MJM, Inc. v. Casualty Indem. Exchange

• Decision Date: 27 December 1985
• Citation: 481 So.2d 1136
• Parties: MJM, INC. and Aetna Casualty Insurance Company v. CASUALTY INDEMNITY EXCHANGE, et al. 83-1295.
• Court: Alabama Supreme Court

Page 1136

481 So.2d 1136

MJM, INC. and Aetna Casualty Insurance Company v. CASUALTY INDEMNITY EXCHANGE, et al.

83-1295.

Supreme Court of Alabama.

Dec. 27, 1985.

Stephen K. Griffith for Knight & Griffith, and Martha E. Williams, Cullman, for appellants.

William A. Scott, Jr. and Amy K. Myers of Clark & Scott, Birmingham, for appellee Cas. Indem. Exchange.

Ralph Bland of Bland, Bland & Weldon, and Hayden R. Battles of Battles & Battles Cullman, for appellees Waymon Rutherford and Rutherford Ins. Agency, Inc.

Stanley A. Cash of Huie, Fernambucq & Stewart, Birmingham, for appellee L.E. Rife, Inc.

John David Knight, and John Mark Sapp of Sapp, Sapp & Sapp, Cullman, for appellees R.H. Culpepper and Clyde White.

Thomas L. Stewart of Gorham, Waldrep, Stewart & Kendrick, Birmingham, for appellees John S. Garner and Orleane H. Garner.

HOUSTON, Justice.

The issue before the Court in this case is whether the trial court erred in granting summary judgments in favor of defendants John Garner, Orleane Garner, Waymon Rutherford, Rutherford Insurance Agency, Inc., L.E. Rife, Inc., and Casualty Indemnity Exchange, Inc. We affirm.

The undisputed facts show the following: John Garner and his wife, Orleane Garner, purchased a cafe from MJM, Inc. George Blankenship represented MJM in the sale negotiations, in conjunction with Horace Culpepper, a real estate agent. Pursuant to the sale, the Garners assumed existing mortgages on the cafe which were held by Security Mutual Finance, Inc., and Cullman Savings and Loan Association. They executed two notes secured by two mortgages and a security interest to MJM for the balance of the purchase price. One of the notes was secured by a mortgage on real property which the Garners owned in Jefferson County. The other note was secured by a mortgage on the cafe. MJM received the security interest in the personal property sold in conjunction with the cafe.

Subsequent to the sale, Blankenship obtained a loan on behalf of MJM from Parker Bank and Trust company. As collateral securing this loan, MJM, through Blankenship, conditionally assigned the Garner notes and mortgages to Parker Bank and Trust Company. Culpepper and Clyde White also signed as guarantors on this loan. According to its terms, the assignment was to become absolute and irrevocable without notice to MJM if it defaulted.

Culpepper contacted Waymon Rutherford (of Rutherford Insurance Agency, Inc.) to secure insurance on the cafe for the Garners. Rutherford acts as a general agent for several insurance companies and also brokers coverage with other companies. Rutherford arranged coverage for the Garners with Casualty Indemnity Exchange (C.I.E.) through L.E. Rife, the general agent for C.I.E. Rutherford had no authority to bind C.I.E., in contract. L.E. Rife bound coverage for the Garners on April 22, 1981. In early May, Rutherford received the policy of insurance on the cafe. Cullman Savings and Loan was the only loss-payee listed on it. When Blankenship discovered that MJM had not been listed on the policy as a loss-payee, he obtained partial coverage for MJM through Aetna Casualty and Surety Company.

On May 18, 1981, Rutherford contacted L.E. Rife concerning the mortgages held by Security Mutual Finance, Inc., and MJM and also concerning the fact that he had not been able to locate the Garners to deliver the policy. Prior to this time, neither L.E. Rife or C.I.E. had had any notification of the existence of these two additional mortgages. L.E. Rife initiated cancellation of the policy. Prior thereto, the Garners had indicated to Blankenship that they were dissatisfied with the purchase of the cafe and were closing it. On June 7, 1981, the cafe was damaged by fire and Aetna paid MJM's claim. When its note with Parker Bank and Trust came due, MJM used a portion of the Aetna proceeds to pay back approximately one-half of its loan and renewed the note for the balance. When the note again fell due, MJM defaulted. Culpepper and White, as guarantors, paid the note upon demand and took the Garner notes and mortgages by way of assignment from Parker Bank and Trust.

The procedural history of this case is somewhat involved. For purposes of our determination, however, suffice it to say that MJM intervened in a suit previously brought by the Garners against Rutherford, Rutherford Insurance Agency, L.E. Rife, and C.I.E. claiming breach of an insurance contract and bad faith refusal to pay. In its complaint in intervention, MJM alleged breach of contract against the Garners, as well as breach of contract, fraud, and bad faith refusal to pay against the remaining defendants. Aetna intervened as a subrogee to any recovery by MJM on the basis of its payment of MJM's claim for fire loss pursuant to its policy.

Summary judgment is proper when there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Rule 56(c), Ala.R.Civ.P. All reasonable doubts concerning the existence of a genuine issue of fact must be resolved against the moving party. Fountain v. Phillips, 404 So.2d 614 (Ala.1981).

MJM contends that the trial court erred in granting a summary judgment on its claims against the Garners for breach of contract. It first argues that the Garners are in breach of contract by failing to pay the two notes which they executed in connection with the purchase of the cafe. We disagree.

The undisputed facts in this case show that MJM conditionally assigned the Garner notes to Parker Bank and Trust as collateral for a loan. According to its terms, the assignment became absolute and irrevocable upon MJM's default. Culpepper and White, the guarantors of that loan, repaid it and took the Garner notes by way of assignment from Parker Bank and Trust. Section 8-3-2, Code 1975, reads as follows:

"A surety who has paid his principal's debt is entitled to a transfer of the original and collateral security which the creditor holds; he has all the rights to realize thereon and to reimburse himself to the same extent as the creditor might have done before the surety paid him, whether paid before or after judgment; and he shall be substituted for the creditor and subrogated to all his rights and remedies; in effect, he shall be a purchaser of the debt and all its incidents."

The term "surety," as used in this section, means one who has been forced to pay a debt which was the primary obligation of another and which the latter ought to have paid in exoneration of the former. Bradley v. Bentley, 231 Ala. 28, 163 So. 351 (1935).

As a result of its default on the note to Parker Bank and Trust and the subsequent assignment of the Garner notes to Culpepper and White, MJM lost its interest in the cafe. Therefore, it has no right to enforce payment of the Garner notes. Culpepper and White became subrogated to that right and the Garners' obligation to pay that debt is to them, not MJM.

MJM insists that a question of fact was presented in Blankenship's affidavit submitted in opposition to the various motions for summary judgment, namely a question as to whether Culpepper was acting as its agent when he paid the note to Parker Bank and Trust and accepted the assignment of the Garner notes for MJM in that capacity. Again we disagree.

That affidavit, in pertinent part, reads as follows:

"Further, I never knew that I could lose my mortgage interest in the property. All of this was under the advice of my real estate agent, Horace Culpepper, acting in his fiduciary capacity. I made the first payment of the note for MJM as Culpepper advised as my real estate agent. When the next payment on the note came due, neither I nor MJM could pay the balance on the note because Culpepper, while acting as my real estate agent and in a fiduciary capacity as such, negotiated the sale of the Peddler's Cafe and requested that only $5,000.00 be paid down, which he kept. This turned out to be poor advice from my real estate agent and caused me to be in such financial straits that I could not afford to pay the balance, all of which Culpepper knew. When the balance came due on the note, I thought since the unsoundness of the entire transaction was his fault and since he had gotten part of the money out of the $40,000.00 borrowed at Parker Bank, that he was making the payment for the benefit of MJM and Culpepper Real Estate. Culpepper was fully aware of the financial problems so he went and paid on the note in his fiduciary capacity as real estate agent. My understanding was that since he was my real estate agent, he was doing this in my behalf so that when Culpepper took assignment from the bank of the mortgage and note, it was to be for the benefit of MJM and Culpepper Real Estate. I, therefore, own an interest in the note and mortgage assigned to Culpepper Real Estate.

"Previous to Culpepper ever making a payment on the note to Parker Bank, I made, on behalf of MJM, a payment of approximately one-half of the indebtedness, due to the fact, and regardless of what Culpepper did subsequently, I owned an equitable one-half interest in any notes and mortgages assigned by the Parker Bank to Culpepper. Culpepper, nor anyone else, can assign my one-half interest in and to this said note and mortgage. I deny that he owns the notes and mortgages in their entirety as he and I had an understanding that he was holding them for the benefit of MJM and himself. Further, Culpepper was acting as my real estate agent and fiduciary when he made this last payment to Parker Bank and took this assignment. This note and payment of same, all being the one transaction, namely, the sale of the Peddler's Cafe. I had paid one-half of the note so I owned a portion of the note and mortgage assigned to Culpepper. If Culpepper did pay and take assignment solely in his own behalf, then he did so fraudulently and breached his fiduciary duty.

"...

"In all of the dealings on this sale of the Peddler's Cafe property, I was under the impression that Mr. Culpepper...