Kieldsen v. Barrett

LEE, G. 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 Publie 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 *468 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 foreclosures 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 *469 ‘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 instalments, 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. *470 "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 *471 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 ont 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 is to dispose of the land at the highest possible price, not to retain it. To achieve that end, was the revolving fund created, to protect a security menaced by delinquent and constantly accruing taxes; and, as before stated, that protection is furnished in the form of enhancement of a value steadily deteriorating under the burden of mounting tax liens. What sums may be advanced for the incidental costs of foreclosure, while not enhancing any value, are imperatively necessary to reduce the land to either money or the state’s possession. Without such expenditure, the state stands to lose the total amount of the original loan. In such case, it has forcefully been suggested that resort to the school fund itself, might be impliedly authorized, if not mandatorily directed as a duty by the Constitution which requires the school fund to be “securely and profitably invested.” (Board of Commrs., etc., v. State, 125 Okl. 287, 53 A. L. R. 1128, 57 Pac. 778, 781.) If the investment prove insecure or-unprofitable, it must be got rid of with as much dispatch *472 and as little loss as possible: continuing loss must be prevented. Tbe same answer will apply to the state’s reimbursing the fund by means of rentals, etc. It has already received from the revolving fund advances equal to all it is required to return and is just handing back to the true owner that which for a time it has been permitted to use for its own accommodation or profit. The depletion petitioner complains of is due to no operation of the revolving fund but solely to unwise loans in the first instance or depreciation of land values later on, something to be remedied by the legislature, not by resort to the revolving fund. General taxes are levied for governmental purposes: the state’s farm loans are made for governmental purposes. (Board of Commrs. v. State, supra.) Tax liens on real property cannot be made subordinate to other liens without disregarding sec. 7, art. VII, of Idaho Const. That section, reads: “All taxes levied for state purposes shall be paid into the state treasury, and no county, city, town, or other municipal corporation, the inhabitants thereof, nor the property therein, shall be released or discharged from their or its proportionate share of taxes to be levied for state purposes. ’ ’ Recognizing this provision, C. S., sec. 3097, declares that tax liens “shall only be discharged by the payment, cancelation or rebate of the taxes” as by law provided. All liens for governmental purposes are coequal in dignity: as between them, there is no priority. (Board of Commrs. v. State, supra.) While the state, under the exemption statute, cannot be forced to pay delinquent taxes on lands acquired under mortgage foreclosure, the fact remains that, unless such taxes are paid, there may eventually be no state to function. Especially is this emphasized in the Oklahoma case just quoted, approving Hughes County v. Hendy, 48 S. D. 98, 202 N. W. 286, saying: “We think the duty of the board to pay taxes, permission being given, may safely rest upon the broad ground of the *473 right of self preservation of. the state and of its governmental subdivisions.” Here in Idaho, there is not only legislative permission but direct mandate where there arises the necessity of protecting the loan. The legislature’s neglect to comply with the constitutional requirement that it make good all losses suffered by the Public School Endowment Fund accounts in the last analysis for any degree to which the fund is not intact. Of the constitutionality of the enactments, we have no doubt. Petition denied. Givens and Yarian, JJ., concur. Petition for rehearing denied.