Budnick v. Indiana Nat. Bank

• Decision Date: 25 August 1975
• Docket Number: No. 1--175A11,1--175A11
• Citation: 165 Ind.App. 457,333 N.E.2d 131
• Parties: Myron H. BUDNICK and Sandra A. Budnick, Plaintiffs-Appellants, v. INDIANA NATIONAL BANK et al., Defendants-Appellees.
• Court: Indiana Appellate Court

Page 131

333 N.E.2d 131

165 Ind.App. 457

Myron H. BUDNICK and Sandra A. Budnick, Plaintiffs-Appellants, v. INDIANA NATIONAL BANK et al., Defendants-Appellees.

No. 1--175A11.

Court of Appeals of Indiana, First District.

Aug. 25, 1975.

Rehearing Denied Oct. 8, 1975.

David F. McNamar, of Steers, Klee, Sullivan McNamar & Rogers, Indianapolis, for plaintiffs-appellants.

Stephen Goldsmith, Donald E. Knebel, of Barnes, Hickam, Pantzer & Boyd, James F. Hillis and Michael M. Disler, of Hillis & Disler, Indianapolis, for defendants-appellees.

LOWDERMILK, Judge.

The plaintiffs-appellants, Myron H. Budnick and his wife, Sandra Budnick (Budnicks), brought this action to quiet title to a certain tract of land in Pike Township, Marion County. The Budnicks claimed title to the land as the successors-in-interest to Beverly Budnick (Sandra Budnick's mother) who had purchased the land at a 1970 tax sale.

Defendants-appellees Marathon Pipeline Company (Marathon) and Shell Petroleum Corporation (Shell), the principal defendants, held pipeline right-of-ways across the land of the Budnicks, both prior to and subsequent to this tax sale. These right-of-ways had been duly recorded in the appropriate records of Marion County.

The Budnicks claimed that the tax deed received from the county for the land in question was free and clear of all liens and encumbrances, including Marathon's and Shell's pipeline right-of-ways, pursuant to IC 1971, 6--1--57--3 (Burns Code Ed.), which provides, in relevant part, as follows:

'. . . A deed executed pursuant to this section shall vest in the grantee and estate in fee simple absolute, free and clear of all liens and encumbrances except the lien of the state for taxes and special assessments accruing subsequent to the sale, and shall be prima facie evidence of the regularity of the sale of the real property therein described, of the regularity of all prior proceedings and of valid title in fee simple in the grantee of the deed. . . .'

The Budnicks also filed a second paragraph of complaint against Marathon and Shell, demanding possession of the land and asking for eviction of Marathon and Shell from the premises. After a change of venue, the trial court granted Marathon's and Shell's motions for summary judgment, and the Budnicks perfected their appeal. The Budnicks claim that the trial court erred in its findings of fact and conclusions of law. The trial court granted Marathon's and Shell's motions for summary judgment and therefore this court must decide this case on the basis of the evidence contained in the record most favorable to the Budnicks. Surratt v. Petrol, Inc. (1974), Ind.App., 312 N.E.2d 487; Podgorny v. Great Central Ins. Co. (1974), Ind.App., 311 N.E.2d 640.

The Budnicks contend that from the above statute, it is clear that a tax deed vests in the grantee an estate in fee simple absolute, free and clear of all liens and encumbrances, and that the easement of record in this case is an encumbrance within the meaning of the statute, and thus any such easement was extinguished when the tax deed was issued. They cite First Church of Christ v. Cox (1911), 47 Ind.App. 536, 94 N.E. 1048, where the Indiana Appellate Court stated:

'. . . 'Encumbrance' is a more comprehensive term than 'lien'. It includes liens, and also other burdens resting either on the real estate itself, or on its title, which tend to lessen its value or to interfere with its free enjoyment. Thus, a right of way or other easement, affecting real estate in favor of a person other than the owner or in favor of a dominant estate, has been held to be an encumbrance. . . .'

The Budnicks argue that inasmuch as the court has held that an 'easement' is an 'encumbrance,' at least for the purposes of a warranty deed, the clear import of this statute is to extinguish all 'encumbrances' on a fee simple title except those specifically excluded in the statute.

The question presented, so far as we can determine, is one of first impression in Indiana, but it has been widely treated in other jurisdictions. The various cases are collected in Annot., 168 A.L.R. 529 (1947), and the supplemental decisions thereto. As this case involves statutory construction, the decisions of other jurisdictions are helpful to the extent that their analysis is applicable tot he statutes and facts in the case at bar.

Many of those decisions are distinguishable on the basis of the respective statutes involved. Some statutes provide specifically that pipeline easements of record will survive the tax sale. Others are more general in form, but are still construed as allowing the easements to survive. Only a few states have provisions as narrow as the Indiana statute.

The jurisdictions that have statutes similar to our own rely on one basic test to determine whether the tax deed will cut off prior easements of record: If the easement was separately assessed and separately taxed, either to the dominant estate or in its own right, then the tax sale will not cut off the interest. If, however, the interest was not taxed separately, the whole fee will have passed with the tax deed, and all outstanding interests will be extinguished.

The rule is stated in Alvin v. Johnson (1954), 241 Minn. 257, 63 N.E.2d 22, wherein the court said:

'All that could be assessed against the servient tenement was the fee minus the easement which had ceased to be a part of the servient estate. That is all the state has acquired and that is all it has to sell. The property assessed and the property conveyed must be the same. If property rights which are not included in the assessment are sold or extinguished by a tax sale, that would be a taking of property without due process of law.'

The theory here is that the property interest conveyed pursuant to a tax deed must be identical to the property interest assessed to the delinquent taxpayer. If the easement is properly assessed to the owner of the easement, it cannot be assessed to the owner of the servient estate and cannot be conveyed in a tax sale of the servient estate.

We believe that the above rule is a correct statement of Indiana law. The statute provides that '(a) deed . . . shall vest in the grantee an estate in fee simple absolute, free and clear of all liens and encumbrances . . ..' The most natural reading of the statute would suggest that the Legislature intended that a tax deed should pass good title to the land that is being sold for non-payment of taxes. The tax title would seem to be in the nature of a new and independent grant from the sovereign authority.

By the same token, the Legislature did not contemplate that a new grant of title would be given to the holder of a tax deed where the land in question was not subject to taxation in the first instance. IC 1971, 6--1--57--14 (Burns Code Ed.), provides, in part:

'Proof required to defeat tax deed.--In all suits involving the title to real property claimed by virtue of a deed executed pursuant to this articles (6--1--57--1--6--1--57--16), the person claiming adversely to such deed, in order to defeat the title conveyed thereby, shall be required to prove either (1) that the real property described in the deed was not subject to taxation at the date of assessment of the tax for which it was sold . . ..'

It is clear that the Legislature intended to give a new title to the land only if the land was properly taxed initially.

Construing this statute with the first statute set out above would result in a rule that the land would pass under the tax deed free and clear of all liens and encumbrances, but only if those liens and encumbrances were originally taxed to the land that is being sold. If any part of the estate was carved out previously, and separately taxed previously, then that separate interest would not be subject to the tax sale unless specifically so included because of its own delinquent tax payments. This distinction has been relied upon by several courts in resolving similar problems. Tax Lien Co. v. Schultze (1914), 213 N.Y. 9, 106 N.E. 751; Harmon v. Gould (1939), 1 Wash.2d 1, 94 P.2d 749; Wolfson v. Heins (1942), 149 Fla. 499, 6 So.2d 858.

In Jackson v. Smith (1912), 153 App.Div. 724, 138 N.Y.S. 654, a tax lien was stated to be 'superior to and not subject to any claim, easement, charge, incumbrance, or interest of any kind . . ..' With respect to private easements of light, air and access over property to be foreclosed pursuant to a tax lien, the court said:

'It is unnecessary to determine the precise nature of a tax title. It doubtless is in the nature of a new and independent grant from the sovereign authority . . . but the assessment is the basis of it. The property assessed and the property conveyed upon the tax sale must be the same. If the assessment is only of the servient estate, only that can be conveyed on a tax sale; and, vice versa, if the conveyance on the tax sale, or on the foreclosure of a tax lien, is of all the estate or interests in the land, freed from servitude as well as liens thereon, then the assessment must be based upon the land as land, regardless of servitude as well as liens. As has been shown, in making the assessment a deduction must be made for easements, whereas none is made for liens and the like interests.'

Accord, Crawford v. Senasky (1929), 128 Or. 229, 274 P. 306; Northwestern Improvement Co. v. Lowry (1937), 104 Mont. 289, 66 P.2d 792; Smith v. Smith (1913), 21 Cal.App. 378, 131 P. 890.

The question to be answered, therefore, is whether the pipeline right-of-way is properly assessed to the pipeline company which holds the easement, or properly assessed to the owner of the servient estate.

The Public Utility Tax Act of 1949, IC 1971, 6--1--44--1 to 6--1--44--18 (Burns Code Ed.), authorizes the state board of tax commissioners and the local assessors to jointly assess 'all property owned or used by public utility companies . . . including . . . pipeline companies . . ..' IC 1971, 6--1--44--2 (Bur...