#### Mohawk Company, Respondent, vs. Bankers Surety Company, imp., Appellant.

*January 11*

February *1, 1916.*

*Landlord and tenant: Breach of covenants: Remedies of lessor: Election: Foreclosure: Liens: Quieting title: Covenant to erect building: Conditions of surety bond: Measure of damages for breach.*

1. The right, under a stipulation in a lease, to declare a forfeiture thereof for breach of any of its covenants by the lessee, is one created for the benefit of the lessor, and he is not obliged to invoke it, .but may elect whether to hold the lessee responsible in damages for the breach or to declare the lease at an end.

2. Where in a lease for ninety-nine years the lessees agreed to erect a building on the land, to be completed before a certain date, and gave a bond to secure performance of such agreement and to save the lessor harmless from all liens and claims for liens and all costs, charges, and damages (including costs of suits) for or on account of such liens or claims, such condition of the bond shows that it was contemplated that the lessor was to have time to clear the leased premises of such liens by action if necessary.

3. The lessees having defaulted in payment of the rent and also in the erection of the building, the lessor gave notice of the termination of the lease and commenced foreclosure proceedings *273under sec. 2197a, Stats., hut it appeared that improvements to the amount of $5,000, required in order to bring the' case within that statute, had not been made. ■ *Held,,*that a foreclosure judgment under the statute was improper, but such judgment was within the general jurisdiction of equity, valid between the parties, and sufficient ás a decree to remove a cloud on the title as against the lessees and those claiming liens under or through them.

4. The surety on the bond given by the lessees, not having been made a party to the foreclosure suit and the defense thereof not having been tendered to it, was not concluded by the judgment; nor was it relieved thereby of anything.

5. The acts of the lessor in giving notice and prosecuting the foreclosure suit were equivalent to an election by him to terminate the lease and take possession one year after judgment therein quieting his title, unless the premises were sooner redeemed; and, the lessor having the right to clear the premises of liens at their expense, neither the lessees nor their surety could object to this.

6. For the lessees’ default in failing to erect the building (which would have been security for the performance of all other covenants of the lease) the measure of damages recoverable is not the same as in case of building contracts generally. The lessees and the surety on their bond are liable for all damages logically flowing from such breach; and the fact that performance of the covenants to pay rent and taxes was not covered by the bond, cannot be taken to enlarge or diminish such damages.

7. The damages recoverable in such case include rents and taxes, not paid by the lessees, which accrued prior to the time when the lessor elected to and did resume possession of the premises free and clear of liens; but do not include rents or taxes accruing thereafter.

Appeal from a judgment of tbe circuit court for Douglas county: Chestee A. Eowlee, Judge.

*Reversed.*

Eor tbe appellant there were briefs by Abbott, *MacPher-*ran, *Lewis &*Gilbert, and oral argument by *E. W. MacPher-ran.*

Eor tbe respondent there was a brief by *Hanitch & Hart-ley,*and oral argument by *G. J. Hartley*and *Louis Hanitch.*

TimliN, J.

Tbe plaintiff, owner of certain land, on October 1, 1909, executed a lease thereof for ninety-nine years *274to Matthew and William Leithanser. Tbe lessees agreed to forthwith proceed and erect according to described plans and specifications a building upon the demised premises and to complete the same on or before May 1, 1910. At the termination of the lease, all its covenants performed, the building was to be the property of the lessor. The performance of this covenant was required to be and was secured by bond in the sum of $30,000 with the appellant as surety thereon, and this action is on the bond. The condition of the bond was:

> “Now, therefore, if the said principals shall erect and complete said theater building in full conformance with said plans and specifications not later than May 1, 1910, and save said obligee harmless from any and all liens and claims for liens for or on account of work, skill, or materials used in said constructions and from all costs, charges and damages (including costs of suits begun or completed, with a reasonable allowance for attorney’s fees) for or on account of such liens or claims for liens, then this obligation shall be null and void, otherwise of full force and effect.”

This bond was dated October 26, 1909, and immediately after its execution the lessees took possession of the demised premises and commenced the erection of the building provided for in the lease. They proceeded therewith as far as to construct a basement wall, when they ceased operations. After the execution of the lease and bond the lessees assigned their term to a corporation called the People’s Theater Company. Only two quarterly instalments of rent were paid under the lease. ' The lease contained, in addition to the covenant to build, covenants to pay rent quarterly and to pay taxes and assessments and also other covenants. Sec. 2197a, Stats., in force when this lease was executed, provided that in case of a default in the conditions or breach of the covenants of any lease of land for a term exceeding fifty years which required the lessee to construct improvements or buildings on the land demised at his cost exceeding in value $5,000, and in ease such improvements have been made, the lessor might *275have a remedy by foreclosure. Tbe latter, in such case, was denied tbe remedy of unlawful detainer provided by cb. 145, Stats. Tbe lessee in sucb case is entitled to retain possession for one year and pay up the rent in árrears and that subsequently accruing, etc., and have tbe property. During this year tbe lessee is entitled to tbe rents, issues, and profits thereof. At tbe end of tbe year tbe lessor is entitled to a writ of assistance in case tbe lessee refuses to surrender possession. Notice of termination of lease was given, and foreclosure was begun under this statute by tbe plaintiff against tbe lessees and their assignees and carried to judgment, but tbe facts did not bring tbe lease in question within tbe terms of that statute because improvements to tbe amount of $5,000 bad not been actually made on tbe demised premises.

This statute confers very valuable rights upon tbe lessee described in the statute and cuts tbe lessor off from a somewhat summary remedy common to all other lessors. Those entering into a lease after tbe enactment of this statute are supposed to do so with knowledge of the statute. Tbe right to this foreclosure is given to tbe lessor in language permissive in form but perhaps mandatory where tbe lessee chooses to assert tbe valuable rights conferred on him by that statute. Whether improvements to tbe value of $5,000 or tbe improvements specified in tbe lease have actually been made is usually a question of fact.

In tbe instant case there was default in tbe payment of rent and there was also default in failing to construct tbe building required. For tbe damages flowing from the latter default tbe lessees and their surety, tbe appellant, are liable. Tbe question is here upon tbe rule of damages. On tbe part' of tbe appellant it is contended that tbe measure of damages should be tbe same or similar to that applied in cases of building contracts generally. This contention must be dismissed at once, for tbe relations of tbe parties are entirely different. There tbe owner agrees to pay a certain sum of money and *276tbe contractor agrees to erect a described building. Tbe advantage lost to tbe owner is really tbe difference in value between tbe sum wbicb be agreed to pay and tbe building in place wbicb tbe contractor agreed to erect, together with loss of use of tbe property for some time. Here tbe owner was to pay nothing and to have a building placed upon bis premises wbicb would be security for tbe performance of all other covenants in tbe lease on tbe part of tbe lessee. Tbe owner has parted with tbe full consideration by executing and delivering tbe lease for tbe desired term upon tbe agreed rate. His position is more analogous to that of an owner who has paid tbe building contractor in advance. Neither is tbe fact that tbe lease contained a covenant to pay rent and another to pay taxes, wbicb covenants were not mentioned in tbe bond, important. Tbe presence of these covenants and the failure to require security for their performance cannot be taken to enlarge or diminish tbe legal damages logically flowing from tbe breach in question and hence within tbe contemplation of tbe parties. We may also lay out of sight a covenant on the part of tbe lessors that they would advance as a loan tbe sum of $20,000, to be secured by mortgage upon tbe $30,000 building to be erected when erected. There would even then be an equity of redemption of $10,000 available to tbe lessors as security. Tbe right to declare a forfeiture of a lease is one created by stipulation in tbe lease for tbe benefit of tbe lessor and be is not obliged to invoke it. He has tbe choice whether to bold tbe lessee responsible in damages for breach of covenant or to declare tbe lease at an end for breach of condition. We do not think bis delay to-declare or enforce a forfeiture has any effect upon tbe measure of damages. Tbe lessor’s option above mentioned must have been known to tbe lessees and to their surety when tbe contract of suretyship was entered into. Tbe condition of tbe bond is so written as to cover not only tbe legal damages flowing from tbe failure to erect and complete tbe theater *277building witbin tbe time and on tbe terms specified, but also tbe failure to save tbe lessor harmless from liens and claims for liens imposed upon said premises or created by tbe lessees, including costs of suits'begun or completed by tbe lessor for or on account of sucb liens or claims for liens. Tbis qualifies tbe contract. It indicates that tbe parties hereto contemplated that tbe lessor was to have time to clear tbe leased premises of such liens by action if necessary. Tbe foreclosure judgment mentioned, while improper and unnecessary under tbe terms of the foreclosure statute mentioned, nevertheless was witbin the general jurisdiction of equity and valid as between tbe parties thereto, and sufficient as a decree to remove a cloud against tbe lessees and those claiming liens for labor or material under or through said lessees. The appellant was not a party to that suit and tbe defense of tbe suit was not tendered to it. It is therefore not concluded thereby. But it was not relieved thereby of anything. We think the facts amply show that a suit in equity by tbe lessor to remove a cloud was necessary. Tbe acts of tbe lessor in giving notice and commencing and prosecuting under tbe statute aforesaid, which would have governed tbe ease had tbe improvements stipulated in tbe lease been made, are equivalent to an election by tbe landlord that be would terminate tbe lease and take possession one year after judgment quieting bis title unless sooner redeemed. Neither tbe lessees nor their surety is in a position to object to this. The foundation constructed by the lessees was found on srifficient evidence to add no value to the reversionary interest of the lessor. ■ While the damages allowed by the learned circuit court did not rest on these exact principles a large part of tbe amount was witbin tbe rule of compensation and witbin tbe amount which tbe plaintiff would be entitled to recover in any event. The cases of *Longfellow v.*McGregor, 61 Minn. 494, 63 N. W. 1032; *Johnson v. Cook,*24 Wash. 474, 64 Pac. 729; *Rock v. Monarch B. Co.*87 Ohio St. 244, 100 N. E. 887; *278*O'Brien v. Ill. S. Co.*203 Fed. 436, 121 C. C. A. 546; *U. S. v. U. S. F. & G. Co.*236 U. S. 512, 35 Sup. Ct. 298; *Sharon v. American F. Co.*172 Mo. App. 309, 157 S. W. 972, while not exactly in point, contain features somewhat analogous.

The learned circuit court itemized the damages allowed as follows:

> Taxes accruing after the surety contract which should have been paid by the lessees and were necessarily paid by the lessor . $981 08

> Rent unpaid and in arrears up to January 21, 1912, 1 year, 8 months, 19 days. 1,925 00

> Costs and reasonable expenses for attorney fees paid by the plaintiff in the suit mentioned.. 257 15

> Rentals from January 21, 1912, until plaintiff leased the property to a third person July 1, 1913. 1,395 00

> Taxes and special assessments accruing after January 21, 1912, necessarily paid by plaintiff. 874 42

> Total./. $5,432 65

This with interest to January 1, 1915, resulted in a judgment for $6,070. The plaintiff lost its security for the covenants of the lease. Compensation, which is the guiding rule in damages, would require this loss to be made good. The damages had all accrued on May 1, 1910, when the lessees failed in their contract to erect the building. But security for covenants to be performed or moneys to become due looks to the future. When the plaintiff on January 21, 1912, elected to resume possession and did resume possession of the demised premises free and clear of liens, it accepted this possession of the demised premises in cancellation of all obligations to become due thereafter on the lease. It elected for such subsequently accruing damages this remedy instead of the remedy for breach of covenant. It did not do so by mere threats to take possession or declaration that the lease was at an end, because it had the right to clear off liens at appellant’s expense; but it did by such notice and full possession taken free and clear of all liens in pursuance of such notice and the decree quieting title. We therefore think that the recovery should be reduced by the items of $1,395 for rents accruing *279after January 21, 1912, wben plaintiff took possession, and $874.42 for taxes and special assessments also accruing after that date. Tbe cause should be remanded to tbe circuit court with directions to reduce tbe amount by these two items, make a new computation of tbe interest on tbe remaining amount from January 21, 1912, to tbe date of decree, and render judgment in favor of tbe plaintiff and against tbe appellant in tbe last mentioned amount. Tbe appellant to *?e-*cover costs in this court.

*By the Court.*— It is so ordered.