Howard Johnson, Inc., of Florida v. Tucker

• Citation: 157 F.2d 959
• Decision Date: 18 November 1946
• Docket Number: No. 11652.,11652.
• Parties: HOWARD JOHNSON, Inc., OF FLORIDA v. TUCKER.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

157 F.2d 959 (1946)

HOWARD JOHNSON, Inc., OF FLORIDA v. TUCKER.

No. 11652.

Circuit Court of Appeals, Fifth Circuit.

November 18, 1946.

W. O. Mehrtens, of Miami, Fla., for Howard Johnson, Inc., of Florida.

A. R. Johnson and Newman T. Miller, both of West Palm Beach, Fla., for S. J. Tucker.

Before SIBLEY, HUTCHESON, and WALLER, Circuit Judges.

SIBLEY, Circuit Judge.

This is the same case that was before this court in Tucker v. Dr. P. Phillips Co., Inc., et al., 5 Cir., 139 F.2d 601, and Tucker v. Dr. P. Phillips Co., Inc., et al., 5 Cir., 148 F.2d 904. The crux of the controversy has shifted as the litigation has developed, but the petition retains its original prayer "that an accounting may be had as between your plaintiff and the defendants; that judgment be entered against the defendants or such one or more of said defendants as may be liable to plaintiff for the wrongful appropriation of said cashier's check and proceeds therefrom; together with such other judgments and orders as may be necessary and proper to grant full and complete relief herein." The plaintiff is the trustee in bankruptcy of Southern Roadsides Restaurants, Inc., appointed on an involuntary bankruptcy petition filed March 23, 1942. The cashier's check is one deposited by the bankrupt in escrow Oct. 31, 1940, to secure performance by Howard Johnson, Inc., of a lease dated that day from Locar, Inc., to Howard Johnson, Inc., of premises which at the same time Howard Johnson, Inc., was subleasing to the bankrupt at the same rental of $500 per month.^* The cashier's check for $10,000 was required to be deposited with an escrow agent before Locar, Inc., would agree to make extensive improvements and sign its lease, and the bankrupt, who was to occupy and use the premises, put up the check. The rent was paid each month by bankrupt to Locar, Inc., or its assignee, until Jan. 15, 1942. On April 1, 1942, on demand of the assignee of Locar, Inc. (Dr. Phillips Co. Inc.), the escrow holder cashed the check for $10,000 and applied $1,500 of it to the payment to the assignee of three months rent past due, and $8,500 to rent to become due by Howard Johnson, Inc., accelerated by a provision of the main lease. These facts are all now conceded.

On the first trial the plaintiff's evidence alone was heard. The district judge thought it did not show a misappropriation of the check or its proceeds by the defendants Dr. Phillips Co., Inc. and the escrow agent, and that it was unnecessary to go further, and he directed a verdict for defendants, including Howard Johnson, Inc. This court reversed, thinking a prima facie case had been made against the escrow agent and the recipient of the money, and that they should more clearly show that all the money was rightly applied. 5 Cir., 139 F.2d 601.

The plaintiff then amended his petition and alleged that the bankrupt's check was a security under the escrow agreement for the rent obligations of Howard Johnson, Inc., and was used to pay them, so that Howard Johnson, Inc., got the benefit of and was liable to the bankrupt estate for the $10,000. Howard Johnson, Inc., had already pleaded as a counterclaim that the bankrupt at bankruptcy was indebted to it (as the schedule in bankruptcy admits) for goods sold and delivered in a sum of $9,118.44, and that it had in consequence of its adjudication broken the sublease to the damage of Howard Johnson, Inc., in the amount of $10,000. Judgment was prayed for these amounts. The district judge on a full hearing found that the whole $10,000 arising from the check was applied properly to the purposes for which the check was put in escrow, and again gave judgment in favor of all the defendants, making no accounting as between plaintiff and Howard Johnson, Inc. On appeal this court held that no misapplication of the escrowed fund had been made, so that neither the escrow agent nor the assignee of the main lessor was liable for anything, but that the case still was not completely tried as to Howard Johnson, Inc., using these words: "We therefore hold that the bankrupt is indebted to Howard Johnson, Inc., for all monthly rentals accruing and unpaid prior to the date of the adjudication in bankruptcy, and that Howard Johnson, Inc., is indebted to the bankrupt for all funds of the bankrupt used to pay the obligations of Howard Johnson, Inc. Since the court below did not consider the merits of the counterclaims or any questions of set-off that may arise in connection therewith, the ultimate rights and liabilities of the sublessor (Howard Johnson, Inc.) and the trustee of the bankrupt may not be determined on this appeal. These are matters upon which the trial court must first rule." The cause was remanded to this end. 5 Cir., 148 F.2d 904, 907.

The case was retried on the former record alone, with an agreement that the counterclaim for goods sold before bankruptcy is correct as to amount. The judge held that the counterclaims were not good setoffs, except for the rent accruing before bankruptcy, $1,500, and he gave judgment to the trustee in bankruptcy against Howard Johnson, Inc., for the difference, $8,500, with interest. No finding was made as to the amount of damages due Howard Johnson, Inc., for breach of the lease. Each appeals from the part of the judgment adverse to him.

We do not think this is the accounting and the full and complete relief for which the petition prays. It omits the lease damage claim of Howard Johnson, Inc., which arises out of the same contracts and business as does the claim of plaintiff. The check escrow was not an isolated contract. It alone was looked to in ascertaining the non-liability of the escrow agent and Locar, Inc., and its assignee, who were found to have done and received under it only what was right. But it is otherwise as to Howard Johnson, Inc., for the evidence is uncontradicted that Locar, Inc., refused to make the extensive improvements contemplated, or to execute its lease to Howard Johnson, Inc., unless a deposit of $10,000 to secure the rents was made. The sublease by Howard Johnson, Inc., to bankrupt referred to the Locar lease, adopted its terms and conditions, and bound the sublessee to pay the same rent "and also to fulfill all conditions and other obligations assumed and undertaken by said Howard Johnson, Inc., under said lease." It was the bankrupt who was to occupy and who was...