Title: MJM, INC. v. Cas. Indem. Exchange

State: alabama

Issuer: Alabama Supreme Court

Document:

481 So. 2d 1136 (1985)
MJM, INC. and Aetna Casualty Insurance Company
v.
CASUALTY INDEMNITY EXCHANGE, et al.
83-1295.

Supreme Court of Alabama.
December 27, 1985.
*1137 Stephen K. Griffith for Knight & Griffith, and Martha E. Williams, Cullman, for appellants.
William A. Scott, Jr. and Amy K. Myers of Clark & Scott, Birmingham, for appellee Cas. Indem. Exchange.
Ralph Bland of Bland, Bland & Weldon, and Hayden R. Battles of Battles & Battles, *1138 Cullman, for appellees Waymon Rutherford and Rutherford Ins. Agency, Inc.
Stanley A. Cash of Huie, Fernambucq & Stewart, Birmingham, for appellee L.E. Rife, Inc.
John David Knight, and John Mark Sapp of Sapp, Sapp & Sapp, Cullman, for appellees R.H. Culpepper and Clyde White.
Thomas L. Stewart of Gorham, Waldrep, Stewart & Kendrick, Birmingham, for appellees John S. Garner and Orleane H. Garner.
HOUSTON, Justice.
The issue before the Court in this case is whether the trial court erred in granting summary judgments in favor of defendants John Garner, Orleane Garner, Waymon Rutherford, Rutherford Insurance Agency, Inc., L.E. Rife, Inc., and Casualty Indemnity Exchange, Inc. We affirm.
The undisputed facts show the following: John Garner and his wife, Orleane Garner, purchased a cafe from MJM, Inc. George Blankenship represented MJM in the sale negotiations, in conjunction with Horace Culpepper, a real estate agent. Pursuant to the sale, the Garners assumed existing mortgages on the cafe which were held by Security Mutual Finance, Inc., and Cullman Savings and Loan Association. They executed two notes secured by two mortgages and a security interest to MJM for the balance of the purchase price. One of the notes was secured by a mortgage on real property which the Garners owned in Jefferson County. The other note was secured by a mortgage on the cafe. MJM received the security interest in the personal property sold in conjunction with the cafe.
Subsequent to the sale, Blankenship obtained a loan on behalf of MJM from Parker Bank and Trust company. As collateral securing this loan, MJM, through Blankenship, conditionally assigned the Garner notes and mortgages to Parker Bank and Trust Company. Culpepper and Clyde White also signed as guarantors on this loan. According to its terms, the assignment was to become absolute and irrevocable without notice to MJM if it defaulted.
Culpepper contacted Waymon Rutherford (of Rutherford Insurance Agency, Inc.) to secure insurance on the cafe for the Garners. Rutherford acts as a general agent for several insurance companies and also brokers coverage with other companies. Rutherford arranged coverage for the Garners with Casualty Indemnity Exchange (C.I.E.) through L.E. Rife, the general agent for C.I.E. Rutherford had no authority to bind C.I.E., in contract. L.E. Rife bound coverage for the Garners on April 22, 1981. In early May, Rutherford received the policy of insurance on the cafe. Cullman Savings and Loan was the only loss-payee listed on it. When Blankenship discovered that MJM had not been listed on the policy as a loss-payee, he obtained partial coverage for MJM through Aetna Casualty and Surety Company.
On May 18, 1981, Rutherford contacted L.E. Rife concerning the mortgages held by Security Mutual Finance, Inc., and MJM and also concerning the fact that he had not been able to locate the Garners to deliver the policy. Prior to this time, neither L.E. Rife or C.I.E. had had any notification of the existence of these two additional mortgages. L.E. Rife initiated cancellation of the policy. Prior thereto, the Garners had indicated to Blankenship that they were dissatisfied with the purchase of the cafe and were closing it. On June 7, 1981, the cafe was damaged by fire and Aetna paid MJM's claim. When its note with Parker Bank and Trust came due, MJM used a portion of the Aetna proceeds to pay back approximately one-half of its loan and renewed the note for the balance. When the note again fell due, MJM defaulted. Culpepper and White, as guarantors, paid the note upon demand and took the Garner notes and mortgages by way of assignment from Parker Bank and Trust.
The procedural history of this case is somewhat involved. For purposes of our determination, however, suffice it to say that MJM intervened in a suit previously *1139 brought by the Garners against Rutherford, Rutherford Insurance Agency, L.E. Rife, and C.I.E. claiming breach of an insurance contract and bad faith refusal to pay. In its complaint in intervention, MJM alleged breach of contract against the Garners, as well as breach of contract, fraud, and bad faith refusal to pay against the remaining defendants. Aetna intervened as a subrogee to any recovery by MJM on the basis of its payment of MJM's claim for fire loss pursuant to its policy.
Summary judgment is proper when there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Rule 56(c), Ala.R.Civ.P. All reasonable doubts concerning the existence of a genuine issue of fact must be resolved against the moving party. Fountain v. Phillips, 404 So. 2d 614 (Ala.1981).
MJM contends that the trial court erred in granting a summary judgment on its claims against the Garners for breach of contract. It first argues that the Garners are in breach of contract by failing to pay the two notes which they executed in connection with the purchase of the cafe. We disagree.
The undisputed facts in this case show that MJM conditionally assigned the Garner notes to Parker Bank and Trust as collateral for a loan. According to its terms, the assignment became absolute and irrevocable upon MJM's default. Culpepper and White, the guarantors of that loan, repaid it and took the Garner notes by way of assignment from Parker Bank and Trust. Section 8-3-2, Code 1975, reads as follows:
The term "surety," as used in this section, means one who has been forced to pay a debt which was the primary obligation of another and which the latter ought to have paid in exoneration of the former. Bradley v. Bentley, 231 Ala. 28, 163 So. 351 (1935).
As a result of its default on the note to Parker Bank and Trust and the subsequent assignment of the Garner notes to Culpepper and White, MJM lost its interest in the cafe. Therefore, it has no right to enforce payment of the Garner notes. Culpepper and White became subrogated to that right and the Garners' obligation to pay that debt is to them, not MJM.
MJM insists that a question of fact was presented in Blankenship's affidavit submitted in opposition to the various motions for summary judgment, namely a question as to whether Culpepper was acting as its agent when he paid the note to Parker Bank and Trust and accepted the assignment of the Garner notes for MJM in that capacity. Again we disagree.
That affidavit, in pertinent part, reads as follows:
Under Rule 56(e), Ala.R.Civ.P., an opposing affidavit must be made on personal knowledge, and must set forth facts that would be admissible in evidence and show affirmatively that the affiant is competent to testify to the matters stated. In Day v. Merchants National Bank of Mobile, 431 So. 2d 1254 (Ala.1983), the Court, quoting from Butler v. Michigan Mutual Insurance Company, 402 So. 2d 949 (Ala.1981), stated:
In the present case, Blankenship states in his affidavit that he "thought," was "under the impression" or it was his "understanding" that Culpepper was acting as MJM's agent when he paid the note to Parker Bank and Trust and accepted the assignment of the Garner notes. Subjective beliefs, such as these, no matter how sincere, are not the equivalent of personal knowledge and such statements relating thereto do not satisfy the requirements of Rule 56(e), supra. Oliver v. Brock, 342 So. 2d 1 (Ala.1976).
Having reviewed the record, and finding no genuine issue of material fact in this regard, we hold that the trial court properly granted the Garners' motion for summary judgment.
MJM next argues that the Garners breached their agreement to obtain hazard insurance on the cafe for the purpose of protecting its mortgage and security interests.
The mortgage executed by the Garners to MJM securing one of the notes expressly obligated the Garners to procure hazard insurance on the cafe sufficient to protect MJM's interests. All of the oral negotiations concerning this obligation would have merged into the mortgage upon its execution, Guilford v. Spartan Food Systems, Inc., 372 So. 2d 7 (Ala.1978). Therefore, MJM's cause of action against the Garners for failure to procure the hazard insurance arises out of the mortgage.
A cause of action arising out of a breach of contract is assignable in Alabama. Section 8-5-20, Code 1975, reads as follows:
See also Crawford v. Chattanooga Savings Bank, 201 Ala. 282, 78 So. 58 (1917).
MJM assigned its mortgage by endorsement thereon to Parker Bank and Trust. The endorsement reads:
Because of MJM's default, the assignment to Parker Bank and Trust became absolute and irrevocable. Consequently, MJM lost its right of action under the mortgage and, thus, the trial court did not err in granting the Garners' motion for summary judgment.
MJM's claim of fraud against the remaining defendants is based upon alleged willful or reckless misrepresentations of coverage by Rutherford. MJM contends that Rutherford was acting as an agent for L.E. Rife and C.I.E. and, in that capacity, made false assurances that MJM was covered under the policy as a loss-payee.
Under the allegations of its complaint, it is apparent that MJM is relying upon § 6-5-101, Code 1975:
A necessary element of fraud under this section is reasonable reliance. Earnest v. Pritchett-Moore, Inc., 401 So. 2d 752 (Ala. 1981). Where a party has reason to doubt the truth of the representations or is informed of the truth before he acts, he has no right to act thereon. Mahoney v. Forsman, 437 So. 2d 1030 (Ala.1983).
*1142 Blankenship's undisputed testimony on deposition was as follows:
The foregoing portions of Blankenship's deposition established that once he learned that MJM had been omitted from the policy, he did not reasonably rely upon any alleged misrepresentations by Rutherford.[1] Blankenship was fully aware that MJM was not designated on the insurance policy as a loss-payee and, consequently, he obtained other coverage through Aetna. This result is not altered by the fact that Blankenship failed to secure adequate coverage through Aetna. His failure in this regard resulted from a conscious decision to avoid the expense of full coverage. The summary judgments on the fraud claims were, therefore, proper.
Finally, the summary judgments were proper as to MJM's claim of damages for failure to pay on the insurance contract and bad faith against Rutherford, Rutherford Insurance Agency, L.E. Rife, and C.I.E. A party seeking to prove a bad faith refusal to pay on a contract of insurance must necessarily show that there was an insurance contract. National Security Fire and Casualty Co. v. Bowen, 417 So. 2d 179 (Ala.1982).
Our review of the record, in the instant case, reveals no evidence that a contract of insurance, naming MJM as a loss-payee, ever came into existence between either the Garners or MJM and C.I.E. Rutherford, acting as an independent insurance broker, was the sole intermediary when he arranged coverage for the Garners through L.E. Rife. The undisputed facts show that prior to May 18, 1981, neither L.E. Rife nor C.I.E. had had any notification as to MJM's mortgage interest. To the contrary, L.E. Rife initiated cancellation on that date upon learning of the additional mortgages and the fact that Rutherford could not locate the Garners to deliver the policy.[2]
Rutherford, acting as an independent broker, had no authority to bind C.I.E. in contract.[3]Washington National *1144 Insurance Company v. Strickland [MS. 84-483, December 20, 1985] (Ala.1985). Therefore, any alleged assurances of coverage which he might have made to Blankenship are not evidence of a contract between MJM and C.I.E., and, furthermore, there is no evidence of any communication between Blankenship and either L.E. Rife or C.I.E.
AFFIRMED.
TORBERT, C.J., and FAULKNER, ALMON and BEATTY, JJ., concur.
[1]  Although Blankenship alleges in his deposition that Rutherford made certain misrepresentations of coverage prior to the issuance of the policy by C.I.E., MJM cannot recover in fraud based upon those alleged misrepresentations because there is no evidence in the record that Blankenship relied on them to MJM's detriment. Earnest v. Pritchett-Moore, Inc., supra.
[2]  This would preclude any recovery in contract against L.E. Rife and C.I.E. on the part of MJM under any third-party beneficiary theory.
[3]  As an independent broker, Rutherford was, in fact, acting as agent for the Garners by soliciting coverage for them. Washington National Insurance Company v. Strickland [MS. 84-483, December 20, 1985] (Ala.1985). Consequently, he cannot be held personally liable for failure to pay on the insurance contract. See Highlands Underwriters Insurance Company v. Eleganté Inns, Inc., 361 So. 2d 1060 (Ala.1978), for a statement of law with regard to the duty that insurance agents or brokers owe to their principals, the insureds.