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Cochise Hotels, Inc. v. Douglas Hotel Operating Co.

Supreme Court of Arizona

October 8, 1957

COCHISE HOTELS, inc., a corporation, Appellant,
v.
DOUGLAS HOTEL OPERATING CO., inc., a corporation, Appellee.

Page 291

[83 Ariz. 41] Jerman, Jerman & Butler and Wesley E. Polley, Phoenix, for appellant.

[83 Ariz. 42] Jennings, Strouss, Salmon & Trask, Charles L. Strouss, Jr., and Rex H. Moore, Phoenix, for appellee.

PHELPS, Justice.

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 [83 Ariz. 43] 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

Page 292

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 ...


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