Court Opinion

ID: 6819893
Source: CourtListenerOpinion
Date Created: 2022-07-23 19:05:58.627665+00
Date Added: 2024-06-11T16:04:04.888762
License: Public Domain

Eggleston, J.,
dissenting.
I can not agree with the holding of the majority opinion that because the trustee embezzled the proceeds of the foreclosure sale the city of Roanoke has lost its lien for taxes which the trustee should have paid out of such proceeds.
At the time the deed of trust was executed, in 1922, the city of Roanoke had a lien upon the real estate involved “prior to any other lien or encumbrance thereon for the taxes assessed thereon.” Code, section 2454; Code of 1919, section 2271 (now incorporated in section 251 of the Tax Code, Code 1936, Appendix, p. 2485). These statutes have continued in eifect down to the present time.
The majority opinion holds that although these taxes have not been paid, the lien therefor has nevertheless been wiped out because the purchaser at the foreclosure sale paid the purchase price in full and the trustee, through no fault of the purchaser, embezzled the proceeds and failed to discharge the taxes.
First, it is said that because the deed of trust directed and obligated the trustee to pay the taxes out of the proceeds of the foreclosure sale and absolved the purchaser from any duty to look to the application of the proceeds, such purchaser had the right to assume that such taxes were paid, and that the city lost its lien therefor although the taxes were not in fact received by it. In other words, it is held *238that the parties to the deed of trust (the grantor, the trustee, and the holder of the bonds thereby secured), by their contract, to which the city was not a party, have wiped out the city’s statutory lien for taxes.
But only the parties to a contract are affected by its terms. When the deed of trust provided that the trustee should pay the taxes out of the proceeds of sale, and that the purchaser need not look to the application of such proceeds, this was binding only on the parties to the deed and the creditor thereby secured. Such provision could not possibly affect the tax lien of.the city of Roanoke, which was not a party to the contract.
Neither do I think that because the deed of trust imposed upon the trustee the duty of paying the taxes, the city became a beneficiary under the deed of trust (as the opinion holds) and was bound by the terms thereof. The city had no part in making the contract. It did not know of its existence until long after it had been made. Without the city’s consent the parties to the deed of trust could not make it a party to or bind it by the terms of their contract.
Therefore, regardless of the terms of the deed of trust, I think that the purchaser took title to the property subject to the lien of any delinquent taxes thereon unless he was relieved therefrom by some statutory provision.
Next, the majority opinion holds that Code, section 5167, has discharged the land from the lien of these taxes. It is said that inasmuch as paragraph 12 of this section requires the trustee to pay all taxes and levies out of the proceeds of sale, and relieves the purchaser of any duty of seeing to the application of such proceeds, it has in effect constituted the trustee at this foreclosure sale the agent of the city government, with the power and authority to collect all taxes due on the land sold, and that the loss occasioned by the default of the trustee to discharge his duties must fall on the government, whose agent, it is said, the trustee is.
This reasoning overlooks the plain language of the opening paragraph of this section, which says: “Every deed of trust to secure debts or indemnify sureties, except so far *239as may be therein otherwise provided, shall be construed to impose and confer u/pon the parties thereto, and the beneficiaries thereunder, the following duties, rights and obligations in like manner as if the same were expressly provided for by such deed of trust, namely:” (Italics supplied.) Then follows a number of provisions, including those in paragraph 12 above referred to.
Obviously this means simply that unless the deed of trust provides to the contrary every provision of the statute becomes incorporated in the deed of trust, becomes a part of the agreement as if written therein, and becomes binding upon “the parties thereto and the beneficiaries thereunder,” and upon them alone.
There is no suggestion in the statute that these provisions are to be binding on any one other than the parties to the deed or the beneficiaries thereunder. There is no suggestion that the provisions are intended to affect the lien of the county or city for its unpaid taxes, or any other lien on the property.
In providing that the trustee should disburse the proceeds of the sale in a particular manner, and that the purchaser was not required to see to the application of the proceeds, it was the purpose of the statute to constitute the trustee the agent for the parties to the deed and the creditor thereby secured. For the statute expressly says that its provisions “shall be construed to impose and confer upon the parties thereto, and the beneficiaries thereunder, the following duties, rights and obligations,” etc. (Italics supplied.)
The majority opinion takes the position that because the grantor in the deed covenants to pay the taxes, and because the trustee is required to pay the taxes out of the proceeds of sale, the city is a beneficiary within the meaning of this section and is bound by the terms of the deed of trust. I do not think so.
As has already been pointed out, the city had no part in the making of the deed of trust. It was not benefited thereby. It already had, by statute, a lien for its taxes superior *240to that of the deed of trust. This lien the parties to the deed of trust could not affect without the city’s consent.
The covenants in the deed of trust for the payment of taxes are inserted for the benefit of the note holder, to insure to him the payment of taxes which are superior to his lien. If the taxes are not paid the holder of the note secured may call on the trustee to foreclose the deed of trust. The city has no such right.
The provision in' the statute and in the deed of trust requiring the trustee to pay the taxes out of the proceeds of sale is inserted for the benefit of the purchaser, to insure to him, as far as the parties can do so by their contract, that he will get a title to the property free of taxes.
Moreover, it is inconceivable that the Legislature could have intended by this section (5167) to appoint every trustee at a foreclosure sale the legal agent of the state, city, or county governments for the purpose of collecting taxes, as the majority opinion holds, when none of these respective branches of the government has any voice in the selection of such trustees or any supervision or control over their actions, when such trustees may be and often are non-residents, and when no bond is required of any of them.
It is quite true that the trustee is required to pay delinquent taxes out of the proceeds of the foreclosure sale. Tax Code, section 337, Code 1936, Appendix, p. 2504. But requiring one to pay taxes is a very different thing from appointing him the agent of the government to collect them.
Neither do I think that Code, section 6270, cited in the majority opinion, is determinative of the matter because it relieves a purchaser from a commissioner, a receiver, or a trustee of the obligation of looking to the application of the purchase money.
In providing that a purchaser from a commissioner or receiver need not see to the application of the purchase price, this of course means so far as the parties to the suit are concerned. This is so because the commissioner or receiver, acting under the authority and direction of the court, is the representative of all of the parties to the cause. Absolving *241the purchaser of the duty of seeing to the application of the purchase price paid to a commissioner or receiver can not possibly affect the rights of an innocent lienor who is not a party to the cause.
And so when section 6270 provides that a purchaser from a trustee need not look to the application of the purchase price, this means only so far as the rights of the parties to the deed of trust, or the beneficiary thereunder, are concerned. This is because the trustee, from the nature of the transaction, is the agent of these parties. Hudson v. Barham, 101 Va. 63, 43 S. E. 189, 99 Am. St. Rep. 849; Rohrer v. Strickland, 116 Va. 755, 82 S. E. 711; If the provision were intended to cut out the rights of an innocent lienor who is not a party to the deed, it would be patently unconstitutional in that it deprives such lienor of his property without due process of law.
Nor can I agree with the majority opinion that as between two innocent parties the equities here favor the purchaser rather than the city which holds a lien on the land. The purchaser was dealing directly with the trustee. The purchaser knew or should have known that delinquent taxes were a prior lien on the land. He was in a position to protect himself by seeing that the taxes were discharged at the time the purchase money was paid and the transaction closed. On the other hand, the city, which was an innocent lienor, was not a party to the transaction, did not even know that the sale had been made, and had no possible way of protecting its rights. In this situation I think the equities are clearly with the city.
Holt and Spratléy, JJ., concur in this dissent.