Title: TradeWinds Environmental Restoration, Inc. v. Brown Brothers Construction, L.L.C., et al

State: alabama

Issuer: Alabama Supreme Court

Document:

REL: 6/13/08
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
OCTOBER TERM, 2007-2008
_________________________
1060305
_________________________
TradeWinds Environmental Restoration, Inc.
v.
Brown Brothers Construction, L.L.C., et al.
Appeal from Baldwin Circuit Court
(CV-05-412)
SEE, Justice.
TradeWinds 
Environmental 
Restoration, 
Inc.
("TradeWinds"), brought this action against Brown Brothers
Construction, L.L.C. ("BBC"), the Shoalwater Condominium
Association, Inc. ("Shoalwater"), and the Windward Pointe
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2
Condominium 
Association, 
Inc. 
("Windward"), 
in 
connection 
with
structural-drying 
work performed by TradeWinds at the
Shoalwater condominiums and the Windward Pointe condominiums
following Hurricane Ivan.  BBC, Shoalwater, and Windward moved
the Baldwin Circuit Court for a summary judgment, asserting
that TradeWinds' claims were barred by § 10-2B-15.02, Ala.
Code 
1975 
(Alabama's 
"door-closing" 
statute), 
because
TradeWinds is a foreign corporation that had not qualified to
do business in this State.  The trial court entered a summary
judgment 
in 
favor 
of 
BBC, 
Shoalwater, 
and 
Windward.
TradeWinds appeals, arguing that § 10-2B-15.02, Ala. Code
1975, does not preclude TradeWinds from bringing its claims
and that, if Alabama's door-closing statute applies, BBC,
Shoalwater, and Windward are equitably estopped from asserting
the statute as a defense because the parties received benefits
under a contract for which they did not pay.  We affirm.
Facts and Procedural History
TradeWinds is a New York-based company that performs
post-disaster 
response, 
environmental 
remediation, 
and
restoration services.  Following the landfall of Hurricane
Ivan in September 2004, BBC, an Alabama-based general
1060305
Section 10-2B-15.02(a), Ala. Code 1975, provides:
1
"(a) A foreign corporation transacting business
in this state without a certificate of authority or
3
contractor, entered into a contract with TradeWinds under
which TradeWinds would perform structural-drying services and
restoration at a number of condominiums along the Gulf Coast,
including 
Shoalwater 
condominiums 
and 
Windward 
Pointe
condominiums ("the contract").  TradeWinds asserts that it
completed the work contemplated by the contract but that BBC
refused to pay TradeWinds the amount TradeWinds says is due
under the contract.  TradeWinds recorded verified statements
of lien in the office of the judge of probate of Baldwin
County against the Windward and Shoalwater properties, seeking
$210,024.75 and $188,814.25, respectively, for money owed
under the contract.  TradeWinds also filed this action in the
Baldwin Circuit Court alleging a breach-of-contract claim
against BBC, asserting unjust-enrichment claims against
Shoalwater and Windward, and seeking to foreclose on its liens
on the Shoalwater and Windward properties.
BBC, Shoalwater, and Windward moved the trial court for
a summary judgment, asserting that TradeWinds' claims were
barred by § 10-2B-15.02, Ala. Code 1975,  because TradeWinds
1
1060305
without complying with Chapter 14A of Title 40 may
not maintain a proceeding in this state without a
certificate 
of 
authority. 
All 
contracts 
or
agreements made or entered into in this state by
foreign 
corporations 
prior 
to 
obtaining 
a
certificate of authority to transact business in
this state shall be held void at the action of the
foreign corporation or by any person claiming
through or under the foreign corporation by virtue
of the contract or agreement; but nothing in this
section shall abrogate the equitable rule that he
who seeks equity must do equity."
4
is a foreign corporation that had not qualified to do business
in Alabama.  TradeWinds argued that the contract involved
interstate commerce and, therefore, that the contract is
protected from § 10-2B-15.02 by the Commerce Clause of the
Constitution of the United States, U.S. Const., Art. 1, § 8,
cl. 3.  The trial court agreed with BBC, Shoalwater, and
Windward that it was undisputed that TradeWinds had failed to
obtain a certificate of authority from the secretary of state
in order to transact business in Alabama and that BBC,
Shoalwater, and Windward were entitled to a judgment as a
matter of law.  It then entered a summary judgment in favor of
BBC, Shoalwater, and Windward.  TradeWinds moved the trial
court to alter, amend, or vacate its judgment, but the trial
court denied that motion.  TradeWinds appeals.
Issues
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5
TradeWinds presents two issues for appeal.  First,
TradeWinds argues that the trial court erred when it entered
a summary judgment in favor of BBC, Shoalwater, and Windward
on the basis of the door-closing statute, because, TradeWinds
argues, the contract involved 
interstate 
commerce 
and
therefore the door-closing statute is not applicable.  Second,
TradeWinds asserts that, even if the door-closing statute does
apply, equitable estoppel bars its application because BBC,
Shoalwater, and Windward received benefits under the contract
for which they did not pay.
Analysis
A. Standard of Review
"On appeal, this Court reviews a summary judgment de
novo." DiBiasi v. Joe Wheeler Elec. Membership Corp., [Ms.
1060848, Jan. 10, 2008] ___ So. 2d ___, ___ (Ala. 2008)
(citing Ex parte Essary, [Ms. 1060458, Nov. 2, 2007] ___ So.
2d ___, ___ (Ala. 2007)). "'"Our review [of a summary
judgment] is subject to the caveat that we must review the
record in the light most favorable to the nonmovant and must
resolve all reasonable doubts against the movant."'"  Ex parte
CSX Transp., Inc., 938 So. 2d 959, 962 (Ala. 2006) (quoting
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6
Payton v. Monsanto Co., 801 So. 2d 829, 833 (Ala. 2001),
quoting in turn Ex parte Alfa Mut. Gen. Ins. Co., 742 So. 2d
182, 184 (Ala. 1999)); Hanners v. Balfour Guthrie, Inc., 564
So. 2d 412, 413 (Ala. 1990).  "The facts in this case are
undisputed; therefore, we will review the trial court's
application of the law to those facts to determine whether the
plaintiffs were entitled to a judgment as a matter of law."
Carpenter v. Davis, 688 So. 2d 256, 258 (Ala. 1997). "The
trial court's ruling on a question of law carries no
presumption of correctness, and this Court reviews de novo the
trial court's conclusion as to the appropriate legal standard
to be applied."  McCutchen Co. v. Media Gen., Inc., [Ms.
1060211, Jan. 25, 2008] ___ So. 2d ___, ___ (Ala. 2008).
A.  TradeWinds' Door-Closing Argument
The trial court entered a summary judgment in favor of
BBC, Shoalwater, and Windward because it found, as a matter of
law, that TradeWinds' action is "barred by the [door-closing]
statute, in that[] [TradeWinds] was required to obtain a
Certificate of Authority from the secretary of State to
transact business in Alabama and failed to do so."  (Trial
court's summary-judgment order.)
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7
To determine whether the trial court properly entered a
summary judgment in favor of BBC, Shoalwater, and Windward on
the basis that TradeWinds' claims are barred, we must address
§ 10-2B-15.02, Ala. Code 1975, Alabama's door-closing statute.
Section 10-2B-15.02(a) provides:
"(a) A foreign corporation transacting business
in this state without a certificate of authority or
without complying with Chapter 14A of Title 40 may
not maintain a proceeding in this state without a
certificate 
of 
authority. 
All 
contracts 
or
agreements made or entered into in this state by
foreign 
corporations 
prior 
to 
obtaining 
a
certificate of authority to transact business in
this state shall be held void at the action of the
foreign corporation or by any person claiming
through or under the foreign corporation by virtue
of the contract or agreement; but nothing in this
section shall abrogate the equitable rule that he
who seeks equity must do equity."
"This section of the Code is part of a statutory scheme that
requires foreign corporations to receive a certificate of
authority to do business in this State before transacting
business here."  Green Tree Acceptance, Inc. v. Blalock, 525
So. 2d 1366, 1370 (Ala. 1988).  "Failure to secure such a
certificate means that the foreign corporation cannot enforce
a contract entered into in this State."  525 So. 2d at 1370.
"A foreign corporation that has not been authorized to do
business in Alabama is not barred from enforcing its contracts
1060305
8
in the courts of this state, however, 'unless the business
conducted 
here 
by 
[the] nonqualified corporation[] is
considered "intrastate" in nature.'" Building Maintenance
Pers., Inc. v. International Shipbuilding, Inc., 621 So. 2d
1303, 1304 (Ala. 1993) (quoting Wise v. Grumman Credit Corp.,
603 So. 2d 952, 953 (Ala. 1992)).  This is because "businesses
engaged in interstate commerce are protected by the commerce
clause in the United States Constitution, U.S. Const., Art. 1,
§ 8, cl. 3, and are therefore immune from the effects of the
'door closing' statutes."  Stewart Mach. & Eng'g Co. v.
Checkers Drive In Rests. of N. America, Inc., 575 So. 2d 1072,
1074 (Ala. 1991).  Because TradeWinds concedes that it was not
qualified to do business in Alabama at the time the contract
was entered into, or, for that matter, at the time of
performance under the contract, "the focus of this case is on
whether [TradeWinds] was engaged in interstate or intrastate
commerce; this issue is ultimately decided on a case-by-case
basis."  Stewart Mach. & Eng'g, 575 So. 2d at 1074.  "[I]n
determining whether a corporation is doing business in Alabama
within the meaning of § [10-2B-15.02], courts are flexible and
1060305
9
decide each case on its own facts."  Green Tree Acceptance,
525 So. 2d at 1370.
In Ely Lilly & Co. v. Sav-On-Drugs, Inc., 366 U.S. 276
(1961), the Supreme Court of the United States addressed when
a state may require a foreign corporation to obtain a
certificate of authority to do business in the state.  The
Supreme Court stated:
"Lilly is free to send salesmen into New Jersey to
promote this interstate trade without interference
from regulations imposed by the State.  On the other
hand, it is equally well settled that if Lilly is
engaged in intrastate as well as interstate aspects
of the New Jersey drug business, the State can
require it to get a certificate of authority to do
business. In such a situation, Lilly could not
escape state regulation merely because it is also
engaged in interstate commerce.  We must then look
to the record to determine whether Lilly is engaged
in intrastate commerce in New Jersey."
366 U.S. at 279 (footnote omitted).  Alabama caselaw also
holds that § 10-2B-15.02, Ala. Code 1975, is applicable to
those entities that engage in intrastate business and fail to
register.  See Brown v. Pool Depot, Inc., 853 So. 2d 181, 185
(Ala. 2002) ("'It has been held that a foreign corporation
doing business in this state without qualifying cannot use our
courts to enforce its contracts. Continental Telephone Corp.
v. Weaver, 410 F.2d 1196 (5th Cir. 1969).  Alabama Const. art.
1060305
10
XII, § 232, and §§ 10-2A-247 and 40-14-4, Code 1975 [now
codified 
as 
10-2B-15.02, 
Ala. 
Code 
1975] 
prohibit 
a
nonqualified foreign corporation from enforcing a contract
made in Alabama if it is doing business in Alabama.'" (quoting
Competitive Edge, Inc. v. Tony Moore Buick-GMC, Inc., 490 So.
2d 1242, 1244-45 (Ala. Civ. App.1986))).  Thus, whether § 10-
2B-15.02 applies to a contract involving a foreign corporation
turns on whether the foreign corporation, whether or not
engaged in interstate commerce, is engaged in intrastate
business.
BBC, Shoalwater, and Windward argued to the trial court
that the contract is ultimately a construction contract and
that it thus necessarily implicates intrastate business.  "One
area of business is quite clearly defined as intrastate,
rather than interstate, activity.  This Court has previously
held that 'labor is not an article of commerce, nor is the
agreement to supply it, nor the execution of the agreement, an
act of commerce.'" Green Tree Acceptance, 525 So. 2d 1370
(quoting  Computaflor Co. v. N.L. Blaum Constr. Co., 289 Ala.
65, 68, 265 So.2d 850, 852 (1972)).  Thus, "[a] construction
contract supplying both material and labor is an example of
1060305
11
the type of contract that is considered intrastate."  Green
Tree Acceptance, 525 So. 2d at 1371.  BBC, Shoalwater, and
Windward point to TradeWinds' complaint as evidence that the
contract in this case is, in fact, a construction contract.
In its complaint, TradeWinds alleges that "[BBC] entered into
an agreement with [TradeWinds] retaining the services of
[TradeWinds] to provide structural drying services" and that
"[BBC] retained the services of [TradeWinds] to provide
services, labor and materials including structural drying" at
both 
Shoalwater 
condominiums 
and 
Windward 
Pointe 
condominiums.
TradeWinds 
argues, 
however, 
that 
this 
Court 
has
specifically rejected a per se rule that a contract in which
a foreign corporation supplies labor and materials necessarily
involves intrastate business.  TradeWinds' brief at 29
(quoting Stewart Mach. & Eng'g, 575 So. 2d at 1074 ("[N]ot
every contract that provides for labor is automatically deemed
to involve intrastate commerce.")).  TradeWinds contends that
"where a transaction calls on an out-of-state company to
perform unique or specialized labor, as opposed to general
construction, that labor is 'necessary and incidental' to the
interstate business ... and the [contract] is protected by the
1060305
12
commerce clause."  TradeWinds cites Wallace Construction Co.
v. Industrial Boiler Co., 470 So. 2d 1151 (Ala. 1985), in
which "Wallace was the successful bidder for a contract with
the University of Montevallo for, among other things, the
installation of a heating system at the school."  Wallace
Construction, 470 So. 2d 1151.  Industrial Boiler, a
subcontractor, "agreed to manufacture and install [a] boiler
system," id.; however, Wallace refused to pay under the
agreement and asserted § 10-2A-247 (now § 10-2B-15.02) as a
defense.  This Court determined that the contract involved
interstate commerce because "the combined local activities of
Industrial Boiler in Alabama concerning the assembly and
installation of the boiler did not constitute intrastate
business, but were necessary and incidental to the interstate
sale of the boiler itself."  Wallace Construction, 470 So. 2d
at 1155.  
As TradeWinds alleges in its complaint, it provided
"services, labor and materials including structural drying."
Although it may be true that TradeWinds "[brought] its drying
equipment 
from 
out-of-state 
for 
use 
at 
[Shoalwater
condominiums and Windward Pointe condominiums]," it does not
1060305
13
allege that its labor, materials, and service were incident to
an interstate sale.  Therefore,  Wallace Construction is
inapposite.
TradeWinds also relies on Shook & Fletcher Insulation Co.
v. Panel Systems, Inc., 784 F.2d 1566 (11th Cir. 1986).
TradeWinds argues that in Shook & Fletcher the United States
Court of Appeals for the Eleventh Circuit "affirmed the lower
court's 
decision 
that 
a 
subcontractor 
was 
not 
doing
'substantial business' in Alabama simply because it sent its
employees into the state pursuant to the contract."  However,
Shook & Fletcher also involved labor and materials incident to
an interstate sale.  See Shook & Fletcher, 784 F.2d at 1570
("PSI fabricated all of its insulation panels for the Miller
project at its facilities in Hurricane Mills, Tennessee. ...
In this case, PSI's primary duty under its contract with Shook
and Fletcher was to sell and deliver materials into Alabama.
Most of PSI's travels into the state of Alabama involved
negotiations and troubleshooting as opposed to performing
contractual 
services."). 
 
Therefore, 
like 
Wallace
Construction, 
Shook 
& 
Fletcher 
is distinguishable and
therefore inapposite.  
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14
TradeWinds further relies on Kentucky Galvanizing Co. v.
Continental Casualty Co., 335 So. 2d 649 (Ala. 1976).
However, Kentucky Galvanizing Co., too, involved a foreign
corporation that manufactured and delivered goods incident to
an interstate contract for the sale of goods.  The Court there
noted 
"that Galvanizing has never manufactured, fabricated
or installed any materials in the State of Alabama.
What it has sold to buyers in Alabama it has
delivered to the assigned job sites.  Other than
delivery, Galvanizing does nothing in Alabama except
what is incident to soliciting and taking orders for
shipment of goods in interstate commerce and
delivery of these goods."
335 So. 2d at 651.  In fact, Kentucky Galvanizing Co.
recognized 
that 
this Court "has distinguished between
contracts requiring only the furnishing of materials, and
contracts requiring the seller to perform construction
activities.  When the transaction requires only sale and
delivery of the materials, we have held it to be within the
scope of interstate commerce ...."  335 So. 2d at 651.
Therefore, 
Kentucky 
Galvanizing 
Co. 
does 
not 
support
TradeWinds contention that services, labor, and materials,
which TradeWinds provided under the contract, were incident to
an interstate sale.
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15
In this case, TradeWinds and BBC "entered into an
agreement ... retaining the services of [TradeWinds] to
provide 
structural 
drying 
services" 
and 
"provid[ing] 
services,
labor, 
and 
materials, 
including structural drying" at
Shoalwater condominiums and Windward Pointe condominiums, two
locations in Alabama.  It appears that the contract does, in
fact, involve "both material and labor [and] is an example of
the type of contract that is considered intrastate."  Green
Tree Acceptance, 525 So. 2d at 1371.  Thus, we conclude that
TradeWinds has not demonstrated that the contract was not
intrastate in nature.  Therefore, § 10-2B-15.02, Ala. Code
1975, bars TradeWinds' breach-of-contract action, and the
trial court properly entered a summary judgment in favor of
BBC on the basis that BBC was entitled to a judgment as a
matter of law.
B.  TradeWinds' Equitable Claims and Arguments
TradeWinds argues that, even if this Court holds that the
contract is intrastate in nature and thus that the door-
closing statute applies, "equity bars the defendants from
asserting the door-closing statute in this case."  More
specifically, TradeWinds asserts that
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16
"the evidence shows that TradeWinds rushed into
Alabama after Hurricane Ivan based on the request of
BBC ... that it came on an emergency, expedited
basis [to] perform time-sensitive disaster response
services ....  Having solicited TradeWinds to
respond on an emergency basis, it is plainly
inequitable 
for 
the 
defendants 
to 
now 
use
TradeWinds' decision to comply with their request as
a reason to withhold payment for the services
TradeWinds performed."
TradeWinds' brief at 42.  Although the result may be harsh, we
hold in this case, as we have in others, that TradeWinds "as
a nonqualified foreign corporation[] should not be allowed to
proceed in the Alabama court system to recover under any
theory sounding in contract."  Sanwa Bus. Credit Corp. v. G.B.
"Boots" Smith Corp., 548 So. 2d 1336, 1341 (Ala. 1989).  See
also Stewart Mach. & Eng'g, 575 So. 2d at 1075 ("Although we
are mindful of the harshness of the rule, we conclude, based
on the foregoing, that Stewart, as a nonqualified foreign
corporation, should not be allowed to proceed in the Alabama
court system to recover under any theory sounding in
contract."); Sanjay, Inc. v. Duncan Constr. Co., 445 So. 2d
876, 879 (Ala. 1983) ("[The equity] provision in the statute
does not alter the law that an unqualified foreign corporation
cannot recover on contract.  As was said of the action in C.C.
Products, Inc. v. Premier Industrial Corp., 290 Ala. 179, 275
1060305
TradeWinds' complaint does not appear to assert any
2
equitable claims against BBC, with whom it contracted;
however, TradeWinds' principal brief suggests that equitable
considerations apply to its claims against BBC, Shoalwater,
and Windward.
17
So. 2d 124 (1972), any way you slice it, the action in this
suit was ex contractu.").  Therefore, TradeWinds is barred
from bringing its breach-of-contract claim against BBC either
at law or in equity.   
2
TradeWinds, however, also asserted a claim of "unjust
enrichment" against both Shoalwater and Windward and sought to
foreclose its lien against both properties.  In support of
these claims, TradeWinds relies on First Bank of Russell
1060305
TradeWinds also relies on Pool Depot, 853 So. 2d at 187,
3
in which this Court held that "Brown's [the Alabama
resident's] suing Pool Depot for fraud and tortious attempt to
collect a debt and opposing arbitration of these claims is not
an unlawful attempt to 'accept the benefits and avoid the
burdens or limitations of a contract.  Brown does not seek any
benefit whatsoever under the contract,' which Brown contends
is void." (Citations omitted.)  It appears, however, that Pool
Depot was applying the final portion of § 10-2B-15.02(a),
which provides that "nothing in this section shall abrogate
the equitable rule that he who seeks equity must do equity";
this Court was noting that Brown's claims were proper because
Brown sought recovery on a claim wholly unrelated to the
contract and, thus, it was not inequitable for Brown to
recover under those claims after he used § 10-2B-15.02, Ala.
Code 1975, to void his contract with a foreign corporation.
Pool Depot does not further TradeWinds' argument that it is
entitled to recover under principles of equity from any of
BBC, Shoalwater, or Windward.
18
County v. Wells, 358 So. 2d 435 (Ala. 1978).   In First Bank
3
of Russell County, this Court stated:
"Statutes such as ours which declare void, at
the action of a nonqualified foreign corporation (or
any person claiming under such corporation), all
contracts or agreements entered into in this state
are not only penal, but are, as well, in derogation
of the common law. They, therefore, should be
strictly construed. Sayers & Muir Service Station v.
Indian Refining Co., 266 Ky. 779, 100 S.W.2d 687
(1936), cited with approval in Jones v. Americar,
Inc., [283 Ala. 638, 219 So. 2d 893 (1969)].  They
should not be read so as to deny to litigants
equitable 
rights 
long 
recognized 
by 
our
jurisprudence.  To deny to the Builder in the
instant case the relief it seeks because of §
10-2-254, 1975 Code [now § 10-2B-15.02], would not
only result in a decision which would unjustly
enrich the Wells[es] but would also read into the
statute a prohibition which is not there."
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19
358 So. 2d at 437.  Our later decisions, though, have not
followed this holding. See Burnett v. National Stonehenge
Corp., 694 So. 2d 1276, 1279 (Ala. 1997) ("To allow Stonehenge
to recover under the theory that equity requires the Insurance
Department to pay Stonehenge for its services, even though
Stonehenge never qualified to do business in Alabama, would
circumvent § 10-2A-247 [now § 10-2B-15.02]. This Court's prior
decisions on this matter have made it clear that foreign
corporations cannot circumvent the penal effect of the statute
by labeling their claim as something other than [a] contract
claim." (citing Green Tree Acceptance, 525 So. 2d at 1372)).
TradeWinds argues that § 10-2B-15.02, Ala. Code 1975, should
be narrowly construed because it is penal in nature.
TradeWinds' reply brief at 17.  This issue was squarely
addressed in Freeman Webb Investments, Inc. v. Hale, 536 So.
2d 30, 31 (Ala. 1988), in which this Court noted that "due to
the penal nature of this statute ... its application has been
limited to those cases in which the action is ex contractu as
opposed to ex delicto."  536 So. 2d at 31.  The Freeman Webb
decision then went on to address Freeman Webb's remaining
equitable claims, one of which was unjust enrichment, and held
1060305
20
that, "[w]ith regard to the claims of conversion and unjust
enrichment, it is clear that these claims merely seek to
enforce those rights derived directly from the contract, and
are, therefore, prohibited."  Id.  As in Freeman Webb,
TradeWinds' unjust-enrichment and lien claims seek to enforce
those rights derived directly from the contract, that is,
TradeWinds seeks to recover from Shoalwater and Windward
payment for services performed by TradeWinds pursuant to the
contract.  Therefore, these claims are also prohibited under
§ 10-2B-15.02, Ala. Code 1975.
Conclusion
Section 10-2B-15.02, Ala. Code 1975, prohibits all
TradeWinds' claims; therefore, BBC, Shoalwater, and Windward
were entitled to a summary judgment on its claims against
them, and we affirm the summary judgment.
AFFIRMED.
Cobb, C.J., and Lyons, Woodall, Stuart, Smith, Bolin, and
Murdock, JJ., concur.
Parker, J., dissents.