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Dunn v. Hammon Drug Co.

Supreme Court of Arizona

May 24, 1955

William A. DUNN and Dorothy A. Dunn, husband and wife, Appellants,
HAMMON DRUG COMPANY, a corporation, Appellee.

[79 Ariz. 102] Ellis & Sult, Eloy, for appellants.

Charles W. Stokes, Coolidge, for appellee.

DON T. UDALL, Superior Court Judge.

This is an appeal by William A. Dunn, et ux. (defendants-appellants) from a judgment in the sum of.$5,684.05 rendered in favor of Hammon Drug Company, a corporation (plaintiff-appellee). The parties will hereafter be referred to as plaintiff and defendant.

The parties entered into a written sharecrop lease covering cotton farming operations in Pinal County for the calendar year 1951. The action is for the recovery of certain moneys alleged to be due the plaintiff-landlord from the defendant-lessee under the terms of their agreement. The primary question is whether, under a proper interpretation of that contract, the defendant is entitled to charge depreciation on the cotton picking machines used in the harvest as a part of the cost of picking. The part of said lease pertinent to this appeal is as follows:

'All cotton and cotton seed produced on said demised premises shall be delivered to Western Products Company [79 Ariz. 103] Cotton Gin and at the end of each

Page 469

farming season during the term of this lease and, after first deducting from any returns from said cotton and cotton seed the costs of growing operations, water costs, the costs of insect or parasite dusting, fertilizing or other treatment and all costs of picking and ginning, one-half of all remaining cotton and cotton seed or the returns therefrom shall be delivered or paid to Lessor (Plaintiff) as rental for the demised premises.' (Emphasis supplied.)

The case was tried to the court with the aid of jury. However, at the close of the evidence the parties stipulated that the only item in dispute was the actual cost of picking the cotton and hence it was agreed that such issue be submitted to the court for determination and the jury be discharged.

The first assignment of error is to the effect that the court, in computing the amount due plaintiff, had failed to give defendant credit for certain expenditures stipulated at the trial to have been proper charges against the gross proceeds received from the cotton crop. This assignment is disposed of by counsel for plaintiff's admission at the time of oral argument that the judgment rendered was excessive in the amount of $396.10 and its consent that the judgment be modified accordingly.

At a pre-trial hearing it was stipulated that defendant received $14,210.13 as gross receipts from the sale of 568,405# of cotton grown on the land under lease, and at the trial evidence was introduced on behalf of defendant regarding actual cost of picking the cotton and also in support of his claim for inclusion therein of depreciation on the cotton picking machines owned by him. The trial court construed the lease to mean that, after costs of picking amounting to $2,842.03 were deducted from the gross receipts, the remainder would be divided equally between the parties and ordered judgment for the plaintiff and against the defendant in the principal sum of.$5,684.05 and costs.

Considering now assignment number two wherein defendant claims that the court erred in refusing to include depreciation as cotton-picking costs, it appears such claim is very novel in that it fails to take into consideration the fact that the lease contains no provision for payment of use of equipment or for depreciation thereon. As a matter of fact the lease expressly provides that 'lessees shall furnish all farm machinery, tools and equipment necessary to properly prepare, plant, cultivate, irrigate, mature and harvest said crop', and further that 'Lessees shall provide proper financing for the costs of all growing operations'. This is a matter of first impression in this court insofar as the subject of depreciation is concerned, however the general theory of the law is that depreciation, unlike maintenance, cannot be charged against cost of operation unless the parties to the agreement[79 Ariz. 104] have specifically agreed thereto. It should be noted the lease in question has a clause providing that the plaintiff will share with defendant 'the responsibility of keeping said wells and equipment in good condition and repairs', and likewise no mention is made of depreciation of machinery. In this connection, a headnote in the case of International Ry. Co. v. Prendergast, D.C.N.Y., 1 F.Supp. 623, 627, states:

"Deferred maintenance theory of depreciation' does not accord with rule that requires that 'depreciation' be deducted, since 'maintenance' is distinct from 'depreciation."

Defendant contends expense of 'overhead' is a legitimate cost of operation and that 'depreciation' is recognized as an item properly included therein, hence, he argues, same should be allowed.

In contrasting the term 'overhead' with operating charges, the court, in the case of Lytle, Campbell & Co. v. Somers, Fitler & Todd Co., 276 Pa. 409, 120 A. 409, 411, 27 A.L.R. 41, stated:

'The term 'overhead'-including the salaries of executive or administrative officials, interest charges for floating bonds, carrying charges, depreciation, taxes, and the general office expenses as here claimed-cannot be allowed as an ...

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