Freight Terminals, Inc. v. Ryder System, Inc.

• Citation: 326 F. Supp. 881
• Decision Date: 30 April 1971
• Docket Number: Civ. A. No. 66-H-369.
• Parties: FREIGHT TERMINALS, INC., Plaintiff, v. RYDER SYSTEM, INC. and Ryder Truck Lines, Inc., Defendants, v. MERCURY FREIGHT LINES, INC., Third-Party Defendant.
• Court: U.S. District Court — Southern District of Texas

326 F. Supp. 881

FREIGHT TERMINALS, INC., Plaintiff, v. RYDER SYSTEM, INC. and Ryder Truck Lines, Inc., Defendants, v. MERCURY FREIGHT LINES, INC., Third-Party Defendant.

Civ. A. No. 66-H-369.

United States District Court, S. D. Texas, Houston Division.

April 30, 1971.

William M. Schultz, Albert S. Weycer, Ladin, Weycer & Schultz, Houston, Tex., for plaintiff.

Charles R. Gregg, Hutcheson, Taliaferro & Grundy, Houston, Tex., for defendant Ryder Truck Lines, Inc.

W. Robert Brown, Liddell, Sapp, Zivley & Brown, Houston, Tex., for defendant Ryder System, Inc.

Royce Till, Fulbright, Crooker, Freeman, Bates & Jaworski, Houston, Tex., for third party defendant.

MEMORANDUM OPINION

BUE, District Judge.

In this somewhat complex diversity action plaintiff, as lessor, seeks the recovery of damages which allegedly resulted from a breach of the covenants in a lease agreement. Plaintiff leased the subject property and building in this action to T.S.C. Motor Freight Lines, Inc. (T.S.C.) on June 30, 1950. The lease was to commence January 1, 1951, and to extend for a term of 15 years, lapsing on December 31, 1965. Plaintiff had erected the building solely for the purpose of leasing it as a motor freight terminal, and it was understood by the parties that T.S.C. was to utilize the premises solely for such a purpose. The lease agreement required the lessee to keep the premises in good repair, without waste, and to return them to plaintiff in the same condition that they were in when originally leased, except for ordinary wear and tear resulting from the usual and customary operations of a motor freight terminal.

In 1959, Ryder System, Inc. (Ryder System) executed a guaranty agreement with the plaintiff whereby Ryder System guaranteed the performance of all the terms and conditions undertaken by T.S.C. in the original lease agreement. Simultaneously with this transaction, Ryder System acquired all of the capital stock of T.S.C. and the name of T.S.C. was changed to Ryder Truck Lines, Inc. (Ryder Truck). From this date forward Ryder Truck operated a motor freight terminal at the premises involved in this cause. However, Ryder System still maintained some control over the operations conducted at the freight terminal and also, on occasion, dealt with the plaintiff involving the said property.

Subsequently, the premises began to evidence a "run-down" appearance, largely from lack of repairs. At that time plaintiff informed Ryder System that it was not upholding its responsibilities pursuant to the lease agreement. Ryder Truck vacated the premises in July, 1962, but continued to make rental payments. However, as a result of plaintiff's demands, Ryder System employed an independent contractor in 1963 to make general repairs on the building and the yard. These repairs were ultimately made for which the contractor was paid approximately $10,000.

On November 15, 1963, Ryder System entered into a sublease with Mercury Freight Lines, Inc. (Mercury) whereby, for a substantial reduction in the amount of rental payment, Mercury was to lease the premises for the remainder of the term of the original lease. This agreement was executed with the consent of the plaintiff, but it was agreed that Ryder System and Ryder Truck would remain bound by the terms of the original lease agreement. Mercury then operated a motor freight terminal at the said premises until the termination of the original lease agreement on December 31, 1965.

The complexities of this case do not end there. Prior to the termination of the lease, Ryder System entered into a stock purchase agreement with International Utilities, Inc. (International), whereby all of the capital stock of Ryder Truck owned by Ryder System was sold to International. Ryder System in this stock purchase agreement represented that Ryder Truck had no existing leases, contracts or commitments which were in default and further represented that there was no litigation, proceeding, or investigation pending or threatening which could adversely affect the financial prospects of Ryder Truck.

Immediately after the original lease of the motor freight terminal was terminated on December 31, 1965, plaintiff investigated the premises and, upon finding the building and yard in unsatisfactory condition, instigated this action against the defendants, Ryder System and Ryder Truck. These defendants then impleaded Mercury into the suit as a third party defendant.

The basic suit as to whether or not there had been a breach of the covenants of the original lease agreement, and, if so, the amount of damages owed to plaintiff was submitted to a jury for determination. The jury found that the defendants had failed to return the premises in as good repair and condition as when received which they had covenanted to do, and, as a result, that the lease agreement had been breached. It was also the jury's finding that the building, yard, parking area, and air-conditioning system had been damaged, as of November 15, 1963, to such an extent that the sum of $45,104 would have to be expended to repair the premises so as to put them in a condition that would satisfy the terms of the lease agreement. Further, it was found that damages in an amount of $7,486 had resulted to the premises from November 15, 1963, to December 31, 1965, while they were occupied by Mercury under this sublease. Lastly, the jury found that the plaintiff was entitled to $16,000 in attorney's fees for the prosecution of this suit, pursuant to the terms of the original lease agreement.

The defendants in the suit have agreed that the Court is to make the determination as to which one or more of the defendants are liable for the damages found by the jury, taking into account the various legal relationships between them recited above. These defendants have asserted several contentions in an attempt to avoid liability.

Ryder Truck contends that Mercury is liable for the entire amount of damages because of the wording of the sublease agreement of 1963. It is pointed out that the sublease included a provision reciting that Mercury agrees "to return it at the end of the underlying main lease in a satisfactory condition pursuant to the terms of such main lease." As a result of this wording, Ryder Truck asserts that Mercury assumed the position of lessee and agreed to undertake the covenants to repair and return the premises in a condition that would be satisfactory pursuant to the terms of the original lease. Ryder Truck also contends that Ryder System should be held liable because Ryder Truck was a mere instrumentality of Ryder System and, as a result, Ryder System is the real party in interest. Further, it is asserted that Ryder System should be liable by way of indemnity as to any damages that Ryder Truck might suffer. Ryder Truck reaches this conclusion by relying upon the terms of the stock purchase agreement entered into on February 12, 1965, and closed on August 16, 1965, whereby Ryder System warranted to International that Ryder Truck was not in breach of any covenant of any lease or contract outstanding at that time. International assigned its rights under this stock purchase agreement to Ryder Truck on March 25, 1970.

Ryder System joins in Ryder Truck's contention that Mercury should be held liable as to all the damages found by the jury because of the wording of the sublease of 1963. It is also contended by Ryder System that it has not breached the stock purchase agreements because the damages found by the jury did not come within the terms of the covenants of the said agreement; furthermore, even if it did breach, Ryder Truck is not entitled to attorney's fees because there is no specific provision for such a recovery.

Mercury contends that the sublease agreement of 1963 can by no means be interpreted as a contract to assume Ryder System's obligations under the original lease. This argument is bolstered by the contention that the sublease agreement is ambiguous and as a result this Court should ascertain the parties' intentions by the use of parol evidence. It is, therefore, Mercury's position that it is not subject to any liability created prior to the time it took possession of the leased premises on November 15, 1963.

I. THE ORIGINAL LEASE AND THE GUARANTY AGREEMENT

The original lease between plaintiff and T.S.C. required the lessee to keep the premises in good repair and to return the premises in the same condition that they were in when originally leased, excepting ordinary wear and tear resulting from customary use. That agreement also made provisions for plaintiff's attorney's fees in the event it became necessary to enforce the lease agreement by legal process.¹ As previously indicated, Ryder System executed a guaranty agreement in 1959 with the plaintiff whereby Ryder System guaranteed the performance by Ryder Truck of the covenants in the lease agreement.² By this agreement Ryder System became bound to perform the covenants in the lease agreement. Ryder Truck as the principal obligor would be required to indemnify Ryder System for any payments which Ryder System was forced to make pursuant to the terms of the guaranty agreement. Fox v. Kroeger, 119 Tex. 511, 35 S.W.2d 679 (1931); Scott Paper Co. v. Johnson, 406 S.W.2d 548 (Tex. Civ.App.—Waco 1966, no writ hist.)

However, Ryder Truck asserts that it should not be subject to any liability under the lease agreement because Ryder System was at all times the real party in interest. It is contended that Ryder System exercised such domination and control over Ryder Truck with regard to the lease so as to make Ryder Truck a mere tool or instrumentality of Ryder System. It is also asserted that the activities of the parties are indicative of an intent that Ryder System was to be substituted as the primary lessee pursuant to the provisions of the lease agreement. While it is true that between the years 1959 and 1965 Ryder System owned all of the stock of Ryder Truck, both corporations...