Opinion ID: 2111783
Heading Depth: 1
Heading Rank: 4

Heading: analysis

Text: Under Nebraska law, where a mechanics' lien attaches only to the leasehold estate and not to the fee, termination of the leasehold estate leaves nothing upon which the mechanics' lien may operate. See Stevens v. Burnham, 62 Neb. 672, 87 N.W. 546 (1901). A tenant cannot without the authority of the landlord charge the land with a lien for materials for constructing a building thereon. Platner Lumber Co. v. Krug Park Amusement Co., 131 Neb. 831, 270 N.W. 473 (1936). However, although a mechanics' lien when filed attaches only to an equitable estate, it may be enforced against the fee after the equitable and legal titles have merged. Landmark Enterprises, supra ; Franksen v. Crossroads Joint Venture, 245 Neb. 863, 515 N.W.2d 794 (1994). The general rule is that where two unequal estates vest in the same person at the same time without an intervening estate, the smaller is thereupon merged into the greater. Landmark Enterprises, supra . The doctrine of merger, however, is not favored, and equity `will prevent or permit a merger as will best subserve the purposes of justice and the actual and just intent of the parties, whether express or implied.' Id. at 889, 554 N.W.2d at 124, quoting Franksen, supra . As a consequence, merger does not always or necessarily result from a coinciding of two unequal estates. Landmark Enterprises, supra . In determining whether an equitable merger has taken place, a court is to consider the circumstances of the particular case in the light of equity and good conscience. Id.; Franksen, supra . Applying these principles in cases where the fee owner has retaken possession of leased premises after completion of leasehold improvements and the tenant's subsequent default, we have focused upon whether the conduct of the fee owner during the construction of leasehold improvements was such that the owner should be estopped from retaining the benefit of the improvements. For example, in Harte v. Shukert, 94 Neb. 210, 142 N.W. 517 (1913), Tolf Hanson leased premises in a two-story building from Gustave Shukert for a period of 10 years beginning April 1, 1908. Under the terms of the lease, failure to pay rent when due gave Shukert the right to declare the lease to be at an end and to take immediate possession of the premises. The lease also provided that any improvements to the premises made by the tenant would revert to the owner at the end of the lease. Hanson hired John Harte to make improvements to the space, with Shukert's consent. Harte began work in November 1907 and completed $70,000 worth of work before Hanson became insolvent in June 1909. When Harte attempted to assert his lien against the fee, Shukert argued that he had terminated the leasehold because on the first day of May, June, and July 1909, he had made demand for the amount due and unpaid upon Hanson, and that on July 31, he notified Hanson in writing to vacate the premises within 3 days. The evidence established that regardless of these demands, Shukert was aware of the improvements being made to the premises for more than a year, during which time he failed to exact payment of the monthly rentals or attempt to cancel the lease. Instead, he accepted rent after the time for which it should have been paid and permitted the work to continue to the detriment of Hanson and Harte. We determined that because Shukert had not exercised his option to terminate the lease at an earlier date, even though he was aware of the tenant's financial difficulties, he was estopped from asserting the termination of the lease as to the lienholder and that the doctrine of equitable merger applied. Similar circumstances were presented in Waite Lumber Co. v. Masid Bros., Inc., 189 Neb. 10, 200 N.W.2d 119 (1972). Masid Bros., Inc., was the fee owner of a one-story brick building. It leased half of the building to Chris Verges for use as a restaurant. The lease was for a term of 10 years and provided that all remodeling expenses would be the responsibility of Verges. Masid was to perform some of the work, including bringing utilities to the premises and enclosing open pipes in the building. Verges entered into various agreements with contractors and subcontractors, who performed work on the project. When Verges suddenly abandoned the premises after substantial improvements had been made, the claimants sought to enforce their liens against Masid, with which they had no contract. In determining that the equitable doctrine of merger applied, we noted that notwithstanding its knowledge of the construction in progress and the fact that Verges had defaulted on lease payments during the construction period, Masid did nothing to cancel the lease. Thus, because Masid was aware that Verges was unable to meet his financial obligations earlier but had failed at that time to exercise its right to terminate the lease, we held that Masid was equitably estopped from asserting the termination of the leasehold estate. We most recently considered the doctrine of equitable merger in Landmark Enterprises v. M.I. Harrisburg Assocs., 250 Neb. 882, 554 N.W.2d 119 (1996). In that case, M.I. Harrisburg Associates leased unimproved space to Darren Owen for use as a cocktail lounge. Pursuant to a contract with Owen, Landmark Enterprises, Inc. (Landmark), made leasehold improvements for which it charged Owen $73,665. After construction was completed, Owen became delinquent in his lease payments and failed to pay Landmark the remaining $11,285 due for the improvements. Landmark filed a construction lien, and Harrisburg subsequently terminated the lease and relet the premises to another tenant which operated the cocktail lounge, utilizing the leasehold improvements installed by Landmark. In rejecting Landmark's contention that the doctrine of equitable merger permitted enforcement of the lien against Harrisburg, we noted that the facts were distinguishable from Waite Lumber Co., supra, in that the landlord had no duty to pay for any of the improvements and that the tenant's default occurred after construction of the improvements was completed. We did not refer specifically to principles of estoppel, but concluded that while Harrisburg had been enriched by the improvements, such enrichment is not the result of any wrongdoing on Harrisburg's part. Landmark Enterprises, 250 Neb. at 893, 554 N.W.2d at 126. In this context, our reference to an absence of wrongdoing was simply a recognition that there were no acts or omissions on the part of the landlord which would operate as an estoppel triggering the doctrine of equitable merger. In this appeal, CJV contends that the district court erred in applying the doctrine of equitable merger for two reasons. First, it contends that its conduct during construction of the project does not support a finding of estoppel. Second, it contends that the evidence does not support a finding that it was enriched by the improvements which is, in part, based upon an argument that expert testimony on this subject was erroneously admitted. In our de novo review, we will analyze these issues separately.