PARKER v. McGAHA

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Docket Number

SC 648.

Judges

ALMON, Justice.[fn*] [fn*] This case was originally assigned to a justice formerly on this court. It has been reassigned to the writer who has listened to the tape recordings of the oral argument.

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Smart Summary

Factual and Procedural Background

This case involves litigation between John T. McGaha, plaintiff-appellee, and W. Fred Parker, defendant-appellant, concerning payment on a $100,000 promissory note. McGaha originally had voting control of Southern Factors, Inc. and sold his stock to Ramsey and King, receiving a $196,500 note secured by stock certificates held in escrow. After default on this note, Parker, Mixon, and Ramsey negotiated with McGaha, resulting in the $100,000 note sued upon, where McGaha assigned his rights in the original note to them.

After three partial payments, the note makers defaulted. The first trial resulted in a jury verdict for Parker, which was set aside by the trial court on McGaha's motion for a new trial. The case is now on its second appeal. Prior to retrial, Parker's attorneys moved for the second trial to be conducted under the new Alabama Rules of Civil Procedure, but the trial court denied this motion without stating reasons. Additionally, the trial court struck several of Parker's amended pleas raising new defenses as untimely, which Parker alleges was error.

Legal Issues Presented

Whether the new Alabama Rules of Civil Procedure should apply to a pending case on retrial, given Rule 86's exception allowing the trial court to refuse application if it would be infeasible or cause injustice.
Whether the trial court erred in striking defendant's amended pleas that raised new defenses after the pleadings had been settled and the cause had been tried and reset.
Whether the trial court erred in excluding parol evidence of failure or partial failure of consideration for the note in controversy.

Arguments of the Parties

Appellant's Arguments

The trial court exceeded its discretion by denying application of the new Alabama Rules of Civil Procedure without specific findings showing infeasibility or injustice.
The trial court improperly struck the defendant's amended pleas that raised new defenses, which should have been allowed under the rules governing amendments.
The trial court misapplied the parol evidence rule by excluding evidence of failure or partial failure of consideration, which is an established exception to the rule.

Appellee's Arguments

The trial court has discretion to determine whether to apply the new Rules of Civil Procedure to pending cases, and its denial was proper.
The amended pleas were untimely and raised entirely new defenses after the issues had been clearly drawn, justifying their exclusion.
The parol evidence rule prohibits contradicting or varying a written instrument absent fraud, and the trial court correctly excluded such evidence.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Doyle v. Loring, 107 F.2d 337 (6th Cir. 1939)	Discretion of trial court to apply new procedural rules to pending cases under Rule 86.	Referenced as federal guidance showing discretion vested in trial courts.
John R. Alley Co. v. Federal National Bank, 124 F.2d 995 (10th Cir. 1942)	Trial court must specifically find injustice or infeasibility to refuse applying new procedural rules.	Court adopted the principle that denial of new rules requires explicit findings; criticized trial court's lack of reasons.
Automobile Ins. Co. v. Springfield Dyeing Co., 109 F.2d 533 (3rd Cir. 1940)	Supports requirement that trial court must show good cause to refuse new rules.	Used to bolster the view that new rules should generally apply unless justified otherwise.
Rasmus v. Schaeffer, 230 Ala. 245, 160 So. 244 (1935)	Trial court may refuse to allow new defenses after pleadings settled and mistrial reset.	Applied to uphold trial court's discretion in striking late-filed new defenses.
Corbin v. Sistrunk, 19 Ala. 203 (1851)	Parol evidence admissible to show failure or lack of consideration.	Supported appellant's argument that exclusion of parol evidence was error.
Nelson Realty Co. v. Darling Shop, 267 Ala. 301, 101 So.2d 78 (1957)	Evidence of fraud admissible despite integrated writing.	Illustrated exceptions to parol evidence rule recognized by Alabama courts.
McClendon v. Eubanks, 249 Ala. 170, 30 So.2d 261 (1947)	Parol evidence admissible to interpret ambiguous contracts.	Used to show the parol evidence rule is not absolute.
Fidelity and Casualty Company v. Bank of Commerce, 285 Ala. 588, 234 So.2d 871 (1970)	General affirmative charge proper if party with burden of proof fails to sustain it.	Discussed in context of evidentiary burdens and trial court instructions.
Holczstein v. Bessemer Trust and Savings Bank, 223 Ala. 271, 136 So. 409 (1931)	Written agreements not impeached by different contemporaneous agreements absent fraud.	Appellee relied on this to support exclusion of parol evidence.

Court's Reasoning and Analysis

The court recognized Rule 86 of the Alabama Rules of Civil Procedure, which allows new rules to govern pending cases unless the trial court finds their application infeasible or unjust. The court emphasized that such findings must be specific and recorded; mere assertion without reasoning exceeds the court's discretion.

Reviewing federal cases with similar rules, the court found no definitive guidance but noted the prevailing view that new procedural rules should generally apply, with exceptions being rare and justified by explicit findings.

The trial court denied the motion to apply the new rules without stating reasons, which the appellate court found insufficient. Therefore, the case must be remanded with a suggestion that the new rules be applied unless the trial court provides adequate reasons otherwise.

Regarding the striking of defendant’s amended pleas raising new defenses, the court cited Alabama precedent holding that after pleadings are settled and a mistrial has occurred, the trial court may refuse to allow additional pleas setting up entirely new defenses. This discretion was upheld but the court noted that if the new rules apply on retrial, the allowance of amendments should be reassessed accordingly.

On the exclusion of parol evidence, the court analyzed the parol evidence rule and its exceptions. It held that the trial court erred in excluding evidence of failure or partial failure of consideration, an exception well established in Alabama law. The court cited multiple precedents illustrating that parol evidence is admissible to show lack of consideration, fraud, or to interpret ambiguous contracts.

Accordingly, the judgment was reversed and the cause remanded for new trial, with instructions regarding the application of procedural rules and evidentiary standards.

Holding and Implications

Reversed and remanded.

The court reversed the judgment of the trial court and remanded the case for a new trial. It held that the trial court must provide specific findings if it refuses to apply the new Alabama Rules of Civil Procedure to a pending case, and that the exclusion of parol evidence regarding failure of consideration was erroneous. The decision directly affects the parties by requiring retrial under proper procedural and evidentiary standards. No new precedent was established beyond clarifying the application of Rule 86 and the parol evidence rule exceptions.

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W. Fred PARKER v. John T. McGAHA.

Walker, Hill, Gullage, Adams Umbach, Opelika, for appellant.

The reference to the "opinion of the court" in the "except" clause of Rule 86 does not confer upon the trial court the absolute authority to decide whether or not to apply the Alabama Rules of Civil Procedure to a pending action, but the trial court must actually find some specific situation which causes the application of the Rules not to be feasible or which would cause injustice; and the bare assertion that in the opinion of the court it would do so, without referring to the specific reason, exceeds the discretion given to the court. 7 Moore's Federal Practice, Sec. 86.03; John R. Alley Co., Inc. v. Federal National Bank of Shawnee, 124 F.2d 995, Hn. 7, 8 and 9 (10th Cir. 1942); Century Insurance Co. v. First National Bank of Hughes Springs, 102 F.2d 726 (2d case) Hn. 6. (5th Cir. 1939); Knuth v. Erie-Crawford Dairy Coop., 395 F.2d 420 at 428 (3rd Cir. 1968); Alvarez v. Pan American Life Insurance Co., 375 F.2d 992 (5th Cir. 1967); Klapprott v. United States (1949), 335 U.S. 601 at 609, 69 S.Ct. 384, at 387, 93 L.Ed. 266. Amendments to pleadings, including additional pleas which raise new defenses, should be allowed if the amended pleading brings in additional claims or defenses which refer to the same transaction, property, and title and parties as the original, and where this is not apparent on the averments of the pleading, it shall be a question of fact for the jury. Code of Alabama 1940, Recompiled 1958, Title 7, Section 239, (Added by Code of Alabama 1907, Section 5367); Pearson v. City of Birmingham, 210 Ala. 296, 97 So. 916, Hn. 1 (1923); Brown v. Loeb, 177 Ala. 106, 58 So. 330, Hn. 1 (1912); Harrison v. Carroll, 270 Ala. 124, 116 So.2d 922, Hns. 3 (1959); Knox v. Cuna Mutual Insurance Society, 282 Ala. 606, 213 So.2d 667, Hns. 2, 3 and 4 (1968). The Alabama statutes relating to amendment to pleadings, now Sections 238 and 239 of Title 7, were intended to accomplish just and salutary purposes, to secure a trial on the merits of each controversy; and to that end, these amendment statutes should be liberally construed, the only limitation upon right of amendment being that there must not be an entire change of either parties plaintiff or defendant nor an entire new cause of action added. Lipscomb v. Bessemer Board of Education, 258 Ala. 47, 61 So.2d 112, Hn. 3 (1952); Birmingham Gas Co. v. Sanford, 226 Ala. 129, 134, 145 So. 485, 488. Parole evidence may be offered to prove the essential allegations of a plea of failure of consideration or of partial failure of consideration. Parker v. McGaha (1973), 291 Ala. 339, 280 So.2d 769; Jefferson County Savings Bank v. Compton (1915), 192 Ala. 16, 68 So. 261, Hn. 2; Corbin v. Sistrunk (1851), 19 Ala. 203, Hn. 1; Spencer v. Blanke Mfg. Supply Co. (1929), 220 Ala. 350, 124 So. 904, Hn. 7; Mills v. Bonin, 239 N.C. 498, 80 S.E.2d 365; Booth v. Dexter Steam Fire Engine Co., 118 Ala. 369, 24 So. 405, Hns. 4 and 5. If there is any evidence indicating a conflict of testimony, the court should not give the affirmative charge without hypothesis, especially in favor of the plaintiff when any part of the testimony is based upon the credibility of a material witness. White v. State (1955), 262 Ala. 694, 81 So.2d 267, Hn. 5; Dean v. Mayes (1962), 274 Ala. 88, 145 So.2d 439, Hn. 8; City of Prichard v. Moulton (1964), 277 Ala. 231, 168 So.2d 602, Hn. 17; Starr Jobbing House v. May Hosiery Mills (1922), 207 Ala. 620, 93 So. 572, Hn. 5; The General Affirmative Charge with Hypothesis in Alabama, by Judge J. Russell McElroy, 1 Ala. Law Review 151.

Alvin T. Prestwood, Montgomery, for appellee.

It is within the discretion of the trial court to determine whether to apply the Alabama Rules of Civil Procedure to cases pending on its effective date. Moore's Federal Practice, 2nd Ed., Vol. 7, ¶ 86.03; Alabama Rules of Civil Procedure, Rule 86; Doyle v. Loring, 107 F.2d 337 (C.A.6, 1939); Brennan v. Lumbermens Mut. Casualty Co., 26 F. Supp. 305 (D.C.Mass., 1938); Smith v. Charles E. Jay Co., Inc., 292 Ala. 513, 296 So.2d 885 (1974); Automobile Ins. Co. of Hartford v. Springfield Dyeing Co., Inc., 109 F.2d 533 (C.A.3, 1940). Appellee's cases distinguished: John R. Alley Co. v. Federal National Bank of Shawnee, 124 F.2d 995 (C.A.10, 1942); Century Ins. Co. v. First National Bank of Hughes Springs, 102 F.2d 726 (C.A.5, 1939); Knuth v. Erie-Crawford Dairy Corp. Association, 395 F.2d 420 (C.A.3, 1968); Alvarez v. Pan American Life Insurance Company, 375 F.2d 992 (C.A.5, 1967); Klapprott v. United States, 335 U.S. 601, 69 S.Ct. 384, 93 L.Ed. 266 (1949). After pleadings have been settled and the cause tried and reset, the Court in its discretion may refuse to allow additional pleas setting up new defenses. Rasmus v. Schaffer, 230 Ala. 245, 160 So. 244 (1935); City of Prichard v. Hawkins, 255 Ala. 676, 53 So.2d 378 (1951); Moore's Federal Practice, 2nd Ed., Vol. 3, ¶ 15.08[4]. The rule that true consideration for a note may be fully shown does not nullify the rule that parol evidence is inadmissible to contradict or vary the terms of a written instrument. First National Bank of Guntersville v. Bain, 237 Ala. 580, 188 So. 64 (1939); Winslett v. Rice, 272 Ala. 25, 128 So.2d 94 (1960); Ex parte South, 205 Ala. 31, 88 So. 221 (1920); Jefferson County Savings Bank v. Compton, 192 Ala. 16, 68 So. 261 (1915). Appellant's cases distinguished: Corbin v. Sistrunk, 19 Ala. 203 (1851); Spencer v. Blanke Mfg. Supply Co., 220 Ala. 350, 124 So. 904 (1929); Booth v. Dexter Steam Fire Engine Co. No. 1 of Montgomery, 118 Ala. 369, 24 So. 405 (1898). When a party, plaintiff or defendant, has the burden of proof to support his pleading, and fails in such proof, the general affirmative charge without hypothesis is proper. Fidelity and Casualty Company v. Bank of Commerce, 285 Ala. 588, 234 So.2d 871 (1970). In the absence of fraud in procuring the signature to a written agreement by misrepresenting its contents, the written agreement cannot be impeached by proving a different contemporaneous agreement. Holczstein v. Bessemer Trust and Savings Bank, 223 Ala. 271, 136 So. 409 (1931); Steiner Bros. v. Slifkin, 237 Ala. 226, 186 So. 156 (1939).

ALMON, Justice.[fn*] [fn*] This case was originally assigned to a justice formerly on this court. It has been reassigned to the writer who has listened to the tape recordings of the oral argument.

This is the second appeal in this litigation between John T. McGaha, plaintiff-appellee, and W. Fred Parker, defendant-appellant. The opinion of this court in the first appeal was rendered on July 12, 1973, and now appears in 291 Ala. 339, 280 So.2d 769.

McGaha brought an action against Parker to recover payment on a note for $100,000 held by McGaha as payee. The makers of the note were the defendant-appellant Parker and two other men, Edward D. Mixon and Wilbur Ramsey, both of whom were originally named as defendants but who were dismissed because of the inability to obtain service upon them. Parker admitted signing the note and its default status. After a jury verdict for Parker was rendered, the trial court granted McGaha's motion for new trial.

Prior to the transactions leading to this litigation, McGaha had voting control of a corporation called Southern Factors, Inc., by owning stock directly and by owning all the stock of another corporation, Colonial Securities Company, which in turn owned stock in Southern Factors, Inc.

In 1969 Ramsey and one Joe B. King purchased all of McGaha's stock and gave to McGaha a note for $196,500 as payment. As security for the note, the stock certificates were placed in escrow by Ramsey and King subject to the terms of an escrow agreement. Payment default quickly occurred on this original note. Thereafter Parker, Mixon and Ramsey began negotiations with McGaha which led to the execution in May, 1970, of the note here sued upon by which Parker, Mixon and Ramsey promised to pay McGaha $100,000. In return McGaha assigned all of his rights, title and interest in the original $196,500 note to Parker, Mixon and Ramsey (Ramsey being a maker of this note along with Joe King). The original $196,500 note refers to an escrow agreement and purports to incorporate it by reference. Both documents refer to a buy-sell agreement between McGaha and Ramsey and King, but this instrument was never put in evidence.

After making three separate payments of $2,500 on the $100,000 note in accordance with an agreed schedule of payments, the makers, including Parker, defaulted. The default occurred after Parker learned that Southern Factors, Inc., was "defunct." The stock certificates remained in escrow.

The first trial resulted in a jury verdict in favor of the defendant, which was set aside by the trial court on motion for new trial filed on behalf of Mr. McGaha. Mr. Parker appealed to this court, and the action of the trial court in setting aside the first verdict was affirmed.

When the case came for retrial, the attorneys representing Mr. Parker, some of whom had been added since the first trial, moved the court on August 23, 1973, that the second trial be conducted under the new Alabama Rules of Civil Procedure. The trial court denied this motion on the ground that the application of the new Rules of Civil Procedure to this case would not be feasible and would work injustice. Again, at a more formal conference with the judge and all attorneys held on September 6, 1973, a written motion to conduct the second trial under the new Alabama Rules of Civil Procedure was filed and again overruled. Appellant-defendant alleges that this was error.

Rule 86 of the Alabama Rules of Civil Procedure states that these rules

". . . govern all proceedings in actions brought after they take effect and also all further proceedings in actions then pending, except to the extent that in the opinion of the court their application in a particular action pending when the rules take effect would not be feasible or would work injustice, in which event the former procedure applies."

This is the first case considered by this court in which there has been a controversy as to whether the former rules or the new rules should be applied to a pending action. Since Rule 86 of the Alabama Rules of Civil Procedure contains language almost identical to the federal Rule 86, we look to federal cases for guidance.

A study of the federal cases which have considered this question does not reveal any definitive answers. In Doyle v. Loring, 107 F.2d 337 (6th Cir. 1939) the court dealt with the question rather summarily:

". . . We are not required to enter into a detailed discussion of the rules. The Rules of Civil Procedure became effective while the suit was pending and whether they should have been applied was in the discretion of the court (Rule 86)." 107 F.2d at 340.

However, in John R. Alley Co. v. Federal National Bank, 124 F.2d 995 (10th Cir. 1942), the court refused to give the trial judge such unfettered discretion:

". . . The purpose is evident in the new rules to extend their application, unless for good cause shown, to all proceedings, whether brought prior to their effective date or thereafter. It has been held that the trial court must specifically find that the application of the new rules would be unjust in order for one complaining of their application to raise the question on appeal. Automobile Ins. Co. v. Springfield Dyeing Co., 3 Cir., 109 F.2d 533. No good reason appears why the new rules should not have been applied in passing on the motion to dismiss the counterclaim, and it was error for the court to sustain the motion." 124 F.2d at 999.

Although Rule 86 leaves it to the opinion of the trial judge as to whether the application of the new rules to a pending action would be feasible or would work injustice, the application of the former rules should be the exception rather than the rule. When it is concluded by a trial judge that the application of the new rules would not be feasible or would work injustice, his reasons for so concluding should be set forth in the record.

We have encountered nothing in the record before us which would indicate that the application of the new rules would not be feasible or would work an injustice. As was previously indicated the trial judge has not favored us with his reason for denying the motion. Since this case must be remanded for new trial, for reasons hereinafter indicated, we suggest that the new rules be employed unless the trial court makes a contrary finding adequately supported by good and sufficient reasons.

The defendant filed his second amendment to pleas on September 6, 1973, consisting of plea 7, in setoff; plea 8, in recoupment; plea 9, in setoff; and plea 10, in recoupment. On October 3, 1973, the defendant filed his third amendment to pleas, being a plea of recoupment claiming damages in the amount of $100,000 for deceit on the part of Mr. McGaha in the negotiation to Mr. Parker of the $196,500 promissory note. At the hearing before the trial court on November 12, 1973, the plaintiff filed a motion to strike defendant's pleas 7 through 11, separately and severally, in the ground that they were not filed on a timely basis and that they raised or attempted to raise entirely new defenses to the plaintiff's cause of action at a time when the issues in the case had been previously clearly drawn, and nearly three years after the filing of the complaint. The court granted the plaintiff's motion. Appellant alleges that this was error.

The case of Rasmus v. Schaeffer, 230 Ala. 245, 247, 160 So. 244, 246 (1935) appears to be dispositive of this issue. There, it was stated that

"[a]fter pleadings have been settled and the cause tried in which there was a mistrial, and it is reset, the court may in its discretion refuse to allow the filing of additional pleas setting up entirely new defenses."

If, upon retrial, however the rules of procedure are employed, it would be appropriate to reassess the allowance of amendments in the spirit of the new rules. But see Stead v. Blue Cross-Blue Shield of Alabama, 294 Ala. 3, 310 So.2d 469 (1975).

Most of appellant's numerous assignments of error allege that the trial court erred in excluding parol evidence of the failure or partial failure of consideration for the note in controversy. It is evident from the record that the trial judge misapplied the "parol evidence rule" and its exceptions.

It is sometimes considered that the "parol evidence rule" is not a rule of evidence at all but a rule of substantive law. Rinaudo v. Bloom, 209 Md. 1, 6, 120 A.2d 184, 188 (1956).

"Whether considered as a rule of substantive law or as a rule of evidence, the so-called 'parol evidence' rule is far from pellucid. The rule does not allow the maximum passage of light without diffusion or distortion. A strict, formal and technical interpretation of the rule has long since been abandoned. There are numerous exceptions to it. One of the first exceptions arose as early as Lord Coke's time. Since that time, the courts have repeatedly found it necessary to resort to new exceptions to the rule. Wigmore indicates that there are now at least 9 or 10 such exceptions." Young v. United States, 327 F.2d 933, 935 (1964).

A mention of but a few of the exceptions recognized by the Alabama courts will illustrate why there is so much confusion concerning the rule:

1. Parol evidence is always admissible to show that an instrument is void or to show a lack or failure of consideration. Corbin v. Sistrunk, 19 Ala. 203, 205-06 (1851);

2. Evidence of fraud is always admissible, even though there is a completely integrated writing. Nelson Realty Co. v. Darling Shop, 267 Ala. 301, 309, 101 So.2d 78, 84 (1957); and

3. Where there is ambiguity in a contract, parol evidence is admissible to aid in the contract's interpretation. McClendon v. Eubanks, 249 Ala. 170, 178, 30 So.2d 261, 268 (1947).

In the present case, the trial judge refused to allow parol evidence of failure or partial failure of consideration. This was error.

For the reasons indicated, the judgment is due to be reversed and the cause remanded.

Reversed and remanded.

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

Opinion corrected; application for rehearing overruled.