Tucker v. Dr. P. Phillips Co., 10774.

• Decision Date: 29 December 1943
• Docket Number: No. 10774.,10774.
• Citation: 139 F.2d 601
• Parties: TUCKER v. DR. P. PHILLIPS CO., Inc., et al.
• Court: U.S. Court of Appeals — Fifth Circuit

139 F.2d 601 (1943)

TUCKER v. DR. P. PHILLIPS CO., Inc., et al.

No. 10774.

Circuit Court of Appeals, Fifth Circuit.

December 29, 1943.

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

O. B. Simmons, Jr., of Miami, Fla., and Hugh Akerman, of Orlando, Fla., for appellees.

Before HUTCHESON and HOLMES, Circuit Judges, and RUSSELL, District Judge.

HOLMES, Circuit Judge.

This is a suit by the trustee in bankruptcy of Southern Roadside Restaurants, Inc., against the appellees for an accounting for moneys of the bankrupt alleged to have been wrongfully appropriated. The court below held that no wrongful appropriation of the funds was proven, and directed a verdict for the defendants. The trustee has appealed.

In 1940, Locar, Inc., by written contract agreed to lease to Howard Johnson, Inc., certain real estate in Florida, and to erect thereon improvements designed for use as a restaurant. The lease was for a period of ten years at a rental of $400 per month, and contained a provision giving the lessor the option, upon continued default in payment of the rent for a period of twenty days, to terminate the lease and make immediately payable all rentals for the unexpired term thereof. On the day the lease was executed, Howard Johnson, Inc., subleased the property to the bankrupt.

In order to expedite the construction and to guarantee full performance of its obligations under the lease contract, Howard Johnson, Inc., was required to place the sum of $10,000 in escrow. A cashier's check for this amount was delivered by the bankrupt to Dr. P. Phillips Co., Inc., the escrow agent, under an agreement that the money should be used (1) to pay any loss or damage sustained by the lessor by reason of proceeding to construct the improvements without first securing approval of the blue prints and specifications and the execution of the lease, and (2) to secure performance by Howard Johnson, Inc., of its obligations under the lease to its lessor. The second provision is the one relied upon by the appellees to justify the act of the escrow agent in applying to accelerated rental payments the money entrusted to it.

The improvements were made, and the bankrupt began the operation of a restaurant business. It soon became insolvent, and on March 23, 1942, an involuntary petition in bankruptcy was filed against it. Three days later the cashier's check was deposited for collection, and on or about April 1, 1942, the proceeds thereof were delivered by the escrow agent to Dr. P. Phillips Investment Company, Inc. (the assignee of Locar, Inc.), as an alleged advance payment of rentals by Howard Johnson, Inc., under the lease contract.

The question is whether this conduct of the escrow agent in parting with the res entitles the trustee in bankruptcy to recover the funds deposited in escrow. We think it does unless the evidence shows that the sum paid was for obligations due and owing under the lease by Howard Johnson, Inc. The deposit was not intended as a rental payment, but as security for the payment of the lessee's (not the sublessee's) obligations under the lease. Ordinarily the distinction between the liability of the lessee and the sublessee would not be important, but in this particular case it is very important because the...