Western Fertilizer and Cordage Co. Inc. v. City of Alliance

• Decision Date: 27 August 1993
• Docket Number: No. S-91-822,S-91-822
• Citation: 244 Neb. 95,504 N.W.2d 808
• Parties: WESTERN FERTILIZER AND CORDAGE COMPANY, INC., Appellant, v. CITY OF ALLIANCE, a Municipal Corporation, Appellee.
• Court: Nebraska Supreme Court

Page 808

504 N.W.2d 808

244 Neb. 95

WESTERN FERTILIZER AND CORDAGE COMPANY, INC., Appellant, v. CITY OF ALLIANCE, a Municipal Corporation, Appellee.

No. S-91-822.

Supreme Court of Nebraska.

Aug. 27, 1993.

Syllabus by the Court

1. Judgments: Res Judicata. The doctrine of res judicata is based on the principle that a final judgment on the merits by a court of competent jurisdiction is conclusive upon the parties in any later litigation involving the same cause of action. Res judicata is founded on a policy favoring termination of an action by preclusion or prevention of subsequent litigation on the same cause.

2. Mortgages: Foreclosure: Liens: Redemption: Title. As the result of a foreclosure sale of real estate given as security by the mortgagor, the rights of redemption of the mortgagor and junior lienholders who are joined in the action are extinguished, and upon confirmation of the sale, the purchaser obtains title to the entire interest and estate of the mortgagor and mortgagee as it existed at the date of the mortgage.

3. Mortgages: Foreclosure: Liens. When a senior mortgagee purchases the mortgaged real estate at a foreclosure sale, the confirmed purchase and sheriff's deed extinguish the rights of junior lienholders who were parties to the action.

4. Mortgages: Liens: Eminent Domain. A mortgagee's lien on real estate is an interest that may be subjected to a taking for a public purpose and, therefore, may be the subject of an eminent domain proceeding.

Robert G. Simmons, Jr. of Simmons, Olsen, Ediger & Selzer, P.C., Scottsbluff, for appellant.

James R. Hancock of Hancock & Denton, P.C., Scottsbluff, for appellee.

HASTINGS, C.J., and BOSLAUGH, WHITE, CAPORALE, SHANAHAN, FAHRNBRUCH, and LANPHIER, JJ.

PER CURIAM.

In this inverse condemnation action, Western Fertilizer and Cordage Company, Inc. (Western), brought suit against the City of Alliance (City), seeking damages resulting from utility easements and water, sewer, and street improvements made by the City on property purchased by Western at a foreclosure sale. The trial court sustained the City's motion for summary judgment, and the Nebraska Court of Appeals affirmed. Western petitioned for further review pursuant to Neb.Rev.Stat. § 24-1107 (Cum.Supp.1992). We reverse the judgment of the Court of Appeals.

FACTUAL BACKGROUND

Western was the mortgagee of 79.8 acres of land sold to BRG, Inc., in 1976 for $239,400. BRG, which planned to develop the land for residential use, authorized the City to improve the property. After BRG defaulted on the mortgage, Western filed suit against BRG and the City to foreclose on the mortgage and to determine the validity and priority of certain liens and assessments claimed by the City. The City cross-petitioned, claiming lien assessments totaling over $274,000. In an appeal from that action, this court determined that "Western did not sign or consent to the dedications, and, consequently, the assessments for improvements upon the land mortgaged to Western are not valid as against Western's mortgage, and are inferior thereto." Western Fertilizer v. BRG, 228 Neb. 776, 787, 424 N.W.2d 588, 595 (1988) (Western I ). Western subsequently The following is a chronology of events in the present action:

purchased the land for $50,000 at a sheriff's sale on October 4, 1988. Western later instituted the present inverse condemnation action.

May 19, 1976--BRG purchased the property from Western for development purposes, with the final payment due October 1, 1977.

April 1977--The City passed two ordinances approving the plat of Homestead First Addition which contained a dedication of the streets, alleys, and public grounds therein to the use and benefit of the public.

August 31, 1977--Western's president, Gordon Keeley, on behalf of Western, signed one dedication for part of the property.

September 29, 1977--Restrictive covenants, including certain utility easements, were established by Western and BRG and signed by Keeley.

October 1977--BRG gave Western a promissory note secured by a mortgage on the property in question. On the same day the mortgage was executed (October 26), the parties entered into an amended sales agreement which reflected changes (partial platting) with respect to development of the real estate.

November 1978 to October 1981--BRG signed several more dedications during this time period; Western's secretary-treasurer, Max Garwood, without authority to do so, signed the same dedications on behalf of Western. In addition, the City passed several ordinances approving plats and establishing sewer, water, and street improvement districts in the property.

Early 1983--After Garwood left Western, Keeley learned that Garwood had signed the additional dedications.

August 1983--Keeley complained to the City about the unauthorized dedications and informed the City that Western did not join in or consent to those dedications signed by Garwood. He also advised the City that BRG was in default on its debt to Western and that Western might be forced to foreclose its mortgage on BRG's land.

May 1985--Western initiated foreclosure proceedings. See Western I.

June 17, 1988--Issuance of decision and opinion in Western I.

October 1988--Western acquired the property at a foreclosure sale and received a sheriff's deed for the land.

August 23, 1990--Western filed its inverse condemnation action against the City.

In its petition in the inverse condemnation action, Western alleged that the City "had taken and damaged for public use all or parts of the lands" in question without just compensation and that in the event the court found that the City had not taken all of the property in question, Western had nonetheless suffered incidental and consequential damages to the land not taken.

Both parties moved for summary judgment. In its motion, the City asserted that (1) the statute of limitations barred Western's action; (2) Western was estopped from claiming that the City had taken Western's property because Western had taken title to the property by lot and block numbers; (3) this court, in Western I, had held that the easements acquired by the City were valid but subordinate to Western's mortgage; (4) Western did not acquire a cause of action for condemnation damages when it purchased the property at the foreclosure sale; and (5) Western was estopped from denying the easements it did not specifically approve because it became bound to the plan of development when it accepted Homestead Addition and Homestead First Addition.

The district court granted summary judgment to the City, ruling that "[t]he fact that the defendant's assessment and lien are void against the priority of the plaintiff's lien does not mean they have 'taken' private property of the plaintiff without just compensation." The court found that Western had purchased the property in question with "actual notice of the defendant's interest in the land" and Western appealed to the Nebraska Court of Appeals, which affirmed the trial court's decision in Western Fertilizer v. City of Alliance, 1 NCA 1517, 1992 WL 221779 (1992). Relying in large part on Peterborough Savings Bank v. Pierce, 54 Neb. 712, 75 N.W. 20 (1898), the Court of Appeals concluded that because "Western, as purchaser, had notice of the improvements on the property, [it acquired] no rights greater than BRG or Western, as mortgagee, against the City concerning these improvements." 1 NCA at 1520.

thus, its interest could be no greater than that of BRG, which had authorized the City's claims to the property. Furthermore, the court found that "the defendant's easements and appropriations are open, visible, recorded of public record and make plaintiff's claimed ownership a servient estate to the defendant government's exercise of dominion over, appropriation, and interest in the real estate. Kimco Addition v. Lower Platte South N.R.D., 232 Neb. 289, 440 N.W.2d 456 (1989)."

On the question of inverse condemnation, the Court of Appeals stated:

The record shows that BRG gave permission for the City to make improvements on the property in question. BRG would not have had an action against the City for inverse condemnation because it gave the City permission to perform the improvements. Similarly, Western, as owner in lieu of BRG, does not have an action against the City for inverse condemnation.

The judgment of the Nebraska Supreme Court in [Western I ] established the priority of the interests as between Western and the City. Western, as mortgagee, had a security interest in the property and a right to protect that interest, which it did in the foreclosure action. The City's failure to acquire permission from Western, as mortgagee, for the improvements was not a "taking" of Western's interest in the property because Western did not have title or possession of the property at the time the improvements were consented to and made. Therefore, Western, as mortgagee, did not have rights against the City for inverse condemnation.

1 NCA at 1520.

Western petitioned this court for further review pursuant to § 24-1107, asserting that (1) the Court of Appeals had significantly changed Nebraska law that a purchaser at a foreclosure sale acquires every right and interest in the property of all the parties to the action and (2) the Court of Appeals' holding that the purchaser at a foreclosure sale acquires title subject to the rights of a junior lienholder who was a party to the foreclosure proceeding is contrary to both Neb.Rev.Stat. § 25-1533 (Reissue 1989) and prevailing case law.

Article I, § 21, of the Nebraska Constitution states, "The property of no person shall be taken or damaged for public use without just compensation therefor." Article I, § 21, of the Nebraska Constitution is self-executing, and therefore, a cause of action may be brought directly under that section. A litigant must simply " 'allege and prove facts constituting a cause of action' under the constitutional language."...