33 Ky.L.Rptr. 469
Court of Appeals of Kentucky.
CITY OF MIDDLESBOROUGH et al. v. COAL & IRON BANK et al.
MIDDLESBOROUGH TOWN & LANDS CO. v. CITY OF MIDDLESBOROUGH.
May 13, 1908.
ACTION: Reversed on appeal of the city, and affirmed on the appeal of defendant.
Appeal from Circuit Court, Bell County. "Not to be officially reported." Action by the city of Middlesborough against the Coal & Iron Bank and others. From a judgment granting relief, plaintiff and defendant the Middlesborough Town & Lands Company appeal. HOBSON, J. On December 1, 1893, the Secretary of State, under section 616, Ky. St. 1903, caused proceedings to be instituted against the Coal & Iron Bank of Middlesborough upon the ground that the bank was insolvent. A receiver was appointed to close up and settle its affairs in insolvency. In that action by the commonwealth it appeared that the bank was hopelessly insolvent, and at the July term of the circuit court a judgment was rendered directing a sale of all the property of the bank. The sale was made and confirmed; the city of Middlesborough not being a party to the proceedings. The purchaser of the property of the bank at the sale transferred his bid to the Bell County Investment Company and the Middlesborough Town & Lands Company. In December, 1897, the city of Middlesborough filed this petition against them setting up taxes against the bank for the amount of $2,829.40, which it alleged were a lien upon the property they held under the judicial sale made in the commonwealth action. The defendants demurred to the petition. Their demurrer was sustained, and the petition was dismissed. On appeal to this court, the judgment was reversed. It was held by this court that the city had a lien on all the property of the bank for its taxes, and that the city, not being a party to the suit in which the property of the bank had been sold, was not affected by the judgment in that case. On the return of the case to the circuit court, the defendant's demurrer having been overruled, they filed an answer. During the progress of the case, the Bell County Investment Company had conveyed some of the lots it bought to L. C. Saulsberry. On final hearing the circuit court adjudged the city a lien on all the property except that conveyed to Mrs. Saulsberry, and as to that property the petition of the city was dismissed. From this judgment the appeals now before us are prosecuted. The opinion on the former appeal is the law of the case, and settles substantially a majority of the questions now raised. The city, having a lien upon the property, had a right to bring its action against the person then owning the property. It was unnecessary for it to bring before the court the former owners of the property, for its proceeding was in rem, and only the persons then interested in the property were necessary parties to the proceeding. The rule of caveat emptor applies to judicial sales. It was unnecessary for the city to assert its lien in the commonwealth suit to wind up the defunct bank. It is true it might have done so, but the purchasers of the property might also in that suit have brought the city before the court and had its tax lien adjudicated before paying for the property or before the money was distributed. The holder of a lien on property cannot be defeated of his rights by the proceedings in an action to which he is not a party. These questions were considered on the former appeal and were determined in the opinion then rendered. It is said that the city knew of the suit that was pending to settle the affairs of the bank, but it is equally true that the purchasers of the property knew that the city was asserting a lien on its property for the taxes, and it was as incumbent on them as on it to have the matter adjudicated. Whatever might be the rule between individuals, it cannot be held that a city shall lose its right to collect its public dues by reason of the failure of its officers to present its claim in a suit of which they have knowledge; the city not being made a party to the suit. The city government cannot be maintained without the payment of its public dues, and the knowledge of its officers that a suit was pending will not estop the city from afterwards asserting its claim, where, as here, the persons affected also knew all the facts and were as much required to take action as the officers of the city were. The city not being a party to the action brought by the commonwealth to wind up the affairs of the bank, and that action having proceeded to a final order discharging the receiver, a subsequent motion of the city to set aside that order being overruled, did not have the effect of concluding the city by anything that had been done in that action. The only effect of the order of the court overruling the motion of the city was a refusal on the part of the court at that stage of the proceeding to allow the city to enter into that case. If the court had sustained the motion, no good could have come of it, as the property had all been sold, and the proceeds distributed. No statute of limitation is applicable, as the action was brought by the city in 1897, and within less than five years after its cause of action accrued. The common council, after the reversal of the case in this court, undertook to settle the matter by the defendants paying it $200 each. The council had no authority to compromise the city's claim for taxes. It is insisted that in that case the taxpayers were released, but here there was a compromise with a third person, and not with the taxpayer. This distinction cannot be maintained. The taxes are a lien upon the property. The property is released by a compromise, not the taxpayer. To say that the property may be released by a compromise is to say that the taxes may be released, for the lien is the security for the payment of the taxes. To release the property is to release the taxes, and whether the original owner has the property, or it has passed into the hands of another, can make no difference as to the power of the common council to release taxes. We therefore conclude that the judgment in favor of the city on the appeal of the Middlesborough Town & Lands Company is correct. As to Mrs. L. S. Saulsberry a different question is presented. The record shows that she now owns block 511, section S. E. On November 15, 1893, the sheriff of Bell county levied an execution upon this block as the property of the Coal & Iron Bank. This was after the lien of the city for taxes had accrued. The lot was sold and purchased by Ed Saulsberry, who assigned his bid to the Bell County Investment Company of which G. W. Saulsberry was president. The company was indebted to Saulsberry, and he agreed to take the lot on what it owed him. He then had the deed made to his wife, L. S. Saulsberry, on June 2, 1900, or three years after this suit had been brought by the city of Middlesborough against the Bell County Investment Company to assert its lien on the land. Mrs. Saulsberry relies on the fact that no notice had been filed in the county court clerk's office of the pending action as provided by section 2358a, Ky. St. 1903. But the notice provided for in that section is only necessary as to a subsequent purchaser for value and without notice. G. W. Saulsberry had full notice of the lien of the city. He paid the consideration. He was the real purchaser. The deed was simply made to his wife by his direction and for his convenience. She is not a bona fide purchaser without notice, but takes the property subject to the lien of the city which it had asserted in the action. As the title to the property was in the Bell County Investment Company at the time that the suit was filed, the action was properly brought against it, and when it conveyed the property pending the action to L. S. Saulsberry, she was a lis pendens purchaser, and, not being a purchaser for value and without notice, took the property subject to the result of the litigation. The order placing the property in the hands of the receiver was not void therefore as to her, although she was not a party to the action. When it was finally determined that the city of Middlesborough had no lien on one of the pieces of property, its petition was properly dismissed as to this property; but the order placing it in the hands of the receiver was not for this reason void. The city had asserted a lien upon the property, but had failed to establish a lien by its proof. Mrs. Saulsberry is entitled to the rents collected from this piece of property, but the receiver is entitled to credit for his services and reasonable expenses about the property. The order discharging the receiver and directing him to pay over to Mrs. Saulsberry all the money in his hands, and giving him no credit for his services or expenses, was erroneous. On the appeal of the city against Mrs. Saulsberry, the judgment is reversed as to block 511, section S. E. As to the lien asserted on the other property conveyed to her, the judgment is affirmed. The judgment discharging the receiver and ordering him to pay over to Mrs. Saulsberry all the money in his hands derived from both pieces of property conveyed to her is reversed, and the cause is remanded for a judgment and further proceedings consistent herewith. On the appeal of the Middlesborough Town & Lands Company the judgment is affirmed. Ky.App. 1908. CITY OF MIDDLESBOROUGH et al. v. COAL & IRON BANK et al. MIDDLESBOROUGH TOWN & LANDS CO. v. CITY OF MIDDLESBOROUGH. 110 S.W. 355, 33 Ky.L.Rptr. 469

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