tax-sale certificate therefor. Afterward an assignee of the certificate received a tax deed of the land, and by quitclaim conveyances the title thus acquired became vested in George B. Cones. Gibson brought an action 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 the statute of limitations had run against the enforcement of the guaranty. The demurrer was overruled, judgment was rendered for the plaintiff, the tax held that the tax title inured instantly to the benefit of the assignee of the mortgage. In Kezer v. Clifford, 59 N. H. 208, it was held that a discharge of a mortgagor in bankruptcy is not a payment of the mortgage debt, nor a discharge of the mortgage, so as to permit the mortgagor to defeat or avoid the mortgage by acquiring a tax title of the mortgaged premises; that, where the mortgage contained covenants of warranty, the tax title subsequently acquired by the mortgagor inured to the mortgagee; that it passed to the mortgagee by way of estoppel, by force of the warranty, as if the discharge in bankruptcy had not been granted; and that the mortgagor could not hold the premises without paying the full amount of the mortgage debt notwithstanding his discharge in bankruptcy. Purchase by one for the mortgagor. Where land is encumbered with a mortgage, neither the mortgagor, nor any parties claiming title under him, can, by purchasing a tax title to the land, defeat the lien of the mortgage. And what the mortgagor cannot do thus directly he cannot accomplish indirectly, by procuring the tax deed to be made to his wife, or to an agent employed by him to buy at the sale and to convey to him on being reimbursed to the extent of the price paid. In Austin v. Citizens' Bank, 30 La. Ann. 689, it was held that a mortgage creditor may proceed directly against the property subject to his mortgage, even though the property may have been sold for taxes, and the tax title be in the name of a third person, when it appears from the evidence that such title is a fraudulent simulation, and that the original mortgage debtor, who had colluded with the purchaser at the tax sale, is still the real owner of the property. The court said: "The purchase by Moss was nothing more nor less than a purchase by Mrs. Austin, the debtor and mortgagor, through her son, the plaintiff. The money paid as the price at the tax sale was only what she, as owner of the property, owed the state, and what she honestly and in 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 relagood conscience ought to have paid without, and before, and to prevent, a sale. If she could not pay it, the debt being exigant, and of so high a rank, she should have acquainted her creditor and mortgagee with its imminence, instead of observing the sus picious reticence which characterized her conduct. The creditor's rights, as mortgagee and vendor, cannot be imperiled by the mortgagor's collusive combination with others to interpose an apparent, but fraudulent, obstacle in his way in enforcing those rights." To same effect is Beltram v. Villere (La.) 4 So. 506. In McAlpine v. Zitzer, 119 III. 273, 10 N. E. 901, where a mortgagor, by collusion with his son, suffered the premises to be sold for taxes, and procured his son to purchase the same to defeat the mortgage, it was held that, as respects the mortgage, the tax sale had no different effect than if the mortgagor had himself been the purchaser at the tax sale; that the tax title was subject to the mortgage. To the same effect are Burgess v. Robinson, 95 Me. 120, 49 Atl. 606; and New England Loan & T. Co. v. Browne, 177 Mg. 412, 76 S. W. 954. In Mendenhall v. Hall, 134 U. S. 559, 33 L. ed. 1012, 10 Sup. Ct. Rep. 616, where a mortgagor, who had agreed not to sell or encumber the property to the prejudice of the mortgage, had fraudulently combined with his brother to defeat the mortgage lien by means of a sale for taxes due from the mortgagor, at which sale the brother was to bid in the property, in his own name, for the benefit of the mortgagor, it was held that it was not necessary that the mortgagee, in order to maintain a suit to enforce his lien. should tender the amount of the taxes, with interest thereon, the nonpayment of which by the mortgagor had caused the sale to the prejudice of the mortgagee; that the Louisiana constitutional provision that "no sale of property for taxes shall be annulled for any informality in the proceedings until the price paid, with 10 per cent interest, be tendered to the purchaser," had no application to such a case. In Perkins v. Wilkinson, 86 Wis. 538, 57 N. W. 371, it was held that, where one of 124 KANSAS SUPREME COURT. full force, and were now claiming the land Gibson argues that the purchase of the tionship to the land, and holds the same, out the tax deed while the guaranty was in rights its possessed. He is therefore in privity with it (Challiss v. Atchison, 45 Kan. 22, 25 Pac. 228), and can make the defense the same as it might have done (25 Cyc. Law & Proc. p. 1006). For all purposes of the decision, the case is the same as if the Showalter Mortgage Company, the guarantor of the plaintiff's mortgage, had taken two joint owners of a farm which was heavily mortgaged purchased his cotenant's interest, and had the deed executed to his son, who gave the grantor a mortgage for the unpaid purchase money, and assumed and agreed to pay the existing mortgages, which the grantor afterwards purchased, the father of such grantee cannot obtain a valid tax deed to such farm pursuant to a sale for taxes accruing after the purchase, so as to defeat the grantor's rights under his mortgages. In Drew v. Morrill, 62 N. H. 565, it was held that a tax deed taken by the wife of a mortgagor at his request, and held for his benefit, was invalid as against the mortgagee. To the same effect is Interstate Bldg. & L. Asso. v. Waters, 50 S. C. 459, 27 S. E. 948. In Jenks v. Brewster, 96 Fed. 625, it was held that the fact alone that purchasers of property at a tax sale were stockholders in a corporation which then owned the legal title to the property is not sufficient to constitute such purchase a payment of the taxes, in favor of a subsequent purchaser of the property at a foreclosure sale on a mechanics' lien. Purchaser of equity of redemption. The general rule is that a grantee from the mortgagor, in possession of land, subject to the mortgage, cannot take title as against the mortgagee by tax deed, for taxes which the mortgagor or those holding under him were bound to pay. Avery v. Judd, 21 Wis. 264; Frye v. Bank of Illinois, 11 Ill. 367; Ralston v. Hughes, 13 Ill. 469; Brown v. Avery, 119 Mich. 384, 78 N. W. 331; Cooper v. Jackson, 99 Ind. 566; Stears v. Hollenbeck, 38 Iowa, 550; Leppo v. Gilbert, 20 Kan. 138; Porter v. Lafferty, 33 Iowa, 254; North American Trust Co. v. Lanier, 78 Miss. 418, 84 Am. St. Rep. 635, 28 So. 804; Petty v. Mays, 19 Fla. 652; Middletown Sav. Bank v. Bacharach, 46 Conn. 513; Goodrich v. Kimberly, 48 Conn. 395; Travellers' Ins. Co. v. Patten, 98 Ind. 209. In Fells v. Barbour, 58 Mich. 49, 24 N. W. 672, the rule was applied to one whose title was obtained from an execution purchaser of the equity of redemption. The court held that he held the same interest as the mortgagor before the execution levy, and that it became his duty to discharge the unpaid taxes standing against the property, that the purchase of the bids at the tax sale operated as a payment of the taxes so far as the mortgagee of the land or his assignee was concerned. In Washington Loan & T. Co. v. McKenzie, 64 Minn. 273, 66 N. W. 976, the same rule was applied to one who, before the time of redemption from the tax sale had expired, obtained a quitclaim deed from the mortgagor. The court held that, after purchasing from the mortgagor, he was disor additional rights qualified from acquiring, as against the The court mortgagee, any new under his inchoate tax title. "Undoubtedly Lynott was at that said: time qualified to acquire a tax title, as against the plaintiff; and, if his relations to the parties and their title had remained unchanged, he could unquestionably have perfected his inchoate tax title so as to extinguish plaintiff's mortgage. But the vital and pivotal fact in the case is that before the tax title had become absolute, and while certain steps remained to be taken to make it such, and while the auditor's certificate constituted a mere lien on the land, Lynott changed his relations to the title and to the From plaintiff by purchasing from, and going into possession under, the mortgagors. that moment he became disqualified to acquire a tax title, as against the plaintiff. In accepting a quitclaim deed, he purchased the land subject to the existing lien for taxes. As between him and his grantors, the duty of paying these taxes devolved on him. By thus relieving the mortgagors from their payment, he assumed the duty himself. The rule was also followed in North American Trust Co. v. Lanier, 78 Miss. 418. 84 Am. St. Rep. 635, 28 So. 804, and applied In Avery v. Judd, supra, the court said: to one in possession of the mortgaged prem"The mortgagor and those in possession un-ises as a mere volunteer by gift. In American Baptist Missionary Union v. der him subject to the payment of the mortgage hold the estate clothed with a fidu- Hastings, 67 Minn. 303, 69 N. W. 1078, it ciary duty. The estate, to the extent of was held that the grantee of a mortgagor, his interest, belongs to the mortgagee; and who has covenanted to pay the taxes on the the mortgagor and his grantees are intrust-mortgaged premises, is disqualified from aced with the care of it, and, being so intrusted, they are bound in equity and conscience to do no act, and to suffer none to be done, which will destroy the mortgagee's title or impair his security." quiring and holding a tax title to the mortgaged premises as against the mortgagee, whether he is immediate or remote grantee, or whether he gets his title by deed or through a second mortgage. In the case of Concordia Loan & T. Co. v. Parrotte, supra, it is 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 no validity as such, and could be of no more the guarantor, and no inhibition upon the consequence than a receipt for taxes paid; guarantor's taking out a valid tax deed of and hence that the tax deed conveyed no in- the land could be erected upon that foundaterest whatever in the land, and carried tion. 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 & T. 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 mort- | two grounds, one of them involves the broad gage in question contained a clause making doctrine stated. The opinion quotes from it the duty of the mortgagor to pay the Cooley on Taxation, and then proceeds as taxes upon the premises; but, even if such appears by the following extracts: "Some a clause had not been inserted, it would persons, from their relation to the land or have been his duty so to do. When the to the tax, are precluded from becoming purShowalter Mortgage Company guaranteed chasers on grounds which are apparent when the payment of the obligation of the mort- their relation to the tax and to the propgagor, it was equivalent to guaranteeing erty is shown. The title to be given on a that his whole contract would be carried tax sale is a title based on the default of a out; and, by so doing, it was placed in such person who owes to the public the duty to a position of trust with relation to the de- pay the tax, and the sale is made by way fendant in error that the law will not per- of enforcing that duty. But one person mit it to obtain title by the failure upon may owe the duty to the public, and anoththe part of the mortgagor to pay the taxes er may owe it to the owner of the land by upon the land mortgaged, and the purchase reason of contract or other relations. Such of the land by it at tax sale on account of a case may exist where the land is occupied such default. The default of the mortgagor by a tenant, who, by his lease, has obligated became the default of the company, and the himself to pay taxes. Where this is the repurchase of the premises at tax sale was lation of the parties to the land, it would simply the payment of taxes by one whose cause a shock to the moral sense if the law duty it was to pay the same." The attempt were to permit this tenant to neglect his here made to derive the disability of the duty, and then take advantage thereof to guarantor to take a tax title from the duty cut off his lessor's title by buying in the to pay taxes manifestly distorts the terms land at a tax sale. So the mortgagor, reof the guaranty. The guarantor entered maining in possession of the land, owes to into no contract with anyone to pay taxes the mortgagee a duty to keep down the on the mortgaged land. He limited the in- taxes; and the law would justly be chargedemnity he should provide to payment of able with connivance at fraud and dishoninterest and principal, and nothing else can esty if a mortgagor might be suffered to be added to his legal obligation. His under- permit the taxes to become delinquent, and taking was not commensurate with that of then discharge them by a purchase which the mortgagor, who may have agreed to keep would at the same time extinguish his mortbuildings insured, to protect the premises gage. There is a general principle applicafrom waste, and to perform other collateral ble to such cases which may be stated thus: engagements; but it was a separate and in- That a purchase made by one whose duty it dependent covenant of his own the extent was to pay the taxes shall operate as payof which could have been measured by its ment only. He shall acquire no rights as own terms. He rested under no legal duty to against a third party by a neglect of the the state, to the mortgagor, or to the mort- duty which he owed to such party. This gagee to pay taxes on the mortgaged prem- principle is universal, and is so entirely reaises. He would have been guilty of no fault, sonable and just as scarcely to need the legal or moral, if the mortgagor's title and support of authority. Show the existence the mortgagee's security had both been swept of the duty, and the disqualification is made away by a tax deed to a stranger. The sug-out in every instance." 2 Cooley, Taxn. 3d gestion of a conscientious quality in the relation between guarantor and mortgagee which would prohibit the guarantor from destroying the security of the mortgage has some force; but the default of the mortgagor to pay taxes was not the default of ed. pp. 963, 965. "The duty to pay the debt is an obligation upon the guarantor equally with the maker in the event the latter does not pay. It seems, therefore, that the guarantor ought equitably to be under the same disability with the maker in the matter of injuring 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 a tax title upon the relation of the tax purchaser to the land or to the tax, that is, upon the duty to pay taxes, the argument being, show a duty to discharge taxes, and a disqualification to build up a tax title is established. It must be clear that a contract guaranteeing the payment of principal and interest only cannot be stretched to make the payment of any other sums a legal duty. The guarantor is under no obligation to augment the burden of his contract by the expenditure of money to preserve the mortgage lien from annihilation by a tax deed. He need take no affirmative step to forestall such a result, and, if he omit or decline to pay taxes on the land, he is guilty of no fault, moral or legal. He can stand upon the terms of his guarantyship. Aside from his contract, the guarantor is a stranger both to the land and to the tax. He owes the state no duty to pay the mortgagor's taxes, and most certainly he owes the mortgagor no such duty. If, therefore, a tax sale of the land should occur, it would take place through no fault of his, and, if he should take a title based upon such sale, he would be building no rights upon a neglect or breach of duty to pay taxes. 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 is guilty of no fault. The mortgagee's resources for the satisfaction of his debt have been diminished by the value of the land, but no blame attaches to the guarantor. Now, if, after the mortgagee has suffered this loss, the guarantor should, in good faith, buy the taxsale certificate, what legal duty has he violated? What breach of good faith or good morals has he committed? And, if he can take an assignment of the tax-sale certificate, why can he not bid at the sale? The mortgagee, not being under any obligation to pay taxes, is guilty of no fault if the land go to tax sale. He may buy at the tax sale, cut off the title of his mortgagor, and throw the entire burden of providing security for the debt upon the guarantor with perfect impunity, simply because he owes no duty to anybody to pay the taxes, and consequently, in taking the tax title, takes advantage of no default of his own. It is not even presumed that he purchases to protect his mortgage lien. Waterson v. Devoe, 18 Kan. 223; McLaughlin v. Acom, 58 Kan. 514, 50 Pac. 441. Why should that be reprehensible in the guarantor which is entirely virtuous in the mortgagee, when both occupy precisely the same relation to the tax, and neither is under any contract duty to the other respecting it? 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. Cooley, Taxn. 3d ed. p. 971. Besides this, in deciding a case involving questions relating to the protection of a mortgage lien from a tax lien, he wrote the following: "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, 710. 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 succossors in interest have paid. If the land should sell for enough at foreclosure sale to reimburse those who have paid the taxes as such property so as to depreciate its value as well as the mortgagee, it would be grossly such security. So that in this action, when unjust to return the surplus above the mort- the Kansas Trust & Banking Company purgage indebtedness to the landowner, and chased these tax-sale certificates, it amountthus permit him to escape the payment of ed in law to a payment of the taxes thereon; his taxes. If the guarantor should at any at least, as between the debenture holders time be obliged to protect against a convey- and the Kansas Trust & Banking Company, ance of the land for taxes, the landowner or its assigns, having knowledge of these ought not to reap a profit from his own neg-facts." The carefully guarded limitations leet of duty to the state and to the mort-placed upon the scope of the decision are gage, and from the hardship of the guararter 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 shal: 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 money advanced to protect his mortgage which he could have added to his lien if he had paid it. Therefore the only just rule is that the guarantor may take a tax title to the land good against all the world except the mortgagee, and that such a title shall be impeachable by the mortgagee only so far as may be necessary to protect his rights. This court is already virtually committed to this doctrine. In the case of Manley v. Debentures "B" Liquidation Co. 64 Kan. 573, 68 Pac. 31, the Kansas Trust & 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 company 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 su perior 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, 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 to secure its own debt. It virtually pledged the real estate covered by the mortgages to the bondholders, and could not destroy the security of the pledge by acquiring an interest in the property adverse to the bondholders. If it had taken title to the land by tax deed, equity would have said the land was still pledged to secure the bondholders. The mortgages hav ing been foreclosed, there was no way to preserve a lien for taxes in favor of the certificate holder, and against the landowner, so that it was proper for the court to declare the taxes paid as to the bondholders and to cancel the certificates. But the court went no further than the rights of the bondholders demanded, and left the way open to protect certificate holders against landowners upon whom rests the duty to pay taxes, if opportunity should arise in other cases. In view of the foregoing, it must be held that the purchase of the land in controversy by the mortgage company at a tax sale did not constitute a payment of taxes the same The judgment of the District Court is reversed, and the cause is remanded, with instruction to proceed further according to the views herein expressed. |