City of Lincoln v. Hershberger

• Decision Date: 05 January 2007
• Docket Number: No. S-05-1066.,S-05-1066.
• Citation: 272 Neb. 839,725 N.W.2d 787
• Parties: CITY OF LINCOLN, Nebraska, a municipal corporation, appellant, v. James E. HERSHBERGER and Sandra M. Hershberger, appellees.
• Court: Nebraska Supreme Court

Page 787

725 N.W.2d 787

272 Neb. 839

CITY OF LINCOLN, Nebraska, a municipal corporation, appellant, v. James E. HERSHBERGER and Sandra M. Hershberger, appellees.

No. S-05-1066.

Supreme Court of Nebraska.

January 5, 2007.

Dana W. Roper, Lincoln City Attorney, and James D. Faimon, Lincoln, for appellant.

Joel D. Nelson, of Keating, O'Gara, Nedved & Peter, P.C., L.L.O., Lincoln, for appellee.

HEAVICAN, C.J., WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

GERRARD, J.

The City of Lincoln (the City) loaned money to PMI Franchising, Inc. (PMI), pursuant to a project financing agreement. James E. Hershberger and Sandra M. Hershberger were guarantors on the loan. PMI failed to repay any of the installment payments, and the City, in a letter dated February 28, 1995, exercised its right to accelerate the debt under the agreement. The City filed suit against the Hershbergers on September 20, 1999. The district court granted the Hershbergers' motion for summary judgment, concluding that the statute of limitations had run on the City's claim. The City appealed. Because the statute of limitations began to run when the City exercised its right to accelerate the debt, we conclude that the City's claim is not barred by the 5-year statute of limitations. We reverse, and remand for further proceedings.

FACTS

On June 8, 1993, the City and PMI entered into a "Project Financing Agreement." Pursuant to this agreement, the City agreed to loan PMI $49,500 and PMI agreed to repay the loan. Paragraph 5 of the financing agreement provided for monthly payments of interest only for the first 24 months and amortized payments of principal and interest over the following 60 months, for a total term of 7 years. With regard to default and termination of the agreement, paragraph 16 provided:

The City may terminate this Agreement, if PMI should default in the performance of any of the terms or requirements hereof. The City shall provide PMI written notice of such default and if PMI fails to correct such default within 30 days of receipt of such notice, this Agreement shall be terminated. Upon termination, the unpaid balance plus accrued interest to the date of termination shall become due and payable in full immediately on the date of termination.

As officers of PMI, the Hershbergers signed the financing agreement. As part of the financing agreement, each of the Hershbergers also signed an individual guaranty for PMI's obligations under the agreement. Each guaranty provided that the guarantor would unconditionally repay funds loaned to PMI "when due, pursuant to the financing agreement."

At some point between June 8, 1993, and March 4, 1994, the City disbursed $23,753.43 to PMI. The record reveals that PMI never made any payments to the City. On February 28, 1995, the City wrote the Hershbergers, declaring that PMI had defaulted under the minimum repayment terms of the agreement. The City's letter stated in relevant part:

This correspondence satisfies the City's obligation to provide PMI Franchising, Inc. written notice of default as outlined in Paragraph # 16 of the agreement. If the default is not corrected to the satisfaction of the City of Lincoln, the agreement will be terminated as stated in Paragraph # 16 of the agreement. At that time, the entire unpaid principal balance of $23,753.43 plus accrued interest will be due and payable and the City will be forced to consider all legal alternatives available.

PMI did not correct its default, and on September 20, 1999, the City filed a petition in the district court against PMI and the Hershbergers. The City filed a second amended petition in December 1999, which is the operative petition. In the second amended petition, the City alleged that PMI failed to repay the loan contrary to the provisions of the agreement and that the Hershbergers had failed to comply with the provisions of the guaranties. The City alleged that pursuant to the agreement, the City had sent a letter on February 28, 1995, declaring PMI to be in default. In the petition, the City asserted that the unpaid principal and accrued interest was due and payable. The City prayed for a judgment against PMI and the Hershbergers in the amount of the unpaid principal of $23,753.43 plus accrued interest, as well as costs and attorney fees.

The Hershbergers filed an answer in which, among other things, they admitted the loan of "approximately $23,000.00" and affirmatively alleged that the City's action against them was barred by the statute of limitations. Although PMI was served, no answer or other appearance was filed on behalf of PMI. During the course of the proceedings in the district court, a default money judgment was entered against PMI and the claim continued against the Hershbergers individually as guarantors.

The Hershbergers moved for summary judgment on the basis that the action was time barred by the 5-year statute of limitations found in Neb.Rev.Stat. § 25-205 (Reissue 1995). Following an evidentiary hearing, the court agreed with the Hershbergers and on January 31, 2001, dismissed the City's operative petition. The court reasoned that the statute of limitations began to run on June 8, 1993, the date the agreement was signed, and that because the City did not file its action until 1999, the suit was barred.

The City appealed, and the case was transferred to this court's docket. In City of Lincoln v. PMI Franchising, 267 Neb. 562, 675 N.W.2d 660 (2004), we reversed the district court's decision. In so doing, we cited Production Credit Assn. of the Midlands v. Schmer, 233 Neb. 749, 448 N.W.2d 123 (1989), which states that "`[t]he statute of limitations begins to run against a contract of guaranty the moment a cause of action first accrues' and that `[a] guarantor's liability arises when the principal debtor defaults.'" PMI Franchising, 267 Neb. at 567, 675 N.W.2d at 664. Given this language, we concluded that "the district court erred when it determined that the statute of limitations on the City's cause of action against the Hershbergers began to run when the Hershbergers signed the guaranties on June 8, 1993. Instead, the statute of limitations began to run when PMI defaulted and the Hershbergers' liability arose." Id. at 568-69, 675 N.W.2d at 665. We remanded the cause for further proceedings.

Upon remand, both parties offered additional exhibits into evidence. The Hershbergers offered, among other things, the deposition of the coordinator of economic development for the City, the affidavits of the Hershbergers, and certain other documents received through discovery. The City offered exhibits 8 and 9, which included the deposition testimony of James Hershberger and a certified copy of the executive order approving the financing agreement.

The district court again granted the Hershbergers' motion for summary judgment, concluding that "the Hershbergers' liability arose before March 4, 1994, which was more than five years before September 20, 1999." As a result, the court determined that the City's claim was barred by the 5-year statute of limitations. The City appealed.

ASSIGNMENTS OF ERROR

The City assigns, restated and renumbered, that the district court erred in (1) determining that the City's claim against PMI was barred by the 5-year statute of limitations; (2) determining that the economic development coordinator, a former city employee, had authority to determine when the financing agreement was in default; (3) concluding that the City initially distributed the money to PMI on June 7, 1993; and (4) misapplying the law of the case as it relates to the application of the statute of limitations to the guarantors' liability for...