536 F.2d 585 (5th Cir. 1976), 75-1038, Cherokee Ins. Co. v. Koenenn

Docket Nº:75-1038.
Citation:536 F.2d 585
Party Name:CHEROKEE INSURANCE COMPANY et al., Plaintiffs, v. L. A. KOENENN, Jr., and Holton D. Turnbough, et al., Defendants-Appellants, v. William E. SEATON and Gladys M. Seaton, Defendants-Appellees.
Case Date:August 04, 1976
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 585

536 F.2d 585 (5th Cir. 1976)

CHEROKEE INSURANCE COMPANY et al., Plaintiffs,

v.

L. A. KOENENN, Jr., and Holton D. Turnbough, et al.,

Defendants-Appellants,

v.

William E. SEATON and Gladys M. Seaton, Defendants-Appellees.

No. 75-1038.

United States Court of Appeals, Fifth Circuit

August 4, 1976

Page 586

Larry L. Lenoir, Gulfport, Miss., for L. A. Koenenn, H. Turnbough & Captain's Table.

Fred A. Ross, James A. Phyfer, Jackson, Miss., for Wm. E. & Gladys M. Seaton.

Eldon L. Bolton, Jr., Gulfport, Miss., for Hemenway Contract Furnisher, etc.

Appeal from the United States District Court for the Southern District of Mississippi.

Before GEWIN, COLEMAN and GOLDBERG, Circuit Judges.

GOLDBERG, Circuit Judge.

On October 6, 1973, fire completely destroyed the Captain's Table restaurant of Gulfport, Mississippi. Three insurance companies Cherokee Insurance Company, Federal Insurance Company, and Fidelity & Casualty Insurance Company had issued a total of $30,000 in policies covering potential fire losses at Captain's Table. Asserting that L. A. Koenenn, Jr., Holton D. Turnbough, William E. Seaton, Gladys M. Seaton, Captain's Table, Inc., and Hemenway Contract Furnishers had all made claims against the insurance proceeds, the three companies filed an interpleader action naming these claimants as defendants, and deposited the $30,000 into the registry of the district court. The defendants filed answers and other pleadings, and the case was tried to the court. The judge ordered (1) the payment of $19,025.67 to Hemenway Contract Furnishers, (2) an equal division of the remaining proceeds 1 between L. A. Koenenn, Jr. and Holton Turnbough on the

Page 587

one hand and Gladys M. Seaton on the other hand, and (3) the cancellation of a promissory note issued by Gladys and William Seaton and made payable to Koenenn and Turnbough. No one has appealed the disposition of the trial court's order with respect to Hemenway, and Hemenway is not a party to this appeal. Koenenn and Turnbough, however, contest the division of the proceeds and the cancellation of the note. After carefully reviewing the record and the law, we have decided that the trial court lacked jurisdiction to cancel the note. With regard to the division of the remaining insurance funds, we find that the district court's conclusion is based at least in part on an erroneous factual determination and, in addition, that the legal analysis supporting the court's conclusion requires further clarification. Therefore we vacate the district court's order extinguishing liability on the note and remand the remaining issues for consideration in the light of this opinion.

I. Background

Until November 17, 1972, L. A. Koenenn and Holton Turnbough owned 100% of the stock of Captain's Table, Inc. On that date, they entered into a contract with Gladys M. Seaton and William E. Seaton in which Koenenn and Turnbough agreed to sell their stock to the Seatons for $27,000 $12,000.00 to be paid to the sellers upon execution of the agreement, with the balance of the purchase price to be evidenced by a promissory note for $15,000 due November 17, 1975. The agreement provided that the sellers would retain the actual stock certificates until they had received the full purchase price. According to the seller's brief on appeal, "(o)n November 17, 1972, the Seatons took possession of the business of Captain's Table, Inc. and the management thereof."

Six months after the consummation of the purchase and sale agreement discussed above, Koenenn and Turnbough had the local insurance agent issue in their names a standard form loss payable clause on the Captain's Table's insurance policies. The clause simply provided that "any loss ascertained and proven to be due to the insured (Captain's Table, Inc.) under this policy shall be held payable to L. A. Koenenn and Holton B. Turnbough . . . as interest may appear." Koenenn and Turnbough obtained this clause without first informing the Seatons. On October 6, 1973, the building rented by Captain's Table burned, destroying the restaurant's furniture and equipment. The insurance companies, admitting liability but not certain of the proper beneficiary under the policies, brought this interpleader action.

After ordering the $19,025.67 payment to Hemenway not objected to here, the trial judge issued two opinions. The first opinion, finding that Turnbough and Koenenn "simply acted personally and individually and exclusively for their own interest and protection in securing these three loss payable clauses. . . . " and that they "accomplished nothing thereby" ordered the remaining registry funds paid pro rata to the creditors of Captain's Table, Inc. In a supplemental opinion issued two weeks later, the trial court noted that because "the parties are in irreconcilable conflict as to a proper disbursement of the proceeds . . . it now becomes the unpleasant duty of the Court to divide this insurance money equitably and fairly . . . ." The judge then ordered the payment of one-half the funds to Mrs. Seaton and the other half to Koenenn and Turnbough. In addition, stating that the stock of the corporation had become worthless, the trial court cancelled the not yet matured $15,000 note from the Seatons to Koenenn and Turnbough. From these orders, Koenenn and Turnbough have appealed.

II. The Note

The trial court erred in relieving the Captain's Table purchasers of their $15,000 obligation

Page 588

because that court lacked jurisdiction over the issue of whether or not the note was still binding. The question of the Seatons' promissory duties initially arose from their somewhat jumbled answer to the interpleader complaint. In their response, the Seatons seemingly asserted that the corporate sellers' failure to fulfill a purported contractual obligation to transfer to the Seatons...

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