Pomona College v. Dunn

This is an appeal by the defendant Russell B. Seymour, as trustee in bankruptcy of the estate of Fred B. Dunn, a bankrupt, from a portion of the judgment and decree of foreclosure made and entered in an action instituted by the plaintiff for the purpose of foreclosing the

The record herein shows the existence of the following facts which are material to this appeal: On September 28, 1925, Fred B. Dunn and his wife Leah Dunn executed a promissory note in the amount of $10,000 in favor of plaintiff Pomona College. The note was payable three years after its date and the payment thereof was secured by a mortgage on real property fronting on Temple Street in the city of Los Angeles which was then owned by the Dunns. On August 8, 1927, the city of Los Angeles commenced an action in the Superior Court of Los Angeles County for the purpose of condemning a portion of the real property which was encumbered by the lien of the aforesaid mortgage. The mortgagee, Pomona College, was joined as a party defendant in this action, was duly served with process therein, and defaulted in appearance. The complaint in this action alleged on information and belief that the defendant Pomona College claimed an interest in the parcel of land sought to be condemned by virtue of the mortgage and further alleged a lack of sufficient knowledge, information or belief to enable the plaintiff to state whether said mortgage constituted a valid and subsisting lien upon the land. Wherefore, basing its denial upon the lack of such information, the plaintiff denied that said defendant had any interest in the said land. The prayer of the complaint was that defendants be required to set forth the nature and extent of their several estates or interests in the land, that such estates or interests may be adjudicated and determined, that the value of each and every such separate estate or interest in the land and the damage accruing to the respective owners thereof by reason of the condemnation in the construction of the improvement in the

The problem which is therefore presented in connection with the contention thus advanced is whether or not the right of the respondent mortgagee to have recourse to the award granted to the land owner for the taking of a part of the mortgaged premises has become res judicata by virtue of the judgment in the prior condemnation action.

In entering upon a consideration of this problem it must be conceded at the outset that the right of a mortgagee in a proper case to subject an award made to the land owner as compensation for a part of the mortgaged premises taken through the medium of eminent domain proceedings to the lien of his mortgage is not open to doubt. Under the familiar doctrine of equitable conversion the award is considered as land and the mortgagee is entitled so to regard it and to have recourse to it in satisfaction of the mortgage lien (Los Angeles T. & S. Bank v. Bortenstein, 47 Cal. App. 421 , 423 [ 190 Pac. 850 ]). Here, however, the mortgagee was joined as a party defendant in the condemnation action and was served with process therein so that the court in said action had jurisdiction of the subject matter and of the mortgagee and found that the security of the mortgage was not impaired by the taking of the land, for which reason no award was made to the mortgagee in such action.

The long-established principle of res judicata is specifically recognized by statute in California. Subdivision 2 of section 1908 of the Code of Civil Procedure declares that in eases other than those designated in subdivision 1 of the section the judgment in an action or special proceeding before a court or judge of this state having jurisdiction to pronounce the judgment is, in respect to the matter directly adjudged, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing, under the

It is obvious that the legal principle which forms the basis for the doctrine of res judicata is the familiar principle of estoppel. In Todhunter v. Smith, 219 Cal. 690 , 695 [ 28 Pac. (2d) 916 ], it is pointed out that the doctrine of res judicata has a double aspect and that while a prior judgment operates as a bar against a second action upon the same cause it operates as an estoppel or conclusive adjudication in a subsequent action upon a different claim as to such issues in the second action as were actually litigated and determined in the first action. It is apparent that, if the doctrine is here applicable, it can only apply as an adjudication of issues which were actually litigated and determined in the prior suit in condemnation. The prior judgment may not operate as a bar to the present action for the reason that the present action is upon an entirely different claim than that which formed the basis of the proceeding in eminent domain.

In support of the judgment respondent contends that the only issue which is here important that was adjudicated in the prior action is the validity of respondent’s mortgage. In the final analysis the correctness of this contention depends upon the allegations contained in the complaint in the condemnation action.

It is conceded and the trial court found that the proceedings for condemnation were instituted under the “Street Opening Act of 1903”. The trial court also found that the prayer of the complaint in the condemnation action was that defendants should be required, by answer, to set

Bearing in mind the above-mentioned provisions of the statute under which the condemnation action was instituted and the allegations of the complaint therein it is obvious that the right of the respondent to share in whatever award might be made was a proper issue in the action.

Respondent, however, contends that it was not a necessary party defendant to the prior action, and since it is conceded that it made no appearance therein it is not es-

It is first urged that respondent was not a necessary party to the condemnation suit for the reason that in California a mortgagee has no estate or interest in the land which is encumbered by the lien of the mortgage. In support of this argument a number of decisions are cited. The earliest of these authorities is the ease of Schumacker v. Toberman, 56 Cal. 508 . In this case, the city council of the city of Los Angeles, acting under the provisions of the city charter, had determined to extend and widen a certain street and had ordered proceedings for condemnation to be instituted. In these proceedings the city failed to make a mortgagee of one of the parcels sought to be condemned a party. When the damages had been ascertained the council ordered an assessment to pay such damages to be made “On Alameda Street, one hundred feet each way from its intersection with Los Angeles Street; and on Los Angeles Street (and intervening cross streets) from Alameda Street southerly to Requena Street”. Subsequently an assessment was returned and adopted by the council which included the property on the north line of Requena Street. Afterwards the council ordered the surveyor to correct the assessment by striking therefrom the assessment of the property on Requena Street and increasing the other assessments proportionally. This correction was accordingly made. The plaintiff, Schumacher, a property owner and taxpayer in the city, brought an action to enjoin the issuance of bonds to pay the cost of the street improvement and succeeded in having an injunction granted. On appeal by the defendant the judgment was affirmed. The majority o'pinion held that the first assessment was void and that the statute under which it was proposed to issue the bonds had adopted the void assessment. Therefore the issuance of bonds under the authority of a statute which had adopted a void assessment should be restrained in an action brought for this purpose by a property owner and taxpayer who might be injuriously affected by the issuance of such

In Savings & Loan Society v. McKoon, 120 Cal. 177 [ 52 Pac. 305 ], the mortgagee, a California corporation, brought an action to foreclose its mortgage and obtained a decree. On appeal it was contended that the action should have been dismissed because of noncompliance by the plaintiff with section 299 of the Civil Code, as it then existed, requiring every corporation to file with the county clerk of every county in the state in which it held any property, a certified copy of its articles of incorporation and providing as a penalty for noncompliance with this direction that the corporation should not maintain or defend any action in relation to such property. It was decided that the penalty imposed by the statute did not apply to an action for the foreclosure of a mortgage. One of the grounds of the decision was that a mortgage, although in form a conveyance, is not so in fact and that the legal effect of a mortgage is merely to create a lien on the land which is an incident of the secured debt and that a foreclosure suit is simply an action for the collection of a debt and the enforcement of a lien. In the course of its decision the court, in referring to the character of mortgages, used the following language: “They pass no estate in the land, but are mere securities.” It is further said in the opinion: “It is manifest that the plaintiff did not, at the time of the commencement or trial of this action own or hold the mortgaged property, and therefore did not subject itself to the penalty imposed by section 299 of the Civil Code.” It may properly be observed that the last-quoted language is the real ground of the decision and that the language of the court

In Guinn v. McReynolds, 177 Cal. 230 [ 170 Pac. 421 ], which was a suit to foreclose a mortgage, the county of Tulare, a defendant in the action, set up a claim of lien for expenses incurred in eradicating infectious diseases and insect pests under section 2322a of the Political Code. On appeal by the aforesaid county a judgment in favor of the mortgagee was affirmed. The ground of the decision was that there was nothing to be discovered in the statute to indicate a legislative intent to make the county’s lien superior to other liens earlier in time. In discussing the matter the court adverted to the language of the statute which provides for the foreclosure of the county’s lien by sale of the property and that any surplus remaining shall be paid to the property owner. It was pointed out that the provision for the payment of the surplus furnished some ground for declaring that the legislative intent was that preexisting mortgage liens should not be afEeeted by the county lien. In connection with this phase of the case it was remarked that a mortgagee has no ownership or interest in the mortgaged land and that, under California law, he is merely the holder of a lien which is an incident of the debt. The language which declares that a mortgagee has no interest in the land is dictum not necessary to the decision.

In Johnson v. Razy, 181 Cal. 342 , at page 344 [ 184 Pac. 657 ], there is again a declaration that a mortgage lien is not an interest in mortgaged property but a mere lien thereon. Analysis of the court’s opinion discloses that this declaration is dictum.

With respect to the three above-mentioned authorities it may be observed that the statement that a mortgage vests in the mortgagee no estate or interest in the mortgaged land but creates merely a lien is a correct statement under the facts of those cases. We are not here, however, dealing with a problem which is similar to those that were presented in the cited eases. We are here dealing with the language of a particular statute which sets up machinery that may be utilized by a municipality in exercising the right to condemn private property for public use and which contains explicit directions as to the findings to be made by the referees who are appointed by the court to ascertain the compensation to

Respondent points to the fact that section 33 of the act now being considered defines various words and phrases used in the statute and that subdivision 7 of such section so defines the terms “owner” and “any person interested” as to eliminate the necessity of including a mortgagee as a party defendant in a condemnation action .brought under the provisions of the act. Examination of the entire act is, however, productive of the conclusion that the definition of the above-quoted terms set forth in subdivision 7 of the section refers to certain sections which relate to the levying and payment of assessments wherein these exact terms are used. The phraseology of section 10 to which reference has heretofore been made is definitely broader than the terms which are defined in subdivision 7 of section 33 and it is our conclusion that the language of the former section is not to be measured by the narrow limitations of the latter section. We are the more constrained to this view by reason of the language of subdivision 7 of section 33 which makes explicit reference to assessments.

Respondent further contends that the only issue in the prior action presented for the trial court’s determination

This contention is not appealing. As heretofore noted, section 10 of the act which bears the title ‘ ‘ Compensation and Damages” definitely requires the referees or court or jury to find the value of each parcel of property sought to be condemned and of each separate estate or interest therein and the damages that will accrue to the portion not sought to be condemned and to each separate estate or interest therein by reason of severance. The obvious purpose of requiring these findings would appear to be to enable the court to arrive at a determination of the compensation and damages to be awarded to all parties having an interest in the property affected by the condemnation proceedings. Section 12 of the statute provides that upon the confirmation of the report of the referees or receipt of the jury’s verdict, or the filing of the court’s findings, “the court shall make and enter an interlocutory judgment in accordance with such report, verdict or findings, adjudging that upon payment to the respective parties, or into court for their benefit, of the several amounts found due them as compensation, and of the costs allowed to them, the property involved in the action shall be condemned to the use of the plaintiff, and dedicated to the use specified in the complaint”. Section 31 of the act provides that upon satisfactory proof of payment of the awards to the respective parties entitled thereto, the court shall direct satisfaction of the interlocutory judgment and shall enter a final judgment of condemnation.

The three sections of the act to which reference has been made, viz., sections 10, 12 and 31, therefore provide a complete plan for ascertaining the value of any estate or interest in the property affected by a condemnation action brought in accordance with the provisions of this particular statute and for determining the compensation which shall be awarded for the taking and for ordering payment of the compensation

The respondent also contends in support of the judgment that, since it did not appear in the condemnation action although it was served with process, there could be no adjudication . binding upon it respecting the impairment of the security of the mortgage. This contention is lacking in merit (Morenhout v. Higuera, 32 Cal. 289 ).

It is also urged that the doctrine of res judicata is not here applicable because it is said that respondent and the mortgagor, Fred B. Dunn, were not adversaries in the prior action in condemnation. It is the rule that the doctrine is applicable only when it may be declared that the parties as to whom the doctrine is sought to be applied were adversary parties in the former action (Sec. 1910, Code Civ. Proc.; Estate of Heydenfeldt, 127 Cal. 456 , 459 [ 59 Pac. 839 ]; Robson v. Superior Court, 171 Cal. 588 , 594 [ 154 Pac. 8 ] ; Victor Oil Co. v. Drum, 184 Cal. 226 , 239 [ 193 Pac. 243 ]; Estate of Lloyd, 106 Cal. App. 507 , 512 [ 289 Pac. 892 ]). It must, however, be conceded that an action in condemnation is, in some respects, different from an ordinary action at law. Certainly an action brought under the provisions of the statute which is here involved presents certain aspects of differentiation. As has heretofore been observed, the duty is imposed upon the trial court to discover and to find the value of each parcel sought to be condemned and of each separate estate or interest therein and to enter an interlocutory judgment in accordance with the findings providing for payment of the compensation awarded to the parties to the action. It was said in Anderson v. Citizens Savings etc. Co., 185 Cal. 386 , 391 [ 197 Pac. 113 , 116], “It is one of the functions of a condemnation action to determine as between the defendants who is the owner of the property and therefore entitled to the compensation for its taking, and where it

The argument is ingenious but is not convincing. Assuming that the trust under which Dunn conveyed to the bank was void by reason of being a perpetuity the fact remains that at the time the condemnation action was instituted the record legal title stood in the bank. The trust being void the bank continued to hold the legal title in trust for Dunn. Dunn, therefore, was the real party in interest in the condemnation action. When, during the pendency of the condemnation action, Dunn was adjudicated a bankrupt and appellant was appointed his trustee in bankruptcy the latter succeeded to all of Dunn’s rights in the property sought to be condemned for the benefit of Dunn’s general creditors. There was thus privity of estate between Dunn, the real party in interest other than respondent in the condemnation action, and appellant, the trustee of the bankrupt estate. ' It is our opinion, therefore, that appellant is not foreclosed from invoking the doctrine of res judicata because of the seeming lack of privity for which respondent contends.

The judgment is therefore reversed with directions to the trial court to correct its findings and conclusions of law and to modify the judgment in accordance with the views herein expressed.

Barnard, P. J., and Marks, J., concurred.

A petition by respondents to have the cause heard in the Supreme Court, after judgment in the District Court of Appeal, was denied by the Supreme Court on July 25, 1935.