text:
    Margle C. BARNES v. ATLANTIC & PACIFIC LIFE INSURANCE COMPANY OF AMERICA, a corporation.
    CER-3.
    Supreme Court of Alabama.
    Dec. 18, 1975.

      E. Ray Large, Birmingham, for plaintiff-appellant.
    Ollie L. Blan, Jr., Birmingham, for defendant-appellee.
   CERTIFICATE FROM THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT TO THE SUPREME COURT OF ALABAMA, PURSUANT TO ARTICLE 6, SECTION 140(b)(3) OF THE CONSTITUTION OF ALABAMA OF 1901, AS AMENDED

BLOODWORTH, Justice.

The plaintiff, Margie C. Barnes, began this litigation by filing suit in the United States District Court, Northern District of Alabama, Southern Division, seeking to recover, as the beneficiary, the proceeds due under a life insurance policy. The district judge, determining that there was no genuine issue as to any material fact and that the insurer was entitled to judgment as a matter of law, granted the insurer’s motion for summary judgment. The plaintiff beneficiary has appealed the district judge’s decision to the Court of Appeals for the Fifth Circuit.

Encountering uncertainty in the Alabama law, the Court of Appeals has posed certain certified questions to us under provisions of the Alabama Constitution, Article 6, § 140(b)(3). The questions are:

1. Does the insurer’s failure to issue the policy exactly as applied for within 30 days of the date of application preclude coverage from attaching as of the date of application pursuant to Condition 3 of the binding receipt?
2. Was there a waiver of Condition 3 of the binding receipt by the insurer’s issuance of a policy after 30 days from the date of application without knowledge that the insured had become unin-surable before the date the policy was prepared and issued ?
3. Did the policy clause providing that “this policy will be effective as soon as it has been delivered to the owner and the first premium has been paid during the lifetime and continued insurability of the proposed insured” preclude coverage under the policy from attaching as of November 6, the date in which the insurer placed the policy in the mail to its agent, in view of the fact that the decedent was admitted to a Birmingham hospital on November 4 suffering from a gunshot wound which ultimately resulted in death on November 13 when the evidence shows insurer had no knowledge of the injury to the insured?
4. Does the insurer’s statement that the policy was issued on the basis of medical information furnished with the application estop the insurer to deny coverage from the date of the Binding Receipt although the policy was not issued within 30 days even though insurer was unaware at the time it made the statement that the insured had become unin-surable ? 8
5. Is there an ambiguity between the policy and the Binding Receipt concerning the effective date of the policy? If so, which provision controls under the facts of this case?9

Barnes v. Atlantic & Pacific Life Insurance Co., 514 F.2d 704, 709 (5th Cir.1975).

The facts of this case as set out by the Court of Appeals and as stipulated by counsel, are as follows:

H. M. McClendon, the defendant-ap-pellee’s soliciting agent, first called upon Robert O. Barnes and Margie C. Barnes, husband and wife, in August of 1970 soliciting their application for insurance upon the life of Robert O. Barnes on behalf of the defendant-appellee. Agent McClendon represented to the Barnes that a monthly automatic premium check-off at the Barnes’ bank in Colum-biana, Alabama would be made by the defendant-appellee. H. M. McClendon again called upon Robert O. Barnes, the insured, and Margie C. Barnes, the Beneficiary, husband and wife, on September 8, 1970 at their home in Columbiana, Alabama; and he secured an application for life insurance and an initial premium payment by cash of Twenty-two and 47/100 Dollars ($22.47) from Robert O. Barnes giving him in return a Binding Receipt. The application was for a policy of life insurance in the amount of $10,000. The premium for a $10,000 policy applied for by Robert O. Barnes was $21.57 per month. Said printed Binding Receipt reflects in Agent McClendon’s handwriting the receipt of a Twenty-two and 47/100 Dollar ($22.47) initial monthly premium and “amount . $10,000.00 . . . $20,000.00.” The Binding Receipt stipulates the effective date of the policy will be the later of:
“date of application, or date of medical examination, if required, provided that the
1. proposed insured is determined by the Company at its Home Office in Atlanta, Georgia, in accordance with its rules and practices, to be insurable on such date for the policy exactly as applied for;
2. first full premium is paid in cash on date of application;
3. policy is issued exactly as applied for within 30 days from this date;
4. total insurance in force with the Company on the life of the proposed insured, including amount now applied for, will not exceed $50,000.00.”
The application was filled out by Agent McClendon,. signed by Robert O. Barnes and provided, inter alia medical information to the company. There had been discussion between Agent Mc-Clendon and Robert. O. Barnes about additional coverage for accidental death. No notation was made on the application concerning any double indemnity coverage for accidental death, except there was a premium notation of payment in advance of $22.47 on the application— the total amount of premium including accidental death benefits coverage on a policy as applied for by Barnes. The application was referred to in and made a part of the policy. Robert O. Barnes disclosed on the application that he had a lung operation at Prattsburg Air Force Base, New York, while in military service. “A week or two after McClendon took Barnes’ application” he returned to Barnes’ residence and secured Barnes’ signature to a medical authorization form to be used by the defendant-appel-lee’s underwriting department in determining if they were to issue the policy. No further contact was made between McClendon or defendant-appellee with Robert O. Barnes or his beneficiary until after his death on November 13, 1970.
The binding receipt was never sent to defendant by its agent. The application was forwarded to defendant and was processed for a policy of life insurance in the amount of $10,000.
On November 4, 1970 the insured was admitted to the Veterans’ Administration Hospital in Birmingham, Alabama with gunshot wounds to the face and died on November 13, 1970 due to cerebral concussion and hemorrhagic pneumonia.
On November 6, 1970 defendant prepared a policy of life insurance on the life of Robert O. Barnes in the amount of $10,000 with an effective date of November 5, 1970 and with an initial premium of $21.57. This policy was mailed to defendant’s agent for delivery to Robert O. Barnes along with a letter dated November 5, 1970, addressed to Robert O. Barnes, referring to Policy Number 70K2580, reflecting a carbon copy to “Agent: H. M. McClendon” and enclosed therewith “Receipt for First Premium and Record of First Payment.” Neither defendant nor its agent had any knowledge on November 6, 1970 or prior thereto that Robert O. Barnes had suffered gunshot wounds on November 4, 1970 and was in the hospital on November 6, 1970.
Agent McClendon attempted physical delivery of the policy to the Barnes’ home on November 14, 1970 — the funeral date of Robert O. Barnes. Defendant’s agent did not know when he attempted to deliver the policy to Robert O. Barnes on November 14, 1970 that Robert O. Barnes had been shot and had died the day before. When he learned Mr. Barnes was dead, the agent mailed the policy back to defendant’s Home Office.
On December 4, 1970 the defendant-appellee mailed its check payable to the plaintiff-appellant for Twenty-two and 47/100 Dollars ($22.47) stating “during our investigation of the pending application pertaining to his past medical history, we were unable to issue and deliver the insurance policy as he applied for during his good health, insurability and lifetime.” This quoted verbiage is taken from that paragraph of the policy which is styled “Effective Date” except the words “good health” are added by the writer thereof — C. Ervin Waller, President of defendant-appellee. The paragraph in the policy entitled “Effective Date” is as follows:
“Effective Date — This policy will be effective as soon as it has been delivered to the owner and the first premium has been paid during the lifetime and continued insurability of the proposed insured. If the first premium is paid in exchange for a binding receipt on the date of application, then this policy will become effective as provided in the binding receipt.”

514 F.2d at 707-09.

The Court of Appeals has determined that the sole question before it is “whether pursuant to a (1) binding receipt or (2) policy itself a policy of life insurance was in effect covering appellant/beneficiary’s deceased husband at the time of his death.” 514 F.2d at 706.

Rather than responding to the questions in the form certified, we have followed the suggestion of the Court of Appeals to direct our attention to what we consider to be the basic issues underlying those questions. See Martinez v. Rodriquez, 394 F.2d 156 (5th Cir.1968), permitting “the [state] Supreme Court’s restatement of the issue or issues and the manner in which the answers are to be given, whether as a comprehensive whole or in subordinate or even contingent parts.” Id. at 159, n. 6. See also the suggestion of Chief Judge Brown to like effect at footnote 10, p. 709, Barnes v. Atlantic & Pacific Life Insurance Co., supra.

Had there been no binding receipt issued on the date of the application, it is clear from our relevant case law that the proposed coverage would never have become effective under the provisions of the policy itself. The policy provides that it “will be effective as soon as it has been delivered to the owner and the first premium has been paid during the lifetime and continued insurability of the proposed insured.” Such provisions have been found by this Court to be both “reasonable and valid.” Life & Casualty Insurance Co. v. Latham, 255 Ala. 160, 164, 50 So.2d 727, 731 (1951). Failure to satisfy the conditions set out in such policy provisions results in a failure of the policy to become effective.

In the instant case, coverage failed to become effective under the terms of the policy because the policy was not delivered during the “continued insurability” of the insured. The latter suffered a fatal gunshot wound on November 4, two days prior to the delivery of the policy on November 6. [The policy was placed in the mail that day to the agent.] Under Alabama case law, delivery to the insured is accomplished on the date that the insurer mails the policy to its agent with the intention that the agent turn it over to the insured. E.g., United Insurance Co. v. Headrick, 275 Ala. 594, 597, 157 So.2d 19, 22 (1963).

We preface our analysis of the effect of the binding receipt by noting that we are in agreement with the following admonition expressed by the Supreme Court of Kansas in its opinion in Service v. Pyramid Life Insurance Co., 201 Kan. 196, 211, 440 P.2d 944, 956-57 (1968):

“There is a great confusion of authority as to the effect to be given such receipts. Because of the similarity of wording usually found in them, attempts have been made to generalize their operation. If these apparently conflicting authorities are examined, however, it becomes clear that these receipts are not capable of general treatment, but must be individually interpreted to give them the effect which the parties intended them to have in each case. The fundamental question is: What was their function ?”

Under the terms of the binding receipt at issue in this case, coverage is contingent upon the occurrence of several conditions. The insurer relies on two separate grounds for its assertion that not all of these conditions were met.

1. The insurer bases its first argument on the language of conditions one and three of the binding receipt requiring that the policy be “issued exactly as applied for.” The insurer argues that if the insured applied for double indemnity coverage for accidental death, as the beneficiary, his wife, claims, then the policy prepared by the insurer was not “issued exactly as applied for” because it does not include double indemnity coverage. It is further argued that the application for $10,000 coverage with double indemnity for accidental death amounted to an offer to buy insurance and that the policy prepared by the insurer, which did not provide for double indemnity coverage, amounted to a counteroffer and, in effect, was a rejection of the insured’s offer.

The principles on which the insurer relies are well-established in Alabama law and have been recently restated by this Court in Life Insurance Co. v. Miller, 292 Ala. 525, 529, 296 So.2d 900, 903 (1974):

“ . . .an application for insurance is a mere offer which does not ripen into a contract until accepted by the insurance company. If the company issues a policy materially different from that applied for, in the eyes of the law, the policy is a rejection of the offer and is a counter-offer which becomes a binding contract only when accepted by the original offeror — the would-be insured.”

In Miller, the insurer issued a policy incorporating all of the terms of the applicant’s offer except the offer premium rate; the policy issued by the insurer up-rated the premium. Construing the policy most strongly against its framer, the insurer, this Court found that the insurer’s decision to up-rate the policy was clearly arbitrary and that, therefore, the up-rate should be disregarded in construing the policy, thus precluding the argument that the policy was a counteroffer. For somewhat different reasons, the facts in the instant case also may support the contention that the insurer is estopped from asserting that the policy in question was a counteroffer rather than an acceptance of the insured’s offer.

The record in this case includes evidence which tends to show that the insured intended to apply for double indemnity coverage for accidental death; that the insurer’s agent was aware of the insured’s intent; that, through the agent’s oversight in filling out the application form for the insured, the agent inadvertently omitted mention of the applied-for double indemnity coverage; and that, at the time the policy was prepared, the insurer was unaware of insured’s request for double indemnity coverage. Under this view of the facts, how can it be said that the insurer prepared its policy intending it to be a counteroffer and hence a rejection of the insured’s offer?

Of even more persuasive force is the rule that

“ . . . ‘a party who deals with an agent, through whom he applies for and obtains a policy, has a right to presume that such material facts as are made known to him, are known to the principal. . ."

Alabama Mutual Fire Insurance Co. v. Minchener, 133 Ala. 632, 635, 32 So. 225, 226 (1901). Under that rule an insured would be justified in relying on the insurer’s agent to correctly inform the insurer of the terms of the insured’s offer and that there ought not to be a denial of coverage merely because of the oversight of the insurer’s agent.

Additionally, we would rely on a line of cases which, although not directly on point factually, impress us with their compelling logic. In these cases, the issue was whether the insurer could avoid liability on the ground that the application for insurance misrepresented some fact bearing on the risk of- loss the insurer was asked to assume, when the misrepresentation was due to the oversight of the insurer’s agent. These cases have been unanimous in their conclusion that

“[ 1] It is fully settled in this jurisdiction that misrepresentations resulting solely from the act or oversight of the soliciting agent taking the application, without the knowledge of the insured or beneficiary, are not available to the insurer, although the issuing authority acts upon the application as presented, and without knowledge of the misfeasance of its agent.”

Inter-Ocean Casualty Co. v. Ervin, 229 Ala. 312, 313, 156 So. 844, 845 (1934). Furthermore, it has been held that

“ . . .In such case, the defendant will not be permitted to take advantage of the wrongful act, or misconstruction, or mistake, of its own agent, and avoid the policy, the insured being without fault. * * * ”

Williamson v. New Orleans Insurance Ass’n, 84 Ala. 106, 108, 4 So. 36, 38 (1887). Accord, National Life and Accident Insurance Co. v. Allen, 285 Ala. 551, 234 So.2d 567 (1970) ; United Security Life Insurance Co. v. St. Clair, 41 Ala.App. 243, 130 So.2d 213 (1961).

2. A second ground which the insurer asserts for the nonoccurrence of the conditions required by the binding receipt is the failure of the insurer to issue the policy within 30 days from the date of the application [condition three of the binding receipt]. In reply thereto, the insured argues that this provision was “waived” by issuance of the policy. We do not consider this argument to be persuasive. The insured interprets the 30-day provision to mean that the insurer would be under no legal obligation to issue its policy if it did not do so within a 30-day period. This, we consider to be a misinterpretation of the effect of the 30-day provision. The requirement that the policy be issued within 30 days is nothing more than a condition which must be met in order for coverage to become effective from the date of the application rather than the date of issuance of the policy. For the requirement of issuance within 30 days to be waived by the insurer, there must be a clear manifestation of intent to do so. The mere issuance of a policy at a time subsequent to the 30-day period is not in itself a sufficient manifestation of an intent to waive one of the conditions to coverage under the binding receipt.

Although we find no substance to the waiver argument, there would appear to us to be some support in the record for the argument that the insurer may be estopped from denying coverage on the basis of its failure to issue the policy within 30 days. This argument is founded upon general principles of contract law. Where a promisor’s duty to perform is conditioned upon the occurrence of some event wholly within his control, there is an implied duty of good faith and fair dealing owing from the promisor. If the promisor’s failure to cooperate results in the nonoccurrence of the condition, the condition is thereby excused. “The justification for the rule which makes prevention or hindrance by the promisor a breach of the duty of good faith and fair dealing as well as an excuse of the condition may be found in the assumption of the parties to the contract that the promisor . . . would take reasonable, positive action to ascertain its occurrence.” J. Murray, Murray on Contracts § 187, at 365 (1974). Where a binding receipt is conditioned upon issuance of a policy within a certain time, the proposed insured is justified in assuming that the insurer will exercise reasonable care and diligence in acting upon his application. De Ford v. New York Life Insurance Co., 75 Colo. 146, 224 P. 1049 (1924).

Although not factually on all-fours, the recent Oklahoma case of Peddicord v. Prudential Insurance Co., 498 P.2d 1388 (Okl.1972) contains language to like effect. There, it was held:

“ ‘ * * * We think it may well be held that there was an implied contract if not a legal contract * * * on the part of the insurance company to act on the application within a reasonable time; that is, either to accept the application and issue the policy, or reject the same, so that the applicant could secure insurance elsewhere, . . .

498 P.2d at 1390.

Whether the insurer’s delay in issuing the policy in this case was within the bounds of reasonableness is certainly not a question which we can resolve. The record contains some evidence which would seem to indicate that the delay in issuance was unreasonable. Thus, if the policy was issued solely on the basis of the information contained in the application obtained on September 8, a delay of issuance until November 6 would seem to be unreasonable. This view of the evidence is supported by a letter prepared by the insurer and enclosed with the policy. This letter states that the policy was “issued on the basis of the application you [the insured] recently gave our representative.” The letter further states that the policy is of a type “issued only to persons who furnish evidence of insurability, which was supplied with your application.”

On the other hand, the insurer contends that the delay in issuance was caused by delays it encountered in obtaining records of the insured’s medical history during his military service.

Again, we would observe that a resolution of these conflicting contentions is not for our determination.

Turning now to insured’s argument that there is ambiguity between the provisions of the policy and the binding receipt concerning the effective date of the policy, our case law has long adhered to “the rule of liberal construction in favor of the insured of insurance policies in case of any ambiguity.” New York Life Insurance Co. v. Torrance, 224 Ala. 614, 617, 141 So. 547, 550 (1932).

However, we see no ambiguity under the language at hand here. The policy provides that, if a binding receipt has been issued, the effective date of the policy is to be determined under the provisions of the binding receipt. The binding receipt provides that its date is to be the effective date of the policy only if certain conditions are satisfied. This Court interprets this language to provide that the terms of the binding receipt are to control only if its conditions are met and that otherwise the terms of the policy are controlling.

Under Alabama law, therefore, the effective date of the policy is to be determined by the binding receipt, if the conditions contained therein are met. Based upon the record before us, we believe there is a question of fact to be resolved on the issue of waiver or estoppel on the part of the insurer insofar as condition 3 of the binding receipt is concerned.

The foregoing states Alabama law on the issues underlying the questions certified.

HEFLIN, C. J., and MERRILL, MADDOX, FAULKNER, JONES, ALMON, SHORES and EMBRY, JJ., concur.


source: Caselaw Access Project

author: JONES, Justice.

license: Public Domain

text:
    Christine Juanita GRAY v. LINCOLN INDUSTRIAL INSURANCE CO., INC., a corp.
    SC 1312.
    Supreme Court of Alabama.
    Jan. 2, 1976.

      Nichols & Lowery, Birmingham, for appellant.
    George I. Case, Jr., Birmingham, for ap-pellee.
   JONES, Justice.

Purchaser-mortgagor appeals from an order granting declaratory relief to the seller-mortgagee imposing simple interest at the annual rate of 5% on the unpaid balance of the debt evidenced by a note which was executed simultaneously with, and referred to in, a mortgage. As modified by order of this Court in conformity with this opinion, the final decree of the trial Court is affirmed.

The facts are virtually without dispute. In late 1962, Lincoln Industrial Insurance Company (appellee) owned and offered for sale to Christine Juanita Gray (appellant) a house and lot in the Ensley community of Jefferson County. Lincoln’s original offer was $12,500 sales price, $1,000 down-payment, and a balance in unspecified monthly payments at an annual interest rate of 8%.

Although a title insurance binder in the amount of $12,500 was ordered, Gray sought the services of an attorney to pursue the negotiations further and to represent her in closing the transaction. When it was pointed out to Lincoln by the attorney that his client could pay only $45 to $50 per month and that this would be inadequate to retire even the interest at 8%, Lincoln agreed to reduce the purchase price to $11,500 (with $1,000 down), the interest rate to 5%, and to accept $50 per month on the balance.

After clearing several deficiencies shown in the title binder, Lincoln’s attorney prepared and forwarded the deed, the mortgage, and the note to Gray’s attorney who supervised the closing of the transaction, including the preparation of a closing statement, delivery and recordation of the documents.

The deed showed a consideration of $11,500. The mortgage stated the amount of indebtedness as $10,500, payable on the 2nd day of May, 1963, and the 2nd day of each month thereafter at $50 per month with “interest of 5% included”. The closing statement reflected the $1,000 down payment and a title policy — consistent with the binder — was issued for $12,500. Payments of $50 per month were regularly and timely made by the purchaser until January, 1970.

On January 9, 1970, Gray’s attorney informed Lincoln by letter, “On the 2nd day of April, 1963, you sold Lot 12 in Block A, Unit Land Company’s first addition to En-sley to Christine Juanita Gray for the sum of $11,500, which sum of money included interest over the period of payment.” The letter then set out the pertinent parts of the note in which the only reference to interest was, “Interest shall be payable on the respective installments at the legal rate per annum after maturity thereof.”

After commenting that the note was secured by a mortgage, the letter concluded: “According to my figures, I am enclosing, herewith, a check for $50 to pay for January, 1970. This will be 115 payments. This amounts to $5,850 paid which leaves a balance of $4,650.” The controversy brought to light by this letter ultimately culminated in this litigation.

The posture of the record before us is somewhat confusing because plaintiff’s bill for declaratory judgment sought relief on one theory (reformation); the defendant chose to defend on a different theory (consistency of the note and mortgage providing interest only after maturity); and the trial Court’s decree granting plaintiff relief is founded on a third theory (patent ambiguity admitting of parol evidence to discern true intent of the parties). Thus, a brief review of the respective contentions of the parties and the basis for the trial Court’s final decree is necessary to place in perspective the issue presented for our review.

Lincoln, through its attorney, both by its pleadings and proof, says the parties through their negotiations arrived at a mutual assent for the sale and purchase of the real property in question. The mortgage, though not a model of perspicuity, accurately and adequately express the meeting of the minds. The sales price' of $11,500 was reduced by a $1,000 down payment to $10,500, which balance was to be paid at the annual interest rate of 5% with both the principal and interest included in the $50 per month payments. The note, through mutual mistake or scrivener’s error, omitted any reference to interest except the reference contained in the printed form which refers to interest at the legal rate from the date of maturity. The plaintiff’s pleading' (bill for declaratory judgment), both as to averments of fact and prayer for relief, and its uncontradicted evidence support reformation of the note to express the contract mutually agreed upon by the parties.

Gray, through her attorney, offered a defense totally foreign to the reformation theory. Consistent with the position taken in her attorney’s letter to Lincoln dated January 9, 1970, she contended that the words employed by the mortgage, “with interest of 5% included,” rendered the note’s omission of any reference to interest (except from maturity) correct, because the mortgage indebtedness of $10,500 included the 5% interest.

Appellant’s argument is fallacious, both legally and factually: factually, because $10,500, by all the evidence — oral and documentary — represented the principal balance of the debt; and legally, because the word “included”, as here used, can only refer to the $50 per month payments rather than to the $10,500 amount of the debt. No evidence was adduced by the purchaser to refute either of these conclusions.

That the trial Judge viewed the disposi-tive issue as controlled by yet a third legal theory can be seen at the very outset of the trial, when he observed:

“I have looked at the note straight from the mortgage, and the language may be said to be ambiguous, and if it is ambiguous, it devolves upon the Court to try to determine what the intentions were, and the only way we can do that is to take testimony.”

The ambiguity theory, pursued by the Court throughout the trial, culminated in its decree:

“. . . There is a patent ambiguity in a portion of the writing in a mortgage and mortgage note . . . The ambiguity concerns the amount of interest as provided in the mortgage and in the mortgage note. Under the laws of the State of Alabama the mortgage is given to secure the note. The language employed in the note where it is ambiguous has primacy over that language employed for the same purpose in the mortgage. Under the statute, relative to interest which may be charged where the ‘legal rate’ is employed (as in the note), the plaintiff would be entitled to interest at 6%. However, plaintiff does not insist upon any rate of interest in excess of 5%.
“Under the language in both instruments when considered in pari materia, interest is due to be charged and credited to each monthly payment, is included in said payment and may be deducted, and the balance after deduction of interest credited to the principal balance due.”

We are appreciative of the enigma faced by the appellant by this anomalous turn of events. Indeed, the grounds included in her motion for a new trial give expression to her dilemma. If this is a patent ambiguity case, then was not all the extrinsic evidence considered by the Court erroneously admitted? Garrow v. Toxey, 188 Ala. 572, 66 So. 443 (1914). If the ambiguity is to be devolved from the four corners of the documents, with the language of the note given primacy over the mortgage, how then could “interest at the legal rate per annum after maturity thereof” result in any addition of interest prior to the maturity date of each payment?

Our ability to appreciate the problem, however, does not result in our reversal of the decree below. This is not an “ambiguity” case. The pleadings and the uncontra-dicted evidence support plaintiff’s reformation theory.

The power of Alabama courts to reform written instruments extends to promissory notes. Copeland v. Keller, 221 Ala. 533, 129 So. 571 (1930). This Court will assume jurisdiction to reform written instruments on the ground of mutual mistake where there has been a meeting of the minds in an agreement actually entered into, but the instrument in its written form does not express the parties’ intentions. Ballentine v. Bradley, 236 Ala. 326, 182 So. 399 (1938). In such a case, it is immaterial which party employed the draftsman. Fidelity Service Insurance Co. v. A. B. Legg & Sons Burial Insurance Co., 274 Ala. 94, 145 So.2d 811 (1962); McCaskill v. Toole, 218 Ala. 523, 119 So. 214 (1928).

In the instant case, there is substantial and uncontradicted evidence that prior to the execution of the mortgage and note the parties had agreed to an $11,500 purchase price, a $1,000 down payment, and a 5% per annum rate of interest, but the draftsman of the note failed to fill in the interest provision. The appellant does not contend negligence on the part of the appellee. This situation falls squarely within our rule allowing reformation of written instruments where there has been a draftsman’s mistake. Ballentine v. Bradley, supra. This case must be distinguished from Brown v. First National Bank of Montgomery, 261 Ala. 565, 75 So. 2d 141 (1954), where this Court sought to construe the intention of the parties from the face of the executed instruments. In Brown, this Court stated that when a note and a mortgage contain conflicting and irreconcilable provisions as to the character or terms of the debt, or the time for its payment, the note will govern as being the obligation. The Brown case, however, did not involve a complaint for reformation; rather, it involved an attempt to determine whether the statute of limitations of certain promissory notes began to run from the date of execution or the date of maturity. The Brown Court faced a construction problem in which the intent of the parties was not clear.

The case at hand presents a different problem. Here, the actual agreement between the parties is established by overwhelming evidence, but the promissory note, through a draftsman’s error, does not express that agreement. The rule set out in Brown did not arise to. govern the draftsman’s error/reformation problem; therefore, it is not applicable to this case.

We hold that Lincoln is entitled to the relief prayed for. Accordingly, an order will be entered reforming the note to include the words: “with interest to be included in the $50 per month payments.”

Modified, affirmed, and rendered.

HEFLIN, C. J., and MERRILL, MADDOX, and SHORES, JJ., concur.

      . All of these legal documents were the traditional printed forms with blanks to be filled in to fit the particular facts of the situation. The note was what is sometimes referred to as a bank “long form” note.

      . For the purpose of clarity, it should be noted that monthly payments continued through September, 1973; that no issue of waiver or estoppel is raised with respect to Lincoln’s receipt thereof; and that default is not claimed for nonpayment from September, 1973, to the date of the filing of suit in March, 1974, there being an agreement between the parties with respect to the payments due from October, 1973, to the date of the resolution of this litigation.


author: FAULKNER, Justice.

text:
    Jessie Louise McCORD v. Dennis E. STEPHENS, as Administrator, etc., et al.
    SC 1213.
    Supreme Court of Alabama.
    Dec. 18, 1975.
    Jesse W. Shotts, Birmingham, for appellant.

      Rogers, Howard, Redden & Mills, Birmingham, for appellees.
   FAULKNER, Justice.

This is an appeal from an order of the Circuit Court of Jefferson County, denying Jessie Louise McCord’s petition for removing Dennis E. Stephens as administrator of the estate of Walter Woodrow McCord. We affirm.

No transcript of the evidence having been filed, we consider only the transcript of the record proper, showing the petition, its amendment, and the court’s order.

Walter Woodrow McCord died on October 14, 1973, and Dennis Stephens was appointed administrator of the estate on October 29.

The thrust of the petition is that, when letters of administration were issued to Stephens, appointing him administrator, Jessie McCord, the widow, with first priority, was under an incapacity to serve because she faced criminal charges. She was acquitted on December 19, 1974, and now she says she is competent to assume her priority. She prays for the removal of Stephens, and her appointment.

Section 81, Title 61 Code of Alabama, gives the husband or widow first priority to serve as administrator of an intestate estate. But, under § 83, Title 61, this priority must be claimed by applying for letters of administration within 40 days after the death of the intestate. By her failure to apply within the 40-day period after the death of the intestate, Ms. McCord waived her preferential right to be issued letters of administration. Stanley v. Stanley, 202 Ala. 661, 81 So. 617 (1919); Gilmore v. Roberson, 273 Ala. 230, 139 So.2d 604 (1962).

The petition for removal does not allege Stephens is unfit or disqualified. This court said in Starlin v. Love, 237 Ala. 38, 185 So. 380 (1938):

“While the court has an inherent right to revoke letters, that right is within the limit of certain bounds, and must be for cause. ... It can only be done when some other person has a prior right either under a will or the law, and has not waived that right and is seeking to enforce it, or when the person appointed is unfit or disqualified.”

II

Ms. McCord challenges the constitutionality of § 84, Title 61, Code of Alabama, by her amended petition on the ground “men are to be preferred to women.” Section § 84 provides:

“If several persons of the same degree of kindred to the intestate, computed by the rules of the civil law, are entitled to the administration, men are to be preferred to women, and the whole blood to the half blood; and when several persons are equally entitled thereto, the court may, in its discretion, grant letters to one or more of them; and when a married woman is entitled thereto, it may be granted to her husband in her right.”

To question the constitutionality of a statute, a person must have some right specifically affected by it. Smith v. Potts, 293 Ala. 419, 304 So.2d 578 (1974).

There is no contest here between two persons as to who is the more suitable to be appointed administrator. Ms. Mc-Cord, by having waived her preferential right to be appointed, has no standing to raise the constitutionality of the statute.

Affirmed.

HEFLIN, C. J., and BLOODWORTH, ALMON and EMBRY, JJ., concur.


text:
    Macie E. CAMERON v. Earsey L. CAIN et al.
    SC 1467.
    Supreme Court of Alabama.
    Jan. 2, 1976.
    Rehearing Denied Jan. 29, 1976.
    Macie E. Cameron, pro se.
    Nash, NeSmith & Walker, One Onta, for appellees.
   JONES, Justice.

This is an appeal from a judgment declaring a boundary line between the property of the appellee, Earsey Cain, and the appellant, Macie Cameron. We affirm.

Cain filed a complaint for declaratory judgment seeking to establish a boundary between his and Cameron’s property as the old Arkadelphia Road. Cameron filed a counterclaim seeking injunctive relief against a poultry operation which Cain ran on his property. The trial Judge heard the evidence without a jury and made a personal inspection of the premises before he rendered a judgment which established a boundary line as the old Arkadelphia Road and dismissed the counterclaim as moot because Cain had discontinued his poultry operation 18 months before the law suit.

Acting as her own attorney, Cameron appealed the trial Judge’s decision to this Court. She requests us to retry the facts of the case and render a judgment in her favor. It is not, however, the function of this Court to retry law suits. Both Cain and Cameron had equal opportunity to present their cases to the trial Judge. Our review of the record reveals that both sides supported their claims with evidence which was sufficient to uphold judgments in their favor. Cain presented evidence that he and his predecessor had occupied the property up to the road since at least 1914 without any dispute that the road was the boundary line. Cameron presented evidence of a recent survey done at her request which showed that she owned a strip of land on Cameron’s side of the road.

This Court will not retry issues of fact. When the trial Judge takes evidence orally and personally inspects the property, his decree on the question of adverse possession in a boundary dispute case will not be disturbed unless it is not supported by the evidence or is plainly and palpably wrong or manifestly unjust. Casey v. Keeney, 290 Ala. 94, 274 So.2d 68 (1973). After carefully reviewing the record, we are unable to conclude that the trial Judge’s decree is unsupported by the evidence or is plainly or palpably wrong or manifestly unjust. We, therefore, affirm.

Affirmed.

HEFLIN, C. J., and MERRILL, MADDOX and SHORES, JJ., concur.


text:
    Price L. MITCHELL et al. v. Gary GREENOUGH et al.
    SC 1320.
    Supreme Court of Alabama.
    Jan. 9, 1976.
    Mylan R. Engel, Mobile, for appellants.
    Fred G. Collins, and S. R. Sheppard, Mobile, for appellees.
    Thomas E. Bryant, Jr., Mobile, for Mobile County Merit System Employees Assn., amicus curiae.
   JONES, Justice.

Can a classified city employee be denied pay for a period of authorized leave awaiting outcome of pending criminal charges where he is subsequently exonerated and reinstated ? Within the factual context here presented, we hold that he cannot. We reverse and remand.

This declaratory judgment action, filed by the Mobile County Personnel Board on behalf of the aggrieved employee, was tried below on a stipulation of facts, the substance of which'follows:

W. C. Clewis is a classified employee of the City of Mobile serving in the capacity of Auditorium Manager, and is under the jurisdiction of the law and rules of the Personnel Board for Mobile County. While so employed, Clewis was indicted by the United States Grand Jury and also by the Mobile County Grand Jury for certain alleged criminal violations, all of which charges have either been adjudicated in his-favor or have been dismissed by the courts. Clewis remained on sick leave with pay from the time of his indictment until December 6, 1973, at which time his accumulated sick leave was exhausted. He remained on absence with leave without pay from December 6, 1973, to June 11, 1974, when he was reinstated. Clewis’s request for back pay for the period December, 1973, to June 11, 1974, was denied by the city.

The trial Court held:

“[He] is not entitled to receive back pay for the period of time that the said W. C. Clewis was placed on leave of absence pursuant to the provisions of Rule 3.8 of the Personnel Board for Mobile County, Alabama;”

From this adverse judgment, the Personnel Board appeals.

The Personnel Board of Mobile County exists under the provisions of Local Act No. 470, approved September IS, 1939, Local Acts of Alabama, 1939, p. 298, as amended. Section IX of that Act provides that the Director of the Personnel Board “shall recommend such Rules as he may consider necessary, appropriate, or desirable to carry out the provisions of this Act, and may from time to time recommend amendments thereto.” It further provides that “[t]he powers herein conferred upon the Director shall be subject only to the provisions of this Act and of the Rules adopted hereunder . . . ”. Pursuant to this authority, the Board promulgated Rule 3.

“ABSENCE WITH LEAVE. 3.8. An employee who is temporarily incapacitated from performing his duties, or desires to engage in a course of study such as will increase his usefulness upon his return to duty, or who for any reason considered good by the Appointing Authority desires to secure a leave of absence from regular duty may, upon the recommendation of the Appointing Authority and with the approval of the Director, be granted leave without pay for a period not to exceed one year; provided, however, that approval of the Director shall not be required for a leave or leaves aggregating not more than fourteen (14) calendar days within any twelve (12) months period. No such leave shall be granted for the purpose of enabling an employee to engage in other employment outside the Classified Service; provided, however, that an employee may be granted special leave for a period not exceeding ninety days for the purpose of self employment in agricultural pursuits; and, provided further that, if any governmental agency should request the temporary services of a technically trained employee for the purpose of assisting in adopting or installing a change in service, the Appointing Authority may, with the approval of the Director, authorize a leave of absence. An employee requesting special leave without pay shall submit his request in writing, stating the reasons why such a request should be granted, the date when he desires leave to begin, and the date of return to duty. An employee who fails to report for duty upon the expiration of any such leave of absence will be considered to have resigned.
“An employee who, at the direction of his Appointing Authority, attends a conference or institution for training or instruction, shall be considered to be on duty.
“When an employee has been charged with a violation of the penal code, the Appointing Authority may place him on Leave of Absence, subject to the approval of the Director, until the matter has been adjudicated in the Courts, but not to exceed sixty (60) days. If a further extension is necessary, it must be approved by the Personnel Board.”

(The last paragraph of the foregoing Rule was promulgated by the Personnel Board on September 9, 1971.)

The City contends that because the original Rule 3.8 (entitled “Absence With Leave”) prescribed that under certain conditions (incapacity, etc.) leaves of absence were authorized without pay, a leave based on another condition (criminal charges), which was added by amendment, was also without pay. In other words, by adopting a rule which included conditions authorizing leave of absence and expressly providing that under such enumerated conditions the granted leave would be without pay, the Board’s amendment of that rule adding another ground implicitly adopted the “without pay” provisions of the original rule.

On the other hand, the Board argues that Rule 3.8 is not a “without pay” rule, but a “leave of absence” rule. Since the added condition for the grant of leave contained in the amendment makes no mention of pay for the period of leave granted, and since the conditions of the original rule are voluntary while the condition of the amendment is involuntary, leave with pay is the apparent intent of the amendment.

While these arguments present an interesting challenge of legislative interpretation as they relate to Rule 3.8, as amended, our resolution of the ultimate issue must begin with an analysis of the statute creating the Board.

In Section XXIII, the Act creating the Board prescribes the procedure for suspension without pay. The provisions of that section require a hearing in any suspension for a period of more than thirty days within one year. The Board cannot circumvent that requirement with euphemisms. An involuntary “leave of absence” without pay is tantamount to a suspension and the due process requirement of a hearing as provided in Section XXIII is necessary.

The distinction between the first portion of Rule 3.8 — establishing leave of absence without pay — and the amendment to the Rule — providing for leave of absence for anyone charged with violation of the Penal Code — is that the former leave results from the voluntary request of the employee to be put on leave, while the latter results from the act of the Appointing Authority without the consent of the employee. The Board is specifically authorized under its rule-making power to make reasonable provisions for “leave of absence” as it has done in the first portion of Rule 3.8. But when it amended the Rule to include involuntary leave of absence for employees charged under the Penal Code, the Board had to comply with the suspension section (§ 23) of the Act. Since the leave of absence under the penal charges amendment can extend for more than thirty days in one year, the employee cannot be deprived of his pay without a right to a hearing. This amendment provided no right to a hearing nor was a hearing held. Therefore, the amendment is ineffective to preclude Clewis’s right to back pay.

Reversed and remanded.

HEFLIN, C. J., and MERRILL, BLOODWORTH, FAULKNER, SHORES, and EMBRY, JJ., concur.

MADDOX, J., dissents.

ALMON, J., not sitting.


author: JONES, Justice. MADDOX, Justice

text:
    Pauline FUGAZZOTO et al. v. BROOKWOOD ONE, a limited partnership, etc., et al.
    SC 1223.
    Supreme Court of Alabama.
    Jan. 9, 1976.
    John Martin Galese, Birmingham, for appellants.
    Sirote, Permutt, Friend & Friedman, Birmingham, for appellees, Brookwood One and Brookwood Two.
    Irvine C. Porter, Birmingham, for appel-lee, the City of Homewood, Ala.
    Cabaniss, Johnston, Gardner, Dumas & O’Neal and J. M. Breckenridge, Birmingham, for appellee, City of Mountain Brook, Ala.
   JONES, Justice.

This is an appeal from a decree of dismissal entered against Pauline Fugazzoto and others who sought injunctive relief against Brookwood One and Two (Developers) and declaratory relief against the developers and the cities of Homewood and Mountain Brook. We affirm as to the dismissal of the claim for injunctive relief and reverse and render a judgment as to the dismissal of the claim for declaratory relief.

We first address the dismissal of the claim for injunctive relief. Count One of the plaintiffs’ complaint sought to enjoin the developers from constructing a private access road which would connect its property to Symer Road, a public street which abuts both the plaintiffs’ residential property and the developers’ commercial property. The plaintiffs based their demand for the injunction upon the allegation that the construction of the private access road would increase automobile traffic on Smyer Road thereby constituting a nuisance (Tit. 7, § 1081, Code).

After presenting affidavits, the defendants filed motions for dismissal and for summary judgment. The trial Court considered the motions and entered a decree dismissing the cause “but without prejudice to plaintiffs to bring an appropriate action if and when the alleged anticipatory nuisance becomes real.”

The motions and affidavits authorized the trial Judge to either dismiss the complaint or grant a summary judgment, but he granted only the motion for dismissal. Therefore, we will limit our review to the propriety of dismissing the plaintiffs’ complaint.

There is statutory authority for enjoining anticipatory private nuisances in Alabama. Tit. 7, § 1083, Code, provides:

“Where the consequences of a nuisance about to be erected or commenced will be irreparable in damages, and such consequences are not merely possible, but to a reasonable degree certain, a court of equity may interfere to arrest a nuisance before it is completed.”

In Jackson v. Downey, 252 Ala. 649, 42 So.2d 246 (1949), this Court construed Tit. 7, § 1083, Code, in the procedural context of an order sustaining a defendent’s demurrer and held that “if the facts averred present such a situation that if proven equity will intervene to grant relief, the case should proceed to a hearing on the evidence . . .”. This statement is consistent with the standard adopted by this Court for testing the sufficiency of a complaint upon a 12(b)(6) motion. In Trabits v. First National Bank of Mobile, 295 Ala. 85, 323 So.2d 353, (1975), this Court quoted with approval Conley v. Gibson, 355 U. S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), for the statement that:

“In appraising the sufficiency of the complaint we follow, of course, the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.”

Under this standard, and order dismissing a complaint under 12(b)(6) should rarely be granted. But, in this case, the plaintiffs’ complaint alleged all of the facts which they could have proved in a hearing. Those facts are that the completion of the private road will increase automobile traffic on Smyer Road. The question of whether an activity which increases automobile traffic on public roads is enjoinable as a nuisance was addressed by this Court in Drennen v. Mason, 222 Ala. 652, 133 So. 689 (1931). In that case this Court stated that, “The noises of increased automobile traffic, the stopping, starting and shifting gears, incident to the rightful use of a public street, cannot be regarded in this day as substantial cause for injunctive relief which deprives the citizen of the use of his property.”

We reaffirm this as a correct statement of law. Although increased traffic may be one element of a nuisance action based upon an activity such as a truck terminal or a garage, increased traffic alone cannot be regarded as a substantial invasion of a property owner’s right to the enjoyment of his property. Thus, it appears beyond doubt that the plaintiffs could prove no set of facts in support of their claim which would entitle them to relief and their claim for anticipatory in-junctive relief was due to be dismissed. The decree of dismissal as to Count One is affirmed.

We now turn to the plaintiffs’ claim for declaratory relief. Count Two of the complaint sought a declaration that the plaintiffs are not parties to the restrictive covenant between the City of Mountain Brook and the developers and that the plaintiffs are entitled to rely upon the conditions of the covenant as residents of the City of Mountain Brook in the event they are denied injunctive relief. There are two covenants which concern the construction of the private access road. One is between the City of Homewood and the de- ■ velopers; the other is between the City of Mountain Brook and the developers. Although the plaintiffs’ complaint sought declaratory relief as to the Mountain Brook covenant, the plaintiffs attached only the Homewood covenant to the complaint. Since the covenants are substantially identical and since our reversal of this case could be based upon either covenant, we will not attempt to determine which covenant the plaintiffs actually intended to include in their complaint. Both covenants limited the use of the private access road to ISO cars which would be issued special passes. Both covenants also included a paragraph numbered 5(c), which provides that the entire covenat “shall, at the option of the undersigned developers ... be null and void and of no effect in the event . . . a suit or action shall be instituted by any person . . . against the undersigned developers to enjoin the use and enjoyment by the undersigned developers ... of any private roadway . . . connecting up with the said Smyer Road.” Since the plaintiffs in this suit have brought an action against the developers as described in 5(c), they seek a declaration that the 150 car limitation remains in force despite provisions of paragraph 5(c).

The effect of paragraph 5(c) is to inhibit the plaintiffs’ right to seek relief in the courts. The developers and the two municipalities have, by contract, threatened that if the plaintiffs seek a legal adjudication of their rights, the contractual benefits the municipalities obtained for the plaintiffs will be annulled. The covenant places the plaintiffs in this dilemma: If they seek to enjoin the developers from constructing the private road, they will, by virtue of paragraph 5(c) invalidate the agreement restricting the use of the private road if it is constructed.

Both the Alabama courts and the Alabama legislature have consistently reaffirmed the public policy against contracts which either interfere with the parties’ right to use the courts, or deprive the courts of their inherent jurisdiction. In evidence of this policy, the legislature has enacted statutes voiding confessions of judgment (Tit. 20, § 16, Code) and prohibiting contractual modification of statutes of limitation (Tit. 7, § 28, Code). The courts have manifested this policy by invalidating the contractual agreements for the issuance of injunctions (Stokes v. Moore, 262 Ala. 59, 77 So.2d 331 (1955) ); and by declaring that parties have no power to contract against finality of judgments of the courts on issues within the courts’ jurisdiction (John Hancock Mutual Life Insurance Co. v. Large, 230 Ala. 621, 162 So. 277 (1935) ); and by declaring that a contract to arbitrate and thus determine whether a party has a cause of action is not ordinarily enforceable (T. C. I. & R. Co. v. Sizemore, 258 Ala. 344, 62 So.2d 459 (1952) ). It is important to note that all of these illustrations of the public policy in this area involve situations where the contracting parties have impaired only their own rights to use the courts. The instant case, however, involves a situation where the contracting parties have not only affected their own rights, but have also affected the rights of persons who are not parties to the contract. Contractual provisions which affect third party rights are even more undesirable than those which affect only the contracting parties because the third parties’ rights are impaired without their consent.

Moreover, when, as in this case, one of the contracting parties is a municipal corporation which has agreed to a contractual provision impairing the rights of its residents to use the courts, we find an even stronger public policy against the restrictive provision here in question. Municipal corporations, unlike private contracting parties, derive their contracting power from the legislature. Their power to contract is, therefore, even more circumscribed than that of private parties, and the countervailing considerations of freedom of contract raised by private parties against the public policy declarations of the legislature and the common law cannot avail municipal corporations.

We, therefore, hold that paragraph 5(c) in both the Homewood and the Mountain Brook covenants is invalid as contrary to public policy.

The fact that we declare paragraph 5(c) invalid, however, does not mean that the entire covenant is invalid. Without paragraph 5(c), the covenant is still supported by adequate consideration. In return for the 150 car restriction, Homewood approved the developers’ request to vacate Executive Circle, resurvey the property, and construct the private road, and Mountain Brook declared that it would raise no objections to the developers’ plans. We, therefore, render a judgment that the covenant remain in force except for paragraph 5(c) which is deleted in full.

Affirmed in part, reversed and rendered in part.

MERRILL, BLOODWORTH, FAULKNER, SHORES and EMBRY, JJ„ concur.

HEFLIN, C. J., and MADDOX, J., concur in part and dissent in part.

ALMON, J., not sitting.

MADDOX, Justice

(concurring in part and dissenting in part).

I concur in that portion of the opinion which affirms the trial court’s order dismissing count one. I concur in the result of the opinion as to count two, the claim for declaratory judgment. I can only agree that the trial court’s granting of the motion to dismiss as to count two was improper, because I believe the complaint, especially when construed under Alabama’s new Rules of Procedure, states a “justicia-ble controversy.” In my opinion, the plaintiffs barely state a claim for declaratory relief. The plaintiffs seek to have adjudicated “anticipatory rights” and this Court has said that a declaratory judgment proceeding is not available to adjudicate such anticipatory rights, and it is not sufficient that parties anticipate that a justicia-ble controversy may arise. White v. Frink, 274 Ala. 49, 145 So.2d 435 (1962). However, I believe that the plaintiffs here are entitled to an adjudication even though the adjudication may not be in accordance with their theories and contentions. See Darling Shop of Birmingham v. Nelson Realty Co., 255 Ala. 586, 52 So.2d 211 (1951). Consequently, I concur only in the result reached by the majority that count two of the complaint should not have been dismissed, but I would remand the cause for a declaration rather than rendering the case.

HEFLIN, C. J., concurs.


text:
    Richard M. MORVAY and John Dix v. Vernett DRAKE and H. H. Drake.
    SC 1426.
    Supreme Court of Alabama.
    Jan. 2, 1976.
    Markstein & Morris, Birmingham, for appellants.
    James F. Berry, Cullman, for appellees.
   JONES, Justice.

This is an appeal from a decree enjoining John Dix from foreclosing a mortgage which he holds on the property of Vernett and H. H. Drake. We affirm.

The mortgage in -question is dated May 25, 1970, and was originally granted to Dix’s brother, Richard Morvay. Prior to the execution of the mortgage, H. H. Drake owed Dix $4,050, which was represented by two unsecured promissory notes and Dix owed Morvay an unsecured debt of $5,000. For many years, Drake had regularly borrowed money from Dix without security and had repaid him. Shortly before the execution of the mortgage in question, Drake again approached Dix for money. Each party tells a different version of Dix’s response to Drake’s request.

Drake’s version is that Dix told him he did not have enough money to lend him anything, but his brother, Morvay, who lived in California, might be able to lend Drake some money if Drake could give Morvay some security. Drake said that he agreed to this and persuaded his wife, who owned a 60-acre farm, to execute a mortgage to Morvay as security for a $5,000 loan which Dix promised to get for Drake from Morvay. Drake also says that on the date of the execution of the mortgage Dix made Drake an unsecured personal loan of approximately $250. All of the parties agree that Morvay never actually loaned Drake any money.

Dix’s version is that when Drake approached him for more money, Dix agreed to lend it to him if Drake could offer security. When Drake persuaded his wife to execute a mortgage, Dix says that he told Drake about his own $5,000 debt to Mor-vay and asked Drake to execute a mortgage to Morvay in exchange for a $950 loan from Dix. Drake agreed and Dix loaned him $950 for the mortgage on Ver-nett’s property. Dix concludes that the new $950 loan combines with Drake’s prior debt of $4,050 for the $5,000 figure on the mortgage.

The mortgage provided for repayment of the $5,000 by May 25, 1971, and provided for no interest. Drake did not pay the debt within the year and Dix began foreclosure proceedings in May, 1972. In June, 1972, the Drakes and Dix entered an agreement whereby Dix agreed to stop the foreclosure proceedings in exchange for $1,050 cash and Drake’s promise to pay Dix $100 a week until his debt was paid off. Drake never made any of the $100 payments and in June of 1973 Drake instituted this suit to enjoin the foreclosure of the mortgage. In October, 1974, Morvay transferred the mortgage to Dix for the purpose of defending this suit.

Drake contends that the mortgage is void because he never received the $5,000 loan from Morvay. He claims that Dix defrauded him by promising him a $5,000 loan from Morvay in order to get Morvay security for Dix’s own $5,000 debt to Mor-vay. Since the mortgage was void, Drake contends that it could not be ratified by the agreement to stop the foreclosure proceedings which the parties entered in 1972.

Dix contends that he never promised Drake a loan from Morvay. The only debts which the mortgage secured were the $4,050 prior debt plus the $950 which he loaned Drake on the date of the mortgage. (Drake denies receiving $950 and claims he only received an unsecured personal loan of approximately $250.) Dix further contends that even if Drake did give the mortgage to secure the promised but unconsummated loan from Morvay, Drake’s subsequent agreement with Dix stopping the foreclosure ratified the defect in the original instrument. To support his ratification theory, Dix cites Hughes v. Duke, 251 Ala. 220, 36 So.2d 300 (1948). The Hughes case, however, did not concern a mortgage, but rather a deed which was sought to be cancelled under Tit. 20, § 15, Code. Tit. 20, § 15, which provides for a right to rescind conveyances made upon a promise of support, has no application to a situation in which no loan is received by a mortgagor in consideration for his mortgage.

To analyze the ratification theory, it is necessary to consider the nature of the defect which Dix claims was ratified. If Drake gave the mortgage to secure the promised loan from Morvay, the defect is that the mortgagor received no consideration for the obligation which the mortgage secured. This defect renders the mortgage a nullity in equity. Alabama law has long recognized the dual character of mortgages as conveyances of estates in land at law and security for debts in equity. Welsh v. Phillips, 54 Ala. 309 (1875). The standard treatises on mortgages explain that the legal mortgage itself does not require consideration because it is simply an executed conveyance of real property. But, in equity, a mortgage is a nullity except insofar as it secures a valid obligation. Osborne, Handbook on Law of Mortgages, § 107 (1951); 5 Tiffany, The Law of Real Property, § 1401 (1939). The usual statement of this rule in the Alabama cases is, “if there is no debt there is no mortgage.” Jarrett v. Hagedorn, 237 Ala. 66, 185 So. 401 (1938); Lee v. Macon County Bank, 233 Ala. 522, 172 So. 662 (1937).

Applying this rule to the Morvay-Drake mortgage, we must conclude that the only way to cure the defect in the mortgage was to create a debt for the mortgage to secure. To do this, Morvay (or Dix acting in Morvay’s behalf) must have actually loaned Drake $5,000 thereby fulfilling the consideration for Drake’s obligation to pay $5,000. Since the substance of the agreement to stop foreclosure was Drake’s paying money to Dix, the agreement was ineffective to ratify the mortgage from Drake to Morvay.

The sole issue before this Court is a factual one. What debt did the mortgage secure? If it secured a promised but unconsummated loan from Morvay to Drake, the trial Judge is authorized to declare the mortgage void for failure of consideration. King Lumber Co. v. Spragner, 176 Ala. 564, 58 So. 920 (1912). If it secured Drake’s prior debts to Dix plus the disputed- $950 loan, then the mortgage is valid and may be foreclosed. There is ample evidence to support either conclusion. The trial Judge heard the evidence ore ten-us and concluded that the foreclosure should be enjoined. Under our well-established rules for review of ore tenus trials, we will not disturb the trial Court’s findings unless they are clearly and palpably wrong or without supporting evidence, or are manifestly unjust. Sterling Oil of Oklahoma, Inc. v. Pack, 291 Ala. 727, 287 So.2d 847 (1973). We therefore affirm.

Affirmed.

HEFLIN, C. J., and MERRILL, MADDOX and SHORES, J J., concur.


text:
    BIRMINGHAM BOYS’ CLUB, INC., a corporation v. TRANSAMERICA INSURANCE COMPANY, a corporation.
    SC 1179.
    Supreme Court of Alabama.
    Jan. 2, 1976.

      James E. Simpson, Birmingham, for appellant.
    Huie, Fernambucq, Stewart & Smith, Birmingham, for appellee.
   JONES, Justice.

Does the executive director’s ignorance of his corporation’s liability insurance coverage excuse the corporation for not reporting an accident to the insurer as soon as practicable when the executive director failed to report the accident of which he had knowledge to the corporation’s Board of Directors? Within the context in which this issue is here presented and argued, we answer, “no.” We affirm.

The trial Court’s declaration of rights favorable to the insurer was based on a stipulation of facts which we summarize as follows:

On August 12, 1972, James Bryan Layne, a minor, sustained personal injury to his right eye while on the “BB” rifle firing range at Camp Jimmy Goodwin, a summer camp owned and operated by Birmingham Boys’ Club. The Boys’ Club is a non-profit charitable organization which operates a center in Birmingham for underprivileged boys and the summer camp.

Herbert Peterson, the Executive Director of the Boys’ Club, where he had been employed since 1948, was notified of the accident immediately but he did not know that his employer carried liability insurance. He, therefore, did not notify any member of the Board of Directors or the insurance carrier, Transamerica Insurance Company. The first notice of the accident to any executive officer, member of the Board of Directors, or officer of the Boys’ Club was receipt of suits filed by the injured minor and his father on April 11, 1973. Notice was immediately given to Transamerica.

The insurance policy contains the following condition:

“INSURED’S DUTIES IN THE EVENT OF OCCURRENCE, CLAIM OR SUIT
“In the event of an occurrence, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company as soon as practicable.”

Herbert Peterson had no decision-making powers and carried out ministerial acts under the direction of the Board of Directors of the Boys’ Club. He managed the day center in Birmingham and reported to the Board of Directors. He was not an executive officer, director, or officer of the corporation Therefore, contends the Boys’ Club, notice to Mr. Peterson was not notice to the insured as he was not an executive officer, director or stockholder of the defendant corporation as the term “insured” in the policy defines.

Before we proceed, we deem it appropriate to emphasize the narrow context within which the dispositive issue is here presented. Counsel for the Boys’ Club admits: 1) The eight-month period between the occurrence and the notice to Transamerica is without factual dispute violative of the “as soon as practicable” condition of the policy; 2) prejudice vel non to the insurer resulting from the delay of notice is not raised as an issue; that is to say, we are not asked to revisit American Fire & Casualty Company v. Tankersley, 270 Ala. 126, 116 So.2d 579 (1959).

The trial Judge correctly narrowed the issue when he stated in his decree:

“It is clear that the accident or occurrence was not reported as soon as practicable if notice to Mr. Herbert Peterson, Executive Director of the Birmingham Boys’ Club, was notice to the Birmingham Boys’ Club.”

The position of the Boys’ Club is summed' up in the following two paragraphs from its brief:

“Since Peterson was not among those defined in the plaintiff’s policy as an insured, there was no duty on him to notify the insurance carrier.
“As Peterson did not know of any existing insurance coverage, he could not be expected or required to give notice and the defendant is, therefore, excused from the notice requirements in the policy.”

The Boys’ Club’s assertion that Peterson was not an insured under the Transamerica policy is immaterial to this case. The controlling issue here is whether notice to Peterson is notice to the Boys’ Club, and the resolution of that issue is a matter of corporation and agency law. The only way to communicate actual notice to a corporation is through its agents. Thus, a corporation is held responsible for the knowledge acquired by its agents while acting within the scope of their employment. Lawrence v. Tennessee Valley Bank, 224 Ala. 692, 141 So. 664 (1932); Tennessee Coal, Iron & R. Co. v. Pope, 21 Ala.App. 183, 107 So. 735 (1925). There is no question that Peterson, as Executive Director of the Boys’ Club and manager of the camp at which Layne was injured, was the agent responsible for receiving notice of Layne’s injury on behalf of the corporation. Therefore, we must conclude that the Boys’ Club, a corporation, received notice of Layne’s injury when Peterson received notice. Within the narrow context here presented, we hold that the trial Court did not err in upholding Transamerica’s defense to the Boys’ Club’s claim under the policy in question.

Affirmed.

HEFLIN, C. }., and MERRILL, MADDOX and SHORES, JJ., concur.

      . From the treatment accorded the stipulation by both parties, it is apparent that the insurer had no notice of the accident from any source prior to April 11, 1973.

      . These statements are contained as factual conclusions in the stipulation of facts and are not legal issues for adjudication. We express no opinion as to their legal veracity nor as to Peterson’s status as an insured.


author: WRIGHT, Presiding Judge.

text:
    Margaret Lorene HARVEY v. STATE DEPARTMENT OF PUBLIC SAFETY.
    Civ. 618.
    Court of Civil Appeals of Alabama.
    Dec. 3, 1975.
    Rehearing Denied Jan. 7, 1976.
    George S. Brown, Birmingham, for appellant.
    William J. Baxley, Atty. Gen., and Jack A. Blumenfeld, Asst. Atty. Gen., for th« State Dept, of Public Safety.
   WRIGHT, Presiding Judge.

This case arose out of an appeal to the Circuit Court of Jefferson County from a suspension of petitioner’s driver’s license. The circuit court granted defendant’s motion to dismiss the appeal, grounding its dismissal on failure of petitioner to exhaust administrative remedies. Petitioner appeals from that order.

Petitioner received a letter dated January 17, 1975 from the Director of the Department of Public Safety, State of Alabama, informing her that her driving privileges would be suspended for 45 days beginning February 2, 1975. The reason cited for the suspension was refusal to submit to a chemical test for intoxication as required by Title 36, Section 154, Code of Alabama (1940).

Upon receipt of the notice, petitioner requested a hearing on the suspension as provided by Title 36, Section 154(d) of the Code. The record reflects that a hearing officer with the Driver License Division wrote to petitioner, setting a date and time for the hearing.

Petitioner appealed to the Circuit Court under subsection (e) of Section 154. In her notice of appeal she stated that a hearing was held, resulting in a decision upholding the suspension, and an order from the authorized agent of the Director of Public Safety that she surrender her license to him. In answer to the appeal the Director moved to dismiss the appeal, stating general grounds of want of jurisdiction. The court, after hearing, granted the motion on the ground that petitioner had failed to exhaust her administrative remedies. Petitioner was permitted to retain her license pending this appeal.

In brief and at oral argument petitioner continued to submit that an administrative hearing according to Title 36, Sec. 154(d) was held, resulting in an order of suspension by the authorized hearing agent. Consequently, the administrative remedy for suspension afforded petitioner by Title 36, Sec. 154 was exhausted.

The Director in brief submits that no full administrative hearing was ever held and that no final order of suspension was entered as a result of such hearing. Consequently, administrative remedy was not exhausted.

We conclude that we are unable to reach a decision upon the issue presented by petitioner in her brief and oral argument under the state of the record.

The court entered judgment, stated therein to be after hearing. There is nothing in the record as to what the court heard. In the absence of any record showing what occurred or was presented to the court, we are bound to presume that the action of the court was correct. Linderman v. Linderman, 49 Ala.App. 662, 275 So.2d 342; World Homes v. Wilson, 54 Ala.App. 47, 304 So.2d 603. Error on appeal must be determined from the record. Butler v. Olshan, 280 Ala. 181, 191 So.2d 7; Blair v. Williams, 159 Ala. 655, 49 So. 71; Ala.Dig., Appeal & Error ‘®=3901. This court cannot determine that the judgment of a trial court is erroneous when the judgment states it was made after hearing and the matters heard are not part of the record before us. We cannot depend upon conflicting statements of the parties in brief as to the basis of the ruling of the trial court. Coleman v. Estes, 281 Ala. 234, 201 So.2d 391.

Affirmed.

BRADLEY and HOLMES, JJ., concur.


author: BRADLEY, Judge.

text:
    STATE of Alabama v. ALLIED PAPER INCORPORATED, a corporation.
    Civ. 545.
    Court of Civil Appeals of Alabama.
    July 30, 1975.
    Rehearing Denied Aug. 27, 1975.

      William J. Baxley, Atty. Gen., State of Alabama, Willard W. Livingston, Counsel Revenue Dept, and Asst. Atty. Gen., State of Alabama, William H. Burton, Asst. Counsel Revenue Dept, and Asst. Atty. Gen., State of Alabama, for appellant.
    Adams, Gillmore & Adams, Grove Hill, and Johnson, North, Haskell & Slaughter, Birmingham, for appellee.
   BRADLEY, Judge.

This appeal comes from a final decree of the Circuit Court of Clarke County wherein the court reversed and set aside a final sales tax assessment imposed by the appellant, State of Alabama, Revenue Department, against appellee, Allied Paper Incorporated, in the amount of $17,493.71. The assessment was levied on purchases of machinery that replaced old, obsolete equipment as well as new and additional machinery for use in a pulp and paper mill located in Jackson, Alabama operated by Allied Paper Incorporated (subsequently referred to as Allied) and owned by the Industrial Development Board of the City of Jackson, a public corporation organized under the provisions of the Cater Act, Act No. 648, Acts of Alabama 1949, p. 991 (Title 37, Section 815 et seq., Code of Alabama 1940, as Recompiled 1958) (subsequently referred to as Board). The assessment covered the period from January 1, 1970 through March 31, 1971.

After the final assessment was imposed by the State, Allied appealed to the Circuit Court of Clarke County. The case was submitted to that court on the basis of the pleadings and a stipulation of facts entered into by the parties to the controversy with accompanying exhibits.

The stipulation shows that Allied is a Delaware corporation qualified to do business in Alabama and is engaged in the manufacture of wood pulp and paper products at a mill project in Jackson, Alabama. The Board, which is the owner of the mill project, leases it to Allied.

The mill project was built and equipped by the Board after selling bonds in the amount of $23,800,000. The Income from the leasing arrangement with Allied is devoted entirely to the payment of the principal and interest due on the bonds.

After being operated for several years, it became necessary to replace certain worn out and obsolete equipment in the mill project, and to add new and additional equipment. The Board, by and through its executive secretary, M. C. Plummer, who is also the fulltime purchasing agent for Allied, ordered the equipment and machinery for installation in the mill project. The purchase orders were made by the Board to the suppliers, the suppliers issued invoices to the Board, and checks were issued to the suppliers by Allied drawn on its own account but with the following legend stamped thereon: “Paid for the benefit of Industrial Development Board of Jackson, Alabama.”

It was made clear in the stipulation that all the purchases were made on credit and no purchase was handled on a cash basis.

The parties also agreed that Rule G27-916, duly adopted by the State on February 6, 1968, was in full force and effect when the sales tax was imposed on Allied by the State. The Rule is as follows:

“Rule G27-916. Industrial Development Board. — An industrial development board created by an incorporated municipality within the State of Alabama under the Cater Act, Chapter 17, Title 37, Sections 815-830, Code of Alabama 1940, would be exempt from sales or use tax on any tangible personal property purchased by the board, provided the purchases were made in the name of the board and the board’s credit is obligated.
“An industrial development board may appoint an agent to purchase its materials, but the agent must purchase the materials in the name of the board, and the board’s credit must be obligated.”

By its assignments of error, the State suggests that the trial court’s decree is in error for that: (1) it found the Board to be the purchaser of the equipment when in fact Allied was the real purchaser and consumer of the machinery and equipment; (2) it found that the purchases were made on the Board’s credit when the Board had no funds available to pay for such purchases; (3) it suggested that the purchases of the machinery and equipment could be exempt under the provisions of Title 51, Section 786(34) (i) and (m), Code of Alabama 1940, as Recompiled 1958; and (4) it failed to find that Allied was the actual purchaser of the machinery and equipment and was thereby liable for the payment of the sales taxes and that the exemption provided for in Section 11 of the Cater Act does not 'apply in the instant case.

In support of its assignments of error, the State argues principally that Allied being the ultimate consumer of the machinery and equipment purchased was for tax purposes the real purchaser; that the Board was not the real'purchaser for that, one, it did not have cash available to pay for the purchases of equipment and machinery, and two, Allied paid for the purchases with its own checks drawn on its own financial accounts.

To bolster its position that Allied, not the Board, was the real and effective purchaser of the machinery and equipment, the State says that Allied, after acquiring the possession of the equipment and machinery in question depreciated it on its Federal and State income tax returns as if it were the owner.

The State says that if we look through the form of the transactions, i. e., the purchase orders issued in the name of the Board and the invoices issued to the Board, to the actual, real-life transactions, we will see that Allied bought the machinery and equipment in the name of the Board (its purchasing agent was also the executive secretary of the Board) with its funds, used the machinery for its own gain, and then depreciated the equipment and machinery on its income tax returns as if it were the owner. These facts, according to the State, show that Allied was the purchaser and should have been required to pay the sales taxes due thereon.

In support of its theory, the State cites us to the case of Rust Engineering Co. v. State, 286 Ala. 589, 243 So.2d 695.

In the cited case, Rust Engineering had a contract with the Alabama State Docks to construct a grain elevator in Mobile, Alabama. Various items of materials were sold to Rust and delivered to the jobsite at the State Docks and Rust paid for them. An assessment for sales taxes was made against Rust by the State Revenue Department and Rust said it did not owe the taxes because it was an agent of the State Docks and in that capacity made the purchases. Rust maintained further that the State Docks, being the actual purchaser of the materials and also an agency of the State of Alabama, was exempt from the payment of the sales taxes.

The supreme court held that Rust was acting as an independent contractor and was not acting as an agent of the State Docks when it made the purchases in question; therefore Rust was held liable fo* the payment of the sales taxes because it was the actual purchaser. Rust had ordered the materials, received them, paid for them with its own funds in furtherance of its contract with the State Docks, and was, therefore, the ultimate consumer for sales tax purposes.

Allied replies to the State’s argument by saying that the Board, being the actual purchaser of the equipment and machinery and having satisfied every requirement of Revenue Department Rule G27-916 previously quoted, is exempt from the payment of sales taxes on its purchases.

Rule G27-916 applies only to industrial development boards created under the provisions of the Cater Act and specifically exempts such boards from the payment of State sales taxes on the purchase of tangible personal property so long as the board itself makes the purchase and obligates its credit therefor. There is an additional provision in the Rule that authorizes the purchase to be made by an agent of the board provided the purchase is made in the name of the board and the board’s credit is obligated.

The stipulation does, without question, provide that Mr. Plummer was the Executive Secretary of the Board, that the Board authorized him to sign the purchase orders on its behalf, that invoices for the purchases were issued to the Board, and that the purchases were made on credit. The only fact in the stipulation that requires interpretation is the one relating to whose credit has been obligated. The other facts are not in dispute.

Allied suggests that the Board’s credit was obligated, whereas the State argues that it is really Allied’s credit that was obligated. The trial court agreed with Allied and found that the Board’s credit was obligated.

The State’s principal objection to the conclusion that the Board’s credit was obligated to pay for the equipment and machinery is that the Board had no funds with which to pay for the purchases, therefore, its credit could not be “obligated.” The fallacy of this argument stems from the supposition that one must have ready cash to pay for purchases made on credit.

It is oftentimes the case that purchases are made on credit and the cash to pay for those purchases is obtained after the purchases are made; but the existence of such a situation does not lessen the obligation of the purchaser to pay for the goods bought.

If the obligation to pay for the purchases is not the Board’s as the State so vigorously argues, who does have the obligation to pay for the purchases made in the instant case? Allied did not order the machinery and equipment to be delivered to Jackson, Alabama, but the Board did. To whom would the sellers of the equipment and machinery normally look for payment of these purchases? We cannot escape the conclusion that the Board would be the one to whom they would look for payment, since the Board, according to the evidence was the only one with whom they had dealt.

There is also another reason, we think, why the Board was the purchaser of the materials in question. In the leases entered into by Allied and the Board, there is a common provision that reads as follows:

“In any case where the Company is herein required to purchase, install and substitute in the Project any item of machinery or equipment, it may, in lieu of purchasing and installing said machinery and equipment itself, advance to the Board the funds necessary therefor, whereupon the Board will purchase and install such machinery or equipment in the Project.”

Allied says it became necessary to replace obsolete and worn out machinery and equipment and to add new and additional machinery and equipment, and under the terms of its lease with the Board, it could have advanced to the Board the necessary funds to pay for the purchases it desired to be made, and the Board would have been required to make the purchases for Allied. But, rather than advancing the funds to the Board prior to the purchases, Allied simply paid for the purchases after they were made by the Board. Practically speaking, we can perceive no real difference between the method used to pay for the purchases and the procedure authorized by the lease agreement.

Based on the pleadings and the facts as stipulated, we are convinced that Allied was not the purchaser of the machinery and equipment in question and therefore was not liable for the payment of sales taxes levied thereon. We also conclude that the Board was the purchaser of the machinery and equipment and, having satisfied the requirements of Rule G27-916, is exempt from the payment of sales taxes assessed thereon.

Allied also argued as another ground for the proposition that the Board, being the purchaser of the equipment and machinery in question, was exempt from the payment of sales taxes levied thereon by virtue of the fact that the Board was an instrumentality of the City of Jackson and pursuant to the provisions of Title 51, Section 786(34) (i) and (m), Code of Alabama 1940, as Recompiled 1958, was not required to pay sales taxes on the purchase of tangible personal property. Section 786(34) (i) and (m) is as follows:

“There are exempted from the provisions of this article and from the compú-tation of the amount of the tax levied, assessed or payable under this article the following:
“(i) The gross proceeds of sales of tangible personal property to the state of Alabama, to the counties within the state, and to incorporated municipalities of the state of Alabama.
“(m) The gross proceeds of the sale or sales of tangible personal property to . all educational institutions and agencies of the state of Alabama, the counties within the state, or any incorporated municipality of the state of Alabama.”

Section 786(34) (i) does exempt an incorporated municipality from the payment of sales taxes on the purchase of tangible personal property, but the Board is not an incorporated municipality. See Opinion of the Justices, 254 Ala. 506, 49 So.2d 175.

Subsection 34(m) exempts from sales taxes the purchase of tangible personal property by “educational institutions and agencies of . any incorporated municipality . . . We conclude that the legislative intent here was to exempt educational agencies of an incorporated municipality, and the Board is not an educational agency of the City of Jackson, Alabama within the meaning of this statute. Consequently, Section 786(34) (i) and (m), supra, would not be available to the Board as a basis for an exemption from the payment of sales taxes on the purchase of tangible personal property.

For the reasons above stated, the decree of the trial court is affirmed.

Affirmed.

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


author: MADDOX, Justice. JONES, Justice ALMON, Justice

text:
    In re STATE of Alabama v. ALLIED PAPER INCORPORATED, a corporation. Ex parte State of Alabama
    SC 1441.
    Supreme Court of Alabama.
    Jan. 2, 1976.
    William J. Baxley, Atty. Gen., and William H. Burton, Asst. Atty. Gen., for the State.
    Joseph H. Johnson, Jr., Birmingham, for Allied Paper Inc.
   MADDOX, Justice.

HEFLIN, C. J., and MERRILL, BLOODWORTH, SHORES and EM-BRY, JJ., concur.

FAULKNER, JONES and ALMON, JJ., dissent.

JONES, Justice

(dissenting):

I would grant the writ. Courts, in their interpretation of taxing authority, tend to be taxpayer oriented. This is more than personal philosophy; it is indeed a rule of law. But it is also a well-established principle that the law looks to substance rather than form.. In denying certiorari, the majority of this Court, in my opinion, not only hails as victorious form over substance but adorns the victor with armor of pretense and subterfuge.

By excluding the applicability of Tit. 51, § 786(34) (i) and (m), Code, the Court of Civil Appeals makes clear that its opinion is hinged totally on an interpretation of State Department of Revenue Departmental Rule G27-916, 56 Ala.App.-, 325 So. 2d 171.

I respectfully disagree with the Court of Civil Appeals’ interpretation of this administrative rule in two particulars: First, the opinion accords to the Rule full legal credence and treats its language as having the same weight and effect as statutuory taxing authority. This is contrary to the well-established law of this State. Second, assuming the validity of Rule G27-916, I believe its language, properly construed, is fully supportive of the State’s position imposing the tax.

RULE G27-916 AS LAW

It is axiomatic that the levying section of the Sales Tax Act and any exemptions thereunder and under the Cater Act (authorizing Industrial Boards), and not an administrative rule, must govern. The applicable section of the Sales Tax Act (Tit. 51, § 786(25)) provides that the tax is levied on the “purchaser” and “consumer” who actually buys and pays for the tangible personal property purchased at retail.

The only exemption in the statutes which could possibly have any bearing on this case is found in § 11 of Act No. 648, Acts of Alabama 1949 (Cater Act), Tit. 37, § 825. This provides that the corporation (the Industrial Board) and its properties and income therefrom are exempt from taxation in this State.

This section creates the exemption here claimed or no exemption exists in favor of the transaction in question. Departmental Rule G27-916 exempts industrial boards “from sales or use tax on any tangible personal property purchased by the board, provided the purchases were made in the name of the board and the board’s credit is obligated.” The Court of Civil Appeals’ opinion holds that the criteria set forth in this administrative rule has been met qualifying Allied for the tax exemption.

Clearly, then, what the Court of Civil Appeals’ opinion has done is to use the test formulated by Rule G27-916 to construe the Cater Act exemption (Tit. 37, § 825) to the sales tax levy (Tit. 51, § 786(25)). The problem with this reasoning is that the opinion’s conclusion places the test set forth in the rule in conflict with the statute. This gives to the rule a different and conflicting construction to that authorized by the statute.

CONSTRUCTION OF RULE G27-916

I believe that an examination of the Rule, in conjunction with the exemption statute from which the Rule necessarily emanates, shows that the Rule is not in conflict with, but rather an aid to the administration of, the basic statutes. The levying statute imposes a sales or use tax on the purchaser or consumer with no exemption here applicable. The Cater Act provides that the corporation (Industrial Board) is exempt from taxation by the State. The administrative regulation (Departmental Rule G27-916) seeks to set forth guidelines governing the relationship of the Board to the industrial lessee (Allied) as to who is in fact such purchaser or consumer.

Initially, when the Board used its bond issue capital to build and equip for lease the paper mills in question, no tax incident occurred nor was any claimed. The rule and its parent statute consistently so mandate. Here, however, with like constancy the Rule creates a tax incident unless the law is willing to indulge in the most blatant of fictions.

In my humble opinion, appellate court judges ought to be presumed to know at least as much as the average man on the street. Applying this simple test, I know from the stipulation of facts before us that the Board was not, and could not have been, either the purchaser or the consumer of the machinery in question. The Board neither bought, claims, nor uses the property. Its only revenue — rentals from Allied —-is legally committed to the retirement of the bonded indebtedness. The fact that the machinery was bought “on credit”, rather than by a cash transaction, is a far cry from obligating the credit of the Board. Indeed, this was legally impossible. The Board can do only what its charter authorizes and it certainly cannot buy what it cannot pay for.

Allied, on the other hand, bought the property through the Board as its agent, paid for it, claimed it, used it, and depreciated it for income tax purposes. If these facts do not constitute Allied as the purchaser and consumer, then all my powers of reasoning and logic, and my common sense have eluded me.

Take, for example, the income tax depreciation incident: Allied claims the property for this purpose and consequently pays less State (and Federal) corporate income tax. But it disavows ownership for sales or use tax purposes. To this blatant inconsistency, the trial Court, and now the Court of Civil Appeals and the Supreme Court have said, “We agree.” And the only factual basis for such conclusion is the pretense that the Board purchased the machinery and obligated its credit therefor by using the Board’s purchase order form.

It is important — indeed crucial — that the law itself be honest; and, above all else, that it give the appearance of being honest. The very essence of legal integrity certainly consists of treating matters in their reality and not in creating nor indulging fiction or fancy. The rule of law must not only endure, it must prevail; and it can do so only so long as it merits and maintains the understanding and respect of its citizenry. Nothing generates disrespect for the law more than its unequal application or its tolerance for subterfuge.

I would grant the writ and hold that Allied is liable to the State of Alabama on the sales tax assessment by the Revenue Department in the amount of $17,493.71.

FAULKNER, J., concurs.

ALMON, Justice

(dissenting) :

I think the writ should issue so that this Court could give further consideration to the question presented by the petition for writ of certiorari. At this stage of the proceeding, however, I do not consider it appropriate to express a final view as the entire record is not before us.

      . Subsection (34) (i) of the sales tax levying section of the statute exempts incorporated municipalities, and subsection (34) (m) exempts “educational institutions and agencies of any incorporated municipality . . . ”. Both subsections were relied upon by Allied and properly rejected by the Court of Civil Appeals.