Broun v. City of Roanoke

Browning, J., delivered the opinion of the court. This case arose over the payment, under protest, by C. M. Broun, the appellant, of $500.33, with certain interest, which is the aggregate of taxes against a certain parcel of real estate in the city of Roanoke, for the years 1924, 1925, 1926 and 1927, which were levied by the State of Virginia and the city of Roanoke and had not been paid and were, therefore, on the delinquent list. e The title to the land had been in a number of persons, through successive alienations, and in September, 1922, the then owner executed a deed of trust conveying it to W. L. Welborn, Trustee, to secure the payment of two certain bonds. The grantors were designated as parties of the first part, the trustee as party of the second part, and the payees of the bonds as parties of the third part. This relation of the parties is mentioned because it will be of aid in discussing the provisions of the deed of trust. We quote a part of it: “And the said party or parties of the first part covenants or covenant as follows: Hí Hí H* H* ❖ “Second: That so long as any part of the debt or debts secured by this deed shall be unpaid, to remove from said premises all statutory lien claims; to protect all title and. possession of said real estate; and to pay when the same shall become due, all taxes and assessments now existing or hereafter levied or assessed upon said real estate or the interest therein created by this deed or which by the laws of Virginia may be levied or assessed against said trustee, or his successors in trust, or the legal holder or holders of — 230 — said bond or bonds, for or on account of the debt or debts secured by this deed or the interest in said real estate thereby secured.” The fifth clause of the deed of trust declares what the parties of the second and third part may, if they shall so elect, do in the event of a failure or neglect of the parties of the first part to perform the covenants enumerated in the second clause, quoted above, and certain pertinent things that they may do are thus expressed: “ * * *- pay such taxes and assessments with accrued interest, officers’ fees and expenses thereof, redeem such premises, which may be sold or forfeited for taxes or assessments thereon; purchase any tax title thereof; remove any statutory liens; * * * ” And it further provides that any sums which may be so paid -.out for such purposes shall be deemed a part of the debt secured by said deed of trust; and it is further provided that, “such liens, claims, taxes, assessments or tax titles so purchased, paid or redeemed by said parties of the second or third part, or the legal holder or holders of the said bond or bonds shall, as between the parties hereto, and their interest, be deemed valid so that in no event shall the necessity or validity of any such payments be disputed.” It is further provided in the seventh clause of the trust deed that in the event of any default as to the payments of money or breach of the covenants therein, the said trustee shall sell the property upon such terms and conditions as he or the parties of the third part, etc., “ * * * may deem expedient or most beneficial to the trust,” and in the event of sale the purchaser shall in no case be required to look to the application of the purchase money. The trust deed then provides for the application of the proceeds of sale and clause two stipulates that the trustee shall pay and satisfy the indebtedness secured by said deed, remaining unpaid. Since taxable real estate and tangible personal property have been segregated and made subject to local taxation only, the taxes levied upon city real estate are for the — 231 — benefit of the particular city. By express words the provisions of section 5167 of the Code made the parties to every deed of trust “and the beneficiaries thereunder,” subject to its terms, except as far as may be otherwise provided in the deed of trust. In the event of a foreclosure sale of city real estate, under a deed of trust, the city is a beneficiary to the extent of the unpaid taxes against such real estate. The trustee, in such case, shall collect the taxes for the city and pay them to the city treasurer. The provisions of the section referred to, in the case of a foreclosure, set up a simple and expeditious machinery for the collection of the city’s taxes. The city has nothing to do in the premises, but it receives the benefit of the services of the trustee. If the trustee collects the taxes and the city receives them from him, he is certainly the city’s agent in the transaction. He is equally so, if he collects the taxes, and fails to pay them to the city. He receives the money charged with the payment of the taxes, when he collects the purchase price of the property foreclosed. On May 18, 1927, W. L. Welborn, Trustee, advertised the property for sale, and the terms were expressed as follows: “For cash, sufficient to pay the costs of executing the trust, including a trustee’s commission of 5 per cent, and the whole amount of the debt secured by the aforesaid deed of trust, to-wit: $2,700.00 with interest from October 15, 1926, until paid, and also all taxes and all other assessments unpaid, and the residue, if any, in three equal annual installments with interest, payable semi-annually.” It will thus be noted that the trustee was, by the express terms of the deed of trust, given the authority and the power to fix the terms of the sale. This being true, and there being no provision of law to the contrary, there can be no valid objection to the exercise of such authority by the trustee. We further observe that by certain provisions of the deed of trust, as has been pointed out, the — 232 — trustee had the right, if he so elected, to pay the taxes and assessments and to remove any statutory lien existent. The advertisement of sale stipulating that he would require the payment in cash of sufficient money to do these very things, can be nothing else than the exercise of his right of election to do so. We further accentuate the provision of the deed of trust which makes such payments a part of the debt secured by it, and the door to the right to question the acts of the trustee is closed because the necessity for, or the validity of such acts cannot be disputed. This latter is also by express provision of the deed of trust. Then, too, the purchaser, by the terms of the deed, is not required to look to the application of the purchase money. It is thus perceived that the trustee plumbed the way marked out by his chart until the date of the sale and the collection of the proceeds. Whatever may have been his subsequent obliquities is a matter of no concern here. It is suggested in the city’s brief that the payment of these various charges and liens under the provisions cited, referred to the exercise of such duties before the sale. Their actual discharge or consummation must be a verity in order to have the status contemplated by the terms of the trust deed. We think this cannot be, for the very good and sufficient reason that there were no funds with which the trustee could have done these things and there were no provisions establishing any source of their being. We do not think that it could be fairly contended that it was the duty of the trustee to have personally provided funds for the purposes we have been considering. The whole scheme of the provisions of the trust deed seems to present a perfect set-up of security to the purchaser against anything harmful to him, either by design or fortuity, to lure him into the most innocent and harmless state of repose. He paid the purchase price in question in cash. It was more than sufficient to pay the deed of trust indebtedness and all commissions, costs, taxes and — 233 — charges, including, in the language of the trust deed, “to remove any statutory liens on said premises.” He rested upon the strength of the confidence which he had been induced to entertain. What else would a reasonable person have been expected to do ? The trustee did not do what he had advertised that he had elected to do. He died insolvent. The tax gatherers went after the appellant for the payment of the taxes. He paid the money under protest and brought action under a notice of motion for judgment against the city of Roanoke for the sum of $500.33. Upon an agreed statement of facts, and without the intervention of a jury, the court ordered that the plaintiff recover nothing of the said defendant, and that the defendant recover against the plaintiff judgment for its costs, etc. In addition to what we have said about the terms of the deed of trust, we advert again to the terms of the statute, section 5167 of the Code, which was the law in 1927 when the sale of the property was had. The part of the section referred to and which is pertinent here is clause 12, which came of the Acts of the Assembly of Virginia of 1926, ch. 324, page 591. The portion of the section referred to is as follows: “The trustee shall receive and receipt for the proceeds of sale, no purchaser being required to see to the application of the proceeds, and apply the same, first, to discharge the expenses of executing the trust, including a commission to the trustee of five per centum of the gross proceeds of sale; secondly, to discharge all taxes, levies, and assessments, with costs and interest, including the due pro rata thereof for the current year; thirdly, to discharge in the order of their priority, if any, the remaining debts and obligations secured by the deed with lawful interest; and, fourthly, the residue of the proceeds shall be paid to the grantor or his assigns; provided, however, that the trustee as to such residue shall not be bound by any inheritance, devise, conveyance, assignment or lien of, or upon the grantor’s equity, without actual notice thereof prior to distribution.” — 234 — Thus the law applicable and the deed of trust, in their major provisions, seem to run parallel with each other; the only difference of importance is that in the latter there is no provision which, in so many words, requires the trustee to pay the taxes and costs of the removal of statutory liens. But in our judgment this requirement is included in the second clause pertaining to the application of the proceeds of sale. This clause, it will be remembered, provides for the satisfaction of the indebtedness secured by the deed remaining unpaid, and a previous provision makes the sums in payment of the taxes, etc., a part of the debt secured by the deed. It is urged that the trustee failed to make such payments; therefore, the contention is inept. The reply is, as is said before, that for the collection of the taxes represented by the city’s lien, the trustee is the city’s agent, by provision of law. Its agent defaulted. The purchaser paid the purchase price and, through no fault of his, the trustee failed in the performance of his duties as such. Under the circumstances, who should suffer? The purchaser did all that would occur to a reasonable person as necessary to do. In this position he was fortified by the provisions of the trust deed and by the appropriate provisions of the law. Section 6270 provides, in part, that no purchaser at a duly authorized sale made by a trustee shall be required to see to the application of the purchase money. An annotation of the Code under this section is as follows: “It is true under this section the purchaser from a trustee is not required to see to the application of purchase money; but, if he does not pay the purchase money, and legal title is conveyed to him, he takes it subject to the same equities as attached to it in the hands of the trustee. Ballard Bros. Fish Co. v. Stephenson, 49 F. (2d) 581, 584.” It would seem that the converse of this proposition is true, that is, if the purchaser did pay the purchase money, and the conveyance were made to him, he would take the — 235 — legal title free from the equities that attached to it in the hands of the trustee. We have found no cases from this court that bear directly upon the issues here involved, but we think that the conclusion we have' reached upon this phase of the case which we have discussed is the right one and the sound one. It is of special significance to observe that wholesome public policy demands that property exposed to public auction sale shall bring the highest price obtainable. The legislature of the state, through sections 5167 and 6270 of the Code, has made this policy effective by assuring purchasers, at trustees’ and commissioners’ sales, that they will take the property free of delinquent tax lien, and that the taxes will be paid by the trustee out of the purchase price which he has collected. If prospective purchasers are to be required to assume the risk of delinquent taxes they will be discouraged in bidding in the future. Of course, the legislature, to avoid what happened in this case, could require, by statute, that all trustees who foreclose deeds of trust shall give bond for the faithful discharge of their duties. It is well to note that lienors who are not secured in the deed of trust which is to be foreclosed, are neither parties nor beneficiaries thereunder. Therefore, they do not suffer if the trustee defaults. Only those beneficiaries in the deed to be foreclosed lose when the trustee defaults. It may be proper to say that for certain of the delinquent taxes (1924) there was a sale of the land in January, 1926. It was purchased by the pseudo treasurer in the name of the Auditor of Public Accounts for the benefit of the State of Virginia and the city of Roanoke, and the taxes and costs, including interest, incident to this, were included in the amount paid by the purchaser and sued for herein. It is stipulated in the agreed statement of facts that the purchaser had no actual knowledge of the taxes which were unpaid and delinquent. — 236 — The validity of the tax assessments and sale, as not being in accord with the rigid requirements of the law in such cases, is vigorously assailed by the purchaser. It is unnecessary to consider this, inasmuch as we have already disposed of the case. It is our opinion to reverse the judgment of the trial court and remand the case thereto for the entry of a judgment which will be in accord with the expressions herein. Reversed and remanded.