author: HARBISON, Justice. COOPER, Justice

text:
    George M. TIDWELL, Commissioner of the Tennessee Department of Revenue, Appellant-Defendant, v. Harry BERKE, Appellee-Plaintiff.
    Supreme Court of Tennessee.
    Dec. 30, 1975.

      William B. Hubbard, Asst. Atty. Gen., Nashville, for appellant-defendant; R. A. Ashley, Jr., Atty. Gen., Nashville, of counsel.
    Harry Berke, Berke, Berke & Berke, Chattanooga, for appellee-plaintiff.
   OPINION

HARBISON, Justice.

This suit was instituted by appellee, Harry Berke, for a declaratory judgment and for recovery of certain corporate excise taxes assessed against him and paid under protest. The Chancellor allowed recovery of the taxes with interest, and the Commissioner of Revenue has appealed.

There is little controversy about the facts of the case. The issues involved, however, are of great importance in the administration of the Tennessee corporate excise tax law, and also to taxpayers who may be involved in corporate liquidations, because of certain differences which exist between the state law and the present federal income tax law and regulations governing corporate liquidations.

Prior to January 24, 1969, appellee Harry Berke and defendant below Thomas J. Northcutt were the sole stockholders of a Tennessee corporation, Brainerd Village, Inc. That corporation owned as its principal asset a shopping center, and the corporation was engaged in no other business enterprises than the ownership and operation of this center.

Prior to January 24, 1969, according to the testimony of Mr. Berke, certain proposals had been made to the officers and stockholders concerning the acquisition of the shopping center. A meeting of stockholders was held on January 24, 1969, according to minutes filed in the record, at which time an agent of the proposed purchaser of the center was present. He presented an offer of purchase which had previously been transmitted, and, according to the minutes, certain variations in the terms of the original proposals were discussed, although there was no change in the total sales price. The minutes recited that Mr. Northcutt presented a proposed contract of sale, “but because there were several provisions which the corporation could not agree to, the contract was not approved, and request for changes will be made prior to the closing of the sale.”

The minutes then recite:

“It was agreed that the Corporation would, subject to last minute decisions at the time of the closing of the sale, transfer all of its assets to the Stockholders according to its liquidation plan and that the Stockholders would then convey title to the Shopping Center to the purchasers since the realty is the principal asset of the corporation. It was then proposed that after all the assets were transferred to the Stockholders that Harry Berke and Tom Northcutt would and did agree to permit the Corporation to act as their agents for the sole purpose of transferring title to the realty as agent for the Stockholders. It was agreed that if the sale is made it should be effective as of the close of the business day, January 31, 1969, and that Thomas J. Northcutt and Harry Berke would both personally supervise the terms and provisions of the closing in order to protect the interests of the Corporation and Stockholders.”

The minutes further recite that:

“A Plan of Liquidation was prepared with the assistance of Dixie Lewis, Certified Public Accountant, a copy of which is hereto attached to the Minutes, and made a part thereof. It was agreed that the United States Treasury Department Revenue Form 966 entitled CORPORATE DISSOLUTION OR LIQUIDATION should be mailed to the Internal Revenue Service within thirty (30) days from January 31, 1969, as suggested by the Auditor.”

Mr. Berke testified that a further meeting of stockholders was held on Monday, January 27, 1969, and these minutes were also filed in the record. It is stated that the meeting was called “for the purpose of discussing final plans for the sale by the Stockholders of the Stockholders interest in the Corporation pursuant to the plan of liquidation filed with the Federal Internal Revenue Service on January .24, .1969.”

The minutes recite that it was agreed that the stockholders “should sell their assets in the corporation to the purchasers.” The minutes then recite that in view of the total amount of the consideration for the sale, the corporation would act as agent for the stockholders “in order to avoid the almost prohibitive expense of recording one deed by the corporation to the Stockholders and then the Stockholders, in turn, executing and recording another deed to the ultimate purchasers.” The minutes recite that the corporation agreed that it would act solely as “Agent for the Stockholders and all assets received by the corporation would be received by it as Agents for the Stockholders, and distributed to the Stockholders as per liquidation plan of January 24,1969.”

The plan of liquidation itself is dated February 1,1969, signed by the secretary of the corporation, and the accountant who prepared it testified that it was actually prepared after the two stockholders’ meetings above referred to, and that while he did not attend the meetings, he had the minutes of the two meetings before him when he prepared the plan.

The plan is a brief and simple one, providing for cessation of business on January 31, 1969, collection of all debts due the corporation and payment of all liabilities except those to be assumed by the purchaser of the building. The plan recites:

“Upon completion of, or provision for, payment of all liabilities, the remaining cash shall be distributed to the stockholders, pro rata, as a liquidating dividend.”

The plan provides that long-term notes might be distributed to the stockholders in lieu of cash, and it concludes with this provision:

“When, all assets have been converted to cash or notes and all liabilities have been paid, final distribution will be made to the stockholders in exchange for the cancellation and retirement of their stock.”

This plan was actually transmitted by the accountant to the Director of the Internal Revenue Service on February 19, 1969, together with Form 966, reciting adoption of the plan on January 24, 1969 and a copy of a resolution purportedly passed by the stockholders on January 24, 1969, adopting the plan of liquidation. The text of the resolution itself does not appear in the minutes of the meeting of January 24 or the meeting of January 27.

A deed to the real estate, held by the corporation was executed by the corporation on January 31, 1969 and recorded promptly thereafter. The deed is executed in the corporate name by Thomas J. North-cutt as President and Harry Berke as Secretary, and it contains the usual corporate form of acknowledgment by these officers, reciting that the deed was executed on behalf of the corporation by authority of its Board of Directors.

The form submitted to the Internal Revenue in February 1969 recites that the corporation had one hundred shares of ten-dollar par stock outstanding, and there are filed in the record two stock certificates, both owned by Mr. Berke at the time of the events here in question, each certificate in the amount of twenty-five shares. There is nothing in the record to indicate that Mr. Northcutt ever at any time surrendered his certificates, nor is the absence of his certificates otherwise explained in the record. Endorsed on the back of each of the two certificates of Mr. Berke, under date of January 27, 1969, is a statement that the shares were surrendered “By agreement between the corporation and the stockholders and pursuant to the plan of liquidation adopted by resolution dated 1/24/69 and to the agreement and resolution as set out in the minutes of the corporation dated 1/24/69 and 1/27/69 . .

This endorsement, signed by Mr. Berke, acknowledges receipt of fifty percent of the assets and equity in the corporation, including all real and personal property, and recites that the corporation is authorized to execute as agents all necessary instruments for Mr. Berke and other stockholders “necessary to complete the liquidation.”

The accountant, under date of November 19, 1969, filed a “Statement of Intent to Dissolve” with the Secretary of State of Tennessee, purporting to contain the text of a resolution “to dissolve the corporation” stated to have been adopted at a meeting of the shareholders on February 1, 1969. There are no corporate minutes filed in the record under that date, but the resolution filed with the Secretary of State recites the adoption of the plan of liquidation and states that “the corporation through its directors and stockholders agree to an instant dissolution of the corporation, and surrender of the charter, and the officers are duly authorized to file all necessary proceedings to effect the dissolution.” As stated, this resolution is stated in its text to have been adopted on February 1, 1969 and purports to bear acknowledgment of Mr. Berke as Secretary under date of February 1, 1969.

The preamble to this resolution contains the following:

“WHEREAS, Brainerd Village, Inc., a corporation has sold all of the assets of the corporation to a limited partnership consisting of a group of investors from Atlanta, Georgia; and
“WHEREAS, Brainerd Village, Inc., now owns no assets other than the proceeds of the sale; and
“WHEREAS, the corporation has agreed to a plan of liquidation; and
“WHEREAS, all of the stockholders have agreed as to the immediate division of the assets and for the distribution of funds hereinafter payable; and . . ”

Articles of dissolution, pursuant to T.C.A. § 48-1007, were not filed with the Secretary of State until some time after the filing of the statement of intention to dissolve. The text of the articles of dissolution bears date of December 26, 1969. This document contains verbatim the text of the January 24, 1969 plan of liquidation and recites that all debts and obligations of the corporation have been satisfied and that all of its assets have been distributed among its shareholders.

Mr. Berke testified on cross-examination that the corporation followed the plan of liquidation “as nearly as we could.” He testified that the plan itself had been forwarded to the Internal Revenue Service in February. The following then occurred:

“Q Oh, I thought you testified that it was forwarded on January 24, 1969.
“A No, the Plan of Liquidation was on January 24, 1969. Obviously, if the stockholders were not going to be able to sell Brainerd Village, Inc., there would be — probably the Plan of Liquidation might fail.
“Q So, they were not sent to the Internal Revenue Service until after the sale of the Brainerd Village property?
“A Well, that’s the proper way to do it; done in February.
“Q Why was the Plan of Liquidation signed by you in February of 1969 rather than on January 24, 1969?
“A Well, obviously, we had a meeting. We held up until we saw that the stockholders would successfully make the sale. Otherwise, we wouldn’t want to dissolve the corporation, the corporation probably would continue to act. But this was the Plan of Liquidation. They can’t all be done simultaneous. This is the plan, and it naturally has to follow the usual steps. So, as soon as the property was sold by the stockholders, then we continued on with the Plan of Liquidation.”

Mr. Berke testified that the corporation followed the advice of its accountant, and that he understood that a plan of dissolution could not be carried out “instantaneously”.

Mr. Berke testified that the corporation “transferred its assets” to the stockholders on the date when Mr. Berke surrendered his shares of stock, January 27, 1969. He said that after that date there was no other business transacted “not even any meetings.” He said that there were no further minutes at all after the January 27, 1969 minutes, so that there was no record of any surrender of the stock of Mr. Northcutt. Mr. Northcutt was a party defendant to this action, but did not appear at the trial nor is there any testimony in the record from him.

Mr. Lewis, the accountant for the corporation, testified that under Section 387 of the present federal income tax law, and the regulations issued pursuant thereto (26 U.S. C.A. § 337), a corporation may adopt a plan of liquidation, which has to be filed with the Internal Revenue Service within thirty days thereafter. He further stated that “you have twelve months to finally liquidate. the corporation.”

It is apparent from the testimony of Mr. Lewis and from the corporate documents filed in the record that at all times the parties had in mind the federal statute and regulations, and apparently no consideration was given to the incidence of the Tennessee excise tax on corporate earnings, T.C.A. § 67-2701.

Mr. Allen Curtis, Director of the Franchise-Excise Tax Division of the Tennessee Department of Revenue, testified in the case. He pointed out and described the changes which occurred with regard to the taxation of liquidating dividends, insofar as federal taxation was concerned, in the enactment of the Internal Revenue Code of 1954, Mr. Curtis testified:

“Some years ago when the Federal Code was amended, there was an adoption of what came to be known as a Section 337 Liquidation. Under that section of the Federal Code, it was deemed proper that any earnings resulting from a corporate liquidation would be permitted to flow through the corporation and would be taxed to the corporate stockholders. In other words the Federal Government would exact its tax from the individual rather than from the corporation. Almost immediately, tax returns were filed with us upon liquidation whereby the corporation would report a ‘Section 337 gain.’ Some of the returns attempted to remove that gain from the excise tax base, some corporations, and the majority of them included that type of gain in the excise tax base.
“It has always been our position that the gain resulting to the corporation upon a sale of its corporate assets is a gain to be included in the measure of the excise tax privilege. And we have so taxed every gain resulting from such a transaction.”

Mr. Curtis testified that if a corporation had actually completed dissolution and had actually distributed its assets to its stockholders, and the stockholders then in turn made a sale of those assets, the Department would not contend that the sales proceeds would be subject to the corporate excise tax.

On cross-examination Mr. Curtis stated that the Department of Revenue had taken the position throughout its negotiations with the taxpayers here that the sale of assets in this case was actually made by the corporation, which held legal title, and that in fact both legal and equitable title remained in the corporation at the time of the sale. He stated that if the stockholders in this case had actually received a deed from the corporation and had then deeded the property to the purchaser, the Department would consider that this “would be some indication . . . that the transaction was such that it should be beyond the corporate structure.” He stated, however, that in all cases the Department attempted to “look to the substance” of a transaction, rather than to its outward form.

The Chancellor filed a memorandum opinion in this ease in which he stated:

“A preponderance of the evidence is to the effect that the stockholders intended to liquidate the corporation, surrender its assets in return for the stock and sell the shopping center. The Court further finds that these intentions were carried out and the minutes of January 27, 1969, which are in the record as Exhibit 3, reveal that the stockholders were aware of the mechanical transfer of title to the real estate owned by the corporation and did not act unreasonably and designated the corporation as their agent to transfer title to the real estate, due to the obvious savings in real estate transfer fees.”

The Chancellor felt that it was not necessary for the stockholders to actually receive a deed from the corporation and then in turn give a deed to the purchasers, in order to avoid the operation of the Tennessee Corporate Excise Tax. He cited and relied upon the recent decision of this Court in the case of Dattell v. Tidwell, 512 S.W.2d 550 (Tenn.1974), and awarded a recovery to Mr. Berke of the amount of excise tax involved in this case, some $34,230.13, with interest. In view of this disposition of the case, he made no adjudication as to any liability of the defendant Northcutt.

The facts of the case of Dattell v. Tid-well, supra, are indeed similar to those involved in the present case. In the Dattell case, however, the evidence adduced at the trial was not preserved in a bill of exceptions, so that the Court had before it only the allegations of the pleadings, which were necessarily taken as true, in view of the posture of the case on appeal. These allegations were to the effect that a corporation, similar to the one here involved, owned a piece of real estate in Memphis. The pleadings allege that the sole stockholder had commenced to formulate plans to liquidate the corporation and to take this property as a liquidating dividend pursuant to federal Internal Revenue rules and regulations. The pleadings recited that “On June 3, 1968, Waldat Real Estate Company, Inc. was liquidated and all of its assets were distributed to Samuel Dattell, pursuant to Resolution of the stockholders and directors. Therefore, as of June 3, 1968, Samuel Dattell was the equitable owner for the property at 475-505 South Perkins, Memphis, Tennessee, but the legal title was still in the name of Waldat Real Estate Company, Inc.” The pleadings then recited that on the following day, June 4, 1968, Mr. Dattell completed a sale of the assets and as equitable owner of the property directed the corporation to execute its deed to the property for him. The pleadings recited that the entire proceeds of the sale belonged to Mr. Dattell and were treated as such by all concerned.

Accepting as a fact that Mr. Dattell was the equitable owner of the property on the day before the sale was made, this Court found that the corporate excise tax was not due on the sale of the real estate to a third party, even though application to surrender the charter of the corporation was not filed until November 20, 1970. There was no discussion of the problems of corporate liquidation which may extend over a period of time, since under the record before the Court the corporation had been fully liquidated and its assets distributed prior to the sale of those assets to an outside purchaser.

The facts of the present case are different, and under them we do not find the Dattell case to be controlling.

The problem presented in the instant case is quite similar to problems which existed in the law of federal income taxation prior to the adoption of the 1954 Code. Under the 1939 Internal Revenue Code, when there was a liquidation of a corporation and sale of its assets, a crucial question of fact was presented as to whether the sale was made by the corporation itself or by the stockholders. If it was made by the corporation, the corporation incurred a capital gains tax. When it then made a distribution to stockholders in liquidation, the stockholders incurred a second tax upon the dividend. If, however, the sale was found to have been made by the shareholders themselves after liquidation and dissolution, then the shareholders incurred a gain only in the liquidation upon receipt of the appreciated assets of the corporation; there was no gain involved in their subsequent sale of assets to third parties, if the sale price did not exceed the values used in the liquidation. Probably the leading case on the subject prior to 1954 was that of Commissioner of Internal Revenue v. Court Holding Company, 324 U.S. 331, 65 S.Ct. 707, 89 L.Ed. 981 (1945). In that case two shareholders caused a corporation to liquidate and to distribute to them its only asset, an apartment house. The shareholders then sold the apartment to the same purchaser who had originally negotiated with the corporation for the property, upon substantially the same terms. The United States Supreme Court found that the gain was taxable to the corporation, even though it had formally liquidated prior to the sale. The Court held that the substance of the transaction was a sale by the corporation, and that the liquidation was only an afterthought in an effort to effect a tax saving. See Note, “Taxing Corporate Liquidations: The Problem of Commissioner v. Court Holding Co.”, 63 Harv.L.Rev. 484 (1950). In the case of Cumberland Public Service Company v. U.S., 338 U.S. 451, 70 S.Ct. 280, 94 L.Ed. 251 (1950), the shareholders carefully liquidated the corporation before completing negotiations for the sale of its assets. Under those facts the United States Supreme Court held that the capital gain was taxable only to the shareholders, and not to the corporation. The Court found that whether the shareholders or the corporation made the sale depended largely upon a fact determination as to whether there was a “genuine” liquidating distribution to shareholders pri- or to the sale. See Mertens, Law of Federal Income Taxation, Vol. 2, § 17.05a, pp. 26-42.

Under Section 337 of the Internal Revenue Code of 1954, many of the problems surrounding the Court Holding Company decision and related cases were alleviated. As previously pointed out, under the terms of this section and the applicable regulations (with exceptions and refinements not pertinent here), a corporation may make a sale of its assets within twelve months after the adoption of a plan of complete liquidation, without capital gains taxation at the corporate level.

The Tennessee law relating to transactions such as these, however, has not been changed by amendatory legislation, nor does Tennessee have a comprehensive personal income tax law similar to that of the United States Government. The Tennessee excise tax on corporate earnings, T.C.A. § 67-2701 et seq., is levied upon all net earnings of a corporate enterprise, regardless of their form. Although separately defined for federal income tax purposes, both capital gains and ordinary operating income are taxable to corporations under the Tennessee excise tax law. Woods Lumber Co. v. MacFarland, 209 Tenn. 667, 355 S.W.2d 448 (1962); Brookside Mills, Inc. v. Atkins, 204 Tenn. 517, 322 S.W.2d 217 (1959).

The Tennessee personal income tax on income from stocks and bonds, popularly known as the “Hall Income Tax”, is contained in T.C.A. § 67-2601 et seq. Under this statute, ordinary corporate dividends are taxable to the recipients; but this Court expressly held in the case of Gallagher v. Butler, 214 Tenn. 129, 378 S.W.2d 161 (1964), that capital gains from the sale of stock and liquidating dividends received in redemption of stock upon dissolution of a corporation are not taxable as income.

Accordingly, the issue of whether a sale of assets is made by a corporation in liquidation or by its shareholders is no longer as acutely significant under Section 337 of the Internal Revenue Code as formerly, for purposes of federal taxes. It is still necessary to consider in detail the factual situation surrounding a corporate liquidation and sale of assets, however, under state taxing statutes. As pointed out in the Dat-tell case, supra, if the sale in fact is made by the stockholders, after actually receiving corporate assets in liquidation, there is presently no state excise or income tax incident to the transaction, either to the corporation or to the selling shareholders. If the sale is made by the corporation itself, however, even though under a proposed plan of liquidation, it is still considered a corporate transaction and the resulting net proceeds are corporate earnings under the state’s excise tax law.

The record indicates that all steps necessary to accomplish a Section 337 liquidation and sale of assets, so as to make federal capital gains taxes payable only by the shareholders, were accomplished in the present case; and apparently the federal authorities have approved the transaction. Unfortunately, however, the state taxes appear to have been overlooked, and it seems perfectly clear under the facts of the case that the plan of liquidation adopted was only a contingent one, and that it had not in fact been carried out at the time the sale of assets occurred. A plan to liquidate had been agreed upon, in principle at least. There can be no question however, but that the corporation itself made the sale, that it still existed, and under Mr. Berke’s testimony, the corporation would have continued to exist had the sale not been made.

Although form seldom should be allowed to control substance, form is nevertheless important in connection with business organizations, with financial transactions and with taxation. Persons who have deliberately formed a corporation and have operated their enterprise in corporate form are not permitted to disregard that corporate form at will. See Widdicombe v. McGuire, 221 Tenn. 601, 607, 429 S.W.2d 815 (1968); Shelby County v. Barden, 527 S.W.2d 124 (Tenn.1975).

While a lack of uniformity between state and federal law is perhaps unfortunate, the revision of the state revenue laws is the province of the legislature. The 1954 Internal Revenue Code added a desirable flexibility to corporate liquidations, and obviated many problems which had arisen under prior law and its interpretation in the Court Holding Company case, supra. Tax coun-sellors and others concerned with corporate reorganization and liquidation in the state, however, must still handle corporate affairs with precision, if they are to avoid state corporate taxation. The present transaction was not handled with such precision. From the records which are filed and from the testimony the plan of liquidation was not finalized and executed prior to the sale of assets but only on February 1,1969, after the sale, at the earliest. The situation was so represented to the Secretary of State when the notice of dissolution was filed in November 1969, where the corporation was referred to as having sold its assets and as owning as of February 1, 1969 “no assets other than the proceeds of the sale . . ” The plain inference from this document is that as of February 1, 1969 the corporation was the owner of the sales proceeds and that it was at that time distributing them to the stockholders.

The fact that the corporation was designated to act as the “agent” of the stockholders in making the conveyance of the real property, in and of itself, is not conclusive, although it certainly has probative value. As Mr. Curtis testified, it is some indication of the nature of the transaction. Tennessee levies a fairly substantial transfer tax upon the conveyance of real property, T.C.A. § 67-4102, Item S, which in a sale of the magnitude here involved would be nearly five thousand dollars. The desire of the stockholders to avoid the use of two deeds, therefore, was understandable and was not, in our opinion, absolutely fatal to the transaction under the holding in Dat-tell, supra. Stockholders who permit the corporation to continue in existence and to execute deeds, however, are certainly cutting the margin of safety to the very edge, and incur a risk that the transaction will be deemed a corporate sale. In the present case, the deed was in fact executed by the corporation, at a time when the corporation had not been liquidated and when the plan of liquidation was still contingent and subject to withdrawal or modification. There had been no actual finalized plan of liquidation nor actual distribution of assets to the stockholders, as was found to have occurred in the Dattell case, supra.

Accordingly it is our opinion that the corporate excise tax was due upon the consummation of the sale, and that the tax was properly collected from appellee under the provisions of T.O.A. § 67 — 2718.

The judgment of the Chancellor, therefore, awarding a recovery of the excise tax against the State of Tennessee is reversed, and the Commissioner of Revenue is dismissed as a party to the action.

The cause is remanded to the Chancery Court for determination of the respective rights and liabilities of Mr. Berke and Mr. Northcutt, as sought in the original complaint. Costs of the appeal are taxed to appellee. Costs in the trial court will abide the results there.

PONES, C. J., HENRY, J., and INMAN, Special Justice, concur.

COOPER, J., dissents.

COOPER, Justice

(dissenting).

I agree with the majority opinion in the statement of legal principles which determine the excise tax liability of a corporation on the sale of real property. However, I do not agree with the conclusion of the majority that there had been no actual finalized plan of liquidation of the corporation nor actual distribution of assets to the stockholders prior to the sale of the shopping center and that the sale was within the corporate structure and subject to the excise tax. As I view the record, the evidence supports the chancellor in his finding that “a preponderance of the evidence is to the effect that the stockholders intended to liquidate the corporation, surrender its assets in return for the stock and sell the shopping center. . . . [TJhese intentions were carried out and the minutes of January 27,1969, which are in the record as Exhibit 3, reveal that the stockholders were aware of the mechanical transfer of title to the real estate owned by the corporation and did not act unreasonably and designated the corporation as their agent to transfer title to the real estate owned by the corporation, due to the obvious savings in real estate transfer fees.” (Emphasis supplied.) The plan to liquidate the corporation was adopted on January 27, 1969, and, on the same date, Mr. Berke endorsed his stock to the corporation and acknowledged receipt of fifty percent of the assets of the corporation as consideration for his stock. It was further set forth in the acknowledgement that the corporation was authorized to execute instruments for the sale of real estate as agent for Mr. Berke and the other stockholders. This method of transfer of corporate assets in the liquidation of a corporation was approved by this court as being one to which tax consequences will not attach. See Dattell v. Tidwell, 512 S.W.2d 550 (Tenn.1974).

I would affirm the decree of the chancellor and allow the appellee, Mr. Berke, to recover the corporate excise taxes assessed against him and paid under protest.

      . “While it is true that the stockholders ultimately own all of the assets of the corporation, the corporation itself, as a legal entity, has full title and ownership of said assets so long as they are in the possession of said corporation.” Gallagher v. Butler, 214 Tenn. 129, 143, 378 S.W.2d 161, 167 (1964).


source: Caselaw Access Project

author: HARBISON, Justice.

license: Public Domain

text:
    John THOMAS, Appellant-Appellee, v. TRANSPORT INSURANCE COMPANY and W. Gary Kissinger, d/b/a Kissinger Truck Lines, Appellees-Appellants.
    Supreme Court of Tennessee.
    Jan. 12, 1976.
    Ben Todd, Memphis, for appellant-appel-lee.

      George P. Collier, Jr., Memphis, for ap-pellees-appellants.
   OPINION

HARBISON, Justice.

All parties have appealed from the findings and conclusions of the trial judge in this workmen’s compensation proceeding. The action was instituted by John Thomas, the employee, against his employer, W. Gary Kissinger, individually and doing business as Kissinger Truck Lines. Alternatively, the employer was sued as a corporation, Kissinger Truck Lines, Inc. Also named as a defendant was the workmen’s compensation insurer, Transport Insurance Company.

The complaint was filed on August 21, 1974, and all defendants are before the Court on service of process. From information appearing in the insurance records in the file, it appears that the employer was operating as an individual, and not as a corporation, although this issue is not clarified in the pleadings.

The workmen’s compensation claim arises from an accident which occurred on September 1, 1972 at a place of business of the employer in Memphis, Tennessee. The employee claims permanent injury as a result of an accident which occurred when he was mounting a truck tire on a safety rim. No issue is made as to notice, and it is undisputed in the record that the workmen’s compensation carrier has paid medical expenses and temporary total disability benefits to the employee as a result of the accident.

The basic issues in the case turn on whether the claim is controlled by Tennessee law or by Arkansas law. It is alleged in the complaint that the employee and the employer “had accepted and were working under the provisions of the Workmen’s Compensation Act of the State of Tennessee at the time and place as aforesaid.” This allegation is denied in each of the answers filed on behalf of the defendants.

It is further alleged in the complaint that the employee resided in the State of Tennessee at the time of the accident. This allegation also is denied in the answers of the defendants, although the defendants admit that the employee “now resides” in Tennessee.

Thus, issues of fact, and seemingly important ones, are raised in the pleadings.

The complaint describes the injuries received by the employee, and alleges that the defendants “wrongfully” commenced paying plaintiff temporary total disability benefits under the workmen’s compensation law of Arkansas following the accident. It is alleged that the plaintiff did not obtain counsel until October 8, 1973, more than thirteen months after the accident, and that the employee at that time called upon the defendants to begin making payments under the Tennessee workmen’s compensation law. The complaint seeks appropriate benefits under the law of this state, including an adjustment between the temporary total disability benefits received under Arkansas law and those due under Tennessee law, together with an award for permanent partial disability.

In each of their answers the defendants allege that the plaintiff has made a binding election to receive workmen’s compensation benefits under the law of Arkansas. They state that he received payments for more than one year thereunder after the date of the accident, and aver that no benefits have been paid to him under Tennessee law. It is therefore alleged that the plaintiff is barred by his election from seeking Tennessee benefits. The defendants admit the employment of the plaintiff, and admit receiving notice of his accident. The workmen’s compensation insurance carrier alleges that it is the carrier of the employer for the State of Arkansas only, and is liable only for benefits under the law of that state. It denies that it is subject to the Workmen’s Compensation Act of Tennessee, and further pleads the statute of limitations in bar of the action, insofar as the plaintiff invokes the Tennessee Workmen’s Compensation Act. The workmen’s compensation carrier also denies jurisdiction of the Tennessee court, alleging that the Arkansas Workmen’s Compensation Commission “has, for over two years, had and maintained the jurisdiction, control, and administration, and adjudicated the benefits thus far received by the Plaintiff and to which Arkansas jurisdiction both the Plaintiff and this Defendant has (sic) submitted.”

In his answer, the employer raised essentially the same issues, including the Tennessee statute of limitations and the question of a binding election.

Exhibited to the answer of each defendant was a copy of a workmen’s compensation and employers’ liability insurance policy issued by Transport Insurance Company to W. Gary Kissinger. The declarations in this policy indicate that it applies at all places of business of the employer in the State of Arkansas, and that the policy applies to the workmen’s compensation law and any occupational disease law of that state. The declaration and a renewal agreement both show the principal place of business of the employer as being at a post office box in West Memphis, Arkansas, and both show that the employer employed “Truckmen”, indicating that the employer was in the trucking business.

The record reveals that a set of interrogatories was propounded on behalf of the employee to the Transport Insurance Company. These interrogatories and the answers thereto are in the record, and exhibited to these answers is the application for workmen’s compensation insurance made by Mr. Kissinger to the insurance company. This application shows that Mr. Kissinger employed nine “long distance truckmen”, and the amount of the estimated annual payroll for the same. Their duties are not otherwise indicated, but at least a permissible inference could be drawn that these employees operated in states other than the State of Arkansas.

In addition, there was exhibited to the interrogatories the employer’s first notice of industrial injury to the insurer. This document, dated five days after the accident, shows that the employee was injured in Memphis, Tennessee on the employer’s premises there. It also indicates that the employee had been employed by Mr. Kissinger as a repairman and mechanic for fourteen and one-half months. The application does not state whether the employment was continuously at the Memphis location or not.

In its answers to interrogatories, the insurer asserted that it had never had any notice, prior to the accident, that the employer maintained a place of business in Tennessee. It averred that it received a notice of the accident, and commenced paying Arkansas benefits immediately thereafter. It alleges that the employee “has accepted and continues to accept” Arkansas benefits, but makes no reference to any affirmative action taken by the plaintiff, in Arkansas or elsewhere, to assert or claim any rights under Arkansas law.

The answers to interrogatories further aver that the employer was an assigned risk, and that the contract of insurance was issued to him under certain assigned risk provisions of the Arkansas Workmen’s Compensation Act.

The answers to interrogatories also refer to a previous action instituted by the employee against the insurance carrier in the United States District Court, in Memphis, Tennessee, on November 28, 1973. Briefs of counsel state that this action was non-suited, and this Court accepts this statement as true, although neither the pleadings nor the final decree in the U.S. District Court are exhibited in the record.

On December 19, 1974 counsel for the employee filed a motion to strike certain of the defenses of the two defendants, partieu-larly those involving the statute of limitations, binding election under the law of Arkansas, and lack of jurisdiction. Insofar as the record before us reveals, neither defendant filed any sort of motion or sought any affirmative relief whatever.

On March 12, 1975 the circuit judge entered an order overruling the motion of the employee to strike defenses. In addition he granted summary judgment in favor of both the employer and the workmen’s compensation carrier, dismissing the suit. The court found, upon the basis of the record above summarized, that the plaintiff had accepted workmen’s compensation benefits under the law of Arkansas, and that he was therefore precluded from seeking benefits under Tennessee law. He further sustained the plea of the Tennessee statute of limitations insofar as the employer was concerned, hut did state that the insurance carrier was subject to suit in Tennessee.

The order of the court was supplemented by certain findings entered on the same date, in which the information above recited is summarized, but the factual issues raised by the pleadings, which we have noted above, were not mentioned.

Inasmuch as in his findings the trial judge made reference to matters outside the pleadings and appearing only in the answers to interrogatories, we conclude that the court did not dismiss the action under Rule 12, solely on the pleadings, but that he considered and dismissed the action on summary judgment in favor of both defendants, under Rule 56 of the Tennessee Rules of Civil Procedure.

Although this Court has not previously spoken on the subject, we are of the opinion that a trial judge may grant a motion for summary judgment in favor of a nonmoving party, or parties, as was done here. See 6 Moore’s Federal Practice, § 56.-12. We are of the opinion, however, that such action on the part of the trial judge should be taken only in rare cases and with meticulous care. We note with approval the following statement contained in the text above cited:

“Care should, of course, be taken by the district court to determine that the party against whom summary judgment is rendered has had a full and fair opportunity to meet the proposition that there is no genuine issue of material fact to be tried, and that the party for whom summary judgment is rendered is entitled thereto as a matter of law.” (Ibid., p. 2243).

As we have previously noted, the employee in the present case affirmatively averred that both he and the employer had accepted and were governed by the workmen’s compensation law of the State of Tennessee. This allegation was denied. Certainly the employee was, at a minimum, entitled to offer proof on this subject before having his suit summarily dismissed without so much as even a motion to dismiss being filed on behalf of the employer.

Further, the employee alleged that he resided in the State of Tennessee at the time of the accident. This was denied. The employer’s report of accident indicated that the employee was injured at a place of business maintained by the employer in the State of Tennessee, and that the employee had been in the employ of the defendant for over fourteen months before the accident. Certainly, if the employee had resided in Tennessee, and if the contract of employment was made in this state, and if the injury occurred in this state, there can be no real question but that Tennessee has abundant contacts with this workmen’s compensation claim, so as to entitle its courts to take jurisdiction and so as to entitle the injured workman to claim benefits under the law of this state. Before having his suit summarily dismissed, the employee was at least entitled to offer affidavits or to have a hearing on these critical allegations. On the face of the complaint, at least, the action was subject to the workmen’s compensation law of this state. See Ray v. Aetna Casualty & Surety Company, 517 S.W.2d 194 (Tenn.1974); Bryant v. Se ward, 490 S.W.2d 497 (Tenn.1973); Millican v. Liberty Mutual Insurance Company, 224 Tenn. 604, 460 S.W.2d 842 (1970).

We further are of the opinion that an issue of fact, requiring a hearing and proof, or at least substantial affidavits, was presented as to whether the employee had or had not made any sort of binding election to accept benefits under the workmen’s compensation law of the State of Arkansas. As correctly pointed out by the trial judge, if the employee has taken any affirmative action to seek a recovery under the law of that state, or has voluntarily, deliberately and with full knowledge of his options, accepted benefits under Arkansas law, he may well be precluded by this election and may not be entitled to proceed in Tennessee. See Tidwell v. Chattanooga Boiler & Tank Company, 163 Tenn. 420, 43 S.W.2d 221 (1931). On the other hand, if the employee, while seriously injured and disabled, was simply sent checks by a workmen’s compensation carrier, with no information as to the nature of the benefits being received, he may not be so precluded. There needs to be a complete trial of all of the circumstances under which the benefits were commenced, including any representations made to or by the employee, and information developed as to whether the employee has indeed filed a claim with the Arkansas Workmen’s Compensation Commission or not. Certainly the fact that the employee did receive benefits without question for over one year before taking any legal action is a circumstance against him; it is not conclusive or dispositive of the case, however, standing alone and without explanation. See Annot., 8 A.L.R.2d 628 (1949).

Further, we are of the opinion that the trial court was in error in summarily sustaining the plea of the statute of limitations of one year, insofar as the employer was concerned. If the employer were indeed subject to the provisions of the Tennessee workmen’s compensation law, and if indeed workmen’s compensation benefits were paid on behalf of the employer to the employee, the statute of limitations would not run so long as such benefits were being paid. T.C.A. § 50-1003. Of course, if the employee had made a binding election to accept Arkansas benefits, the foregoing statute may not be applicable; if he has not done so, however, we have serious doubt that the action is barred. There seems to be no question but that full medical benefits have been paid on behalf of this employee, which would satisfy the workmen’s compensation law of Tennessee, as well as that of Arkansas, and the last of these payments was not made until less than one year prior to the filing of the present action.

As to the liability of the employer in this case, we see little defense to the action, unless the employee is precluded from invoking Tennessee law by reason of a binding election, as aforesaid. Even if the employer had not voluntarily complied with the Tennessee workmen’s compensation law, by posting a certificate of insurance or by meeting the requirements of a self-insured employer, there is no question but that an employer who is subject to the terms and provisions of the Tennessee workmen’s compensation law is liable for benefits to an employee injured in the scope and course of his employment. The statutes give the employee an option to proceed at common law or to seek workmen’s compensation benefits from a non-complying employer, and the employee clearly has elected to pursue the latter course. See T.C.A. § 50-1205.

With respect to whether the insurance carrier is subject to the Tennessee Act or not, more difficult questions arise which, again, we do not believe can be resolved upon the basis of the meager information presently contained in the record. The carrier is bound to have known, from the information supplied in the application, that the employer was engaged in long distance hauling operations. We recognize that it is possible for an insurance carrier to limit its liability to the workmen’s compensation laws of a given state or states, but this does not exempt the employer from liability in other states in which he is actually conducting operations. The policy in the present case appears to have been issued by an agent in Missouri, and we are simply unable to tell from the information now in the record whether there may or may not have been sufficient information furnished to the insurance carrier to put it on notice that the employer was operating in states other than Arkansas, and to render the insurer liable, through waiver or estoppel, for workmen’s compensation benefits in such other states. Assuming that the insurance carrier is not liable for Tennessee workmen’s compensation benefits, the employer nevertheless may be, and may also be entitled to receive credit or indemnification from the insurance carrier up to the limit provided by Arkansas law. These are questions which we cannot resolve on the record before us. See generally Toebe v. Employers Mutual of Warsaw, 114 N.J.Super. 39, 274 A.2d 820 (N.J.Super. App.Div.1971); Kacur v. Employers Mutual Casualty Company, 253 Md. 500, 254 A.2d 156 (1969); Mandle v. Kelly, 229 Miss. 327, 90 So.2d 645 (1956); Weinberg v. State Workmen’s Insurance Fund, 368 Pa. 76, 81 A.2d 906 (1951).

The judgment of the trial court in this case is reversed and the cause is remanded for further proceedings consistent with this opinion. Costs of the appeal will be paid by appellees; costs in the trial court will abide the result there.

PONES, C. J., COOPER and HENRY, JJ., and NEARN, Special Justice, concur.

       No pleadings, claims, correspondence, orders or other records of any kind from the Arkansas Commission have been filed in this case.


author: COOPER, Justice.

text:
    Nolen W. RUSSELL, Petitioner, v. STATE of Tennessee, Respondent.
    Supreme Court of Tennessee.
    Jan. 19, 1976.
    Cunningham, Mitchell & Hicks, Clarks-ville, for petitioner.
    W. Henry Haile, II, Asst. Atty. Gen., R. A. Ashley, Jr., Atty. Gen., Nashville, for respondent.
   COOPER, Justice.

OPINION

The petitioner, Nolen W. Russell, was indicted for the murder of his wife, Mary Shelton Russell. On the trial, the jury found petitioner guilty of murder in the second degree and fixed his sentence at not less than ten nor more than twenty years in the state penitentiary. Petitioner’s conviction was affirmed by the Court of Criminal Appeals in a unanimous opinion. Certiorari was granted by this court, primarily to consider whether the closing argument of the district attorney general was improper and, if so, was it prejudicial.

It is undisputed in the record that Nolen W. Russell killed his wife in a particularly brutal manner. The medical examiner testified that Mrs. Russell had multiple lacerations and contusions about the head, a six inch laceration of the neck, and a small penetrating wound above the left breast with an adjacent smaller wound, which appeared to the medical examiner to be entrance and exit wounds caused by a bullet. Death was due to the multiple head injuries.

The petitioner did not testify; however, he did give a statement to the authorities. Through the statement and through the medical history related to psychiatrists who treated petitioner after the homicide, it appears that when petitioner walked into the kitchen of his home on the morning of February 22, 1972, his wife pointed a pistol at him and pulled the trigger. The pistol misfired. Petitioner then took the pistol from his wife and began striking her with it with such force the pistol broke into two parts. The broken pistol was found in the kitchen near the body of Mrs. Russell. Petitioner admitted to the investigating officers that in addition to the beating, he had cut his wife’s throat and gave the sheriff the pocket knife he had used.

Petitioner plead both self-defense and temporary insanity, with his principal efforts being directed toward raising a question as to his sanity at the moment the homicide was committed. Two psychiatrists testified in support of the latter defense. Dr. William C. Greer, now superintendent of the Moccasin Bend Mental Health Center in Chattanooga, testified he saw Mr. Russell as a patient on February 24, 1972, two days following the homicide, and saw him a total of six times over a four month period; that psychological testing of Mr. Russell was done; that he had also treated Mrs. Russell who was a patient for about three years at the Harriet Cohn Mental Health Center in Clarksville, where Dr. Greer was director, and that he was familiar with the domestic situation between Mr. and Mrs. Russell; that Mrs. Russell at times was mentally ill, became paranoid and required treatment; that Mr. Russell was fearful his wife would harm him during a period of mental disorder; that Mr. Russell had shingles for a period of time prior to the homicide, had lost significant weight, developed insomnia from fear that his wife might do something to him in the middle of the night, and was also suffering from organic brain syndrome from hardening of the arteries; and that in his opinion, when Mrs. Russell pointed the gun at Mr. Russell, Mr. Russell went berserk and was not then “able to distinguish right from wrong.”

Dr. W. L. Metts, who is on the teaching staff of the Vanderbilt Medical School and is Assistant Superintendent of Central State Psychiatric Hospital, testified he had seen Mr. Russell on five different occasions following the homicide, two at the Mental Health Center in Clarksville and three at the hospital in Nashville, where Mr. Russell was given several psychological tests. From these tests and the interviews with Mr. Russell, Dr. Metts concluded:

“It is impossible to say beyond a shadow of a doubt, but in my honest opinion, I feel that it is most likely that Mr. Russell could not determine right from wrong at that particular moment.”

Several lay witnesses called by the state testified as to petitioner’s actions before and after the homicide and expressed the opinion that the petitioner acted normally.

With the evidence in this state, the issue of sanity was a material, and probably controlling, fact issue for the jury to decide. See Brooks v. State, 489 S.W.2d 70 (Tenn.1972); Mullendore v. State, 183 Tenn. 53, 191 S.W.2d 149 (1949).

In his closing argument to the jury, the district attorney general had the following to say about the testimony of the psychiatrists.

“So what do you have? You have two people who are capable of setting in Nashville and telling you the exact minute of when somebody in Montgomery County went crazy. Several months or several weeks after it happened, and coming here and swearing to it.
“I want to show you what — let me show you the possibilities. He says they have some tests — three hundred questions they ask people. I wonder haw difficult it would be for a lawyer- — me or some other lawyer, to get my hands on some of those tests and run off some mimeograph copies so I’d have some in the future — I wonder haw difficult it would be to set down with some friend psychologist and say show me which could be encircled here in order to make me look crazy. And he shows me this one, and this, and this one, this one.
“I’d take him in my office and I’d say, now I’ll tell you something else. It doesn’t matter one blooming bit what you tell the man, he’s going to ask you some questions, but it doesn’t matter whether they are truthful or not. I don’t guess it does, or does it — do you ever — did you ever find out whether it was necessary that those questions be truthful or not and did you ever find out why he asked him if it wasn’t — did you? Did you understand that, any of you?
“But anyway — so, it’s based on these questions. So I take him in there and finally a boy comes in and he says, I’m not — I’m really in hot water — what’s that, well, you know they caught me robbing this place over here, they caught me robbing it, and on top of that, I took pot shots at two or three guys — they’re really onto me — all right, old boy. did you get away with any money? Oh, yeah, I got away with come money — lay it on the desk here. All right, I’ve got it. Now, I’m going to get you out of this thing.
“What did he say — I want you to set down here and memorize how to answer these three hundred questions right here. Can you do it — here's a copy of them. All right, I’ve got it. Now, I’m going into Court and I’m going to tell them that you’re crazy as a bat — not now, but you were crazy for about five minutes while you were robbing the bank. And when you get up there, you tell them — it don’t make any difference what you tell them — whether lies, truth or anything you want to — and—but you be sure and answer these three hundred questions here just exactly right.
“He goes up there and they ask him, and he says, yes sir, this boy is nuts, and then he comes down here and he says, now, gentlemen of the Jury, turn this man loose — .”

At this point counsel for the defendant objected to the argument, and the following colloquy took place:

“MR. CUNNINGHAM: — I would suggest that the insinuations made by the Attorney General are not proper, and in a way, I resent the insinuations that he is making in this type of argument. That’s all I can.
GEN. BAGWELL: Well, I want to assure the Court that I am making no insinuations, and especially not against Mr. Cunningham.
MR. CUNNINGHAM: There is nothing in the proof about this, Your Honor.
GEN. BAGWELL: The proof in this case is that Mr. Cunningham didn’t even know about him going to a psychiatrist until after so there is no reflection there. I’m talking about the necessity of being very careful and scrupulous about this type of case, as the Court somethimes charges a jury concerning circumstantial evidence — is exactly what I’m doing. I’m talking about the pitfalls and dangers of these types of things, and that’s exactly what I was doing.
THE COURT: Anything further, Mr. Cunningham?
MR. CUNNINGHAM: No, your honor.
THE COURT: Well I think it’s very important — of course, I don’t like to interfere with argument of either counsel— counsel has a right in argument to draw his interpretation from the proof, but of course, it is necessary that the proof be in the record that the interpretation is being drawn from:
So I want to caution counsel to be careful about that.”

Despite caution from the trial court, the district attorney general went on to say:

“All right. In situations like this, I say that due to these possibilities to where this type of thing — if it falls into hands of unscrupulous individuals, how dangerous it can be and how our Courts can become a mockery.
“It’s not got like that here, and we don’t want it to. . . .”

No instructions were given the jury by the trial judge relative to the argument of the district attorney general.

As was pointed out in Smith v. State, 527 S.W.2d 737, (Tenn.1975), “we recognize that argument of counsel is a valuable privilege that should not be unduly restricted. Our courts seek to give great latitude to counsel in expressing their views of the case to the jury. In support of this policy trial judges have wide discretion in controlling the argument of counsel, and their action will not be reviewed absent abuse of that discretion.” But the policy of allowing latitude to counsel in expressing their view of a case does not mean there are no limits on argument. Argument must be temperate, must be predicated on evidence introduced during the trial of the case, and must be pertinent to the issues being tried. The argument of the district attorney general in this case went beyond the pale of legitimate argument. In attacking the core of the defense, his statements raised the spectre of conspiracy, deceit and worse on the part of psychiatrists, psychologists, and attorneys and were not warranted by any evidence that appears in the record. The argument not only was improper but being on a material issue, undoubtedly had a prejudicial effect on the jury. At least, we cannot say beyond a reasonable doubt that prejudice did not result from the argument.

The judgment of conviction in this case is reversed and the case is remanded to the Criminal Court of Montgomery County for a new trial.

FONES, C. J., and HENRY, BROCK and HARBISON, JJ., concur.


author: WILLIAM H. INMAN, Special Justice.

text:
    ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Appellant, v. Robert Edward GOTHARD d/b/a Rhea County Ambulance Co., Appellee.
    Supreme Court of Tennessee.
    Jan. 26, 1976.

      E. Blake Moore, W. Ferber Tracy, Chattanooga, for appellant; Spears, Moore, Reb-inan & Williams, Chattanooga, of counsel.
    W. B. Luther, Chattanooga, for appellee; Luther, Anderson, Ruth & Cleary, Chattanooga, of counsel.
   OPINION

WILLIAM H. INMAN, Special Justice.

This is a suit on a policy of automobile liability insurance. Appellee, plaintiff below, alleged that he was the named insured in a policy issued by appellant, defendant below, affording personal injury coverages of $10,000.00/20,000.00 and that appellant refused in bad faith to perform its contract. During the alleged effective period of the policy a 1964 Pontiac ambulance operated by appellee was involved in a traffic accident resulting in judgments against appel-lee aggregating $120,000.00. Appellee engaged his personal counsel for defense purposes when appellant declined to provide a defense for him. Appellant contended that the policy in question did not insure the 1964 Pontiac because it was owned by the named insured and was not described in the policy.

The Chancellor held that the 1964 Pontiac was a temporary substitute automobile and that under the provisions of the policy it was thus an insured automobile. He allowed recovery of the policy limits of $20,-000.00, and costs of defense of $1,000.00, but found in favor of appellant on the issue of bad faith. The Court of Appeals affirmed the judgment of basic coverage, but reversed the judgment which found absence of bad faith and held appellant liable for the excess of the judgments over basic limits of coverage.

This Court granted certiorari to review the judgment of the Court of Appeals that the denial of coverage was a bad faith breach of contract and imposing liability for the excess of the judgments over the basic limits of coverage.

Appellee owned, among other vehicles, a 1965 Ford ambulance which became mechanically disabled. He then acquired a 1964 Pontiac ambulance from Felix Garrison, a funeral home operator, and installed his emergency equipment on it. Mr. Garrison had no title certificate for this vehicle, which he had acquired two years previously, but executed a bill of sale to appellee which he did not deliver until a date subsequent to the accident. No monetary consideration was agreed upon or paid, but evidence was adduced that appellee performed valuable services thereafter for Mr. Garrison for which he was not paid.

The accident occurred about sixty days after appellee had acquired the 1964 Pontiac ambulance.

Following the accident, appellant’s investigator interviewed appellee a portion of whose statement is reproduced here:

“Q. How long have you owned this particular ambulance?
A. I’d have to check it, I’d say 60 days, something like that or a little bit longer, any way I had it and I put lights on the car a little while after I bought it.
Q. Who did you buy it from?
A. I bought it from Felix Garrison.”

Appellant initially denied coverage on the basis of the foregoing statement by the appellee, insisting in the trial court and in the Court of Appeals that it had the legal right to rely on its insured’s statement concerning his ownership of the 1964 Pontiac.

Section IV(a)(3) of the policy provides: TEMPORARY SUBSTITUTE AUTOMOBILE. An automobile not owned by a named insured . . . while temporarily used as a substitute for the described automobile when withdrawn from normal use because of its breakdown, repairs, servicing, loss or destruction.

The Chancellor found that the 1965 Ford ambulance was withdrawn from service owing to mechanical breakdown, and was temporarily replaced by the 1964 Pontiac which he found from a totality of the evidence was a non-owned vehicle at the time of the accident. The Court of Appeals concurred in this factual finding, foreclosing this issue if there is material evidence to support the the concurrence. T.C.A. 27-113. Provident Washington Insurance Co. v. Reese, 213 Tenn. 355, 373 S.W.2d 613 (1963). This record is replete with material evidence supportive of the factual conclusions of the Chancellor and Court of Appeals.

With respect to the issue of bad faith, the case of National Service Fire Insurance Co. v. Williams, 61 Tenn.App. 362, 454 S.W.2d 362 (1969) is quite apposite. At issue were the questions of basic coverage and liability for an excess judgment. The described automobile was operated at the time of the accident by a permittee of the authorized permittee, in violation of the orders of the named insured and the insurer denied coverage. The Court of Appeals addressed the question of bad faith as follows:

“We think an insurer ... is justified in accepting as true the information given it by its named insured which has a bearing on the liability of the insured under its policy, and that the insurer can act reasonably on the basis of the information without being guilty of bad faith.”
“. . .to the contrary, we think the evidence shows that the defendant acted under the reasonable and bona fide belief that Bobby Proffitt (the second permit-tee) was not an ‘additional insured’

In view of the fact that appellee, the named insured, declared, in two recorded statements, that he owned the 1964 Pontiac (in which event there would admittedly have been no coverage), and that he purchased it from Felix Garrison and installed his own emergency equipment on it, we hold the evidence shows appellant acted under the reasonable and bona fide belief that appel-lee owned the Pontiac ambulance, and that appellant was justified in relying on its insured’s representations to that effect. National Service Fire Insurance Co. v. Williams, supra.

We hold that appellant is not liable for the judgments in excess of basic coverage afforded by the policy.

Appellant questions its oneration of interest on the entire amount of the judgments, and insists that, if basic coverage is found to exist, it is liable for interest only on the basic coverage. This contention was decided adversely to appellant in the case of Draper v. Great American Ins. Co., 224 Tenn. 552, 458 S.W.2d 428 (1970), which was concerned with a policy provision identical to that involved here:

“We therefore hold by the language of the policy (appellant) had undertaken to pay all interest accruing upon the total amount of the judgment . . .”

The judgment of the Court of Appeals finding bad faith and allowing recovery of the excess of the judgment over basic coverage is reversed, and that of the Chancery Court affirmed. The judgment of the Court of Appeals is otherwise affirmed. Costs on appeal are taxed equally to the parties.

FONES, C. J., and HENRY, HARBISON and COOPER, JJ., concur.

      . Mr. Garrison testified that the proposed purchase price of $2850.00 was to be paid by appellee “according to the outcome of things.”


author: CARNEY, Presiding Judge.

text:
    Wiley NICHOLS et ux., Plaintiffs-Appellants, v. Wesley P. ODLE, et ux., Defendants-Appellees.
    Court of Appeals of Tennessee, Western Section.
    Aug. 30, 1974.
    Certiorari Denied by Supreme Court Dec. 30, 1974.

      Bryson & Bryson, Woodbury, for plaintiff s-appellants.
    Marshall E. Duggin, Woodbury, for defendants-appellees.
   CARNEY, Presiding Judge.

This is a boundary line lawsuit tried before the Chancellor without a jury. The Chancellor found in favor of the defendants, Wesley P. Odie and wife. The plaintiffs, Wiley Nichols and wife, have appealed and assigned error.

The plaintiffs, Nichols and wife, are the owners of approximately 77 acres of land located in the 11th District of Cannon County, Tennessee, situated on both sides of the Hurricane Creek Road. Defendants, Wesley P. Odie and wife, are the owners of approximately 75 acres of land also lying on both sides of Hurricane Creek Road and joining the appellants’ lands on the south. Both plaintiffs and defendants trace title to a common source, Mrs. Glaydus Davis, who sold both tracts of land at public auction on August 17,1959. Tract No. 1 containing 77 acres was purchased by the appellants, Wiley Nichols and wife. Tract No. 2 was purchased by Burlie Cook who later sold tract No. 2 to Palmer Cook. Palmer Cook sold to the defendants, Wesley Odie and wife, on July 19, 1972.

On the date of the auction sale it was publicly announced that purchaser of tract No. 2 would also receive a small tract of land carved out of the southern part of tract No. 1 so as to give access for livestock to a spring located on tract No. 1. The description of the “one acre” lot carved out of tract No. 1 and conveyed to the purchaser of tract No. 2 is as follows:

“Except for about one acre in addition thereto, Beginning in the South line of Tract No. 1, running thence North with the East margin of the Hurricane Creek Road to the center of the spring, running thence in a Southeasterly direction to the line of Tract No. 1, running thence in a Westerly direction with the line of Tract No. 1 to the beginning, so as to contain one acre.”

The bone of contention between the parties in this case is the location of two openings to Blow Hole Cave which underlies the lands of plaintiffs, defendants, and probably other owners of the area. One of the openings to the cave is natural and is filled with water so that aqualungs are necessary for one to enter the cave by means of the natural opening. This opening has been called “The Blow Hole.” The other opening is man-made located some 20 feet away and is now covered with a steel door. The determinative question before this Court is whether the two openings to the cave are located on the “one acre” access plot described above or whether they are located on tract No. 1 east of the east line of the access “one acre.”

Shortly after the plaintiff purchased tract No. 1 in 1959, his son, Eddie Nichols, and others dug the second or man-made entrance into the cave with the knowledge of Mr. Palmer Cook, second purchaser of tract No. 2. A wooden gate was placed in the entrance to the cave and kept locked by the appellants for a period of some six or seven years. Another gate was erected in June, 1972, by Palmer Cook and Eddie Nichols.

In 1972 Palmer Cook listed his tract No. 2 for sale with a real estate agent who advertised that the tract contained a cave. The defendant, Wesley P. Odie, a resident of Louisville, Kentucky, designates himself as a “spelunker” and he purchased tract No. 2 from the real estate agent on the assurance that the tract did, in fact, contain a cave and impliedly contained an entrance from tract No. 2. After the defendants learned that the plaintiffs were contending that both entrances to the cave were located on plaintiffs’ tract No. 1, the defendants, Odie and wife, put a lock on the man-made entrance. Thereupon, the present litigation followed to determine the boundary line.

His Honor the Chancellor found the issues in favor of the defendants; that both the man-made and the natural opening to the cave were, in fact, included within the boundaries of the one-acre access plot carved out of tract No. 1 and added to tract No. 2. The Chancellor fixed the boundary line between the Nichols tract No. 1 and the Odie tract No. 2 as follows:

“The boundary line between the Nichols and Odie realty should be determined, fixed and established as beginning on an iron pin in the center of the spring branch in the East margin of Hurricane Public Road; it being considered by the Court for this purpose that the Public Road at this point runs true North and South, and running thence from said iron pin due East (90°) to an iron pin in the old fence line (Nichols West line) in Tract No. 1, this being Nichols 77 acre tract conveyed to them by Glaydus Davis on August 17, 1959, and recorded in Deed Book 57, page 371, Register’s Office Cannon County, Tennessee.”

Upon the trial there was an irreconcilable conflict in the testimony of the plaintiffs and the defendants as to the location of the entrances to the cave with reference to the Hurricane Creek Road and the springs. The springs mentioned in the testimony are called generally the Blow Hole Springs. Water from the spring or springs runs westwardly under the Hurricane Creek Road via two culverts into Hurricane Creek. The spring or springs are located some 20 to 25 feet east of the east margin of the Hurricane Creek Road.

The principal exhibits were two maps: one submitted by plaintiff Nichols and one submitted by defendant Odie. According to exhibit No. 4 drawn by Nichols, the entrances to the cave are almost due east of the springs, whereas according to exhibit No. 5, the map drawn by Odie, the entrances to the cave are located considerably south or southeast of the location of the spring.

Both plaintiffs and defendants testified to other natural objects not shown on the respective maps. According to defendant Odle’s survey if the boundary line between the two tracts were placed as insisted by the plaintiffs, there would be only 0.15 acre in the access area carved out of tract No. 1 and joined to tract No. 2. Defendants’ map, exhibit 5, showed that the line would have to run in a northeasterly direction from the east margin of the road to convey a full one acre.

Plaintiffs were corroborated by witnesses who lived in the community that the access “one acre” did not include the Blow Hole. The one acre was never fenced and the terrain is mostly steep and rough.

Mr. O. N. Pedigo, who has been in the real estate business forty years at Route 3, Woodbury, Tennessee, Cannon County, testified that he represented the seller, Mrs. Glaydus Davis, at the auction in 1959. He said the entrance to the Blow Hole (natural entrance to the cave) was on the one acre access plot. The Chancellor described Mr. Pedigo as a “disinterested witness.” The man-made entrance is only 29 feet from the “Blow Hole.” There is no contention that the disputed line runs between the natural and man-made entrances. The testimony of Mr. Pedigo tends to corroborate defendants’ map, exhibit No. 5. Mr. Pedigo was not the same realtor who sold tract No. 2 to Mr. Odie.

The evidence does not preponderate against the finding of the Chancellor that the two openings to the cave are located on the property sold to the defendants. T.C.A. Section 27-803. The question of adverse possession is not involved in this case. We lean to the view that His Honor the Chancellor should have allowed the defendant the full acre of ground shown on defendants’ map, exhibit 5. The line as fixed by the Chancellor will give the defendants approximately one-half acre. The defendants have not appealed from the Chancellor’s decree.

We find no merit in the plaintiffs’ contention that the Chancellor erred in considering that the public road ran north and south when, in fact, it ran a little bit west of north. We . construe His Honor the Chancellor’s decree to mean simply that the line should be fixed by running at right angles eastward from the east margin of the public road to the east line of the original tract and we concur.

All of the assignments of error are overruled. The cause will be remanded to the Chancery Court of Cannon County for the location of said line in accordance with the directions of the Chancellor and this opinion. The costs in this Court will be taxed to the plaintiffs and the costs in the lower Court will abide the action of His Honor the Chancellor.

MATHERNE and NEARN, JJ., concur.