Smart v. Tower Land and Inv. Co.

• Court: Texas Supreme Court
• Writing for the Court: McGEE
• Citation: Smart v. Tower Land and Inv. Co., 597 S.W.2d 333 (Tex. 1980)
• Decision Date: 12 March 1980
• Docket Number: No. B-8664,B-8664
• Parties: Don M. SMART, Petitioner, v. TOWER LAND AND INVESTMENT COMPANY, Respondent.

Page 333

597 S.W.2d 333

Don M. SMART, Petitioner, v. TOWER LAND AND INVESTMENT COMPANY, Respondent.

No. B-8664.

Supreme Court of Texas.

March 12, 1980.

Rehearing Denied May 7, 1980.

Timothy E. Kelley, Dallas, for petitioner.

Eldridge, Goggans & Weiss, H. Dee Johnson, Jr., Dallas, for respondent.

McGEE, Justice.

This is a suit for reimbursement of real property taxes that accrued while the property was held under a deed of trust. The taxes were paid by the mortgagee, Tower Land and Investment Company (Tower), after Tower foreclosed on the mortgage. Tower sought reimbursement from the mortgagor, Don M. Smart. Smart filed a counterclaim for usury. The trial court entered judgment for Tower for reimbursement for taxes and denied Smart's usury claim. The court of civil appeals affirmed. 582 S.W.2d 543. On Tower's claim for reimbursement we reverse the judgments of the lower courts and render judgment that Tower take nothing. We also reverse the lower courts' judgments that Smart's counterclaim for usury be denied.

In 1968 Tower sold approximately 35 acres of land to Smart. Smart paid part of the purchase price with a promissory note secured by a deed of trust. The note and deed of trust represented a "no personal liability" obligation.

Smart defaulted on his note in December 1975. Three months later Tower repurchased the property at the foreclosure sale. After the sale, Tower paid delinquent ad valorem taxes in the amount of $18,736.53, which had been assessed on the property during the time Smart owned the property. Tower then brought suit against Smart for reimbursement for the amount paid for taxes. Smart counterclaimed, alleging that the note was usurious.

REIMBURSEMENT TO TOWER FOR TAXES

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...