Ortega, Snead, Dixon & Hanna v. Gennitti

• Decision Date: 26 July 1979
• Docket Number: No. 11418,11418
• Citation: 1979 NMSC 56,597 P.2d 745,93 N.M. 135
• Parties: ORTEGA, SNEAD, DIXON & HANNA, a partnership, Plaintiff-Appellee, v. Joseph A. GENNITTI, Pecos Land and Cattle Corporation, Orchid Island Hotels, Inc. and Josephine Gennitti, Defendants-Appellees, Louis Meneghin and Jeanette Meneghin, his wife, Cross-Defendants-Appellees, Bill Frost and Leta M. Omta, personal representative for John W. Omta, Deceased, Defendants-Appellants.
• Court: New Mexico Supreme Court

Page 745

597 P.2d 745

93 N.M. 135

ORTEGA, SNEAD, DIXON & HANNA, a partnership, Plaintiff-Appellee, v. Joseph A. GENNITTI, Pecos Land and Cattle Corporation Orchid Island Hotels, Inc. and Josephine Gennitti Defendants-Appellees Louis Meneghin and Jeanette Meneghin, his wife Cross-Defendants-Appellees, Bill Frost and Leta M. Omta, personal representative for John W. Omta, Deceased, Defendants-Appellants.

No. 11418.

Supreme Court of New Mexico.

July 26, 1979.

Solomon, Roth & Van Amberg, Charles S. Solomon, Santa Fe, for defendants-appellants.

Matias A. Zamora, Santa Fe, Michael D. Bustamante, Albuquerque, Richard F. Rowley, II, Clovis, for defendants-appellees.

OPINION

PAYNE, Justice.

On May 15, 1979 an opinion in the above case was handed down by this Court. A motion for rehearing was filed by the personal representative of one of the defendants, John W. Omta, deceased. The motion for rehearing was granted in order to reconsider our original opinion. Several factual inaccuracies in the first opinion were bought to light on rehearing. Although we are satisfied that these matters do not change the soundness of the result we originally reached, we are hereby withdrawing the opinion of May 15, 1979 in order to correct the inaccuracies.

Plaintiff, Ortega, Snead, Dixon & Hanna, a partnership engaged in the practice of law, brought suit in Guadalupe County seeking judgment on an open account and foreclosure of a mortgage. A default judgment was entered against four of the eight named defendants, Joseph and Josephine Gennitti, Pecos Land and Cattle Corporation, and Orchid Island Hotels, Inc. No appeal was taken from this default judgment. The remaining four defendants, Louis and Jeanette Meneghin, and Bill Frost and John Omta respectively, sought by counterclaim and cross-claim to quiet title to the subject property. The trial court dismissed the claim of Frost and Omta, and quieted title in the Meneghins subject to the mortgage lien in favor of Ortega. Omta appeals. ¹

The transactions which gave rise to this litigation are complicated and confusing. A diagram depicting the chain of title is set out below in order to facilitate an understanding of the nature of the dispute.

CHAIN OF TITLE DIAGRAM

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The first conveyance relevant to the issues in this case of the property which is the subject of this suit occurred in 1970 when Earl Powell, Inc. transferred the land to the Gennittis by a real estate contract (the Powell contract). The contract called for annual payments over a ten-year period. In June 1972 the Gennittis mortgaged the property to the Meneghins, and in January 1973 the Gennittis transferred their interest under the Powell contract to Pecos Land and Cattle Corporation.

In July 1973 Pecos executed a real estate contract by which the land was transferred to Robert J. Toomey (the Toomey contract). Toomey agreed to assume the payments to be made under the Powell contract, and, in addition, agreed to pay $503,000 in six consecutive annual installments of $50,000 each for the first five years, with the remainder to be paid in the sixth year. Toomey also agreed to pay the sum of $75,000 within sixty days of the date of the closing of the transaction.

On December 12, 1973 Pecos, as purchaser, entered into an agreement with Omta, as seller, for the purchase of all of the stock of Omta in a Hawaiian corporation, Orchid Island Hotels, Inc. (the Hotel contract). The Hotel contract called for a cash down payment in the amount of $603,000. In satisfaction of the down payment on the Hotel contract, Pecos assigned to Omta its right to the $75,000 then due Pecos under the Toomey contract. In addition, Pecos delivered a ninety-day promissory note for $25,000, and agreed to pay $503,000 on January 2, 1974.

By a letter agreement dated December 12, 1973, Pecos and Omta agreed that the $503,000 payment due on January 2, 1974 could be satisfied by Pecos' assignment to Omta of its interest in the Toomey contract. An assignment of Pecos' interest in the Toomey contract was executed by Pecos in favor of Omta on January 8, 1974.

On August 8, 1974 Pecos and Omta executed a promissory note and collateral agreement for the sum of $503,000 secured by an agreement which was labeled "conditional assignment." This "conditional assignment" contained the following paragraph:

This conditional assignment supercedes any previous agreement between the parties regarding the said agreement attached as Exhibit "2" to the December 12, 1973 Purchase Agreement between the parties.

Exhibit 2 to the December 12, 1973 Purchase Agreement was the Pecos-Toomey contract of July 1973.

A separately numbered paragraph in the "conditional assignment" provided that the assignment would become effective upon the election of the assignees (Omta and Frost) to take Pecos' rights under the Toomey contract, and written notice of the election to Pecos. Omta did not give such notice until approximately six months after Toomey defaulted on his contract. In the meantime, upon Toomey's default in October 1974, the property was reconveyed from Toomey to Pecos. In December 1974 Pecos executed and delivered a mortgage note in favor of the Ortega law firm.

On January 30, 1975 Pecos sold the property to the Puerto de Luna limited partnership. On that same date Omta and Pecos agreed on an assignment of a portion of the proceeds of that contract from Pecos to Omta, and conditionally agreed to an assignment of the remainder of the proceeds. A full assignment of this contract was never executed. Puerto de Luna defaulted, and the property was reconveyed to Pecos in October 1975.

On January 9, 1976 Pecos and Omta agreed that Pecos would convey the property to Omta in return for $15,000 and Omta's promise to take the property subject to the Ortega mortgage of December 1974. Omta expressly agreed to make the payments on the Powell contract, one of which had been due on January 6, 1976. Omta did not make the Powell payment. The trial court found that by this breach of the agreement, Omta lost all his interest in the property.

In order to preserve their interest in the land, Pecos and the Meneghins entered into an agreement on February 6, 1976 under which the Meneghins agreed to make the Powell payments, and Pecos agreed to convey the property to the Meneghins, which it did in late February 1976 by a special warranty deed.

Omta argues several issues on appeal. We address the following questions: (1) Whether the trial court had jurisdiction in a mortgage foreclosure action over a counterclaim and cross-claim to quiet title; (2) whether the Ortega law firm and the Meneghins had standing to seek cancellation of the January 9, 1976 quitclaim deed from Pecos to Omta; (3) whether the Meneghins or Omta had superior title to the property; and (4) whether Omta and Frost acted as partners.

I.

Notwithstanding the fact that he requested the same relief, Omta contends that the trial court did not have jurisdiction to entertain the Meneghins' counterclaim and cross-claim to quiet title. He cites Clark v. Primus, 62 N.M. 259, 308 P.2d 584 (1957) and Jackson v. Hartley, 90 N.M. 428, 564 P.2d 992 (1977) for the proposition that counterclaims may not be asserted in actions to quiet title. Omta argues that counterclaims and cross-claims to quiet title cannot be asserted in other statutory actions, such as in an action to foreclose a mortgage.

In Clark the plaintiff sued to quiet title to certain property. The trial court dismissed the defendant's counterclaims which sought an accounting for the rents and profits received from the premises. This Court held that the counterclaims were properly dismissed because "counterclaims are not within the purview of the quiet title statute, § 22-14-1, N.M.S.A.1953 Compilation. (§ 42-6-1, N.M.S.A.1978). (Citations omitted.)" 62 N.M. at 263, 308 P.2d at 586.

The Clark decision was followed in Jackson. In Jackson this Court held that a counterclaim for ejectment could not be asserted in a suit to quiet title.

Neither Clark nor Jackson referred to this Court's decision in Martinez v. Mundy, 61 N.M. 87, 295 P.2d 209 (1956), in which a counterclaim to quiet title was permitted to be asserted in an ejectment action. In Martinez this Court stated:

The plaintiff had the right to bring this suit in ejectment and to request a prayer for relief and the defendant had the right to come in with the counterclaim for remedy in the nature of a suit to quiet title. This is in accordance with the familiar rule that when a court of chancery obtains jurisdiction of a cause, it will retain it to administer full relief. (Citation omitted.)

61 N.M. at 96, 295 P.2d at 215. Martinez was followed in Bailey v. Barranca, 83 N.M. 90, 488 P.2d 725 (1971).

The law in New Mexico is obviously confusing in light of these four decisions by this Court. These cases indicate that a counterclaim to quiet title can be raised in an ejectment action (Martinez ), but a counterclaim for ejectment cannot be raised in a quiet title action (Jackson ). As one commentator stated:

(W)hether or not two actions, one of which involves a suit to quiet title, can be determined in a single proceeding in New Mexico may depend upon the wholly coincidental factor of which party first commences litigation. (Footnote omitted.)

J. Walden, "The 'New Rules' in New Mexico," 25 F.R.D. 107, 121 (1960). Such a distinction is untenable.

Nowhere in Clark or the cases following it was any justification set forth for the principle announced therein. Jackson, supra; Lanehart v. Rabb, 63 N.M. 359, 320 P.2d 374 (1957). In addition, in the Clark line of cases, this Court never attempted to reconcile its holdings with the New Mexico Rules of Civil Procedure.

The applicable rule in this regard is N.M.R.Civ.P. 1, N.M.S.A.1978:

These rules govern the procedure in the district courts of New Mexico in all suits of a civil nature whether cognizable as ...