Felton v. City of Cincinnati

CLARK, District Judge, after stating the case as above, delivered the opinion of the court. The discussion in this court deals with the case in three several aspects, requiring consideration of how far the result is influenced or controlled: First, by common-law principles applicable independently of the covenants in the lease; second, by the terms, express and implied, in the lease contract; and, third, by equitable principles, which apply in view of the fact that the subject-matter of the lease is a railroad, and peculiar, and is operated by appellant as the court’s receiver for the benefit of all parties interested. These questions have not, of course, been treated as of equal importance in their bearing on the case and the principal question. We will consider these points so far as it is deemed necessary. The rule in regard to the mutual obligations of lessor and lessee is well established by the decided weight of authority. In the ab — 340 — sence of express covenant or stipulation to the contrary, the lessor is not bound to repair, improve, or make additions, or to allow the lessee for repairs made without his authority. In the absence of fraud or misrepresentation, the lessee takes the property as he finds it, and at his peril, arid there is no implied warranty or covenant in law on the part of the lessor in this respect. He is under no implied obligation with regard to the condition of the premises which are the subject of the demise, and is not bound to guaranty that the conditions will continue during the'term. When the premises are leased for a specific purpose, there is no implied covenant that they 'are fit for such purpose, or that they shall remain so. This doctrine, except as modified by statute, is accepted everywhere in this country. In Viterbo v. Friedlander, 120 U. S. 707, 7 Sup. Ct. 962, the supreme court of the United States had occasion to point out that the common law and civil law differ in regard to the obligations of lessor and lessee in this regard. Mr. Justice Gray, speaking for the court, said: “But as to the nature and effect of a lease for years at a certain rent, which the lessee agrees to pay, and containing no express covenant on the part of the lessor, the two systems differ materially. The common law regards such a lease as the grant of an estate for years, which the lessee takes a title in, and is bound to pay the stipulated rent for, notwithstanding any injury by flood, fire, or external violence, at least unless the injury is such a destruction of the land as to amount to an eviction; and by that law the lessor is under no implied covenant to repair, or even that the premises shall be fit for the purpose for which they are leased. Fowler v. Bott, 6 Mass. 63; 3 Kent, Comm. 465, 466; Broom, Leg. Max. (3d Ed.) 213, 214; Doupe v. Genin, 45 N. Y. 119; Kingsbury v. Westfall, 61 N. Y. 356; Naumberg v. Young, 44 N. J. Law, 331; Bowe v. Hunking, 135 Mass. 380; Warehouse Co. v. Carr, 5 C. P. Div. 507.” Chancellor Kent states this distinction between the two systems, and the advantage of the Eomari lessee over the English lessee, as follows: “The Roman law made some compensation to the lessee for the shortness of his five-years lease, for it gave him a claim upon the lessor for reimbursement for his reasonable improvements. The landlord was bound to repair, and the tenant was discharged from the rent if he was prevented from reaping and enjoying the crops by an extraordinary and unavoidable calamity, as tempests, fire, or enemies. In these respects the Roman lessee had the advantage of the English tenant, for, if there be no agreement or statute applicable to the case, the English landlord is not bound to repair, or to allow the tenant for repairs made without his authority; and the tenant is bound to pay the rent, and to repair at his own expense, to avoid the charge of permissive waste.” 4 Kent. Comm. 110. “And in modern cases,” says the same author, “it has been held that the lessee or the assignee of a lease .in which the lessee covenanted for himself and his assigns absolutely to repair was bound to repair, notwithstanding the buildings were accidentally destroyed by fire. And, if the premises be out of repair, the tenant cannot make repairs at the expense of the landlord, or deduct the amount of them out of the rent, unless there be a special agreement for that purpose between the tenant and his landlord.” 3 Kent. Comm. 468. So, in Kutter v. Smith, 2 Wall. 491, it was distinctly adjudged that the law imposes no obligation upon the landlord to pay the tenant for buildings . erected on the demised premises. The established doctrine upon the subject in this country and in England is — 341 — also the law in Scotland. Bayne v. Walker, H. L. Cas. 1815, 3 Dow, 233, 15 Rev. Reports, 53. Nothing decided In Wait v. O’Neil, 47 U. S. App. 19, 22 C. C. A. 248, and 76 Fed. 408, qualifies or denies the general rule. While a railroad differs in form and uses from other species of property, generally the subject of lease, the analogy is too dose to admit denial of the application of the general rule in questions between lessor and lessee. The subject of the lease in ques lion was the roadbed, tracks, stations, and bridges. The law by which the rights and obligations of lessor and lessee are determined furnishes no foundation for the contention that the lessor is liable for the expense of rebuilding the bridges In question or other similar improvements, whether regarded as repairs or as reconstruction, by which “a new and different tiling” is substituted for the old. The law no more imposes an obligation on the lessor to repay the tenant the expense of rebuilding than it does the expense of repairing. in the argument muck attention was given by both sides to the question whether the rebuilding of the bridges iu question is a “replacement,” within the meaning of the lease contract, the expense of which is expressly provided for by covenant. Ho far as we find it: necessary to deal with this question, it may be shortly disposed of. The contract, throughout, so far as it provides for the expense of maintaining and operating the road, distinctly places the burden of such expense upon the lessee. This is doue throughout the contract attentively and guardedly, as will sufficiently appear iu clauses 5 and 6, set out in full in the statement of the case. It is nor needful for the pmqjoses of the case, as now presented, that we should notice or gnalyze cite provisions of the contract in detail. If is sufficient to say that the contract neither in terms nor by implication imposes liability on the lessor for an expense of any kind incurred by the lessee. Indeed, it is not: insisted for the appellant, as we understand, that the contract does so. The contention for the appellant in this connection is that the bridges rebuilt cannot be regarded as “repairs and replacements and renewals,” within the meaning of clause 5 of the lease, and that it is not, therefore, such ail expense as is provided for by covenant in the instrument of demise, but is left unprovided for and open to question. But, as will be seen, we do not find it necessary to deal with the point thus suggested. It is sufficient to repeat that there is no basis in tlie contract for- bolding the lessor responsible for such an expense. This much is clear, and the case does not require that the decision should go further in this particular direction. The question remains whether ihe lessor is chargeable with the expenditure in question upon equitable and public grounds within the doctrine affirmed by the supreme court of the United Stales in a series of cases for the foreclosure of mortgages of railroad property accompanied with a receivership. It has been held in those cases that: the peculiar character of railroad property justified the court, when called upon to entertain foreclosure proceedings, in requiring the payment of certain limited claims for debts created before the receivership. And upon the same grounds, and as part of the receivership operating expenses, debts were allowed to be created — 342 — for necessary repairs in the way of improvement and construction, when such outlays appeared to be reasonable, and for the benefit of all parties directly interested. Debts for rental and necessary equipment have been allowed as proper operating expenses of the receivership. We need not now consider in detail the character of claims thus allowed, nor distinguish between the limited claims allowed, which accrued before the receivership, and those which were created during the receivership, and constituting receiver’s expenses. The questions presented in those cases related to priority of payment, and to what extent the lien of the mortgage might be displaced by expenditures made during the receivership. The issues in such cases were between mortgagee, mortgagor, and unsecured creditors. These cases begin with Fosdick v. Schall, 99 U. S. 238, include Union Trust Co. v. Illinois Midland R. Co., 117 U. S. 434, 6 Sup. Ct. 809, and extend to Virginia & A. Goal Co. v. Central Railroad & Banking Co., 170 U. S. 355, 18 Sup. Ct. 657. The receivership in the case at bar had its origin and has been continued on application of creditors of the lessee, and not at the instance of the lessor or creditors of the lessor. The situation of this case and the question now before us are so different that we are unable to see that those cases have any material application. In this case the question arises between the lessor and lessee’s receiver, and in relation to the rental due under the lease contract, and is whether the burden of an outlay for reconstruction work upon the demised property rests upon the lessor or lessee. The original creditors’ bill in this case was brought in the sole interest of the lessee company and its creditors. No party to this litigation occupies the position of mortgagor and owner of the property, as in the foreclosure cases to which we have referred, except the lessee company. The public obligation of maintaining and operating the railway rested upon the lessee company, which, in the litigation, for all practical purposes, takes the position of the mortgagor and owner in cases like Fosdick v. Schall, and subsequent cases of the same general class. Here the only property of the corporation operating the railway is the leasehold interest or estate. The appellant was not appointed receiver of the property or interests of the lessor. Lessor was not a party to the litigation when the receiver was appointed, and has not become a party at any stage of the case for the purpose of taking any part in furtherance of the original objects of the litigation. The public duty of maintaining the railroad as a highway for the purpose of commerce had been assumed by and rested upon the lessee company alone. All creditors here concerned are creditors, not of the lessor, but of the lessee; and .such creditors have at no time had the right, in any event, to look to the property of the lessor for the satisfaction of their debts. The only relation which does or has existed between the lessor and the receiver has resulted from the fact that the court ordered the receiver to take possession of the leasehold property, and pay the rent due under the lease. The objects of the suit under which the receivership was created and has been continued did not affect the rights or interests of the lessor, but were to operate and maintain the railroad, and thereby — 343 — preserve tlie leasehold estate, and finally distribute the proceeds of sale, together with any income and profits arising from the operation of the railway, to tlie creditors according to their priority, and the surplus, if any, to the stockholders in the lessee company. Tlie lessor has simply exercised its right to collect rents due under the contract so long as the receiver is in possession of and managing and operating the railway. The receiver has not, so far as the record discloses, at any time offered to surrender the property and terminate the lease as to him, and, as we have stated, the receivership did not have its origin at the instance or on,the application of the lessor, nor has the receivership been maintained at the instance of the lessor. Under such circumstances as these we do uot see upon what ground the rental due the lessor is justly subject to any deduction on account of an expíense incurred by the receiver iu the operation of the road, whether in the way of necessary repairs or reconstruction and substitution. During the existence of this lease, and while the court, through its receiver, keeps the lease in force by payment of rent, the public duty, so far as that may be an element in determining the power of the court, was not a burden upon the lessor. The lessor is a public corporation, created for political purposes and for local civil government, with such powers as are essential to the corporate objects and purposes. It is but an arm of the state government. Without special legislative authority, its implied powers are limited to corporate purposes. In considering the case we must also bear in mind that rent properly due for a railroad used by a receiver under the order of the court is a receivership) expense, and entitled to preferential payment. Brown v. Railroad Co., 35 Fed. 444; Mercantile Trust Co. v. Farmers’ Loan & Trust Co., 49 U. S. App. 662, 26 C. C. A. 383, and 81 Fed. 254; Central Trust Co. v. Continental Trust Co., 58 U. S. A pip. 604, 30 C. C. A. 235, and 86 Fed. 517; Woodruff v. Railway Co., 93 N. Y. 609. In view of these and other considerations, not necessary to be stated, which distinguish the case at bar from the ordinary case in the well-known group of foreclosure cases already mentioned, we conclude that those' cases are uot applicable, and are not authority for appellant's contention in this regard. We are clear, as we have said in the opinion, that appellant’s contention is not sustained by covenant or stipulation in the instrument of demise, nor by any covenant implied by law. Entertaining these views, we do not find it necessary to decide whether the lessee or its receiver, the appellant, is obliged, under the contract of lease, to rebuild these bridges, or to do other similar reconstruction work. It sufficiently disposes of the case to say that in the situation disclosed by the record such reconstruction or improvement cannot be made at: the expense of the appellee. If the receiver, by authority of the court, should offer to surrender the leased property, and the city refuse to accept the same, a question might arise not now presented. The suggestion that the receiver cannot bring this suit, although under order of the court, can hardly be regarded as serious. The practice adopted by the court below is — 344 — clearly the proper one, and is supported by Woodruff v. Railway Co., 93 N. Y. 610. The decree of the circuit court was right, and is accordingly affirmed.