Gentry v. Smith, 72-2903.

• Decision Date: 20 November 1973
• Docket Number: No. 72-2903.,72-2903.
• Citation: 487 F.2d 571
• Parties: Hoyte GENTRY and N. R. Johnston, Plaintiffs-Appellees, v. William R. SMITH, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

487 F.2d 571 (1973)

Hoyte GENTRY and N. R. Johnston, Plaintiffs-Appellees, v. William R. SMITH, Defendant-Appellant.

No. 72-2903.

United States Court of Appeals, Fifth Circuit.

November 20, 1973.

COPYRIGHT MATERIAL OMITTED

F. Lawrence Matthews, Miami, Fla., for defendant-appellant.

Aaron Podhurst, Robert Orseck, Miami, Fla., for plaintiffs-appellees.

Before WISDOM, GEWIN and CLARK, Circuit Judges.

WISDOM, Circuit Judge:

This diversity contract action involves questions of rescission and assessment of damages under Florida law, and proper joinder of parties under the Federal Rules of Civil Procedure. William Smith, defendant-appellant, agreed to purchase from plaintiffs-appellees, Hoyte Gentry and N. R. Johnston, their stock in American Motor Inns of Florida, Inc., a Florida corporation which had as its sole asset a motel in Fort Lauderdale. As putative purchaser, Smith was in possession of the motel for seven months. He appeals from the district court's judgment that the contract of sale for the corporate stock was rescinded or abandoned by mutual consent. Smith also appeals from the court's judgment awarding Hoyte Gentry and N. R. Johnston $65,000 in damages for taxes, supplies, and other obligations incurred by Smith during his possession. In addition, Smith contests the failure of the trial court to join the corporation as a party to this action, and the refusal to award him damages for expenses he incurred while he was in possession of the motel. We affirm the district court's decision as to mutual rescission, but reverse on the issue of damages, and remand the cause to the district court for a full accounting. The district court may join the corporation as a party or may consolidate this proceeding with another now pending between Smith and the corporation.

I.

William R. Smith, a resident of Columbus, Ohio, has had extensive experience in the management of motels and restaurants. Perhaps with this in mind, C. K. Moffitt, as agent for Hoyte Gentry and N. R. Johnston, defendants, first approached Smith in 1968 with a proposal that he purchase the All-American Motor Inn of Fort Lauderdale, Florida. Gentry and Johnston owned all of the stock in American Motor Inns of Florida, Inc. After protracted negotiations, a contract of sale was entered into on September 12, 1969 (dated September 17, 1969), whereby Gentry and Johnston, as sellers, each agreed to convey to Smith, as purchaser, 1750 shares of the capital stock of the corporation, a total of 3500 shares. Under the agreement, the sellers' remaining 6500 shares were to be transferred as treasury stock to the corporation, which was also a party to the contract. In consideration of his accession to ownership of the corporation and control of the motel, Smith agreed to assume certain corporate obligations, and to deliver to the sellers a promissory note in the amount of $1,000,000, less the sum of the mortgage obligations that he assumed. The note was to be payable in installments over a five year period.

No closing was ever held, and neither stock nor negotiable instruments changed hands. Smith, however, took possession of the motel on September 15, 1969, and operated it thereafter until April 3, 1970. During this period, the sellers continually attempted to induce Smith to close the transaction, but he refused to do so. He did assume full control of motel operations, opened a bank account in the name of the corporation, and listed himself as president. Even before taking possession, Smith had obtained two franchising agreements pertaining to the All-American Motor Inn, but executed by William R. Smith personally. Although the sellers had not given Smith permission to represent and negotiate for the corporation in this manner, they did not demonstrably oppose his doing so. Rather, their efforts, through correspondence, telephone conversations, and repeated meetings in Columbus and Fort Lauderdale, were directed to setting a date for closing. Smith refused to close, however, until the sellers repaired the motel central air conditioning unit; placing the air conditioning in proper working order was, Smith insisted, the sellers' obligation under the contract, and a condition precedent to closing.

Throughout the negotiations, the motel air conditioning system and its various malfunctions served as the prime source of contention,¹ Smith steadfastly refusing to close until the sellers repaired it fully. At each meeting of the parties, the sellers attempted to settle the dispute by offering to allow Smith to deduct a fixed amount from his first installment to cover the cost of repair of the air conditioning unit, a course of action clearly contemplated by the contract. Gentry and Johnston allege, though Smith denies it, that at a meeting in Columbus on March 3, 1970, they even offered to waive entirely the $25,000 first installment that was due March 31st. Whatever the amount of this proposed settlement, Smith rejected it, and the sellers' attorney shortly thereafter demanded an immediate closing. The parties met again in Fort Lauderdale on April 3, 1970, and were again unable to close, although Smith maintains, and it is not controverted, that they agreed to meet on April 7 to conclude negotiations, and tentatively scheduled the closing for April 9.

The April 7 meeting was never convened. On April 4, after Smith had returned to Ohio, the sellers repossessed the motel. It is undisputed that the repossession was peaceful, and that it was accomplished without benefit of legal process.

On April 6, 1970, Gentry and Johnston filed a complaint in the United States District Court for the Southern District of Florida, alleging breach by Smith of the contract for the sale of the stock of American Motor Inns of Florida, Inc. Smith counterclaimed for breach of contract, and sought specific performance as well, a claim he later dropped. A non-jury trial was held in December 1971, and the court's findings of fact and conclusions of law were submitted on March 13, 1972. On April 26, 1972, the defendant Smith was permitted to substitute counsel, and on May 15, through his new attorneys, he moved to join American Motor Inns of Florida, Inc., not previously a party to the action, as a plaintiff-counterdefendant. Smith had made no earlier motion to join the corporation, and had previously opposed its joinder. He now also sought to amend his counter claim to state a cause of action in quasi-contract against the corporation. Both of these motions were denied by the district court, and final judgment was entered dismissing the counterclaim, declaring the nullity of the contract and awarding $65,043.98 in damages to the plaintiffs for expenses incurred as a result of Smith's period of control. It is from this judgment that Smith appeals.

II.

The ironic aspect of this controversy is the manner in which each of the parties accuses the other of neglecting to utilize proper legal remedies and the mechanisms of the courts, yet fails to examine his own position for the same infirmity. Both Smith on the one hand, and Gentry and Johnston on the other, relied on self-help rather than legal process as a means of contract enforcement. In neither case, the district court concluded, can self-help be justified; it found the contract to have been breached by both parties and, therefore, abandoned and rescinded by mutual consent. Our review of that determination is governed by the strict standard set out in United States v. United States Gypsum Co., 1948, 333 U.S. 364, 394-395, 68 S.Ct. 525, 542, 92 L.Ed. 746, 765-766: Reversal of a district court's factual decision is proper only where its findings of fact are "clearly erroneous".

As to the findings of breach by each party, the United States Gypsum standard was clearly met. Although both the appellees and the appellant contest the district court's finding on this issue, they do agree that if both breached the contract, the lower court's finding of rescission by mutual consent is correct, and the contract ought not be enforced. Such appears to be the law of Florida. See McMullen v. McMullen, Fla.Ct.App.1966, 185 So.2d 191, 193; Cox v. Grose, 1929, 97 Fla. 848, 122 So. 513, 515.² Thus the only controversy as to this phase of the case is whether the district court erred in the finding of breach by each party. We hold that the court was correct.

The contract of sale specified no time for performance, and set no date for a closing. In such contracts, the law will imply a reasonable time for performance, in an attempt to give effect to the intention of the parties. Cory v. Logan Coal & Supply Co., 5 Cir. 1931, 48 F.2d 28, 30 (dicta); Florida Power & Light Co. v. Atlanta G. & P. Co., 5 Cir. 1930, 38 F.2d 948, 949. What constitutes a reasonable time for performance will depend on the factual context of the contract and the circumstances of the parties to it, as viewed by the trial court. National Exhibition Co. v. Ball, Fla.Ct.App.1962, 139 So.2d 489, 493; see Rosenthal, Remedies in Disputes Arising Out of Agreements to Buy and Sell Businesses, 12 B.C.Ind. & Comm.L.Rev. 825, 833-34 (1971). One key factor in determining the reasonableness of any delay in performance is whether time is of the essence to the contract. Clearly, time was not initially essential here, but Florida courts have held that even where the contract is silent on the subject, once a reasonable time for performance has passed, time can be made of the essence by the party not in default demanding that the defaulting party discharge his obligations. National Exhibition Co. v. Ball, 139 So.2d at 493; Chabot v. Winter Park Co., 1894, 34 Fla. 258, 15 So. 756, 758.

Here, the contract was executed on September 12, 1969, and Smith, the purchaser, assumed possession of the motel three days later. Smith began immediately to act as if the transaction had been completed, designating himself as president of the corporation and taking over complete management of the motel. This alone...