Waring v. National Savings & Trust Co.

Offutt, J., delivered the opinion of the court. On May 19th, 1911, Samuel W. Piekford and .Katie W. Piekford, his wife, executed a mortgage deed of trust on a lot of ground in llyattsville, Prince George’s County, to Millard Metzger and Andrew R. Benson, trustees., to secure the payment of a loan of $1,500, made by Millard C. Metzger to Samuel W. Piekford, according to the terms of two promissory notes bearing even date witb the deed and payable three years after date. At the time this suit was instituted Millard Metzger, the trustee, and Millard C. Metzger, the payee named in said notes, were both dead. Letters testamentary had been granted on May 18th, 1917, on the estate of Millard O. Metzger, in the District of Columbia, to the National Saviugs & Trust Company and Nathan II.

Metzger, who was also dead at the time the bill of complaint, in this case was hied, so that, at that time the trustees were represented by Andrew R. Benson, the surviving trustee, and the estate of Millard O. Metzger by the National Saviugs & Trust Company, the surviving executor. The deed contained a provision authorizing the mortgagors to remain in possession of the mortgaged property until a default occurred under it, and the covenants usually found in such an instrument, including a covenant to pay “all taxes upon the said huid.” On July 19th, 1912, the grantors named in the deed of trust conveyed the property to Isaac H. Radford, subject to ³⁷⁰ tho operation of said deed, and on February 26th, 1914, Radford and Anna Radford, his wife, conveyed it to Frederick W. Youmans of Delhi, FT. Y., subject to said deed of trust, and on May 8th, 1918, Frederick W. Youmans conveyed it by a quit claim deed to Charles F. Waring, the appellant. In the meantime the state and county taxes on the property for the year 1914 became due and in arrear, and on the first Monday in March, 1915, the property was sold, for the taxes so due and in arrear, to the County Commissioners of Prince George’s County, and on September 24th, 1917, said property was again “sold” with “all property then owned by” said county to the said County Commissioners, for “taxes, interest, penalties and costs due the said state and county for “taxes for the years 1914, 1915, 1916, 1917, amounting in all” to $107.98, and on May 7th, 1918, the said County Commissioners ordered the land sold to Charles F. Waring, the appellant, for the “taxes, interest, penalties and costs for taxes” due for the years 1915 to 1918, inclusive, and on May 21st, 1918, thirteen days after he had taken a deed for the same property from Youmans, Waring took a deed for it from the treasurer of Prince George’s County, executed in pursuance of the said order of the said County Commissioners.

Prior to April 22nd, 1918, Waring, in negotiating for the purchase of the property in a letter to Youmans, offered' him $50 for it, and explained the offer by representing that the property was in bad repair, that there was a “trust” on it for $1,500, with accrued interest since 1911, and as a result of these representations Youmans executed the quit claim deed for. $50. After the execution of these two deeds Waring claimed to own the property by title paramount, clear of any lien or incumbrance created by the deed of trust. The appellees thereupon filed this bill to enforce the lien of the mortgage deed of trust, and to have the tax deed declared void as against ³⁷¹ the appellees, on the ground that it was fraudulent as against them. In addition to the facts which have been stated, the bill alleged that the deed from the treasurer of Prince George’s County to Waring wTas fraudulent and void as to the appellees for reasons which may be thus summarized: (u) That prior to the execution of said deed Waring was the equitable owner of the land described therein and as such was hound to pay the taxes, interest, costs and penalty accrued against the same and to redeem it from the tax sale; (6) that the covenant to pay taxes contained in the deed of trust ran with the land and bound all subsequent owners thereof including Waring; (c) that under the deed of trust the land was re-demised to the grantors named therein, and that in consequence thereof said grantors, their heirs and assigns, and especially Waring, occupied a position of trust and confidence in their relation to Millard O. Metzger and his personal representatives, and became tbe tenant of said land so far as the appellees were concerned, and as sncli were hound to pay the taxes and public dues and charges thereon and redeem it from the tax sale; (<f) that Waring under his contract with You-mans “assumed the payment of the money secured by said deed of trust” and the interest thereon, and that the deed from Fuller (the treasurer) to Waring prevented the appellees from enforcing that lien; (c) that when Waring recited, as an inducement to Youmans. to sell the property for $50, that he, Waring, would have to pay the sum of $1,500 with .interest from May, 1911, “he contracted and agreed with said Youmans to pay to the legal holder of said deed of trust” said sum, and (/) that Waring when “he made said contract to purchase said real estate for $50, and recited therein that said property would stand him $1,500 with interest from 1911” constituted said property a trust fund to pay to the owners of said deed of trust such sums.

It was further alleged that the tax deed was void because of defects in the proceedings culminating in the tax sale. ³⁷² These supposed defects Were, that the treasurer, in advertising the property at tax sale, did not sufficiently identify it or state the amount of taxes due thereon. It was also stated that no part of the principal or interest of the debt secured by the deed of trust had been paid. The appellant demurred to the bill of complaint on the grounds that it failed to state a case for- equitable relief and that there was no privity between the parties. The court passed an order overruling the demurrer and from that order this appeal was taken.

If we assume, as we must, in considering the demurrer, that all allegations of fact properly pleaded in the bill are true (Outlaw v. Outlaw, 118 Md. 498 ), the situation of the parties appears to be clear enough. After the execution of the deed of trust, the grantors or their assigns permitted the property to be sold for taxes. It appears to have been worth at that- time little more than the accrued taxes and-charges incidental thereto, and the principal and interest of the mortgage debt. Waring wanted the property, but he wanted it clear of the mortgage; so in negotiating with Youmans for its purchase he tx-eated the deed of trust as a valid and existing lien, in order that Youmans would thereby be induced to deduct the amount of the debt secux*ed by the deed of trust from the actual value of the property in fixing the pux’chase price.

Youmans, who appears from his deed to have resided in New York, in consequence of these representations, did sell the property to Waring for $50, which represented the value of his equity as appraised by Waring if the deed of trust was in fact still a subsisting lien. Waxfing, after having bought the property on that basis, deixied that the deed of trust was a valid and subsisting lien, on the ground that all the interest which the lienors had in the property had beeix acquired by the County Commissioners of Prince George’s County from whom he had taken title. If he successfully maintained that contention, as a result of the devious processes by which he acquired the property, his profit from the ³⁷³ transaction would be the amount of the debt and interest secured by the deed of trust. The substantial questions before us therefore are whether Waring acquired from the treasurer of Prince George’s County a title to the property in question free from any lien or incumbrance arising under the deed of trust, and if he did not are the appellees entitled to the particular relief which they pray in their bill.

In. considering these questions the allegations of fraud contained in the bill may he disregarded as immaterial, since the appellees’ right to relief, if it exists at all, must rest upon other grounds,' because all the allegations designed to-show fraud relate to a supposed fraud practised, not upon the appellees, hut upon Youmans, the holder of the equity of redemption, who is not a party to the- suit. Before considering the legal effect of the allegations of fact contained in the hill, we will state briefly the rules of law applicable to and controlling them. That a mortgagor or his assignee in possession of property, the taxes upon which he isi hound by the covenants of the mortgage to pay, cannot at a tax sale held in consequence of a breach of his duty to pay taxes, acquire a title to the property free- of the lien of the mortgage, is a principle which is generally recognized, and which, has been thus stated, “the mortgagor remaining in possession of the land owes to the mortgagee a duty to keep down the taxes; and the law would justly he chargeable with connivance: at fraud and dishonesty, if a mortgagor might he 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 eases which may be stated thus: What a purchase made by one whose duty it was to pay the taxes shall operate as a payment only; he shall acquire no rights as against a third party by a neglect of the duty which he owed to such party.’ ” 3 Cooley, Taxation, 965.

And the same principle is stated in slightly dif ³⁷⁴ ferent language in 26 R. C. L., p. 412, where it is said: “It is a general principle of law that one who is under an obligation to pay taxes on lands, such as a co-tenant, a lessee, a life tenant, a mortgagor or a mortgagee, cannot strengthen his title thereto by buying in the tax title when the property is sold as a consequence of his omission to make such payment.” This principle was recognized and applied by this Court in the case of Oppenheimer v. Levi, 96 Md. 304 . It is true that that was a case of landlord and tenant, but the duty owed by the tenant to pay the taxes to which the court referred there cannot be distinguished in principle from the duty owed by a mortgagor to pay taxes levied on the mortgaged property, where the obligation to pay them rests upon one of the covenants of the mortgage. 37 Cyc. 1346. Such a covenant runs with the land and is binding upon all persons becoming the owners thereof claiming under the mortgagor, under the rule announced in Barron v. Whiteside, 89 Md. 458 , in which this Court, in referring to a similar covenant, said: “In each of Mrs. Barron’s mortgages there was a provision that until default was made the mortgagor might hold and possess the premises, and receive the rents' and profits thereof, upon paying in the meantime the ground rent and all taxes on the premises; and there was an express covenant by the mortgagor for himself and his assigns to pay the same when legally demandable. This covenant runs with the land and binds the appellee.

Mayhew v. Hardesty, 8 Md. 495 ; Worthington v. Cooke, 52 Md. 309 .” And in Schooley v. Romain, 31 Md. 574 , this Court, in speaking of the obligations resting upon the grantee of land encumbered by a mortgage, said: “We agree also with the Circuit Court in the opinion that the appellants, as assignees of the equity of redemption, took the land subject to the mortgage, and the covenants therein, which may be enforced against the land in the same manner and to the same extent as if the assignment had not been made.”