Title: Johnny Ray Sports, Inc. and Johnny Ray, L.L.C. v. Wachovia Bank, successor to SouthTrust Bank

State: alabama

Issuer: Alabama Supreme Court

Document:

REL: 08/18/2007
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
SPECIAL TERM, 2007
____________________
1060306
____________________
Johnny Ray Sports, Inc., and Johnny Ray, L.L.C.
v.
Wachovia Bank, successor to SouthTrust Bank
Appeal from Etowah Circuit Court 
(CV-05-1105)
STUART, Justice.
Johnny Ray Sports, Inc., and Johnny Ray, L.L.C. ("the
Johnny Ray companies"), appeal the summary judgment in favor
of Wachovia Bank, the successor by merger to SouthTrust Bank,
1060306
2
on their breach-of-contract, fraud, and negligence and/or
wantonness counterclaims.  We affirm.
I.
On July 30, 1997, Johnny Ray Sports, a Gadsden-based
manufacturer of electronics mounts and brackets, executed two
promissory notes with a combined principal of $1,232,110 in
favor of SouthTrust Bank, the predecessor to Wachovia Bank.
(For convenience, all future references to SouthTrust Bank
will be to "Wachovia.")  The promissory notes were secured by
a mortgage on real property in Etowah County ("the Gadsden
property") and by a security agreement granting Wachovia an
interest in the inventory and equipment of Johnny Ray Sports.
On September 3, 2003, Johnny Ray Sports filed a
bankruptcy petition in the United States Bankruptcy Court for
the Northern District of Alabama.  Upon the filing of the
petition, an automatic stay immediately went into effect
halting all efforts by creditors of Johnny Ray Sports to
collect on the unpaid debts of Johnny Ray Sports.  11 U.S.C.
§ 362. 
On September 24, 2003, Wachovia moved the bankruptcy
court to lift the automatic stay so that it could foreclose on
1060306
3
the Gadsden property and certain equipment located there.
Wachovia and Johnny Ray Sports thereafter reached an agreement
under which Johnny Ray Sports would not oppose the lifting of
the automatic stay and, once the stay was lifted, Wachovia
would be allowed to take possession of and to foreclose on the
Gadsden property and the equipment located there.  Johnny Ray
Sports alleges that, as consideration for not opposing the
lifting of the automatic stay, Wachovia agreed:  1) to allow
certain pieces of equipment to be moved from the Gadsden
property to another facility in Rainbow City ("the Rainbow
City facility"); and 2) to have the equipment being moved to
the Rainbow City facility appraised and to give Johnny Ray
Sports the opportunity to purchase the equipment at fair
market value.  Wachovia acknowledges that it and Johnny Ray
Sports reached an agreement to lift the automatic stay, but it
disputes that it ever agreed to the terms Johnny Ray Sports
now claims the parties agreed to.
On December 8, 2003, the bankruptcy court dismissed
Johnny Ray Sports' bankruptcy case.  On December 29, 2003,
Wachovia foreclosed on the Gadsden property.  At the auction
for the sale of the property, Wachovia purchased the property
1060306
4
with a successful bid of $450,000 in the form of a credit on
the indebtedness owed to it by Johnny Ray Sports.  By
agreement, Johnny Ray Sports continued to operate out of the
Gadsden property for several months; however, at some date in
March or April 2004, Johnny Ray Sports moved some equipment ––
which Johnny Ray Sports claimed Wachovia had earlier agreed to
allow it to remove –– from the Gadsden property to the Rainbow
City facility (hereinafter referred to as "the removed
equipment").  Although it was not officially incorporated
until March 2005, the entity that would become Johnny Ray,
L.L.C., operated out of the Rainbow City facility after the
removed equipment was moved there, producing the same types of
products previously produced by Johnny Ray Sports.  
On August 18, 2005, Wachovia sued the Johnny Ray
companies in the Etowah Circuit Court, seeking to recover the
balance owed on the promissory notes and stating a detinue
claim seeking recovery of the removed equipment, which was in
the possession of Johnny Ray, L.L.C., at the Rainbow City
facility.  Wachovia simultaneously moved the trial court to
issue a writ of seizure allowing it to take possession of the
removed equipment immediately.
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5
On September 21, 2005, the Johnny Ray companies answered
the complaint and asserted their own counterclaims against
Wachovia.  Specifically, the Johnny Ray companies asserted: 1)
a breach-of-contract claim alleging that Wachovia had failed
to abide by its agreement to have the removed equipment
appraised and to give Johnny Ray Sports the opportunity to
purchase it at its fair market value; 2) a fraud claim
alleging that Wachovia had fraudulently induced Johnny Ray
Sports to agree not to oppose the lifting of the automatic
stay in the bankruptcy proceeding by promising it the
opportunity to purchase the removed equipment at its fair
market value; and 3) a negligence and/or wantonness claim
alleging that Wachovia had negligently or wantonly refused a
third party's $1 million offer to buy the Gadsden property
even though that offer, if accepted, would have satisfied
Johnny Ray Sports' indebtedness to Wachovia.  
Concurrent 
with 
the 
filing 
of 
their 
answer 
and
counterclaims, the Johnny Ray companies also filed their
response opposing Wachovia's motion for the writ of seizure.
On November 17, 2005, following multiple hearings on the
issue, the trial court issued the writ of seizure Wachovia had
1060306
This Court subsequently 
notified the Johnny Ray companies
1
that the trial court's August 16, 2006, order entering
judgment for Wachovia was not a final order because Wachovia's
claim based on the unpaid promissory notes remained pending.
The trial court thereafter entered an order certifying its
August 16, 2006, order as final pursuant to Rule 54(b), Ala.
R. Civ. P.
6
requested.  Wachovia subsequently requested that its detinue
claim be dismissed and, on September 30, 2006, the trial court
granted that request.
On March 10, 2006, Wachovia moved for a summary judgment
on all the counterclaims asserted by the Johnny Ray companies.
On August 16, 2006, after the Johnny Ray companies filed their
response and after oral argument, the trial court granted
Wachovia's motion and entered a summary judgment against the
Johnny Ray companies and in favor of Wachovia.  The Johnny Ray
companies' subsequent motion to alter, amend, or vacate the
judgment was denied, and, on November 13, 2006, the Johnny Ray
companies filed their notice of appeal to this Court.1
II.
"This Court's review of a summary judgment is de
novo.  Williams v. State Farm Mut. Auto. Ins. Co.,
886 So. 2d 72, 74 (Ala. 2003).  We apply the same
standard of review as the trial court applied.
Specifically, we must determine whether the movant
has made a prima facie showing that no genuine issue
of material fact exists and that the movant is
entitled to a judgment as a matter of law. Rule
1060306
7
56(c), Ala. R. Civ. P.; Blue Cross & Blue Shield of
Alabama v. Hodurski, 899 So. 2d 949, 952-53 (Ala.
2004).  In making such a determination, we must
review the evidence in the light most favorable to
the nonmovant.  Wilson v. Brown, 496 So. 2d 756, 758
(Ala. 1986).  Once the movant makes a prima facie
showing that there is no genuine issue of material
fact, the burden then shifts to the nonmovant to
produce 'substantial evidence' as to the existence
of a genuine issue of material fact.  Bass v.
SouthTrust Bank of Baldwin County, 538 So. 2d 794,
797-98 (Ala. 1989); Ala. Code 1975, § 12-21-12."
Dow v. Alabama Democratic Party, 897 So. 2d 1035, 1038-39
(Ala. 2004).  Thus, we review each of the Johnny Ray
companies' three counterclaims to determine if, when the
evidence is viewed in the light most favorable to them, a
genuine issue of material fact exists so as to make a judgment
as a matter of law for Wachovia on those counterclaims
inappropriate.
III.
We first consider the Johnny Ray companies' breach-of-
contract counterclaim.  The trial court's order did not state
its basis for entering the summary judgment in favor of
Wachovia on the breach-of-contract counterclaim; however,
Wachovia had argued that it was entitled to summary judgment
on that counterclaim for three reasons: (1) there is, it
argued, overwhelming evidence that the alleged oral contract
1060306
8
the Johnny Ray companies' breach-of-contract counterclaim is
based 
on 
does 
not 
exist; 
(2) 
the 
breach-of-contract
counterclaim, it argued, is barred by Alabama's Statute of
Frauds relating to the sale of goods, § 7-2-201(1), Ala. Code
1975; and (3) the breach-of-contract counterclaim, it argued,
is barred by the doctrine of judicial estoppel.  Because we
agree that the breach-of-contract counterclaim is barred by
the Statute of Frauds, we need not consider the other
arguments. 
Alabama's Statute of Frauds as it relates to the sale of
goods, § 7-2-201(1), states, in relevant part:
"Except as otherwise provided in this section a
contract for the sale of goods for the price of $500
or more is not enforceable by way of action or
defense unless there is some writing sufficient to
indicate that a contract for sale has been made
between the parties and signed by the party against
whom enforcement is sought or by his authorized
agent or broker."
Wachovia notes that the president of Johnny Ray Sports, John
Nunnelee, has conceded under oath that the removed equipment
is worth more than $500, and Wachovia argues that Johnny Ray
Sports' failure to memorialize the alleged agreement in
writing is accordingly fatal to its claim.  The Johnny Ray
companies, however, argue that the Statute of Frauds does not
1060306
9
apply in this case because, they say, the alleged agreement
was not, in fact, a contract for the sale of goods; rather,
they argue, it was a right of first refusal.  
Although this Court has not had opportunity to consider
whether rights of first refusal are covered by the Statute of
Frauds, some courts in other jurisdictions have considered the
issue and held that such contracts are outside the operation
of the statute.  See, e.g., Madison Indus., Inc. v. Eastman
Kodak Co., 243 N.J. Super. 578, 587, 581 A.2d 85, 90 (App.
Div. 1990) (holding that a right of first refusal was not a
contract for sale subject to the Statute of Frauds because
"the requisite elements of a 'sale' are absent"), and
Unlimited Equip. Lines, Inc. v. Graphic Arts Ctr., Inc., 889
S.W.2d 926, 934 (Mo. Ct. App. 1994) (holding that "[a] first
right of refusal is not a contract of purchase and sale" and
that the Statute of Frauds accordingly "does not apply to the
first right of refusal provision standing alone").  Regardless
of those decisions, however, we need not address this issue
because the alleged oral agreement between Johnny Ray Sports
and Wachovia was not a right of first refusal; rather, it was
an option contract.  
1060306
10
Although the Johnny Ray companies have labeled the
alleged agreement as a right of first refusal in their briefs
to this Court, we are not bound by that characterization, and
we evaluate the agreement according to its own terms.  That
the agreement was oral makes doing so more difficult; however,
Johnny Ray Sports described the alleged agreement as follows
in its counterclaim:
"1.  Following September 24, 2003, [Wachovia]
and [Johnny Ray Sports] entered into an agreement,
whereby [Johnny Ray Sports] would not oppose the
lifting of the automatic stay against it as [Johnny
Ray Sports] was under Chapter 11 protection in
exchange for the removal of two fixtured machines
and certain equipment from [Johnny Ray Sports']
location to the location of Johnny Ray, L.L.C.  ...
"2.  Based on that agreement, said equipment was
moved to the location of Johnny Ray, L.L.C., with
the understanding that [Johnny Ray Sports] could
purchase the fixtures which then became equipment
and re-fixtured and certain operational equipment at
a fair market value or, in the alternative, if the
foreclosed property sold in an amount greater than
the debt owed to [Wachovia] by [Johnny Ray Sports],
then the price of said fixtures and equipment would
be paid for as the debt would be satisfied and any
additional amounts remitted to [Johnny Ray Sports]."
Elsewhere in the counterclaim, the Johnny Ray companies state
that the fair market value of the removed equipment would be
determined "through the use of an appraiser or appraisers."
Thus, the Johnny Ray companies are alleging, in essence, that
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11
Johnny Ray Sports contracted for the right to purchase the
removed equipment at some time in the future at an agreed
upon, though unspecified, price (i.e., fair market value).  In
other words, Johnny Ray Sports held an option to purchase the
equipment once an appraiser determined its fair market value.
That this was an option rather than a right of first
refusal is evidenced by the very fact that the Johnny Ray
companies have filed a breach-of-contract counterclaim.  That
counterclaim is premised on the allegation that Wachovia was
required to offer the equipment for sale to Johnny Ray Sports.
If the contract were a mere right of first refusal, Wachovia
would have had no such obligation.  A right of first refusal
would have allowed Wachovia to keep the equipment for its own
account as long as it desired to do so and would have required
Wachovia to offer it to Johnny Ray Sports only when Wachovia
decided to sell the equipment.  It would therefore have been
impossible for Wachovia to breach the contract as alleged
because, if it were a true right of first refusal, Wachovia
would be under no obligation to sell.  
Moreover, if the contract were a true right of first
refusal, Wachovia could have required Johnny Ray Sports to
1060306
12
match the price offered by a third-party buyer even if that
price was higher than the appraised value.  However, under the
terms of the agreement as alleged by Johnny Ray Sports, Johnny
Ray Sports had the first right to purchase the equipment at
fair market value, as determined by the appraisers, even if
another party might have been willing to pay more than that
appraised value.  For these reasons, the alleged agreement
must be considered an option contract rather than a right of
first refusal.
The question therefore becomes whether an option contract
contemplating the sale of goods valued at more than $500 is a
contract that must be in writing to satisfy the Statute of
Frauds.  We have not considered this exact issue previously;
however, existing caselaw from similar cases leads us to
answer that question in the affirmative.  In Foy v. Foy, 484
So. 2d 439, 442 (Ala. 1986), this Court considered an option
contract that gave one party the right to purchase a parcel of
real property.  Citing Griese-Traylor Corp. v. First National
Bank of Birmingham, 572 F.2d 1039 (5th Cir. 1978), we agreed
with the trial court that such an option contract "falls
1060306
In Griese-Traylor Corp., the United States Court of
2
Appeals for the Fifth Circuit considered that issue and
stated:
"The district court correctly held that the oral
contract between Griese-Traylor and the Bank is
unenforceable because the Statute of Frauds requires
option contracts for the sale of land to be in
writing.  This is true, regardless of whether the
Tennessee or Alabama statute of frauds applies."
572 F.2d at 1042.
13
within the Statute [of Frauds]."   Moreover, as the Court of
2
Civil Appeals has stated, there is "no distinction made as
between real and personal property transactions so far as the
statute of frauds is concerned ...."  Blowers v. First
National Bank of Huntsville, 45 Ala. App. 485, 489, 232 So. 2d
666, 670 (1970).  The Supreme Court of Appeals of West
Virginia has also considered whether options for the sale of
goods and options on real property should be treated
differently, stating:
"In 
principle, 
insofar 
as 
this 
issue 
is
concerned, no significant difference is discernible
between an option to purchase goods or corporate
stock and an option to purchase real estate.  It has
been widely held that an option to purchase real
estate is a unilateral contract of sale and must be
in writing in order to comply with the Statute of
Frauds.  Pigeon v. Hatheway, 156 Conn. 175, 239 A.2d
523 (1968); Bratt v. Peterson, 31 Wis.2d 447, 143
N.W.2d 538 (1966); McGuirk v. Ward, 115 Vt. 221, 55
1060306
14
A.2d 610 (1947); Neely v. Sheppard, 185 Ga. 771, 196
S.E. 452 (1938).  Therefore, whether it be an option
for the sale of real estate or of goods, merchandise
or corporate stocks, said option creates a contract
of sale and is subject to the requirements of the
Statute of Frauds."
Quinn v. Beverages of West Virginia, Inc., 159 W. Va. 571,
577-78, 224 S.E.2d 894, 898 (1976).  For these reasons, we
conclude that the alleged oral agreement between Wachovia and
Johnny Ray Sports, purporting to give Johnny Ray Sports the
option to purchase the removed equipment, was subject to the
Statute of Frauds and is accordingly void.  The summary
judgment in favor of Wachovia on the Johnny Ray companies'
breach-of-contract counterclaim is therefore due to be
affirmed.
We next consider the summary judgment entered in favor of
Wachovia on the Johnny Ray companies' fraud counterclaim.  As
it did with the previously discussed claim, Wachovia argues
that the summary judgment on this counterclaim was proper
based on the Statute of Frauds.  In Bruce v. Cole, 854 So. 2d
47, 58 (Ala. 2003), this Court overruled a previous line of
cases and held that "an oral promise that is void by operation
of the Statute of Frauds will not support an action against
the promisor for promissory fraud."  We have already held that
1060306
15
the alleged agreement in this case is void under the Statute
of Frauds; therefore, under the authority of Bruce, we also
hold that the trial court's summary judgment in favor of
Wachovia on the Johnny Ray companies' fraud counterclaim is
proper. 
Finally, we consider the summary judgment on the Johnny
Ray 
companies' 
counterclaim 
alleging 
that 
Wachovia 
negligently
and/or wantonly refused a third party's $1 million offer to
buy the Gadsden property even though that offer, if accepted,
would have satisfied Johnny Ray Sports' indebtedness to
Wachovia.  This counterclaim hinges on whether a mortgagee
that has purchased mortgaged property at a foreclosure sale
has a duty to the mortgagor to accept a third party's
subsequent offer to purchase the same property if that offer
will extinguish the mortgagor's debt and is received within
the one-year statutory redemption period.  The Johnny Ray
companies argue that such a duty exists; Wachovia argues that
it does not. 
"Whether a party owes a duty to another is strictly a
question of law."  RaCON, Inc. v. Tuscaloosa County, 953 So.
2d 321, 334 (Ala. 2006) (citing Taylor v. Smith, 892 So. 2d
1060306
16
887, 891 (Ala. 2004)).  In support of their argument that
Wachovia owed Johnny Ray Sports the claimed duty, the Johnny
Ray companies rely primarily on Springer v. Baldwin County
Federal Savings Bank, 562 So. 2d 138 (Ala. 1989).  The issue
in Springer was "whether a mortgagee who purchases the
mortgaged property at a foreclosure sale and then resells it
to a third party during the statutory redemption period is
required to apply the profit ... to the reduction of the
mortgagor's debt."  562 So. 2d at 139.  This Court noted that
"a mortgagee is, in a sense, a trustee for the mortgagor, and
is charged with the 'duty of fairness and good faith in its
execution to the end that the mortgagor's property may be
disposed of to his pecuniary advantage in the satisfaction of
his debt'" and ultimately answered the question in the
affirmative.  562 So. 2d at 139. (quoting J.H. Morris, Inc. v.
Indian Hills, Inc., 282 Ala. 443, 455, 212 So. 2d 831, 843
(1968)).  The Johnny Ray companies argue that, by extension,
this same "duty of fairness and good faith" requires a
mortgagee to accept an offer made within the statutory
redemption period if that offer would extinguish the
mortgagor's debt.  We disagree.
1060306
Section 6-5-253, Ala. Code 1975, states, in pertinent
3
part:
"(c) The purchaser shall be entitled to all
rents paid or accrued including oil and gas or
mineral agreement rentals to the date of the
redemption, and the rents must be prorated to such
date.  The purchaser or his or her transferee and
his or her tenants shall have the right to harvest
and gather the crops grown by them on the place for
the year in which the redemption is made, but must
pay a reasonable rent for the lands for the
proportion of the current year to which such
redemptioner may be entitled.
"(d) Any one entitled and desiring to redeem
shall be granted a credit as against the amount of
money required to be paid for redemption as follows:
"(1) For all timber cut or sold on the
land by the purchaser or his or her
transferees, during the statutory period of
redemption.
17
In Springer, the mortgagee foreclosed on the mortgaged
property and then conducted a foreclosure sale at which it
purchased the property with a high bid of $88,200.  Just three
days later, the mortgagee resold the property to a third party
for $99,000.  In concluding that the mortgagee had the duty to
apply the profit to reduce the mortgagor's debt, this Court
stated:
"Under § 6-5-253(c) (Cum. Supp. 1988), the
'purchaser' is entitled to 'all rents paid or
accrued ... to the date of the redemption.'
  In
[3]
1060306
"(2) For any oil and gas, minerals
(including coal bed gas), sand, and gravel,
taken from the land or sold, and for
advanced royalties or bonuses received by
the purchaser or his or her transferees,
during the statutory period of redemption.
"(3) To the extent the value of the
property is diminished when any structures
or 
buildings 
are 
changed, 
removed,
demolished, or destroyed by the purchaser
or his or her transferees during the
statutory period of redemption."
18
this case, we are concerned with more than 'rents.'
A resale of the property after foreclosure and
during the redemption period is more analogous to
the situations contemplated by § 6-5-253(d) (Cum.
Supp. 1988), whereby the mortgagor is entitled to
receive a credit on the debt when timber off the
property is cut and sold; when oil, gas, or
minerals, etc., are taken from the property and
sold; or when buildings on the property are
destroyed or diminished in value.  In Bartlett v.
Jenkins, 213 Ala. 510, 105 So. 654 (1925), this
Court 
recognized that the mortgagee's trustee
relationship with the mortgagor continues in some
instances after foreclosure and held that when
mortgaged property is sold at a foreclosure sale
'[t]he 
mortgagee 
becomes 
a 
trustee 
for 
the
mortgagor, as to the surplus received.'  Id., 213
Ala. at 511, 105 So. at 655 (citation omitted).  The
profit realized by the mortgagee upon resale of
foreclosed property during the redemption period is
derived from the value of the property itself.  The
mortgagee, 
as 
trustee 
for 
the 
mortgagor, 
is
obligated to apply that profit realized after
foreclosure and during the redemption period to the
reduction of the mortgagor's debt, no less than when
timber, oil, gas, or minerals are taken and sold.
For the mortgagee to be allowed to do otherwise
would violate the duty owed the mortgagor."
1060306
19
562 So. 2d at 139-40.  Thus, in Springer, this Court reached
its decision by drawing an analogy to § 6-5-253(d), Ala. Code
1975, which provides that, if a mortgagor decides to redeem
foreclosed property, that mortgagor is to entitled to the
profit received if any timber, oil, gas, or minerals have been
harvested or extracted from the mortgaged property and sold
during the statutory redemption period.  This is so, this
Court reasoned, because the profit realized by the mortgagee
upon resale of foreclosed property during the redemption
period is, like the profit received from timber, oil, gas, or
mineral sales, "derived from the value of the property
itself."  Springer, 562 So. 2d at 140.  
However, although § 6-5-253 clearly indicates that the
purchaser of a foreclosed property has the authority to
harvest and sell timber or to sell oil, gas, or minerals
extracted from the property –– even though such acts may
ultimately inure to the mortgagor's benefit –– there is no
requirement in that statute or any other statute, or in our
caselaw, that would require the purchaser to sell such timber
or oil, gas, or minerals.  The decision whether to do so is
left to the discretion of the purchaser.  Similarly, we hold
1060306
For example, in the present case Wachovia and the Johnny
4
Ray companies disagree as to how concrete the offer to
purchase the Gadsden property was.  Our holding that Wachovia
had no duty to accept the offer and sell the property obviates
the need to consider that issue.
20
that a mortgagee that has purchased mortgaged property at a
foreclosure sale has no duty to resell the property within the
one-year statutory redemption period, even if the opportunity
for such a sale is presented and even if the sale would
extinguish the mortgagor's debt.
Practically speaking, there is no need to impose such a
duty upon the purchaser because the mortgagor already has a
statutory right of redemption for one year after foreclosure.
Thus, if a market for a particular parcel of property develops
within the one-year period after that parcel is sold in
foreclosure, the mortgagor may exercise its right of
redemption to reacquire title to the property, and then sell
the property on the open market for whatever price the market
allows.  Not only does the mortgagor in this situation
directly receive the benefit of any appreciation in the
property's value, but issues that might arise if the
mortgagee-purchaser was required to sell the property for the
mortgagor's account are avoided.        
4
1060306
21
Because we have held that a mortgagee that has purchased
mortgaged property at a foreclosure sale has no duty to the
mortgagor to accept a third party's subsequent offer to
purchase the same property even if that offer is received
within the one-year statutory redemption period and will
extinguish the mortgagor's debt, the Johnny Ray companies'
negligence and/or wantonness counterclaim cannot stand.  The
summary judgment in favor of Wachovia and against the Johnny
Ray companies on that counterclaim is therefore affirmed.
IV.
The trial court entered a summary judgment in favor of
Wachovia on the Johnny Ray companies' breach-of-contract,
fraud, 
and 
negligence 
and/or 
wantonness 
counterclaims.
Because the alleged oral agreement is void by the operation of
the Statute of Frauds, the summary judgment on the breach-of-
contract and fraud counterclaims is due to be affirmed.  The
summary judgment on the Johnny Ray companies' negligence
and/or wantonness counterclaim is likewise due to be affirmed,
because, after purchasing the property at the foreclosure
sale, Wachovia was under no duty to accept a subsequent offer
by a third party to purchase the property.
1060306
22
AFFIRMED.
See, Lyons, Woodall, Smith, Bolin, and Parker, JJ.,
concur.
Cobb, C.J., and Murdock, J., concur in part and concur in
the result.
1060306
23
MURDOCK, Justice (concurring in part and concurring in the
result).
I fully concur in the main opinion's conclusion that an
option contract for the sale of goods valued at $500 or more
is subject to the Statute of Frauds found in Alabama's version
of the Uniform Commercial Code ("UCC").  The opinion points to
several decisions both within and without this state that
support this conclusion.  See also, e.g., In re Financial
Computer Sys., Inc., 474 F.2d 1258 (9th Cir. 1973) (applying
California law); Merritt-Campbell, Inc. v. RxP Prods., Inc.,
164 F.3d 957, 964 (5th Cir. 1999) ("Texas courts apply the UCC
when dealing with option contracts."); Trebor Sportswear Co.
v. The Limited Stores, Inc., 865 F.2d 506 (2d Cir. 1989)
(referencing New York's version of the UCC).  Cf. Byrd v.
Bentley, 850 So. 2d 232 (Ala. 2002) (assuming that a contract
providing an option for the purchase of securities was to be
treated the same as a contract for the present sale of
securities for purposes of the Statute of Frauds).
The plain language of the UCC underpins the view
expressed in these cases.  The provision in § 7-2-201(1), Ala.
Code 1975, of the Statute of Frauds applies to a "contract for
the sale of goods."  Section 7-2-106(1), Ala. Code 1975,
1060306
In an option contract, a condition to the owner's
5
obligation to sell and the purchaser's obligation to buy is
the purchaser's decision that it does in fact wish to buy the
subject property.
24
provides that a "contract" includes one "relating to the
present or future sale of goods."  (Emphasis added.)  Section
7-2-106(1) also defines the term "contract for sale" as
including "both a present sale of goods and a contract to sell
goods at a future time." (Emphasis added.)  Section 7-2-106
does not distinguish between contracts for the sale of goods
at a future time and contracts for the sale of goods at a
future time subject to a condition.   See Richard A. Lord, 9
5
Williston on Contracts § 26:4 (4th ed. 1999) ("[A] conditional
sale or contract to sell on condition is covered by the
Statute [of Frauds]."); 2 Lary Lawrence, Anderson on the
Uniform Commercial Code § 2-106:12 (3d ed. 2004) ("An option
contract for the sale of goods is governed by Article 2 [of
the UCC].").
I also agree with the main opinion that, because the
alleged option to purchase in the present case was not
dependent on there being a proposed sale of the removed
equipment to a third party, it was not a right of first
1060306
A right of first refusal commonly gives the prospective
6
purchaser the right to purchase certain property at the same
price and under the same terms as would govern the owner's
sale of the property to a third party.  Alternatively, a
prospective purchaser may have a contractual right to purchase
based on a price or other terms that may be agreed to in
advance between the prospective purchaser and the owner or
that may differ from the price or other terms on which the
owner thereafter is willing to sell to a third party.  Such an
agreement nonetheless would constitute a right of first
refusal if the prospective purchaser's right thereunder is
triggered by a proposed sale of the property by the owner to
a third party.  See discussion infra.
Some authorities expressly support the view that rights
7
of first refusal may be analyzed as a subspecies of option
contracts.  See, e.g., Ferrero Constr. Co. v. Dennis Rourke
Corp., 311 Md. 560, 567, 536 A.2d 1137, 1140 (1988) (citing
Restatement (First) of Property § 413 (comment b) (1944) for
the proposition that a right of first refusal is merely a type
of option contract); Restatement (First) of Property § 393
(comment f) (1944) ("An option to purchase is necessarily
25
refusal.   I do not wish for my agreement with the main
6
opinion in this regard to be read, however, as suggesting that
the result in this case turns on whether the contract alleged
by Johnny Ray Sports is properly referred to as an "option
contract" rather than a "right of first refusal."  The latter
term, no less than the former, refers to contracts for the
purchase and sale of goods at a future time, subject to one or
more conditions.  The contracts to which the latter term
refers have the added condition precedent of the property
owner's decision to sell the property to a third party.7
1060306
subject to one or more conditions precedent. ...  Sometimes
the option confers on the holder ... the unqualified privilege
to purchase whenever he chooses; sometimes this privilege is
more qualified, as for example, when it is to exist, but only
if, the owner wishes to sell.  In this latter situation, the
'option to purchase' takes the form of a 'pre-emptive right'
....  Thus the term 'option,' as used in this Restatement,
includes not only the situation where the holder of the option
has the privilege to take or not to take the thing in
question, but also the situation where the person subject to
the option is required to deal with the holder of the option
before he is free to deal with others.").  Compare 17 C.J.S.
Contracts § 56 (1999) (stating that "a right of first refusal
is a conditional option which is dependent upon the decision
to sell the property by its owner," and that it "is the
weakest of options," while also stating that "technically, it
is not an option at all" in the sense that "it does not
require the grantor to offer the property subject to it for
sale, ever.").  But see 3 Arthur L. Corbin, Corbin on
Contracts § 11.3 at 468 (1996) (focusing on the obvious
"dissimilar[ity] in the legal relations of the parties" to
conclude that it is "logically inaccurate" to include rights
of first refusal "under the heading 'Option Contracts,' as if
they were merely a special variety thereof").
26
Moreover, 
applying 
the 
Statute 
of 
Frauds 
to 
"option 
contracts"
generally, but not to "rights of first refusal," would lose
sight of the overarching objective of preventing fraud and
safeguarding the fundamental rights of property owners to
decide whether, when, to whom, and under what circumstances
the owner will dispose of his or her property.
Except as discussed above, I concur in the main opinion.
Cobb, C.J., concurs.