Kieldsen v. Barrett, 5699

• Decision Date: 18 March 1931
• Docket Number: 5699
• Citation: 50 Idaho 466,297 P. 405
• Parties: LOUIS P. KIELDSEN, Plaintiff, v. GEORGE G. BARRETT, as State Treasurer, Defendant
• Court: Idaho Supreme Court

297 P. 405

50 Idaho 466

LOUIS P. KIELDSEN, Plaintiff, v. GEORGE G. BARRETT, as State Treasurer, Defendant

No. 5699

Supreme Court of Idaho

March 18, 1931

CONSTITUTIONAL LAW - PUBLIC SCHOOL ENDOWMENT FUND - FARM MORTGAGE FUND-TAXATION.

1. State's immunity from taxation does not operate, where state bids in property on mortgage foreclosure, until deed has issued.

2. Tax liens on real property cannot be made subordinate to other liens (C. S., sec. 3097; Const., art. 7, sec. 7).

3. All liens for governmental purposes are coequal in dignity.

4. Statute establishing mortgage revolving fund held not unconstitutional because repayments of moneys advanced by fund for liquidating delinquent taxes, in event proceeds of fore- closure are insufficient to realize both original investment and taxes paid, deplete sum which would otherwise return to public school fund (Laws 1923, chap. 107 sec. 3; Laws 1929, chap. 145, sec. 3; Const., art. 9, sec 3).

Original proceeding for a writ of mandate. Writ denied.

Petition for rehearing denied.

Richards & Haga, for Plaintiff.

Fred J. Babcock, Attorney General, and Maurice H. Greene and S.E. Blaine, Assistant Attorneys General, for Defendant.

LEE, C. J. Givens and Varian, JJ., concur. MCNAUGHTON, J., Dissenting.

OPINION

LEE, C. J.

Petitioner, Louis P. Kieldsen, seeks a writ of mandate commanding the State Treasurer to transfer from the Farm Mortgage Fund to the Public School Endowment Fund certain moneys alleged to have been wrongfully placed in the Farm Mortgage Fund and all other moneys coming into the possession of the defendant from the sale or rental of lands granted to the state of Idaho by the United States for the support of the common schools and from the sale or rental of lands acquired by the state under foreclosure of mortgages taken as security for moneys loaned out of the Public School Endowment Fund.

Inasmuch as petitioner urges no instance where any proceeds of direct sales of school lands have been placed in the Farm Mortgage Fund, this proceeding has to do with proceeds arising from the sale or rental of lands acquired by the state upon foreclosure.

A typical instance of alleged unlawful procedure is that of Loan No. 1486 made from the Public School Endowment Fund October 27, 1915, to Sam E. Ross, amount of loan, $ 4,000. The land was sold under foreclosure April 16, 1927: later the state received the sheriff's deed. Not including interest, the loan had cost the state, in addition to the original $ 4,000, $ 58 for abstract, $ 20 for publication of notice of sale, and $ 3,793.08 for delinquent taxes, penalties and interest, a total of $ 7,871.08. The land sold for $ 6,750. Under the statute, none of this money was to be placed in the school fund until there should have been repaid to the Farm Mortgage Fund the sum it had theretofore advanced the state to pay back taxes and expenses of foreclosure.

A clear conception of the situation requires a study of the constitutional provisions and legislative enactments germane to the subject matter. Sec. 3, art. IX, Idaho Const., provides:

"The public school fund of the state shall forever remain inviolate and intact; the interest thereon only shall be expended in the maintenance of the schools of the state, and shall be distributed among the several counties and school districts of the state in such a manner as may be prescribed by law. No part of this fund, principal or interest, shall ever be transferred to any other fund, or used or appropriated except as herein provided. The state treasurer shall be the custodian of this fund, and the same shall be securely and profitably invested as may be by law directed. The state shall supply all losses thereof that may in any manner occur."

By the act of March 9, 1923, there was created in the office of the State Treasurer a revolving fund to be known as the Farm Mortgage Fund consisting of $ 25,000 appropriated for the purpose of paying delinquent taxes, water assessments and expenses of mortgage foreclosure on lands securing farm loans held by the state: the act provides:

"Sec. 3. From and after the passage and approval of this act all moneys collected by the state either in mortgage foreclosure suits or by the redemption by mortgagees or their assigns, or from the sale of lands taken by the state on foreclosures and afterwards sold by the state, to the extent of said moneys advanced by the state to pay delinquent taxes, water assessments, and expenses incident to the foreclosure of mortgages on lands and premises on which the state holds or has held mortgages, shall be placed in the 'farm mortgage fund' by the state treasurer where such moneys be collected in installments, all such collections as made shall be placed in the 'farm mortgage fund' until the sum or sums advanced by the state shall have been so received and apportioned; Provided, That whenever such repayments of moneys advanced by the state shall cause the balance in the 'farm mortgage fund' to exceed twenty-five thousand dollars, such excess shall be placed in the general fund of the state treasury by the state treasurer."

Subsequent legislatures made additional appropriations and enlarged the act to include rentals of lands acquired by the state in handling its farm loans, the last act being that of March 9, 1929, which provides:

"From and after the passage and approval of this act all moneys collected by the State either in mortgage foreclosure suits or by the redemption by any redemptioner, or from the sale of lands taken by the State on foreclosures and afterwards sold by the State, and all rentals realized by the State from said land either during the period of redemption or thereafter, to the extent of said moneys advanced by the State to pay delinquent taxes, water assessments, fire insurance premiums, and expenses incident to the foreclosure of mortgages on land and premises on which the State holds or has held mortgages, shall be placed in the farm mortgage fund by the State Treasurer, and where such moneys shall be collected in installments, all such collections as made shall be placed in the farm mortgage fund, until the sum or sums advanced by the State shall have been so received and apportioned."

Counsel for petitioner's main contention is that the act establishing this revolving fund is unconstitutional, for the reason that repayment of the moneys advanced by the fund for the liquidation of delinquent taxes does, in the event that the proceeds of a foreclosure are insufficient to realize both the original investment and the taxes paid, necessarily deplete the sum which would otherwise return to the Public School Endowment Fund.

When the state makes a mortgage loan, it can expect to realize its full investment in only one of two ways, payment or foreclosure. In the latter case, there will always be danger of loss, unless the original value of the security upon which the loan was made is maintained. That value cannot be maintained, if the security becomes burdened with liens and charges anterior to or coincident with the mortgage lien. No bidder will offer as high a price for lands plastered with liens as he will for land free of their burden; and the state accordingly suffers, for it has to take just whatever amount the bidder cares to offer over and above the attached tax liens.

True, the state is compelled to draw upon the proceeds of sale for the money to repay the sum advanced by the revolving fund, but it does not draw one penny springing from the original loan: the proceeds of the sale have been increased by the enhanced value of the security, made possible by the advancement. In other words, the sum advanced by the fund gave the state an appreciably greater security than it had before the advancement. The land brought not only what it would have brought, had the tax burden remained, but it brought in addition the actual amount of taxes paid and probably more, something that had never been in the endowment fund. The enhancement arose the moment the taxes were paid.

It is just as though the state had to foreclose upon a farm whereon was a set of weather-beaten, unpainted buildings. By painting the buildings, value would be enhanced and a better bid realized. Now, if the state paid from the school fund the expense of painting, it would be depleting the original fund. But, if Merchant Jones furnished the paint; and out of the increased sale proceeds, the state repaid him, it could not be said to have depleted its school fund, for it had expended nothing: it but passed on to Merchant Jones the proceeds of a value he alone had created.

It makes no difference whether the land goes to the highest bidder or is taken in by the state. In either instance, the state loses nothing by paying back the advancement. How can it lose what it never had? In fact, having got a tax deed with the delinquent taxes wiped out, the state may have actually made money, not out of its own investment, but at the expense of the revolving fund, for it can sell the land free of taxes and thereby recoup for itself the very advancement it repaid the fund, besides getting all that would naturally have come to it and possibly more.

It may be said that in case the state bids in the property and secures a sheriff's deed, no necessity for paying the taxes arises, since they are effectually disposed of by the state's immunity from taxation. That immunity, however does not operate until the deed has issued. At the time of filing its action, the state cannot foresee the outcome of the foreclosure. Whether the land will be sold to a third party, whether the state will be forced to bid it in or whether, later, there will be a redemption are matters wholly beyond its knowledge. Assuredly, the purpose of the state...