author: BRADLEY, Judge.

text:
    FIRST CITY NATIONAL BANK OF OXFORD, Alabama v. LONG-LEWIS HARDWARE COMPANY.
    Civ. 1212.
    Court of Civil Appeals of Alabama.
    Dec. 14, 1977.
    As Corrected On Denial of Rehearing Jan. 11, 1978.

      Robert B. Propst of Wilson, Propst, Isom, Jackson, Bailey & Bolt, Anniston, for appellant.
    James B. Kierce, Jr., of Stone, Patton, Fierce, Bessemer-Merrill, Porch, Doster & Dillon, Anniston, for appellee.
   BRADLEY, Judge.

This appeal arises out of a civil action in the Circuit Court of Calhoun County. Appellee, Long-Lewis Hardware Company, recovered damages on the basis of a statement made by an employee of First City National Bank of Oxford, Alabama to a representative of Long-Lewis concerning a check drawn on the appellant bank by a third person. After the presentation of evidence by both parties, Long-Lewis’ claim for damages was submitted to a jury. The jury rendered a verdict in favor of Long-Lewis in the amount of $6,150.40. From the judgment entered on Long-Lewis’ cause of action the bank appeals.

The record before us reveals the following facts. Bonnie Reese purchased a new car from Long-Lewis Ford in Bessemer, Alabama. At that time Mrs. Reese informed the salesman for Long-Lewis that she had obtained a loan with the First City National Bank of Oxford in order to pay the automobile’s purchase price of $5,380.00. The following day the salesman for Long-Lewis went to Oxford to finalize the financing of the transaction between Mrs. Reese and Long-Lewis. The salesman was instructed by his supervisor to obtain a certified check from the bank for the payment of the automobile; however, he returned to Bessemer without obtaining a certified check because the arrangements for the loan had not actually been completed.

Two days after her initial contact with Long-Lewis, Mrs. Reese returned to the firm’s automobile sales lot with a bank deposit slip for the sum of $5,680.00 and a security agreement signed by First City National Bank demonstrating that she had in fact obtained a loan from the bank. Upon showing these documents to the sales manager for Long-Lewis, she asked to write a personal check for the purchase price of the car. The sales manager then telephoned the bank and was informed by a bank employee that the account of Mrs. Reese contained sufficient funds to cover her check. In reliance on this information, Long-Lewis accepted a personal check from Mrs. Reese in the amount of $5,680.00.

When the cheek reached First City Bank several days later, it was dishonored. Upon learning that Mrs. Reese’s check had been dishonored, the sales manager for Long-Lewis again telephoned the bank and spoke to the same employee with whom the sales manager had had his earlier conversation. During this conversation, the bank employee informed the sales manager that the funds from the loan had originally been deposited in Mrs. Reese’s account. However, he stated that the bank had subsequently learned that Mrs. Reese had: (1) misrepresented the purchase price of the automobile to the bank; and (2) told the bank that she had never had any personal property repossessed, when in fact she had been subjected to two prior repossessions. The bank employee further informed the sales manager that as a result of these misrepresentations by Mrs. Reese, First City National had (pursuant to its security agreement with her) applied the funds from her account to the balance due on her loan with the bank. Thus, the sales manager for Long-Lewis learned that the funds on which the check to Long-Lewis was drawn had been removed.

Subsequent efforts by Long-Lewis to recover the sales price of the automobile from the bank were unsuccessful. Moreover, Mrs. Reese disappeared and Long-Lewis never recovered the automobile in question.

As a consequence of these events, Long-Lewis brought a civil action for fraud and misrepresentation against First City National Bank. After a trial on the merits of the suit, judgment was rendered for Long-Lewis and First City National appeals.

The bank’s initial argument is that since the bank never accepted the check issued by Mrs. Reese to Long-Lewis, it incurred no liability on the instrument and therefore the jury’s verdict was incorrect.

The Uniform Commercial Code, Title 7, section 3-409(1), Code of Alabama 1975, provides that a “drawee is not liable on [an] instrument until he accepts it.” Moreover, a check or draft is not accepted by a bank for payment unless the bank actually pays out on the instrument, U.C.C., Title 7, section 3-418; agrees to accept it in writing, U.C.C., Title 7, section 3-410; or indicates by certification that the instrument has been accepted, U.C.C., Title 7, section 3 — 411. None of these events occurred in the present case. Consequently, there was no acceptance by First City National of the check issued to Long-Lewis by Mrs. Reese. However, the suit by Long-Lewis against the bank is encompassed by the language of the Uniform Commercial Code, Title 7, section 3 — 409(2) which states that:

“Nothing in this section shall affect any liability in contract, tort or otherwise arising from any letter of credit or other obligation or representation which is not an acceptance.”

Of course, a bank employee’s representation that a drawer’s check is good applies only to the situation at that time and the law properly allows dishonor if the drawer’s account contains insufficient funds at the time the instrument is presented for payment, Peoples Bank in North Fort Myers v. Bob Lincoln, Inc., 13 U.C.C.Rep. 672, 283 So.2d 400 (Fla.App.1973); nevertheless, circumstances involving the issuing of a check and its subsequent dishonor may give rise to an independent cause of action. Peoples Bank in North Fort Myers v. Bob Lincoln, Inc., supra. See Union Bank v. Safanie, 5 Ariz. App. 342, 427 P.2d 146 (1967) (holding the bank liable on a complaint alleging fraud, negligence and estoppel). Indeed, comment 3 to section 3-409 states:

“Subsection (2) is new. It is intended to make it clear that this section does not in any way affect any liability which may arise apart from the instrument itself. The drawee who fails to accept may be liable to the drawer or to the holder for breach of the terms of a letter of credit or any other agreement by which he is obligated to accept. He may be liable in tort or upon any other basis because of his representation that he has accepted, or that he intends to accept. The section leaves unaffected any liability of any kind apart from the instrument.”

In the present case the trial court refused to give the bank’s proffered instructions as to its contention that the bank could be liable only if an acceptance of the instrument by the bank was in writing. We believe the court was correct in refusing to instruct the jury in this manner in view of the fact that Long-Lewis was not seeking to recover damages from the bank under section 3 — 409(1) or because of the latter’s refusal to accept the instrument.

Thus, the provisions of the Uniform Commercial Code negating a drawee’s liability to the holder of a check unless the drawee has accepted the check in writing or certified it, was inapplicable in this instance since the suit by Long-Lewis was based on its contention that the bank’s liability exis ted apart from the check itself.

Accordingly, the second issue presented for review to this court involves whether the verdict rendered by the jury on behalf of Long-Lewis can be sustained on the basis of tort or contractual theories of liability arising apart from an action on the instrument itself.

As stated earlier, the initial complaint filed by Long-Lewis charged First City National Bank with fraud. The complaint was essentially an enumeration of the events which Long-Lewis claimed gave validity to its action. The bank challenged the sufficiency of Long-Lewis’ complaint and the allegations of fraud made in that pleading.

A pre-trial conference was held on these matters and at this conference Long-Lewis again asserted, and the trial court agreed, that the action by Long-Lewis should proceed on the theories of fraud or misrepresentation. The bank objected to the applicability of these theories and moved to have the suit dismissed. The trial court, however, overruled the bank’s motion to dismiss.

Other than fraud and misrepresentation, no other theories of liability were asserted by Long-Lewis as grounds for its civil suit against the bank. And throughout the presentation of its case-in-chief, Long-Lewis continuously introduced evidence which it contended warranted a finding by the jury that First City National had fraudulently misrepresented to an employee of Long-Lewis that the bank would cover the check given by Mrs. Reese to the sales personnel at Long-Lewis. However, after Long-Lewis announced that it would call no further witnesses, counsel for the bank reminded the court that he had filed a motion for a directed verdict and that this motion was based on his view that even if the jury accepted Long-Lewis’ version of the facts concerning the events and statements made by the bank employee to the sales manager of Long-Lewis, such events and statements did not constitute fraud or misrepresentation. After permitting the bank’s lawyer to complete his argument on the issue, the attorney who represented Long-Lewis urged that the bank had no right to withdraw the loan proceeds from Mrs. Reese’s account because the agreement entered into between the bank and Mrs. Reese created a “special” deposit which precluded the withdrawal of the money in that account for any purpose other than as payment to Long-Lewis for the automobile it had sold to Mrs. Reese. The attorney for Long-Lewis then read or quoted from various legal authorities defining a “special” deposit. The bank’s lawyer presented his own arguments on the matter and took the position that even if a “special” deposit had been created, the security agreement between Mrs. Reese and the bank gave the latter the express right to withdraw the loan funds from her account should the bank subsequently learn that she had made material misrepresentations to the bank.

Apparently, it was during the above described events that Long-Lewis asserted for the first time that the bank was liable under the theory of violating an agreement between the bank and its depositor to create a “special” deposit. Until the occurrence of these events Long-Lewis had argued that the bank was liable to it for fraud and misrepresentation. And it is obvious that counsel for the bank was surprised by the late introduction of a new theory of liability in support of Long-Lewis’ action.

Nonetheless, after both parties completed their arguments regarding the theory of a “special” deposit, the bank put on its casein-chief and proceeded to introduce evidence demonstrating that the terms of its security agreement with Mrs. Reese gave First City National the right to withdraw the loan proceeds if it felt insecure or learned of any misrepresentations made by Mrs. Reese to the bank. The bank also proved that employees of Long-Lewis had a copy of the security agreement in their possession at the time they accepted Mrs. Reese’s personal check. Having presented this evidence, counsel for the bank announced that his client rested.

The jury was then excused while the parties made additional legal arguments to the court. Upon the conclusion of these arguments, the court informed the parties that it would not permit the case to go to the jury on the theory of fraud and misrepresentation. This theory of liability was premised on the conversation which occurred between the sales manager and the bank’s employee, and the alleged misrepresentation which took place during that conversation.

The court did, however, announce to the parties that it would allow the jury to consider whether the loan proceeds which the bank initially placed in Mrs. Reese’s account created a “special” deposit between the bank and its depositor, Mrs. Reese. Of course, the theory of a “special” deposit involved a breach of the bank’s obligation (either express or implied) to Mrs. Reese to hold the funds in the account of Mrs. Reese for the benefit of Long-Lewis. But its only relevancy in regard to the statement made by the bank to the sales manager for Long-Lewis that the funds in Mrs. Reese’s account existed for the express purpose of covering her personal check to Long-Lewis was as evidence that Mrs. Reese intended to create a “special” deposit with the bank in order to have the funds from that account applied to the purchase price of her new automobile. The conversation which occurred between the sales manager for Long-Lewis and the bank’s employee, however, had nothing whatsoever to do with whether Long-Lewis was entitled to recover as a third party beneficiary to the loan agreement between the bank and Mrs. Reese since an agreement to create a “special” deposit must exist between the bank and its depositor rather than the bank and the third party beneficiary. See First National Bank of Ashland v. Prickett, 19 Ala. App. 204, 95 So. 920 (1923).

The attorney who represented the bank recognized this fact and pointed out to the court that if a “special” deposit had indeed been created, the security agreement entered into by Mrs. Reese and the bank established not only the “special” deposit, but also the conditions which such a deposit was subject to. And the bank’s lawyer went on to note that the express provisions of the contract between Mrs. Reese and the bank authorized the bank to apply the funds in her account to the debt owed by Mrs. Reese to the bank. Consequently, the lawyer argued that on the basis of the security agreement which existed between the bank and its depositor, the bank was not liable to Long-Lewis for the dishonor of the check.

At this point in the proceedings Long-Lewis objected to the court’s refusal' to grant the written instructions which Long-Lewis had submitted on the bank’s alleged fraud and misrepresentation. First City National objected to the refusal of the trial court to charge the jury that the security agreement permitting the bank to withdraw the funds was controlling even if a “special” deposit was deemed to have been created.

After noting the objections by both parties, the trial court ordered the jury brought back in and the court proceeded with its instructions to that body, informing its members that the bank could be found liable if it was determined that the loan funds placed in the account of Mrs. Reese constituted a “special” deposit to be used for the sole purpose of paying Long-Lewis for the automobile which it had sold to Mrs. Reese. In addition, the court charged the jury that it was for its members to decide whether the loan proceeds were placed in a special account (thereby warranting a verdict in favor of Long-Lewis) or a general account (thus enabling the bank to prevail under its common law right to a lien on a general deposit).

We believe the instructions given by the trial court were incorrect. Specifically, we are compelled to hold that the court committed prejudicial error in failing to give the jury the following charge on behalf of the bank:

“11. The Court instructs the jury that even if the account of Bonnie Reese with the bank is construed a special deposit, the Defendant bank had the prior written consent of Bonnie Reese to withdraw said funds under the terms of its note from her.”

And because of the court’s denial of the request by the bank that the jury be instructed in the above quoted manner, we consider the verdict rendered by the jury in favor of Long-Lewis to be erroneous.

Since the trial judge refused to submit to the jury any theory of liability other than the bank’s potential liability as a party to an agreement creating a “special” deposit, it is apparent that the jury determined that a “special” deposit had in fact been created and Long-Lewis was thereby entitled to recover as a third party beneficiary to the loan agreement between the bank and Mrs. Reese. In reaching such a determination, the jury was misled by the court’s failure to instruct its members that regardless of whether a “special” or general deposit existed, the loan proceeds were governed by Mrs. Reese’s security agreement with the bank; and that by the terms of that agreement the bank was entitled to withdraw the loan proceeds from her account and apply them to her debt with the bank. As a result of the court’s refusal to charge it in this manner, the jury disregarded an important provision in the note of indebtedness and security agreement signed by Mrs. Reese and the bank. That provision states:

. . . The term ‘Collateral’ as used herein, shall mean the following • property which has been or is hereby delivered, pledged, assigned, conveyed and transferred to the Holder:
“1975 Ford Torino Elite [Identification] # 5G21H128013
and any other property of every kind or description now or hereafter in the possession or control of the Holder for any reason, including all dividends and distributions on or other rights in connection with any property hereinabove referred to. Undersigned hereby warrants that sole and lawful ownership of Collateral is in the undersigned with full power and authority to transfer, convey and encumber.
“The undersigned agrees that the Holder shall have a lien upon, security title to and a security interest in the Collateral to secure the payment of this Note and all other indebtedness or liability of the undersigned to Holder, however and whenever incurred or evidenced, whether direct or indirect, absolute or contingent, or due or to become due (hereafter with this Note collectively called ‘Liabilities’). The surrender of this Note upon payment or otherwise shall not affect the right of the Holder to retain the Collateral for any other Liabilities. .
“In addition to all other rights possessed by it, the Holder, from time to time, whether before or after any of the Liabilities shall become due and payable, may (a) transfer all or any part of the Collateral into the name of the Holder or its nominee, with or without disclosing that such Collateral is subject to lien, security title and security interest hereunder; .

As this provision indicates, the bank was invested with a lien upon Mrs. Reese’s assets, including deposits in her account. No holder of a check made out by the depositor had a right to have it paid in preference to the bank’s valid lien on the loan proceeds. The security agreement which was entered into by the bank and Mrs. Reese was binding upon both parties, and the bank did not exceed the terms of the agreement when it exercised its right to take the loan proceeds deposited in the account of Mrs. Reese and apply them to the debt which she owed the bank. Thus, Long-Lewis had no valid claim against the bank on the sole theory of liability (third party beneficiary to an agreement creating a “special” deposit) considered by the jury.

Furthermore, we need not decide whether the circumstances under which the loan proceeds were placed in Mrs. Reese’s account created a “special” deposit since the bank had a right to the proceeds irrespective of whether the deposit was special or general. Georgia Bank & Trust Co. v. Hadarits, 221 Ga. 125, 143 S.E.2d 627 (1965); Hudson United Bank v. House of Supreme, Inc., 149 N.J.Super. 153, 373 A.2d 438 (1977).

Indeed, the security agreement controlled in this matter because the bank’s action was authorized by the written consent of the depositor; consequently, a judgment in the bank’s favor was warranted. Georgia Bank & Trust Co. v. Hadarits, supra.

The obvious purpose of the security agreement was for the bank to extend credit to the borrower (Mrs. Reese) to purchase an automobile and at the same time protect the bank against loss. The judgment rendered by the jury defeated this purpose and therefore must be reversed.

REVERSED AND REMANDED.

WRIGHT, P. J., and HOLMES, J., concur.

On Rehearing

In its reply brief to Long-Lewis’ brief on application for rehearing, First City National Bank contends that our original opinion of December 14,1977 contains an inaccurate statement of facts. After careful review of the record we find that the bank’s assertion is correct. The final sentence of the first full paragraph appearing on page two of our original opinion reads as follows:

“The salesman was instructed by his supervisor to obtain a certified check from the bank for the payment of the automobile; however, he returned to Bessemer without obtaining a certified check because the arrangements for the loan had not actually been completed.”

This sentence stands corrected and shall now read:

“The salesman was instructed by his supervisor to obtain a certified check from the bank for the payment of the automobile; however, he returned to Bessemer without obtaining a certified check. The reason for his failure to procure a certified (or cashier’s) check is unclear since the arrangements for the loan had apparently been completed.”

Likewise, we must note one further clarification in our opinion of December 14, 1977. In the first paragraph appearing on page three of our opinion it is stated that the check was dishonored several days after it was written by Mrs. Reese. This statement is correct. However, before the check itself was actually dishonored, an employee of the bank telephoned Long-Lewis and informed an employee of the automobile dealership that the check would be dishonored when it reached First City National. When informed of the bank’s telephone call, the sales manager of Long-Lewis called the bank and the conversation which is discussed in the first paragraph of page three occurred.

OPINION CORRECTED.

APPLICATION FOR REHEARING OVERRULED.

WRIGHT, P. J., and HOLMES, J., concur.

      . The sum of $5,380.00 was applied to the purchase price of the automobile; the remaining $300 represented by the face amount shown on the check was returned to Mrs. Reese as a cash rebate.

      . In the trial court (and on-appeal) Long-Lewis claimed that since the money deposited in the account of Mrs. Reese was obtained as the result of a loan she received from the bank for the specific purpose of buying an automobile, the loan proceeds constituted a “special” deposit which precluded the bank from applying the funds in Mrs. Reese’s account to her debt with the bank. Moreover, Long-Lewis maintained that in view of the fact that it was a beneficiary of the agreement between the bank and Mrs. Reese establishing the “special” deposit, Long-Lewis was entitled to a judgment in its favor because the bank violated its agreement with Mrs. Reese by applying the loan proceeds to her debt with the bank rather than the debt which she owed to Long-Lewis.

      . This case in distinguishable from Bank of Guntersville v. Crayter, 199 Ala. 599, 75 So. 7 (1917), in which our supreme court stated that a bank’s common law lien on funds held by it in the course of business had no application to “special” deposits “except as to the particular matter or dealing.” Crayter of course was decided prior to the adoption of the Uniform Commercial Code by this jurisdiction. In addition, it was based on the rule of “special” deposits with regard to common law liens.
      Accordingly, Crayter is not controlling in the present situation because in this instance a valid security agreement existed under the Uniform Commercial Code and that agreement expressly provided that the bank had a lien on the loan proceeds placed in the account of Bonnie Reese. Thus, even if the security agreement could have been construed to have created a “special” deposit, that same agreement and the lien which existed thereunder was entitled to enforcement by the bank. See King v. Porter, 230 Ala. 112, 160 So. 101 (1935).


source: Caselaw Access Project

author: TORBERT, Chief Justice.

license: Public Domain

text:
    In re FIRST CITY NATIONAL BANK OF OXFORD, Alabama v. LONG-LEWIS HARDWARE COMPANY. Ex parte LONG-LEWIS HARDWARE COMPANY.
    No. 77-280.
    Supreme Court of Alabama.
    Sept. 8, 1978.
    Rehearing Denied Sept. 29, 1978.

      James B. Kierce, Jr., Stone, Patton & Kierce, Bessemer, Merrill, Porch, Doster & Dillon, Anniston, for petitioner.
    Robert B. Propst of Wilson, Propst, Isom, Jackson, Bailey & Bolt, Anniston, for respondent.
   TORBERT, Chief Justice.

Appellant Long-Lewis Hardware Company obtained a judgment, based upon a jury verdict, in the Circuit Court of Calhoun County for the purchase price of an automobile it sold to Bonnie Reese. At the time of the purchase Reese informed Long-Lewis that she had a loan from Appellee, First City National Bank of Oxford, to finance the purchase of the automobile and produced a bank deposit slip for the sum of $5,680.00 indicating a deposit to her account and a security agreement between her and First City National to verify the loan transaction. A Long-Lewis salesman was instructed to obtain a certified check from the bank for payment of the automobile. Reese, however, asked to write a personal check for the price of the automobile. The Long-Lewis sales manager, Rayburn, telephoned the bank and testified as to the following conversation with an officer of the bank:

Q. What was your conversation with him? I want you to tell what you said to him and what he said to you, please.
A. Okay. I told Mr. Bryant that Mrs. Reese returned to Bessemer with a personal check that she wanted to write for the car and I wanted to know if the money was there for the car. Mr. Bryant stated that the money was there at that time. I didn’t accept this, because I knew that was normal verification. I knew it was there because I had the deposit slip; but .
Q. Slow down a little; I can’t understand you.
A. Okay. I called and asked was the money there for the car. He said, ‘The money is here at this time.’ I took that a little further; I said, ‘Yes, I know the money is there; but is the money there for the purchase of this automobile?’ I think again he said, ‘The money is here at this time.’ I again took it a little further; I said, ‘Okay, is the money there for the car?’ He said, ‘You have got a copy of my contract where I made her a loan and deposit slip; it is here.’ I said, ‘Yes; but is the money guaranteed for the car?’ Again he said, ‘You have got a copy of the contract; yes, it was there for the car.’

The bank officer disputed some of this testimony. Relying on this conversation, Long-Lewis accepted a personal check from Mrs. Reese for $5,680.00. The bank subsequently dishonored the check and informed Long-Lewis that the funds originally deposited to Mrs. Reese’s account had been applied to the balance due on her loan from the bank under the default terms of its security agreement with her. Mrs. Reese disappeared, and subsequent efforts to recover the automobile or the sales price were unsuccessful.

Although the complaint alleged an action against the bank for fraud and misrepresentation, the case was submitted to a jury on the question of whether the loan funds placed in the account of Mrs. Reese constituted a “special” deposit to be used for the sole purpose of paying Long-Lewis for the automobile, thereby precluding the bank from applying the funds to the debt owed by Mrs. Reese. The jury found for Long-Lewis, and the Court of Civil Appeals, 363 So.2d 790 reversed the trial court. Certio-rari was granted to review the decision of the Court of Civil Appeals.

The Court of Civil Appeals held that the judgment on the jury verdict should be reversed because of the following instruction refused by the trial court:

11. The court instructs the jury that even if the account of Bonnie Reese with the bank is construed as a special deposit, the Defendant bank had the prior written consent of Bonnie Reese to withdraw said funds under the terms of its note from her.

We find the requested instruction was properly refused. The law is well settled in Alabama that an “even if” or “even though” charge is bad in form and may be properly refused, because it suggests to the jury that the court finds the supposition improbable. This invades the province of the jury. Blair v. St. Margaret’s Hospital, 285 Ala. 636, 235 So.2d 668 (1970); Ballard v. State, 34 Ala.App. 543, 42 So.2d 471 (1949); Manistee Mills v. Hobdy, 165 Ala. 411, 51 So. 871 (1909); Western Union Telegraph Co. v. Gorman, 240 Ala. 482, 199 So. 702 (1940); Louisville & N.R. Co. v. Davis, 236 Ala. 191, 181 So. 695 (1938).

Furthermore, the Court of Civil Appeals held that regardless of whether a special or general deposit existed as to the loan proceeds deposited in the Reese bank account, the terms of the security agreement governed and that by such terms, the bank was entitled to withdraw the loan proceeds from her account and apply them to the debt with the bank. We reverse and remand.

To determine the rights of the parties, the controlling issue is whether the loan proceeds in Mrs. Reese’s account constituted a special deposit under the evidence in this case. The facts pertinent to the special deposit issue involve a transaction which occurred over a three-day period between Mrs. Reese, First City National, and Long-Lewis. It is undisputed that Mrs. Reese negotiated to purchase a particular automobile from Long-Lewis which culminated on September 24, 1975 when she obtained a form to apply for certificate of title; the application was completed and executed and it set forth a description of the automobile as well as designation of the bank as lienholder. The next day, Mrs. Reese contacted the bank about obtaining a loan for the automobile and presented the loan officer with the application for certificate of title. The loan officer agreed to make the loan, prepared a loan data sheet identifying the particular automobile, and the loan was completed with the execution of a security agreement, financing statement, and a deposit to her account of the loan proceeds of $5,680.00. On September 26, 1975 Long-Lewis accepted Mrs. Reese’s personal check written on this account after the conversation between the Long-Lewis sales manager and the bank officer set out above.

The law in this state as to special deposits is that when money is placed in an account for a specific and particular purpose or to be paid to a particular person, a special deposit exists. First National Bank of Decatur v. Henry, 159 Ala. 367, 49 So. 97 (1906). A deposit is special rather than general when there is specific direction, or agreement express or implied, that it be special or where there are circumstances sufficient to create a trust by operation of law. Kaufman v. First National Bank of Opp, 493 F.2d 1070 (5th Cir. 1974). In First National Bank of Ashland v. Prickett, 19 Ala.App. 204, 95 So. 920 (1923), a bank made a loan to its customer who placed it on deposit under an agreement with a bank officer that it would be used for the special purpose of purchasing certain equipment from one Slaughter. Without this officer's knowledge, the bank honored a check the customer had previously given to a third party. The Alabama Court of Appeals held that Slaughter, as beneficiary of a deposit for a specific purpose, was entitled to the funds. Until the terms of the deposit were complied with the bank could not divert the funds to a different use.

It has been held that a special deposit creates a trust situation. “When a special deposit is made for some specific purpose, other than to be safely kept and returned to the depositor, though it partakes of the nature of a bailment, it is of a peculiar class and creates a trust.” Collins v. Morgan County National Bank, 226 Ala. 376, 147 So. 161, 162 (1933). A debtor-creditor relationship does not arise when special deposit is made and the bank acquires no title to the funds. The deposit funds remain the property of the depositor or the beneficiary of the special deposit. Prickett, supra. Where there is an irrevocable appropriation of the special deposit funds to the debtor’s obligation, and the debtor has parted with all control of the funds a trust is created, held by the bank as trustee and not as a fiscal agent. Creel v. Birmingham Trust National Bank, 383 F.Supp. 871, 877 (N.D.Ala.1974), aff’d, 510 F.2d 1363 (5th Cir. 1975).

The law is clear that where a deposit is made for a special purpose known to the bank, the bank has no right to appropriate the deposit to its own use as a setoff. Bank of Guntersville v. Crayter, 199 Ala. 599, 75 So. 7 (1917). The right of setoff exists only where with respect to both debt and deposit the bank and the depositor are in debtor-creditor relationship and there is mutuality of demands. Kaufman, supra; King v. Porter, 230 Ala. 112, 160 So. 101 (1935). Where a bank holds special deposit funds as trustee there is no debtor-creditor relationship between the bank and its customer with regard to those funds and thus, no right of setoff.

We hold that the evidence in this case, although disputed in part, was sufficient to allow a jury to find that a special deposit was created for the purpose of paying for the particular automobile. The bank was informed by Mrs. Reese of the purpose for the loan; the application for certificate of title presented to the bank before the loan was consummated described the automobile as well as designated the bank as lienholder; the documents between the bank and Mrs. Reese likewise described the automobile and the purpose of the loan transaction. This evidence together with the testimony of the conversation between the Long-Lewis sales manager and the bank officer to the effect that the money “was there for the car” support the finding of a special deposit.

The Court of Civil Appeals held that by the terms of the bank’s security agreement with Mrs. Reese it was entitled to withdraw the loan proceeds from her account and apply them to her debt upon default. They rely on the holding in Georgia National Bank and Trust Company v. Hadarits, 221 Ga. 125, 143 S.E.2d 627 (1965), that a written agreement between a bank and its customer authorized the right of setoff for payment of a debt owed the bank regardless of whether a deposit was general or special. A careful study of Hadarits and the principal authorities cited therein shows the decision to the effect that the security agreement controlled regardless of the nature of the deposit to be dicta. The Court in Hadarits said:

We do not decide whether the circumstances under which the check was deposited with the bank’s promise to pay checks held by the holder of a lien against the depositor’s property, which was in the process of foreclosure but stopped upon the bank’s promise, caused the deposit to be special, since the bank had a right to take it irrespective of whether the deposit was special or general. The bank’s action was authorized by a written agreement with the depositor .

The Georgia Court held in Hadarits that the bank “took only that to which it was unquestionably entitled under its contract with the depositor” in accord with Macon National Bank v. Smith, 170 Ga. 332, 153 S.E. 4 (1930). The language set out above in reference to the nature of the deposit is superfluous to that holding. The Smith decision specifically involved an “ordinary deposit and checking account.” The court, there, limited its decision to the bank’s right of setoff against a general deposit pursuant to a written agreement with a depositor. Relying on this decision, the Hadarits Court held that the bank had a contractual right of setoff. However, its statement that the “bank had a right to take it irrespective of whether the deposit was special or general” is merely dicta in light of Smith.

In Hudson United Bank v. House of Supreme, Inc., 149 N.J.Super. 153, 373 A.2d 438 (1977), also cited by the Court of Civil Appeals in its opinion, certain deposits placed in reserve accounts were found to be general, and not special, and the bank could therefore apply them against debts owed by the depositor. The court emphasizes, however, that if the deposits had been special, the bank would have had no right of setoff. A written agreement provided that “the accounts are to be held by the bank and applied to the payment of any paper or any obligation of House to the bank, whether due or not.” When the depositor agreed to the creation of the accounts and permitted deposits to be made into these accounts, he contemplated their use as security against default on an obligation owed the bank. Likewise, in our case, upon default, the agreement between Mrs. Reese and the bank gave the bank rights in the automobile and the right to apply any funds of Mrs. Reese in the possession of the bank to her debt, provided the funds were not special. The reasoning by the New Jersey Court in Hudson supports this interpretation of the security agreement between Mrs. Reese and First City National Bank.

The authorities cited in the opinion of the Court of Civil Appeals establish a bank’s right of setoff against deposits pursuant to a written agreement where the deposits are general. The written agreements in those cases gave the banks no greater right of setoff than the common law. They merely represented a contractual arrangement between the parties whereby upon default or insolvency the bank could apply accounts in its possession toward payment of an indebtedness. The common law limits setoff to general accounts, and the law is well settled in Alabama that the right of setoff does not exist where there is a special deposit. Crayter, supra.

In line with this reasoning, the security agreement in our case gives no greater right of setoff than the common law. The evidence was sufficient to support a finding of a special deposit, and therefore, the bank could not apply such special funds toward Mrs. Reese’s indebtedness to the bank.

The decision of the Court of Civil Appeals is reversed and the cause remanded.

REVERSED AND REMANDED.

BLOODWORTH, MADDOX, FAULKNER, JONES, ALMON, SHORES and EM-BRY, JJ., concur.

      . Appellant, pursuant to Rule 39(k) ARAP, requested certain additional statements of fact a part of which are herein set forth.


text:
    FIRST CITY NATIONAL BANK OF OXFORD, Alabama v. LONG-LEWIS HARDWARE COMPANY.
    Civ. 1212.
    Court of Civil Appeals of Alabama.
    Oct. 25, 1978.
   BRADLEY, Judge.

Upon remand to this court by the Supreme Court of Alabama it is considered that this cause should be affirmed in accordance with the opinion, 363 So.2d 770, rendered by the Supreme Court of Alabama on September 8, 1978 in the above cause.

AFFIRMED.

WRIGHT, P. J., and HOLMES, J., concur.


author: BRADLEY, Judge. WRIGHT, Presiding Judge

text:
    FIRST INVESTMENT COMPANY, a corporation v. Donald McLEOD.
    Civ. 1424.
    Court of Civil Appeals of Alabama.
    Oct. 25, 1978.

      I. David Cherniak and Edward B. McDo-nough, Jr., Mobile, for appellant.
    Leo L. Crain, Mobile, for appellee.
   On Rehearing

BRADLEY, Judge.

This appeal is from a judgment for the defendant in a suit on a promissory note. On rehearing our opinion of September 20, 1978 is withdrawn and the following is substituted therefor.

The defendant, Donald McLeod, entered into an agreement with and made a note payable for $8,000 plus interest to Great Lakes Nursery Corporation on October 12, 1966. The note was subsequently purchased by the plaintiff, First Investment Company on December 17, 1966. McLeod was notified by a letter to make future payments on the indebtedness represented by the note to First Investment Company.

McLeod never made any payments on the note but, pursuant to an agreement between McLeod and Great Lakes Nursery, the latter made the payments to plaintiff required by the note for and on behalf of defendant. Great Lakes Nursery continued to make these payments until about November 1967, then stopped and sometime later went into bankruptcy. Demand for payment from McLeod was not made by plaintiff until May 1968.

First Investment Company filed suit on the note on October 11, 1972. The defendant answered by, among other grounds, claiming a lack of consideration for the note and that plaintiff, a foreign corporation, was doing business in Alabama without first having qualified so to do. The first trial before a jury resulted in a mistrial; the second trial resulted in a general verdict for.the defendant. The plaintiff appeals. We reverse.

On appeal plaintiff argues that it is a holder in due course of the note and is thereby not subject to the defense of failure of consideration. Plaintiff also argues that, because it is engaged in interstate commerce only, it is not subject to the defense of failure to qualify to do business in Alabama, and that the trial court erred in allowing the jury to consider this defense.

We think the trial court improperly denied plaintiff’s motion for a directed verdict on the defense of failure to qualify to do business in Alabama, and that it erred to reversal in submitting this issue to the jury. Because this issue is dispositive of this appeal we pretermit any review of the defense of failure of consideration.

Plaintiff contends that at the time the note was taken from defendant, Great Lakes Nursery, although not qualified to do business in Alabama, was not governed by the provisions of Art. XXI, § 232, Constitution of Alabama 1901 and § 10-2-254 of the Code of Alabama 1975 for the reason that Great Lakes Nursery was not “doing business” in Alabama so as to make its note void.

The above mentioned state constitutional provision states that a foreign corporation shall not do any business in this state without having at least one known place of business and at least one authorized agent therein, and without filing with the secretary of state a certified copy of its articles of incorporation.

Title 10, § 21(89), Code of Alabama 1940 (Recomp.1958) (Supp.1973) (currently § 10-2-254, Code of Alabama 1975) provides as follows:

All contracts or agreements made or entered into in this state by foreign corporations which have not qualified to do business in this state shall be held void at the [suit] of such foreign corporation or any person claiming through or under such foreign corporation by virtue of said void contract or agreement

The Alabama Supreme Court in Kentucky Galvanizing Co. v. Continental Casualty Co., Ala., 335 So.2d 649 (1976), said that § 10-2-254 comes into play only when the business conducted in the state by non-qualified corporations is considered “intrastate” in nature. In holding that Galvanizing was engaged only in “interstate” commerce, the supreme court said:

We note that Galvanizing has never manufactured, fabricated or installed any materials in the State of Alabama. What it has sold to buyers in Alabama it has delivered to the assigned jobsites. Other than delivery, Galvanizing does nothing in Alabama except what is incident to soliciting and taking orders for shipment of goods in interstate commerce and delivery of these goods.
The appellees, by their own admission in brief, outline the activities of Galvanizing which make its activities interstate rather than intrastate in nature. They note that Galvanizing is a foreign corporation which manufactures products outside the state and ships to customers in the state, that these sales were arranged through solicitation by one of the corporation’s agents, that the agent made monthly trips into this state for that purpose and that during those trips he would confer with customers and arrange or negotiate a sale. Appellees also point out that the sale would not be consummated in Alabama but through processing order blanks which would be forwarded to the corporate headquarters outside the state. This description of Galvanizing’s activities denotes the interstate nature of Galvanizing’s business dealings.

In the case at bar the facts show that Great Lakes Nursery was in the business of selling franchise agreements for the growing and selling of Christmas trees.

McLeod testified that he saw a newspaper or magazine advertisement by Great Lakes and wrote to them asking for additional information. Later two salesmen for Great Lakes came to Alabama and talked to him. After discussing the proposed arrangement over a period of two or three days, McLeod said that he signed the franchise agreement and note. The agreement provided that he would buy a certain number of seedlings, /. e., thirty thousand, from Great Lakes and in return Great Lakes would provide at wholesale prices certain equipment and fertilizers to be used in the planting, growing and sale of the trees. Great Lakes was to root prune the trees and provide all necessary technical training and supervision for the planting, growing and marketing of the trees; Great Lakes was also obligated to take care of the advertising campaign to be used for the promotion of the sale of the Christmas trees. Also, Great Lakes agreed, if requested by McLeod, to furnish a mechanical tree digger and mechanical tree sprayer along with the personnel to operate this equipment.

McLeod testified that he received approximately twenty thousand seedlings and planted them in a lining bed where they were to stay until the soil in the fields where they were to be planted was fumigated. McLeod said the soil was never fumigated, the tree planting machine was not furnished, nor was help forthcoming that was promised. As a result, the trees died.

McLeod further stated that the $8,000 note he signed was to be paid in installments of $154.57 a month. He was promised that Great Lakes would in the beginning make any payment that he could not make; however, when the tree harvest began, he would be expected to make the payments and would also have three years to make any payments that Great Lakes had previously made for him. He also said that he was promised a job with Great Lakes if he signed the agreement. For his work he was to receive $25 a day plus expenses.

Pursuant to this promise McLeod did accompany a Great Lakes employee to call on people in Alabama and Georgia who had written to Great Lakes in response to its ad campaign to see if they were interested and qualified for a franchise. If it developed that the prospect was qualified, someone from Great Lakes would come down and attempt to close the sale. McLeod said he was a salesman-trainee and was paid for his work by Great Lakes. After this sale was made he and another person delivered the seedlings to the purchaser by rental truck from Michigan.

As stated in Kentucky Galvanizing Co. v. Continental Casualty Co., the facts in the present case show that Great Lakes, other than delivery of the trees, did nothing in Alabama except what is incident to soliciting sales of its franchising agreements for the sale and delivery of Christmas tree seedlings. In support of this conclusion see In re Delta Molded Products, Inc., 416 F.Supp. 938 (N.D.Ala.1976), aff’d. sub nom. Sterne v. Improved Machinery, Inc., 571 F.2d 957 (5th Cir. 1978), where the contract requirement to furnish expert help, advice and counsel was considered to be only inci dental to the sales and delivery aspect of the transaction, yet was deemed to be a prime inducement to the signing of the lease agreement; consequently these incidental requirements did not transform the transaction from one interstate in nature to one intrastate in nature.

Likewise, in the case at bar, the requirements to furnish expert help, equipment and advice were merely incidental attributes of the main undertaking of Great Lakes which was the sale and delivery of Christmas tree seedlings to Alabama from another state.

In the absence of facts showing that Great Lakes was doing an “intrastate” business in Alabama, Section 232, Constitution of Alabama 1901, is inapplicable to plaintiff and § 10-2-254 is not available to defendant as a defense to plaintiff’s action on the note in question.

We find it unnecessary to quote at length from the trial court’s oral charge. In essence the charge instructed the jurors to consider both the defense of failure of consideration and the defense of failure to qualify to do business in Alabama. The jury was further instructed that if defendant had met his burden in proving either of these affirmative defenses, then they should return a verdict for defendant.

An issue should be taken from the jury only when there is not a scintilla of evidence in support of a controverted point. Dixie Electric Co. v. Maggio, 294 Ala. 411, 318 So.2d 274 (1975). In the absence of a conflict of evidence or factual dispute, the issue is one of law for the court to resolve. Progressive Casualty Insurance Co. v. Blythe, Ala.Civ.App., 350 So.2d 1062 (1977).

Although the trial court’s charge contained no incorrect statements of law, the record in this case is completely devoid of any evidence tending to support defendant’s claim that Great Lakes Nursery was engaged in “intrastate” commerce. Thus plaintiff was due the affirmative charge on the defense of failure to qualify to do business in Alabama. The trial court’s denial of plaintiff’s motion for directed verdict on this issue improperly allowed the jury to consider that defense.

Where two defenses are pleaded, and it cannot be determined on which the jury based a verdict for defendant, an erroneous instruction as to one defense cannot be held harmless error, though the verdict may be sustainable on the other. American Sugar Refining Co. v. J. E. Jones & Co., 293 P. 560 (5th Cir. 1923).

Our case law makes it clear that where the verdict is general, but prejudicial error obtains to the court’s instruction to the jury on any theory of recovery, the verdict must be set aside because no determination can be made as to which of several issues the jury relied upon in reaching its verdict. See e. g. Liberty National Life Insurance Co. v. Smith, Ala., 356 So.2d 646 (1978); Old Southern Life Insurance Co. v. Woodall, 295 Ala. 235, 326 So.2d 726 (1976); Ford Motor Co. v. Thomas, 285 Ala. 214, 231 So.2d 88 (1970). We think the same general principles apply to a general verdict for the defendant, where erroneous instructions are given regarding one of the affirmative defenses raised by defendant. Such a verdict should also be set aside because no determination can be made as to which of the defenses the jury relied upon in reaching its verdict.

For the foregoing reasons this case is due to be reversed.

APPLICATION FOR REHEARING GRANTED.

REVERSED AND REMANDED.

HOLMES, J., concurs.

WRIGHT, P. J., concurs in the result.

WRIGHT, Presiding Judge

(concurring specially):

I concur in the result, but would hold that defendant’s defense of failure of consideration was not established because plaintiff was a holder in due course. Therefore, plaintiff was entitled to a directed verdict.


author: HOLMES, Judge.

text:
    Katharine M. BURSON v. Jones BURSON.
    Civ. 1527.
    Court of Civil Appeals of Alabama.
    Oct. 25, 1978.

      Robert C. Barnett, Birmingham, for appellant.
    Vernon L. Wells, II, Birmingham, for ap-pellee.
   HOLMES, Judge.

This is a divorce case.

The wife appeals. The dispositive issue is whether the court below abused its discretion in its failure to award periodic alimony and in the division of property. Additionally, the wife, through able counsel, contends that the decree awards alimony to the husband. We find no reversible error and affirm.

Viewing the trial court’s action with the attendant presumption of correctness, the record reveals the following: The parties were married in 1963 and lived together until the decree of divorce in March, 1978. There were no children born of the marriage nor did either party have any dependents at the time of the trial. The wife filed for divorce in September, 1977, alleging incompatibility of temperament and irretrievable breakdown of the marriage.

The wife was fifty-eight and the husband fifty-six at the time the action was filed. It also appears that the wife had had some degree of difficulty with her health. Specifically, the wife has a nonfunctioning kidney, a heart condition, and a bad back. However, at the time of trial, her medical problems were “under control.” She had been gainfully employed on a full time basis since January, 1977, receiving a salary of approximately $9,000 per year. In addition, she has health insurance provided her by her employer’s Blue Cross-Blue Shield medical plan. The husband is in good health and has been employed with Southern Railway Company for thirty-three years and earns approximately $20,000.

At the time suit was filed, the parties jointly owned a homeplace valued at $30,-000. Their other property consisted primarily of home furnishings, a 1973 automobile, and a number of joint bank accounts. One of the accounts was a Birmingham Trust National Bank checking account which was apparently funded solely through deposits consisting of the husband’s pay checks and monies which he held in trust as treasurer of the 345th Bomber Group, a World War II veterans organization.

The trial court, after an ore tenus hearing, ordered that the homeplace be sold with one-half of the proceeds to be awarded the wife. In addition, the wife was awarded approximately three-fourths of the furniture and household goods, title to the family automobile, and a substantial sum of cash, /. e., more than $10,000, as her share of the bank accounts. The various bank accounts totaled approximately $20,000. In addition, the husband was required to pay $1,500 as an attorney’s fee.

The court further ordered the wife to return the sum of approximately $1,900 to the husband based upon evidence that the wife had wrongfully withdrawn these funds from the BTNB joint account on the day which she had instituted the divorce action. This part of the decree was apparently predicated on the fact that the funds in the account were the property of the husband and those of the organization for which he acted as treasurer. The wife contends that the order requiring her to return these funds is an impermissible award of alimony from her to the husband and further, that the court abused its discretion in not awarding her alimony.

The award of alimony by a trial court is largely within the discretion of the trial judge. Miller v. Miller, Ala.Civ.App., 340 So.2d 823 (1976); Gamble v. Gamble, 53 Ala.App. 168, 298 So.2d 254 (1974); Dean v. Dean, 51 Ala.App. 249, 284 So.2d 276 (1973). See also Code of Ala.1975, § 30-2-51. This court reviews the exercise of the trial court’s discretion only to determine if the judgment is so unsupported by the legal evidence as to be arbitrary and unjust. Jernigan v. Jernigan, Ala.Civ.App., 344 So.2d 778 (1977); Miller, supra. The same standard of review applies equally well to the trial court’s division of property. Caylor v. Caylor, Ala.Civ.App., 344 So.2d 173 (1977).

In determining whether alimony or a particular division of property is appropriate, the trial court considers the earning capacity, age, health, and conduct of the parties as well as how long they have been married, their station in life, and whether there are children to support. Huggins v. Huggins, 57 Ala.App. 691, 331 So.2d 704 (1976). In the instant case, the record indicates that the wife’s earning capacity of $9,000 per year was such that she could support herself. With respect to her health, medical records introduced at trial indicated that the wife was not presently under any disability which prevented her gainful employment.

As regards the relative fault of the parties as it relates to the award of alimony, both parties presented evidence of the other’s shortcomings and the demise of the marriage. The record shows that neither was blameless.

Furthermore, the parties were married after each was past the age of forty and there were no children born of the marriage.

We do not review the decision of the court below based upon our view of the weight of the evidence or the credibility of the witnesses, Miller, supra, and the law does not permit this court to substitute its judgment for that of the trial court. Hughes v. Hughes, Ala.Civ.App., 361 So.2d 119 (1978). We, therefore, find no abuse of discretion so as to require reversal.

We do not agree with the wife’s contention that the trial court awarded the husband alimony. In a divorce action, one who seeks equity must invoke equity with clean hands. Owens v. Owens, 281 Ala. 239, 201 So.2d 396 (1967). There was ample evidence at trial, based upon oral testimony and bank records, which indicated that the wife’s withdrawal of the BTNB funds was not authorized, especially in view of the fact that a large portion of the funds in the account was held by the husband in trust for an organization for which he was treasurer. Restoration of property to the husband from the wife in a situation such as this is clearly not an award of alimony. See, e. g., Elmore v. Elmore, Ala.Civ.App., 365 So.2d 671 (1978).

In view of the above, we decline to grant the wife’s and the husband’s requests for attorneys’ fees.

The case is due to be affirmed.

AFFIRMED.

WRIGHT, P. J., and BRADLEY, J., concur.


text:
    James M. DOZIER, a/k/a Jimmy Dozier v. FIRST ALABAMA BANK OF MONTGOMERY, N.A.
    Civ. 1545.
    Court of Civil Appeals of Alabama.
    Oct. 25, 1978.

      Henry F. Lee, III of Kelly, Knowles & Lee, Geneva, for appellant.
    Charles N. Parnell, III, of Ingalls & Parnell, Montgomery, for appellee.
   BRADLEY, Judge.

The suit out of which this appeal arises was initiated by appellee-First Alabama Bank of Montgomery in an effort to recover the proceeds from two checks endorsed by appellant-James M. “Jimmy” Dozier and presented to First Alabama Bank for deposit in Dozier’s account. Following a non-jury trial on the matter, the Circuit Court of Montgomery County rendered a judgment in favor of First Alabama Bank in the amount of $1,425 plus interest and costs. From that judgment Jimmy Dozier appeals.

The transaction which resulted in the bank’s action against Dozier occurred on November 24, 1976. On that date Jimmy Dozier, his cousin J. S. Dozier, and a man named D. R. Lockett entered the Adams Avenue branch of First Alabama Bank and asked the assistant branch manager to authorize payment by a teller for two checks drawn on the account of Montgomery East, Inc., a local corporation. The two checks were for a total amount of $1,425. After Jimmy Dozier praised the character of the men he was with, the assistant manager (who knew only Jimmy Dozier) agreed to approve the transaction. At that point a check was drawn on the account of Montgomery East and signed by D. R. Lockett. The check was made payable to Four Winds Steel Company, which was a corporation owned by J. S. Dozier. J. S. Dozier then endorsed the reverse side of the check and transferred it to Jimmy Dozier who endorsed it for deposit in the account of his business, Cook’s Station Grocery. Following these events, Jimmy Dozier drew a check on his personal account for $1,425. The latter check was cashed by a bank teller and the three men left the bank.

On December 3, 1976, six full business days after the bank had received the check signed by Lockett, the assistant manager of Adams Avenue branch learned from other banking officials that Lockett was not authorized to sign checks on behalf of Montgomery East. Upon learning of this fact, the assistant manager telephoned Jimmy Dozier and informed him that the check signed by Lockett and endorsed by Dozier had been “dishonored.” When Jimmy Dozier refused to pay the bank the amount represented by the two checks, First Alabama Bank filed suit to recover the proceeds of the checks.

Under the terms of the Uniform Commercial Code, one who endorses a check warrants that upon dishonor of the check and relevant notice of such dishonor, he will pay the instrument according to its tenor at the time of his endorsement. UCC § 7-3-414, Code of Alabama 1975. Consequently, dishonor and notice of dishonor are prerequisites to the endorser’s liability.

In the instant case First Alabama Bank never dishonored the check endorsed by Jimmy Dozier for deposit in his account. An instrument is not dishonored unless “due acceptance or payment is refused or cannot be obtained within the prescribed time or . the instrument is seasonably returned by the midnight deadline.” UCC § 7-3-507(l)(a). None of these events occurred in the case at bar. Moreover, the bank made final payment on the check, and if final payment is made on an instrument a bank cannot send it back or dishonor it. UCC §§ 7-4-213(l)(d) and 7-4-301(1); White-Summers Uniform Commercial Code 530-33 (1972). Final payment occurred because the bank failed to return the item or send notice of dishonor before its midnight deadline. UCC §§ 7-4-213(l)(d) and 7-4-301(1). The midnight deadline for notice of the bank’s dishonor was “midnight on its next banking day following the banking day on which it [the bank] receive[d] the relevant item . . . .” UCC § 7-4— 104(l)(h). No notice of dishonor was sent by First Alabama Bank by midnight of November 26, 1976, which was the relevant midnight deadline. Thus there was no dishonor of the check endorsed by Jimmy Dozier. UCC § 7-3-507(l)(a).

Nor was there notice of dishonor as required by section 7-3-501(2)(a). A bank must give notice of dishonor before its midnight deadline. As stated earlier, the events in this case demonstrate that notice of dishonor was not given within the requisite midnight deadline. Since dishonor and notice of dishonor are prerequisites to an endorser’s liability under section 7-3-414, the bank’s failure to dishonor and its delay in giving notice of dishonor completely discharged Dozier of liability on his endorsement contract. White-Summers Uniform Commercial Code 416-20 (1972).

Although the bank was not entitled to rely on Dozier’s endorsement contract to obtain recovery of the proceeds from the checks, an endorsement contract is not the only basis for recovery in cases such as the instant one.

A bank may also charge back the amount of a cheek to its customer’s account under the provisions of Uniform Commercial Code section 7-4-212. In the present case First Alabama Bank was both a depositary bank and a payor bank. UCC § 7-4-105(a)-(b). And the pertinent code section to determine when a depositary bank (which is also a payor bank) may charge back on a customer’s account is section 7-4-212(3). This section allows a bank to obtain a refund for its provisional credit in accordance with UCC section 7-4-301(2). However, the bank must act within the time limits prescribed by section 7 — 4-301(1). Section 7-4-301(1) states that the bank must return the item or give written notice of dishonor “before it has made final payment (subsection (1) of section 7-4r-213) and before its midnight deadline.” If the bank fails to act within the time limit and manner specified by section 7 — 4-301(1), it is not entitled to revoke settlement or recover any payment. UCC § 7-4-301(2). As we have previously indicated, First Alabama Bank made final payment on the check and did not give notice of dishonor by midnight of the banking day following the banking day on which it received the check. UCC §§ 7-4 — 213(l)(d) and 7-4-104(l)(h). Accordingly, First Alabama Bank could not recover from Dozier on the bank’s right of charge back or refund under section 7-4-212.

However, even if a payor bank has initially lost its right to charge back, it can nevertheless hold an endorser accountable for an item if the endorser committed a breach of the presentment warranties. UCC § 7-4-302. Sections 7-3-417(1)(a)-(c) and 7-4-207(1)(a)-(c) contain the presentment warranties. Subsection (b) of these warranties states that any person or cus tomer who obtains payment of an item warrants that he has no knowledge that the signature of the maker or drawer of an instrument is unauthorized. In the case at bar it was undisputed that D. R. Lockett was not authorized to sign checks on behalf of Montgomery East. Despite this fact, there was absolutely no evidence presented at trial that Jimmy Dozier knew that Lock-ett lacked authority to draw checks on the account of Montgomery East. Since Dozier had no knowledge that Lockett’s signature was unauthorized, First Alabama Bank was not entitled to a judgment against Dozier on the basis of the latter’s presentment warranties.

Despite the inapplicability of presentment warranties in cases such as the one at hand, a bank is not totally without remedy. UCC § 7-4-407. The preamble to section 7-4-407 confers upon a payor bank a right of subrogation in certain cases. The right of subrogátion exists in order to prevent unjust enrichment to the extent necessary to prevent loss to the bank by reason of its having paid an item. UCC § 7-4-407. The Uniform Commercial Code provides that section 7-4-407 comes into play only in those cases where the bank has paid over the stop order of a maker or drawer or the maker or drawer otherwise has a “basis for objection.” Presumably the bank can invoke section 7-4 — 407 every time the maker or drawer complains about the payment of an item which was not properly payable. UCC § 7-4-401(1). White-Summers Uniform Commercial Code 587 (1972). In the present dispute, Montgomery East, upon learning sthat funds had been withdrawn from its corporate account as a result of the check signed by Lockett, contacted First Alabama Bank and complained that the item was not “properly payable” because Montgomery East had notified First Alabama Bank prior to the transaction of November 24 that Lockett was not authorized to write checks on Montgomery East’s corporate account. Upon receiving notice of the complaint by Montgomery East, First Alabama Bank concluded that funds had been improperly withdrawn from the former’s account as a result of Lockett’s actions. The bank then promptly recredited the Montgomery East account for the amount represented on the check written by Lockett and endorsed by Jimmy Dozier. Based on these events, the bank now claims it is subrogated to the rights of Montgomery East and can recover the amount recre-dited to the latter’s account from Jimmy Dozier. However, such is not the case.

Subsection (c) of section 7-4-407 subrogates a bank to the rights of the drawer or maker against the payee or other holder with respect to the transaction out of which the item arose. Accordingly, the critical question becomes whether Montgomery East was the “drawer or maker” of the checks upon which this action is based. We hold that it was neither. D. R. Lockett was not authorized to sign the checks in question. Section 7-3-404 provides that an unauthorized signer may be held liable as a result of his signature on an instrument. The cheeks involved in this suit contain only Lockett’s signature; in fact, they were bank counter checks which did not contain the name of Montgomery East. Furthermore, the checks were not signed by any authorized agent of Montgomery East. See UCC § 7-3 — 403. And in view of the fact that Lockett’s signature was the only signature on the check, he was personally liable on the check, UCC § 7-3^401(1) and likewise the maker or drawer thereof. Therefore, Montgomery East should not be considered the maker or drawer of the check for purposes of section 7-4-407(c). Cf. Neo-Tech Systems, Inc. v. Provident Bank, 43 Ohio Misc. 31, 335 N.E.2d 395, 17 UCC Rep. 1079 (1974). Since Montgomery East is not the maker or drawer of the instrument, the bank is not entitled to be subro-gated to the former’s rights.

The final issue for our consideration on this appeal concerns the bank’s assertion that the checks which were endorsed by Jimmy Dozier were founded in whole or in part on a gambling debt between Lockett and J. S. Dozier. Consequently, the bank argues that the transaction involving the endorsement and presentment of the checks to the Adams Avenue branch was void under the language of section 8-1 — 150, Code of Alabama 1975, which provides that contracts founded upon gambling consideration are void. Thus, the bank claims it is entitled to recover the proceeds of the checks from Dozier. Section 8-1-150. Dozier maintains that the issue of a void gambling contract was not raised at the trial below and cannot now be presented on appeal. 2 Ala.Dig. Appeal & Error &wkey;169; Rule 4, ARAP and committee comments thereto.

The issue of a void gambling contract was not contained in any of the bank’s pleadings in this matter. However, under Rule 15(b) of the Alabama Rules of Civil Procedure a party’s pleadings “shall” be deemed amended to conform to evidence which is introduced without objection from the opposing party. In the present case there was some evidence which tended to establish that a gambling debt existed between Lockett and J. S. Dozier. This evidence arose out of the following exchange between Jimmy Dozier and the bank’s attorney:

Q. Do you know why D. R. Lockett owed your cousin [J. S. Dozier] any money?
A. He just owed him some money.
Q. Did he tell you why?
A. Just a personal debt.
Q. Did he tell you it was a gambling debt?
A. He just said a personal debt.
Q. Did he tell you that D. R. Lockett owed him some money because of their gambling relationship?
A. He said it was a personal debt.
Q. Well, I’m asking you if he told you that it was because of a gambling transaction?
A. In a way I guess it was.
Q. It was. You knew D. R. Lockett owed your cousin some money, because they had gambled between one another?
A. Yeah.
Q. . The only reason you went there was to help your cousin [J. S. Dozier] collect a gambling debt.
A. Collect a personal debt, yeah.

In view of the fact that the lawyer who represented Dozier failed to object to this testimony, we believe that it was sufficient to raise the issue of a void gambling contract.

Nonetheless, the above quoted evidence would not warrant a conclusion that Jimmy Dozier was liable on the checks which he endorsed and presented to the bank for deposit in his account under the language of section 8-1-150. Dozier testified that he was merely aiding Lockett and his cousin in cashing a cheek so that Lockett could repay a debt owed to Dozier’s cousin. Dozier stated that he knew that Lockett owed Dozier’s cousin a gambling debt and speculated that Lockett may have wished to cash a check for that reason. However, such evidence was not adequate proof that the proceeds from the checks which Dozier endorsed were actually used to repay a gambling debt. See Osborn v. Pointer, 41 Ala.App. 271, 128 So.2d 530 (1961). Moreover, in Osborn v. Pointer it was held that loans extended to enable a borrower to pay-an antecedent gambling debt are generally recoverable by the lender regardless of language found in the statutory predecessor to section 8-1-150. Although we have concluded that Jimmy Dozier did not loan money so that an antecedent gambling debt could be repaid in the case at bar, nevertheless, reading the evidence in a light most favorable to the bank’s interest demonstrates that if the proceeds from the checks in question were used for a gambling debt, Jimmy Dozier did no more than aid Lockett and his (Dozier’s) cousin by obtaining cash for the check which Lockett had made payable to Dozier’s cousin. Under the authority of Osborn v. Pointer we are not inclined to hold that one who aids in the repayment of an antecedent gambling debt by cashing a check for the parties whose activities resulted in the debt is liable under the language of section 8-1-150.

The trial transcript in this case contains substantial evidence that First Alabama Bank had notice that Lockett was not authorized to draw checks on the account of Montgomery East when it made payment on the checks by depositing the proceeds therefrom in Dozier’s account. There was no evidence presented which would indicate that Jimmy Dozier knew that Montgomery East had withdrawn Lockett’s authority to write checks on behalf of Montgomery East. Since the bank deposited the checks in Dozier’s account despite the unauthorized signature of which it had knowledge, and did not subsequently withdraw payment of the items within the prescribed time, it must bear the loss in a suit against Dozier. This result is consistent with the basic principle that between two innocent parties, the loss due to an unauthorized signature must be borne by the one who was in a superior position to detect the lack of authorization. See Commercial Casualty Insurance Co. v. Isbell National Bank, 223 Ala. 48, 134 So. 810 (1931); Farmers’ Bank & Trust Co. v. Shut & Keihn, 192 Ala. 53, 68 So. 363 (1916); H. C. & W. B. Reynolds Co. v. Reynolds, 190 Ala. 468, 67 So. 293 (1914).

Upon consideration of the record we are of the opinion that the trial court erred as a matter of law in finding that appellant-Dozier was liable to First Alabama Bank; consequently, its judgment is reversed with directions that the trial court enter a judgment consistent with this opinion.

REVERSED AND REMANDED WITH DIRECTIONS.

WRIGHT, P. J., and HOLMES, J., concur.

      . As a practical matter the contract of an endorser under section 7-3-414(1) does not run to a drawee bank. That contract can be enforced by a drawee bank only if it dishonors a check; and if the bank dishonors the check it has suffered no loss. Kirby v. First & Merchants National Bank, 210 Va. 88, 168 S.E.2d 273, 6 UCC Rep. 694 (1969).

      . Section 7-4^105:
      (a) “depositary bank” means the first bank to which an item is transferred for collection even though it is also the payor bank;
      (b) “Payor bank” means a bank by which an item is payable as drawn or accepted;

      . The bank in this case attempts to rely on transferor warranties contained in sections 7-3 — 417(2)(a)-(e) and 7-4-207(2)(a)-(e). Unlike the presentment warranties regarding unauthorized signatures, the transferor warranties delete any reference to knowledge on the part of the transferor. In other words, sections 7-3 — 417(l)(b) and 7-4-207(l)(b) state that the person or customer warrants that he has no knowledge that the signature is unauthorized while sections 7-3-417(2)(b) and 7-4-207(2)(b) provide that the transferor warrants that all signatures are authorized. The bank maintains that Dozier’s knowledge or lack thereof regarding Lockett’s authorization to sign checks on behalf of Montgomery East is irrelevant in view of the provisions found in subsection (2)(b) of the transferor warranties. We disagree. As stated earlier, First Alabama Bank was a payor bank. UCC § 7 — 4-105(b). And a payor bank cannot rely on the warranties embodied in sections 7-3-417(2) and 7 — 4-207(2) because those warranties do not run to payors. White-Summers Uniform Commercial Code 511 (1972).


text:
    SPRY FUNERAL HOMES, INC. v. Dean DEATON.
    Civ. 1556.
    Court of Civil Appeals of Alabama.
    Oct. 25, 1978.

      Roger H. Bedford, Russellville, for appellant.
    William M. Bouldin and Michael B. Maddox of Guin, Bouldin, Porch & Maddox, Russellville, for appellee.
   HOLMES, Judge.

This is an appeal from an order of the Circuit Court of Franklin County granting summary judgment in favor of the defendant.

The dispositive issue on appeal is whether the complaint, as amended, stated a claim upon which relief could be granted.

It appears from the record that the following are the pertinent facts: The parties were engaged in providing ambulance services in the Russellville area in Franklin County. They agreed in writing, on June 11, 1976, that effective in August, 1976, neither would engage in the operation of an ambulance service in the Russellville area for a period of five years. The contract provided that damages for its breach were to be calculated at $10,000. Both parties ceased providing ambulance services pursuant to the agreement. Subsequently, the defendant formed Dean Deaton Ambulance Service, Inc., and commenced providing ambulance services in Russellville, Alabama. Plaintiff thereupon instituted an action to recover damages, alleging defendant breached the contract.

In response to plaintiff’s complaint, defendant first filed a motion to dismiss and later a motion for summary judgment, alleging that plaintiff failed to state a claim upon which relief could be granted. Specifically, defendant argued that the contract sued upon violated the statutory provisions set out in § 8 — 1—1, Code of Ala.1975, which provide in part:

“Every contract by which anyone is restrained from exercising a lawful profession, trade or business of any kind . is to that extent void.” Id.

Plaintiff thereafter amended his complaint, alleging defendant had by deceit induced it to execute the contract by representing that the contract was legally binding on both parties. Plaintiff further alleged that defendant’s attorney had drafted the contract and that in reliance on the binding nature of the agreement, plaintiff had liquidated its ambulance business, and had suffered damages. The record indicates that the amended complaint was supported by a sworn affidavit which set forth the circumstances surrounding the execution of the contract.

The trial court granted the defendant’s motion for summary judgment, apparently finding that the contract was statutorily void and thus could not be sued upon as a matter of law.

Plaintiff argues that the amended complaint sufficiently raises a question of fact as to whether the defendant is guilty of fraud. It is the position of the defendant, as presented by able counsel, that the amended complaint fails substantively to state a claim inasmuch as (1) an alleged misrepresentation of law (that the contract was legally binding on both parties) cannot constitute remedial fraud because everyone is presumed to know the law, and (2) an action for fraud cannot be premised on a void contract. Additionally, defendant argues in brief that, assuming arguendo that such a cause of action exists in this case, plaintiff’s amended complaint procedurally fails to allege the necessary elements of actionable fraud under ARCP 9(b). We do not find defendant’s arguments persuasive and in this instance hold that the trial court improvidently dismissed the action.

There is no question that contracts restraining a trade or business, unless specifically excepted, are void in Alabama. Code of Ala.1975, § 8-1-1. See, e. g., Burkett v. Adams, Ala., 361 So.2d 1 (1978); Associated Surgeons, P. A. v. Watwood, 295 Ala. 229, 326 So.2d 721 (1976); Odess v. Taylor, 282 Ala. 389, 211 So.2d 805 (1968); Hill v. Rice, 259 Ala. 587, 67 So.2d 789 (1953). The facts before us do not present a classic restraint of trade case. Rather than one contracting party ceasing or restricting business operations to the direct benefit of the other party, here we have both parties ceasing business. Nevertheless, it is recognized in this state that any contract which restricts the right of either party to do business is a restraint of trade. Associated Surgeons, supra, 326 So.2d at 723, citing 14 S. Williston, Contracts § 1633 (3d ed. 1972). Therefore, since this type of restraint of trade is not specifically excepted by subsections 8-1 — 1(a) or (b), we conclude that such a contract will not support a valid claim for relief. Associated Surgeons, supra. Had plaintiff not amended his complaint, we would have no hesitancy in upholding the trial court’s decision to dismiss. See Odess v. Taylor, supra. We find, however, that when plaintiff amended his complaint, injected the issue of fraudulent conduct on the part of the defendant into the case, and supported his allegations with a sworn affidavit, an issue of fact arose and, therefore, summary judgment was inappropriate. Folmar v. Montgomery Fair Co., Inc., 293 Ala. 686, 309 So.2d 818 (1975).

It is well settled in Alabama that fraud may be predicated upon a breach of contract which is void where the contract was made for the purpose of perpetrating fraud. Webb v. Bank of Brewton, 265 Ala. 568, 93 So.2d 154 (1957); Spencer v. Spencer, 254 Ala. 22, 47 So.2d 252 (1950).

The defendant’s argument, that a misrepresentation of law does not constitute remedial fraud, is not persuasive. While this may well have once been the law of Alabama, it is not without qualification today. In Bank of Loretto v. Bobo, 37 Ala.App. 139, 67 So.2d 77, cert. denied, 259 Ala. 374, 67 So.2d 90 (1953), the court held that a misrepresentation of law may be an actionable fraud under the proper circumstances. In so holding, the court stated:

“This rule does not justify that a loss should be imposed on another, or an unconscionable gain be allowed merely because of a promisor’s ignorance of the law. .
“[0]ur courts recognize that, properly, exceptions must and do exist . . (37 Ala.App. at 148, 67 So.2d at 85.)

To this court, an exception exists where it would be contrary to public policy to deny relief. It should be recognized that there are three interested parties in any contract in restraint of trade — the two contracting parties and the public. Where the right to do business and hence competition is suppressed, the public eventually pays the price. Here plaintiff has allegedly sold his equipment and abandoned the ambulance business in reliance on defendant’s representation that their contract was legally binding. Defendant has subsequently resumed the ambulance business and is apparently the sole supplier of such services in the area. It would be an anomaly and contrary to public policy for this court to hold that the contract in question is void as a restraint of trade and yet allow the result of a restraint of trade to be effected in part through that very same contract. Such would be the result were we to hold that the defendant’s alleged misrepresentations as to the binding nature of the contract could not be the basis of an action in fraud because they related to a matter of law. See Cramer v. Kansas City Rys. Co., 112 Kan. 298, 211 P. 118 (1922).

Specifically, in the instant case, plaintiff’s amended complaint alleged that the defendant’s attorney, at the request of the defendant, drafted the void contract; that the defendant then induced plaintiff to sign the agreement in reliance on the fact that the contract was legally binding and enforceable, and that as a result, the plaintiff was injured. Under the decision of Bank of Loretto, supra, we find that these allegations, substantiated as they are by affidavit, could reasonably support a substantive theory of recovery in fraud. We express no opinion on whether plaintiff will in fact be able to prove the allegations. The burden, however, is on him to convincingly do so.

Additionally, we find no merit with respect to defendant’s contentions that plaintiff’s amended complaint suffered from procedural infirmities. The fact that plaintiff’s amended complaint did not specifically allege that the cause of action was premised on a fraud theory is not fatal since there is no requirement under our Rules of Civil Procedure to specifically state one’s legal theory. Thompson v. Allstate Ins. Co., 476 F.2d 746 (5th Cir. 1973); Dotschay v. National Mut. Ins. Co., 246 F.2d 221 (5th Cir. 1957). See also Wright & Miller, Federal Practice and Procedure: Civil § 1219 (Supp.1978). This is particularly true when the complaint is viewed in light of Rule 8(b), ARCP.

Furthermore, we find that, based on the record before us, the amended complaint complies with the mandate of ARCP 9(b) which requires that fraud be pleaded with particularity. Rule 9(b), ARCP. Although the rule requires that the circumstances constituting the fraud be pleaded, it does not require that each element of fraud be delineated. According to the committee comments to ARCP 9:

“[The] special requirements] as to fraud . [do] not require every element . . to be stated with particularity. .” [Emphasis supplied.] Id.

When, as here, the defendant is reasonably apprised that the claim against him is one for fraud, and the claim is more than a generalized or conclusory statement of the fraud complained of, the pleading satisfies the rule’s requirements. Id.

Again, we note that while we do not express any opinion as to the difficulty plaintiff may encounter in meeting its burden of proof in this case, we hold that based on the foregoing analysis, the plaintiff presented a legitimate legal claim and created an issue of fact over which reasonable minds could differ. Folmar, supra. Thus, the motion for summary judgment judgment was improperly granted.

REVERSED AND REMANDED.

WRIGHT, P. J., and BRADLEY, J., concur.


author: WRIGHT, Presiding Judge.

text:
    Herman GAMBLE v. Lois GAMBLE.
    Civ. 1592.
    Court of Civil Appeals of Alabama.
    Oct. 25, 1978.
    Walter P. Crownover and John G. Lowther of Crownover, Mountain & Lowther, Tuscaloosa, for appellant.
    No brief for appellee.
   WRIGHT, Presiding Judge.

The father appeals from a judgment increasing support of a minor child after oral hearing. We affirm.

The parties were divorced in 1974. The father was required, among other things, to pay $50 per week as support for two minor children. The record indicates that court and counsel have been often involved in disputes between the parties since the divorce. There have been petitions for rule nisi and findings of contempt for the failure of the father to regularly pay the support. He has paid the arrearages upon threat of jail. In the interim between the divorce in 1974 and November 1977, the oldest child became self supporting.

In response to a petition by the mother for a rule nisi against the father for failure to pay support, the court entered a judgment on November 16, 1977. In the judgment, the court found the father in contempt and sentenced him to 60 days in jail. The sentence was suspended so long as he abided by the “previous order requiring him to pay $25 per week child support.” The quoted statement in the judgment was the first time there had been a statement in any order that weekly child support was in the amount of $25 instead of $50. However, other provisions of the November 16 judgment indicated the court was aware that there was then only one child to be supported. There was no objection by the mother to the judgment and there was apparent recognition by her thereafter that the support due was $25 per week. The petition for rule nisi and modification filed by the mother on February 10, 1978, recognized that support was $25 per week.

During the hearing of the mother’s petition, the court noted that there had been no specific modification of the original judgment decreasing the support from $50 to $25 per week. The court was correct in its observation.

By judgment entered May 31, 1978, the court ordered the father to pay $50 per week as support for the minor son.

The father charges on appeal that the court by its order did not modify a prior judgment but attempted to reinstate the original judgment because it found that it was never modified. The father further charges that the court could not enter a modification raising support from $25 to $50 because it did not find in its judgment there had been a change in circumstances.

We find no reasonable cause to believe that the court entered its judgment because it determined that there had never been a modification of the original judgment of support. Its judgment clearly states that it directed the payment of $50 per week for support as a modification of the original judgment “and all subsequent modifications thereto.”

In any event, we find the judgment not to be erroneous because it is supported by the evidence. There was testimony as to increased need for the child and the court was at liberty to judicially notice the inflated cost of living since 1974. So long as the judgment is correct under the evidence, a wrong reason for its entry in the mind of the judge is immaterial. Bryant v. Moss, 295 Ala. 339, 329 So.2d 538 (1976). We are not aware of any requirement that the trial court find in its judgment that there had been a change in circumstances. Rules 15(b), 54(c), ARCP.

AFFIRMED.

BRADLEY and HOLMES, JJ., concur.


author: ENGLAND, Chief Justice. ADKINS, Justice, BOYD, Justice,

text:
    Joan Bernard CASTILLO, Petitioner, v. L. R. BICKLEY and Colonial Penn Insurance Company, Respondents.
    No. 52082.
    Supreme Court of Florida.
    Sept. 28, 1978.
    Ronald W. Vogler of Vogler & Postman, Miami, for petitioner.
    James E. Tribble and Bradford Swing, of Blackwell, Walker, Gray, Powers, Flick & Hoehl, Miami, for respondents.
   ENGLAND, Chief Justice.

In Bickley v. Castillo, 346 So.2d 625, 626 (Fla. 3d DCA 1977), the Third District Court of Appeal held that:

“[T]he owner of a vehicle who places his automobile in the custody of a repair shop for repairs, and has no knowledge of or control over the operation of the vehicle during that time, is not liable to a third person for injuries caused by the negligent operation of said vehicle by the repairman, absent negligence on the part of the owner, notwithstanding the fact that the negligent act occurred on the public highway.”

That decision is brought here as being in direct conflict with this Court’s decision in Susco Car Rental System of Florida v. Leonard, 112 So.2d 832 (Fla.1959), and with the decision of the Fourth District Court of Appeal in Jordan v. Kelson, 299 So.2d 109 (Fla. 4th DCA 1974), cert. denied, 308 So.2d 537 (Fla.1975), both of which announced substantially broader principles of owner liability under the dangerous instrumentality doctrine.

In Susco we said:
“[Wjhen control of [an owner’s] vehicle is voluntarily relinquished to another, only a breach of custody amounting to a species of conversion or theft will relieve an owner of responsibility for its use or misuse.”

Similarly, the court in Jordan stated that automobile owners are liable for injuries sustained by persons on the public highway as a result of the negligence of anyone operating the car with the owner’s knowledge and consent.

Decisions of the district courts since Sus-co reveal a reluctance to apply the broad rule of owner liability there announced in situations where a master-servant type relationship does not exist — that is, where the permissive user of the owner’s vehicle would not be acting under the direction and control of the owner so as to characterize the user as tantamount to an “employee,” as opposed to an “independent contractor,” of the owner. Recently, the Fourth District Court of Appeal suggested an independent contractor exception to Jordan’s seemingly broad owner responsibility rule, noting that the owner in Jordan was held liable for the negligence of a garagetnan who “was gratuitously returning the auto to the owner with the latter’s consent and his operation thereof, on the public highway, was no part of the independent service contracted for.” Fahey v. Raftery, 353 So.2d 903, 904-05 (Fla. 4th DCA 1977). The other district courts have similarly limited the broad doctrine announced in Susco. Harfred Auto Imports, Inc. v. Yaxley, 343 So.2d 79 (Fla. 1st DCA 1977); Patrick v. Faircloth Buick Co., 185 So.2d 522 (Fla. 2d DCA 1966), cert. discharged, 198 So.2d 825 (Fla.1967); Petitte v. Welch, 167 So.2d 20 (Fla. 3d DCA 1964), cert. denied, 172 So.2d 598 (Fla.1965).

In Harfred, Judge McCord carefully analyzed the state of Florida law on this issue and opted to follow the nationwide majority rule of owner liability only in cases where the doctrine of respondeat superior (the master responds for the acts of the servant) pertains. We approve the reasoning expressed in Harfred insofar as it relates to the applicability of the dangerous instrumentality doctrine in situations involving automotive service agencies, and to this extent we recede from our decision in Sus-co. (We also approve, as mentioned in Harfred, the elimination of any distinction between accidents on public property and private premises.)

Our decision to pare back the dangerous instrumentality doctrine in service station and repairman situations stems from considerations of both social policy and pragmatism. An automobile owner is generally able to select the persons to whom a vehicle may be entrusted for general use, but he rarely has authority and control over the operation or use of the vehicle when it is turned over to a firm in the business of service and repair. Moreover, an owner often has no acceptable alternative to relinquishing control of his vehicle to a service center, after which he has no ability to ensure the public safety until the vehicle is returned to his dominion. Persons injured by the acts of garage and service repair agencies are not, however, without protection for their losses. They can and in logic should look to the perpetrator of the injury, who frequently is better able to use due care and to insure against the financial risks of injury.

For these reasons, we hold that the owner of a motor vehicle is not liable for injuries caused by the negligence of the repairman or serviceman with whom the vehicle has been left, so long as the owner does not exercise control over the injury-causing operation of the vehicle during the servicing, service-related testing, or transport of the vehicle, and is not otherwise negligent.

The decision of the Third District Court of Appeal is approved.

It is so ordered.

OVERTON, SUNDBERG, HATCHETT and ALDERMAN, JJ., concur.

ADKINS, J., dissents with an opinion, with which BOYD, J., concurs.

BOYD, J., dissents with an opinion, with which ADKINS, J., concurs.

ADKINS, Justice,

Dissenting.

I dissent. It is quite clear that the principle of respondeat superior and the Dangerous Instrumentality Doctrine are two separate bases of vicarious liability in tort. Susco Car Rental; Nichols v. McGraw, 152 So.2d 486 (Fla. 1st DCA 1963); Ivey v. National Fisheries, Inc., 215 So.2d 74 (Fla. 3d DCA 1968). Confusion of these two separate theories has led to some inconsistent results such as the strict application in the case at bar of an independent contractor exception to the Dangerous Instrumentality Doctrine so as to deny protection to third party members of the general public. The court noticed this problem in Susco Car Rental and resolved it in the following manner:

“Some of the apparent inconsistencies in the cases result from efforts to reason within the confines of inapplicable principles, such as respondeat superior. Confusion can be reduced by recognition that liability under this [dangerous instrumentality] doctrine is imposed independent of other theories of vicarious responsibility in tort law. Where dangerous instrumen-talities are utilized then, contrary to ordinary master-servant law, ‘with practical unanimity the courts hold the master liable for damages caused thereby, even though the servant, who has the sole custody and control thereof, is at the time acting willfully, wantonly, and in disobedience to his master’s order the public safety demands that he shall be answerable for the exercise of his servant’s judgment.’ ”

The correct reasoning is found in Jordan v. Kelson, 299 So.2d 109 (Fla. 4th DCA 1974), where the court said:

“It is a well established doctrine in Florida that a motor vehicle when operated on a public highway is to be regarded as a dangerous instrumentality. The owner of a motor vehicle who allows another to operate said motor vehicle with the owner’s knowledge and consent, implied or express, is liable for an injury to a third person occurring on a public highway as a result of the operator’s negligence. This form of vicarious liability is not based on respondeat superior or an agency conception, but on the practical fact that the owner of an instrumentality which had the capability of causing death or destruction should in justice answer for misuse of this instrumentality by anyone operating it with his knowledge and consent. Southern Cotton Oil Co. v. Anderson, 80 Fla. 441, 86 So. 629 (1920).”

The decision of the district court should be quashed.

BOYD, J., concurs.

BOYD, Justice,

dissenting.

The majority muddies the state of automobile liability law and its paring back of the broad rule of Susco Car Rental System of Florida v. Leonard, 112 So.2d 832 (Fla. 1959) may result in more serious injustice than it prevents.

The last sentence of the opinion frees from liability the motor vehicle owner who leaves the vehicle with a serviceman so long as he is not in control or “otherwise negligent.” It raises a question of whether an owner is liable when leaving a car with a mechanic when he knows or suspects the repairman is uninsured or is an irresponsible person. The decision prevents innocent third parties from recovering from fully insured owners if the damages are caused by a garage owner or his mechanics. As between a serviceman in control of the injury-causing operation of the vehicle and the vehicle’s owner, I agree that the serviceman should be primarily liable. But where the serviceman, for insolvency or lack of insurance, is unable to cover the loss, I think it is better that the owner of the dangerous instrumentality bear the loss rather than the innocent injured party.

In Susco the car had been leased by a car rental agency to a person who agreed that no persons other than himself would be permitted to drive it. In violation of the rental agreement, a third person drove the car and caused the damages. This Court held the owner liable. In this case the owner impliedly consented to the operation of the car by the garage owner and mechanic. Under Susco the owner here must be held liable. I dissent in favor of the certainty and the broad rule of Susco.

ADKINS, J., concurs.

      .A complete statement of facts is set out in the opinion of the district court.

      . Art. V, § 3(b)(3), Fla.Const.

      . 112 So.2d at 835-36.

      . Our decision today does not address other situations in which independent contractors, bailees, or other types of permissive users may be operating an owner’s vehicle without express or implied control and direction. See, for example, Demshar v. AAACon Auto Transp., Inc., 337 So.2d 963 (Fla. 1976).


author: PER CURIAM.

text:
    STATE of Florida, Appellant, v. Louis PAULK, Appellee.
    No. 53721.
    Supreme Court of Florida.
    Sept. 28, 1978.
    Robert L. Shevin, Atty. Gen., and Calvin L. Fox, Asst. Atty. Gen., Miami, and Janet Reno, State’s Atty., and Dennis L. Curran, Asst. State’s Atty., Miami, for appellant.
    Bennett H. Brummer, Public Defender, Miami, for appellee.
   PER CURIAM.

The order of the trial court, granting the motion to dismiss on the ground that Section 812.014, Florida Statutes (1977), is unconstitutional, is reversed. See State v. Allen, 362 So.2d 10 (Fla.1978). This case is remanded to the trial court for proceedings consistent with that decision.

It is so ordered.

ENGLAND, C. J., and ADKINS, BOYD, OVERTON, SUNDBERG, HATCHETT and ALDERMAN, JJ., concur.


text:
    STATE of Florida, Appellant, v. Raymond MILLS, Appellee.
    No. 53722.
    Supreme Court of Florida.
    Sept. 28, 1978.
    Robert L. Shevin, Atty. Gen., and Calvin L. Fox, Asst. Atty. Gen., Miami, and Janet Reno, State’s Atty., and Dennis L. Curran, Asst. State’s Atty., Miami, for appellant.
    Bennett H. Brummer, Public Defender, Miami, for appellee.
   PER CURIAM.

The order of the trial court, granting the motion to dismiss on the ground that Section 812.014, Florida Statutes (1977), is unconstitutional, is reversed. See State v. Allen, 362 So.2d 10 (Fla.1978). This case is remanded to the trial court for proceedings consistent with that decision.

It is so ordered.

ENGLAND, C. J., and ADKINS, BOYD, OVERTON, SUNDBERG, HATCHETT and ALDERMAN, JJ., concur.