Fed. Farm Mortg. Corp. v. Falk

• Decision Date: 11 January 1937
• Docket Number: No. 6426.,6426.
• Parties: FEDERAL FARM MORTGAGE CORPORATION v. FALK et al.
• Court: North Dakota Supreme Court

67 N.D. 154

270 N.W. 885

FEDERAL FARM MORTGAGE CORPORATION

v.FALK et al.

No. 6426.

Supreme Court of North Dakota.

Dec. 14, 1936.

Rehearing Denied Jan. 11, 1937.

On Petition for Rehearing.

Syllabus by the Court.

1. The hail indemnity tax provided by chapter 137, Laws 1933, is not a tax within the purview of the State Constitution; neither is it a special assessment for benefits. The lien of the hail indemnity tax is not predicated upon the exercise of the taxing power; it arises out of contractual relations, and the lien is a statutory lien to secure the payment of an obligation resting in contract.

2. The provision in such statute (Laws 1933, c. 137, § 3), that the lien of the hail indemnity tax “shall be prior and superior to all mortgages * * * executed subsequent to the approval of this act” does not operate to impair the obligation of contracts or to take property without due process of law or deny the equal protection of the laws to persons claiming under mortgages executed and delivered subsequent to the passage and approval of such law.

Appeal from District Court, Stutsman County; McFarland, Judge.

Suit by the Federal Farm Mortgage Corporation against Martin Falk, Jr., and another, and Stutsman County of the state of North Dakota and another. From an order overruling the demurrer to the answer of defendants Stutsman County and another, the plaintiff appeals.

Affirmed.

A. W. Aylmer, of Jamestown, and John Thorpe and Geo. I. Reimestad, both of St. Paul, Minn. (Peyton R. Evans, of Washington, D. C., H. W. Lee and M. A. Schmitt, both of St. Paul, Minn., of counsel), for appellant.

P. O. Sathre, Atty. Gen., Chas. A. Verret, Asst. Atty. Gen., and R. D. Chase, State's Atty., of Jamestown, for respondents.

CHRISTIANSON, Judge.

The plaintiff brought this action to foreclose a mortgage executed and delivered to it by the defendants, Martin Falk and his wife. The mortgage was executed and delivered on January 2, 1934, and covers certain lands in Stutsman county in this state. The county of Stutsman, and the state of North Dakota, doing business as the state hail insurance department, were joined as parties defendant. It is alleged in the complaint that they claim certain interests in, or liens or encumbrances upon, said real property adverse to the plaintiff. It is further alleged that there is an unpaid hail indemnity tax for the year 1935 in the sum of $128 which the said county of Stutsman and the state hail insurance department claim to be a lien against a portion of the land covered by the mortgage. The county of Stutsman and the state hail insurance department interposed an answer wherein they allege that a hail indemnity tax was assessed and levied for the year 1935 in the sum of $128 against certain lands covered by the mortgage sought to be foreclosed in this action. In such answer it is also alleged that such hail indemnity tax is a lien paramount to the lien of plaintiff's mortgage. The plaintiff demurred to the answer on the ground that it does not state facts sufficient to constitute a defense. The demurrer was brought on for argument. In connection with the demurrer “and to be used and made a part of the files and records in connection with the hearing on said demurrer,” the parties, through their respective counsel, entered into a written stipulation, wherein it was stipulated as a fact:

“That the hail indemnity tax for the year 1935 in the amount of One Hundred Twenty-eight Dollars ($128.00), alleged and referred to in Paragraph 11 of the Separate Answer of said defendants, County of Stutsman of the State of North Dakota, and the State of North Dakota, doing business as Hail Insurance Department, was, and is, in all things levied, assessed and spread in manner and form, and at the time or times, as provided by law; and that due, timely and proper application was made, and never withdrawn, for such hail insurance covering crops upon the lands mentioned and described in the plaintiff's complaint in the above entitled action.”

The trial court overruled the demurrer, and the plaintiff has appealed.

The sole question presented on this appeal is whether the lien of the hail indemnity tax levied in 1935 is superior to the lien of plaintiff's mortgage. The answer to this question depends upon the constitutionality of the provision in chapter 137, Laws 1933, that “the lien” of the hail indemnity tax “shall be prior and superior to all mortgages, liens and judgments executed subsequent to the approval of this Act.” Section 3.

The plaintiff contends that this provision is violative of the guarantees in the State and Federal Constitutions, that no law shall be passed impairing the obligation of contracts. U.S.Const. art. 1, § 10, N.D.Const. § 16. Also that it violates the due process and equal protection of the law clauses of the Fourteenth Amendment to the Constitution of the United States. The trial court held that it did not contravene these constitutional guarantees and that consequently the hail indemnity tax lien is superior to the lien of plaintiff's mortgage. A determination of the question thus presented involves a consideration of the constitutional and statutory provisions of this state relating to state hail insurance.

At the general election in 1918, two constitutional amendments were adopted authorizing the legislative assembly to provide for the insurance of crops against damage by hail. Amendments to North Dakota Constitution, art. 24, see Laws 1919, p. 502; art. 30, see Laws 1919, p. 507. The legislative assembly in 1919 established the state hail insurance department, Laws 1919, c. 160. The law then enacted made it the duty of all county and township assessors to list and return the number of tillable acres in every tract of land subject to taxation, together with the name of the person in whose name the land was taxed and the number of acres of such land, if any, in crop or to be sowed or planted to crop during the year. The crops on the land became insured against loss by hail, unless the owner exercised the right to withdraw the same from the operation of the act.

The law made it the duty of the commissioner of insurance, on or before the 10th day of October of each year, to ascertain the amount, “which is required in addition to the amount secured by said flat acreage tax for the total payment of all loss caused by hail to crops insured by the Department, plus the total cost of maintaining and operating said Department, together with a sufficient sum to maintain and operate same for the succeeding year,” and to levy an indemnity acreage tax “sufficient to cover said amount on all actually cultivated and cropped land (except hay and meadow land) not withdrawn from the operation” of the act. Laws 1919, c. 160, § 7.

The 1919 law also provided that “all provisions of law with reference to lien and collection of taxes shall apply to the taxes herein specified.” Laws 1919, c. 160, § 10. The laws of this state then in force provided that taxes upon real property are “made a perpetual paramount lien thereupon against all persons and bodies corporate, except the United States and the state.” C.L.1913, § 2186.

Certain sections of the State Hail Insurance Act were amended at a special session of the legislative assembly held in December, 1919, but sections 7 and 10 of the original act were not changed. Chapter 38, Special Session, Laws 1919.

The State Hail Insurance Act was amended and re-enacted by the legislative assembly in March, 1921. Laws 1921, c. 77. So far as material here, the provisions of the law as thus amended and re-enacted read as follows:

Section 7: “The Commissioner of Insurance shall on or before the twenty-fifth day of October of each year ascertain the amount which is required for the total payment of all loss caused by hail to crops insured by the department and a sum sufficient to pay interest at the rate of six per cent on all warrants issued from the first day of December until called for payment by the State Treasurer plus a sufficient sum to maintain and operate the department for the succeeding year, and shall thereupon for the purpose of securing and paying the same levy an indemnity acreage tax sufficient to cover said amount on all cropped land insured (except hay and meadow land) not withdrawn from the operation of this Act as hereinafter specified.”

Section 8: “After the Commissioner of Insurance shall have determined and levied said indemnity acreage tax he shall forthwith notify the County Auditor of each county of such levy, and the County Auditor shall spread such indemnity and flat tax on the tax rolls in separate columns for that purpose. Such indemnity taxes and flat acreage taxes shall be collected by the Treasurer of said county and shall be kept in a separate fund to be known as the State Hail Insurance Fund.”

Section 10: “All laws relating to the collecting of penalty and interest, and sale of realty for non-payment of taxes, shall apply to taxes accruing under this Act.”

In 1925 the legislative assembly amended the law establishing the state hail insurance department so as to provide that any hail indemnity tax “which has been heretofore, or may hereafter be levied, shall be and constitute a first and prior lien upon all lands upon which the same is levied, to the same extent and with like effect, as any general tax, and shall be collected, and payment thereof enforced, in the same manner as any general tax.” Laws 1925, c. 151, § 1, amending Laws 1919, c. 160, § 7.

In the course of the administration of the State Hail Insurance Law, questions arose as to the status of the so-called hail indemnity tax under the laws enacted in 1919 and 1921. The commissioner of insurance and public officers charged with the administration of the laws took the position that the hail indemnity tax was a tax within the legal purview and contemplation of that term; that it was of precisely the same nature as a general tax levied upon the lands against which...