Opinion ID: 2409465
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Heading: reimbursement to tower for taxes

Text: Neither Smart nor Tower disputes that under the deed of trust Smart was obligated to pay taxes assessed on the property during the mortgage; the parties disagree, however, on how Smart's liability to Tower for failure to pay taxes may be enforced. Both the trial court and the court of civil appeals held that Tower could pay the delinquent taxes after having purchased the property at the mortgage foreclosure sale and subsequently obtain a personal judgment against Smart for reimbursement. We will consider first whether the contractual relationship between Tower as mortgagee and Smart as mortgagor gives rise to a personal debt for taxes, and second, whether principles of equitable subrogation entitle Tower to obtain a personal judgment for reimbursement. We first find that the mortgage contract did not give rise to a personal debt for taxes owed by Smart to Tower. Many Texas cases have held that if a mortgagor fails to pay taxes he has promised to pay, the mortgagee may treat the amount owed for taxes as part of the mortgage debt. In the usual mortgage agreement the rights and obligations of the mortgagor and mortgagee for expenses such as property taxes are set out in the deed of trust, and the duty to pay taxes is ordinarily the mortgagor's. If the mortgagor fails to pay the taxes, the mortgagee may pay them and the amount paid for taxes is considered to be a part of the mortgage debt. Both the mortgagor's obligation to pay the amount due on the purchase price and his obligation to pay taxes are secured by the mortgage. See Stone v. Tilley, 100 Tex. 487, 101 S.W. 201, 201-02 (1907); Peurifoy v. Wiebusch, 174 S.W.2d 619, 623 (Tex.Civ.App.El Paso 1943, no writ); Bryan v. Dallas Nat'l Bank, 135 S.W.2d 249, 253 (Tex.Civ.App.Dallas 1939, writ dism'd judgmt cor.); Young v. Harbin Citrus Groves, 130 S.W.2d 896, 901 (Tex.Civ.App.San Antonio 1939, writ ref'd); Yates v. Home Building & Loan Co., 103 S.W.2d 1081, 1087 (Tex.Civ.App.Beaumont 1937, no writ); Jefferson Standard Life Ins. Co. v. Lindsey, 94 S.W.2d 549, 551-52 (Tex.Civ.App.Eastland 1936, writ dism'd); The Praetorians v. State, 53 S.W.2d 334, 335 (Tex.Civ.App.Waco 1932, writ ref'd); Wood v. Scott, 48 S.W.2d 1024, 1025 (Tex.Civ.App.Waco 1932, writ ref'd). Four documents represent the mortgage transaction between Smart and Tower: a contract of sale, an installment note, a deed of trust, and an extension agreement. Smart and Tower have agreed that these documents comprise their entire agreement. The installment note, containing Smart's promise to pay the purchase price and interest, also contains the following nonpersonal liability provision: [t]he maker hereof is not now or shall he ever be personally liable on this note .... The deed of trust form contains the following paragraph, quoted in pertinent part, which sets out the rights and duties of the parties with respect to property taxes: It is agreed and stipulated that [Smart] shall and will at [his] own proper cost and expense, keep the property and premises herein described, and upon which a lien is hereby given and created, in good repair and condition, and to pay and discharge as they are or may become payable, all and every taxes and assessments that are or may become payable thereon under any law, ordinance or regulation, whether made by Federal, State, or Municipal authority, and shall keep said property fully insured.... And in case of default made by [Smart] in performance of any of the foregoing stipulations, the same may be performed by the holder of said indebtedness, for account and at the expense of [Smart], and any and all expenses incurred and paid in so doing shall be payable by [Smart] to [Tower] with interest at the rate of ten per cent per annum from the date when the same was so incurred or paid, and shall stand secured and payable by and under this deed in like manner with the other indebtedness herein mentioned.... According to Tower's interpretation of this paragraph, Smart's promise to reimburse Tower for taxes is to exist as a personal debt independent of the mortgage debt. Tower emphasizes the following phrase from the paragraph: and any and all expenses incurred and paid in so doing shall be payable by [Smart] to [Tower] .... Although the words, shall be payable, standing alone may lend some support to the interpretation urged by Tower, we adhere to the rule that [i]t is the duty of the Court to construe the contract as an entire instrument, and to consider each part with every other part so that the effect and meaning of one part on any other part may be determined. Steeger v. Beard Drilling, Inc., 371 S.W.2d 684, 688 (Tex.1963). Immediately following the shall be payable phrase is the phrase and shall stand secured and payable by and under this deed in like manner with the other indebtedness herein mentioned .... The other indebtedness is Smart's promissory note for the purchase price and interest, which is described in the deed of trust form as follows: Said note provides that the maker has no personal liability thereunder ... The tax payment provision in the deed of trust provides that Smart's liability to Tower for tax reimbursement was to be secured and payable in like manner as his note. Under these provisions, Tower was entitled to pursue his right to reimbursement for taxes at foreclosure, when he pursued his right to receive the balance due on Smart's note. Both the purchase money debt and the tax debt comprised a single mortgage debt to be enforced at foreclosure without personal liability. We do not find that the words shall be payable by [Smart] give rise to an additional remedy for tax reimbursement, enforceable apart from foreclosure. By the terms of the installment note and the deed of trust Smart and Tower limited the purchase money debt to a nonpersonal liability, enforceable only by foreclosure proceedings against the property. Under the deed of trust, Smart's liability for tax reimbursement is made part of the mortgage debt. There is no contractual authority created whereby Tower is also entitled to enforce his right to reimbursement as a personal debt. Regardless whether Tower paid taxes before or after foreclosure, he did not acquire the right to a personal judgment against Smart. The Extension of Lien agreement executed in 1974 supplies an additional reason for holding that Smart and Tower intended all of Smart's obligations under the mortgage to be nonpersonal. It contains the following provision: And [Smart and Tower] also agree ... that the lien given and retained to secure the payment of said Note and all the agreements and covenants therein, shall remain in full force and effect. This extension lien is without personal liability. (Emphasis added). We conclude that the parties did not contract for personal liability for taxes. [1] Tower contends that notwithstanding the terms of the mortgage contract, under principles of equitable subrogation, it is entitled to a personal judgment against Smart for tax reimbursement. Equitable subrogation may be invoked to prevent unjust enrichment when one person confers upon another a benefit that is not required by legal duty or contract. A right to subrogation is often asserted by one who pays a debt owed by another. If entitled to full subrogation, the payor is allowed to enforce the rights available to the creditor, such as rights against the debt's security. Subrogation to the creditor's rights is available, however, only when the debtor was enriched unjustly; thus, the payor who confers a benefit as a mere volunteer is not entitled to this remedy. Oury v. Saunders, 77 Tex. 278, 13 S.W. 1030, 1031 (1890). Often one who pays real property taxes assessed while the property was owned by another asserts a right to be subrogated to the taxing authority's constitutional and statutory lien. Under this lien, liability for taxes is secured by the property and may be enforced by foreclosure. See Tex. Const. art. VIII, § 15; Tex.Rev.Civ.Stat.Ann. art. 7172 (Vernon Supp. 1979). Other special rights and privileges have been held to inure to the taxing authority in addition to its lien, such as the right to enforce tax liability as a personal debt. See Texas Vegetable Union v. Zavala-Dimmitt Counties Water Imp. Dist. No. 1, 57 S.W.2d 883 (Tex.Civ. App.San Antonio 1933, writ ref'd); Humble Oil & Refining Co. v. State, 3 S.W.2d 559 (Tex.Civ.App.Waco 1927, writ ref'd). Whether one who pays property taxes assessed on property owned by another is entitled to subrogation to the taxing authority's lien, and if so, the extent to which he is subrogated, equitably or otherwise, to the special privileges accompanying the lien, has been the source of much litigation. The taxpayer's right to subrogation may arise by statute, see McDonald v. Doyschen, 28 S.W.2d 243, 246 (Tex.Civ.App.Fort Worth 1930, no writ), or by express agreement, see Dotson v. Pahl, 206 S.W.2d 272, 273 (Tex.Civ.App.Austin 1947, no writ); Kauffmann v. Hahn, 59 S.W.2d 435, 436 (Tex.Civ.App.San Antonio 1933, no writ); Texas Bank & Trust Co. v. Bankers' Life Co., 43 S.W.2d 631, 631 (Tex.Civ.App. Waco 1931, writ ref'd). Furthermore, there is a statutory procedure whereby the taxing authority's lien may be transferred. See Tex.Rev.Civ.Stat.Ann. art. 7345a (Vernon Supp. 1979). Even in the absence of statutory or contractual authorization, a limited right to equitable subrogation may arise in accordance with certain well-established rules of law. The rule set out in Stone v. Tilley, supra, 101 S.W. at 202, with respect to a mortgagee who pays taxes that his mortgagor is under a duty to pay is consistent with general principles of subrogation. The mortgagee's interest in the security of his mortgage makes him more than a mere volunteer when he pays taxes owed by the mortgagor. Burkhardt v. Lieberman, 138 Tex. 409, 159 S.W.2d 847, 853 (1942). Because the relationship between the mortgagor and mortgagee is contractual, the extent to which the mortgagee is subrogated to the taxing authority's rights may be addressed in the documents representing their agreement, particularly in the deed of trust. Unless provided otherwise, the mortgagee is subrogated to the security of the tax debt. Taxes not paid by the mortgagor are considered to be part of the mortgage debt. Upon foreclosure, the proceeds from the sale of the property may be applied in satisfaction of the amount paid for taxes. Stone v. Tilley, supra, 101 S.W. at 202; Wood v. Scott, 48 S.W.2d 1024, 1025 (Tex. Civ.App.Waco 1932, writ ref'd). As discussed above, the mortgage contract between Smart and Tower comports with this right to equitable subrogation to the taxing authority's lien and expressly precludes personal liability. The parties having fixed their rights by contract, additional rights, such as are incidental to the sovereign's taxing power, will not be created by judicial intervention. After foreclosure, the relationship between the mortgagor and mortgagee in those capacities ends. If the mortgagee purchases the mortgaged property, as Tower did in this case, his interest in the property becomes an ownership interest. If taxes on the property owed by the mortgagor are delinquent, the purchaser, whether the mortgagee or a disinterested party, may desire to pay them to prevent foreclosure by the taxing authorities. Because of his interest in protecting his title, the purchaser is not a mere volunteer, when he discharges an outstanding tax lien. Under various circumstances he may be subrogated to the taxing authority's lien to the extent necessary for his own equitable protection. See McDermott v. Steck Co., 138 S.W.2d 1106, 1109 (Tex.Civ.App.Austin 1940, writ ref'd). When not compelled by the equities of the situation, full subrogation to all special privileges accompanying the taxing authority's constitutional and statutory lien will be denied. Tower urges that this court should adopt the rule followed in Pennsylvania cases that hold that a mortgagee who, after foreclosing and purchasing the property at the foreclosure sale, pays taxes assessed against the former owner, is subrogated to the taxing authority's right to maintain a personal action against the former owner for the amount of the taxes. Pennsylvania Co. for Insurances on Lives and Granting Annuities v. Bergson, 307 Pa. 44, 159 A. 32, 35 (1932); Preston Retreat v. Potter, 120 Pa.Super. 82, 182 A. 64, 64 (1935). We decline to follow this rule. In The Praetorians v. State, 53 S.W.2d 334 (Tex.Civ.App. Waco 1932, writ ref'd), The Praetorians, assignee of a mortgagee, purchased the mortgaged property at foreclosure. Later, the State sought to enforce its lien for taxes that had accrued during the mortgage. The Praetorians, although compelled to pay the tax lien to protect its title, was not entitled to a personal judgment for reimbursement against the mortgagor's grantee, who had taken subject to the mortgage and owned the property when the taxes accrued. The court held: [H]ad the Praetorians, prior to the foreclosure of its deed of trust, paid the amount of taxes due the state and county, it would not have been entitled to a personal judgment against the lumber company for the taxes so paid, but would have been limited in its recovery to a foreclosure of a lien on the property for the amount of such taxes. The fact that it has foreclosed its lien and is now the owner of the property and may now be compelled to pay such taxes in order to protect its title, does not give it any greater right. It is, therefore, not entitled to a personal judgment against the lumber company for the amount of taxes which it may be required to pay in order to redeem the property from the judgment in favor of the state. Id. at 335. The mortgagee who purchases the property with delinquent taxes owed by the mortgagor, may account for the delinquent taxes in determining his bid. The purchasing mortgagee who fails to pursue this course of action and purchases the property with taxes remaining unpaid will be considered to have purchased with reference to the tax liability. Assuming that the taxing authority would have been entitled to a personal judgment against Smart for taxes assessed during the mortgage, we do not believe that the equities of this suit entitle Tower to be subrogated to that right. Because we find that no basis for imposing personal liability against Smart for taxes paid after foreclosure arises from the mortgage contract or by equitable subrogation, we hold that Tower may not enforce his reimbursement claim as a personal judgment against Smart.