Perlick and Co. v. Lakeview Creditor's Trustee Committee

• Decision Date: 01 December 1982
• Docket Number: No. 15483,15483
• Citation: 298 S.E.2d 228,171 W.Va. 195
• Court: West Virginia Supreme Court
• Parties: PERLICK AND COMPANY, an Ohio Corporation, Incorporated under the Laws of The State of Ohio v. LAKEVIEW CREDITOR'S TRUSTEE COMMITTEE, Consisting of Douglass H. Adams, R.M. Busch, Bert F. Hider, Jack R. Murray, and William C. Yeager, Lakeview Estates, Inc., a West Virginia Corporation, and W. Va. Financial Service Corporation, a West Virginia Corporation.

Page 228

298 S.E.2d 228

171 W.Va. 195

PERLICK AND COMPANY, an Ohio Corporation, Incorporated under the Laws of The State of Ohio v. LAKEVIEW CREDITOR'S TRUSTEE COMMITTEE, Consisting of Douglass H. Adams, R.M. Busch, Bert F. Hider, Jack R Murray, and William C. Yeager, Lakeview Estates, Inc., a West Virginia Corporation, and W. Va. Financial Service Corporation, a West Virginia Corporation.

No. 15483.

Supreme Court of Appeals of West Virginia.

Dec. 1, 1982.

Syllabus by the Court

1. "A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law." Syl. pt. 1, Karnell v. Nutting, 166 W.Va. 269, 273 S.E.2d 93 (1980) citing syl. pt. 3, Aetna Casualty and Surety Co. v. Federal Insurance Company of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963).

2. Novation is generally defined as a mutual agreement among all parties concerned for discharge of a valid existing obligation by the substitution of a new binding obligation on the part of the debtor or another. Thus, the necessary elements of a novation are (a) a previous valid obligation, (b) a consent by all parties to the new contract, (c) an abatement of the old contract and (d) a new contract which is valid and enforceable. Without any of these essential elements, there is no novation.

3. When an action is dismissed pursuant to W.Va.R.Civ.P. 41(b), and that action is not reinstated within three terms after the entry of the order of dismissal, that dismissal, unless the court otherwise specified, operates as an adjudication upon the merits.

Goldenberg, Goldenberg & Stealey and David M. Goldenberg, Parkersburg, for appellant.

Burk & Bayley and Thomas W. Bayley, Parkersburg, for appellees.

McHUGH, Justice:

This action is before this Court upon an appeal by Perlick and Company (hereinafter "Perlick") from the entry of a summary judgment by the Circuit Court of Wood County, West Virginia. Summary judgment was granted by an order entered on April 16, 1981. This Court has before it the petition for appeal, all matters of record and the briefs and argument of counsel.

This appeal concerns two different actions, Nelson Plumbing Company v. Lakeview Estates, Inc., et al. (Civil Action No. 9508, filed on February 16, 1968 in Wood County) and Perlick and Company v. Lakeview Creditors Trustee Committee, et al. (Civil Action No. 80-C-1512-B filed on November 25, 1980). The latter is the action from which this appeal is taken.

On May 27, 1966, Perlick, the appellant, entered into a contract with the appellee, Lakeview Estates, (hereinafter "Lakeview"), to supply plumbing fixtures and other materials for a construction project. A substantial portion of Perlick's obligation under the contract was subcontracted to the Nelson Plumbing Company (hereinafter "Nelson"). In June of 1967 Lakeview halted construction after experiencing financial difficulties. Lakeview was unable to pay a certain amount owed to Perlick, which in turn was unable to pay the subcontractor Nelson. As a result Nelson filed a lien against Lakeview in the amount of $20,456.47.

In order that construction might resume without further interruption, Lakeview, on December 11, 1967, entered into a "Creditors Agreement" (hereinafter "Agreement") with its creditors. The Agreement stated that once a creditor's claim had been verified concerning its validity and amount the creditor would receive a "Participation Certificate" (hereinafter "Certificate"). Upon receipt of this Certificate by the creditor any and all rights held pursuant to the original debt would be released. The Certificate enabled each creditor to receive the monies owed to it out of the future profits of Lakeview's apartment complex.

However, neither Perlick nor Nelson ever received a Certificate, because the lien filed by Nelson against Lakeview was not discharged by the Agreement. ¹ The lien represented an amount which was due and owing to Perlick, who in turn owed it to Nelson.

In order to enforce its lien, Nelson, on February 16, 1968, filed suit against Lakeview (Civil Action No. 9508). On April 30, 1968, Lakeview filed a third-party complaint against Perlick. In that third-party complaint Lakeview stated that Perlick, in a series of "waiver of lien" forms, had warranted that all subcontractors had been paid in full. Thus, if Lakeview was to be held liable to Nelson for the $20,456.47, then Lakeview demanded judgment against Perlick for the same amount.

In its answer of May 21, 1968, Perlick denied the allegations of Lakeview. Then, on June 24, 1970, Perlick filed a counterclaim against Lakeview for the money due under the original contract, $21,215.00, plus retainage of $10,000.

On July 7, 1969, the First National Bank of New Jersey, which had been the principal lender to Lakeview Estates, purchased Nelson's interest for $22,901.80, in order to remove the lien. On July 7, 1976, Perlick settled out of court with the First National Bank of New Jersey for $7,000 which extinguished Perlick's obligation to Nelson.

No other action took place in that case until September 28, 1977, when it was dismissed and struck from the docket of the Circuit Court of Wood County pursuant to W.Va.Code, 56-8-9 [1931] ² due to inactivity during the preceding two years.

The present action commenced on November 25, 1980, when the Creditors Committee, which was established by the Creditors Agreement, failed to honor a claim filed by Perlick against Lakeview. On April 16, 1981, the Circuit Court of Wood County entered an order of summary judgment against Perlick holding that the September 28, 1977, dismissal of Nelson Plumbing Company v. Lakeview Estates, et al. was an adjudication upon the merits and thus served as res judicata to the present action. (Civil Action No. 80-C-1512-B).

Perlick asserts four errors. First, the circuit court erred when it held that the dismissal pursuant to W.Va.Code, 56-8-9 [1931] of the earlier action served as an adjudication upon the merits and as such constituted res judicata to the present action. Second, the circuit court erred when it held that the subject matter of the two actions were the same, which resulted in barring the present action. Third, the circuit court erred in granting Lakeview's motion for summary judgment when an affidavit filed on April 6, 1981, by Perlick's counsel shows that a genuine issue of material fact exists. Fourth, the circuit court erred in granting summary judgment before discovery had been permitted.

We are concerned with the issues relating to two matters: (1) the original contract, and (2) the Creditors Agreement. In the appeal now before the Court it is accepted that under the original contract Lakeview owed Perlick a certain amount of money. It is now asserted by Perlick that by virtue of the Agreement there was a novation of the original contract by the parties involved in this appeal. It is argued by Perlick that if such a novation was accomplished then the subject matter of this appeal (the Agreement) is different than the subject matter of Perlick's counterclaim (the original contract) in 1970. Therefore, if a novation of the original contract was accomplished then Perlick would be able to proceed on the Agreement, the subject of this appeal. It is within this framework that the issues will be decided.

However, because the circuit court granted Lakeview's motion for summary judgment this Court must carefully examine the Creditors Agreement, which may or may not have novated the original contract and Perlick's affidavit of April 6, 1981, in order to determine if a genuine issue of material fact can be said to exist. "A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law." Syl. pt. 1, Karnell v. Nutting, 166 W.Va. 269, 273 S.E.2d 93 (1980), and cases cited therein.

This Court addressed the issue of novation in Davis v. International Harvester Company of America, 110 W.Va. 121, 157 S.E. 584 (1931). In syllabus point 3 of that case we held: "Novation may be effected by a substitution of a new obligation between the same parties, with intent to extinguish the old obligation." In citing Izzo v. Ludington, 79 A.D. 272, 79 N.Y.S. 744 (1903) this Court has also held, "[n]ovation requires the creation of new contractual relations as well as the extinguishment of old. There must be a consent of all the parties to a substitution, resulting in the extinguishment of the old obligation and the creation of a valid new one." Chenoweth v. National Building Association, 59 W.Va. 653, 657, 53 S.E. 559, 561 (1906).

Moreover, a federal district court in Edward Petry & Company v. Greater Huntington Radio Corporation, 245 F.Supp. 963 (S.D.W.Va.1965) held that: "Novation is generally defined as a mutual agreement among all parties concerned for discharge of a valid existing obligation by the substitution of a new valid obligation on the part of the debtor or another." 245 F.Supp. at 968 citing Arlington Towers Land Corporation v. McFarland, 203 Va. 387, 124 S.E.2d 212 (1962); 66 C.J.S. Novation § 1 (1950).

Therefore, the necessary elements of a novation are, (a) a previous valid obligation, (b) a consent by all parties to the new contract, (c) an abatement of the old contract and (d) a new contract which is valid and enforceable. Without any one of these essential elements, there is no novation. See 245 F.Supp. at 968; 66 C.J.S. Novation § 3 (1950).

It is a well established principle that a novation is not to be presumed. There must be an explicit showing that a novation was the definite intention of all parties concerned. Fredeking v. Read, 113 W.Va. 722, 726, 169 S.E. 387, 389 (1933); Arlington, supra, 203 Va. at 392, 124 S.E.2d at 215.

There is no disagreement that the original contract between...