in the case of Pennsylvania Steel Co. v. Lumber Co., 63 Fed. 11, 11 C. C. A. 11. The eminent judges who constituted the court, after much consideration and examination of authorities, reached the conclusion that the statute was not intended to give a lien for the materials used in the construction of a railroad. We are satisfied that the court correctly interpreted our statute, so far as concerns materials furnished to become an integral and permanent part of the railway system, and that the property upon which the mechanics’ liens are claimed in the instant case is as much outside of the statute as the rails in the case referred to. Phœnix Iron Works Co. v. Trust Co., 83 Fed. 757, 28 C. C. A. 76, and cases cited; Detroit United Ry. v. State Tax Com’rs, 136 Mich. 96 (98 N. W. 997).

The Vendors’ Liens or Conditional Sales. Section 35 of the train railway act, under which the Detroit, Flint & Saginaw Railway was organized (2 Comp. Laws, § 6426), provides as follows:

“ It shall be lawful for any corporation or association organized under the act hereby amended, for the purpose of building and operating street railways, to borrow money for the purpose of constructing and operating the road or roads proposed to be constructed by them, and for that purpose to mortgage, or create any other lien upon their franchise, road, superstructure-fixtures, rolling stock and equipments; and whenever such corporation or association shall have acquired a simple easement or right of way for its proposed road, or any part thereof, and shall have made and filed its articles of association in conformity to the provisions of the act hereby amended, any mortgage or mortgages executed by such corporation or association, upon the route or routes where such easement or right of way has been obtained, as aforesaid, shall be a legal and valid lien upon the right of way so obtained, to the entire extent of the interest of such corporation or association therein, and upon the superstructure and fixtures upon such route or routes, whether the same shall be built before or after, or partly before and partly after, such mortgaging, and any such mortgage shall be deemed to be a mortgage upon real estate.”

It will be observed that the section authorizes a mortgage upon the “franchise, road, superstructure fixtures, rolling stock and equipments,!’ and, in case the company has only acquired a right of way, makes the mortgage a valid lien upon the right of way and upon the superstructure and fixtures afterwards constructed thereon, and declares such mortgage to be a real estate mortgage.

The mortgage in this case expressly subjected after-acquired property to its lien; but, regardless of this provision, the statute quoted subjected the power plant to the lien of the mortgage, provided the same constituted superstructure or fixtures within the meaning of the statute. Under the pleadings, the concession of counsel, and the testimony in the case, the property in question must be deemed to be fixtures, unless such conclusion is negatived by the agreements retaining title. Leaving out of consideration, for the present, the statute relative to conditional sales (2 Comp. Laws, § 6336), and the admissions of the pleadings and of counsel, we deem it settled by authority that the property in question constituted fixtures, and that the lien of the mortgage was superior to titles subsequently reserved- in the contracts for furnishing materials. Phœnix Iron Works Co. v. Trust Co., supra; Porter v. Steel Co., 120 U. S. 649 (7 Sup. Ct. 741), 122 U. S. 267 (7 Sup. Ct. 1206); Toledo, etc., R. Co. v. Hamilton, 134 U. S. 296 (10 Sup. Ct. 546); Wickes Bros. v. Hill, 115 Mich. 333 (73 N. W. 375); Detroit United Ry. v. State Tax Com’rs, supra; Watson v. Alberts, 120 Mich. 508 (79 N. W. 1048); Hunt v. Iron Co., 97 Mass. 279; Bass Foundry & Machine Works v. Gallentine, 99 Ind. 525; Lake Shore, etc., R. Co. v. City of Grand Rapids, 102 Mich. 374 (60 N. W. 767, 29 L. R. A. 195).

In Wickes Bros. v. Hill, supra, it is said:

“When, however, the vendor sells machinery which it is well understood may, and in the absence of agreement does, become part of the realty by being so attached that it cannot be removed without injury, and thereby places it in the power of his vendee to so attach it and sell or mortgage to innocent third parties, the better and more just rule is that he must suffer.”

In support of this conclusion, the court cite, among other cases, Porter v. Steel Co., Hunt v. Iron Co., and Brass Foundry & Machine Works v. Gallentine, supra, which were cases where the property sold with reservation of title was to be annexed to real estate covered by a prior mortgage.

In Porter v. Steel Co., 122 U. S. 267 (7 Sup. Ct. 1206), it is said:

“ It is claimed on behalf of the Smith Bridge Company, that the contracts between it and the railway company, for the construction of the bridges, provided that the bridges should remain the property of the Smith Bridge Company until the contract price for them should have been fully paid, and that, in default of such payment, the Smith Bridge Company should have the right to remove the bridges and bridge material; that the mortgages became a lien on the bridges only as the bridges became the rightful and legal property of the railway company; that Porter, before he purchased the bonds, had notice of the equities of the Smith Bridge Company growing out of their contracts; and that the First National Bank of Chicago had like notice before it acquired any interest in the bonds. The contracts of the Smith Bridge Company were made in October, 1882, and in July, 1883. The bonds were pledged to Dull and McCormick in January, 1882, and passed from them to Drexel, Morgan & Co. in January, 1883. The bridges became a part of the permanent structure of the railroad, as much so as the rails laid upon the bridges or upon the railroad outside of the bridges. Whatever is the rule applicable to locomotives and cars, and loose property susceptible of separate ownership and of separate liens, and to real estate not used for railroad purposes, as to their being unaffected by a prior mortgage given by a railroad company, covering after-acquired property, it is well settled, in the decisions of this court, that rails and other articles which become affixed to and a part of a railroad covered by a prior mortgage, will be held by the lien of such mortgage in favor of bona fide creditors, as against any contract between the furnisher of the property and the railroad company, containing stipulations like those in the contracts in the present case. Dunham v. Railway Co., 1 Wall. (U. S.) 254; Galveston R. R. v. Cowdrey, 11 Wall. (U. S.) 459, 480, 482; United States v. Railroad, 12 Wall. (U. S.) 362, 365; Dillon v. Barnard, 21 Wall. (U. S.) 430, 440; Fosdick v. Schall, 99 U. S. 235, 251.”

In Hunt v. Iron Co., 97 Mass. 279, it is said:

“Nor do we suppose that a mortgagor in possession is competent to bind existing mortgagees by any arrangement to treat as personalty annexations to the freehold. The legal character of the rails, when once laid down, is determined by the law to be that of real estate. Mortgagees, as well as all other parties in interest, are entitled to the benefit of this rule of law, which can be taken from them only by their own waiver.”

Considering the authorities in the light of the statute, we hold that mortgages given in accordance with the statute are not affected by reservations of title in subsequent contracts for furnishing materials, which when attached, except for such reservations, would become fixtures subject to the mortgage, unless subjected to the vendor’s rights by section 6336, 2 Comp. Laws. That section provides:

“That in any contract for the sale of railroad or street railway equipment or rolling stock, it shall be lawful to agree that the title to the property sold or contracted to be sold, although possession thereof may be delivered immediately, or at any time or times subsequently, shall not vest in the purchaser until the purchase price shall be fully paid, or that the seller shall have and retain a lien thereon for the unpaid purchase money,” etc.

The act containing this section was adopted after the adoption of the section of the train railway act previously quoted, and may properly be construed in connection with it. Considering the two acts together, we are satisfied that the words “equipment or rolling stock,” in the one, have the same meaning as “rolling stock and equipments,” in the other. It appears reasonably clear that in section 6426 “rolling stock and equipments” are distinguished and differentiated from the franchise, road, superstructure, and fixtures, which, when the company shall have acquired a right of way, are subjected to the mortgage, whether the same shall be built before or after,” etc. By “rolling stock and equipments,” as used in this section, we understand reference is made to the locomotives, cars, furniture, and other loose and movable personal property, as distinguished from the permanent fixed property forming an integral and essential part of the railway as an entirety. We see no reason for giving any different meaning to the same words as used in section 6336, and are therefore of the opinion that that section does not support the appellant’s position.

It remains only to consider whether the appellants were entitled to share in the proceeds of the sale to the extent of the bonds held in trust under the security agreement, participation in which was denied them by the circuit court, because, among other grounds therefor as found by him, the bonds were obtained by fraud and deceit in swelling the cost of constructing the plant which formed the basis for the deposit of the bonds.

The question of fraud was the principal question of fact to which the testimony was directed, and much testimony was put in upon that subject. It would extend this opinion to an inordinate length if we should undertake to review the testimony bearing upon this question. We therefore content ourselves with a brief statement of our conclusions reached after a careful examination of the entire record. It is undisputed that the bills for construction furnished to the railway company by the Reisinger-Praether Company were largely in excess of the actual cost, upon which their profit of 10 per cent, was to be computed, and that the amount of this excess was not specifically shown to the court. It is also undisputed that the Harrisburg Company laid the foundation for a successful perpetration of the fraud, by furnishing an invoice to the Reisinger-Praether Company, which stated the cost of the engines at a sum largely in excess of the actual cost to the Reisinger-Praether Company. It is strenuously contended, however, that the Harrisburg Company had no contractual relations whatever with the railway, that the transaction with the Reisinger-Praether Company was the ordinary transaction of purchase and sale, and that it owed no duty to the railway company. It is also contended that there is no evidence of any fraud on the part of the Harrisburg Company, or of knowledge on its part of the terms of the contract between the railway company and the Reisinger-Praether Company as to the compensation to be paid. It would be unreasonable to suppose that the Harrisburg Company was making the contract with the Reisinger-Praether Company in ignorance of the terms of their contract with the railway, when the profit of the Harrisburg Company depended in part upon the profits of the Reisinger-Praether Company beyond the agent’s prices. Furthermore, Mr. Reisinger testified that, at the time the contract was forwarded to the Harrisburg Company for its approval—

“We made them a statement showing the net cost, plus our profit, showing the amount of the contract. * * *
“Q. And you gave them to understand that in furnishing the engines they could receive the agent’s price and 25 per cent, of this profit which you added ?
“A. Yes, sir.”

We are entirely satisfied, from the nature of the transaction, the relations of the parties, the contract between them, the testimony of Mr. Reisinger, and the surrounding facts and circumstances disclosed by the record, that the Harrisburg Company sold the engines, through its agent and representative, to the Reisinger-Praether Company for the railway company with full knowledge of the terms of the contract with the railway company, and stated a false price in their invoice, with the fraudulent purpose of swelling the profits of the Reisinger-Praether Company and of themselves. We have concluded, however, although not without some hesitation, that the appellants are entitled to have the benefit of that maxim of equity jurisprudence that he who asks equity must do equity. Although appellants have not shown the exact amount to which they are equitably entitled, the evidence indicates that the increase over the contract price was not much in excess of 10 per cent., and we do not think that it would be equitable to punish them by the forfeiture of the entire amount of their claim, provided the amount equitably due them can be limited, with the reasonable assurance that such limitation will not afford them compensation beyond what would be justly due under .the contract.

We are satisfied that a deduction of 20 per cent, from the prices made to the railway company will sufficiently protect the rights of all parties. If, however, complainant is not satisfied with such deduction, a reference may be had to the court or a circuit court commissioner for the determination of the amount thereof.

We are therefore of the opinion that the parties entitled to the benefit of the security agreement should have the right to participate in the proceeds of the mortgage sale, in the proportion which the bonds to which they would have been entitled on the basis of their reduced claim bear to the total of the bonds actually issued and secured by the mortgage.

The decree appealed from may be modified in conformity with this opinion, and, as so modified, is affirmed, with costs of this court to appellants.

Grant, Montgomery, Ostrander, and Hooker, JJ., concurred.


author: McAlvay, J.

text:
    MOORE v. WHITE.
    1. Easements — Ways of Necessity.
    The owner of a forty acre tract which is cut off from the highway by another forty acre parcel which was at one time held by a common grantor, has a way of necessity across the intervening parcel to such highway.
    2. Same.
    That the owner of the servient estate offered to sell a right of way across other lands owned by him in no way affects the easement.
    3. Same — Statutes—Private Roads.
    Such owner of the easement is not required to resort to the condemnation of a private road under 2 Comp. Laws, § 4142, et seq.

    4. Same — Location op Way of Necessity.
    Where the owner of the servient tenement refused to locate a right of way and the holder of the dominant estate chose a way which was reasonable, the court of equity will protect his rights.
    5. Same — Extent of- User.
    One who claims a right of way by necessity over adjoining lands may make the way passable and is required to maintain necessary fences at either end and keep the road in repair.
    Appeal from Cass; Des Voignes, J.
    Submitted October 13, 1909.
    (Docket No. 69.)
    Decided December 31, 1909.
    Bill by Joel Moore against Nathan White and Ruth White to enjoin a trespass upon lands. From a decree for complainant, defendants appeal.
    Reversed, and decree entered for defendants.

      Charles JSJ. Sweet, for complainant.

      M. L. Howell, for defendants.
   McAlvay, J.

A bill was filed in the circuit court for Cass county by complainant against defendants to restrain them from entering upon and crossing his premises, and from tearing down fences for that purpose. It appears from the bill of complaint and answer that defendants claim a way of necessity over complainant’s land. The facts are that a common grantor in the chain of title of the parties entered the lands which are situated on section 23, town 6 S., range 16 W. The description is the E. ½ of the N. W. ¼ of said-section. This land was entered as one parcel in 1837 by John Collins. He sold the N. ¿ to James Moore, complainant’s ancestor, in 1846, and the S. -} to George McCoy, defendant Ruth White’s ancestor, in 1861. Both parties to this suit derived title directly from these grantees. There is a highway along the north line, and also one along the ea,st line, of this section, and one along the E. ¿ of the south line. No other highways are in or around the section. Complainant is also the owner of the entire N. E. ¿of the section.

A. Way claimed by defendants.

B. Way proposed by complainant.

C. Old way over which defendants moved in,

The accompanying diagram shows the situation.

The land owned and occupied as a home by defendants is entirely surrounded by the lands of others, and it is admitted that they have no way of ingress or egress except over lands owned by others. They claim they have a way by necessity over the N. E. \ of the N. W. i of this section, which is owned by complainant. When they moved upon the land they came by consent over the N. £ of the S. E. i, which is now owned by several persons as indicated on the diagram. They moved a small house onto the land, coming in that way from the road along the east side of the section. Their 40 acres and complainant’s 40 acres north of it were then, and yet remain, solid timber land, except some clearing on defendants’ land, and the part of the S. E. i over which they moved in was cleared, and defendant White, who as a tenant farmed part of the S. E. i of this section for one or two years, went in and out over that land to the north and south road, and during the same time also went in and out through the woods on the north now belonging to complainant. It is not disputed but that the right to continue to go out over the lands toward the east was refused by the owners.

For several years the defendants have continuously crossed complainant’s land, a part of the distance along the east line of the complainant’s 40 acres directly north of them, and a part of the way over complainant’s land next east of it. The record shows that on account of a low and wet place the east line cannot be followed all the way through. Complainant denies that defendants have a way of necessity or any right of way across these premises, and claims that they are trespassers. He was, and still is, willing to sell a right of way along the south line of the N. E. i of the section. They have no claim to such a route, and declined to purchase, but at one time offered $60 for a*n acre of land along the line they claim, which was refused. Complainant has forbidden defendants from crossing any part of his land. He put up a wife fence which defendants tore open, so as to allow them to go out and in across this land. On petition, the highway commissioner laid out a highway through the center of the section north and south, which would give defendants an outlet. Complainant appealed to the town board, which reversed the action of the commissioner. Defendants have not sought to lay out a private road under the statute.

The case was heard upon pleadings and proofs, and a decree was granted complainant according to his prayer for relief. Defendants have appealed, and ask this court to reverse the decree, claiming that they have a way of necessity, created by implication, over the land lying north of their land, and which was entered with it as a single entry. That this way of necessity was created when there was a severance of this land-locked tract by the owner from the balance of his entry is also claimed. The record does not show that there has ever been an abandonment or waiver of this right claimed by defendants. Until recently these two parcels of land have been covered with standing timber. The number of years they have lived upon the land we do not discover, but one witness for complainant testified that for the first two years defendants occupied their land they were accustomed to go out over complainant’s land while they were also using the way out to the east road. Another of his witnesses testified that there was no established road through there, but he had heard that a right of way was claimed. Complainant’s son testified that they had gone that way continuously for four years by permission granted. There appears to have been no occasion for controversy while this wild land was open and unfenced. When, however, fences were built by complainant and torn down, and defendants failed to get a public highway and could not agree with complainant upon some adjustment, and insisted upon the right to cross complainant’s land, this controversy readily arose.

The authorities, as far as we have examined them, support the proposition that, under circumstances similar to the one in the case at bar, a way of necessity arises in favor of the landlocked tract over the adjoining land of the owner. 23 Am. & Eng. Enc. Law (2d Ed.), p. 13, and notes. Such way, being one of strict necessity, is granted by implication, and under like circumstances will be reserved by implication. 14 Cyc. p. 1,172 et seq., and notes and cases cited. A well-considered case in which this doctrine of the creation of ways of necessity by implication and reservation is discussed is Miller v. Hoeschler, 126 Wis. 263 (105 N. W. 790). It is reported and annotated exhaustively in 8 L. R. A. (N. S.) 327. The circumstances of the case at bar are such as bring it within the rule of strict necessity from which no authority examined dissents.

It was not necessary in this case for defendants to apply under the statute for the condemnation of a private road. If this way of necessity existed, it was a vested right which entitled defendants to this way over the land in question immediately north of their premises, and necessarily over no other land. The fact, therefore, that the complainant offered to sell a right of way over other land is not material. Complainant has absolutely refused to recognize any right whatever in defendants to an easement across this land. This way has never been located. The record shows that in former years plaintiff, in going out over this land, did not always follow the same path or road. This they had a right to do. No way had ever been defined. There were no fences or lines to indicate a located way. Powers v. Harlow, 53 Mich. 507, at page 513 (19 N. W. 257, 51 Am. Rep. 154).

Under present conditions, when lands are enclosed and premises used for pasture or otherwise, to allow defendants to go over the entire tract wherever they pleased would be inequitable. The right is held to be in the owner of the servient estate to locate such a way of necessity. He has refused to exercise this right and defendants have done so, and such location is not claimed to be an abuse of such right. It will not be necessary to cut a road through this timber or to fence it in. Defendants have a right to make it passable for the uses necessary to its full enjoyment, and nothing more. They must keep it in repair, and provide such gates at both ends as will prevent animals from straying in and. complainant’s stock from escaping from the premises. The owner of the fee is not prevented from using such way by passing to and fro over it; but such use must not in any way impair or conflict with the use of the way owner.

It follows that we conclude that defendants have by law a way of necessity over these premises, v lh which complainant may not interfere, and that the decree of the circuit court must be reversed, the injunction dissolved, and the bill dismissed, and that a decree be entered in this court in favor of defendants according to this opinion. That a way of necessity be declared in defendants along the line located by them, unless complainant, within 90 days after notice, by proper conveyence, grant and convey a perpetual way to defendants, their heirs, representatives, and assigns, 20 feet in width on the south side of the N. E. J of said section, extending the full width thereof, giving free egress and ingress to defendants at all times from their land to the highway on the east, and that defendants will be required only to maintain gates at the ends of said road or way, and shall not be required to maintain gates elsewhere along the same, or fences on either side thereof; but such gates and fences, if considered necessary by complainant, his heirs, representatives, or assigns, shall be constructed and maintained by him or them; this condition and proviso being based upon the offer made by counsel for complainant upon the argument of the case. Defendants will recover costs of both courts.

Blair, C. J., and Grant, Moore, and Brooke, JJ., concurred.