author: MADDOX, Justice.

text:
    CENTRAL BANK OF ALABAMA, N.A., a national banking association v. Alfred Paul AMBROSE and Paulette Ambrose.
    82-110.
    Supreme Court of Alabama.
    May 20, 1983.
    Rehearing Denied July 22, 1983.
    Charles R. Hare, Jr., Gullahorn & Hare, Albertville, for appellant.
    James B. Morton, Topazi, Morton & McNamee, Birmingham, for appellees.
   MADDOX, Justice.

The issues here are: (1) whether the trial court erred under the terms of Rule 54(c), ARCP, by granting relief to the defendants not requested by their pleadings; and (2) whether a conveyance found to be fraudulent as to a creditor, nevertheless could stand as security for the value actually paid by a grantee found to have had no knowledge of the fraud. We answer (1) no, and (2) yes, and affirm.

The parties in this case are Central Bank of Alabama, N.A., plaintiff-appellant, Alfred Paul Ambrose and his daughter Paulette, defendants-appellees. Central Bank sought to have a conveyance by. Alfred Paul Ambrose and his now deceased wife, Osteen B. Ambrose, to their daughter, Paulette, declared void and set aside as fraudulent under Code 1975, § 8-9-6.

The facts indicate that on March 8, 1972, Mr. and Mrs. Ambrose purchased the house and property in issue and conveyed it on July 13, 1978, to their daughter, Paulette. At the trial on April 19, 1981, it was stipulated between Central Bank, Mr. Ambrose, and Paulette Ambrose, that at the time of the conveyance in 1978, Mr. and Mrs. Amb-rose were indebted to Central Bank and the indebtedness was subsequently reduced to a judgment by the circuit court of DeKalb County on February 22,1980, in the amount of $21,426.65. Further, it was stipulated that at the time of the 1978 conveyance, the value of the property was approximately $23,000 and the approximate pay-off of the existing mortgage was $8,500. Mrs. Amb-rose died following the conveyance to Paulette, but prior to the filing of this suit.

Mr. Ambrose and Paulette Ambrose denied that the conveyance was made with intent to hinder, delay or defraud Central Bank. Mr. Ambrose testified, over Central Bank’s objection, that by agreement with his minor daughter in 1972, he withdrew $1,079 from her guardianship account which was used as a portion of the down payment on the real estate in issue. Mr. Ambrose also testified that he paid for improvements totaling $4,000 which were made to the house in 1974 and 1975. Sometime around January 20, 1978, when Paulette was twenty years of age, her guardianship account was closed, and Mr. Ambrose testified that Paulette endorsed and delivered to him the funds in the account to reimburse him for the improvements made to the property. The savings account passbook, which was admitted over the bank’s objection, indicated a withdrawal of $1,079 on March 30, 1972, twenty-two days after the property was originally purchased by Mr. and Mrs. Ambrose. The passbook likewise indicated a withdrawal of $3,884.57 on January 20, 1978, seventeen months after Paulette attained the age of majority. The evidence showed that Mr. and Mrs. Ambrose and Paulette lived in the house from the time it was purchased until Mrs. Ambrose’s death and that Mr. Ambrose and Paulette were both still occupying the house at the time of the trial. Paulette testified that she made four or five mortgage payments prior to the conveyance to her and that she assumed the mortgage, and made all the payments on the mortgage debt following the conveyance to her. Both Mr. Ambrose and Paulette testified that at the time of the conveyance it was agreed between Paulette and Mr. and Mrs. Ambrose that Mr. and Mrs. Ambrose could live in the house for the rest of their lives.

The case was tried without a jury and a judgment was rendered on January 15, 1982. Among the trial court’s findings were the following: that at the time of the conveyance the grantors were badly in debt; that at least a portion of the motivation for conveying the property was to save the home of the parties from debts then owed and anticipated; that the grantors did have a fraudulent intent to hinder or delay existing creditors; and that the consideration for the conveyance was substantially inadequate. The trial court further found that there was no fraudulent intent on the part of Paulette and that she had no knowledge of facts which, upon inquiry, would have led her to discover a fraudulent intent with regard to the conveyance.

The trial court, in setting aside the conveyance, ordered that the mortgagee had paramount claim to the property to satisfy its mortgage and that the property would stand as security for the following debts, obligations and claims of Paulette Ambrose:

“(1) $1,079 together with interest at the legal rate from March 30, 1972;
“(2) $3,884, with interest at the legal rate from January 30, 1978, withdrawn from her guardian’s account and used to pay for improvements to subject property;
“(3) Homestead rights in the amount of $2,000, which grantor, Osteen B. Amb-rose, conveyed to her;
“(4) Mortgage payments on the first mortgage made by defendant, Paulette Ambrose, since the execution of said deed on July 13, 1978, to date; such payments being in the amount of $132 each month, as well as future mortgage payments that may be made by her together with interest at the legal rate thereon from the time such mortgage payments have been or will be made by her.”

The trial court likewise ruled that Mr. Ambrose had the right to claim a homestead exemption of $2,000, the amount of the homestead exemption at the time Mr. Ambrose originally conveyed his homestead right to her. The trial court finally ordered that Central Bank was entitled to enforce its judgment against the remaining interest of Mr. Ambrose after all the above claims had been satisfied. Central Bank appealed.

The issue, as raised by Central Bank, is whether the trial court erred in granting relief to Paulette Ambrose when that relief was never requested by the pleadings and when the granting of such relief is, as Central Bank alleges, highly prejudicial. In its brief, Central Bank makes the following assertions:

“In this case the evidence admitted concerning the passbook withdrawals and the guardianship was admitted to sustain the defense of an express trust. It is doubtful that the defendant, Paulette Ambrose, ever thought of attempting to recover such sums from her father. It was never stated in the pleadings and never elicited in the testimony that this alleged debt was consideration for the conveyance by the Ambroses to their daughter. The plaintiff never had an opportunity to challenge the testimony concerning the alleged improvements or the misappropriation of guardianship funds as [sic] until the judgment was rendered it was not appraised [sic] of the fact that it needed to defend such a cross-claim. ...
“Had the plaintiff been aware of a cross-claim by Paulette it certainly could have been prepared to challenge or defend against the vague recollections of the parties from ten years previously concerning the application of funds which required court approval, none of which were documented in this trial....
“The plaintiff was further prejudiced in not having sufficient notice of a cross-claim in that there are probable defenses which could be raised such as the statute of frauds and the statute of limitations. From the testimony Paulette Ambrose attained majority on August 14,1976, and the statute of limitations as to her ‘claims’ has probably run, although this was never raised by the plaintiff which never knew it was defending such implied claims.”

Rule 54(c), ARCP, provides in pertinent portion that “..., every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in his pleadings.” We are of the opinion that the following analysis of Rule 54(c) by the Alabama Court of Civil Appeals in Carden v. Penney, 362 So.2d 266 (Ala.Civ.App.1978), is applicable to the facts under review here:

“Under the provisions of Rule 54(c) of the Alabama Rules of Civil Procedure it is the duty of the court to grant relief to which a party is entitled irrespective of the request for relief contained in the pleadings. Penney v. Carden, [356 So.2d 1188 (1978)]. See 6 Moore’s Federal Practice § 54.62 (1976). However, Rule 54(c) does not sanction the granting of relief not requested in the pleadings where it appears that a party’s failure to ask for particular relief has substantially prejudiced the opposing party. Albemarle Paper Co. v. Moody, 422 U.S. 405, 95 S.Ct. 2362, 45 L.Ed.2d 280 (1975); Rental Development Corporation of America v. Lavery, 304 F.2d 839 (9th Cir.1962); Penney v. Carden, supra. Moreover, if the relief granted pursuant to Rule 54(c) is not justified by the proof or is justified by proof which the opposing party has not had an opportunity to challenge, the relief granted should not be sustained on appeal. See 10 Wright & Miller, Federal Practice and Procedure § 2662 (1973). Accordingly, logic dictates that in those situations where an opposing party has no notice, by pleadings or otherwise, regarding the claim upon which relief is granted by means of Rule 54(c) and is thereby denied an opportunity to have challenged or defended against such a claim, the opposing party has suffered substantial prejudice and the judgment granting relief must be reversed. See United States v. Hardy, 368 F.2d 191 (10th Cir.1966). Indeed, such a rule is fundamental to the essentials of due process and fair play. Sylvan Beach, Inc. v. Koch, 140 F.2d 852 (8th Cir.1944).”

362 So.2d at 268-269.

The case of Williams v. Schaeffer, 260 Ala. 16, 68 So.2d 551 (1953), is cited by the appellees for the proposition that a cross-claim was unnecessary under the facts of this case because they were nonetheless entitled to the same relief under-their answer. In their answer, defendants averred, among other things, the following:

“By way of defense the defendants insisted that there was an oral express trust entered into between the defendant, Paulette Ambrose, and her parents, as trustees, when Paulette was fourteen or fifteen years of age, such trust having been established by telephone conversation with Paulette’s Florida lawyer.”

The appellees further averred that the $21,-426.65 judgment obtained by Central Bank was void and illegal, and denied Central Bank’s allegation that the conveyance of the house and property was consummated to delay, hinder or defraud creditors. We cannot hold that the answer was sufficient to support the relief the trial court gave. In Carden v. Penney, supra, the Court of Civil Appeals quotes from the case of Sylvan Beach, Inc. v. Koch, 140 F.2d 852 (8th Cir.1944), regarding the philosophy and scope of Rule 54(c), and we think it instructive to use the same quote here:

“A court may not, without the consent of all persons affected, enter a judgment which goes beyond the claim asserted in the pleadings.... Unless all parties in interest are in court and have voluntarily litigated some issue not within the pleadings, the court can consider only the issues made by the pleadings, and the judgment may not extend beyond such issues nor beyond the scope of the relief demanded.
“The foregoing rules are all fundamental and state nothing more than the essentials of due process and of fair play. They assure to every person his day in court before judgment is pronounced against him.” (Emphasis added.)

140 F.2d at 861, 862.

We have examined the record to determine if the relief given by the trial court is based upon claims voluntarily litigated by the parties, even though the relief given was not demanded by any pleading.

The only reference to the relief granted was made by the trial judge after the parties had rested:

“THE COURT: The Court will take the matter under advisement, and the parties may submit any memorandums of law that they would care to on the matter. The Court will be glad to have help on the law with reference to the case. Several matters come to mind . . . several things come to mind to the Court on the question, and one is the question of homestead exemption and the other one is the question of payment ... preferred payment of a debt. Even though the Court might not find, for instance, that ... might find that there was an intent to save the property from claims of existing and subsequent creditors, there’d still be a question of the right of the parties to convey their homestead and the right of the parties to prefer payment of debts. I don’t know ... I guess that’s in the case whether it’s specially pleaded or not ... it might not be in the case because it’s [sic] specially pleaded, but if I remember the law correctly on preference ... you have a right to prefer creditors, and that’s not against the law in any way to prefer a particular creditor, and, of course, the debt could've been created whether the trust was or not. I point that out to the parties. You have a question of homestead. The parties have a right to convey homestead, but I don’t know whether the provisions of the mortgage in question would cover homestead on property that wasn’t included in the mortgage. I don’t know the answer to that question. So you have the questions of homestead and preference of debts in the case, in addition to the question of the result of the alleged trust. I mention those in passing. I’ll be glad to have any help any of the parties want to give me on those or any other questions that come up under the evidence in the case. L mention those in passing. It occurred to the Court, so I tell the parties what occurred to the Court.”

Neither party, insofar as the record shows, made any statement regarding the trial judge’s comment: “So you have the questions of homestead and preference of debts in the case, in addition to the question of the result of the alleged trust.” Central Bank raised no objection that the questions mentioned by the trial judge were not in the case. On the other hand, the defendants did not request an opportunity to amend their pleadings to demand the relief which the trial judge mentioned. Consequently, we hold that the issues which the trial judge stated were in the case, and upon which he requested memorandums of the law, were sufficiently presented so as to authorize an entry of a judgment, pursuant to Rule 54(e), ARCP.

The bank argues that, even assuming the trial court could grant Paulette Ambrose relief, and even though the trial court found that Paulette Ambrose was not guilty of any fraudulent intent in the transaction, the trial court erred in granting her relief, because she was guilty of constructive fraud, as a matter of law. The bank cites J.G. Jacobs Banking Co. v. Campbell, 406 So.2d 834 (Ala.1981), wherein this Court did hold that “[a] valuable but substantially inadequate consideration, however, is also part of constructive fraud; the mutual fraudulent intent of the parties is inferred by law from the great disparity between the real value and the consideration given.”

The trial court stated that “[a]s to defendant-daughter-grantee, the Court does not find any fraudulent intent on her part.” In view of this finding, we hold the following principle of the J.C. Jacobs Banking Co. case to be applicable:

“Generally, inadequacy of consideration is only a ‘badge’ or indicium of fraud. Where, however, the consideration is substantially or grossly inadequate, fraud may be inferred as a matter of law from inadequacy alone. Therefore, when the consideration, though valuable, is found to be substantially inadequate, and the grantee is without knowledge of the grantor’s intent or of facts putting him on inquiry as to that intent, the Conveyance will be allowed to stand only as security for the value actually paid. London v. G.L. Anderson Brass Works, [197 Ala. 16, 72 So. 359 (1916) ] and cases cited therein; Morrison v. Federal Land Bank of New Orleans, [232 Ala. 138, 167 So. 288 (1936].” (Emphasis supplied.)

This is an equitable principle which the trial court was authorized to apply in this case in view of the evidence presented.

Based on the foregoing, the judgment of the trial court is due to be affirmed.

AFFIRMED.

TORBERT, C.J., and JONES, SHORES and BEATTY, JJ., concur.


source: Caselaw Access Project

author: BEATTY, Justice. MADDOX, Justice JONES, Justice

license: Public Domain

text:
    Ann HARRIS and Patricia Harris v. CITY OF MONTGOMERY, a Municipal Corporation, et al.
    81-772.
    Supreme Court of Alabama.
    May 27, 1983.
    Rehearing Denied Aug. 5, 1983.

      David G. Flack, Montgomery, for appellants.
    H. A1 Scott, City Atty., Montgomery, for City of Montgomery.
    Thomas H. Keene, Rushton, Stakely, Johnston & Garrett, Montgomery, for ap-pellee Dr. Robert E. Wiltsie.
    Michael S. Jackson and Joseph Espy, III, Melton & Espy, Montgomery, for appellee Baptist Medical Center.
    Charles A. Graddick, Atty. Gen., and Clyde P. McLendon, Asst. Atty. Gen., for Ala. Dept, of Pensions & Security.
   BEATTY, Justice.

Plaintiffs in this case sought compensatory and punitive damages for a number of alleged negligent, wanton and intentional acts committed by the defendants. The trial court granted all defendants’ motions to dismiss and this appeal ensued. We affirm in part, reverse in part, and remand.

The following alleged facts provide the basis of this suit. On Sunday, April 19, 1981, Patricia Harris, accompanied by her mother, Ann Harris, took her son Danny to the Baptist Medical Center emergency room. Danny was eight days old at the time and had a large blister-like sore on his stomach. Dr. Robert E. Wiltsie examined the child, diagnosed the injury as a case of suspected child abuse and, pursuant to Code of 1975, § 26-14-3, notified the Montgomery Police Department. On that same day Officer G.M. Meads conducted an investigation of the report under the mandate of § 26-14-3. Patricia Harris was taken to police headquarters for questioning where she later confessed to having abused or neglected her child. In September 1981 a report of the incident was sent to the Department of Pensions and Security as required by § 26-14-3.

On March 1,1982, Ann and Patricia Harris filed this action in the Circuit Court of Montgomery County against the City of Montgomery (City), Officer G.M. Meads, Baptist Medical Center (BMC), Dr. Robert Wiltsie, and others. All defendants filed motions to dismiss based on failure to state a claim upon which relief could be granted and immunity from suit under Code of 1975, § 26-14-9. In addition, the City and Officer Meads cited Code of 1975, § 11-47-23, as a bar to this suit. The trial court granted all the defendants’ motions to dismiss. Plaintiffs’ motion to vacate the judgment or in the alternative to amend the judgment to dismissal with leave to amend was denied by the trial court. Plaintiffs then appealed.

I

Plaintiffs first contend that their complaint stated a cause of action under 42 U.S.C. § 1983, upon which relief could be granted. Section 1983 reads as follows:

“Every person who, under color of any statute, ordinance, regulation, custom or usage, of any State or Territory ... subjects, or causes to be subjected, any citizen of the United States or other person ... to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.... ”

All defendants acknowledge that they were acting pursuant to a state statute. The complaint is unclear as to which federal rights, if any, were supposedly violated. Count Pour reads in pertinent part:

“22. On or about March 19, 1981, Defendants Meads and D acting under color of law did take Plaintiff Patricia Harris unlawfully into custody and did unlawfully confine her in a small isolated room at Police Headquarters in Montgomerym Alabama.
“23. By confining her in said room, by threat of physical harm, and by threat to take her eight day old child into custody, Defendants Meads and D did force Plaintiff Harris to involuntarily confess to child abuse and/or neglect.
“24. All this was done in violation of Plaintiff Patricia Harris’s Federal constitutional rights and Federal law, in particularly the fourth, fifth, sixth and fourteenth Amendment to the Constitution of the United States and 42 USC § 1983.”

It is necessary to point out the following as stated by this Court in Martin v. Fidelity & Cas. Co. of New York, 421 So.2d 109, 111 (Ala.1982):

“ ‘The well-understood position of an appellate court reviewing the grant of a motion to dismiss is, taking the allegations of the complaint most strongly in favor of the pleader, to determine whether the plaintiff could prove any set of facts in support of his claim which would entitle him to relief. Rule 12, ARCP, and commentary.’ Jones v. Lee County Commission, 394 So.2d 928, 930, (Ala.1981). Cf. Lloyd v. Community Hospital of Andalusia, Inc., 421 So.2d 112 (Ala.1982). However, it is for the plaintiff and not the court to articulate the claims forming a basis for relief. ‘The liberalized rules of procedure have not eliminated pleadings as the principal means by which parties themselves choose the issues which they wish to litigate.’ Zeigler v. Baker, 344 So.2d 761, 763 (Ala.1977).”

In the present case, plaintiffs have not chosen the issues they wish to litigate. Whether or not there was a violation of federal rights here, plaintiffs make no specific connection .between actions which occurred and those rights allegedly violated. Therefore, we agree with the defendants and the trial court that plaintiffs’ complaint failed to state a claim as to these defendants upon which relief under § 1983 could be granted.

II

Next, plaintiffs contend there are two reasons that this Court should find that the defendants were not immune from suit in this case. First, they argue that the immunity statute, § 26-14-9 does not apply. Next, they assert that if this Court should find that the immunity statute does apply it is unconstitutional. As we understand the complaint, the various counts alleged that due to the negligent, wanton and intentional acts of defendants, Patricia Harris was unlawfully arrested, falsely imprisoned, humiliated, embarrassed, and that she suffered physical pain. The plaintiffs asserted that this was due to the negligent, wanton and intentional acts of defendants.

The complaint is too lengthy to quote in full; however, the following pertinent parts of Counts One and Two state:

“11. Defendant Wiltsie or Defendants A, B and C or all of them negligently diagnosed said ailment as an intentional caused second degree burn despite the discription of the symptoms by Plaintiffs. At all times Defendant Wiltsie and Defendants A, B and C should have known that the blister-like sore was the result of a common skin ailment in new born babies.
“12. The failure to properly diagnose said ailment was the result of failure of Defendant Baptist Hospital to properly supervise, train, control and set adequate medical standard for its medioal personnel.
“13. Defendant Wiltsie and/or Defendants A, B, and C then notified the Montgomery Police Department and made the accusation that Plaintiffs had abused the child.
“14. As the proximate result of Defendants Wiltsie, A, B, C and Baptist Hospital negligence, Plaintiffs were publicly accused of child abuse, suffered great pain of body and mind, humiliation of public arrest, imprisonment, trama and permanant police records.
“16. Defendant Wiltise and/or Defendants A, B, and C did wantonly and with reckless disregard for the rights of Plaintiffs and the health of the child, diagnosed said ailment as an intentional second degree burn when at all times the Defendants knew or recklessly disregarded symptoms that showed such ailment to be a common skin ailment in new born babies.
“17. The wanton failure to properly diagnose said ailment was the result of the total failure and reckless disregard for the health of its emergency room patients by Baptist Hospital.
“18. Defendant Wiltsie or Defendants A, B, C, or all wantonly or with utter disregard for Plaintiffs’ health and well being and without probable cause did notify the Montgomery Police Department and accuse Plaintiffs of abusing the child.
“19. As the proximate consequence of the wantonness and utter disregard for Plaintiffs’ health and well-being by Defendants Wiltsie, A, B, C, and Baptist Hospital, Plaintiffs suffered great pain of body and mind, humiliation of public accusation, public arrest, imprisonment, tra-ma and permanent police records.”

The Child Abuse Reporting Act, Code of 1975, § 26-14-9, clearly grants both civil and criminal immunity to persons reporting suspected child abuse. This section reads as follows:

“Any person, firm, corporation or official participating in the making of a report or the removal of a child pursuant to this chapter, or participating in a judicial proceeding resulting therefrom, shall, in so doing, be immune from any liability, civil or criminal, that might otherwise be incurred or imposed.”

Code of 1975, § 26-14-3, names those responsible for the mandatory reporting of child abuse. It reads:

“(a) All hospitals, clinics, sanitariums, doctors, physicians, surgeons, medical examiners, coroners, dentists, osteopaths, optometrists, chiropractors, podiatrists, nurses, school teachers and officials, peace officers, law enforcement officials, pharmacists, social workers, day care workers or employees, mental health professionals or any other person called upon to render aid or medical assistance to any child, when such child is known or suspected to be a victim of child abuse or neglect, shall be required to report, or cause a report to be made of the same, orally, either by telephone or direct communication immediately, followed by a written report, to a duly constituted authority.
“(b) When a report is made to a law enforcement official, such official subsequently shall inform the department of pensions and security of the report so that the department can carry out its responsibility to provide protective services to the respective child or children.” (Emphasis added.)

A failure to report suspected abuse would subject those named in § 26-14-3 to possible criminal prosecution, pursuant to § 26-14-13 which states:

“Any person who shall knowingly fail to make the report required by this chapter shall be guilty of a misdemeanor and shall be punished by a sentence of not more than six months’ imprisonment or a fine of not more than $500.00.”

The record indicates no actions on the part of defendants Wiltsie, BMC or the City other than actions responding to the mandate of the Child Abuse Reporting Act. Dr. Wiltsie’s professional examination of the child caused him to suspect child abuse, and he dutifully reported it to the Montgomery Police Department. BMC’s role in this reporting is unclear; however, the complaint asserts a cause of action against BMC on the grounds that BMC negligently failed “to properly supervise, train, control, and set adequate medical standard [sic] for its medical personnel.” Plaintiffs claim that by failing to do so BMC negligently allowed Dr. Wiltsie and certain other fictitious defendants to notify the Montgomery Police Department of suspected child abuse. There are no allegations in the complaint or amended complaint against these defendants for which § 26-14-9 does not provide immunity. Both Dr. Wiltsie and BMC are clearly named as responsible for reporting under § 26-14-3, and are immune from suit under § 26-14-9. The City shares the individual defendant’s immunity under § 26-14-9 and those individuals are made absolutely immune.

With regard to Officer Meads’s investigating and reporting of the incident, we agree that this falls within the purview of the immunity granted under § 26-14-9. However, we cannot agree with the trial court that Officer Meads is absolutely immune from suit in this case. There are allegations of false imprisonment, false arrest, and, apparently, defamation in the complaint, i.e., allegations of tortious conduct on the part of the officer beyond those actions protected by the immunity statute. This conduct, if proved, would remove the officer from the purview of § 26-14-9. We express no opinion as to whether the elements of these torts have been properly stated.

Ill

Plaintiffs argue that if this Court finds the defendants are immune under § 26-14-9, then such immunity violates § 13 of the Alabama Constitution of 1901. We disagree.

This Court held in Alabama State Federation of Labor v. McAdory, 246 Ala. 1, 18 So.2d 810 (1944):

“[I]n passing upon the constitutionality of a legislative act, the courts uniformly approach the question with every presumption and intendment in favor of its validity, and seek to sustain rather than strike down the enactment of a coordinate branch of the government. All these principles are embraced in the simple statement that it is the recognized duty of the court to sustain the act unless it is clear beyond reasonable doubt that it is violative of the fundamental law.... ” 246 Ala. at 9, 18 So.2d at 815.

This Court has also held that legislation which alters a common-law or statutory cause of action is not automatically invalid under § 13. Grantham v. Denke, 359 So.2d 785 (Ala.1978).

The provisions of the Child Abuse Reporting Act clearly survive constitutional scrutiny under the established rule stated by this Court in Grantham and followed in later cases, including Fireman’s Fund American Ins. Co. v. Coleman, 394 So.2d 334 (Ala.1981). This Court has upheld legislation attacked as violating § 13 if one of two conditions is satisfied:

(1) The right is voluntarily relinquished in exchange for equivalent benefits or protection, or

(2) The legislation eradicates or ameliorates a perceived social evil and is thus a valid exercise of the police power.

Clearly, this Act meets the requirements of the second condition in that there has been a valid exercise of the police power to eradicate child abuse. That society receives a great benefit in having children protected from abuse and neglect needs no amplification. It is equally clear that the legislature could conclude that the immunity provision helps accomplish this goal and is thus specifically justifiable as an exercise of the police power.

The federal Child Abuse Prevention and Treatment Act, 42 U.S.C. §§ 5101-5106, was passed in 1974. Section 5103(b)(2) expressly provides that states must grant the required immunity for mandatory reporting and permissive reporting of known or suspected child abuse or neglect in order to qualify for assistance. Thus, the immunity provision is further justified as a means for securing funds to eradicate the perceived social evil of child abuse. It should be noted that not only Alabama but all fifty states, the District of Columbia, and four American territories have similar statutes with very similar immunity provisions. See “CHILD ABUSE AND NEGLECT — State Reporting Laws,” dated May 1978, compiled by Douglas J. Besharov, Director, National Center on Child Abuse and Neglect, United States Children’s Bureau, United States Department of Health, Education and Welfare.

IV

Plaintiffs assert that Code of Ala.1975, § 11-47-23, the municipal non-claim statute, does not apply to either the City or Officer Meads in this case, or alternatively that the statute was satisfied. That statute reads:

“All claims against the municipality (except bonds and interest coupons and claims for damages) shall be presented to the clerk for payment within two years from the accrual of said claim or shall be barred. Claims for damages growing out of torts shall be presented within six months from the accrual thereof or shall be barred.” (Emphasis added.)

The present tort occurred on April 19,1981, and suit was filed on March 1, 1982. The non-claim statute thus clearly bars plaintiffs’ claim against the City. Alternatively, plaintiffs claim compliance with the statute in the fact that City agents knew that the plaintiffs had started procedures for filing suit. Assuming such “constructive notice” existed, it does not satisfy the following statutory requirements of § 11-47-192:

“No recovery shall be had against any city or town on a claim for personal injury received, unless a sworn statement be filed with the clerk by the party injured or his personal representative in case of his death stating substantially the manner in which the injury was received, the day and time and the place where the accident occurred and the damages claimed.” (Emphasis added.)

This Court has held that the requirement of § 11-47-192 and the non-claim statute are to be construed as being in pari materia. See Howell v. City of Dothan, 234 Ala. 158, 174 So. 624 (1987).

The City would have us find not only that the statute applies to it in this case but that the statute extends to actions commenced against employees of the City, and here to Officer Meads. The City argues in brief that “all acts done by Officer Meads in this case were nothing more than ministerial acts done in carrying out the policies of the City of Montgomery, and any claim against Officer Meads as an individual is in effect a claim against the City of Montgomery.”

We do not read the non-claim statute as requiring that actions against employees of the City be commenced within this six-month period. The statute refers to “all claims against the municipality.” The action as to Officer Meads is an action in tort against an individual and was timely filed by the plaintiffs in this case. We are not persuaded that the claim against the officer is in effect a claim against the City. The trial court failed to distinguish between the grant of the motion to dismiss with regard to the City and Officer Meads. We, therefore, reverse the order as to Officer Meads and remand to the trial court. The grant of the motion to dismiss with regard to Officer Meads was inappropriate.

V

In conclusion, defendants Wiltsie, BMC, and the City come within the purview of § 26-14-9 and are immune from suit in the present case. Also, with regard to the City, this action is barred by plaintiffs’ failure to comply with § 11-47-23. The trial court properly granted these defendants’ motions to dismiss. In our view, however, the trial court erred in granting defendant Meads’s motion to dismiss. It is unclear from the record whether the plaintiffs could prove facts which would entitle them to relief with regard to Officer Meads. The complaint did allege actions by the officer which would remove him from the protection of the immunity statute, and we have held that the claim is not barred by § 11-47-23. Therefore, the grant of Officer Meads’s motion to dismiss was improper. The cause, therefore, must be and is reversed and remanded as to the claim against Officer Meads, and is otherwise affirmed.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

FAULKNER, ALMON, SHORES, EM-BRY and ADAMS, JJ., concur.

TORBERT, C.J., and MADDOX, J., dissent.

JONES, J., concurs in part; and concurs in the result in part.

MADDOX, Justice

(dissenting).

I must respectfully dissent from that portion of the opinion which remands the case to the circuit court for further proceedings insofar as Officer Meads is concerned. Every action taken by Officer Meads falls under the immunity provisions of the child abuse reporting statute, in my opinion.

The appellant, in brief, sets out the following as being the pertinent facts concerning Officer Meads’s alleged actions in connection with the incident:

“The police, based on the unfounded suspicions of the doctor, accused the Appellants publicly of child abuse and arrested them. The police detectives were also put on sufficient notice that further readily available medical inquiry was necessary to establish any probable cause that a crime had been committed and the circumstances surrounding the suspicions of the doctor showed no signs that the Appellants were in any way responsible for the blister. This arrest was under a City of Montgomery policy or custom called ‘investigative custodial custody.’ At police headquarters, Patricia Harris was placed in a small room and suffered great pain because of being forced to sit on her stitches in a hard-surfaced chair. She was accused time and time again of child abuse and finally after a direct threat to the well-being of her child, she made a statement which included inculpa-tory matters. The officers also stated that the incident would be listed as an accident, so it would not be reported to the Department of Pensions and Security. Upon leaving the interrogation room she then recanted the entire statement in the presence of others. Patricia Harris and Ann Harris followed with a complaint with the Montgomery Police Department as part of the procedure to file a claim with the City. In presenting their case to the police department, they offered medical evidence from a qualified pediatrician that the blister was the result of a disease rather than a burn. Despite this evidence or because of it the police filed a report with the Department of Pensions and Security, five months after the incident occurred, accusing Patricia Harris and Ann Harris of child abuse. This report was placed on a local, state and national register and the Appellants were given a permanent record at police headquarters.

It is apparent to me, according to the appellants’ own version of the facts, that Officer Meads’s actions were taken pursuant to a case of reported child abuse. The law states that “[a]ny person, firm, corporation or official participating in the making of a report or the removal of a child ... shall be immune from any liability, civil or criminal, that might otherwise be incurred or imposed.” Code 1975, § 26-14-9.

I believe that the allegations of the complaint and the statement of the facts in Patricia Harris’s affidavit were sufficient to show that the acts allegedly done by Officer Meads were done pursuant to a case of reported child abuse; therefore, the immunity provisions of the law would apply. In other words, there is no allegation that any act performed by the officer was not done as a result of the report of alleged child abuse.

TORBERT, C.J., concurs.

JONES, Justice

(concurring in the af-firmance as to Defendant City of Montgomery; concurring in the reversal and remand as to Defendant G.M. Meads; and concurring in the result as to the dismissal of Defendants Wiltsie and Baptist Medical Center).

I would base the affirmance of the trial court’s order granting a motion to dismiss as to the Defendants Wiltsie and Baptist Medical Center purely on the absolute immunity provisions of the Child Abuse Reporting Act, and not on the failure of the pleadings to state a claim. See Whelehan v. County of Monroe, 558 F.Supp. 1093 (W.D.N.Y.1983).

Apart from the immunity defense, these Defendants would not be entitled to prevail on their respective motions to dismiss. At worst, the complaint is amendable or subject to a motion for a more definite statement. I agree with the majority, however, that the statement of the claim, though grounded in part on medical malfeasance, claims damages flowing solely from the reporting of suspected child abuse. The doctor and the hospital are absolutely immune from liability for these damages. This is not to say that under all circumstances a health care provider may excuse professional malpractice simply by complying with the reporting provisions of the Child Abuse Reporting Act. The majority’s holding with respect to Officer Meads illustrates this point. But this is not such a case.

I concur in the opinion’s holding that the trial court properly dismissed the claim against the City; certainly, Jackson v. City of Florence, 294 Ala. 592, 320 So.2d 68 (1975), did not alter the requisite notice of claim against a municipality pursuant to Code 1975, § 11-47-23. But, as the opinion points out, this requirement is not applicable to a claim against a police officer.

One further observation: It is undisputed, for purposes of these proceedings, that this 8-day old baby had not been abused. The mother, acting responsibly, sought medical attention for her baby’s abdominal skin rash, common in newborns. The doctor on duty at the hospital, though undoubtedly acting in good faith, misdiagnosed the condition and reported what he observed as suspected child abuse. There is no way to adequately describe what happened to this young mother during the five hours that followed, including a forced separation from her ailing and untreated child and culminating in a desperate false confession of child abuse in order to return to her child. The fact that the mother then took the baby to another doctor who treated and cured the skin malady was verified by the Department of Pensions and Security.

I do not question the legitimate interests of the Department of Pensions and Security (appearing through the Attorney General in support of Defendants’ positions); and I readily accept the proposition that overriding policy considerations support the application of the absolute immunity provisions of the Child Abuse Reporting Act as to the doctor and the hospital in the instant case. It is curious to me, however, that such concern is so narrowly focused as to treat with total indifference the plight of this innocent 17-year-old mother — the only “child” abused in this case.

       The complaint is set out in these excerpts exactly as it appears in the record.

       The term was first used in oral argument and raised in the motion to vacate.. ..”


author: ADAMS, Justice.

text:
    Mark CAMBRON v. Paul CARLISLE and Diane Carlisle.
    81-508.
    Supreme Court of Alabama.
    June 3, 1983.
    Rehearing Denied July 29, 1983.

      Nicholas Bouler, Scalici & Bouler, Birmingham, for appellant.
    Andrew P. Campbell, Leitman, Siegal & Payne, Birmingham, for appellees.
   ADAMS, Justice.

This is the second appeal by Mark Cam-brón (Cambrón) from a judgment of the Jefferson County Circuit Court. In this case, Cambrón appeals from the trial court’s granting of a motion to dismiss for mootness filed by appellees Paul E. and Diane Carlisle.

Cambrón presents four issues for our review.

1. Whether Cambrón was entitled to a jury trial on the issues remaining after remand.

2. Whether the covenant by the lessor to maintain fire insurance was for the benefit of both parties to the lease.

3. Whether Cambrón was entitled, after remand, to a hearing on damages for wrongful termination of the lease.

4. Whether Cambrón was limited as a matter of law to damages accrued at the time of the first trial.

For reasons stated below, the judgment of the trial court is affirmed in part, reversed in part and remanded.

The facts are as follows:

On July 17,1978, Cambrón entered into a contract of sale with Diane Carlisle to purchase a business named “Dee’s Stop ‘N’ Shop Delicatessen” (Dee’s) in Birmingham. At the same time, Cambrón entered into a lease agreement with the Carlisles to lease the premises where Dee’s is located. Cam-brón conducted business at the leased premises until a fire occurred inside the building on February 10, 1980. Cambrón sent the rent for February and March to the Car-lisles. On March 12, 1980, the attorney for the Carlisles returned the rent to Cambrón with a letter terminating the lease. Cam-brón then filed suit seeking: one, a declaratory judgment as to his rights under the lease; two, a temporary restraining order restraining the Carlisles from leasing the premises to anyone else; and, three, damages for wrongful termination of the lease. The case was tried without a jury in May, 1980. After trial, the judge entered no findings of fact concerning the extent or nature of the fire damage, but held that the premises were rendered entirely unfit for the purpose for which they had been leased. Having found the termination to be lawful, the trial judge did not discuss in his ruling any rights or damages that Cambrón might have been entitled to under the lease. From that ruling, Cambrón appealed. In Cambron v. Carlisle, 406 So.2d 865 (Ala. 1981), we reversed and remanded, stating that the fire had not rendered the premises entirely unfit and that the lease was not null and void.

On remand, Cambrón filed a motion in the trial court requesting a jury trial on the issue of damages. On December 17, 1981, the trial court issued an order in which it held that the lease was not void, but that if Cambrón wished to re-enter the premises he would be obligated to reimburse the Car-lisles for the cost of all repairs to the leased premises. The court gave Cambrón thirty days in which to declare his intention to re-take possession of the property on that condition, such declaration being required before a determination could be made of the then-existing issues to be tried, if any. The trial court also denied Cambron’s request for a jury trial.

After thirty days Cambrón filed a motion for reconsideration of the order, and the Carlisles filed a motion to dismiss for mootness, since Cambrón had not declared his intention to re-take possession of the premises. During a hearing on these motions, Cambron’s counsel stated that Cambrón could not take possession at that time, and requested a hearing on damages. On January 28, 1982, the trial court stated that no evidence had been introduced as to damages in the original trial, nor had damages been argued on appeal. The trial court then dismissed the case with prejudice, stating that if Cambrón did not intend to re-take possession, the case was moot.

The first issue concerns the trial court’s action in denying Cambron’s demand for a jury trial. The formal procedure for making a jury demand is delineated in Rule 38(b) A.R.C.P., which states:

Any party may demand a trial by jury of any issue triable of right by a jury by serving upon the other parties a demand therefor in writing at any time after the commencement of the action and not later than 30 days after the service of the last pleading directed to such issue. Such demand may be indorsed upon a pleading of the party, and such demand shall be deemed to be a demand for a struck jury.

However, Rule 38(d), A.R.C.P., states in clear and unambiguous terms that “the failure of a party to serve a demand as required by this rule and to file it as required by Rule 5(d) constitutes a waiver by him of trial by jury.”

In the instant case, Cambrón filed, his demand for a jury trial more than a year after service of the last pleading. Under these circumstances, the demand was certainly untimely, and, thereby waived. Dorcal, Inc. v. Xerox Corporation, 398 So.2d 665 (Ala.1981). The decision to grant an untimely jury demand lies within the trial court’s discretion. Here, the trial court did not grant the untimely demand, and we conclude that its failure to do so did not constitute an abuse of its discretion.

Next, we turn to the issue of whether the covenant by the lessor to maintain fire insurance was for the benefit of both parties to the lease. Cambrón argues that it was. Having found no Alabama cases precisely on point, we look to cases from other jurisdictions. In Fry v. Jordan Auto Co., 224 Miss. 445, 80 So.2d 53 (Miss.1955), the Supreme Court of Mississippi, addressing a lease provision similar to the one in the instant case, stated at 57:

The only reasonable construction that can be placed upon paragraph 6, as we see it, is that the obligation which the lessor assumed in that paragraph was an obligation to keep the building, insured against loss or damage by fire or storm for the benefit and protection of both parties to the lease contract.

(Also see Fred A. Chapin Lumber Co. v. Lumber Bargains, Inc., 189 Cal.App.2d 613, 11 Cal.Rptr. 634 (1961)). We agree with this principle of law as enunciated by the Fry court.

Although the lease did not obligate them to do so, the Carlisles, in reliance on the trial court’s original order, elected to repair the premises and take possession thereof. On remand, the Carlisles argued, and the trial court agreed, that Cambron’s right to re-enter the premises should be conditioned on Cambron’s reimbursing the Carlisles for all costs of repairs. Although it did not make any express finding with regard to the construction of the fire insurance clause, the trial court must have concluded that the fire insurance was for the sole protection of the Carlisles, since it conditioned Cambron’s right to re-enter upon reimbursement for the cost of repairs. Having stated that such a fire insurance clause in the lease was for the protection of both parties, we hold that Cambrón had an unqualified right to re-enter the premises. Therefore, the trial court erred in dismissing the case for mootness when Cambrón refused to re-enter the premises upon the trial court’s condition.

We now turn to the propriety of the trial court’s failure to grant Cambrón a hearing on damages. In its final order of February 4,1982, the trial court stated that Cambrón had not presented any evidence on damages at the original trial or argued the issue before this court on the first appeal. Although, at the original trial, Cambrón did not present any evidence as to the losses he sustained as a result of the Carlisles’ wrongful termination of the lease, he raised the issue of damages in his pleadings and presented evidence of the financial obligations he incurred in reliance on the lease. We opine that this is sufficient to preserve the issue of damages and that Cambrón is entitled to a hearing thereon.

As to Cambron’s fourth issue, we believe this court’s decision in Longshore v. Maggio, 240 Ala. 275, 198 So. 619 (1940), to be controlling. In Longshore, this court said:

“[T]he lessee is entitled to recover the difference between the rent reserved and the value of the use of the premises for the term, together with other damages which are the direct and proximate result and natural consequence of the breach of the contract by the lessor, if such damages can be certainly and correctly estimated by reliable data.” (Citations omitted.)

240 Ala. 275 at 276, and 198 So. 619, at 619. Furthermore, Cambron’s damages, if any, are to be proven under the standard enunciated in Longshore, supra, and will be limited to those accrued at the time of the original trial.

For the reasons stated herein, the judgment of the trial court is affirmed in part, and reversed in part, and the cause remanded.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

TORBERT, C.J., and FAULKNER, AL-MON and EMBRY, JJ., concur.


author: FAULKNER, Justice. JONES, Justice

text:
    SAFECO INSURANCE COMPANY OF AMERICA v. Betty Vines SIMS, et al.
    81-555.
    Supreme Court of Alabama.
    June 3, 1983.
    Rehearing Denied Aug. 5, 1983.

      Charles A. Stewart, Jr. and Frank E. Lankford, Jr. of Huie, Fernambucq, Stewart & Smith, Birmingham, for appellant.
    Frank 0. Burge, Jr. of Burge & Florie, Birmingham, for appellee.
   FAULKNER, Justice.

This is an appeal from a judgment in favor of William E. Sims in the amount of $30,000.00, and in favor of Betty V. Sims in the amount of $75,000.00, against Safeco Insurance Company of America (Safeco) in a bad faith tort action. We reverse and render on the ground that the insureds’ failure to file a counterclaim in a prior declaratory judgment action bars the instant tort claim for bad faith.

Safeco issued a policy of automobile insurance to the Simses under a “budget plan” which allowed the insured to purchase six months of coverage with two separate premium payments. The first three months of coverage expired December 14, 1975, with renewal premium for the second three months being due in November 1975.

Because of problems involving a bad check written by the Simses there was some difficulty in Safeco’s internal processing procedure and the premium notice was not mailed to the Simses prior to renewal date. This was evidenced by a letter from L. Trayser of Safeco Insurance Company to the Simses. The letter advised them that the policy would remain in full force and effect if “your payment is postmarked no later than December 26, 1975. If payment is not postmarked by this date, however, coverage will terminate as of renewal due date on the attached notice.”

Betty Sims had an accident on December 26,1975. As of that date her Safeco liability premium had not been paid. She called the agent, Jinks, about the accident; but whether the call was made before or after midnight was disputed at trial.

The letter in which the Simses mailed the premium which was due on December 26, was postmarked December 27. Even though the check was late, Safeco accepted it and reinstated the insurance policy to provide coverage prospectively— not to include the date of the accident. On January 27, 1976, Safeco advised the Simses by letter that there would be no coverage for the loss of December 26th because of non-payment of premiums.

Safeco filed in the Circuit Court of Jefferson County a complaint for declaratory judgment which was served upon the Sims-es on May 27, 1976. The complaint asked the court to determine that coverage had lapsed; was not in effect at the time of the accident; and that Safeco, therefore, had no obligation under the policy for any loss or damage arising out of the December 26 accident.

Following an evidentiary hearing on November 16,1976, the court ruled that coverage was afforded the Simses under the doctrine of waiver and estoppel, stated: The court

“This cause presents a justiciable controversy .... ”
“Under the attendant facts as set forth in the trial of this cause, this Court finds that the acceptance by Safeco of the policy premium after the aforesaid loss occurred does constitute a waiver of the delinquency in payment and amounted to an intentional relinquishment of any right which Safeco might have had to the denial of coverage under its policy. The facts of this instant case are very similar, in the salient factors, to the case of Alabama Farm Bureau Mutual Casualty Insurance Co., Inc. v. Hicks, 133 So.2d 221, 272 Ala. 574, to the case of State Farm Mutual Automobile Insurance Co., a corporation v. Martin N. Anderson, cited as [294 Ala. 451] 318 So.2d 687, and these cases and allied cases of our Supreme Court are the authority for this instant decision.”

On November 14,1977, the Simses filed a complaint against Safeco and its authorized agent, Jinks. The complaint alleged that on December 26, 1975, they had liability insurance coverage with Safeco, and that on that date, Betty Sims suffered an automobile accident which resulted in liability claims being made against her. The complaint further alleged that Safeco denied payment of the claims and filed a declaratory judgment action in the Circuit Court of Jefferson County, Alabama, which resulted in a decree dated November 16, 1976, holding that the Simses were in fact covered under the Safeco liability insurance policy. They alleged that Safeco’s actions in denying coverage constituted bad faith and breach of contract. As a proximate result of defendants’ alleged bad faith and breach of contract, the plaintiffs claim that they were caused to suffer severe and permanent injury, including mental and emotional injury, for which compensatory damages of $500,000 and punitive damages of $3,000,000 were sought. The complaint was amended to include an additional cause of action in fraud.

The defendants, Safeco and Jinks, filed an answer to plaintiffs’ complaint on February 11, 1978, and amended the same on November 9, 1978, claiming as defenses the statute of limitations, the doctrine of estop-pel because of the plaintiffs’ failure to file a counterclaim in the declaratory judgment action, the general issue, and that the defendant Safeco had exhausted the limits of its liability coverage with plaintiffs and had settled and obtained on behalf of the insured full and complete general releases from all parties injured in the automobile accident. On November 12, 1978, defendants filed a motion to dismiss or a motion for summary judgment based upon the plaintiffs’ failure to assert a compulsory counterclaim in the declaratory suit; the defense of res judicata; and the defense of the one-year statute of limitations. The court reserved ruling on the defendants’ motion to dismiss until the day of trial.

At the conclusion of the plaintiffs’ case and at the conclusion of all the evidence, Safeco and Jinks argued a motion for directed verdict. The court overruled the motion on behalf of Safeco, but granted the motion as to defendant Jinks at the close of all the evidence.

The case was submitted to the jury against defendant Safeco for the tort of bad faith. The jury returned a verdict in favor of Mr. Sims in the amount of $30,000 and a verdict in favor of Mrs. Sims in the amount of $75,000. The court rendered judgment on the jury verdict on November 25, 1981.

Safeco presents these principal issues on appeal:

(1) Whether the bad faith action is barred by the compulsory counterclaim mandate of ARCP 13(a), and
(2) Whether the trial court’s finding of a justiciable controversy in the declaratory judgment action bars this action.

I

We address the issue of whether the tort of bad faith claim was a compulsory counterclaim in the declaratory judgment suit, thus barring the instant action. Rule 13(a), ARCP, states in pertinent part:

“A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.”
The Committee Comments elaborate:
“Though any claim against an opposing party may be presented as a counterclaim, the rule also provides that such a claim must be pleaded as a counterclaim if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim. Rule 13(a). The purpose of this provision is to avoid circuity of actions, and to require assertion as counterclaims of those claims which are likely to turn on the same facts as the original claim. A counterclaim is compulsory if there is any logical relation of any sort between the original claim and the counterclaim. [Citations omitted.] If the pleader neglects to assert a compulsory counterclaim, the court can grant leave to amend the pleadings to raise it. Rule 13(f); and see also Rule 60(b)(1). But if it is not asserted, it cannot thereafter be sued on in another action.”

The ex contractu claim — for the insurer’s default on the policy — and the ex delicto claim — for the insurer’s tortious misconduct in such default — arise out of the same transaction. And, it is obvious that the instant claim does not fall within any of the exceptions enumerated in subsection (a) of Rule 13.

We know of no reason that ARCP 13(a) is not applicable to declaratory judgment actions. The very essence of that prior suit was the adjudication of the rights of the parties with respect to the insurance coverage. The declaratory judgment action was no different from any other proceeding seeking to litigate that issue. The only possible objection to the application of Rule 13 to the situation at hand would be uncertainty of the accrual of the bad faith claim at the time of the filing or pendency of the declaratory judgment suit; but that determination is to be made as in any other case. Certainly, the mandate for compulsory counterclaims is not triggered as to causes of action unaccrued at the time of the adjudication of the insurer’s initial action. Indeed, the words “any claim which ... the pleader has” contemplates as much.

The question, then, is did the insureds have a cause of action for bad faith (i.e., had the tort of bad faith claim accrued) at the time of the filing or pendency of the declaratory judgment suit?

The insureds were fully aware of all the material facts constituting the insurer’s breach of its contractual obligation to afford liability coverage. Those same facts form the basis for the insured’s tort of bad faith claim.

The cause of action for bad faith refusal to honor insurance benefits accrues upon the event of the bad faith refusal, or upon the knowledge of facts which would reasonably lead the insured to a discovery of the bad faith refusal. Dumas v. Southern Guaranty Insurance Co., 408 So.2d 86 (Ala.1981). The accrual of the tort of bad faith cause of action is a question of fact to be determined by the circumstances of each case. Here, those facts are without dispute, compelling the conclusion that the bad faith claim had accrued at a time within the compulsory counterclaim mandate of Rule 13(a).

II

We address the issue of justiciable controversy not because it has any bearing on the result of this case, but because of the following language in Chavers v. National Security Fire & Casualty Co., 405 So.2d 1 (Ala.1981), which may be misunderstood by bench and bar.

“Alternatively, the insurer may file a declaratory judgment action; and if the pleadings and proof justify an adjudication of the existence of a justiciable controversy as to the legal basis for refusal of payment issue — allowing the court to entertain that action whether or not the insurer prevails on the insurance contract claim — such an adjudication would also establish a valid reason for its refusal to pay, thus avoiding liability on the bad faith tort claim.”

Safeco argued that the court’s finding in the declaratory judgment action of the existence of a “justiciable controversy” as a matter of law barred the bad faith action because of this language. On the other hand, the Simses argued that the finding of a justiciable controversy in the declaratory judgment action is no more than a finding that an issue was made up by Safeco’s unjustified denial of coverage. Moreover, they argued that the finding of a justiciable controversy in no way reflects any merit in Safeco’s denial of coverage and should not be a defense to their suits for bad faith.

If we accept Safeco’s arguments, the finding of a justiciable controversy would bar a bad faith claim. If none was found, there would be a bad faith claim. ■ We do not believe that either the insurer or the insured would want to speculate on the result of a declaratory action, to defend or to bring a bad faith claim. Moreover, if Safeco’s argument were valid, there would be a race to the courthouse to file a declaratory action if the insurer denied the insured’s claim.

We are of the opinion that the finding of a justiciable controversy is not the determining factor of whether there was or was not bad faith on the part of an insurance company to pay a claim. The standard for testing a bad faith claim is not found in either the adjudication of a justiciable controversy or the judgment on the merits of the contract claim.

We conclude by stating that whether there is a bad faith claim will be determined by the facts and circumstances of each case.

Ill

We pretermit discussion of the statute of limitations issue because of our holding that the Simses’ failure to file a counterclaim barred the instant tort claim for bad faith. Therefore, the statute of limitations issue is moot.

REVERSED AND RENDERED.

TORBERT, C.J., and MADDOX, AL-MON, SHORES, EMBRY, BEATTY and ADAMS, JJ., concur.

JONES, J., concurs specially.

JONES, Justice

(concurring specially).

I concur with the opinion of the Court on each of the issues addressed. Because of its posture and factual context, this case furnishes an excellent vehicle for the evolutionary development of the law of bad faith in this State, and I write specially in order to extend the discussion in two areas: 1) the relationship of declaratory judgment actions to the “directed verdict on the contract claim” test for bad faith; and 2) certain consequences of a declaratory judgment action upon compulsory counterclaims for bad faith.

In support of its contention that the declaratory court’s finding of the existence of a “justiciable controversy” as a matter of law bars this bad faith action, Safeco cites the following language in Chavers v. National Security Fire & Casualty Co., 405 So.2d 1, 10 (Ala.1981):

“Alternatively, the insurer may file a declaratory judgment action; and if the pleadings and proof justify an adjudication of the existence of a justiciable controversy as to the legal basis for refusal of payment issue — allowing the court to entertain that action whether or not the insurer prevails on the insurance contract claim — such an adjudication would also establish a valid reason for its refusal to pay, thus avoiding liability on the bad faith tort claim.” 405 So.2d 10.

On the other hand, the Simses contend that the quoted language of the majority in Chavers is dicta. They submit: “(1) Such dicta indicates a misunderstanding of the term ‘justiciable controversy’ as it is used in declaratory judgment actions and (2) Such dicta should not be invoked to protect an insurance company whose bad faith produced the sham, i.e., the very declaratory judgment action where the justiciable controversy was found.”

To support their first argument, the Simses quote the following language in Brown & Root, Inc. v. Big Rock Corp., 383 F.2d 662 (5th Cir.1967):

“Where the Declaratory Judgments Act is invoked the same jurisdictional requirements as to a case or controversy must be met as in other suits.... A controversy, to be justiciable, must be such that it can presently be litigated and decided and not hypothetical, conjectural, conditional or based upon the possibility of a factual situation that may never develop. Pertinent here is this statement of the Supreme Court:
“ ‘A “controversy” in this sense must be one that is appropriate for judicial determination.
“ ‘ * * * A justiciable controversy is thus distinguished from a difference or dispute of a hypothetical or abstract character; from one that is academic or moot. * * * The controversy must be definite and concrete, touching the legal relations or parties having adverse legal interests. * * * It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.’ Aetna Life Insurance Co. of Hartford, Conn. v. Haworth, 300 U.S. 227, 240-241, 57 S.Ct. 461, 464, 81 L.Ed. 617, 621. See Wacker v. Bisson, 5th Cir.1965, 348 F.2d 602.’ ” 383 F.2d at 665-666.

The standard for testing a bad faith claim is to be found neither in the adjudication of a justiciable controversy, standing alone, nor in the judgment on the merits of the contract claim. This is not to say, of course, that either of these holdings is irrelevant to the bad faith issue. To be sure, the filing of a declaratory judgment action, under appropriate circumstances, may evidence a good faith attempt to seek a prompt resolution of a disputed claim. If, on the other hand, the refusal to pay is without legal excuse, the mere filing of a declaratory judgment action, followed by a finding of justiciable controversy, may enhance rather than diminish the degree of bad faith.

It must be said, also, that not only is a judgment on the merits relevant, but, in any claim seeking adjudication of the dispute, a resolution of the contract claim favorably to the insured is a requisite element of the tort of bad faith remedy.

The latest expression of this legal standard for testing a bad faith claim is found in National Sav. Life Ins. Co. v. Dutton, 419 So.2d 1357 (Ala.1982). After quoting at length from National Security Fire & Casualty Co. v. Bowen, 417 So.2d 179 (Ala.1982) (defining the “absence of a debatable reason to deny payment” rule, and detailing the plaintiff’s burden of proof), Dutton formulates the following test:

“In the normal case in order for a plaintiff to make out a prima facie case of bad faith refusal to pay an insurance claim, the proof offered must show that the plaintiff is entitled to a directed verdict on the contract claim and, thus, entitled to recover on the contract claim as a matter of law. Ordinarily, if the evidence produced by either side creates a fact issue with regard to the validity of the claim and, thus, the legitimacy of the denial thereof, the tort claim must fail and should not be submitted to the jury.” 419 So.2d 1362.

This “directed verdict on the contract claim” test is not to be read as requiring, in every case and under all circumstances, that the tort claim be barred unless the trial court has literally granted plaintiff’s motion for a directed verdict on the contract. Indeed, the words “entitled to a directed verdict” so indicate. Rather, this test is intended as an objective standard by which to measure plaintiff’s compliance with his burden of proving that defendant’s denial of payment was without any reasonable basis either in fact or law; i.e., that defendant’s defense to the contract claim is devoid of any triable issue of fact or reasonably arguable question of law.

Exceptions to the “directed verdict” rule will undoubtedly arise. Take the case where the insurer insists that its refusal of payment was grounded solely on a particular entry in a hospital record, and plaintiff denies the very existence of such an entry. Merely because the insurer may be able to withstand a directed verdict motion — the existence vel non of the record entry itself being an issue of fact — would not, as a matter of law, bar the plaintiff’s tort claim. This extreme example is to be distinguished from the more normal situation in which the factual dispute centers around the reasonable, but conflicting, inferences that may be drawn from a hospital record entry. If the entry in fact exists and one of the reasonable inferences of fact which may be drawn therefrom supports a legal basis for denial of the claim, Plaintiff would not be entitled to a directed verdict on the contract claim; thus, the claimant would be barred from proceeding with his tort of bad faith claim, even though the issue of fact may be resolved adversely to the insurer and the contract benefits awarded to the insured.

Because of its potential relevance, one additional exception to the “directed verdict” test is suggested: Take the case of the insurer whose refusal of payment is based solely upon a legal position with respect to the controlling principles of law and its application to the undisputed facts giving rise to the claim. While the insurer, under the guise of asserting a legitimate defense, could not be heard to take issue with clear, well settled, elementary principles of contract law, certainly the rule of reasonableness dictates a field of operation for a denial of benefits based upon arguable legal grounds which are fairly debatable, even though the trial judge may correctly reject such arguments and direct a verdict for the insured.

Thus, as we have seen, Dutton’s use of the terms “In the normal case” and “Ordinarily” allows for exceptions to the “entitled to a directed verdict” test. In the first example, the insured may proceed with his bad faith claim even though he was not entitled to a directed verdict; and in the second example, the insurer would be entitled to a judgment on the tort claim even though the insured was entitled to a directed verdict on the contract claim. Certainly these rare exceptions will not be difficult to recognize, nor will the general rule, because of rare exceptions, be difficult to apply.

It may be helpful, for purposes of future cases, to apply the Dutton test to the case at hand. We can readily conclude that, in the declaratory judgment action, the insureds were entitled to a directed verdict on their contract claim. A detailed discussion of the controlling legal principles and their application to the undisputed facts are unnecessary. Suffice it to say, the insurer offered no evidence whatsoever to raise a factual issue as to any lawful reason for declining coverage under the policy of insurance. Not only did its employees, who handled or had any contact with the transaction in question, not testify at trial, but, as was disclosed in the trial of the instant case, none of them were even aware of the filing or pendency of the declaratory judgment action. Indeed, the bill seeking a declaration of noncoverage omitted each and every averment of fact, which, when supplied by undisputed evidence during trial, constituted the irrefutable legal conclusion of waiver as found by the trial judge.

We have observed earlier that the insurer’s refusal to pay may be legitimately defended on any fairly debatable issue of law as well as fact; and this justifiable excuse for nonpayment obtains irrespective of its subsequent rejection by the court, the test being one of reasonableness.

Even under the most liberal application of the “reasonableness” standard, however, the insurance nonwaiver argument cannot be classified as fairly debatable. The law of waiver, as applied to the undisputed position of no coverage, is demonstrated by the case of Washington National Insurance Co. v. Scott, 231 Ala. 131, 164 So. 303 (1935):

“Probably there is no principle of insurance law more firmly settled, nor better grounded in justice and reason, that that an insurer, who receives and retains premiums, the very consideration for carrying the insurance risk, with knowledge of facts which, under stipulations for his benefit, would, in the absence of such knowledge, empower him to treat the policy as having never been in force, or as being no longer in force, will be held to have waived such stipulations. Waiver, strictly speaking, is a matter of intent. But, in such case, no proof of actual intent is required. Any other intent, in ’ such case, would work a positive wrong or fraud on the insured. The law charges the insurer with the intent to waive under the doctrine of estoppel.” 231 Ala. at 132, 164 So. 303.

It is undisputed that Safeco (1) received the premium; (2) knew of the loss; (3) knew the money was for a specific policy and was specifically designated to cover a particular “premium due” for a specified coverage; and (4) kept the premium and allocated it to a coverage other than designated by the insured without informing the insureds, and without giving them the option of accepting different coverage or requesting return of their money. To be sure, Safeeo’s own expert legal witness testified that the undisputed facts gave rise to a waiver of Safeco and coverage to the insureds under settled law, thus not justifying a declaratory judgment action.

It should be emphasized that a finding of bad faith based upon rejection of an insurer’s legal argument should be reserved for extreme cases. The right of an insurer to deny a claim on any arguable legal issue is to be as zealously guarded as is its right to decline benefits on any debatable issue of fact, the test of reasonableness being the same. To be sure, reasonably arguable legal issues may well include a legitimate challenge to existing precedent (assuming, of course, that such challenge is promptly pursued, for example, in a declaratory judgment suit).

Notwithstanding the liberality of this test, the facts of the instant case fall outside the permissible extremes of any reasonably arguable legal issue. And this determination is made not on the initial denial of coverage by some lay employee in the claims department upon receipt of the late premium, but upon subsequent conduct of supervisory and policymaking employees whose actions effected the waiver and directed the litigation without any semblance of defense as to any viable issue of fact or law.

I agree that an accrued cause of action for bad faith failure to settle an insurance claim is a compulsory counterclaim in a declaratory judgment action filed by the insurer. Not only are the two claims related — the requisite of Rule 13 — they find their genesis, and essential premise, in the same act — differing only in the degree of culpability.

Although the opinion of the Court has not specifically treated the statute of limitations issue in the instant case, having reversed on.other grounds, the interplay between the period of limitations for bad faith claims and the compulsory counterclaim requisite of Rule 13(a) is worthy of comment: Once the insurer filed a declaratory judgment action, given the accrual of an alleged tort of bad faith claim, the statute of limitations issue is rendered moot; and this for the reason that a fraud claim arising out of the same transaction is clearly in the nature of recoupment and not subject to a statute of limitations defense. Campbell v. Regal Typewriter Company, Inc., 341 So.2d 120 (Ala.1976).


author:
BEATTY, Justice.
      MADDOX, Justice SHORES, Justice

text:
    Kennie C. HAYNES v. FORD MOTOR COMPANY, INC., Courtesy Ford Sales, Inc., and Gilmore Ford, Inc.
    81-810.
    Supreme Court of Alabama.
    June 3, 1983.
    Rehearing Denied Aug. 5, 1983.

      Clifford W. Cleveland of Cleveland, Booth & Bush, Prattville and J. Paul Lowery, Montgomery, for appellant.
    James T. Upchurch, III of Rushton, Stakely, Johnston & Garrett, Montgomery, for appellees.
   BEATTY, Justice.

Appeal by plaintiff from summary judgment granted in favor of defendants. We affirm.

Kennie C. Haynes purchased a new 1979 Ford Mustang automobile from Gilmore Ford, Inc., of Prattville, in November 1979. This vehicle came with a standard twelvemonth, 12,000-mile manufacturer’s warranty. Haynes also obtained an extended service plan contract.

After the car had been driven in excess of 20,000 miles, the “right rear body support” detached from the car. Haynes returned the Mustang to Gilmore Ford, but because that dealer had no body shop, Haynes was referred to Courtesy Ford Sales, Inc., of Montgomery. Courtesy Ford welded the rear frame strut support to the body, and Haynes paid Courtesy Ford for the repairs. Neither Gilmore Ford nor Ford Motor Company received any part of that payment.

The attempted repair failed during December 1980. On February 10, 1981, Haynes brought this action against Ford Motor Company, Inc., Courtesy Ford Sales, Inc., and Gilmore Ford, Inc., in three counts. Count I alleged breach of warranty by all defendants. Count II alleged fraud and election to rescind the contract of purchase against Gilmore Ford. Count III alleged breaches of the Magnuson-Moss Warranty Act by all three defendants. Answers were filed by the defendants, and depositions taken of Haynes and his son. Each defendant moved for summary judgment: Gilmore Ford and Ford Motor Company obtained summary judgment in their favor on Count II, alleging fraud (even though Ford Motor Company appears not to have been made a party in that count, nor was Courtesy Ford). Summary judgment was deferred on all other aspects.

• Trial was scheduled for October 27, 1981, but continued on plaintiff’s motion. Trial was reset for November 18, 1981, and a pre-trial conference was held on November 2, 1981. On November 3, 1981, plaintiff moved for permission to amend. This motion was set for hearing on November 9, 1981. The defendants filed written objections to the proffered amendment. On November 9 the trial court denied the motion to amend, observing that:

(1) The requested amendment substantially changed the theories on which the lawsuit was based;

(2) The cause had been pending since February 10, 1981, was continued from October 27 to November 18, was pre-tried on November 2, and plaintiff had had adequate time for discovery and amendment; and

(3) The amendment came too late because additional discovery and time to prepare would be required by the parties.

On that same day the trial court granted summary judgment in favor of Gilmore Ford and Ford Motor Company under Count I, and in favor of all defendants under Count III. On May 12, 1982, on motion of the parties, Courtesy Ford was dismissed as a party with prejudice. Plaintiff gave notice of appeal on June 23, 1982. Courtesy Ford has moved to strike the appeal. We pretermit consideration of that question in view of our decision on the merits.

Plaintiff contends here that the trial court erred in refusing to allow the proffered amendment.

Under Rule 15(a), Alabama Rules of Civil Procedure, the plaintiff could have amended without moving for the court’s permission, but even then it would have been subject to disallowance on the court’s own motion. The procedure utilized here served to allow the court a full opportunity to consider the amendment within the boundaries of Rule 15(a). We take note that the Rule requires that amendments “shall be freely allowed when justice so requires.” The amendment in question was one which addressed itself to the trial court’s discretion, and while we ourselves might have acted to the contrary, the issue is whether the trial court abused the discretion reposed in him. Indeed, as stated in Stead v. Blue Cross-Blue Shield of Alabama, 294 Ala. 3, 310 So.2d 469 (1975):

“[I]f Rule 15 is to be of any benefit to the bench, bar, and the public, the trial judges must be given discretion to allow or refuse amendments.. .. ”

In Stallings v. Angelica Uniform Co., Ala., 388 So.2d 942 (1980), we upheld the trial court, which had denied a motion for leave to amend when the plaintiff had sufficient opportunity for discovery and amendment earlier but failed to do so and offered no explanation for the delay. Certainly those are considerations which may be looked to by the trial court in its attempt to determine whether justice requires allowing the amendment. Ex parte Tidmore, Ala., 418 So.2d 866 (1982).

The amendment in question is extensive, containing three counts. Count I was based upon fraud under 15 U.S.C. § 2310(d) (the Magnuson-Moss Warranty Act), alleging that the motor vehicle sold by Ford Motor Company through Gilmore Ford possessed a latent defect through whose dangerous character “plaintiff lost the ability to use said vehicle for its intended purpose complete.” This Count described the warranty as a deceptive warranty under 15 U.S.C. § 2310(c)(2)(i). It charged Courtesy Ford with false representations to plaintiff that it could make adequate repairs to this latent defect.

Count II charged Gilmore Ford with negligence “in that it negligently undertook to repair said vehicle,” charged Gilmore Ford with negligence “in that it negligently sold the vehicle containing the latent defect,” and charged Ford Motor Company with negligence by negligently manufacturing or negligently designing or negligently damaging the automobile as to create defects, rendering it wholly unfit for the use and purpose for which it was intended.

Count III alleged that Ford Motor Company defectively manufactured or designed the vehicle “in some unknown manner” and thus rendered it unfit for the use and purpose for which it was sold, in that the connecting brackets from the frame to the body were unskillfully attached, causing the automobile to become totally inoperable. Further, that Ford Motor Company breached its written warranty by holding out to the plaintiff that it was a new automobile which would function as a new one. Ford was charged by plaintiff with knowledge of these defects prior to plaintiffs purchase.

We have compared the proffered amendment with the original complaint, and we agree with the trial court that a substantial change in theory was sought, thus posing additional discovery requirements. The original Count I referred to the new vehicle written warranty and alleged the discovery of defects subsequent to the purchase which were uncorrected, rendering the vehicle unserviceable. The original Count II alleged intentional or reckless misrepresentations made by Gilmore Ford that the vehicle was free from defects and that if any were discovered they would be repaired. Defects were discovered but not repaired, plaintiff alleged, and plaintiff pleaded election to rescind the contract of purchase and sale. Under original Count III plaintiff alleged that plaintiffs oral and written representations and failure to correct defects “breached the Magnuson-Moss Warranty Act and its various subsections.”

A comparison of the original complaint and the proffered amendment does disclose more than mere hypertechnical differences. For one thing, the broadside allegations of breach of Magnuson-Moss warranty provisions in the original Count I did • not call attention to any deceptive warranty, or to a latent defect as being the vehicular problem, unlike those in amended Count I. For another, the original Count II charged intentional or reckless misrepresentation and elected rescission, while the amended Count II charged negligent manufacture, negligent design, or negligent damage. The proffered amendment to Count III, as we have shown, alleged defective manufacture or design and breach of warranty, unlike the general allegations of a breach of the Magnuson-Moss Act’s provisions as originally alleged, although these were amplified to include a deceptive warranty breach in the amended Count I. These changes placed upon the trial court the responsibility of deciding, in its discretion, whether to allow the amendment or not, for it is clear that the amendment did change some of the theories to be applied in the trial and might well pose additional discovery and preparation problems as the trial court found. Under these circumstances we cannot state as a matter of law that that discretion was abused.

In connection with the summary judgment, plaintiff argues that it was error to grant it in favor of Gilmore Ford and Ford Motor Company. He relies upon Tiger Motor Co. v. McMurtry, 284 Ala. 283, 224 So.2d 638 (1969), as authority for the proposition that the purchaser of an automobile, under written warranty, which cannot be economically repaired “is entitled to sue on the written warranty, [or] rescind the agreement and get his purchase money back.” That case does not support such an extensive remedy. In McMurtry the controlling fact allowing rescission was that the terms of the written warranty (or disclaimer) were not called to the buyer’s attention prior to the delivery of the automobile. In this case, on the other hand, Haynes testified in his deposition that at the time he purchased the car he knew that the warranty he received had certain limitations to it, that it was a twelve-month, 12,000-mile warranty, and he also knew that the extended warranty plan covered only certain assemblies and only for a limited time and mileage. He added that to his knowledge neither of these aspects was misrepresented to him or concealed from him. Haynes also deposed that he had no reason to believe that the car was not new when sold to him, and he knew the car to be out of warranty, due to excess mileage, when the separation occurred. Moreover, Haynes deposed that he had read the extended warranty and that he assumed that his problem was not covered. Under the evidence before the trial court, then, there was not a scintilla of evidence to prove either a breach of warranty or fraud against either Ford Motor Company or Gilmore Ford.

Respecting the “deceptive warranty” claim, the plaintiff doubtless refers to the definition of a “deceptive warranty” contained in 15 U.S.C. § 2310, i.e., one containing descriptions, promises, etc., which are false or fraudulent. Assuming arguen-do that any such representation was made by the warranties here, the plaintiff’s own testimony negates any suggestion that he was deceived, understanding, as he stated he did, the warranties he was given.

Finally, plaintiff contends that the trial court erred in granting summary judgment under the authority of Winchester v. McCulloch Brothers Garage, Ala., 388 So.2d 927 (1980). It is true that Winchester held that when a seller refused to honor its own limited warranty, that warranty could be found to have failed, allowing a jury to award damages for breach other than those provided under the limited warranty. That decision is inapt here, simply because the plaintiff himself, without dispute, understood his warranties and understood that his automobile was outside then when he brought it in for service. Thus, there was no refusal to honor a warranty, because it did not apply.

Summary judgment is appropriate when the moving party has demonstrated that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Bryant v. Morley, Ala., 406 So.2d 394 (1981); Rule 56, A.R.Civ.P.

Let the judgment be affirmed.

AFFIRMED.

TORBERT, C.J., and ALMON, EMBRY and ADAMS, JJ., concur.

MADDOX, FAULKNER,' JONES and SHORES, JJ., dissent.

MADDOX, Justice

(dissenting).

Because the plaintiff had a claim in his original complaint in which he alleged violations of the Moss-Magnuson Act, I believe that the amendment should have been allowed, and in this case, the refusal of the trial judge to allow the amendment constituted prejudicial error. Although the trial judge states in an order that a pre-trial was held on November 2, sixteen days before the case was set for trial on November 18, there is no pre-trial order in the file which shows what action was taken to “control the subsequent cause of action” of this case. If there had been a pre-trial order in the record showing the issues remaining for trial, and the trial judge specifically disallowed these amendments, I believe the result could be different. Rule 16, if followed, can substantially govern the future cause of a trial. Here, because the order is not of record, I cannot tell what the parties and the court agreed upon insofar as alleged violations of the Moss-Magnuson Act are concerned. Consequently, I must respectfully dissent.

SHORES, Justice

(dissenting):

While I agree that much discretion rests with the trial court in allowing amendments, I believe that it was abused here. Indeed, I think the original complaint would have allowed proof of the matter alleged in the amendment. The original complaint was sufficient to apprise defendants of the nature of the plaintiffs claim. That is all that is required under notice pleading. Thus, to disallow the amendment, I think, was an abuse of discretion.

JONES, J., concurs.