text:
    MINER v. HUSTED.
    1. Specific Performance — Conditional Sales — Patents — Licenses — Contracts.
    Complainant, the vendor of all the stock of the Allmetal Manufacturing Company, filed a bill for specific enforcement of the contract, for an accounting and other relief, making parties defendant the said corporation and one H., the purchaser of complainant’s interests. In the agreement of sale and purchase the parties stipulated that the stock and a certain contract of license to manufacture a brooder stove belonging to the corporation be deposited with and held in trust by a trust company to secure performance of the conditions of the sale, and payment of the purchase price. By its provisions complainant agreed to satisfy all claims against the corporation and reserved the right to all accounts receivable, also binding the purchaser. to pay to complainant vendor the same royalties fixed in the license contract between the corporation and said patent holder, and guaranteed the sale of a minimum quantity of stoves. The complainant was bound not to engage in the business of selling other similar products. Among the provisions the contract also stipulated that defendant stockholders should pay to the seller, as damages for the breach of the contract, in the event of such breach, the sum of five dollars per stove sold, from which amount, however, was to be deducted the royalties provided for. Held, that complainant might specifically enforce the obligation of the vendee notwithstanding such provisions for a penalty, and that a corporation subsequently organized by H. to manufacture the same product under royalties of equal amount fixed by the license contract, to which the license was also assigned, was bound by the terms thereof, by reason of the notice or knowledge possessed by H., who was one of its principal officers and directors.
    2. Same — Equity—Penalty.
    The inclusion in a royalty contract relating to the assignment of a license to sell a patented product, of a provision for the payment of $5 for each article sold in violation of the agreement was a penalty, but the same did not interfere with the authority of the court to grant the equitable remedy of specific performance.
    3. Same — Agency—Corporations—Notice.
    It is a general rule that a corporation is bound by the knowledge of its officers and agents, as in other cases of the relation of principal and agent, although an exception is in certain cases recognized when the position or interest of the official is clearly adverse to that of the corporation.
    4. Same — Trust Mortgage.
    The rights of a creditor and mortgagee of the last mentioned corporation under a trust mortgage of its assets were also subordinate to the rights of complainant and his interest free of any incumbrance or trust arising out of such attempted transfer.
    Appeal from Kent; McDonald, J.
    Submitted January 4, 1916.
    (Docket No. 6.)
    Decided March 31, 1916.
    Bill by Frank E. Miner against Nina Husted, executrix of the last will and testament of N. P. Sylvester Husted, and others, for specific performance of a certain contract, for an accounting, and for other relief. From a decree for defendants, complainant appeals.
    Reversed.

      Hatch, McAllister & Raymond, for complainants.

      Rolland J. Cleland (Myron H. Walker, of counsel), for defendants.
   Stone, C. J.

The bill of complaint in this case was filed to enforce the performance of a certain contract, for an accounting, and for other relief.

The Allmetal Manufacturing Company, one of the defendants herein, is a corporation organized under the laws of this State. On the 22d day of October, 1912, the company was the owner of certain property situated in the city of Grand Rapids, including machinery, raw and manufactured materials, stationery, and office equipment, and also a certain written contract, dated June 8, 1912, with one J. E. Kresky, hereinafter called the Kresky contract. The said Kresky contract was an agreement between J. E. Kresky of Petaluma, Cal., and the Allmetal Manufacturing Company, whereby that company was granted the exclusive agency for a term of ten years for the sale, in that portion of the United States lying east of the Rocky Mountains, of the brooder stoves known as the “Pride of Petaluma,” also brooder burners and other accessories of said stoves, which stoves, brooders, and accessories were manufactured by said Kresky under patents held by him. Said contract contained an option for the purchase by said company, within two years after its date, of the exclusive right to manufacture and sell said articles in said territory on payment of $5,000. Said contract specified the prices at which said articles were to be sold by said Kresky to the Allmetal Manufacturing Company.

On October 22, 1912, complainant was the holder of 800 shares of the capital stock of said Allmetal Manufacturing Company, being the entire capital stock then issued. Seven hundred shares of the authorized capital stock had not .been issued. On that date, he and N. P. Sylvester Husted entered into a written contract, which, contract will hereafter be referred to as Exhibit B, and was in the words and figures following:

“This agréement, made this 22d day of October, A. D. 1912, by and between Frank E. Miner of East Grand Rapids, Michigan, first party, and N. P. Sylvester Husted, of Grandville, Michigan, second party, witnesseth:
“Whereas, said first party is the holder of 800 shares of the capital stock of Allmetal Manufacturing Company, a corporation organized under the laws of the State of Michigan, and doing business at the city of Grand Rapids, in said State, and owning certain physical property situated in said city of Grand Rapids, including machinery, raw materials, manufactured materials, stationery and office equipment, and a certain contract in writing dated the 8th day of June, 1912, whereby one J. E. Kresky, of Petaluma, California, granted to Allmetal Manufacturing Company an exclusive sales agency under a certain patent or patents covering an invention known as ‘Kresky Rotary Burner’ for use in brooder stoves or otherwise, in that portion of the United States of America lying east of the Rocky Mountains, for the term of ten years from the date of said contract, and thereafter granted to said Allmetal Manufacturing Company the right to manufacture the same under said patents;
“And whereas, 700. shares of the authorized capital stock of said Allmetal Manufacturing Company have never been issued;
“And whereas, said first party has agreed to sell all of said capital stock of said Allmetal Manufacturing Company so held by him to said second party and said second party has agreed to buy said capital stock so held by first party, and to pay to said first party therefor certain sums of money hereinafter specified at the times and in the manner hereinafter specified;
“And whereas, it is mutually agreed between the parties hereto that said capital stock, together with said contract between J. E. Kresky and said Allmetal Manufacturing Company shall be held by the Michigan Trust Company, of said city of Grand Rapids, Michio-an, as trustee, for the purpose of securing the fulfillment, and until the final fulfillment of all the covenants, agreements and conditions hereinafter contained by said second party to be kept and performed:
“Now, therefore, it is mutually agreed between the-parties hereto as follows:
“First. For the considerations of $887.75 to be paid forthwith by party of the second part, and those hereinafter mentioned, party of the first part hereby sells, assigns, and sets over to party of the second part, 800 shares of stock in Allmetal Manufacturing Company, being the entire capital stock now issued; and does agree personally to pay forthwith all claims of every nature now existing against said corporation, except. claim of Stewart-Davis Advertising Agency; and party of the second part agrees that all accounts receivable of said corporation now existing belong to party of the first part.
“Second. Said party of the second part guarantees that said Allmetal Manufacturing Company shall in all respects fulfill and carry out the terms of said Contract between said J. E. Kresky and said Allmetal Manufacturing Company, and that in case said All-metal Manufacturing Company shall avail itself of the option contained in said contract to purchase of said J. E. Kresky the exclusive right to manufacture and sell the articles mentioned in said contract throughout the territory specified therein, said right shall be held by said the Michigan Trust Company in trust in lieu of said contract between said J. E. Kresky and said Allmetal Manufacturing Company in like manner as said shares, of stock as hereinafter stated.
“Third. As further consideration for the sale by said first party to said second party of said shares of the capital stock of said Allmetal Manufacturing Company, said second party agrees to pay to said first party, royalties on the sale of all stoves sold, or manufactured and sold under said contract with said Kresky as follows: Three dollars on each stove until 2,000 stoves are sold; two dollars royalty on each stove sold on the next 4,000; one dollar royalty on each stove sold above 6,000; said royalties to be paid during the life of said contract with said Kresky. If second party takes advantage of said option contained in said Kresky contract, first party is to receive such royalties during the life of the patents covering said stove and burner mentioned in said Kresky contract; said royalties are to be paid to the first party at the end of each month for stoves sold during the month, excepting that during the months of January, February, March and April of each year, said royalties are to be paid at the end of each week. Second party shall furnish first party a report with each settlement showing the serial number of all stoves sold, to whom sold, and where sold, and first party shall have the right to examine the books of second party at any time during business hours, for the purpose of cheeking such reports.
“Fourth. Second party agrees to use due diligence and his best efforts to promote the business of selling brooder stoves under said Kresky contract, and guarantees to first party royalties on at least 275 stoves during the first seven months following the date of this agreement, and on at least 800 stoves each year thereafter during the life of this agreement. It is also agreed that if second party, or said Allmetal'Manufacturing Company, should engage in the business of manufacturing or selling other stoves, or stoves under any other contract than those manufactured or sold under said Kresky contract, the same conditions as to royalties and the payment thereof that apply to said Kresky stove in this contract shall also apply to said other stoves, and be paid to said first party.
“Fifth. First party agrees to co-operate in all reasonable ways toward helping promote the best interests of second party in the carrying on of said business, and that he will not during the life of this agreement, either directly or indirectly, or as principal or employee, or otherwise, engage in the business within the United States or Canada, of selling stoves or burners of any type or kind that will enter into competition with said second party. First party also agrees to turn over to second party all inquiries now or hereafter received by him or Allmetal Manufacturing Company in connection with the brooder stove business, or other business of said Allmetal Manufacturing Company.
“Sixth. In case any more of the capital stock of said Allmetal Manufacturing Company shall be issued at any time hereafter, said stock shall be held by the Michigan Trust Company as trustee, as additional security for the performance by said second party of the covenants, agreements and conditions herein contained by him to be performed.
“Seventh. All or any of the stock so held by said the Michigan Trust Company as trustee may be at any time transferred by the person or persons for whom it is so held by said trustee, subject to the provisions of this contract, and when so transferred it shall continue to be held by said trustee until this contract shall be fulfilled.
“Eighth. Said the Michigan Trust Company shall hold said stock in trust for the purpose of securing' the performance of this agreement by party of the second part, but nothing herein contained shall be taken as preventing party of the second part or his assigns from voting said stock in the business of said corporation, while this agreement remains in force.
“Ninth. In case said second party shall at any time fail to perform all or any of the covenants, agreements and conditions herein contained to be by him kept and performed, said the Michigan Trust Company shall immediately on such failure, transfer and deliver said stock so held by it in trust and said Kresky contract, and, in case it shall hold the exclusive right to manufacture and sell the articles described in said Kresky contract under a grant or conveyance given in consequence of the election of said Allmetal Manufacturing Company to purchase said exclusive right under the option clause contained in said Kresky contract, then said grant or conveyance .to said first party to be held and enjoyed by him as his own property, absolutely and forever, and this contract shall thereupon be terminated. Second party shall pay to first party as damages for the breach of this agreement, five dollars on each and every stove sold up to the time of such breach, less the royalty paid to first party, and should said second party thereafter engage in the business of selling any other stove than the above mentioned in said Kresky contract, second party shall pay to first party the same royalty on such stoves as in this contract provided.
“Tenth. After the full completion and performance of this contract by said second party in all things on his part, said stock, Kresky contract and said grant or conveyance of exclusive right to manufacture the articles described in said Kresky contract to said second party, to be held and enjoyed by him absolutely and forever.
“Eleventh. The expenses of the trust hereby created shall be paid by second party.
“Twelfth. Any grant or conveyance of the right to manufacture and sell the articles mentioned in the Kresky contract which may be executed in pursuance of the option contained in said contract shall be taken in the name of Allmetal 'Manufacturing Company.
“Thirteenth. It is agreed that this contract shall be binding upon the heirs, executors, administrators and assigns of both of the parties hereto.
“In witness whereof, the parties hereunto have set their hands and seals, the day and year first above written.
[Signed] “Frank E. Miner. [L. S.]
“N. P. Sylvester Husted. [L. S.] ”
“The undersigned does hereby accept the trust created by the foregoing instrument under the conditions therein named and does acknowledge receipt of certificates for eight hundred (800) shares of the capital stock of Allmetal Manufacturing Company therein mentioned, and of contract between J. E. Kresky and Allmetal Manufacturing Company dated June 8, 1912.
“Dated October 23, 1912.
“The Michigan Trust Company,
“By [Signed] F. A. Gorham, “Vice President.”

From the undisputed evidence in the case, it appears that Exhibit B was made after mature deliberation and negotiations carried on between the complainant and Husted for a number of weeks. Both parties were represented by counsel.

On October 23, 1912, after the contract, Exhibit B, had been executed, complainant deposited the 800 shares of the capital stock of the Allmetal Manufacturing Company mentioned in said contract, together ■with the Kresky contract, with the Michigan Trust Company, trustee, and that company accepted the trust created in said Exhibit B, and acknowledged the receipt of the certificates for said 800 shares of stock and said Kresky contract.

We think it sufficiently appeared from the evidence that, because of lack of capital, the Allmetal Manufacturing Company was unable to continue business for any considerable time, and efforts which were made by said Husted to interest capital in said company were not successful; and on November 21, 1912, the Simplex Brooder Stove Company was incorporated, under Act No. 232, Pub. Acts 1903 (2 Comp. Laws 1915, § 9017 et seq.), for the purpose of the manufacture, purchase, and sale of poultry and appliances, and articles of metal of all kinds. The organizers and stockholders were N. P. Sylvester Husted; Nora Carr, his mother; Nina Husted, his wife; and Nora M. Hus-ted, his sister. The directors elected on the same day were Nora Carr, N. P. Sylvester Husted, and Nora M. Husted. Nora Carr was president, Nora M. Husted was secretary, and N. P. Sylvester Husted was vice president, treasurer, and general manager. He had full management of the1 business of both the Allmetal Manufacturing Company and the Simplex Brooder Stove Company.

All the stockholders of the Allmetal Manufacturing Company were N. P. Sylvester Husted, Nora M. Hus-ted, and Nina Husted, the last two named persons having received one share each of the capital stock from N. P. Sylvester Husted. Said N. P. Sylvester Husted held the rest of the stock. These same persons composed the board of directors of that company. That stock is all in the hands of the Michigan Trust Company, trustee under complainant’s contract with Hus-ted. At a meeting of the directors of Allmetal Manufactoring Company, held on November 21, 1912, N. P. Sylvester Husted was elected president, Nora M. Hus-ted vice president, and Nina Husted' secretary and treasurer.

At the first meeting of the stockholders of the Simplex Brooder Stove Company, held November 21, 1912, a resolution was adopted in and by which that company offered that in case the Allmetal Manufacturing Company would grant to the Simplex Brooder Stove Company the sale of stoves in the territory lying east of the Rocky Mountains, which stoves were then being manufactured by the Allmetal Manufacturing Company or Kresky, under patents held by him, the Simplex Brooder Stove Company would use its best endeavors to promote the sale of said stoves throughout said territory, and’would pay to the Allmetal Manufacturing Company royalties on each stove sold by it as follows: Three dollars on each stove until 2,000 stoves were sold.; $2 on each stove on the next 4,000 sold; and $1 on each stove thereafter sold. It will be noted that these are the same royalties which Husted agreed to pay complainant in contract Exhibit B. N. P. Sylvester Husted was present at the meeting at which this resolution was adopted. In pursuance of the resolution, an agreement was entered into on November 21, 1912, between the Allmetal Manufacturing Company and the Simplex Brooder Stove Company by the terms of which the Allmetal Manufacturing Company granted to the said Simplex Brooder Stove Company the right to sell stoves, for which right the latter company agreed to pay to the Allmetal Manufacturing Company the royalties specified in the resolution above mentioned. In said agreement the Allmetal Manufacturing Company granted to the Simplex Company the right to exercise the option to purchase the exclusive right to manufacture and sell said articles contained in the Kresky contract..

January 15, 1913, a resolution was adopted at a meeting of the Simplex Company authorizing that company to enter into an agreement with the Allmetal Manufacturing Company by the terms of which the latter company should assign to the Simplex Company the exclusive right to manufacture and sell under the Kresky contract and said Allmetal Manufacturing Company, and the Simplex Company should agree to pay to the Allmetal Manufacturing Company the sum of $1,000 in stock, and the same royalties which were specified in the resolutions first above mentioned. N. P. Sylvester Husted was present at the meeting -at which this resolution was adopted.

February 24, 1913, Kresky, in fulfillment of the option contained in his agreement with the Allmetal Manufacturing Company, and for and in consideration of the sum of $5,000 in hand paid by the Allmetal Manufacturing Company, sold and assigned to the Allmetal Manufacturing Company, its assigns and successors, the exclusive right to manufacture and sell stoves under letters patent issued to him.

The consideration for this assignment was furnished by the Simplex Brooder Stove Company in the form of a check, drawn on the Commercial Savings Bank of Grand Rapids, payable to the order of the Allmetal: Manufacturing Company. This check was indorsed to the order of J. E. Kresky by Allmetal Manufacturing Company, N. P. Husted, Manager.

On April 12,1913, the Allmetal Manufacturing Company assigned the rights obtained from Kresky under' the instrument last above mentioned to the said Simplex Brooder Stove Company. This assignment was executed by N. P. Husted as president of the Allmetal Manufacturing Company, and by Nina Husted as secretary.

The grant from Kresky to the Allmetal Manufacturing Company, executed in fulfillment of his option, was never deposited with the Michigan Trust Company, trustee, as security for j;he performance of the contract between complainant and Husted, as provided for in Exhibit B.

The Allmetal Manufacturing Company proceeded for a time to manufacture stoves, and up to April 30, 1913, 924 stoves had been sold in the United States east of the Rocky Mountains, and royalties were paid therefor to complainant, amounting to $2,759.25. Since that time complainant has received no royalties. These royalties were paid by check drawn by said Simplex Brooder Stove Company, signed by N. P. Husted, General Manager (being defendant N. P. Sylvester Husted), on the Kent State Bank. They are all set forth in the record, together with the amounts. The first two of those checks were made payable directly to the complainant. The remainder of them was made payable to Allmetal Manufacturing Company, and indorsed by that company, by N. P. Husted, manager, to the complainant.

On June 13, 1913, the Simplex Brooder Stove Company gave a trust mortgage for the benefit of its creditors to the defendant William C. Hopson. On June 16, 1913, defendant Hopson took possession of the property of said Simplex Company under such mortgage. The total number of stoves sold by defendant Hopson, after he took possession as trustee under the trust mortgage to the time of hearing in the court below, was 551. No royalties had been paid on any stoves sold after April 30, 1913. At the time of the hearing royalties were unpaid on 665 stoves which had been sold after April 30, 1913. The bill was filed July 11, 1913. On February 18, 1914, defendant N. P. Sylvester Husted died, and on April 19, 1914, an order was made reviving the suit against Nina Husted, executrix of his last will and testament. On September 2, 1913, the bill was taken as confessed by the defendant Allmetal Manufacturing Company.

Upon the hearing, the court below entered a decree dismissing the bill of complaint, with costs to defendants. The complainant has appealed.

It is claimed on behalf of complainant that the following questions are involved:

“(1) February 24, 1914, when J. E. Kresky in fulfillment of the option contained in the agreement between him and the Allmetal Manufacturing Company (being Exhibit A attached to the bill), granted to the Allmetal Manufacturing Company the exclusive right to manufacture and sell stoves, and also on April 12, 1913, when the Allmetal Manufacturing Company assigned the grant from Kresky to the Simplex Brooder Stove Company, N. P. Sylvester Husted was a director and general manager of both the Allmetal Manufacturing Company and the Simplex Brooder Stove Company, and of course he had knowledge of his contract with complainant, being Exhibit B attached to the bill.
“Was his knowledge notice to the Simplex Brooder Stove Company of the terms of that contract?
“(2) Granted that through Husted’s knowledge of the terms of his contract with complainant the Simplex Brooder Stove Company had notice, did that company take the assignment of the grant from Kresky to the Allmetal Manufacturing Company subject to the terms of complainant’s contract with Husted, and if it did, should that company be compelled to reassign that grant to the Allmetal Manufacturing Company, and should the grant be deposited with the Michigan Trust Company, as trustee, in fulfillment of the terms of complainant’s contract?
“(3) Should Hopson, the trustee under the trust mortgage given by the Simplex Brooder Stove Company, be compelled to account for and pay to complainant royalties on all stoves sold after April 30, 1913?”

It is urged on behalf of- complainant in argument that N. P. Sylvester Husted knew that his contract with complainant provided that such grant from Kresky should be taken in the name of the Allmetal Manufacturing Company and deposited with the Michigan Trust Company, as trustee, as security for the performance of his contract with complainant; and he knew that the assignment of that right by the All-metal Manufacturing Company to the Simplex Company was in violation of his contract with complainant ; that his knowledge was notice to his company of the terms and conditions of his contract, and under such circumstances said Simplex Company could acquire no rights or interests except in subordination to the right of complainant under his contract with Hus-ted to have the Kresky grant deposited with the Michigan Trust Company, as collateral security to his contract; that knowledge of facts acquired or possessed by an officer or agent of a corporation, in the course of his employment, and in relation to matters within the scope of his authority, is notice to the corporation whether he communicates such knowledge or not; and that by weight of authority, when an officer of a corporation does an act which constitutes a fraud upon a third person, or upon another corporation of which he is also an officer, the first-mentioned corporation is chargeable with notice of the nature of the transaction, although the fraud is perpetrated for his own benefit, when he also représents the corporation in the transaction. Counsel cite many authorities in support of this proposition. Among them are the following: Peoria Marine, etc., Ins. Co. v. Hall, 12 Mich. 202, 214; Great Western Ry. of Canada v. Wheeler, 20 Mich. 419; Stevenson v. City of Bay City, 26 Mich. 44; Detroit Motor Co. v. Bank, 111 Mich. 407 (69 N. W. 726). To which may be added Westinghouse Electric, etc., Co. v. Hubert, 175 Mich. 568, 576 et seq. (141 N. W. 600, Am. & Eng. Ann. Cas. 1915A, 1099) ; 2 Pomeroy’s Equity Jurisprudence, § .666; 3 Clark & Marshall on Corporations, pp. 2200, 2201; Brobston v. Penniman, 97 Ga. 527 (25 S. E. 350); Cook v. Tubing & Webbing Co., 28 R. I. 41, 73 (65 Atl. 641, 9 L. R. A. [N. S.] 193); Benedict v. Arnoux, 154 N. Y. 715, 728 (49 N. E. 326). Many other authorities are cited.

It is urged by complainant’s counsel that the failure to deposit with the Michigan Trust Company, as trustee, the grant or assignment from Kresky to j the Allmetal Manufacturing Company, dated February 24, 1913, was a breach of the Husted contract, and was a fraud on complainant which entitles him to the relief prayed for in the bill.

It is also urged that the Simplex Brooder Stove Company recognized complainant’s rights under the Husted contract, and complainant’s rights to royalties therein provided for, by providing in both of its contracts with the Allmetal Manufacturing Company for the payment of royalties of the same amounts which were payable to complainant under contract Exhibit B, and that the contracts with the Allmetal Manufacturing Company are subject to complainant’s interest in his contract with Husted, and that he is entitled to the royalties provided for in those contracts. It is also, urged that the Simplex Brooder Stove Company further recognized complainant’s rights to royalties, and that its contracts were subject to complainant’s contract with Husted, by paying royalties on all stoves sold to April 30, 1913.

It is said that neither Husted nor the Allmetal Manufacturing Company, nor the Simplex Company had any right to sell stoves without paying royalties to complainant, and that their right to sell stoves was dependent upon the payment of these royalties. Manifestly, it was the duty of the Simplex Company to pay the royalties provided for to the Allmetal Manufacturing Company; and it is further urged that the breach of the Husted contract, by the failure to deposit the Kresky grant, and by the failure to pay royalties, entitled complainant to all the stock of the Allmetal Manufacturing Company in the hands of the Michigan Trust Company, and that complainant, by the terms of the contract, is the owner of the Allmetal Manufacturing Company and is entitled, as such owner, to all the royalties which the Simplex Company has agreed to pay in its contracts with the Allmetal Manufacturing Company.

It is further urged that the trustee under the mortgage should be compelled to pay these royalties out of moneys in his hands belonging to the Simplex Brooder Stove Company as a part of the operating expenses before any other indebtedness is paid; and that such royalties are a preferred claim, as no one has a right to sell these stoves without paying the royalties due to the Allmetal Manufacturing Company, and to complainants as a condition to the right to sell them. It is said that the Simplex Company, having agreed to pay these royalties to the Allmetal Manufacturing Company, should be held to the performance of its agreement.

On the other hand, it is urged on behalf of the defendants the Simplex Brooder Stove Company and W. C. Hopson, trustee under the mortgage, that the granting of relief by specific performance is within the discretion of the court, and that in this case performance should be denied because it would be inequitable; that the contract between complainant and Husted was a personal contract, and provided that if Husted should default in any of its terms, the complainant might take advantage of the following provisions: (1) He might sue Husted at law for damages for the breach, including the specific penálty of $5 for each stove sold. (2) That he might demand and receive from the Michigan Trust Company, as trustee, the stock of the Allmetal Manufacturing Company and have it issued in his own name; and also demand and receive the original Kresky agreement; and it is urged that complainant has not taken advantage of either of these provisions of the agreement. It is said that he has not made demand upon the Michigan Trust Company, as trustee, for the stock of the Allmetal Manufacturing Company, nor for the Kresky contract. It is also urged that complainant has an adequate remedy at law.

If the provision to pay $5 for each stove sold in violation of the contract was a penalty, as we are inclined to think it was, that would not interfere with specific performance. See Daily v. Litchfield, 10 Mich. 29; Jaquith v. Hudson, 5 Mich. 123; Davis v. Freeman, 10 Mich. 188; Richardson v. Woehler, 26 Mich. 90; Johnston v. Whittemore, 27 Mich. 463; Myer v. Hart, 40 Mich. 517 (29 Am. Rep. 553); Watrous v. Allen, 57 Mich. 362 (24 N. W. 104, 58 Am. Rep. 363) ; Powell v. Dwyer, 149 Mich. 141, 144 (112 N. W. 499, 11 L. R. A. [N. S.] 978); Buckhout v. Witwer, 157 Mich. 406, 409, 411 (122 N. W. 184, 23 L. R. A. [N. S.] 506. Such a penalty, as repeatedly held by us, is no objection to specific performance.

It is further and mainly urged by said defendants’ counsel that complainant is entitled to no relief whatever against the Simplex Company, an independent corporation with no contract or other relations with complainant, unless complainant has shown that the Simplex Company adopted Husted’s contract with complainant, either expressly or impliedly; and that complainant has shown neither of these things; and it is urged that it expressly appears by the testimony of the incorporators and the directors, other than N. P. S. Husted, that they were in entire ignorance of this contract and its terms. We do not think that the knowledge of these persons as individuals is controlling. The question here is: What was the knowledge of the Simplex Company? Counsel for said defendants also deny that there can be any implied adoption of the Husted contract; they claim that the authorities cited by complainant’s counsel are not applicable; that Husted was acting adversely to the corporation ; and that his interest was plainly adverse to that of the Simplex Company. They cite in support of their position Clark & Marshall on. Private Corporations, § 723a, pp. 2210, 2211; also section 723, p. 2207, upon the subject of knowledge of an officer dealing with corporations, or otherwise interested adversely. They claim the application of this rule as stated by this court in State Savings Bank v. Montgomery, 126 Mich. 327 (85 N. W. 879), People’s Savings Bank v. Hine, 131 Mich. 181 (91 N. W. 130), and Supreme Tent v. Bank, 137 Mich. 627 (100 N. W. 898, 109 Am. St. Rep. 690). We cannot agree with defendants’ counsel in the applicability of the authorities last above cited. Counsel recognize the general rule as stated by complainant’s counsel, but they claim that the instant case falls within the exception to the general rule. We do not think so. Husted had the legal right to disclose the terms of his contract, and would have violated no duty to anybody had he done so. We cannot say that he had any reason to keep the terms of his contract secret for fear that it would expose and defeat any fraudulent purpose. The Simplex Company was to pay royalties to the Allmetal Manufacturing Company. It is a significant fact that in the contracts between the Simplex Company and the Allmetal Manufacturing Company the Simplex Company agreed to pay the same royalties which Husted had agreed to pay to complainant. If there was any fraudulent scheme, it was a scheme to defraud complainant, and not the Simplex Company; and it seems to us that the last-named company was involved in that scheme as much as Husted was, and that his knowledge must be imputed to that company. It had notice and knowledge through that which was possessed by its vice president and general manager, that the contract, Exhibit B, required that in case the Allmetal Manufacturing Company should avail itself of the-option contained in the Kresky contract, the instrument conveying such right should be held by the Michigan Trust Company in trust the same as the shares of stock of the Allmetal Manufacturing Company were to be held; that is to say, as security for the performance of Exhibit B. The Simplex Company could not therefore, in our opinion, take an assignment of said patent or license except subject to the right of complainant to have such assignment held as security for the performance of the contract, Exhibit B. The failure to deposit with the Michigan Trust Company, as trustee, the grant or assignment from Kresky to the Allmetal Manufacturing Company was a breach of the Husted contract, and was a fraud on complainant, which entitles him to relief under the bill of complaint; and we think that for such breach and fraud complainant, under the circumstances, is entitled to the same remedy against the Simplex Company which he would be entitled to against Husted himself.

It is unnecessary to repeat what we have already stated upon the subject of the similar provisions as to royalties, the payments made, the recognition of complainant’s rights, and other similar matters. It must be conceded that the Simplex Company had no right to sell stoves without paying royalties to the All-metal Manufacturing Company; their right to sell' stoves was dependent upon the payment of these royalties. We are of the opinion that the complainant is entitled to have the assignment from the Allmetal Manufacturing Company to the said Simplex Brooder Stove Company of the Kresky grant canceled^ because it is void as to complainant, and in violation of the contract between complainant and N. P. Sylvester Hus-ted, of which the Simplex Company had notice, that said assignment should be delivered to the Michigan Trust Company to be held as collateral security as pro-. vided for in Exhibit B, and that said assignment should be decreed to be free and clear of said trust mortgage; that said defendants, and each of them, should be restrained by the order and injunction of this court from selling, assigning, transferring, and incumbering, or in any manner disposing of any right under said assignment from Kresky to said Allmetal Manufacturing Company; that said defendants should come to a true and just accounting with complainant, as holder of the stock of the Allmetal Manufacturing Company, touching the royalties due and unpaid under its contracts with the Allmetal Manufacturing Company, and by the terms of said contract between complainant and N. P. Sylvester Husted, and to become due and payable, to the time of rendering final decree in this cause; and that said William C. Hopson, as trustee under the mortgage, be ordered and directed at all times to retain sufficient money in his hands, as such trustee, to pay all such royalties as accrued prior to the giving of said trust mortgage; and that he and said Simplex Brooder Stove Company be ordered and directed by this court to at once pay to complainant, as holder of the capital stock of the-Allmetal Manufacturing Company, royalties on all stoves which have been sold since he has had the management and control of said Simplex Brooder Stove Company’s business down to the date of the decree of this court.

The decree of the court below is reversed, and a decree will be entered in this court in accordance with this opinion, with costs to the complainant to be taxed.

Kuhn, Ostrander, Bird, Moore, Steere, Brooke, and Person, JJ., concurred.


source: Caselaw Access Project

author: Stone, C. J.

license: Public Domain

text:
    CARPENTER v. DETROIT FORGING CO.
    1. Master and Servant — Workmen's Compensation — Release—• Compromise of Claim — Reopening.
    On petition of a servant who had received a stated amount in settlement of his claim for compensation, representing that he had entered into the agreement by reason of the representations of the adjuster who procured it that if his injury grew worse he could have the settlement reopened by the accident board and the compensation increased, it was proper for the board to increase the compensation as prayed by the claimant, who produced evidence of permanent and more serious injuries than he had supposed he received.
    2. Same — Fraud or Mistake — Mistake of Law.
    Notwithstanding that the intent of the adjuster may have been good in making such representations it operated as a fraud upon claimant, who was misled as to his legal rights, and, though a settlement entered into under 2 Comp. Laws 1915, § 5458, was intended by the legislature as a final adjustment which should not be defeated by subsequent developments, claimant’s mistake, induced by the other party to the contract, furnished sufficient basis for a decree in his favor.
    3. Same — Mutual Mistake — Fraud.
    A release executed by one party under a mistake as to> ' his legal rights, which the other party caused, or induced, by his representations, may be rescinded.
    4. Same — Injury—Extent—Specific Indemnities.
    The schedule of specific indemnities (2 Comp. Laws 1915, § 5440), fixing the compensation to be awarded for the injuries therein described, contains no provision for the partial loss of a hand; the award should be made in case of partial disability under the first clause of the section. And on certiorari, where the court has reason to doubt that the board applied the correct rule, the cause will be remanded for further proceedings pursuant to the opinion.
    Certiorari to the Industrial Accident Board.
    Submitted January 13, 1916.
    (Docket No. 3.)
    Decided March 31, 1916.

      Roy Carpenter filed a petition with, the Industrial Accident Board praying that a certain agreement made with the Globe Indemnity Company relative to compensation for injuries received while in the employ of the Detroit Forging Company be set aside, and for further compensation. From an order granting the prayer of said petition the respondent Detroit Forging Company brings certiorari.
    Reversed.

      Douglas, Eamon & Barbour, for appellant.

      Benjamin & Betzoldt, for appellee.
   Stone, C. J.

This case is here on certiorari to review the action of the Industrial Accident Board in setting aside a compensation agreement and awarding additional compensation to the employee. On September 26, 1913, the claimant was working in the shop of the Detroit Forging Company. While, taking steel ¡sockets out of a box or tray, a steel sliver entered the third finger of the right hand near the second joint. It is admitted that this was an accident arising out of, and in the course of, his employment. The wound became infected', and claimant was totally disabled for .about 10 weeks. The fingers, hand, and entire arm were swollen, and as the swelling and infection subsided, they caused adhesion of muscles and tendons of the right hand, which prevented the entire closing or bending of the fingers. We shall refer later to the testimony relating to the labor performed by claimant after the accident. On the 26th of December, 1913, an agreement calling for compensation upon the basis of one-fifth of the loss of the four fingers of the right hand, that is, calling for 20 weeks’ compensation, was signed by the claimant and the Globe Indemnity Company and forwarded to the Industrial Accident Board, which refused to approve the same unless 10 weeks more were added to compensate claimant for the time he was disabled from performing any' work, on account of said injury. On January 26, 1914, another agreement was signed by said claimant and said indemnity company, by which said claimant was to receive, as full compensation, $9 per week for 20 weeks, on the basis of one-fifth of the loss of four fingers of the right hand, and in addition 10 more weeks at $9 per week for the time the claimant was unable to do any work on account of said injury. The last-named agreement was duly approved by the Industrial Accident Board on January 29, 1914, and the whole of said 30 weeks of compensation was promptly paid to claimant. At the time claimant was injured, his average weekly earnings were $18. After the payment of 30 weeks’ compensation, claimant made demand upon respondent for payment to him of additional compensation for said injury, and respondent disclaimed liability for further or additional compensation. On June 24, 1914, claimant filed a sworn petition with the Industrial Accident Board, praying that his agreement aforesaid of January 26, 1914, be set aside, and that further compensation for the above injury be awarded him. In said petition, said claimant, among other things, stated :

“(3) That by reason of the injuries to his right hand and right arm, your petitioner is unable to follow his occupation of that of polisher, and is unable to earn said wages of $18 per week, but, on the contrary, at the present time and for some time past has been unable to earn any wages whatsoever. That your petitioner is unable to make use of said right hand and arm, and he avers that the injuries to said right hand and right arm will be permanent, and that he will be deprived of the use of said right hand and arm for and during the remainder of his natural life. >
“(4) Your petitioner further avers that on or about the 26th day of January, 1914, at the request and relying upon the representations of the Globe Indemnity Company, he then and there signed a certain alleged agreement in regard to compensation, reference to which agreement is hereby had, and which said agreement is now on file in this cause.
“(5) Your petitioner further avers that before signing said agreement, he then and there asked the representative of said Globe Insurance Company that if his said injuries, as aforesaid, continued for a longer period than anticipated, or became permanent, if petitioner would be entitled to additional compensation; that said Globe Indemnity Company, through its said representative, then and there informed your petitioner that if his injuries were more serious than fit first anticipated, your petitioner would receive compensation until he would have the use of said right hand and arm, as provided for under the so-called compensation-law; that said representative further stated that said agreement so to be executed was merely preliminary, and not binding upon your petitioner if said injuries continued for a longer time than contemplated by the agreement and became permanent; that said representative further stated that in such event, the Industrial Accident Board would reopen and set aside said agreement and give your petitioner such additional compensation as would properly compensate your petitioner for his injuries so sustained; that your petitioner, relying upon such various representations and believing them to be true, then and there signed said alleged agreement in regard to compensation.”

On September 15, 1914, testimony was taken by deposition in support of, and in opposition to, said petition. Said claimant and his wife (the latter testifying that she was present when said agreement was made) gave testimony tending to support the claim set forth in the petition relating to the statements made by the representative of said indemnity company at the time said agreement was signed.

E. T. Pocklington, the adjuster who made the alleged settlement with claimant, testified in part as follows:

“Q. State whether or not you said anything to him about his hand. I think he has admitted that you did ■ — being permanently injured at that time.
“A. Yes; that was the basis upon which we made the settlement. First, I started him out on the loss-time basis, paying him $9 a week, just simply because of the fact that he was disabled, and not acknowledging any permanent disability. The reason I did that was because at first Dr. Blain told me he thought there might not be any permanent disability, and that is customary anyway with all where we make payments under the compensation law, and I paid him along for probably 8 weeks, when the doctor told me that there was a permanent injury; there would be a permanent stiffening.
“Q. Of what, the fingers?
“A. Of the- fingers, partial stiffening, and this reply of the doctor was. made to my inquiry because I had decided myself, seeing the hand week after week, it was permanent, so I took it up with the doctor, and he said it would be permanent, and over the telephone he told me a fifth would be a fair percentage upon which to base the loss of function; and the next time Mr. Carpenter came in I told him that there wasn’t any question at all but what his injury was permanent. I said, Tt may get a little better; there may be some improvement, but nevertheless it will never be like it was before, and the only thing we can do is to adjust the loss on the basis of the present condition.’ ‘Now,’ I says to Mr. Carpenter, ‘if you had lost all of those fingers, you would be entitled to compensation for 100 weeks,’ and I explained that as he has already attempted to explain it, giving him the number of weeks for each finger, ‘but now,’ I said, ‘you haven’t lost all, there is considerable amount of use left,’ I says, ‘Is it half as bad as though you had lost all?’ and he admitted that it wasn’t; was quite vehement in his denial; and I said, ‘Is it a quarter as bad?’ No, it wasn’t a quarter as bad. ‘Well,’ I said, ‘Isn’t it about, or wouldn’t it be about, one-tenth part as bad?’ And Mr. Carpenter allowed that it would be about a tenth, and then I said: ‘If I allow you twice as much, or a fifth, you will be satisfied,’ and he was perfectly satisfied ; that is the way that Mr. Carpenter and I talked the matter over. It was strictly on the basis of a .permanent disability, and based on the present condition of the hand, and then at that time, the condition at that time, and so far as his future trouble is concerned, I told him. He asked me: Tf the hand gets stiff so I cannot do anything with it, what can I do then? And I said,-‘If you should lose the hand, the entire usefulness of the hand, you will get paid for the hand. The board will see that you get paid.’ I was very particular to impress upon his mind, at the time of signing the agreement, that was an agreement between us. I am very particular to see that every one who signs an agreement or settlement understand what they are signing.”

From the evidence produced before the board, it found the facts to be in substance as follows:

(a) That on December 26, 1913, when the claimant and Mr. Pocklington came to an understanding or agreement that the amount of said claimant’s injuries would be one-fifth of the loss of the four fingers of said right hand, said right hand was then in a splint, and that it was impossible for either party, at that time, to fully know whether there would be any permanent stiffness of the fingers or hand, or the extent of claimant's injuries, but both parties expected said injuries would be permanent to some extent, but to what extent was not then known.
(&) That on January 26, 1914, when the last agreement between the parties was signed, it was then expected by Mr. Pocklington, adjuster, that the injuries sustained by claimant were permanent, and he so informed the said claimant, and that said settlement agreement was signed by claimant upon the understanding and basis that the injuries he had received did not, and would not, amount to more than one-fifth the loss of the four fingers of the right hand, and if it afterwards developed that the injuries were more serious, the claimant would have the right to petition the board for further compensation.
(c) The board found, as a matter of fact, that the injury sustained by claimant was permanent, and affected the use of the entire hand; that the condition of claimant’s hand had improved since January 26, 1914; that, however, claimant had lost 60 per cent, of thé normal use of said right hand.
(d) That the evidence disclosed that on account of this injury the average weekly earnings of the claimant, from the time he was able to return to work, had been greatly decreased, and that he was, and would be, unable in the future to do metal grinding and polishing (the work which he was engaged in when injured), or other skilled work requiring the full use of both hands, and that as to common labor, he would be partially incapacitated, all on account of his injuries, and the permanent nature thereof.
(e) That the then condition of claimant’s hand and arm, and his resulting disability, were due to the injury received by him September 26, 1913.

Thereafter the said board entered an order, in writing, granting the prayer of claimant, and adjudging that he was entitled to receive and recover from the said respondent, in addition to all sums theretofore received by him, compensation for 60 weeks at the rate of $9 per week; that the portion of such compensation as had accrued from the time of the stopping of payments to said claimant'should be due and payable on the date of said order, the remainder thereof to be paid weekly in weekly payments, in accordance with the provisions of the workmen’s compensation law, the amount thus awarded to be in full of all claims of said applicant against said respondents. Thereafter the appellant filed a motion for a rehearing, contending that the award and order of the board granted compensation on the basis of a certain percentage of the loss of the hand or arm, which loss- of use was less than total loss of use of same, and that this basis was erroneous, which motion was denied.

The said board further stated, in its return to the writ, that there was no claim made upon the hearing of the matter that Mr. Pocklington, adjuster for the Globe Indemnity Company, intended to act fraudulently.

As a finding of law, said board found that under the facts in the case the applicant was, as matter of law, entitled to 60 weeks’ additional compensation.

The assignments of error are as follows:

(1) In holding that the agreement with regard to compensation was not final and binding upon claimant.
(2) In basing the award on a partial loss of four-fingers of the right hand, and not on one-half the difference between claimant’s average weekly wages before the injury, and the average weekly wages which he was and is able to earn after the injury.
(3) In basing the award on a partial or percentage loss of a hand instead of on the extent of disability, viz., one-half the difference between claimant’s average weekly wages before the injury and the average weekly wages which he was and is able to earn after the injury.
(4) In basing the award on a partial or percentage loss of the right arm, and not on one-half the difference between claimant’s average weekly wages before the injury and the average weekly wages which'he was, and is, able to earn after the injury.
(5) In determining and ordering respondent to pay to claimant the sum of $540, in addition to the amount already paid, as further compensation for the accident and injury to claimant.

The- following request was made by counsel for respondent and appellant at the hearing to settle the return to the writ herein:

(1) That the return state and show upon what clause and provision of Act No. 10, Extra Session 1912, the award arrived at by the board, in this case was determined and based.
(2) That the basis of the award be shown in the return to the writ. Which request the board refused, for the reason that the finding of law máde by it, and set forth in the return, is sufficiently definite.

Counsel for appellant state that there are but two general questions presented in the case:

(1) Did the board err in setting aside the settlement agreement of January 26, 1914?
(2) Was the award based on a percentage loss of the right hand?

1. Upon the first point counsel rely principally upon section 5 of part 2 of the act (2 Comp. Laws 1915, § 5458). They concede that such an agreement as the statute contemplates mayjbe set aside for fraud, mistake, or undue influence. In our opinion the statute contemplates an. agreement and settlement made without contingency or condition, and not one based upon a possible or probable event that may render it inoperative. An agreement and settlement, based on the strength of such a condition or contingency, is not such as the statute contemplates. Here, according to the testimony of the adjuster, Pocklington, the settlement was based upon the understanding that if claimant’s hand got worse so that he should lose the usefulness of the hand, the board would see that he got paid for it. The testimony of the claimant and his wife went much farther, and was to the effect that if the hand and fingers did not get better, he could put the matter before the board, and that the agreement would not be binding, or final. It does not meet the question to say that Mr. Pocklington did not intend to act fraudulently. The material question is, What was the effect of what he said? Ordinarily one cannot successfully ask for affirmative relief on the bare ground that he was either ignorant of the law, or mistaken as to what it prescribed. But it is now well settled that this rule is not invariably to be applied. In many cases where injustice would be done by its enforcement, this has been avoided by declaring that a mistake as to the existence of certain particular rights, though caused by an erroneous idea as to the legal effect of an instrument, or as to the duties or obligations created by an agreement, was really a mistake of fact, and not strictly one of law, and so did not constitute an insuperable bar to relief. Reggio v. Warren (207 Mass. 525, 93 N. E. 805, 32 L. R, A. [N. S.] 340), as reported in 20 Am. & Eng. Ann. Cas. 1244, and cases cited in note. The rule is that a release' may be rescinded for a mutual mistake of law. Kirchner v. Sewing Machine Co., 135 N. Y. 182, 189 (31 N. E. 1104). ” Whether placed upon the ground of constructive fraud, or mistake of fact as well as of law, the law forbids that a party who, with full knowledge of the ignorance of the other contracting party, has not only encouraged that ignorance, but has knowingly deceived and led that other into a mistaken conception of his legal rights, should shield himself behind the doctrine that a mere mistake of law affords no ground for relief^ We think that, placing its action upon either ground, the board did not err in acting, notwithstanding the so-called settlement agreement. ''

2. The remaining assignments of error may be considered together. It should'be stated that the order of the board was made before the opinion of this court in Hirschkorn v. Desk Co., 184 Mich. 239 (150 N. W. 851), was rendered. That case has been followed by Cline v. Studebaker Corporation, 189 Mich. 514 (155 N. W. 519). Those cases hold that as the act (section 10, pt. 2 [2 Comp. Laws 1915, § 5440]) under the schedule of specific indemnity provides compensation only for the loss of an eye, an award cannot be arrived at upon a basis of a partial loss of the same. We think that this principle, and the reasoning of the cases, apply as well in the case of an injury to a hand as to an eye. Although there is no special finding upon the point, it is evident from the language used by the board that it made its allowance under the schedule of fixed liabilities contained in the above-cited section, instead of under the first clause of that section, which is as follows:

“While the incapacity for work resulting from the injury is partial, the employer shall pay, or cause to be paid as hereinafter provided, to the injured employee a weekly compensation equal to one-half the difference between his average weekly wages before the injury, and the average weekly wages which he is able to earn thereafter, but not more than ten dollars a week; and in no case shall the period covered by such compensation be greater than three hundred weeks from the date of injury.”

It was our first impression that the amount awarded was no greater than could have been given, by the evidence, under the clause above quoted, and that appellant had not been injured in the amount of the award. A more careful examination of the evidence leads us to doubt the correctness of that impression.

Under the practice as stated in Andrejwski v. Coal Co., 182 Mich. 298 (148 N. W. 684), and Finn v. Railway, 190 Mich. 112 (155 N. W. 721), the order of the said Industrial Accident Board is therefore reversed, and the case hereby remanded for such further hearing therein before said board as the parties may desire.

Kuhn, Bird, Moore, Steere, Brooke, and Person, JJ., concurred. Ostrander, J., did not sit.


author: STONE, C. J.

text:
    ROHMER v. LABO.
    1. Assault and Battery — Arrest—Breach of the Peace — Arrest Without Warrant — Officer’s Liability.
    In an action for injuries to plaintiff resulting from being shot by a police officer who arrested bim for using profanity and assaulting the officer, it was prejudicial error to charge the jury, in order for plaintiff to have been guilty of a breach of the peace, that what he did and said must have been done wilfully and knowingly, to warrant tbe officer in making tbe arrest. It was incorrect to treat intent and knowledge as controlling elements.
    2. Same — Obscenity—Cause for Aerest Without Warrant.
    Plaintiff was responsible for tbe acts that he committed because tbe question of intent or knowledge did not enter into them. And where be was intoxicated and so uncontrolled as to be incapable of forming any intent tbe officer was justified in attempting to make tbe arrest if tbe offense was committed in bis presence.
    3. Same — Appear and Error — Exception, i
    As error may be assigned, under our statute, on tbe charge, though it was not excepted to, counsel was not required to bring the erroneous instruction to tbe notice of tbe trial court.
    Error to Wayne; Murphy, J.
    Submitted January 5, 1916.
    (Docket No. 27.)
    Decided March 31, 1916.
    . Case by Paul Rohmer against John Labo for personal injuries. Judgment for plaintiff. Defendant brings error.
    Reversed.

      Dohany & Dohany, for appellant.

      Lucking, Helfman, Lucking & Hanlon, for appelleé.
   STONE, C. J.

This suit was brought to recover damages for an injury which the plaintiff claims to have sustained by reason of a gunshot wound in his left leg, between the ankle and knee, inflicted by the defendant about 10 o’clock of the night of November 30, 1912. On that occasion defendant was the village marshal of the village of Trenton, Wayne county, and plaintiff and several companions were engaged in a conversation on one of the principal public streets in front of the Commercial Hotel in said village. The undisputed evidence shows that the plaintiff was there using obscene language, the exact nature of which was in dispute, the defendant claiming that the language used was of the most disgusting and obscene character.

The plaintiff had been in the hotel, with companions, drinking, as he claimed, not to exceed two glasses of beer. There was a sharp conflict in the evidence at the trial as to whether plaintiff was intoxicated or not at the time. The plaintiff claimed and testified that he did not know, and was not informed by defendant, that the latter was an officer. This was denied by defendant,, who testified that plaintiff knew that he was the village marshal, and that he had been on a former occasion introduced to the plaintiff as such. It was undisputed that at the time the plaintiff had in his hand a quart bottle of whisky, which was sealed. The plaintiff, among other things, testified as follows:

“I did not know who it was that spoke up. The voice came from a point in the dobrway, about 20 feet away from me. He says, ‘Why God damn you, you have got to cut that out.’ I says, T am sorry I insulted you, if I did I didn’t mean to.’ He says, ‘It makes no damned difference whether you mean to or not.’ I says, ‘What occasion have you to control then?’ He says, ‘That is none of your damn business.’ I says, ‘All right,’ and off I started, off to the boys again, and paid no more attention. I paid no more attention to Labo and we hadn’t said any more, no vile words of any kind, just nicely started to talk when he says, ‘Here, God damn you, move along’; and he stepped out from the door and came to me and grabbed me right on the shoulder, and turned me half around. I says, ‘What authority have you?’ He says, ‘That is none of your damned business.’ I says, ‘According to that, .then, I don’t know that I will move on.’ He says, ‘You will move on’; and with that he hit me with the heel of his hand under the chin that way (illustrating) ; I think it was his right hand. I says, ‘Friend, you try that again and I think you and I are going to come together, you have no authority to phase me off the public highway and I don’t intend to move.’ * * * After he hit me on the chin, I*says, if he tried that again he' and I might _ come together. With that he came back a second time, struck me with his right hand, and I noticed in his left hand he had some object of some kind, coming up toward me. As near as I can figure it out he pulled that object from his hip pocket; I actually didn’t know what it was; it was dark; I saw a kind.of dark object; it occurred to me it might be a billy. It turned out to be a billy. He was hitting me with one hand, and pulling his billy out to hit me with the other, and I reversed my bottle from my right hand to my left hand — which I am left-handed — and 1 hit him with the bottle. I broke the bottle and I started to run away from him. He came after me; I imagine I had run about 35 or 40 feet, I guess, and I fell; I tripped; I had a big pair of felt boots on, with rubbers, and I could not run very fast, so I fell, and Labo right behind me, on top of me, and he tried to hit me with his billy at the time when I was down, and I kicked him off with my feet. I noticed he had hit my boot very hard with some object; with that I happened by luck to catch him in the stomach, as near as I could judge it, and kicked him, I should judge about 8 or 10 feet, which gave me time to get up. While I was on my back I kicked up at him, I had my feet in the air, to prevent him getting near me with the billy, and he was trying to hit' me. I think he broke the billy. I got up finally and ran again, and I imagine I ran about 50 or 60 feet and he came right behind me, he followed up about half way round the circle, as I ran around the post there, and just as I got back on the sidewalk, or very near the sidewalk, I felt something strike me in the leg, and I says, ‘Possibly I am shot.’ With that I fell, all doubled up, and I heard him say, ‘There, damn you, take that.’ ”

The plaintiff gave testimony showing that the tibia of the leg was broken, and the injury a very serious one; it appearing that the leg is now more than three-quarters of an inch shorter than the other leg. The evidence is undisputed that the plaintiff was disabled for many months and suffered a good deal of pain from the injury.

The defendant, after testifying to the nature of the language used by the plaintiff upon the public street, which language as described by him is too obscene for publication, .testified as follows:

“I says, ‘Here, Captain, you have got to cut that kind of thing out, you cannot use that kind of language on the street.’ He says, ‘What damned business is that of yours?’ I says, ‘That is what I am paid for, to tell such kind of fellows as you to cut out that kind of language.’ I knew Rohmer at that time; I knew him for a short time after I was appointed to the office. He knew I was village marshal. The proprietor of the hotel, Dohlka, gave an introduction to me. * * * After I told him it was my business to see that fellows like him should keep the peace, or refrain from using such language, he says, ‘What kind of damned business is that of yours?’ I says, T am not to ask, I want you to take a walk down the street.’ He says, ‘That is no damned business of yours.’ And with that I put my hand over on his shoulders and gave him a shove, and says, ‘You go down the street. He says, T don’t think of anything why you could make me move’; * * * and I caught him by the coat, and I put my hand in the pocket and pulled a billy out. He says, ‘You have a billy here.’ I says, ‘Yes’; and he struck me over the head with the quart bottle of whisky he had in his hand. I didn’t undertake to hit him with the billy; I had hardly got it out of nay pocket yet. Up to that time I had not arrested him. I was trying to get him to move along. His condition -\yas what I call disorderly conduct; he was drunk. When he hit me over the head with that quart whisky bottle he knocked me down to my knees. I got up again. As soon as he struck me he started to run; he ran to the north, and he turned to the east around the corner of the hotel. He went about 15 or 20 feet, not over 20, before he fell. He did not trip over anything, there was nothing there to trip over; the sidewalk is just as smooth as that right there. When he fell I got up to him and he was right on his back, and when I got up there he was kicking at me with his feet like that, and I tried to catch him by the collar, and I saw I could catch him by the boot so I struck at him with the billy, and I either struck him on the foot or leg. I only hit him once, and the billy busted. I had concluded to arrest him at that time. I started to arrest him after he struck me with, the bottle. When the billy busted he kicked me in the ditch; his feet hit me right in the breast; it knocked me backwards. Therfe is a ditch, and the ground runs sloping from the sidewalk to the ditch, and when I started backwards I fell down back in the ditch. When I fell Rohmer jumped up and started to run; he ran northwest. I pulled the gun out and shot him; I didn’t go 4 feet. I should judge he was about 25 feet away from me then. I shot to stop him. I pointed my revolver right at the ground; the ditch is where I stood; the ditch where I stood is about 2 feet lower than where he was. I wanted to stop him because I wanted to get him to malee an. arrest.”

We have quoted from both plaintiff’s and defendant’s testimony somewhat at length to show the conflict in the testimony relating to the occurrence. It will be noted that the plaintiff had testified that he was not drunk at the time of the trouble. The trial resulted in. a verdict and judgment for the plaintiff for $2,000 damages.

The defendant has brought the case here upon writ of error and there are six assignments of error, only three of which it will be necessary for us to consider— the third, fourth, and fifth:

(3) The court erred in charging the jury as follows:

“In approaching a study of the facts, in analyzing this testimony in order that you may find out what actually happened that night, you are going to be confronted with this legal question: Was a breach of the peace being committed by the plaintiff, Rohmer, at the commencement of the difficulty? Now, to answer that question properly, you have to know what, in law, amounts to a breach of the peace. A breach of the peace consists in any wilful, unjustifiable disturbance of the public peace, anything which amounts to a wilful, unjustifiable disturbance of the public peace is a misdemeanor, a criminal offense.”

(4) The court erred in charging the jury as follows:

“Examine this testimony then, and ascertain at the outset here, upon the occasion in question, was the plaintiff committing knowingly, wilfully, an unjustifiable disturbance of the public peace? If he was, he was committing a criminal offense.”

(5) The court erred in following the above-quoted charge with the following language:

“If, on the contrary, after an examination of the evidence here, you determine that no breach of the public peace was being committed upon the occasion by the plaintiff, then the defendant would have no right whatever to interfere with the plaintiff.”

Near the close of the charge of the court the following occurred:

The court asked defendant’s counsel if he had anything to suggest in the case, to which defendant’s counsel replied:

“No, your honor.”
“The Court: I covered the legal principles as to the right of the defendant to exercise his authority in making an arrest.”
“Defendant’s Counsel: Yes, your honor.”
“The Court: And the theories presented by the defendant on the facts of the case.”
“Defendant’s Counsel: Yes, your honor.”

That peace officers have a right to arrest for breaches of the peace committed in their presence in a public street is not denied. The third, fourth, and fifth assignments of error may be treated together. We have read the entire charge with a good deal of care, and are of opinion that there was reversible error in the portion of the charge upon which error is assigned, which, in all probability, affected the verdict in the case. As we understand this portion of the charge, it was to the effect that, in order for the plaintiff to have been guilty of a breach of the peace, what he did and said must have been done wilfully and knowingly by him, in order to warrant -the officer in making an arrest; and we do not find that this portion of the charge was cured in other parts thereof.

It is undisputed that defendant was a peace officer, and as such would have the right to arrest the .plaintiff for the use of grossly indecent .language used upon a public street in the presence of such officer, and for an assault upon the officer there. Such conduct on the part of the plaintiff, as testified to by defendant, was against decency and public morals, and would justify the officer in making an arrest. This court has defined a breach of the peace in Davis v. Burgess, 54 Mich. 514 (20 N. W. 540, 52 Am. Rep. 828).

It has been held that it is competent for a peace officer to take into custody even an insane man who is committing a breach of the peace in his presence. Lott v. Sweet, 33 Mich. 308; Van Deusen v. Newcomer, 40 Mich. 90-142. The fact that the person is insane does not exempt him from liability to arrest if he commits a breach of the peace which would be an offense if committed by a sane person. 22 Cyc. p. 1214, and cases cited.

The infirmity in the charge is that it made the intent and knowledge with which the breach of the peace was committed the controlling element. In our opinion the plaintiff was liable for the acts which he had committed, because the question of his intent or knowledge did not enter into the acts. The use of vile and obscene language upon the street and an assault upon an officer by a person so intoxicated and wild that he was not capable of forming an intent, would justify the officer in making an arrest if committed in his presence. The jury in this case may well have found under the charge that the plaintiff was guilty of a breach of the peace by the use of indecent language upon the public street, in the presence of the officer, and of an assault upon the officer, and yet because of his drunkenness, the defendant was not justified in arresting him. In our opinion the language of the court complained of probably led the jury to return a verdict for the plaintiff in the substantial sum indicated.

. Referring to the colloquy between the court and defendant’s counsel ne'ar the close of the charge, it should be borne in mind that error may be assigned upon any part of the charge, although not excepted to. The statute permitting this practice has been criticized by this court in the following cases: Just v. Porter, 64. Mich. 565, 568 (31 N. W. 444); Totten v. Totten, 172 Mich. 565, 580 (138 N. W. 257); Cookes v. Lymperis, 178 Mich. 299, 303 (144 N. W. 514). But, notwithstanding such criticism, the statute has been followed in many cases, and it is our opinion that defendant’s counsel was not obliged to point out to the court the error in the charge relied upon.

This view of the case renders it unnecessary to consider the other assignments of error, which relate to matters not likely to occur upon another trial.

For the error in the charge above pointed out, the judgment of the court below is reversed, and a new trial granted.

Kuhn, Ostrander, Bird, Moore, Steere, Brooke, and Person, JJ., concurred.


text:
    DECKER v. PIERCE.
    1. Specific Performance — Penalty—Liquidated Damages — Relief.
    Under a contract of purchase and sale of a moving picture theater and outfit, containing a stipulation that the defendants should not engage in the business in the city for five years or enter into • the employ of any person so engaged during a period of two years, fixing liquidated damages for a breach of the covenants at the sum of $500, the court of equity was not precluded from enforcing the agreement by a permanent injunction. Since it is only if the stipulation is for liquidated damages, that apply to the important provisions or breaches thereof, that equity declines to grant relief, the damages in the contract applying to any vislation of the conditions named could not be held to be strictly liquidated damages such as bar the equitable remedy.
    2. Same — Sale—Equity—Contracts.
    Where the purchaser of the theater on the same day entered into an agreement with his son and another to sell to the latter the business so bought by complainant, but the consideration was not paid as provided thereby, and after operating the business for a short time they turned it back and abandoned the purchase, a clause in the prior contract that the obligation not to engage in business should become null and void if complainant sold the theater, did not become applicable; an actual sale, not an agreement to sell, being intended.
    3. Same — Bond—Appeal.
    Provisions in the decree suspending its operation on condition that a bond be filed by defendants, who took advantage of the option given them, were not reviewable on defendants’ appeal.
    Appeal from Van Bureij; Des Voignes, J.
    Submitted January 7,1916.
    (Docket No. 60.)
    Decided March 31, 1916.

      Bill by Milton L. Decker against George Pierce and another for specific performance of a certain contract, for an injunction restraining defendants from engaging in certain business, and other relief. From a decree for complainant, defendants appeal.
    Affirmed.

      Glenn E. Warner and Victor M. Gore, for complainant.

      W. J. Barnard ¡and Earl L. Burhans, for defendants.
   Stone, C. J.

This bill of complaint was filed in April, 1915, to obtain a decree for a specific performance of a contract made by the parties, and to restrain the defendants from violating such contract, and from engaging in the moving picture business in the village of Paw Paw for a period of five years from December 8, 1913, and from hiring out or working for any other parties that might engage in the said business in said village for a period of two years, from and after the said last-named date. The defendants were the owners and operators of a moving picture business, or show, known as the “Idle Hour” in the village of Paw Paw. The son of complainant, Royal E. Decker, and one Rule J. Crosbie desired to engage in the moving picture business in said village. They did not have sufficient money to purchase the business, but they carried on negotiations with defendants to purchase. It was a disputed question upon the hearing whether or not they told defendants that complainant was to purchase the business, and that they would take it over on a contract from complainant. After several interviews it was agreed that defendants were to sell the “Idle Hour” Theater and business for the sum of $1,100, and Royal E. Decker paid them $100 in cash to bind the bargain. On the next day, December 8, 1913, the defendants went to the office of the complainant for, the purpose of signing the necessary papers conveying the property and business, and to receive the balance of the purchase price. It is undisputed that complainant then and there told defendants that he was the purchaser, and that he was buying the show, and the following instrument, or bill of sale, was then signed and delivered by defendants to complainant, and the remainder of the purchase money ($1,000) was there paid to them by the complainant. That instrument was as follows:

“Know all men by these presents, that we, George Pierce and wife of the village of Paw Paw, in the county of Van Burén and State of Michigan, of the first part, for and in consideration of the sum of eleven hundred ($1,100) dollars lawful money of the United States, to us paid by M. L. Decker of Paw Paw, Michigan, of the second part, the receipt whereof is hereby acknowledged, have bargained and sold, and by these presents do grant and convey, unto the said party of the second part, his executors, administrators or assigns, all the interest and title of said parties in and to a moving picture show operated by them at Paw Paw, Mich., more particularly consisting of the following : 1 Powers motion picture machine; 1 compensareis ; 1 exhaust fan; 2 18 in. fans; 1 small fan; 2 water fans; 1 piano; opera chairs and all folding chairs; all electric lights; fixtures and wiring; 1 plaster curtain; 1 canvas curtain; 1 drop curtain'; 5 billboards; steel ceiling; operating and ticket booths; stage and the entire front and all things pertaining to the picture show known as the ‘Idle Hour.’ Also the good will in and to said business. Said parties of the first part as a part of the consideration agree not to engage in a like business at Paw Paw, Michigan, for a period of five years. Said parties also agree not to hire out to or work for any other parties that may engage in a like business at Paw Paw, Michigan, during the next two years. They also warrant that the property above described is free and clear from all liens and incumbrances. In case of a violation of the restrictions placed on said parties by this contract prohibiting them from engaging or hiring in a like business at Paw Paw said damages are stipulated at $500.00; belonging to said George Pierce and wife and now in their possession at the Idle Hour Theater, Paw Paw, Michigan. To have and to hold the same unto the said party of the second part, his executors, administrators and assigns, forever. And the said parties of the first part, for their heirs, executors and administrators, do covenant and agree to and with the said party of the second part, his executors, administrators and assigns, to warrant and defend the sale of said property, goods and chattels hereby made, unto the1 said party of the second part, his executors, administrators and assigns, against all and every person or persons whatsoever.
“In witness whereof, they have hereunto set their hands and seals this 8th day of December, one thousand nine and hundred and thirteen.
“Geo. Pierce. [Seal.]
“Emma Pierce. [Seal.]
“Signed, sealed, and delivered in presence of Ed. M. Bailey, Royal E. Decker.”

Soon after the execution of the foregoing instrument, and on the same day, the defendant Emma Pierce returned to the office of the complainant, and, after some conversation between them, the complainant signed and gave to her. the following instrument:

“Dec. 8, 1913, Paw Paw, Mich.
“It is understood if I sell the picture show the obligation relative to Mr. and Mrs. Pierce starting a show shall be null and void so far as I am concerned. •
“M. L. Decker.”

It is the claim of complainant that soon after the execution of the bill of sale, and on the same day, and' as a part of the same transaction, and with the knowledge of the defendants, the complainant entered into an agreement with said Royal E. Decker and Rule J. Crosbie, which was as follows:

“This agreement, made this 8th day of December A. D. 1918, by and between M. L. Decker of the village of Paw Paw, county of Van Burén, State of Michigan, party of the first part, and Royal E. Decker and Rule J. Crosbie of the village of Paw Paw, county of Van Burén, State of Michigan, parties of the second part, witnesseth:
“First, that said party of the first part shall and will sell to said parties of the second part, the following-described property, to wit: The Idle Hour Theater at Paw Paw, Michigan. For specific description reference is made to contract whereby M. L. Decker obtained title from George Pierce and wife Dec. 8, 1913. It being the intention of said first party to convey all title received from said Pierce and wife. It is also agreed that said M. L. Decker is to have the title and right of possession of the articles described in a bill of sale given by Rule J. Crosbie to Royal E. Decker dated the 5th day of December, 1913; said articles are stored in the Idle Hour Theater building, upon and after full payment therefor by said parties of the second part of the sum of eleven hundred ($1,100) dollars with interest at the rate of 6 per cent, per annum in manner following: $600.00 dollars upon the execution and delivery of this agreement. $40.00 on or before the 8th day of January, A. D. 1914, and each month thereafter until remaining payment of $500.00 and interest is paid in full. Second parties to have right to pay more than "$40.00 per month if they see fit. Each payment is to be endorsed on this contract and also receipt to be given. With interest as above mentioned,
“Second, that said parties of the second part shall and will pay for said property the sum of eleven hundred ($1,100) dollars, and interest, at the time and in the manner above mentioned, at the office of M. L. Decker in the said village of Paw Paw, Michigan.
“Third, that the title to said property and the right of possession thereto, shall be and remain in said party of the first part until said sum of eleven hundred ($1,-100) dollars and interest, shall be fully paid.
“Fourth, that in case of default in any of the payments of principal or interest, when due as above specified, and for thirty (30) days thereafter, the said party of the first part shall thereupon forthwith have the right to declare this contract at an end, and to take immediate possession of said above-described property, and in such case the said property as well as all payments of principal and interest which shall have been made hereon, shall belong to and be retained by said party of the first part as stipulated damages for nonperformance of this contract on the part of said parties of the second part.
“In witness whereof, the parties hereto have hereunto set their hands and seals this 8th day of December, A. D. 1913.
“Rule J. Crosbie. [Seal.]
“Royal E. Decker. [Seal.]
“Signed, sealed and delivered in presence of Ed. Heller, Ed. M. Bailey.”

The defendants denied that they had any knowledge of the making of this last agreement. It was undisputed that no part of the $600 mentioned in the last contract was paid, except that Crosbie put in an apparatus valued at $300. No part of the monthly payments was ever made. Royal E. Decker and Rule J. Crosbie took charge of and ran the business until May 13, 1914, when they dissolved their relations, and the $300 apparatus put in by Crosbie was given back to him. The complainant, never having received anything on the contract, took back the business and property, and was the owner of them at the time of the hearing; the business being managed by his two sons. Soon after making the sale of December 8, 1913, the defendants left Paw Paw and engaged in business elsewhere; but a short time before the filing of the bill of complaint they returned to Paw Paw, and in his answer the defendant George Pierce admitted that he had rented the opera house in the village for the purpose of conducting and operating a moving picture show; that a motion picture machine had been purchased and demonstrated by him; that he had distributed handbills and posted placards announcing the opening of a moving picture show in the village, and he admitted that he was engaged in and was operating such business until enjoined by the court. After a full hearing upon the facts, the trial court entered a decree for the complainant in accordance with the prayer of the bill. The defendants have brought the case here for review. Defendants’ counsel have discussed two questions: (1) It is contended that the contract provided for stipulated damages, and that therefore a court of equity had no jurisdiction, and the bill of complaint should have been dismissed. (2) It is the contention of defendants’ counsel that the agreement to sell destroyed the force of the restrictive clause in the original contract, and that it operated as a sale of the property, and made applicable the agreement signed by the complainant to the effect that if he sold the picture show business, the restrictive provisions should be null and void.

1. After a somewhat thorough examination of our decisions, we have reached the conclusion that the sum mentioned in the original contract was really a penalty. It is well that we should analyze this clause:

“Also the good will in and to said business. Said parties of the first part as a part of the consideration agree not to engage in a like business at Paw Paw, Michigan, for a period of five years. Said parties also agree not to hire out to, or work for any other parties that may engage in a like business at Paw Paw, Michigan, during the next two years. * * * In case of a violation of the restrictions placed on said parties by this contract prohibiting them from engaging, or hiring in a like business at Paw Paw, said damages are stipulated at $500.”

The rule established at an early day in Michigan was the following: Where, by the terms of a contract, a sum is mentioned as “liquidated damages” for a nonperformance of several distinct stipulations of very different degrees of importance, and this sum is to be payable equally on a failure to perform the least, as of that to perform the most, important or whole of them together, it is in legal effect a penalty, and not stipulated damages; and the fixing of such a penalty by the contract is no objection to specific performance. Daily v. Litchfield, 10 Mich. 29.

It will be observed that in the restrictive clause of the contract there are at least two stipulations of different degrees of importance. The first one was not to engage in a like business for a period of five years. Second, not to hire out to work for any other parties that might be engaged in a like business at Paw Paw during the nexj; two years. ( At the time of hearing in this case the two-year period had only about six months to run. It seems to us that the stipulations here were of very different degrees of importance. If the defendants should hire out to, or work for, any other parties engaged in the moving picture business for one week or one day, they would forfeit the $500 as much as though they had engaged in a like business for a period of five years. It is our opinion that, although the parties have called this sum “stipulated damages,”, yet as it applies to several different stipulations of very different degrees of importance, and by the terms of the stipulation it would be payable equally on the failure to perform the least, as of that to perform the most, important, or the whole of them together, it is in legal effect but a penalty, and not stipulated damages, since it is evident that the parties themselves could not have treated it as a mere compensation for actual damages. Jaquith v. Hudson, 5 Mich. 123.

The real question in this class of cases is not simply what the parties intended, but whether the -sum fixed upon is in fact a penalty, and this is to be determined by the magnitude of the sum in connection with the subject-matter; and where it is obvious that the principle of compensation has .been disregarded, the provision as to stipulated damages contained in the contract will not be enforced. Davis v. Freeman, 10 Mich. 188; Richardson v. Woehler, 26 Mich. 90; Johnston v. Whittemore, 27 Mich. 463; Myer v. Hart, 40 Mich. 517 (29 Am. Rep. 553); Watrous v. Allen, 57 Mich. 362 (24 N. W. 104, 58 Am. Rep. 363) ; Powell v. Dwyer, 149 Mich. 141-144 (112 N. W. 499, 11 L. R. A. [N. S.] 978); Buckhout v. Witwer, 157 Mich. 406, 409, 411 (122 N. W. 184, 23 L. R. A. [N. S.] 506).

Counsel for the defendants have referred us to the following cases: Jaquith v. Hudson, supra; Whiting v. Village of New Baltimore, 127 Mich. 66, 70 (86 N. W. 403); Calbeck v. Ford, 140 Mich. 48 (103 N. W. 516) ; Geiger v. Cawley, 146 Mich. 550 (109 N. W. 1064); Ross v. Loescher, 152 Mich. 386 (116 N. W. 193, 125 Am. St. Rep. 418). We have examined these cases with' care, and think there is no conflict in our decisions upon the precise question involved. In our opinion the cases cited by defendants’ counsel are readily distinguishable from those first above cited. It is very evident, under our authorities, that the fact that the words “stipulated damages” are used, or that the word “penalty” is used in a given case is not decisive of the question. We must look into the nature of the instrument itself to determine into which class it should fall.

2. We cannot agree with defendants’ counsel that the contract which was entered into between the complainant and Royal E. Decker and Rule J. Crosbie amounted to a sale of the show, or business. It was . at most an agreement to sell upon certain terms and conditions, which terms and conditions were not complied with. It is undisputed that nothing ever was paid upon the contract. The agreement was that the party of the first part “shall and will sell” upon certain terms and conditions. It was expressly provided that the title to the property and the right of possession thereof should be and remain in the complainant until the whole sum of $1,100 and interest should be fully paid. Upon breach of the contract it gave complainant power to declare the contract at an end, and to take immediate possession of the property. The evidence is undisputed that nothing ever was paid upon the contract, and that complainant repossessed himself of the property.

We have read the evidence contained in this record with care, and are satisfied that the trial court reached the correct conclusion upon the facts.

The decree entered is criticized by defendants’ counsel, because of the provision suspending the operation of the perpetual injunction upon the filing of a certain bond by the defendants. It certainly was optional with the defendants whether to enter into this bond or not. They having done so voluntarily, we do not think any question relating to it is presented to this court.

The decree of the court below is affirmed, with costs to the complainant.

Kuhn, Ostrander, Bird, Moore, Steere, Brooke, and Person, JJ., concurred.