94 P. 998 | Kan. | 1908
The opinion of the court was delivered fey
The Showalter Mortgage Company, being the owner of a note secured by a real-estate mortgage, assigned both instruments to Charles E. Gibson. By written contract indorsed on the note it guaranteed
Gibson brought a suit to foreclose the mortgage. Cones answered setting up title under the tax deed, and prayed for a lien for taxes in case it should be held to be void. Gibson replied pointing out defects in the tax deed rendering it void on its face, and defended against the claimed lien for taxes by pleading the guaranty of the mortgage company. - Cones demurred to the latter portion of the reply, on the ground that the statute of limitations had run against the enforcement of the guaranty. The demurrer was overruled, judgment was rendered for the plaintiff, the tax deed was held to be void on its face, and Cones was denied any lien whatever. Of the ruling denying him a lien Cones complains.
Gibson claims that because Cones is the holder of an independent title to the land he is forbidden to plead the statute of limitations against recovery upon the mortgage, citing Ordway v. Cowles, 45 Kan. 447, 25 Pac. 862, and similar cases. The rule announced in those decisions has no application here. Cones does not invoke the statute on behalf of the maker of the note and mortgage, with whom he is not in privity, nor even against the note, and mortgage. He is defending against a guaranty pleaded by way of assault on his tax title. He is an assignee of the guarantor, the Showalter Mortgage Company, is its successor in relationship to the land, and holds the same rights it possessed. He is therefore in privity with it (Challis v. City of Atchison, 45 Kan. 22, 25 Pac. 228) and can make the defense the same as it might have done. (25 Cyc. 1006.)
Gibson argues that the purchase of the land by the mortgage company at tax sale did nothing more than effect a payment of the taxes; that the tax-sale certificate had no validity as such, and could be of no more consequence than a receipt for taxes paid; and hence that the tax deed conveyed no interest whatever in the land and carried with it no lien whatever upon the land. This argument is supported by the decisions in the cases of Howard Invest. Co. v. Benton Land Co., 5 Kan. App. 716, 46 Pac. 989, and Concordia Loan & Trust Co. v. Parrotte, 62 Neb. 629, 87 N. W. 348. In the case of Howard Invest. Co. v. Benton Land Co. the guaranty was identical in terms with the one now in controversy. The material part of the opinion reads as follows:
“The mortgage in question contained a clause making it the duty of the mortgagor *to pay the taxes upon the premises, but even if such a clause had not been inserted it would have been his duty so to do. When the Showalter Mortgage Company guaranteed the payment of the obligation of the mortgagor, it was equivalent to guaranteeing that his whole contract would be carried out; and by so doing it was placed in such a position of trust with relation to the defendant in error that the law will not permit it to obtain title by the failure upon the part of the mortgagor to pay the taxes upon the land mortgaged and the purchase of the land by it, at tax sale, on account of such default. The default of the mortgagor became the default of the company, and the purchase of the premises at tax sale was simply the payment of taxes by one whose duty it was to pay the same.” (Page 717.)
The attempt here made to derive the disability of the guarantor to take a tax title from the duty to pay taxes manifestly distorts the terms of the guaranty.
In the case of Concordia Loan & Trust Co. v. Parrotte, 62 Neb. 629, 87 N. W. 348, it was held that a person who guarantees the payment of a note and mortgage cannot, as against the owner of the note and mortgage, obtain a lien upon the mortgaged real estate by purchase at tax sale, mortgagor and guarantor being placed upon the same footing in that respect. While the decision proceeds upon two grounds, one of them involves the broad doctrine stated. The opinion (p. 632) quotes from Cooley on Taxation, and then proceeds, as appears by the following extracts:
“ 'Some persons, from their relation to the land or to the tax, are precluded from becoming purchasers on grounds which are apparent when their relation to the tax and to the property is shown. The title to be given*429 on a tax sale is a title based on the default of a person who owes to the public the duty to pay the tax, and the sale is made by way of enforcing that duty. But one person may owe the duty to the public, and another may owe it to the owner of the land by reason of contract or other relations. Such a cáse may exist where the land is occupied by a tenant who, by his lease, has obligated himself to pay taxes. Where this is the relation of the parties to the land, it would cause a shock to the moral sense if the law were to permit this tenant to neglect his duty and then take advantage thereof to cut off his lessor’s title by buying in the land at a tax sale. So the mortgagor, remaining in possession of the land, owes to the mortgagee a duty to keep down the taxes; and the law would justly be chargeable with connivance at fraud and dishonesty if a mortgagor might be suffered to permit the taxes to become delinquent and then discharge them by a purchase which would at the same time extinguish his mortgage. There is a general principle applicable to such cases which may be stated thus: That a purchase made by one whose duty it was to pay the taxes shall operate as payment only; he shall acquire no rights as against a third party by a neglect of the duty which he owed to such party. This principle is universal, and is so entirely reasonable and just as scarcely to need the support of authority. Show the existence of the duty, and the disqualification is made out in every instance.’ [2 Cooley, Tax., 3d ed., 963.] The duty to pay the debt is an obligation upon the guarantor equally with the maker, in the event the latter does not páy. It seems, therefore, that the guarantor ought, equitably, to be under the same disability with the maker in the matter of inj uring the means of payment. It would be as great a connivance at fraud and dishonesty in law to suffer the guarantor to pay the taxes on the property covered by the mortgage and give him a priority over the security as it would be to allow the maker to do those things. It is fully as equitable to prevent this wrong to the secured when done by the guarantor as when done by the maker, and that can be accomplished by placing both under the same disability.”
It is somewhat difficult to understand what bearing the quotation has upon the discussion and conclusion following it. The‘text cited bases the disability to take
There being no legal duty resting upon the guarantor to keep the mortgagee’s security intact by paying taxes on the land, the only valid ground of the decisions referred to is that the contract of guaranty creates a relation between the guarantor and the holder of the debt guaranteed which renders it inequitable for the guarantor to acquire a tax title to the land pledged as security for the debt. There may be some difficulty in demonstrating the soundness of this view. Clearly the offense does not lie in suffering the tax sale to occur, because the guarantor owes nobody the duty to prevent it. If upon a sale the land should, without collusion, be bid in by a stranger, the guarantor would be guilty of no fault. The mortgagee’s resources for the satisfaction of his debt would be diminished by the value of the land, but no blame could attach to the guarantor.
It is not necessary to a decision of this case that these , questions be answered. The court expresses no opinion upon them, but assumes that it might be wrong to the mortgagee to permit the guarantor to take a tax title to the real estate in controversy. The question then arises, Ought the guarantor to be put on the same footing with the mortgagor in that respect, as the Nebraska court and the Kansas court of appeals both held? The prohibition upon the guarantor ought to' extend no further than is necessary to accomplish justice, and if the guarantor can be protected from loss without injury to others that ought to be done. The great jurist who wrote the text quoted above recognized the rightfulness of tax titles voidable only at the instance of parties who would be injured, and then only to the extent necessary for their protection. (2 Cooley, Tax., 3d ed., 971.) Besides this, in deciding a case in
“Sometimes a party by the force of circumstances is placed in a position where another may.take the profit of his losses without being under obligation to make return; but the adjustment of legal rights on equitable principles is never meant to work such a result.” (Connecticut Mut. L. Ins. Co. v. Bulte, 45 Mich. 113, 123, 7 N. W. 707.)
If the mortgagor should pay his debt in full no principle of law or equity makes it necessary that he have his land free of the taxes which the guarantor and his successors in interest have paid. If the land should sell for enough at foreclosure sale to reimburse those who have paid the taxes as well as the mortgagee it would be grossly unjust to return the surplus above the mortgage indebtedness to the landowner and thus permit him to escape the payment of his taxes. If the guarantor should at any time be obliged to protect against a conveyance of the land for taxes, the landowner ought not to reap a profit from his own neglect of duty to the state and to the mortgagee and from the hardship of the guarantor, who has been obliged to discharge that duty for him. If the guarantor pay taxes outright or redeem from a tax sale he has no remedy. His outlay cannot be recovered. Therefore justice demands that, as against the landowner, the guarantor shall be allowed to bid at the tax sale, or if another holds the certificate, of sale to take an assignment of it. In due time he must then take out a tax deed or lose his lien, and if the landowner should continue in default, and should neglect or refuse to redeem, the tax deed should have the same effect against him as in other cases. Looked at from the side of the mortgagee, justice requires no more than that the rights of the guarantor be subordinated to his own. It is unconscionable for him to demand that the guarantor shall lose entirely the money advanced to protect his mortgage which he could have added to his lien if he had
This court is already virtually committed to this doctrine. In the case of Manley v. Debentures Co., 64 Kan. 573, 68 Pac. 31, the Kansas Trust and Banking Company had borrowed money upon its debenture bonds and had secured them by the deposit of real-estate mortgages taken from third parties to itself. The mortgages were foreclosed, the lands were bid in and title was taken in a “Debentures Liquidation Company,” to be disposed of for the benefit of the bondholders. Certain tax certificates upon the lands were taken .out with money furnished for the purpose by the banking company and for its benefit. These certificates were assigned to Mary A. Manley, as security for an indebtedness of the banking compány to her. With affairs in this situation; the debentures company occupying in legal effect the position of the bondholders, and Mary A. Manley holding no rights superior to those of her assignor, it was held the tax certificates should be canceled. In the opinion it was said:
“Where one has given, as security to his own debt, a mortgage given by another on property, such one can acquire no title to, or lien upon, such property so as to depreciate its value as such security. So that, in this action, when-the Kansas Trust and Banking Company purchased these tax-sale certificates, it amounted in law to a payment of the taxes thereon; at least, as between the debenture-holders and the Kansas Trust and Banking Company, or its assigns, having knowledge of these facts.” (Page 576.)
The carefully guarded limitations placed upon the scope of the decision are here italicized for emphasis.
The banking company occupied very nearly the position of a mortgagor.' Although the mortgages were given by third persons, the banking company used them
In view of the foregoing it must be held that the purchase of the land in controversy by the mortgage company at the tax sale did not constitute a payment of taxes the same as if the mortgagor had taken out the certificate of sale. The tax certificate carried with it a lien for taxes and the right to a tax deed. If the tax deed had been valid it would have conferred title good against all persons except the mortgagee. Being invalid, it entitles the holder to a lien for taxes superior to all interests except those of the mortgagee. By lapse of time and inaction on the part of the mortgagee he has lost the right to interpose the only fact which would subordinate the tax lien to his own. The remedy on the guaranty being barred by the statute of limitations, the guaranty is no longer a factor in the relations of the parties. In this suit it has no more legal effect upon the rights of the parties than would be the case if no guaranty had been given, and the tax-title holder has all the rights which a stranger to the mortgage debt would have..
The judgment of the district court is reversed and the cause is remanded, with instructions to proceed further according to the views herein expressed.