author: CRAWLEY, Presiding Judge.

text:
    Charles Mac SMITH and Beverly V. Smith v. FIRST COMMERCIAL BANK OF HUNTSVILLE, INC.
    2040382.
    Court of Civil Appeals of Alabama.
    Feb. 10, 2006.
    Rehearing Denied April 28, 2006.
    Certiorari Denied March 9, 2007 Alabama Supreme Court 1051125.

      Andrew J. Smithart III, Tuscaloosa, and Robert R. Hembree, Guntersville, for appellants.
    Stuart M. Maples of Johnston, Moore, Maples & Thompson, Huntsville; and Kenneth B. Cole, Jr., of Cole & Associates, LLC, Huntsville, for appellee.
   CRAWLEY, Presiding Judge.

Charles Mac Smith and Beverly V. Smith appeal from a judgment entered on a jury verdict in favor of First Commercial Bank of Huntsville, Inc. (“the Bank”), on the Bank’s claim alleging breach of contract and on the Smiths’ counterclaims alleging abuse of process, breach of an oral contract, interference with business relations, fraud, suppression, and conspiracy. We affirm the judgment in favor of the Bank on the Smiths’ counterclaims; we reverse the judgment in favor of the Bank on its breach-of-contract claim and remand the cause with instructions to enter a judgment in favor of the Smiths on that claim.

In the summer of 1998, Charles “Mac” Smith, a longtime customer of the Bank, decided to go into the new-house construction business with Russell E. Rogers, the proprietor of RER, Inc. On June 8, 1998, the Bank loaned Smith $105,000 to purchase half of the outstanding shares of RER stock (“the Smith loan”). The Smith loan was secured by a second mortgage on the Smiths’ personal residence and a guaranty by RER. Smith and Rogers agreed to a division of labor whereby Rogers retained overall management and control of RER, including sales, accounting, and record-keeping, and Smith took charge of the actual construction process.

On July 28, 1998, the Bank provided the construction financing for RER’s building of two houses, one in the Biltmore Bend subdivision and one in the Stratford Square subdivision (“the construction-financing loans”). On that date, RER executed two promissory notes, each in the amount of $344,000, to the Bank. The notes were secured by real-estate mortgages on the two properties and by personal guarantees from Mac Smith and Rogers.

In the fall of 1998, Smith and Rogers decided to dissolve their business relationship. On November 23, 1998, Smith resigned as an officer and director of RER and Rogers agreed to pay him $105,000 for his stock within 5 days. Soon thereafter, however, Rogers informed Smith that RER was experiencing financial difficulties and could not come up with the funds to pay for Smith’s stock.

Rogers approached the Bank about obtaining a loan to purchase Smith’s shares, but the Bank rejected his loan application. Rogers told the Bank that he needed to find a way to buy out Smith and to have RER’s guaranty on the Smith loan released. Rogers insisted that the Bank had mistakenly characterized RER’s guaranty on that loan as “continuing and unlimited” — thus making RER contingently hable for Smith’s other indebtedness to the Bank, rather than liable only for the indebtedness reflected by the Smith loan. The Bank agreed with Rogers that the RER guaranty of the Smith loan should not have been characterized as unlimited and continuing. Rogers inquired whether the Bank would release the RER guaranty and agree to a sale by RER of the Bilt-more Bend and Stratford Square properties to Smith. The Bank agreed to release the RER guaranty of the Smith loan in exchange for RER’s paying the Bank $51,000, with the $51,000 to be applied by the Bank to Smith’s indebtedness. The Bank also agreed to the transfer of the Biltmore Bend and Stratford Square properties from RER to Smith under certain conditions.

Rogers then proposed to Smith an alternate plan for repurchasing Smith’s shares of RER stock. That plan provided that Smith would give up his interest in RER in exchange for the equity in the Biltmore Bend and Stratford Square houses of which Smith had been supervising the construction. The proposed dissolution agreement provided that Smith would assume the construction loans for the two houses, would complete the construction, and would realize any profit made upon the sale of the properties.

Two contracts were signed on March 18, 1999, to reflect the agreements reached between and among Smith, Rogers, RER, and the Bank. The first agreement, entitled a “Settlement and Release” was executed by Mac Smith and Russell E. Rogers, individually and as president of RER. The second agreement, entitled “Agreement to Convert Debt to Non-Recourse, to Release Guaranty, and for Limited Waiver of Due-on-Sale Clause,” was executed by Mac Smith; Beverly V. Smith; Rogers, individually and as president of RER; and David Kimrey, as senior vice president of the Bank.

The settlement and release agreement provides, in pertinent part:

“This Settlement and Release (hereinafter ‘AGREEMENT’) is made this day, March 18, 1999, by, between, and among Russell E. Rogers (hereinafter ‘ROGERS’), Charlie M. (Mac) Smith (hereinafter ‘SMITH’) and RER, Inc. (hereinafter ‘CORPORATION’).
“Recitals
“WHEREAS, SMITH is the owner of 2500 shares of the CORPORATION’S common stock (the ‘Shares’) that he originally purchased from ROGERS; and,
“WHEREAS, ROGERS is the CORPORATION’S only other stockholder; and,
“WHEREAS ROGERS and SMITH entered into a Buy and Sell Agreement between themselves and the CORPORATION on June 9, 1998 (the ‘Buy/ Sell’); and,
WHEREAS, ROGERS and SMITH entered into a Shareholder Repurchase Agreement between themselves and the CORPORATION dated November 23, 1998 (the ‘PURCHASE AGREEMENT’); and,
“WHEREAS SMITH has resigned as both an officer and director of the CORPORATION, and said resignation is hereby accepted, pursuant to the Purchase Agreement; and,
WHEREAS, the CORPORATION owns two lots upon which residences are being constructed, each being subject to a mortgage in favor of First Commercial Bank of Huntsville (hereinafter, ‘BANK’); and,
WHEREAS, SMITH is personally indebted to the BANK in the original amount of $105,000.00, which was guaranteed by the CORPORATION (the ‘SMITH LOAN’); and,
“WHEREAS, certain disputes have arisen between ROGERS and SMITH with respect to claims by each against the other and claims by each against CORPORATION; and,
“WHEREAS, ROGERS, SMITH, and CORPORATION have agreed to compromise and settle those disputes in a manner and fashion which is intended and will benefit CORPORATION; and,
“WHEREAS, ROGERS, SMITH, and CORPORATION have agreed that the terms of the settlement are fair and equitable to CORPORATION, SMITH and ROGERS, taking into consideration all relevant factors, including the claims of the respective parties; and
“WHEREAS, ROGERS, SMITH, and CORPORATION have agreed that the transfers herein are made for a good and valuable consideration, with due consideration being given by each party to the respective values of the assets being transferred by each party, the liabilities being herein assumed, the indemnity being provided and the prospective relations of the parties in the future.
“NOW, THEREFORE, this agreement, WITNESSETH: that for and in consideration of the mutual promises and covenants hereinafter expressed and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by each party hereto, the parties have agreed as follows:
“Section 1. Modification of Obligations. To the extent not previously performed, the obligations of SMITH, ROGERS, and the CORPORATION under both the Purchase Agreement and the Buy/Sell are extinguished and replaced by the terms of this Agreement.
“Section 2. Redemption of Stock and Conveyance of Lots. The CORPORATION and ROGERS hereby agree to redeem from SMITH all 2500 shares of common stock in exchange for the transfer by CORPORATION (with SMITH assuming all liability associated with the property being transferred) of Lot 19 of Biltmore Bend, Phase Two, and Lot 19 of Stratford Square, each of which is further described in attached exhibit 'A,’ incorporated herein by reference (the ‘LOTS’) at the closing described below.
“The LOTS shall be conveyed to SMITH or his nominee subject to the lien for property taxes, which are not yet due and payable, and the existing mortgages to the BANK ... (collectively the ‘LOT MORTGAGES’).”

(Capitalization in original.) The nonre-course agreement provides, in pertinent part:

“This agreement made by and among RER, Inc. (‘RER’), Russell Rogers, Jr., Charlie M. Smith (cumulatively, ‘Guarantors’) and First Commercial Bank of Huntsville (‘Lender’) this 18th day of March 1999, as follows:
“RECITALS
“WHEREAS, RER is currently the owner of properties which are secured by [two] Mortgages [reciting the place of recordation in the office of the Madison Probate Judge];
“WHEREAS, said Mortgages secure the obligations reflected in [two] certain Commercial Fixed Rate Revolving or Draw Note[s] dated July 28, 1998, [each] in the original principal amount of $844,000 (cumulatively, ‘Notes’);
“WHEREAS, Guarantors guarantee the Notes pursuant to Guarantees dated July 28, 1998 (cumulatively ‘Guarantees’);
“WHEREAS, RER is also indebted to Lender pursuant to an Unlimited Continuing Guaranty (‘RER Guaranty’) dated June 8, 1998, guaranteeing other debts of Charlie M. Smith;
“WHEREAS, the Mortgages, the Notes, the Guarantees, the RER Guaranty and other documents executed by RER provide additional security to the Lender and represent the loan documents executed by RER in this matter (cumulatively ‘Loan Documents’);
“WHEREAS, RER desires to sell its interest in the property encumbered by the Mortgages to Charlie M. Smith or his assigns, subject to the Lender’s approval;
“WHEREAS, RER and Rogers desire to have their respective guarantees released and to have the Notes modified to reflect that they shall be non-recourse as against RER, and the Lender has agreed to such in exchange for the payment by RER and Rogers to the Bank of $51,000;
“WHEREAS, Charlie M. Smith or his assigns shall assume the obligations represented by the Loan Documents and pledge additional collateral to the Notes if the Lender agrees not to exercise its option to accelerate the unpaid balance of Notes as a result of the transfer, to waive its exercise of any other rights and remedies it may have under the Loan Documents arising from the transfer;
“NOW THEREFORE, the parties to this Agreement agree as follows:
“1. Acknowledgment of Indebtedness. The parties acknowledge that as of the date hereof:
“(i) RER is indebted to the Lender for principal, accrued and unpaid interest and other charges on the first note, as of March 12, 1999, in the amount of $206,700.44, and on the second note as of March 12, 1999, in the amount of $248,985.25 with interest and charges continuing to accrue;
“(ii) All such amounts are due and payable in full, without offset, deduction or counterclaim of any kind or character whatsoever, but are subject to increase, decrease or other adjustment as a result of any and all interest, fees and other charges, including, without limitation, attorneys fees and costs of collection, which are payable to Lender under the Loan Documents.
“2. Assumption of Liability; Additional Collateral. Smith or his assigns assume and agree to pay the obligations represented by Notes and all other Loan Documents. Copies of these documents have been provided to Smith, and are incorporated herein by reference. Smith or his assigns acknowledge that the real property described in the Mortgages shall remain subject to the Mortgages, that all real and personal property described in the various Loan Documents shall remain subject to the various Loan Documents, and that nothing in this agreement shall affect priority of any of Lender’s liens over other liens and encumbrances against the real and personal property. Smith or his assigns agree to be bound by all of the conditions and covenants contained in the Loan Documents. Further, as additional Collateral for the Notes, the Smith guarantee and the obligations of Smith’s assigns, and as an accommodation, without which the Lender would not make this modification, that Smith’s guaranty of the Notes shall be secured by Smith and his wife Beverly V. Smith, who shall grant to Lender, as cross-col-lateralization, that certain preexisting mortgage lien and security title to [their residence].
“3. Consent to Transfer. Based upon the terms and conditions contained herein, including, but not limited to, the assumption of liability by Smith to Lender and the contingent liability of Smith to Lender, Lender hereby consents to the transfer of all property described in the Mortgage and Loan Documents, and waives its right to declare default and its right to accelerate the entire unpaid balance of Notes. Further, First Commercial waives enforcement of its rights under any of the Loan Documents prohibiting the assignability of any of the obligations of RER under this agreement. It is agreed by the parties that this waiver is made solely for the benefit of RER and its Guarantors, and shall not constitute a waiver by the Lender of any rights under the Loan Documents in the event of a subsequent sale of or default by Smith or his assigns under the Loan Documents.
“4. Modification of Notes and Release of Certain Guaranties. Based upon the payment of FIFTY-ONE THOUSAND and NO/lOO DOLLARS ($51,000) and other good and valuable consideration, to be paid upon the execution of this agreement, the Lender agrees to modify and amend the Notes and to modify the obligation of RER under the Notes to reflect that Lender shall seek satisfaction of the indebtedness under the Notes only from the collateral, Smith and/or his assigns. Based upon the same consideration, Lender hereby releases Rogers from his Guaranty and RER from the RER Guaranty.
“5. Miscellaneous Clauses.
“a. Entire Agreement. This Agreement reflects the entire understanding of the parties] with respect to the subject matter contained herein, and supersedes any prior agreements, whether written or oral, in regard thereto.
“b. Allocation. Lender shall be entitled to accept such payments and proceeds as are remitted to it pursuant to this provision and shall be entitled to apply any and all such proceeds and payments against the liabilities and obligations owed by RER or Smith to Lender in such order of application as Lender in its sole and absolute discretion shall determine proper.
“c. Full Force and Effect. Except as expressly modified herein, all terms of the Loan Documents shall remain in full force and effect and shall constitute the legal, valid, binding and enforceable obligations of RER and the Guarantors to the Lender.
“d. No waiver. This Agreement is not intended to operate as, and shall not be construed as a waiver of any of the provisions of the Loan Documents except as expressly stated herein, or of any rights of the Lender ... whether known or unknown, as to which all of such rights of the Lender shall remain reserved.
“e. Binding Nature. This Agreement shall be binding upon and inured to the benefit of the parties and their respective successors and assigns, and such provision shall not be construed to permit assignment by Smith or his assigns, RER, or the Guarantors without consent of the Lender.
“f. Captions. The captions, the sections and the paragraphs of this agreement are for the convenience of the parties only, and are not a part of this Agreement.
“g. Enforcement. Should any party be caused to seek enforcement of this Agreement, the prevailing party shall be entitled to all costs of enforcement, including reasonable attorney’s fees.”

(Capitalization in original.)

On May 28, 1999, RER filed for bankruptcy protection. On September 30, 1999, RER’s trustee in bankruptcy filed an adversary proceeding against Mac Smith, pursuant to 11 U.S.C. § 547(b), seeking to set aside the March 18, 1999, transfer of assets from RER to Smith — assets worth approximately $300,000, according to the trustee. The trustee eventually settled its claim against Smith for $15,000 and released Smith from liability on all claims.

In June 2000, the trustee filed an adversary proceeding against the Bank, seeking to set aside RER’s transfer of $51,000 to the Bank on March 18, 1999. The Bank moved for a summary judgment, alleging “that the Trustee ha[d] already litigated and compromised the very claims raised in th[e] action against [Mae Smith,] the individual for whose benefit the alleged preferential transfer was actually made,” and that the alleged transfer was not for the benefit of the Bank but for the benefit of a third party, Mac Smith, who, the Bank asserted, should be joined as a necessary party.

On October 16, 2000, the Bank moved to add Mac Smith as a third-party defendant in the trustee’s adversary proceeding, maintaining that if it were required to return the $51,000 to the bankruptcy estate of RER, then Mac Smith, who had received the benefit of a $51,000 reduction in his debt to the Bank, should reimburse the Bank for what it paid to the bankruptcy trustee. The bankruptcy court denied the Bank’s motion, stating that the Bank was free to seek recourse against Mac Smith in state court. Before the bankruptcy court ruled on the Bank’s summary-judgment motion, the Bank settled with the trustee for the sum of $27,000.

On May 8, 2001, the Bank sued Mac Smith in Madison Circuit Court, alleging a breach of contract and various equitable theories of restitution and seeking reimbursement of the $27,000 it had paid to RER’s trustee in bankruptcy. Smith’s wife, Beverly V. Smith, intervened, alleging that she was a party to the contract made the basis of the Bank’s complaint against her husband. The Smiths answered, asserting, among other things, the affirmative defenses of judicial estoppel; accord and satisfaction; and voluntary payment, i.e., that the Bank’s $27,000 settlement with RER’s trustee in bankruptcy was a voluntary payment made without notice to or authorization by the Smiths. The Smiths also counterclaimed against the Bank, alleging abuse of process, breach of an oral contract, interference with business relations, fraud, suppression, and conspiracy. The Bank dismissed its equitable claims, and the case proceeded to trial on the Bank’s breach-of-contract claim and four of the six counterclaims asserted by the Smiths. At trial, the evidence was undisputed that Mac Smith sold the Biltmore Bend and Stratford Square houses at a substantial profit and paid in full the two $344,000 construction-financing loans to the Bank. The record contains satisfaction-of-lien documents recorded in the Madison Probate Court for each mortgage. The evidence was also undisputed that the Smith loan had been paid in full. The record contains documentary evidence indicating that on March 19, 1999, the Bank posted a $51,000 “special payment” to reduce the indebtedness on the Smith loan.

The Smiths moved for a judgment as a matter of law (“JML”) at the close of the Bank’s evidence and at the close of all the evidence; the trial court denied the motions. Following a five-day trial, the jury returned a verdict in favor of the Bank in the amount of $27,000 on its breach-of-contract claim and against the Smiths on all of the counterclaims. Pursuant to a posttrial motion by the Bank, the trial court, on November 8, 2004, awarded the Bank prejudgment interest in the amount of $9,341.28, attorney’s fees in the amount of $13,500.00, expenses in the amount of $932.45, and costs in the amount of $3,612.70, for a total judgment of $54,386.43.

On December 8, 2004, the Smiths filed a postjudgment motion for a JML or, in the alternative, for a new trial. The trial court denied the motion on December 10, 2004, and the Smiths timely appealed to the Alabama Supreme Court on January 21, 2005. On January 27, 2005, the supreme court determined that the case was within the appellate jurisdiction of the Court of Civil Appeals and it transferred the appeal to this court.

I.

The Smiths argue that there was no evidence supporting the Bank’s breach-of-contract claim and, accordingly, that the trial court erred in failing to grant their motions for a JML at the close of the Bank’s evidence, at the close of all the evidence, and after a judgment was entered on the jury verdict.

“ ‘ “A judgment as a matter of law is proper only where there is a complete absence of proof on a material issue or where there are no controverted questions of fact on which reasonable people could differ and the moving party is entitled to [a] judgment as a matter of law.” Locklear Dodge City, Inc. v. Kimbrell, 703 So.2d 303, 304 (Ala.1997) (internal quotation marks omitted). “[I]n reviewing the record to determine whether a trial court properly [granted a judgment as a matter of law], we ‘must view all the evidence in a light most favorable to the nonmovant and must entertain such reasonable evi-dentiary inferences as the jury would be free to draw.’ Renfro v. Georgia Power Co., 604 So.2d 408, 411 (Ala.1992).” Gewin v. TCF Asset Mgmt. Corp., 668 So.2d 523, 526 (Ala.1995).’
“Vaughan v. Oliver, 822 So.2d 1163, 1168 (Ala.2001).”

Lyons v. Walker Reg’l Med. Ctr., Inc., 868 So.2d 1071, 1092 (Ala.2003).

“A presumption of correctness attaches to a jury verdict, ‘if the verdict passes the “sufficiency test” presented by motions for a directed verdict and a JNOV.’ S & W Properties, Inc. v. American Motorists Ins. Co., 668 So.2d 529, 534 (Ala.1995). (Rule 50(a), Ala. R. Civ..P., now designates a motion for a directed verdict as a motion for a judgment as a matter of law, and Rule 50(b) now designates a motion for JNOV as a renewed motion for a judgment as a matter of law.)”

New Plan Realty Trust v. Morgan, 792 So.2d 351, 355 (Ala.2000).

In support of their argument that the Bank presented insufficient evidence to establish its breach-of-contract claim, the Smiths point out that the Bank rested its case “without calling a single employee of the Bank or bank officer to identify what contract [Mac] Smith breached and to describe how he breached same.” The Bank counters by asserting that no witnesses were necessary to establish Mac Smith’s breach of contract because, the Bank says, the documentary evidence (specifically, the March 18, 1999, nonrecourse agreement and paragraph 9 of Smith’s' July 28, 1998, guaranty of the RER construction-financing loans) established Smith’s contractual liability to repay the Bank the $27,000 it paid to RER’s trustee in bankruptcy, and Smith’s nonpayment of that sum was undisputed.

The Bank is correct that, if the documentary evidence established Mac Smith’s contractual liability to reimburse the Bank for the $27,000 payment it made to the bankruptcy trustee, no witnesses were necessary to establish Smith’s alleged breach of contract because Smith admitted that he had not reimbursed the Bank. Therefore, we must determine whether the documents relied on by the Bank established Smith’s contractual liability.

The Bank describes the legal effect of the nonrecourse agreement as follows:

“The Agreement converts the corporate responsibility of RER to that of non-recourse, which means that the two properties would remain mortgaged to the Bank, but there would be no other liability on RER. Further, the Rogers’[s] guaranty [of the construction-financing loans] was released, as was a second RER guarantee on another loan transaction [the Smith loan].
“The Agreement further provided that [Mac] Smith (pursuant to [his] guaranty [of the RER construction-financing loans]) would become primarily responsible for all of the indebtedness [on the construction-financing loans].”

We agree with the Bank’s assessment. After the signing of the nonrecourse agreement, the only guaranty remaining was Smith’s guaranty of the construction-financing loans. Paragraph 9 of Smith’s guaranty states:

“If any payment applied by Lender to indebtedness is thereafter set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the bankruptcy, insolvency, or reorganization of Borrower or any other obligor), the indebtedness to which such payment was applied shall for the purposes of this guaranty be deemed to have continued in existence, notwithstanding such application, and this guaranty shall be enforceable as to such indebtedness as fully as if such application had never been made.”

(Emphasis added.) The Bank argues that the following series of events established Mac Smith’s contractual liability pursuant to paragraph 9 of the guaranty agreement: (1) the Bank applied the $51,000 payment it received from RER pursuant to the nonrecourse agreement to Smith’s indebtedness; (2) RER sought bankruptcy protection; (3) RER’s trustee in bankruptcy sued the Bank to recover the $51,000 transfer; (4) the Bank settled with the trustee for $27,000; (5) that portion of the indebtedness that the Bank was required to return (i.e., $27,000 out of $51,000) continues in existence and Smith is obligated to pay it.

The Smiths reply that paragraph 9 of the guaranty agreement might be applicable if the Bank had applied $51,000 to the indebtedness on the construction-financing loans — which, they say, are the only loans that are covered by Mac Smith’s guaranty — but, the Smiths say, the evidence was undisputed that the Bank applied $51,000 to the Smith loan, not to the construction-financing loans. The Bank makes two arguments in response.

First, the Bank says, paragraph 5b. of the nonrecourse agreement allowed it to apply the $51,000 to any of Smith’s debts it chose. Paragraph 5b. states:

“b. Allocation. Lender shall be entitled to accept such payments and proceeds as are remitted to it pursuant to this provision and shall be entitled to apply any and all such proceeds and payments against the liabilities and obligations owed by RER or Smith to Lender in such order of application as Lender in its sole and absolute discretion shall determine proper.”

We agree with the Bank; paragraph 5b. clearly gives the Bank the absolute right to apply the $51,000 payment it received from RER to any of Smith’s debts. The fact is, however, that the Bank actually applied the payment to the Smith loan, not to the construction-financing loans, the only loans covered by Mac Smith’s July 28, 1998, guaranty. Compare American Nat’l Bank & Trust Co. v. Mack, 311 Ill.App.3d 583, 588, 724 N.E.2d 1014, 1018, 244 Ill.Dec. 126, 130 (2000) (holding that former law partner’s guaranty of firm’s debt was discharged by payment; even though creditor was entitled to allocate firm’s payments in any manner it chose, the creditor “actually allocate[d] the payments received” to debts not covered by the guaranty).

Second, the Bank says, Smith’s July 28, 1998, guaranty was both a guaranty of the construction-loan indebtedness and a guaranty of RER’s guaranty of the Smith loan. This argument is untenable in light of the fact that the nonrecourse agreement released RER’s guaranty of the Smith loan. In short, Smith’s guaranty was the only guaranty that survived the signing of the nonrecourse agreement and it related solely to the construction-financing loans. Because “the indebtedness to which [the $51,000] payment was applied” was not the indebtedness incurred as a consequence of the construction-financing loans, paragraph 9 of Smith’s guaranty has no application.

We, therefore, hold that the documents relied on by the Bank do not establish Mac Smith’s contractual liability to repay to the Bank the $27,000 it paid to RER’s trustee in bankruptcy. Although the Bank alleges, in its appellate brief, that Smith will be “unjustly enriched” unless he is required to repay the $27,000 to the Bank, any such argument is unavailing because the Bank dismissed its equitable claims before trial.

Because the evidence was insufficient to establish the Bank’s breach-of-contract claim, the trial court erred by denying the Smiths’ motions for a JML.

II.

The Smiths argue that the trial court erred by denying their postjudgment motion seeking a new trial on their counterclaims. They claim that the trial court’s refusal to postpone the trial because of the threat of severe weather was prejudicial to them.

The trial began on Tuesday, September 14, 2004. On Wednesday, September 15, after the Bank had completed the presentation of its case, the court administrator interrupted the proceedings to state that area public schools and governmental offices were closing as Hurricane Ivan approached the Gulf Coast; the court administrator inquired whether the court intended to recess the trial until after the hurricane had passed through the area. The court declined to recess the trial and, at the end of the trial proceedings on Wednesday, the court informed the jurors that, although the courthouse entrances would be closed and locked on Thursday morning, they should report for service and enter through the basement door on the north side of the building. The Smiths contend that the court’s refusal to adjourn the trial adversely impacted the jurors’ ability to hear, deliberate, and decide upon their counterclaims.

The grant or denial of a post-judgment motion rests within the sound discretion of the trial court, Flagstar Enters., Inc. v. Foster, 779 So.2d 1220, 1221 (Ala.2000), and a trial court’s ruling on such a motion will not be reversed on appeal unless a legal right was abridged and the record plainly and palpably demonstrates error, Bell v. Greer 853 So.2d 1015, 1018-19 (Ala.Civ.App.2003). The record does not demonstrate error. In fact, it provides no support for the Smiths’ argument, which appears to be based upon nothing other than speculation. The Smiths presented no evidence indicating that the approach of Hurricane Ivan “either distracted the jurors from the evidence being presented in [them] trial, or prejudiced them in any way against the defense.” Harris v. State, 84 P.3d 731, 740 (Okla.Crim.App.2004)(holding that a criminal defendant was not entitled to a mistrial based on the fact that his trial was conducted during the week of the terrorist attacks on September 11, 2001).

III.

The Smiths also contend that the trial court erred by denying their post-judgment motion for a JML on their counterclaims. The fraud, suppression, and conspiracy counterclaims were based upon the following allegations: that during the negotiation process among the Smiths, Rogers, and the Bank that ultimately resulted in the settlement and release and nonrecourse agreements of March 18, 1999, the parties circulated among themselves and their attorneys tentative drafts of the agreements; that the Smiths, at the time they signed the final draft of the agreements on March 18, were led to believe that those agreements were the same as an earlier tentative draft they had approved on March 11; and that neither their attorney nor any other party explained that the final drafts differed markedly from the earlier drafts.

There was no evidence at trial indicating that anyone had assured the Smiths that the agreements they signed on March 18 were the same as earlier tentative drafts they had approved.

“ ‘[A] person who signs a contract document is on notice of the terms therein and is bound thereby, even if he or she fails to read the document.’ Safeway Ins. Co. of Alabama, Inc. v. Taylor, 758 So.2d 523, 525 (Ala.1999). There is a general duty on the part of a person to read the documents received in connection with any transaction. Gilmore v. M & B Realty Co., 895 So.2d 200 (Ala.2004).”

Brown v. St. Vincent’s Hosp., 899 So.2d 227, 242 (Ala.2004). See also Locklear Dodge City, Inc. v. Kimbrell, 703 So.2d 303 (Ala.1997); and Power Equip. Co. v. First Alabama Bank, 585 So.2d 1291 (Ala.1991).

The breach-of-oral-contract counterclaim was grounded on the allegation that Mac Smith had reached certain oral agreements with a Bank officer that were not incorporated into the March 18 agreements. Section 5a. of the nonrecourse agreement, however, contained the following merger clause:

“a. Entire Agreement. This Agreement reflects the entire understanding of the parties] with respect to the subject matter contained herein, and supersedes any prior agreements, whether written or oral, in regard thereto.”

In Belmont Homes, Inc. v. Law, 841 So.2d 237 (Ala.2002), our supreme court explained:

“A ‘merger clause’ is ‘a clause which states that all oral representations or agreements are merged into and subsumed by the written document of which the clause is a part.’ Sunchase Apartments v. Sunbelt Serv. Corp., 596 So.2d 119, 122 (Fla.Dist.Ct.App.1992). ‘A merger clause operates only to establish that a written agreement is a completely integrated document, into which all pri- or and contemporaneous negotiations are merged.’ Crimson Indus., Inc. v. Kirkland, 736 So.2d 597, 601 (Ala.1999). When a contract is integrated, ‘no extrinsic evidence of prior or contemporaneous agreements will be admissible to change, alter, or contradict the contractual writing.’ Sherman v. Woerner Magnolia Farms, Inc., 565 So.2d 601, 605 (Ala.1990).”

841 So.2d at 240.

“ ‘Merger clauses ... have been given effect in Alabama for years. In Stallings v. Savage, 206 Ala. 486, 97 [90] So. 904 (1921), the Court held that parol evidence was properly excluded in an action for breach of contract in the sale of an automobile when the contract contained a clause which provided: “This constitutes the entire purchase agreement.” See, also, Shepherd Realty Co. v. Winn-Dixie Montgomery, Inc., 418 So.2d 871 (Ala.1982).’ ”

Bussey v. John Deere Co., 531 So.2d 860, 862-63 (Ala.1988). The trial court did not err in denying the Smiths’ postjudgment motion for a JML on their counterclaims.

In light of our disposition of the issue addressed in Part I of this opinion, it is unnecessary to address the Smiths’ arguments with respect to the award of interest, expenses, attorney’s fees, and costs on the Bank’s breach-of-contract claim.

The judgment in favor of the Bank on the Smiths’ counterclaims is affirmed. The judgment in favor of the Bank on its breach-of-contract claim is reversed, and the cause is remanded with instructions to enter a judgment for the Smiths on that claim.

The Bank’s request for an attorney fee on appeal is denied.

AFFIRMED IN PART; REVERSED IN PART; AND REMANDED WITH INSTRUCTIONS.

THOMPSON and MURDOCK, JJ„ concur.

PITTMAN and BRYAN, JJ., concur in the result, without writing.

      . Smith had other personal loans at the Bank that were unrelated to his dealings with Rogers or RER.

      . At trial, Mac Smith testified that the trustee's valuation of the assets included the profit Smith had made on the sale of the Biltmore Bend and Stratford Square houses as well as the $51,000 benefit Smith had received pursuant to the agreements entered into on March 18, 1999.

      . At trial, the Smiths dismissed the counterclaims alleging abuse of process and interference with business relations.

      . Section 12-3-10 provides, in pertinent part, that the Court of Civil Appeals "shall have exclusive appellate jurisdiction of all civil cases where the amount involved, exclusive of interest and costs, does not exceed $50,000.” (Emphasis added.)

      . We note, as did the United States District Court for the Middle District of Alabama in Home Insurance Co. v. Hartford Fire Insurance Co., 379 F.Supp.2d 1282 (M.D.Ala.2005), that "[t]here is potentially an alternative basis for resolution of these claims.... [A]nd while the court does not rely on it because the parties have not fully briefed the issue, the court will set forth the analysis.” 379 F.Supp.2d at 1290 n. 8.
      The Smiths asserted the affirmative defense of voluntary payment in their answer, argued voluntary payment as a ground for their summary-judgment motion, and re-argued voluntary payment as a basis for their motion for a JML at the close of all the evidence at trial. On appeal, the Smiths make the assertion in brief, without developing the argument or citing any authority, that the Bank is precluded by the voluntary-payment doctrine from proceeding against them to recoup the $27,0000 the Bank paid to RER’s trustee in bankruptcy. In Home Insurance Co. v. Hartford Fire Insurance Co., the court explained:
      "It has been the law in Alabama for over 150 years that where one party, with full knowledge of all the facts, voluntarily pays money to satisfy the colorable legal demand of another, no action will lie to recover such a voluntary payment, in the absence of fraud, duress, or extortion. Mt. Airy Ins. Co. v. Doe Law Firm, 668 So.2d 534, 537 (Ala.1995); U-Haul Co. of Ala. v. Johnson, 893 So.2d 307, 311 (Ala.2004); Stone v. Mellon Mortgage Co., 771 So.2d 451, 456 (Ala.2000). See also Allstate Ins. Co. v. Amerisure Ins. Cos., 603 So.2d 961 (Ala.1992).... 'Alabama law recognizes that the mere threat of legal proceedings is insufficient to constitute the duress needed to make the payment of money involuntary.' Mt. Airy, 668 So.2d at 538. In Mt. Airy, the insurer paid to settle a potential malpractice claim against the insured and then sought reimbursement from the insured for the amount paid to settle the claim. Although the insurer gave notice to the insured that it would seek to recover the money, the court held that 'such a protest by itself was insufficient to make the payment "involuntary.”' Id. Because the court concluded that the payment to settle the claim was voluntary, the insurer was not entitled to seek reimbursement. Id. at 539....
      " 'Claims based on theories of breach of contract, unjust enrichment, and money had and received are precluded by proof that the plaintiff voluntarily paid what he or she is seeking to recover.’

        “Stone, 771 So.2d at 456.”
      379 F.Supp.2d at 1290 n. 8. See also Voyager Ins. Cos. v. Whitson, 867 So.2d 1065, 1076 (Ala.2003):
      " 'If a parly with full knowledge of the facts wrongly interprets them, so that he misperceives their legal significance, that wrong interpretation does not constitute a mistake of fact.... [It] constitutes a mistake of law rather than a mistake of fact, and a mistake of law does not preclude the application of the voluntary-payment doctrine.
      [I]t is equally well settled that money voluntarily paid with full knowledge of the facts but by reason of mistake of law cannot be recovered.” ’

        “[Stone v. Mellon Mortgage Co.,] 771 So.2d [451] at 458 [(Ala.2000)] (quoting Sherrill v. Frank Morris Pontiac-Buick-GMC, Inc., 366 So.2d 251, 257 (Ala.1978)(Torbert, C.J., concurring specially))."


source: Caselaw Access Project

author: THOMPSON, Judge. BRYAN, Judge, CRAWLEY, Presiding Judge,

license: Public Domain

text:
    QUALITY CASUALTY INSURANCE COMPANY v. Otis J. RUBEN et al.
    2050042.
    Court of Civil Appeals of Alabama.
    April 14, 2006.
    Joseph A. Driver and Brett A. Ross of Carr, Allison, Pugh, Howard, Oliver & Sis-son, P.C., Birmingham, for appellant.
    William M. Hammond of The Hammond Firm, P.C., Birmingham, for appellee Donald Young.
   THOMPSON, Judge.

Quality Casualty Insurance Company (“Quality Casualty”) filed a declaratory-judgment action against Otis J. Ruben (“Otis”), Diane Ruben (“Diane”), Christopher J. Ruben (“Christopher”), and Donald Young. In that action, Quality Casualty sought a determination that it was not obligated to defend, indemnify, or provide benefits under an insurance policy it had issued to Otis and Diane. As a basis for its action, Quality Casualty alleged that Otis had made certain misrepresentations in the application for insurance and that, as a result, it should not be required to provide coverage under a renewal policy issued after the initial policy of insurance had expired. Quality Casualty’s declaratory-judgment action was assigned case no. CV-04-999.

Otis, Diane, and Christopher (hereinafter referred to collectively as “the Rubens”) answered in case number CV-04-999, denying the allegations made in Quality Casualty’s complaint; they also asserted a counterclaim in which they alleged breach of contract and bad faith. Young also filed a counterclaim against Quality Casualty in case no. CV-04-999, and he filed cross-claims against the Rubens. Young sought compensation for injuries he claimed to have suffered as a result of an automobile accident allegedly caused by Christopher when Christopher was driving an automobile owned by Otis and Diane.

In addition, Young initiated a separate action against Quality Casualty; that action was assigned case no. CV-04-1179. The record indicates that in case no. CV-04-1179 Young asserted essentially the same claims as those already asserted in the counterclaims and cross-claims he had asserted in Quality Casualty’s declaratory-judgment action designated as case no. CV-04-999. Therefore, on February 1, 2005, the trial court entered an order consolidating the two actions but bifurcating the issue whether Quality Casualty was liable under the terms of the insurance policy. Thus, in its February 1, 2005, order, the trial court designated the issue whether Quality Casualty was liable for coverage under the insurance policy as “the sole issue to be addressed in CV-04-999” and it specified that all other claims and issues were reassigned to case no. CV-04-1179.

The trial court conducted an ore tenus hearing in case no. CV-04-999. On July 15, 2005, the trial court entered a judgment in that case in which it determined that Quality Casualty was not entitled to be relieved from providing insurance coverage under the insurance contract between it and Otis and Diane. Quality Casualty timely appealed to our supreme court, which transferred the appeal to this court pursuant to 12-2-7(6), Ala.Code 1975.

The circumstances out of which this action arose are as follows. On July 2, 2003, Otis applied for automobile insurance from his insurance agent, James L. Holt (“Holt”), for a 2002 Ford Escort automobile (“the Escort”) and a 1997 Isuzu Rodeo automobile that is not at issue in this matter. Holt testified that he filled in a computerized insurance application for Otis based on Otis’s responses to questions contained on the insurance application. In answering the questions on the application for insurance, Otis represented that his and Diane’s son, Christopher, was not a resident of his household; Otis testified that, at the time he answered the questions on the insurance application, Christopher had moved to Birmingham to begin college. Otis also answered “no” to the questions whether the Escort was to be kept at school or college and whether Otis had other insurance on any other vehicles. Otis listed only himself and Diane as regular drivers of the Escort.

Otis obtained insurance quotes from at least two different insurance companies through his application with Holt. At least one of those insurance quotes also included Christopher as a regular driver of the Escort. However, because the insurance quote that included Christopher as a regular driver of the Escort cost over $1,300 more for a six-month period than the cost of insurance for just Otis and Diane, Otis elected not to obtain insurance coverage that included Christopher as a regular driver of the Escort.

On July 2, 2003, the same day that he applied for the automobile insurance, Otis obtained an insurance policy for the Escort and the other vehicle from Quality Casualty. Christopher was not designated as a regular driver of the Escort under that insurance policy. Otis understood that Christopher would have coverage when driving the Escort if Christopher used the automobile only occasionally as an “infrequent user” of the Escort. It is undisputed that Quality Casualty would not have issued the insurance policy, or would not have issued the policy for the same premium rate, if Christopher had been listed as a regular driver of the Escort.

Otis and Christopher testified that Christopher initially walked to class or obtained rides from friends or his brother. However, in late September or October 2003, Otis and Diane began leaving the Escort in Birmingham for Christopher to use on occasion. Otis testified that Christopher had permission to use the Escort only during weather that made it difficult for him to get to class. Christopher testified that he obtained permission when he used the Escort. Christopher and Otis testified that Christopher returned home from college approximately three out of every four weekends; Christopher sometimes traveled home in the Escort, but on other occasions Otis and Diane would transfer Christopher to and from college.

In January 2004, the initial insurance policy between Otis and Diane and Quality Casualty expired, and Quality Casualty issued a renewal policy to Otis and Diane. No separate application for insurance was completed in order for Otis and Diane to renew the initial insurance policy. Quality Casualty did not investigate whether any of the information on the application for insurance had changed, and Otis and Diane did not indicate to or notify Quality Casualty that Christopher often drove the Escort or kept it at college.

The accident for which the Rubens and Young seek insurance coverage occurred on a weekend when Christopher was home from college. On April 4, 2004, Christopher obtained his parents’ permission to drive the Escort to a church service and to a restaurant for lunch following the service. Young was a passenger in the Escort at the time the accident occurred. At the time of the accident, the renewal policy was in effect.

Quality Casualty alleges that Otis misrepresented that at the time he completed the insurance application in July 2003 Christopher was not a resident of his household. Quality Casualty relies on the testimony of Christopher, Otis, and Diane to the effect that Christopher received mail at Otis and Diane’s residence, that Christopher’s driver’s license listed his address as Otis and Diane’s residence, and that Christopher returned home from college most weekends. Quality Casualty also alleges that Otis misrepresented that the Escort would not be kept “at school.” Although Otis testified that it was not his intention at the time he completed the insurance application that the Escort be kept by Christopher at college, the evidence established that the Escort was often with Christopher at college in Birmingham. Quality Casualty also maintains that Otis falsely represented that he did not have insurance coverage through another company on another vehicle he owned. Otis testified at the hearing in this matter that he did not recall having insurance on that other vehicle; however, in a prior sworn statement, he answered that he did have insurance on that vehicle at the time he applied for insurance with Quality Casualty.

Quality Casualty argued before the trial court that, based on Otis’s alleged misrepresentations, the insurance policy should be rescinded. With regard to that argument, the trial court found in its judgment that it

“[was] not reasonably satisfied from the evidence that at the time Defendant, Otis Ruben, signed the original application for insurance in July 2003, he made such blatant misrepresentations as would result in there being no ‘meeting of [the] minds’ so as to void and invalidate the contract of insurance at issue in this case. The Court notes that its conclusion would be. different if jbb,e representations made on the original application had instead been made at the time the policy was renewed in January 2004.”

Quality Casualty does not challenge that determination on appeal.

Rather, relying on § 27-14-7, Ala.Code 1975, Quality Casualty alleges that, based on the misrepresentations Otis allegedly made on the application for insurance, it did not have any liability to indemnify or defend under the insurance policy under which the Rubens and Young claimed coverage. Section 27-14-7 provides, in pertinent part:

“(a) All statements and descriptions in any application for an insurance policy or annuity contract, or in negotiations therefor, by, or in behalf of, the insured or annuitant shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery under the policy or contract unless either:
“(1) Fraudulent;
“(2) Material either to the acceptance of the risk or to the hazard assumed by the insurer; or
“(3) The insurer in good faith would either not have issued the policy or contract, or would not have issued a policy or contract at the premium rate as applied for, or would not have issued a policy or contract in as large an amount or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.”

Quality Casualty cites Amerson v. Gardner, 681 So.2d 570, 572-73 (Ala.Civ.App.1996), in which this court discussed an insurance company’s right to expect that its potential insureds truthfully respond to questions posed on the application for insurance. This court explained:

“Section 27-14-7, Ala.Code 1975, prevents recovery under an insurance policy if the application contains misrepresentations, omissions, or concealments of facts that either are fraudulent, are material to the acceptance of the risk or to the hazard assumed by the insurer, or are such that but for them, the insurer, acting in good faith, would not have issued the policy. An insurer may void an insurance policy based on a misrepresentation in the insurance application, even if the misrepresentation was unintentional. Clark v. Alabama Farm Bureau Mut. Casualty Ins. Co., 465 So.2d 1135 (Ala.Civ.App.1984). An insurance company has the right to expect a prospective insured to give truthful information on the application, and the insurance company normally has no duty to inquire further into whether an insured has told the truth on the application. Hess v. Liberty Nat'l Life Ins. Co., 522 So.2d 270 (Ala.1988); Old Southern Life Ins. Co. v. Spann, 472 So.2d 987 (Ala.1985).”

Amerson v. Gardner, 681 So.2d at 572-73. In Amerson v. Gardner, supra, this court, citing § 27-14-7, affirmed a summary judgment entered in favor of the insurer. However, the insurance policy under which the insured sought coverage in that case was the initial policy issued following the completion of the insurance application; that insurance application contained misrepresentations. Amerson v. Gardner, supra. Thus, the facts of that case are distinguishable from those of the case currently before this court; this case involves a renewal policy issued after the initial policy that was obtained based on alleged misrepresentations.

In reaching its judgment rejecting Quality Casualty’s argument based on § 27-14-7, the trial court relied on Alfa Mutual General Insurance Co. v. Oglesby, 711 So.2d 938 (Ala.1997). In that case, the insured did not truthfully answer the question in his application for insurance regarding whether a member of the household had ever been arrested for any reason. The insured did not disclose that he had been arrested a number of times and had pleaded guilty to crimes, including four counts of public indecency. See Alfa Mut. Gen. Ins. Co. v. Oglesby, 711 So.2d at 940; see also Alfa Mut. Gen. Ins. Co. v. Oglesby, 711 So.2d at 946 (Houston, J., dissenting). After the insured’s house was destroyed by a fire while a renewal insurance policy was in effect, the insurer, citing the misrepresentation on the application for the initial insurance policy, attempted to avoid its liability under the renewed insurance policy. The trial court entered a judgment as a matter of law in favor of the insured on the insurer’s claim seeking rescission of the insurance policy, and our supreme court affirmed. The supreme court, relying on an opinion by a federal district court, concluded that the Alabama Legislature, in enacting § 27-14-7, intended that that statute apply only to initial policies of insurance and to the applications for those initial insurance policies. Alfa Mut. Gen. Ins. Co. v. Oglesby, 711 So.2d at 941 (relying on State Farm Gen. Ins. Co. v. Oliver, 658 F.Supp. 1546 (N.D.Ala.1987)). In so holding, the court quoted with approval as follows from the federal district court’s order in Oliver:

‘The only “policy or contract” here issued in response to [the insured’s] application of November 16, 1984, was not the “policy or contract” which was in force at the time of the fire. The policy here involved was a renewal policy issued one year after November 16, 1984. When the Alabama Legislature provided that “misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery ... unless ”, it obviously was mandating a strict interpretation of its subsequent language in favor of the insured. If literally construed, § 27-14-7(a)(3) makes no reference to any “policy or contract” except a “policy or contract” issued in direct and immediate response to the false application.” ’

Alfa Mut. Gen. Ins. Co. v. Oglesby, 711 So.2d at 941 (quoting State Farm Gen. Ins. Co. v. Oliver, 658 F.Supp. at 1550).

In this case, the trial court’s finding in its judgment that it could not say that Otis made “such blatant misrepresentations” as would invalidate the insurance policy as void indicates that the trial court found that Otis did, in fact, make some misrepresentations on the application for insurance. In fact, during the hearing in this matter, the trial court stated that it believed that Otis, while avoiding paying for the expensive insurance coverage for Christopher, had “attempt[ed] to fit [Christopher’s use of the Escort] within a category of uses ... that would satisfy the infrequent use provision” contained in the Quality Casualty policy. The trial court explained its conclusion as follows:

“Now, the evidence that has been presented by Mr. [Otis] Ruben was that that was — that he discussed his son being in school. So, what it comes down to was, here is a discussion about the fine lines between coverage and — at best, the lines between coverage and no coverage.
“And Mr. [Otis] Ruben, in effect, attempted — through their testimony, attempted to avoid having to pay the high premium by trying to have his son to use the car infrequently and to satisfy what they — whatever they may contend Mr. Holt said they could do in order not to incur that additional premium.”

The trial court further stated that “the testimony that I have heard from the Rubens has suggested that they made an attempt to try to, you know, navigate this narrow exception without paying the premiums for it. And as I view the evidence, they failed.” However, the court then concluded that whether Christopher’s actual use of the Escort was too frequent to entitle him to coverage under the infrequent-use provision of Otis and Diane’s insurance policy with Quality Casualty was not dispositive, given the holding of Alfa Mutual General Insurance Co. v. Oglesby, supra.

Quality Casualty argues that in Alfa Mutual General Insurance Co. v. Oglesby, supra, our supreme court misinterpreted the legislative intent behind § 27-14-7 and that that case should be overruled. In making its argument, Quality Casualty cites Chief Justice Hooper’s dissent in Alfa Mutual General Insurance Co. v. Oglesby, supra, in which Chief Justice Hooper stated:

“The issuance of a renewal policy should not operate to void the effect of statements made in the original — and only — application. See 43 Am.Jur.2d Insurance § 1020 (1982) (‘in the absence of a new application or anything showing a different intention, the renewal of a fire insurance policy is impliedly made on the basis that the statements in the original application or policy are still accurate and operative’). Section 27-14-7 was certainly not written to protect an insurer from misrepresentations made in the application, but only for the length of the original policy term. Under the rationale of the majority opinion, an insured could give false information on an application for insurance and then hide the truth for a year (or whatever the term of the original policy), and then, once a renewal policy is issued, be free from the consequences of being untruthful. I do not believe one should benefit from being untruthful.”

Alfa Mut. Gen. Ins. Co. v. Oglesby, 711 So.2d at 945 (Hooper, C.J., dissenting).

Quality Casualty also cites In re HealthSouth Corp. Insurance Litigation, 308 F.Supp.2d 1253, 1273-74 (N.D.Ala.2004), a recent opinion from the same federal district court that issued State Farm General Insurance Co. v. Oliver, supra, the opinion upon which the holding in Alfa Mutual General Insurance Co. v. Oglesby, supra, was based. In that case, the federal district court, relying on the Alabama Supreme Court’s holding in Alfa Mutual General Insurance Co. v. Oglesby, supra, concluded that an insurance company could not “rescind a policy under § 27-14-7(a)(3) unless the policy was issued ‘in direct and immediate response to the false application.’ ” In re HealthSouth Corp. Ins. Litig., 308 F.Supp.2d at 1275 (citing State Farm Gen. Ins. Co. v. Oliver, 658 F.Supp. at 1550). However, we note that in its decision in In re HealthSouth Corp. Insurance Litigation, supra, the federal district court questioned whether our supreme court, in deciding Alfa Mutual General Insurance Co. v. Oglesby, supra, intended to limit that decision to situations involving only § 27-14-7(a)(3). See In re HealthSouth Corp. Ins. Litig., 308 F.Supp.2d at 1272-75. Quality Casualty briefly made a similar argument to the trial court. The dissent bases much of its argument that the facts of this case are distinguishable from those of Alfa Mutual General Insurance Co. v. Oglesby, supra, on ideas set forth in the federal court’s decision in In re HealthSouth Corp. Insurance Litigation, supra.

We agree that a distinction might be drawn between the facts and arguments presented in Alfa Mutual General Insurance Co. v. Oglesby, supra, and those of this case. However, the supreme court held, without qualification, that § 27-14-7 applies only to initial insurance policies and the applications for those policies. Alfa Mut. Gen. Ins. Co. v. Oglesby, supra. We conclude that it would be more prudent for this court to follow the precedent set forth by our supreme court than to speculate regarding any qualification of that court’s holding in Alfa Mutual General Insurance Co. v. Oglesby, supra. Whether this court agrees with the rationale of Alfa Mutual General Insurance Co. v. Oglesby, supra, or with the sentiments expressed in Chief Justice Hooper’s dissent in that case is not determinative. This court is bound by the precedents established by the Supreme Court of Alabama. § 12-3-16, Ala.Code 1975; see also C & S Constr. Co. v. Martin, 420 So.2d 788, 789 (Ala.Civ.App.1982) (this court may not overrule decisions of our supreme court); and Jones v. City of Huntsville, 288 Ala. 242, 244, 259 So.2d 288, 290 (1972) (“the Court of Civil Appeals is without authority to overrule the decisions of this court”). Thus, “[a]lthough the supreme court might choose to revisit this issue, this court is bound by precedent.” Farmers Ins. Exch. v. Raine, 905 So.2d 832, 835 (Ala.Civ.App.2004). Therefore, we must affirm the trial court’s judgment based on the precedent of Alfa Mutual General Insurance Co. v. Oglesby, supra.

AFFIRMED.

PITTMAN, J., concurs.

BRYAN, J., concurs specially, with writing.

MURDOCK, J., concurs in the result, without writing.

CRAWLEY, P.J., dissents, with writing.

BRYAN, Judge,

concurring specially.

I concur in the main opinion. Although I agree with Chief Justice Hooper’s dissent in Alfa Mutual General Insurance Co. v. Oglesby, 711 So.2d 938, 945-46 (Ala.1997), I am constrained to follow the precedent established by the supreme court’s decision in that case. See § 12-3-16, Ala. Code 1975 (“The decisions of the Supreme Court shall govern the holdings and decisions of the courts of appeals .... ”). As Chief Justice Hooper aptly noted, “one should [not] benefit from being untruthful.” 711 So.2d at 945. The record indicates that the trial court essentially found that Otis made a misrepresentation on the application for insurance. Whether in the present case or in another case, I urge the supreme court to revisit or to clarify the precedent established by that court in Alfa Mutual General Insurance Co. v. Oglesby, supra.

CRAWLEY, Presiding Judge,

dissenting.

I respectfully dissent. I believe this case is distinguishable from Alfa Mutual General Insurance Co. v. Oglesby, 711 So.2d 938 (Ala.1997), on the basis described by federal district Judge Bowdre in In re HealthSouth Corp. Insurance Litigation, 308 F.Supp.2d 1253 (N.D.Ala.2004), and, further, on the basis explained below.

First, in Oglesby, the supreme court quoted from Judge Acker’s opinion in State Farm General Insurance Co. v. Oliver, 658 F.Supp. 1546 (N.D.Ala.1987), which specifically refers to § 27-14-7(a)(3), Ala.Code 1975. Although the supreme court’s opinion in Oglesby regularly cites to § 27-14-7 in its entirety, the operative principles invoked in that case were evidently related to § 27-14-7(a)(3). Therefore, as Judge Bowdre suggests, to the extent Oglesby addresses the applicability of other subsections of § 27-14-7, those references are dicta.

“The Alabama Supreme Court in Oglesby did not address the specific language in [§ ]27 — 14—7(a)(3) upon which Judge Acker relied when he determined that subparagraph (a)(3) requires an application for the policy to be rescinded. The Court did not even set out under which subparagraph of § 27-14-7 Alfa sought rescission, but apparently Alfa relied on subparagraph (a)(3) when it contended that the misinformation was material and it would not have issued the policy had it known the truth. See 711 So.2d at 940. The Court did not hedge in any way when it stated that § 27-14-7 — without reference to any subparagraph — applies to initial policies and applications. However, the Court did not have squarely before it whether subparagraphs (a)(1) intentional fraud or (a)(2) material misinformation are similarly limited. In other words, the only issue squarely presented to the Court was whether subparagraph (a)(3) required an application for the specific policy in question. Becmse the requirements of § 27-11-7 as a whole was not before the Court and was not necessary to the decision in that case, the Court’s pronouncement is dictum and not controlling. See Mitchell v. Vann, 278 Ala. 1, 174 So.2d 501, 507 (1965); Knight v. State, 273 Ala. 480, 142 So.2d 899, 905 (1962) (describing dictum as ‘expressing] an opinion based on facts not shown by the record’); Kimball v. Cunningham Hardware Co., 192 Ala. 223, 68 So. 309, 311 (1915) (same).
“Because the precise issue before the Alabama Court involved § 27-14-7(a)(3), not the section as a whole, making the court’s pronouncement as to § 27-14-7 dictum; and because the Court only quoted from Judge Acker’s discussion of subparagraph (a)(3) as it related to an application for the policy, the court doubts whether the Alabama Supreme Court, if confronted with the precise issue, would follow Oglesby’s broad pronouncement. A closer examination of the initial language of § 27-14-7(a) increases the court’s doubt.
“The section begins by providing that statements in ‘any application for an insurance policy ... or in negotiations therefor’ are representations and not warranties. The second sentence, which leads into the three alternative statutory grounds for denial of recovery, provides that misinformation ‘shall not prevent a recovery under the policy or contract ....’ (Ala.Code § 27-14-7(a)). Applying the same statutory construction employed by Judge Acker and approved by the Alabama Supreme Court, ‘the policy or contract’ in the prefatory paragraph refers to the one issued in response to the application, or in response to ‘negotiations therefor.’ Thus, a solid argument could be made based on statutory construction that an insurer can deny recovery under ‘the policy or contract’ because of fraudulent or material misrepresentations contained in an application for that policy or ‘in negotiations therefor, ’ regardless of whether the policy is the initial policy or a renewal policy.”

In re HealthSouth Corp. Ins. Litig., 308 F.Supp.2d at 1273 (some emphasis original; some emphasis added).

I also note that the majority in Oglesby consisted of three Justices concurring in the main opinion authored by Justice Shores and Justice Butts concurring specially. Three Justices dissented, and Justice Maddox recused himself. Justice Butts’s special concurrence noted specifically that he agreed “that the legislature intended that § 27-11-7(a) (3) apply only to initial policies and the applications therefor .... ” Oglesby, 711 So.2d at 945. Consequently, Justice Butts’s special concurrence adds weight to the notion that we should construe references in Oglesby to the entire statute to be dicta.

Additionally, although the subpara-graphs in § 27-14-7(a) overlap in purpose, making it problematic to discern a clear distinction between “[misrepresentations, omissions, concealment of facts and incorrect statements” that are fraudulent or material under subparagraphs (a)(1) and (a)(2), respectively, and those that fall within the provisions of subparagraph (a)(3), such a distinction can be made.

Section 27-14-7(a)(3) provides the most broad exception to the rule that “Misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent recovery.” § 27-14-7(a), Ala.Code 1975. The other subparagraphs, because they involve either more culpable conduct as in subparagraph (a)(1), or require any “Misrepresentations, omissions, concealment of facts and incorrect statements” to be material, as in subparagraph (a)(2), are both more narrow exceptions to the general rule enumerated by § 27-14-7(a). Fraud or other material misrepresentations are distinct from the more broadly worded provisions of subparagraph (a)(3), which provides simply that had the insurer known the truth (regardless of whether it was fraudulently omitted or material) it might have issued the policy under different terms or not at all.

Also important is the fact that the information the insured omitted from his insurance application in Oglesby involved convictions for indecent exposure, which, although relevant to the insurance company for purposes of deciding whether to provide insurance, is arguably less material to the decision to provide homeowner’s insurance than the matter omitted in this case was to the decision to provide automobile insurance. In this case, a purchaser of automobile insurance is alleged to have omitted information about who would be driving the vehicle the insurance policy was intended to cover. Such an omission goes to the heart of the decision to issue the insurance policy and clearly could be considered a fraudulent or at least material omission under subparagraphs (a)(1) or (a)(2), respectively.

Finally, I note that, because a broad interpretation of the supreme court’s decision in Oglesby would open the doors to untruthful insurance applicants reaping an unfair benefit if the insurance company does not discover an omission before renewing the policy, we should instead construe the Oglesby decision narrowly.

Because this case is distinguishable from Oglesby for the reasons stated above, I respectfully dissent.


author: SEE, Justice.

text:
    Ex parte QUALITY CASUALTY INSURANCE COMPANY. (In re Quality Casualty Insurance Company v. Otis J. Ruben et al.).
    1051046.
    Supreme Court of Alabama.
    Dec. 22, 2006.

      Joseph H. Driver and Brett A. Ross of Carr, Allison, Pugh, Howard, Oliver & Sis-son, P.C., Birmingham, for petitioner.
    William M. Hammond of The Hammond Firm, P.C., Birmingham, for respondent Donald Young.
   SEE, Justice.

This Court granted certiorari review to revisit our holding in Alfa Mutual General Insurance Co. v. Oglesby, 711 So.2d 938 (Ala.1998).

Facts and Procedural History

In July 2003, Otis J. Ruben applied for automobile insurance for his 2002 Ford Escort automobile. In the application for the insurance, Otis chose not to include his son Christopher as a regular driver on the policy, because to do so would have cost over $1,300 more for a six-month period than it cost to cover only Otis and his wife, Diane. Otis represented in his application for insurance that Christopher was not a regular driver of the Escort and that he was not a resident of Otis’s household in Tuscaloosa. Otis further represented on his application that Christopher, who was attending college in Birmingham, did not keep the car at school.

Quality Casualty Insurance Company agreed to provide Otis with automobile insurance. Otis understood that Christopher would have coverage while driving the Escort to the extent that Christopher used the automobile only as an “infrequent user.” Had Christopher been listed as a regular driver of the Escort, Quality Casualty maintains, it would not have issued the policy or it would not have issued the policy for the same premium.

Christopher had moved to Birmingham in June 2003 to attend college. Initially, Christopher walked to class or rode with his brother or friends. Around August or September 2003, Otis allowed Christopher to keep the Ford Escort at school, but he testified that Christopher was to use the Escort only to get to class during bad weather and occasionally to come home to Tuscaloosa on weekends.

The policy Quality Casualty had issued based on Otis’s July 2003 application expired in January 2004. Quality Casualty then issued a renewal policy. Otis did not complete a new application before the renewal policy was issued, and Quality Casualty did not investigate whether any of the information on Otis’s application for insurance had changed. Otis did not notify Quality Casualty that Christopher was driving the Escort and that it was in Christopher’s possession in Birmingham.

On April 4, 2004, Christopher was in an automobile accident in the Ford Escort while he was driving home to Tuscaloosa from dinner. Otis sought insurance coverage for the accident on the basis of the renewal policy, which was in effect at the time of the accident.

Quality Casualty refused to pay the claim resulting from the accident and sued Otis and Christopher, among others, seeking a judgment declaring that it was “not obligated to defend, indemnify, or provide any benefits to the Defendants” (1) because Christopher “was not a ‘resident’ of the insureds’ home at the time of the accident” and (2) because Otis had misrepresented material information in his application for insurance coverage. In support of its argument, Quality Casualty cited § 27-14-7, Ala.Code 1975, which states:

“Misrepresentation, omissions, concealment of facts and incorrect statements shall not prevent a recovery under the policy or contract unless either:
“(1) Fraudulent;
“(2) Material either to the acceptance of the risk or to the hazard assumed by the insurer; or
“(3) The insurer in good faith would either not have issued the policy or contract, or would not have issued a policy or contract at the premium rate as applied for....”

Quality Casualty alleges that Otis misrepresented Christopher’s status as a resident of Otis’s household and driver in Otis’s application for insurance. Under the heading of the application entitled “Resident & Driver Information (List all residents & dependents (licensed or not) and regular operators),” Otis had listed himself and his wife, but not Christopher, even though Christopher was allegedly both a resident of Otis’s household and a regular operator of the Escort. Otis and his wife denied Quality Casualty’s allegations and filed a counterclaim, alleging that Quality Casualty had breached its insurance contract and had acted in bad faith in refusing to pay the accident claim.

After an ore tenus hearing, the trial court held that Quality Casualty was not relieved from providing insurance coverage under its insurance contract with Otis. The trial court based its ruling against Quality Casualty on this Court’s holding in Alfa Mutual General Insurance Co. v. Oglesby, 711 So.2d 938 (Ala.1998), which interpreted § 27-14-7 to apply only to original policies and not to renewal policies. The Court of Civil Appeals affirmed the trial court’s judgment, relying on the same case. Quality Casualty Ins. Co. v. Ruben, 962 So.2d 234 (Ala.Civ.App.2006). Quality Casualty petitioned for certiorari review; this Court granted certiorari review to consider whether to overrule its previous holding in Oglesby that § 27-14-7 applies only to original policies, and not to renewal policies. We reverse the judgment of the Court of Civil Appeals, and to the extent Oglesby holds that § 27-14-7, Ala.Code 1975, applies only to an original insurance policy issued on an application for insurance and not to a renewal insurance policy, even if the renewal insurance policy was issued on the basis of the original application, we are overruling Oglesby.

Standard of Review

The issue presented in this case— whether § 27-14-7 applies to renewal policies as well as original policies — is an issue of statutory construction; therefore, this Court’s review is de novo. Whitehurst v. Baker, 959 So.2d 69 (Ala.2006).

Analysis

Section 27-14-7, Ala.Code 1975, provides:

“(a) All statements and descriptions in any application for an insurance policy or annuity contract, or in negotiations therefor, by, or in behalf of, the insured or annuitant shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery under the policy or contract unless either:
“(1) Fraudulent;
“(2) Material either to the acceptance of the risk or to the hazard assumed by the insurer; or
“(3) The insurer in good faith would either not have issued the policy or contract, or would not have issued a policy or contract at the premium rate as applied for, or would not have issued a policy or contract in as large an amount or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.”

This Court interpreted § 27-14-7 in Oglesby, supra. In Oglesby, Alfa Mutual General Insurance Company (“Alfa”) issued a homeowner’s insurance policy to Oglesby. When Oglesby’s house was destroyed in a fire, he filed a claim with Alfa under his homeowner’s insurance policy. Alfa filed a declaratory-judgment action, seeking to rescind its contract with Oglesby because, Alfa argued, Oglesby had made material misrepresentations in his application for insurance. Specifically, Oglesby had “failed to answer ‘yes’ to the question ‘Has anyone in the household ever been arrested for any reason?’ ” although Oglesby had, in fact, been arrested eight times. 711 So.2d at 940. The trial court directed a verdict for Oglesby on Alfa’s misrepresentation claims, under § 27-14-7. Alfa appealed, and this Court affirmed the trial court’s judgment, holding that the “legislature intended that § 27-14-7 apply to initial policies and the applications therefor” and not to renewal policies. 711 So.2d at 941. This Court concluded that the trial court properly directed a verdict in favor of Oglesby, even though Oglesby had misrepresented facts in his initial policy application, because Oglesby was seeking to recover under his renewal policy and not under the original policy.

This Court in Oglesby relied on a federal district court’s interpretation of § 27-14-7 in State Farm General Insurance Co. v. Oliver, 658 F.Supp. 1546 (N.D.Ala.1987), quoting the following language:

“ ‘The only “policy or contract” here issued in response to [the insured’s] application of November 16, 1984, was not the “policy or contract” which was in force at the time of the fire. The policy here involved was a renewal policy issued one year after November 16, 1984. When the Alabama Legislature provided that “misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery ... unless,” it obviously was mandating a strict interpretation of its subsequent language in favor of the insured. If literally construed, § 27-14-7(a)(3) makes no reference to any “policy or contract” issued in direct and immediate response to the false application.’ ”

Oglesby, 711 So.2d at 941 (quoting State Farm, 658 F.Supp. at 1550). Thus, in Oglesby, this Court interpreted § 27-14-7(a)(3) to exclude renewal policies, even though the plain language of the statute does not authorize such an exclusion, on the premise that the issuance of the renewal policy was independent of the representations made in the initial application for insurance coverage.

We agree with Chief Justice Hooper’s dissent in Oglesby that “[njothing in § 27-

14-7 indicates that it applies only to the initial application and the initial policy.” 711 So.2d at 945. Section 27-14-7 protects insurers from having to pay claims made under an insurance policy or contract if, “in any application for an insurance policy,” the insured made a fraudulent or material misrepresentation or if the insurer would not have issued the policy had it known the truth. The statute does not differentiate between original applications and renewal policies.

The insurance policy at issue in Oglesby was renewed annually, but as Chief Justice Hooper observed:

“[TJhere was only one application, and Oglesby was not truthful in completing it. There is no evidence of a substitute application; the application involved in this case is the original application. We might have a different situation if Ogles-by had completed a new application with each renewal. He did not.
“The issuance of a renewal policy should not operate to void the effect of statements made in the original — and only — application. See 43 Am.Jur.2d Insurance § 1020 (1982) (‘in the absence of a new application or anything showing a different intention, the renewal of a fire insurance policy is impliedly made on the basis that the statements in the original application or policy are still accurate and operative’). Section 27-14-7 was certainly not written to protect an insurer from misrepresentations made in the application, but only for the length of the original policy term. Under the rationale of the majority opinion, an insured could give false information on an application for insurance and then hide the truth for a year (or whatever the term of the original policy), and then, once a renewal policy is issued, be free from the consequences of being untruthful. I do not believe one should benefit from being untruthful. The majority is rewarding Oglesby for not telling the truth and for concealing the truth for five years.... Oglesby misrepresented a fact that was material to the acceptance of the risk, and Alfa took that risk under the belief that Oglesby had had no prior arrests. The fact that Oglesby seeks recovery under a renewal policy should not excuse his untruthfulness.”

We agree with Chief Justice Hooper. The homeowner’s policy in Oglesby was renewed annually based on Oglesby’s original application. We find no plausible basis on which to read § 27-14-7 as applicable to an original policy and not applicable to a renewal policy, when the renewal policy is issued on the basis of the original application. Thus, we overrule Oglesby to the extent that it interprets § 27-14-7 as applicable only to original insurance policies and not to renewal policies, when the renewal policy is issued based on the application for the original policy.

Both the trial court and the Court of Civil Appeals relied on Oglesby in their decisions. In its order, the trial court stated, “[bjased on Oglesby the Court rejects [Quality Casualty’s] contention that Section 27-14-7 bars coverage for Defendants for the accident” even though the trial court also acknowledged that “I would not find that the use done by Chris Ruben would be the kind of infrequent use that the policy provision would permit.” The Court of Civil Appeals expressed a similar concern, pointing out that “[wjhether this court agrees with the rationale of Alfa Mutual General Insurance Co. v. Oglesby, ... or with the sentiments expressed in Chief Justice Hooper’s dissent in that case is not determinative. This court is bound by the precedents established by the Supreme Court of Alabama.” 962 So.2d at 239-40.

This Court has great respect for the doctrine of stare decisis; at the same time, “we should not blindly continue to apply a rule of law that does not accord with what is right and just.” Ex parte State Farm Fire & Cas. Co., 764 So.2d 543, 545 (Ala.2000).

“ ‘The doctrine of stare decisis tends to produce certainty in our law, but it is important to realize that certainty per se is but a means to an end, and not an end in itself. Certainty is desirable only insofar as it operates to produce the maximum good and minimum harm and thereby to advance justice.... When it appears that the evil resulting from a continuation of the accepted rule must be productive of greater mischief to the community than can possibly ensue from disregarding the previous adjudications on the subject, courts have frequently and wisely departed from precedent, 14 Am.Jur., Courts, § 126.’ ”

State Farm, 764 So.2d at 545 n. 3 (quoting Fox v. Snow, 6 N.J. 12, 25, 76 A.2d 877, 883-84 (1950)). In the present case, we believe that the previous interpretation of § 27-14-7 thwarts justice in that it enables an insured to lie on an insurance application and avoid the consequences of that lie, provided that the insured successfully conceals the lie through the initial policy period. The only countervailing benefit we see in continuing the Oglesby rule is the benefit to the insured that, if the insured is successful in concealing a lie on the application through the initial policy period, the courts will then aid the insured in benefiting from the lie and its concealment. This is not a “benefit” that warrants our adherence to stare decisis.

We reverse the judgment of the Court of Civil Appeals and remand this cause for proceedings consistent with this opinion.

REVERSED AND REMANDED.

NABERS, C.J., and LYONS, HARWOOD, WOODALL, STUART, SMITH, BOLIN, and PARKER, JJ., concur.


author: THOMPSON, Presiding Judge.

text:
    QUALITY CASUALTY INSURANCE COMPANY v. Otis J. RUBEN et al.
    2050042.
    Court of Civil Appeals of Alabama.
    Feb. 2, 2007.
    Joseph A. Driver and Brett A. Ross of Carr, Allison, Pugh, Howard, Oliver & Sis-son, P.C., Birmingham, for appellant.
    William M. Hammond of The Hammond Firm, P.C., Birmingham, for appellee Donald Young.
   After Remand from the Alabama Supreme Court

THOMPSON, Presiding Judge.

The prior judgment of this court has been reversed and the cause remanded by the Supreme Court of Alabama. Ex parte Quality Cas. Ins. Co., 962 So.2d 242 (Ala.2006). On remand, and in compliance with the Supreme Court’s opinion, we hereby reverse the judgment of the trial court and remand this cause for proceedings consistent with the Supreme Court’s opinion.

REVERSED AND REMANDED.

PITTMAN, BRYAN, THOMAS, and MOORE, JJ., concur.