Rabo Agrifinance, Inc. v. Terra XXI, Ltd.

• Decision Date: 12 January 2012
• Docket Number: No. 30,286.,30,286.
• Parties: RABO AGRIFINANCE, INC., Successor in Interest to Farm Credit Bank of Texas, Plaintiff–Appellant/Cross–Appellee, v. TERRA XXI, LTD., a Texas limited partnership, composed of Veigel Cattle Co., as general partner; Robert Wayne Veigel, a/k/a Bob W. Veigel; Ella Marie Williams Vogel, a/k/a Ella Marie Veigel; Veigel Cattle Co., a Texas corporation; Veigel Farm Partners, a Texas general partnership, d/b/a Veigel Partners; Bob Viegel, Inc., a Texas corporation, Steve Veigel, Inc., a Texas corporation; Veigel–Kirk, Inc., a Texas corporation; Vicki Veigel, Inc., a Texas corporation; Veigel Farms, Inc., a Texas corporation; Terra Partners, a Texas general partnership; Burnett & Veigel, Inc., a Texas corporation, as general partner of Terra Partnership, a Texas general partnership; and All Unknown Claimants of Interest in the Premises Adverse to the Plaintiff, Defendants–Appellees/Cross–Appellants.
• Court: Court of Appeals of New Mexico

2012 -NMCA- 038

274 P.3d 127

RABO AGRIFINANCE, INC., Successor in Interest to Farm Credit Bank of Texas, Plaintiff–Appellant/Cross–Appellee,

v.TERRA XXI, LTD., a Texas limited partnership, composed of Veigel Cattle Co., as general partner; Robert Wayne Veigel, a/k/a Bob W. Veigel; Ella Marie Williams Vogel, a/k/a Ella Marie Veigel; Veigel Cattle Co., a Texas corporation; Veigel Farm Partners, a Texas general partnership, d/b/a Veigel Partners; Bob Viegel, Inc., a Texas corporation, Steve Veigel, Inc., a Texas corporation; Veigel–Kirk, Inc., a Texas corporation; Vicki Veigel, Inc., a Texas corporation; Veigel Farms, Inc., a Texas corporation; Terra Partners, a Texas general partnership; Burnett & Veigel, Inc., a Texas corporation, as general partner of Terra Partnership, a Texas general partnership; and All Unknown Claimants of Interest in the Premises Adverse to the Plaintiff, Defendants–Appellees/Cross–Appellants.

No. 30,286.

Court of Appeals of New Mexico.

Jan. 12, 2012.

Rowley Law Firm, L.L.C., Richard F. Rowley, II, Richard F. Rowley, III, Clovis, NM, for Appellant.

Garrett Law Firm, P.A., Michael T. Garrett, Clovis, NM, for Appellees.

OPINION

SUTIN, Judge.

{1} In its foreclosure action, a mortgagee sought to enlarge its mortgage lien from a 50% interest to a 100% interest based on the doctrine of after-acquired title. The district court held against the mortgagee. The court also dismissed counterclaims. We hold that the court erred in granting summary judgment, and we remand for further proceedings on the issue of the applicability of the after-acquired title doctrine in circumstances in which a mortgage contains mortgage covenants. And we hold that the counterclaimants failed to preserve their cross-appeal issues.

BACKGROUND

{2} Plaintiff Rabo Agrifinance, Inc. (Rabo) held two 1994 promissory notes (the notes) secured by a 1994 first mortgage (the mortgage) covering property located in Quay and Guadalupe Counties, New Mexico (the property).¹ The mortgage was recorded in both Quay and Guadalupe Counties. When it granted the mortgage, Defendant Terra XXI, Ltd. (Terra), a Texas limited partnership, owned an undivided 50% interest in the property. In 1999 Terra received a warranty deed to the property that effectively placed in Terra a 100% ownership interest in the property.

{3} In December 2005, Rabo sued in the United States District Court in Texas to collect amounts due on the notes (the Texas suit). The federal district court entered summary judgment in October 2006 in favor of Rabo for a total amount prior to interest, costs, and attorney fees, of $3,958,577.97, and the judgment was affirmed by the Fifth Circuit Court of Appeals in December 2007. See Rabo Agrifinance, Inc. v. Terra XXI, Ltd., 2006 WL 2828748 (N.D.Tex.2006), aff'd 257 Fed.Appx. 732 (5th Cir.2007) (per curiam). Rabo domesticated the Texas suit judgment in New Mexico in December 2006, and in January 2007, Rabo recorded transcripts of the judgment in Quay and Guadalupe Counties.

{4} Before us now is Rabo's suit against Terra and others (Defendants) filed in August 2007 in New Mexico district court asking that the $3,958,577.97 judgment awarded in the Texas suit on the 1994 notes (less a $200,000 credit) be confirmed and seeking foreclosure of the mortgage covering the property. Defendants filed counterclaims in five counts: Count I (failure to act in good faith), Count II (prima facie tort), Count III (mortgages extinguished), Count IV (civil conspiracy), and Count V (quiet title and foreclosure). Summary judgment proceedings concluded with the district court confirming the judgment amount and, after determining that Rabo “ha[d] a first mortgage lien on an undivided 50% interest” and that “[a]s a matter of law, the doctrine of after-acquired title is inapplicable to this matter, and [Rabo] does not have a 100% mortgage lien interest[,]” the district court entered summary judgment in favor of Rabo on its first mortgage lien interest as to an undivided 50% interest in the property. With respect to Defendants' counterclaims, the court held that “[r]es judicata and collateral estoppel bar the counterclaims of ... Defendants [ ] and, as such, no genuine issues of material fact exist as to Defendants' counterclaims[,]” granted Rabo's motion for summary judgment regarding the counterclaims, and dismissed the same.

{5} Rabo asserts on appeal that the district court erred in granting it judgment consisting of only a 50% mortgage lien interest in the property. We discuss Defendants' cross-appeal later in this Opinion. No party seeks reversal on the ground that a genuine issue of material fact existed precluding summary judgment.

DISCUSSIONRabo's Appeal

{6} Rabo asserts that, under the doctrine of after-acquired title with its estoppel element, the mortgage should have been foreclosed based on a 100% lien interest in the property. Based on the nature of the district court's ruling and undisputed facts, the issues before us are legal ones that we review de novo. Barreras v. State Corr. Dep't, 2003–NMCA–027, ¶ 5, 133 N.M. 313, 62 P.3d 770.

{7} Rabo acknowledges that, at the time the mortgage was granted in 1994, Terra had title to only 50% of the property. But Rabo points out that in 1999 Terra obtained a warranty deed to the remaining 50% of the property from the Stephen Samuel Williams Testamentary Trust (the Williams Testamentary Trust) ² and that this remaining 50% enured to Rabo's benefit under the doctrines of after-acquired title and estoppel. Rabo's claim to entitlement to a 100% mortgage lien interest is rooted in the language in the mortgage stating that Terra granted, mortgaged, and conveyed its interest in and to the property “with mortgage covenants.”

{8} Rabo explains that the meaning of “warranty covenants” in NMSA 1978, Section 47–1–37 (1947), titled “[e]ffect of warranty covenants in conveyances [,]” is that the grantor of real estate represents and agrees “ ‘that he is lawfully seized in fee simple of the granted premises[,]’ ” that the premises are free of all encumbrances, and that he “ ‘shall warrant and defend the [premises] to the grantee ... forever against the lawful claims and demands of all persons.’ ” Rabo then points to NMSA 1978, Section 47–1–40 (1947), titled “[c]onstruction of ‘mortgage covenants[,]’ ” which reads:

In a mortgage or deed of trust by way of mortgage of real estate “mortgage covenants” shall have the full force and meaning and effect of the following words and shall be applied and construed accordingly: “the mortgagor for himself, his heirs, executors, administrators[,] and successors, covenants with the mortgagee and his heirs, successors[,] and assigns that he is lawfully seized in fee simple of the granted premises; that they are free from all encumbrances; that the mortgagor has good right to sell and convey the same; and that he will, and his heirs, executors, administrators[,] and successors shall, warrant and defend the same to the mortgagee and his heirs, successors [,] and assigns forever against the lawful claims and demands of all persons.”

Rabo asserts, based on Section 47–1–40 ³ and the similar language in Section 47–1–37, that “with mortgage covenants” Terra represented and agreed that it was lawfully seized in fee simple of the granted, mortgaged, and conveyed premises and that the property was free from all encumbrances. Rabo further asserts that Terra warranted and agreed to defend against the lawful claims and demands of all persons.

{9} Based on these circumstances, Rabo argues that Terra is estopped from asserting its after-acquired 50% ownership interest in defense of Rabo's pursuit of foreclosure on 100% of the property. In support of its position, Rabo cites New Mexico's mainstay after-acquired title case, Hays v. King, 109 N.M. 202, 784 P.2d 21 (1989), which states: “The common law doctrine of after-acquired title is one under which title to land subsequently acquired by a grantor who previously attempted to convey title to the same land, which he then did not own, completely and automatically inures to the benefit of his prior grantee.” Id. at 204, 784 P.2d at 23. Recognizing, however, that no New Mexico case has directly addressed the issue whether mortgage covenants in a mortgage covers an ownership interest in the property “described in the mortgage that is acquired by the mortgagor after the execution of the mortgage [,]” Rabo goes beyond Hays to out-of-state cases that Rabo contends support its position. Cf. C & L Lumber & Supply, Inc. v. Tex. Am. Bank/Galeria, 110 N.M. 291, 298, 795 P.2d 502, 509 (1990) (“[A]lthough other jurisdictions have applied the doctrine of after-acquired title to cure defects in mortgages, the application of the doctrine to documents void at the time of execution for failure to join both spouses has been rejected in New Mexico.”).

{10} Language in some of the cases cited by Rabo tends to support its position. For example, the court in Tompkins State Bank v. Niles, 127 Ill.2d 209, 130 Ill.Dec. 207, 537 N.E.2d 274, 278 (1989), stated: “The after-acquired-title doctrine can be applied to mortgages as well as to conveyances by warranty deed, when the mortgage instrument contains covenants of title. A mortgage which contains the words “and warrants” has been held to be equivalent to a mortgage containing all covenants of title.” (Citations omitted.) Also, in Alabama Home Mortgage Co. v. Harris, 582 So.2d 1080, 1083 (Ala.1991), the court stated: “[I]n their mortgage [the mortgagors] warranted the title to the property that was conveyed by the mortgage. Because of these warranties, any after-acquired interest of the [mortgagors] would pass to the [mortgagees], as the [mortgagors] are estopped to deny the title of the [mortgagees].”

{11} Terra points out that the after-acquired-title doctrine has not been applied in New Mexico to mortgage interests and that New Mexico has not enacted an after-acquired-interest statute as other states...