Chevron Chemical Co. v. Mecham

• Decision Date: 05 March 1982
• Docket Number: No. C 76-248J.,C 76-248J.
• Citation: 536 F. Supp. 1036
• Parties: CHEVRON CHEMICAL COMPANY, a Delaware corporation, Plaintiff, v. Craig W. MECHAM and R. Kent Heileson, Defendants.
• Court: U.S. District Court — District of Utah

536 F. Supp. 1036

CHEVRON CHEMICAL COMPANY, a Delaware corporation, Plaintiff, v. Craig W. MECHAM and R. Kent Heileson, Defendants.

No. C 76-248J.

United States District Court, D. Utah, C. D.

March 5, 1982.

Samuel Gaufin and Craig Smay, Salt Lake City, Utah, for plaintiff.

P. Keith Nelson, Edward Clyde, Frank J. Allen, Paul Howell, Salt Lake City, Utah, for defendants.

MEMORANDUM DECISION

JENKINS, District Judge.

This is an action for collection of a debt.

I. JURISDICTION

This Court has jurisdiction of this action pursuant to 28 U.S.C. § 1332 (1976). Venue is proper as well. 28 U.S.C. § 1391 (1976).

II. STATEMENT OF THE CASE

In April, 1968 the plaintiff, Chevron Chemical Co., extended a $10,000 line of credit to the Great Basin Grain Co., an Idaho corporation, to enable it to purchase quantities of fertilizer and pesticide for commercial resale as part of Great Basin's business. See Plaintiff's Exhibit No. 14. In August of that year, Chevron increased Great Basin's line of credit to $50,000 in consideration of receipt of personal guarantees of payment from Craig Mecham, President of Great Basin, and R. Kent Heileson, Great Basin's Secretary and Treasurer. See Plaintiff's Exhibit No. 15; Trial Transcript at 8-12.

The text of the personal guarantee reads as follows:

Tetonia, Idaho July 31, 1968

CHEVRON CHEMICAL COMPANY

GENTLEMEN:

In consideration of your granting credit to Great Basin Grain Co., Inc., located at Tetonia, Idaho (hereinafter referred to as the "Customer"), and other valuable consideration, the undersigned hereby guarantees the payment when due of all your charges for the account of said customer of whatever nature, for goods sold and delivered heretofore or hereafter. The undersigned hereby waives diligence, demand and notice from you or on your part, and authorizes you to change the time for payment by the customer without notice to the undersigned. This guaranty is a continuing one and shall remain in force until such time as you receive at your Portland, Oregon office, written notice of the termination thereof from the undersigned.

Dated 8-12, 1968 /s/ Craig W. Mecham _________________________ (Allen Mecham) _________________________ (Ralph A. Heileson) /s/ R. Kent Heileson

Great Basin subsequently entered into a number of credit transactions with Chevron; by May 22, 1969, a balance of $77,698.48 had accumulated, as was reported on a Chevron invoice of that date. See Invoice No. 4711, Plaintiff's Exhibit No. 65; Defendants' Exhibit MM. Great Basin's account was considered in default as of April, 1969. Though partial payments had by then been made, Chevron terminated Great Basin's credit as of September 9, 1969. See Pretrial Order at 14. At that point, Great Basin's account balance totalled $69,197.53. See Plaintiff's Exhibit No. 65; Defendants' Exhibit No. MM.

As of May 1970, Great Basin had made payments reducing the balance to $42,148.53. See Defendants' Exhibit MM. On May 22, 1970, Chevron's district credit manager, Mr. H. T. Nixon, notified Great Basin and defendant Mecham by letter of Chevron's concerns regarding the remaining delinquent balance and the need for immediate payment. See Plaintiff's Exhibit 30. Mecham, who had disassociated himself from Great Basin in March or April, 1970, formally notified Chevron that he was terminating his continuing guarantee of Great Basin's account by letter dated May 26, 1970. See Plaintiff's Exhibit No. 31. Chevron acknowledged receipt of that letter in a memo dated May 27, 1970, Plaintiff's Exhibit No. 32, and in a letter to Mecham dated May 28, 1970, Plaintiff's Exhibit No. 33.

Upon Great Basin's failure to make full payment upon the account in the weeks that followed, Chevron through its attorneys sent letters to Great Basin and its guarantors, R. Kent Heileson and Craig W. Mecham, demanding payment.

Additional payments were made by Great Basin in the months that followed. Beyond that, Great Basin executed a promissory note in the amount of its open account indebtedness, including interest ($28,301.59), see Plaintiff's Exhibit No. 45, on October 23, 1970, and delivered the same to Chevron, accompanied by a mortgage executed in Chevron's favor by Great Basin, see Plaintiff's Exhibit No. 46.¹ In return, Chevron granted an extension of time for payment to December 31, 1970. Defendant Mecham was fully apprised of the situation and made no objection. Trial Transcript at 28-29, 198; Plaintiff's Exhibits Nos. 47, 50. Chevron granted a further extension to January 15, 1971.² Mecham was so informed by letter of December 21, 1970. See Plaintiff's Exhibit No. 53.

Four months later, the balance due Chevron remained unpaid. On April 5, 1971, R. Vern Kidwell, attorney for Chevron, sent a demand letter seeking full payment from Craig W. Mecham as guarantor. See Plaintiff's Exhibit No. 54. On April 7, 1971, Chevron remitted payment of the principal and interest ($17,457.38) due on a loan to Great Basin made by the Bank of Salt Lake, which Chevron had guaranteed. See Plaintiff's Exhibit No. 55.³ In return the Bank of Salt Lake assigned to Chevron any and all interest it had in Great Basin's loan collateral, including real property in Tetonia, Idaho, and equipment listed in a security agreement executed in aid of the loan.

Shortly after that, Great Basin Grain Co. was adjudicated a bankrupt in U. S. District Court for the District of Idaho, Eastern Division. See In re Great Basin Grain Co., No. BK 71-135. Chevron filed a proof of claim as a secured creditor⁴ and a petition for reclamation of Great Basin's real estate in Tetonia, the trust deed to which Chevron had received by assignment from Bank of Salt Lake. In April, 1972 leave was granted permitting Chevron to foreclose upon the mortgage and trust deed.

On December 29, 1972, Chevron purchased the Tetonia property at a sale pursuant to the Idaho Trust Deed Act for the sum of $17,457.38.⁵ Four months later, on April 10, 1973, Chevron resold the Tetonia property to General Mills for $30,051.00, prior to deduction of fees and costs.⁶

The Idaho bankruptcy proceedings effectively discharged the delinquent open account balance as against Great Basin Grain Co. In the meantime, Chevron Chemical Co. had filed a civil action in state district court in Idaho against the two guarantors, R. Kent Heileson and Craig W. Mecham.⁷ Trial on the issue of liability was held on April 9, 1973; the issue of damages was tried in April and May of 1974. Defendant Mecham appeared and defended both issues in the Idaho proceedings.⁸ The Idaho court found both guarantors to be jointly and severally liable to Chevron for the amount still owing on the open account, including interest. See Plaintiff's Exhibit No. 3.

Chevron sought enforcement of the Idaho judgment in Utah state court. Defendant Mecham appealed from the enforcement proceedings, challenging the original in personam jurisdiction of the Idaho court. The Utah Supreme Court held that the Idaho court had indeed lacked jurisdiction over Mecham, rendering that judgment unenforceable. See Chevron Chemical Co. v. Mecham, 550 P.2d 182, 184 (Utah 1976).

Dismissal of the enforcement proceedings moved Chevron to commence an action in this Court based upon the original claim. The issues of Mecham's liability and damages survived the pretrial and summary judgment procedures; trial of those issues to this Court was held on March 23 and 24, 1981. Testimony and exhibits were received, arguments of counsel were heard, and the matter was taken under advisement.

III. CHOICE OF LAW

In rendering a decision on the plaintiff's claims, this Court has applied the relevant law of the State of Idaho. Though Utah law is the law of this forum in diversity cases generally, see Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938); Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), this Court is entitled to rely upon the forum's conflict of laws principles and its choice of law rules in adjudicating the actions that come before it. See Mullinax Eng. Co. v. Platte Valley Const. Co., 412 F.2d 553, 555 (10th Cir. 1969).

In determining the force and effect of the provisions of a contract, Utah courts have applied the lex loci contractus rule and look to the law of the place of the making of the contract. See Crofoot v. Thatcher, 19 Utah 212, 57 P. 171 (1899); Petrof Trading Co. v. Intermountain Research & Eng. Co., 424 F.2d 704, 706 (10th Cir. 1970); Trans-American Collections, Inc. v. Continental Account Servicing House, Inc., 342 F.Supp. 1303, 1305 (D.Utah 1972). The record herein as well as the face of the instrument evidence that Mecham's guaranty was made in Idaho.

Following the analysis urged by the Restatement (2d) of Conflict of Laws, an approach of more contemporary vintage, would reach the same result. Section 188 of the Restatement reads as follows:

§ 188. Law Governing in Absence of Effective Choice by the Parties

(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.

(2) In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.

These contacts are to be evaluated according to their relative importance with respect to the particular issue.

(3) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, ...

The...