Tri-State Oil Tool Industries, Inc. v. EMC Energies, Inc., TRI-STATE

• Decision Date: 22 March 1977
• Docket Number: TRI-STATE,No. 4660,4660
• Citation: 561 P.2d 714
• Parties: OIL TOOL INDUSTRIES, INC., Appellant (Plaintiff below), v. EMC ENERGIES, INC., Appellee (One of Defendants and Cross-Complainant(Third-Party Plaintiff) below).
• Court: Wyoming Supreme Court

Page 714

561 P.2d 714

TRI-STATE OIL TOOL INDUSTRIES, INC., Appellant (Plaintiff below), v. EMC ENERGIES, INC., Appellee (One of Defendants and Cross-Complainant(Third-Party Plaintiff) below).

No. 4660.

Supreme Court of Wyoming.

March 22, 1977.

David A. Scott, Murane, Bostwick, McDaniel, Scott, Greenlee & Owens, Casper, for appellant.

Ronald W. Hofer and David B. Park, Casper, for appellee.

Before GUTHRIE, C. J., and McCLINTOCK, RAPER, THOMAS and ROSE, JJ.

ROSE, Justice.

Tri-State Oil Tool Industries, Inc., herein referred to as Tri-State, appeals a decision of the District Court of Campbell County granting a summary judgment by which it was denied foreclosure of its materialman's lien against the properties of the appellee, EMC Energies, Inc., spoken of herein as EMC.

During the early part of 1974 EMC hired Grebe Drilling Company to drill an oil well on a leasehold owned by EMC in the Dead Horse Field, Campbell County, Wyoming. Grebe Drilling in turn hired Tri-State, an oil field service company to do the actual drilling on the lease. After the drilling services had been performed, Tri-State encountered difficulty in recovering payment from Grebe Drilling. After a series of unsuccessful meetings, with a representative of that company, Tri-State filed a materialman's lien on the EMC properties on October 17, 1974. Two days later the credit manager of Tri-State, Mr. Chavanne, met with several creditors of Grebe Drilling and with Carl Grebe, its president, in Oklahoma City, Oklahoma. Following that conference Grebe signed a corporate note as president of Grebe Drilling, promising to pay monies due and owing Tri-State, of which the amounts claimed for the EMC work were only a part.

Subsequently, on October 30, 1974, Grebe gave Tri-State a personal guaranty of this corporate note in the form of a document titled 'Guaranty Agreement.' This instrument does not bear the acknowledgement or acceptance of Tri-State. After one payment on the note had been made Grebe became delinquent, and, following several unsuccessful demands for payment, Tri-State filed suit in the Campbell County District Court against Grebe Drilling Co., Inc., and Carl E. Grebe on an open account, and against EMC to have its materialman's lien foreclosed. A money judgment was entered against Grebe Drilling Company, which was not appealed, and judgment was also entered dismissing the plaintiff's action to foreclose appellant's lien against EMC. This latter holding is the part of the judgment from which appeal is taken to this court.

Both Tri-State and EMC filed motions for summary judgment on the issue of the lien controversy and, after argument, the district court granted EMC's motion and entered judgment holding that the acceptance by Tri-State of the corporate note and personal guaranty of all debts due and owing resulted in a novation and had the effect of extinguishing its lien claim against the property of EMC.

In its brief, appellant Tri-State defines the issues for decision as follows:

'The basis issue of the case was whether or not the acceptance by Tri-State of the note executed by Grebe Drilling Co., Inc. and the guaranty agreement executed by Carl E. Grebe constituted a novation of the debt due Tri-State by Grebe Drilling Co., Inc., and if there was a novation of said debt, whether or not Tri-State waived its right to foreclose its lien.'

In urging that there was no novation, Tri-State argues:

'1. EMC failed to sustain its burden of proving a contract of novation.

'2. That the evidence considered by the trial court shows as a matter of law that the note and guaranty in question were accepted by Tri-State as additional or collateral security.'

We find the evidence to be compelling to the conclusion that there was indeed no novation, the note and guaranty in question having been taken by Tri-State, as an accommodation to Grebe and as additional security only, with no intention on the part of either party to extinguish Tri-State's materialman's lien.

The judgment of the trial court is reversed.

A novation is a mutual agreement between all parties concerned to discharge a valid existing obligation by substitution of a new valid obligation of the debtor. Scott v. Wyo. Oils, Inc., 52 Wyo. 433, 75 P.2d 764 (1938). The essentials necessary to prove a novation are: (1) a previous valid obligation; (2) agreement of all parties to a new contract; (3) extinguishment of the old contract; and (4) validity of a new contract. Scott supra; 66 C.J.S. Novation § 3, p. 683. A novation is never to be presumed. All the required elements must be proved (58 Am.Jur.2d, Novation, § 32, p. 542), and unless it is the clear intention of all the parties concerned to extinguish the old obligation by substitution of the new one, a novation has not been effected. Davenport v. Dickson, 211 Kan. 306, 507 P.2d 301, 305, 58 Am.Jur.2d, Novation, § 20, p. 534.

Notwithstanding its other provisions, the 'Guaranty Agreement' provides that Tri-State's lien rights are preserved and acknowledged to be enforceable. This, in and of itself, is certain proof the parties did not intend that Tri-State would sacrifice existing lien rights in exchange for rights acquired through the note and the guaranty document.

The only testimony given was that of Mr. Chavanne, Tri-State's credit manager, who testified by deposition that at the October 1974 credit meeting Mr. Grebe offered his note and personal guaranty for all outstanding Grebe Drilling Co., Inc.'s debts. No release of Tri-State's lien was requested or given. Chavanne testified that he told Grebe at that time that if the first two payments on the note were not made as scheduled, Tri-State would still have time to foreclose its EMC lien and fully intended to do so. On this issue, Mr. Chavanne responded to...