Cochise Hotels, Inc. v. Douglas Hotel Operating Co.
| Decision Date | 08 October 1957 |
| Docket Number | No. 6241,6241 |
| Citation | 83 Ariz. 40,316 P.2d 290 |
| Parties | COCHISE HOTELS, inc., a corporation, Appellant, v. DOUGLAS HOTEL OPERATING CO., inc., a corporation, Appellee. |
| Court | Arizona Supreme Court |
Jerman, Jerman & Butler and Wesley E. Polley, Phoenix, for appellant.
Jennings, Strouss, Salmon & Trask, Charles L. Strouss, Jr., and Rex H. Moore, Phoenix, for appellee.
This is an appeal by Cochise Hotels, Inc., (hereinafter designated as the landlord) from a judgment rendered against it and in favor of the Douglas Hotel Operating Co., Inc., 'hereinafter designated as the tenant), and from an order denying a motion for a new trial.
The facts are as follows: On April 15, 1948 the landlord leased to the tenant for a period of fifty (50) years, the Gadsden Hotel located in Douglas, Arizona, at a yearly rental of $65,000, and pursuant to the terms of the Lease agreement deposited $65,000 with the landlord as security for the performance of the provisions and obligations of the lease.
On April 30, 1949, the tenant filed an action in the Superior Court of Cochise County to cancel the lease, and requesting return of the security deposit on the ground that the lease was induced and procured by fraud (Case No. 13885). Judgment was granted in favor of the landlord and the tenant appealed, but the appeal was later dismissed by stipulation. The tenant failed to pay the rent due under the lease on July 15, 1950, and as a result thereof, the landlord filed an action against the tenant on August 1, 1950 (Case No. 14336) alleging five causes of action, and requesting the following relief:
(a) Eviction of the tenant and possession for the landlord.
(b) A restraining order to prevent the tenant from removing property from the hotel premises.
(c) A receivership for the hotel property.
(d) An accounting of rental deposits made to the tenant by sub-tenants.
(e) Attorney's fees incurred by the landlord in prosecution of the eviction suit and for defense of the fraud case (No. 13885).
(f) Order enjoining transfer of liquor license.
(g) Judgment for rental payment due at time of eviction (paragraph 3 of lease).
(h) Judgment for damages which might accrue to the landlord after the eviction of the tenant which it alleged in count III thereof would amount to the sum of not less than $30,000. (This is evidently based upon the provisions of paragraph 15 of the lease.)
A motion to dismiss was filed and argued and the trial court ordered that the causes of action relative to the attorney's fees in the fraud case, (e) supra, and the liquor license transfer, (f) supra, be dismissed. Thereafter, on October 9, 1951 under the authority of a stipulation signed by the attorneys for the parties, the trial court in that matter (Case No. 14336) ordered that the remaining causes of action be dismissed with prejudice.
Prior to the order of dismissal in case No. 14336, an order to show cause was pending, returnable August 8, 1950, to determine the question of whether a receiver should be appointed. At the date of the hearing the order to show cause was vacated and possession of the Gadsden Hotel was surrendered and turned over (by the tenant) to the landlord who operated the hotel at a profit for a period of 56 months, and so far as the record shows, is still operating it.
On March 6, 1953 the tenant demanded return of the $65,000 security deposit given under the lease; the landlord refused to return the deposit; and the tenant thereafter, on June 9, 1953, brought the action in the instant case to recover the deposit. This action was brought on the theory that all obligations arising out of the hotel lease transaction were terminated by dismissal with prejudice in case No. 14336. It was brought on the further theory that by reason of the landlord's failure to re-let said hotel and its continued operation thereof on its own account, and not on behalf of the tenant, it had elected to not re-let the same and is estopped to hold the tenant liable under said lease for future rentals, and that therefore the tenant was entitled to full return of the security deposit. The tenant alleged in its complaint that it surrendered the possession of the hotel to the landlord who unconditionally accepted possession thereof. This last allegation, however, was abandoned in the tenant's opening statement to the trial court.
The landlord in the instant matter, by amended answer, admitted taking possession of the hotel, but denied that it was unconditional or that the obligation to pay rent for the balance of the term was terminated. It denied that the hotel was being operated on its own account, and alleged that the hotel was operated for and on the account of the tenant. It alleged that diligent effort had been made by it to secure a new tenant and alleged that continuous litigation was a major obstacle to securing a new tenant; that the tenant's action was premature for the reason that the exact amount of the returnable deposit could only be determined at the end of the 50-year term of the lease. It alleged that the tenant's claim is barred by the doctrine of res judicata because of the compulsory counterclaim rule. The landlord also counter-claimed for damages allegedly suffered by it because of the tenant's default in the lease agreement, but it introduced no evidence to support it. In any event the issue therein raised became res judicata upon the dismissal of cause No. 14336 as we shall hereinafter show.
The trial court, sitting without a jury, upon request, adopted certain findings of fact and conclusions of law, and rendered judgment in favor of the tenant for the full amount of the deposit.
The landlord, in its appeal, presents five assignments of error. We will consider them seriatim. The tenant cross-appeals and presents two assignments of error which we will discuss at the conclusion of this opinion.
The landlord's first assignment of error complains that the trial court erred in its conclusion of law (No. 5) to the effect that the tenant was entitled to judgment for the full amount of the deposit because, it is urged, the tenant failed to file a counterclaim in case No. 14336 as required under the compulsory counterclaim provision of section 21-437, A.C.A.1939, as amended, now Rule 13(a), Rules Civ.Proc., 16 A.R.S., which provides that:
'A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction, except that such a claim need not be so stated if at the time the action was commenced the claim was the subject of another pending action.' (Emphasis supplied.)
It is the landlord's contention that the tenant had a positive duty under the above rule to counterclaim for recovery of the $65,000 security deposit sought to be recovered in this case. The tenant refutes this contention and argues that its right to sue for the return of the security deposit is not rs judicata under the rule because, its right to recover such deposit did not accrue until after dismissal of case No. 14336. The tenant relies on the language of the rule that a compulsory counterclaim is limited to a claim 'which at the time of serving the pleading the pleader has against any opposing party.' In other words, there is a necessity that the cause of action on the counterclaim be in existence at the time of the serving of the pleading by the opposing party, see 22 A.L.R.2d 633. A claim which a party defendant may have by reason of the dismissal of a cause of action does not fall in the category of a compulsory claim in that cause of action. This is clear because the claim does not come into existence until the dismissal of such action.
It is our view that the arguments of the tenant are sound and that its right to the return of the security deposit did not arise until after it was relieved of all of its obligations under the lease. The combination of the surrender of possession of the hotel premises on August 8, 1950 and the subsequent stipulated dismissal of cause No. 14336 with prejudice on October 9, 1951, had the legal effect of reliving the tenant of any duty to counterclaim in that action.
The tenant's right to the return of the security arose upon the dismissal with prejudice of cause No. 14336, and under the terms of the lease providing for its return under the conditions therein named. In other words, only when the tenant's duties under the lease ceased, did its right to the return of the deposited funds arise.
The landlord cites several Arizona authorities on the effect of failure to file a counterclaim under the provisions of Rule 13, supra. See Biaett v. Phoenix Title & Trust Co., 70 Ariz. 164, 217 P.2d 923, 22 A.L.R.2d 615; Keystone Copper Mining Co. v. Miller, 63 Ariz. 544, 164 P.2d 603; Snyder v. Betsch, 59 Ariz. 535, 130 P.2d 510; Snyder v. Betsch, 56 Ariz. 508, 109 P.2d 613. There is no question about the correctness of the law of these cases and its res judicata effect once it is determined that the claim was in existence 'at the time of serving the pleading.' But they have no application to the instant case because the claim of the tenant against the landlord for recovery of the security deposit was not in existence as the time the landlord's pleadings were served on the tenant. The landlord also cites the following cases for authority that the claim for return of the security in the instant matter was a proper subject for a compulsory sounterclaim. Hyman v. Jockey Club Wine, Liquor & Cigar Co., 9 Colo.App. 299, 48 P. 671; Steiger v. Feldman, 94 Misc. 243, 157 N.Y.S. 1042; Gordon v. Foote, 120 Cal.App. 76, 7 P.2d 709.
Although the above cited cases discuss counterclaims they are primarily based upon the provisions of the lease agreement...
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