State of Minnesota v. Central Trust Co. of New York, 1,133.

• Decision Date: 10 April 1899
• Docket Number: 1,133.
• Parties: STATE OF MINNESOTA v. CENTRAL TRUST CO. OF NEW YORK.
• Court: U.S. Court of Appeals — Eighth Circuit

94 F. 244

STATE OF MINNESOTA v. CENTRAL TRUST CO. OF NEW YORK.

No. 1,133.

United States Court of Appeals, Eighth Circuit.

April 10, 1899

On July 13, 1897, the Central Trust Company, the appellee, which is a corporation of the state of New York, filed its bill in the circuit court of the United States for the district of Minnesota against the Duluth Gas & Water Company, a Minnesota corporation, hereafter termed the 'Water Company,' to foreclose a mortgage executed by the latter company on November 1, 1888, and recorded with the register of deeds for St. Louis county, Minn., on February 23, 1889, whereby the mortgagor company conveyed to said Central Trust Company all and singular the property, real, personal, and mixed, then owned and controlled by it, or that it might thereafter acquire, including its franchises, incomes, rents, works contracts, buildings, machinery, mains, pipes, lines, poles and property of every kind, in trust, to secure the payment of an issue of bonds to the amount of $5,000,000, of which sum bonds to the amount of $1,513,000 were subsequently issued. A decree of foreclosure was entered in said cause in the usual form on October 13, 1897, the amount found due under the mortgage being $1,586,059.19. The decree provided that the mortgaged property, in default of payment of said sum within five days, should be sold after six weeks' notice of the sale. On December 29, 1897, the circuit court was advised by affidavits duly filed therein by the complainant that three judgments had been obtained against the Water Company in the district court for St. Louis county state of Minnesota, where the mortgaged property was located amounting in the aggregate to $37,088.30, which judgments were for taxes upon personal property that had been assessed against the Water Company for the years 1894, 1895, and 1896; that executions had been issued on said judgments; and that a levy had been made thereunder by the sheriff of St. Louis county on December 18, 1897, upon all the gas and water mains of the Water Company in the city of Duluth, the same being property which was included in the aforesaid mortgage. On the presentation of such affidavits, the circuit court enjoined the sheriff of St. Louis county from proceeding with the levies, and required him to release the same. It gave the state of Minnesota, however, leave to present its demand for unpaid taxes to the master who had been appointed to make the foreclosure sale, and empowered the master to hear and report upon the merits of said claim before there should be any distribution of the proceeds of the sale of the mortgaged property. On February 5, 1898, the master publicly sold the mortgaged property, pursuant to the decree of foreclosure, for the sum of $700,000, the sale being made subject to a prior mortgage lien to the amount of $295,000. This sale las afterwards reported and confirmed. In pursuance of the order empowering the master to hear and decide concerning the merits of the state's claim for unpaid personal taxes, which were alleged to be due from the Water Company, a hearing was had before the master, who reported with respect to said claim that although the aforesaid judgments for personal taxes had been recovered by the state against the Water Company, for the years 1894, 1895, and 1896, to the amount before stated, and that although personal taxes had been assessed against the Water Company for the year 1897 to the amount of $23,569, yet 'that the state of Minnesota has, under the laws of the state and the rules and practice of this court, no lien upon the personal property of the Duluth Gas & Water Company, covered by and included in the mortgage or deed of trust in this action foreclosed, paramount to the lien of the bondholders under said mortgage or deed of trust. And the said claim on the part of the state to have said personal taxes of said Duluth Gas & Water Company paid out of the funds * * * derived from said foreclosure sale of said mortgaged property, made under said judgment and decree of this court, is * * * disallowed. ' The state excepted to this report; but, upon the hearing of the exceptions, they were overruled, and the report was confirmed. The appeal by the state is from the aforesaid order.

J. B. Richards, for appellant.

Jed L. Washburn (Samuel Untemeyer, Charles L. Lewis, and William D. Bailey, on the brief), for appellee.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

THAYER Circuit Judge, after stating the case as above, .

The laws of the state of Minnesota (Gen. St. 1894, Sec. 1518) declare that:

'The personal property of gas and water companies shall be listed and assessed in the town or district where the principal works are located. Gas and water mains and pipes laid in roads, streets or alleys shall be held to be personal property.'

Section 1623 of the same volume of the General Statutes provides that:

'The taxes assessed upon real property shall be a lien thereon from and including the first day of May in the year in which they are levied until the same are paid, but as between grantor and grantee such lien shall not attach until the first day of January of the next year thereafter. The taxes assessed upon personal property shall be a lien upon the personal property of the person assessed from and after the time the tax books are received by the county treasurer.'

And section 1562 of the same volume provides, in substance, that the county auditor shall deliver the tax lists of the several districts into which a county is divided to the county treasurer on or before the first Monday in January in each year, and that such lists when received by the treasurer shall be sufficient authority to receive and collect the taxes specified therein. It thus appears that the lien for personal taxes which is provided for by section 1623, supra, takes effect on the first Monday in January succeeding the completion of the tax lists, that being the date on which the tax lists are usually delivered to the county treasurer. The method of assessing taxes in the state of Minnesota corresponds generally with the laws which prevail in other states, with which all are familiar, and need not be stated with particularity. Real property is listed every even-numbered year, and assessed with reference to its value on the 1st day of May preceding the assessment. Personal property is listed and assessed annually with reference to its value on the 1st day of May. Vide Gen. St. Minn. 1894, Sec. 1514. All property is required to be assessed at its full and true value in money. The assessment is made during the months of May and June, and taxpayers are required to make a correct statement of their taxable property to the assessor, and, in case of a failure by the assessor to obtain such a statement, it is made his duty to ascertain the amount of property liable to taxation, and to assess it at what he believes to be its true value. Vide Id. Secs. 1536, 1541, 1542, 1546. When the assessment is completed by the assessor, it is returned to the county auditor, and the assessment is thereafter equalized and corrected by a board of equalization. The corrected tax list is subsequently delivered by the auditor to the county treasurer, as prescribed by Id. Sec. 1562. Taxes on personal property are deemed delinquent on the 1st day of March next after they become due, and thereupon a penalty of 10 per cent. is attached. After taxes have been returned as delinquent, the county auditor is empowered to file a revised list of such delinquent taxes with the clerk of the district court of the county wherein the taxes were assessed, and after due notice of such proceedings said court is empowered to enter a judgment against the delinquent taxpayer for the amount of the tax assessed against him, together with the penalty and costs. Vide Id. Secs. 1567-1569.

It is contended in behalf of the appellee, and so the lower court appears to have held, that the lien created by the mortgage in favor of the Central Trust Company, from the time when that instrument was recorded, to wit, February 23, 1889, was and is paramount, so far as the personal property conveyed by the mortgage is concerned, to any lien thereon which the state can assert under a subsequent assessment of such personal property for taxation, and in accordance with that view it was held that the personal taxes due to the state of Minnesota from the Water Company for the years 1894, 1895 1896, and 1897 could not be paid out of the proceeds of the foreclosure sale, the amount received at such sale being insufficient to discharge the mortgage indebtedness. It cannot be successfully denied that there are some adjudications which support the appellee's contention to the full extent last stated, one of such cases, and the only one which is directly in point, being Binkert v. Railway Co., 98 Ill. 205. In that case a tax had been assessed, pursuant to the laws of the state of Illinois, on the capital stock of a railway company, and an attempt was made some years after the assessment to enforce the collection thereof. By the laws of the state taxes on personalty were made a lien upon the personal property of the person assessed from and after the time when the tax books were delivered to the collector. It was held by a divided court that the tax thus imposed on the capital stock of the railway company, the same being a personal tax, was inferior to the lien of a mortgage which was executed and recorded before the tax book containing the tax was delivered to the collector. The reasons given for the ruling were, in brief, that the lien given by the statute for the taxes in question had no reference to the property which was originally assessed, but was a lien on such personal property as the taxpayer owned...