State v. Burleigh County

212 N.W. 217, 55 N.D. 1, 1927 N.D. LEXIS 2

• Court: North Dakota Supreme Court
• Decided: January 17, 1927
• Status: Published

Opinions

Birdzell., Ch. J.

In December, 1919, Nestor Rutanen borrowed from the Bank of North Dakota $2,500, securing the loan by a mortgage given on a quarter section of land owned by him in Burleigh county. In regular course the mortgage was assigned to the treasurer of the state of North Dakota as security for bonds of the real estate series issued by the State. Hutanen did not pay the taxes on the land for the years 1920, 1921, 1922, and 1923, and at the tax sale, there being no bidders, the laird was struck off to the county and a tax certificate issued. In 1923, Hutanen being in default, the mortgage was foreclosed and the property was bid in by the state treasurer, as trustee. No redemption was made and in October, 1924, a sheriff’s deed was issued to the plaintiff, state treasurer, as trustee for the state of North Dakota. Upon obtaining the deed, the plaintiff demanded that the board of county commissioners cancdl lin'd abate the taxes for the years 1920 to 1923, both inclusive, for which the land had been sold to the county. In April, 1925, plaintiff repeated this demand and also requested the cancellation of the taxes for the year'1924. Upon the refusal of the commissioners to comply, this action was brought to quiet title. The district court held that the taxes for which the property had been sold at'the date of the issuance of the sheriff’s deed should not be canceled of récord and that the plaintiff was not entitled to the relief demanded; but that the 1924 taxes which were not due at the time of acquisition of title by tbe plaintiff should be canceled and discharged. Both parties appeal and each assigns error upon that portion of the judgment which is adverse to its contention.

We shall consider first the contention of the plaintiff to the effect that, under § 9 of chapter 292, Session Laws of 1923, it is the mandatory duty of the board of county commissioners to cancel and abate the taxes which had become delinquent and for which the land had been sold pi'ior to the date of the sheriff’s deed. The provision of the statute upon which this contention 'is based is contained in a comprehensive act governing the loaning of money upon farm mortgage security by the Bank of North Dakota and the issuance of bonds to procure funds to replace those employed by the bank in the enterprise. The sta.tuteprovides for the assignment of the mortgages by the bank to the State Treasurer in trust as security for the bonds to be issued. It further provides that in case default shall occur in the payments or in the conditions of any mortgage and continue for a period of a year, the mortgage shall be foreclosed or collected; and, in case of foreclosure sale, if no bid is made equal to the amount due at the date of the sale,;including costs, disbursements and statutory attorneys’ fees, the property shall be bid in in the name of the state treasurer, as trustee for the. State. The net- proceeds of the sale or of the redemption are required to be turned over to the treasurer to be invested in the bonds issued under the act or in new mortgages substituted for the mortgage fore--, closed. In case no redemption is made, the sheriff’s deed issues to the state treasurer, as trustee for the state. After outlining this procedure, the statute provides (§ 9) “. . . Any taxes then remaining unpaid thereon shall be cancelled and abated by the board of county commis-sioners of the county wherein such land is situated. Any land, title to which is acquired through foreclosure, may be sold by tire state treasurer, as such trustee, through the Bank of North Dakota acting as his agent, for the best price and terms obtainable, all proceeds of. such sales shall accrue to the real estate bond payment fund. Any such sale must be approved in writing by the industrial commission, . . .’’

The specific question presented is whether or not the statutory direction to cancel and abate the unpaid taxes applies as to taxes which accrued after the mortgage was given and for which the land had beeii sold to the. county before the sheriff’s deed in foreclosure was issued. It is argued that whatever rule might obtain where there is an outstanding tax sale certificate in the hands of an individual (the certificate in such case being a contract. Fisher v. Betts, 12 N. D. 197, 96 N. W. 132; Beggs v. Paine, 15 N. D. 436, 109 N. W. 322), the tas.es have not been paid through a sale of the property to the county and that -the statutory direction to cancel applies. The argument, in substance, is that the statutory direction to cancel and abate unpaid taxes amounts to a direction to cancel tax certificates, though the latter are not referred to in the act.

The statutes governing tax sales do make a distinction between a tax sale resulting in the issuance of a certificate to a private bidder and one resulting in the issuance of a certificate to the county in rhe matter of the -county’s liability to the taxing districts. But does this distinction support the contention of the plaintiff that in the latter case the taxes are “unpaid” within the language of § 9, supra? That is the vital query in this case. ■

Under the statutes the county may retain the certificate, it may assign it to one who pays the amount of its bid, or, if title is later completed, it may sell the property, and upon the assignment of the certificate or upon resale it must credit the proportionate shares of the proceeds, to the extent of the taxes, to the respective taxing districts. Comp. Laws 1913, §§ 2202-2204. But where the property upon tax sale is bid in by another, the amount of the tax, being immediately paid for the property, is at once credited; and the tax sale certificad which is issued is a contract the obligation of which can not be impaired. Fisher v. Betts, supra. A result which could only be obviated by regarding the mortgage as superior to the tax lien from the beginning, and it is not contended that it has been made so. In view of the disastrous effect upon tax sales, there should be a clear legislative expression to warrant such a holding. See Hughes County v. Henry, 48 S. D. 98, 202 N. W. 286. But this distinction is one which exhausts itself in determining when the respective taxing districts are entitled to credit and what further steps may be necessary to realize the funds for which the property is held by the .county. Certainly, so far as the tax debtor is concerned, the tax is paid by the sale, whether there be a private bidder or whether the property be struck off to the county for the amount of the tax, interest, penalty and costs. 26 R. C. L. 417; United States v. Lawton, 110 U. S. 146, 28 L. ed. 100, 3 Sup. Ct. Rep. 545. To illustrate: If personal taxes of a particular tax debtor, for which he is liable to a personal judgment, had been entered as a lien against his land and the land sold, under §§ 2174 and 2191, Compiled Laws of 1913, and such taxes had been included in the sale and in the certificate issued to the county in the absence of private bidders, the county could not thereafter maintain an action to obtain a personal judgment for such taxes. The personal tax would be paid by this proceeding just as effectually as a mortgage debt is paid by being included in the amount of the bid of the mortgagee at a mortgage foreclosure sale. The tax sale has the effect of foreclosing the lien for the taxes and paying them to the extent that the taxes are included in the bidding, as under the statute they are required to be; but the taxing districts are not, at this stage, entitled to be credited by the county while it holds the tax certificate. After the sale there is no longer a tax which is subject to abatement. But there is a certificate evidencing the foreclosure and the right of the holder to obtain title, unless there be a redemption within the prescribed time. Ordinarily, we do not speak of cancelling or abating a tax after it has become merged in a tax sale certificate. But where abatement after sale is spoken of or permitted, the legislature has not left its meaning in doubt. See § 2165, Compiled Laws of 1913 and Supplement. It has authorized it only when the real estate has not been sold to “any purchaser other than the county.” It may be noted in passing that abatements here referred to are apparently in the interest of just and equal taxation as they are predicated upon unjust, illegal or other action going to the merits of the tax. In the instant case, had the legislature intended to deprive the county, and through the county the local subdivisions of the ownership of property which had been acquired at tax sale, in favor of the real estate bond payment fund, it would seem that it would have expressly directed that the certificate be canceled instead of directing that the tax which no longer exists in law or in fact- be canceled or abated without regard to questions of justice or legality.

When the legislature upon another occasion desired to qualify the rights of the county under tax certificates, it used terminology entirely appropriate to that end, as appears in chapter 210, Session Laws of 1925. There it was desired to give to redemptioners the benefit of a lower rate of interest in case they should exercise the right of redemption within a given time. The legislators did not speak of abating the taxes or the penalty and interest,.but they provided that the real estate which had been sold to the county for the taxes for a given year or any prior year, which was still held by the county, might be redeemed from the sale upon the payment of the amount for which it had been sold, together with interest at 6 per cent, plus the subsequent taxes with interest at 6 per cent. They further extended the right by authorizing the redemption of property which was held by the county at the time the act took effect but which might have been sold or assigned subsequently. If the contention of the plaintiff be correct in the instant case,'the county could assign its tax certificates under the statute the day before the sheriff’s deed would issue in the foreclosure proceedings and the land would remain .subject to the right of the assignee under the certificate, and the various taxing districts would reap the benefit of the assignment. For it must be conceded that the taxes would be “paid” within the statute by such an assignment and, consequently, the direction to cgncel would not be applicable. Furthermore, there is no attempt to distinguish between a tax certificate evidencing the holder’s original purchase and one evidencing his right as an assignee. The test for cancellation under the statute is whether the tax is paid or unpaid. It could not be successfully contended that the right of a private holder of a tax sale certificate evidencing his original purchase would be in the least affected by subsequent abatement or cancellation of the tax for which the property had been sold. This would impair (he obligation of his contract and a law that would purport to authorize, it would be void. Yet the tax is no more paid through the original private purchase at the tax sale than it is through a subsequent assignment by the county to a private individual who pays the amount of the county’s bid. If, perchance, on the other hand, the certificate were not assigned prior to the issuance of the sheriff’s deed in foreclosure, the rights of the county and the various subdivisions are, according to the plaintiff’s contentions, ipso facto wiped out and transferred automatically over to the bond payment fund in the hands of the state treasurer. If, following the direction of the statute in question, the treasurer should immediately re-sell the land for an amount sufficient to redeem from the tax sale and. to pay the principal, interest and costs in the foreclosure proceeding, the plaintiff contends that the taxes for which the property was sold must be canceled and the money turned into the bond payment fund. And this, even though the land were resold to the original mortgagor who would have been compelled to pay the taxes had he redeemed. It .is indeed singular that a statute designed to have such a peculiar effect would not contain stronger evidence of a legislative intention than a mere direction to cancel unpaid taxes. Ordinarily, unpaid taxes would include only those of the current year, or those which had accrued during the period of redemption from the mortgage foreclosure sale and which, consequently, had been assessed and levied during a time when the State held a defeasible title. It is one thing to direct, that such a tax be canceled and quite a different matter to direct the cancellation of tax certificates substantially representing the ownership of 'the property.

There is so little difference between a diversion of. local revenues to a purpose other than that for which they were originally levied and a taking of the property, which is the sole security for those revenues, or which stands in lieu of them, for a different purpose that a construction of the act such as contended for by the plaintiff raises serious constitutional questions. It is contended that the incidental loss of local revenue in a locality where the patronage of the farm loan department has been liberal and the ability to pay taxes limited through a period of several years, is offset through the gain to the bond payment fund, without which it would sustain losses to be met by taxation. The obvious answer is that the direction to cancel applies even though there be no loss to the bond payment fund, in which event the tax moneys are indirectly used to the profit of those patronizing the department; for, theoretically, the loan service is to be supplied at cost. It is difficult to understand the persistency with which the discussion centers on the event of loss when it is so apparent that the statute applies without regard to loss in the particular transaction and even in the face of assured profit. The further answer is that if there be a loss it is a loss which must ultimately be borne by taxpayers generally and not by taxpayers in a locality where the experience has been especially' unfortunate. The enterprise is general; not local. Under the Constitution taxation must be uniform within the territorial limits of the authority levying the tax. It can not be distributed over different areas according to the varying degrees of success or failure within them of a general enterprise. The procedure contended for might visit'extreme inequality of tax burden upon different properties or taxpayers in the same district by compelling those not patronizing the state farm loan department or those paying their obligations to make up the shortage in revenues incident to the cancellation of tax certificates which -stand in lieu thereof. It would scarcely be contended that the State could originally favor the farm loan department or its patrons by exempting the land mortgaged to it from taxation while taxing the remainder, and it is difficult to see how a like result may be achieved after defaults have occurred, consistent with the constitutional requirements of uniformity. This requirement may be violated by cancellation 0or abatement as well as by assessment and levy. 26 R. C. L. 252; Wilson v. Sutter County, 47 Cal. 91; Gunnison County v. Owen, 7 Colo. 467, 4 Pac. 795; State ex rel. Richards v. Armstrong, 17 Utah, 166, 41 L.R.A. 407, 53 Pac. 981. While in the view we take of the case it is unnecessary to declare the extent to which the legislature may go in .this matter under the Constitution, we nevertheless feel justified in pointing to the serious consequences and logical results of the contentions made as bearing upon the proper construction of the act in question. We would not lightly ascribe to the legislature an intention at variance with well defined constitutional principles.

It should also be observed that at the time of the mortgage foreclosure sale the property is offered to bidders subject to the rights of the county under the tax certificates. Bids áre not solicited on the basis of the worth of the property free of the liens of the tax certificates. It should be assumed that the property which is offered at judicial sale is offered to bidders standing upon an equality (see Sletten v. First Nat. Bank, 37 N. D. 47, 163 N. W. 534; State ex rel. Atkins v. Lawler, 53 N. D. 278, 205 N. W. 880), and the state is a qualified bidder. Neither could the property have been redeemed within the period of redemption without the redemptioner taking it subject to the tax certificates.

From the beginning of the foreclosure proceeding to the end, no one is given an opportunity to purchase the land at a price which will pay the mortgage, interest and costs in full and a portion of the tax lien. Hence, the proceeding does not result in a determination that the land is not worth more than enough to discharge the mortgage lien. The sale not having eliminated purchasers willing to pay the mortgage lien and a. substantial portion of the tax lien, a legislative direction to cancel outstanding tax certificates could not be justified solely on the basis of necessity to protect the bond payment fund from loss. So, even conceding that it might be permissible for the state to protect the bond ■payment fund in preference to the revenue funds in which the subdivisions are interested, an attempt to do so through arbitrary cancellation of tax certificates, without regard to the value of the property chargeable with both liens, is open to the usual objections against arbitrary action. If the tax lien may be canceled without regard to the adequacy of the security for both the tax lien and the mortgage lien, or for the entire mortgage lien and a portion of the tax lien, it could as well he declared in advance that the lien for taxes should never attach to property mortgaged to the state as security for a loan, and the tax in this event would be noncollectible. Heal estate taxes are obligations in ran and the constitution declares “Taxes” — not merely assessments — “shall be uniform upon the same class of property, including franchises, within the territorial limits of the authority levying the tax.” Section 116. “Uniformity in taxing, implies equality in the burden of taxation.” Exchange Bank v. Hines, 3 Ohio St. 1—15. Obviously, there could be no uniformity as between two tracts of equal value in private ownership if one only were subjected to an enforceable obligation for taxes. This constitutional requirement is just as sacred as the declaration that the property of the state shall be exempt. Thera is here no attempt to tax state property. Bather there is asserted in behalf of a state agency a claim to immunity covering a period prior to the time when the state became an owner' — a period during which the property in question could not, constitutionally, have been exempted. So far is this claim of immunity from an observance of the requirement of uniformity that, construed as the plaintiff construes it, the statute wor.kl actually authorize, indirectly, the value of a lien for taxes to he converted into profits in the Bank of North Dakota to be credited to its farm loan department, while requiring the incidental corresponding deficiencies in revenues to be met by local taxpayers. Followed to its logical conclusion the plaintiff’s main contention would justify the taxing of a portion of tbe lands in taxing district to create a profit in the farm loan department of the Bank of North Dakota.

The argument is advanced that the legislature was confronted by a condition which had arisen out of numerous foreclosures that had ripened or were ripening into sheriff’s deeds to lands upon which there were outstanding tax certificates and that it was reasonably to be inferred that the bond payment fund or the Bank of North Dakota, as an agency for conducting the farm loan business, would sustain losses if the tax certificates were not canceled. It is said that this condition presented to the legislature the alternative of appropriating moneys to take up the tax certificates or of canceling taxes and that, as a practical proposition, the legislature was free to choose either alternative. Having chosen the latter, it is argued- that the legislative judgment is not subject to judicial review unless in making it effective the constitution has been infringed. Such -argument depends largely for its validity upon its accuracy -as a statement of the condition and of the alternatives, which called forth the legislation in question. It does not appear that there had been any appraisal of prospective losses due to these foreclosures, nor, as previously remarked, docs it appear that the cancellation of the tax certificate on a particular tract (if such be the direction) is made to depend upon whether the amount due on the certificate measures the loss upon the particular transaction. The security may be ample to satisfy both the certificate and the loan. Neither is it apparent to us that there was-any impelling necessity for appropriating money .to take up the tax certificates as an alternative to their cancellation, as will more fully appear in the later discussion with reference to the status of the lien of the tax certificates while title is in the state treasurer as trustee. The power to enforce the lien while tire property is in public ownership may be suspended without affecting its ‘ validity. or the right of the certificate holder to realize upon it against a subsequent purchaser of thé property. Perhaps the best index by which to determine the true condition confronting the legislature at the time of the enactment of the statute in question is the scheme of operation contained in the legislation governing the state loan business.

Section 182 of the Constitution provides that the state may issue bonds but that bonds in excess off-two million dollars shall be secured by first mortgage upon real estate in amounts not to exceed one-half its value, etc. Chapter 154 of the Laws of 1919 authorizes the issuance of bonds of the real estate series and provides for assigning real estate mortgages to the state treasurer so that they may secure such bonds. The credit of the state is pledged in the issuance of these bonds, but they are required to be secured in the manner stated. The loans which arc authorized by this same chapter are on the amortization plan and the payments into the hands of the treasurer are required to be credited to the real estate bond payment fund. It appears that the legislature in the beginning contemplated that situations might arise where the bond payment fund would be insufficient to meet the payments of interest, or principal upon the bonds as they should mature, for in § 13 of the act it was made the duty of the state board of equalization “to include in the annual tax levy, such tax as in its judgment shall he necessary to meet the indicated deficiency,” and the proceeds of such tax were required to be placed in the fund. The legislature also provided what should be done with a surplus in case the payments into the bond payment fund, together with mortgage securities on hand, would be more than sufficient to provide for the payment of bonds; it required (§ 14) that the excess of such funds requisite for that purpose should, at the direction of the industrial commission, be paid by the state treasurer to the Bank of North Dakota. This act-, therefore, contains explicit directions for the determination each year of the amount of any loss to the fund which shall render it insufficient to meet its required obligations during the year and by authorizing a tax levy it supplies the means by which such loss is to be compensated. The act nowhere requires either the Bank of North Dakota or the state treasurer, as trustee, to take up delinquent tax certificates upon land to which title is acquired through foreclosure, and it is indeed difficult to understand how the fund is prospectively, depleted through the existence of such liens, except as the value of the security is depreciated through the. failure of the mortgagor to have met the proportionate burden of taxation which, under the constitution, must rest upon his land. Whether or not a loss will ultimately result is uncertain. The deficiencies in the fund which reduce it to the point where it cannot meet its annual burden of principal and interest are due to inadequate amortization payments, and such deficiencies would exist during periods of stress though the security of the mortgages for the loans should re main ample at all times. Under the plan outlined in the legislation referred to, it is difficult to see how the condition calling for legislation can be defined in the manner stated. There are cogent reasons why the local taxing districts would be desirous of having the lands redeemed where the certificates are in the hands of the county, but there is no apparent reason why the state (including the Bank of North Dakota and the state treasurer, as trustee), or any disinterested individual would desire the cancellation of the certificates so long as the security may be ample for both the loan and the certificate. On the other hand, if the security be inadequate for these purposes and a loss is inevitable in a particular case, if the plan of the original act be followed, it will be met by general tax levy. If such a loss can not be absorbed by a corresponding profit, it is open to grave question whether it may be made up at the expense of one or more local taxing districts, as would be the case if the outstanding tax certificates were canceled.

It. is also suggested that the situation is somewhat analogous to a legislative permission granted to the owners of property to take up tax certificates in the hands of the county by paying within a given time the amount of the tax plus a rate of interest less than the interest and penalty, in lieu of the full amount of the tax, interest and penalty, as an inducement to redemption.from tax liens. State ex rel. Atkins v. Lawler, 53 N. D. 278, 205 N. W. 880. "Where this is done it is true that the full amount of the interest and penalty never finds its way into the public treasury, but at this point the analogy ceases. The inducement is held out in order to bring the tax moneys into the public treasury where they belong. It is a method of realizing upon the certificates where the'county has not been able to realize upon them by sale and assignment. Clearly, a holding that this is within the range of legislative discretion does not require a further holding that the legislature may freely cancel entirely tax certificates without regard to their value, or transfer the lien represented thereby to some fund other than the revenue funds for which the taxes were originally levied.

There is embraced within every tax levy in this state taxes levied in pursuance of laws providing fiat rates and specifying particularlv the purpose or object for which the levy is made. If while such a tax remains collectible and while the- original 'object continues unchanged and unaccomplished the lien representing the tax may be canceled and its value be made to enhance a different fund, the spirit, if not the letter, of § 175 of the Constitution is flagrantly violated. This section plainly requires that no tax shall be levied except in pursuance of law, and that every law imposing a tax shall state distinctly the object of the same to which only it shall be applied.

What has been said above is not to be' considered as an affirmative declaration that the act in question, construed in conformity with the plaintiff’s contentions, is unconstitutional. WTe are of the opinion, however, that the analysis of the contentions advanced on behalf of the plaintiff and the logical results attendant upon their adoption raise serious question of the constitutionality of the act so construed. It is a sound rule of statutory construction, said to be elementary, that where a statute is susceptible of two constructions by one of which grave and doubtful constitutional questions arise and by the other of which such questions are avoided it is the duty of courts to adopt the latter construction. Harriman v. Interstate Commerce Commission, 211 U. S. 407, 53 L. ed. 253, 29 Sup. Ct. Rep. 115; United States ex rel. Atty. Gen. v. Delaware & H. Co. 213 U. S. 366, 53 L. ed. 836, 29 Sup. Ct. Rep. 527; United States v. Gin Fuey Moy, 241 U. S. 394, 60 L. ed. 1061, 36 Sup. Ct. Rep. 658, Ann. Cas. 1917D, 854; Kennedy v. Commissioner of Corporations & Taxn. — Mass. —, 152 N. E. 747. This rule, in our opinion, being applicable, it is not our duty to first decide that the statute, construed as the plaintiff construes it, is unconstitutional. The statute is examined and analyzed only to determine whether grave constitutional questions arise. Cases, supra. In our opinion they do arise in the instant case.

Considering the inadequacy of the expression used in § 9, chapter 292, Session Laws of 1923, to express the rights claimed by the plaintiff in this case and the inaptitude of the terms employed to affect rights acquired under certificates of tax sale, as well as the incongruous, if not unconstitutional, operation of the statute, construed as the plaintiff construes it, we are of the opinion that the act is not to be construed as affecting rights acquired under outstanding tax certificates.

In construing § 9 of chapter 292, Laws of 1923, as above, we have' not been unmindful of the fact that the entire act apparently had for its purpose the authorizing of a series of bonds independent of that authorized by chapter 154, Laws of 1919, and that it is not merely an amendment of the earlier statute. Mortgages taken under the 1919 act. therefore, would be governed by its provisions instead of by the provisions of the 1923 law, and the 1919 act contains no direction to cancel any taxes. However, the section in controversy (Sess. Laws 1923, § 9, chap. 292) purports to apply to mortgages taken under the former act, as well as to those taken under the 1923 act. It directs the foreclosure “in case default shall occur in the payments or conditions of any mortgage, heretofore or hereafter taken. . . .”

However, it is earnestly argued that the statute in question should be given the broader construction contended for, in order to make it conform to the further mandate of § 176 of the Constitution that the property of the state shall be exempt from taxation. It is pointed out that, upon the acquisition of the property in question by sheriff’s deed in foreclosure, it becomes the property of the state and as such is freed from all obligation to contribute to the tax burden, either past or prospective. Authorities are cited holding that property which is acquired by the state or by any of its political subdivisions for a public or governmental purpose is exempt from taxation either on common law principles, according to which a sovereign does not tax itself and its revenue laws are construed to apply to private property only, or in obedience to constitutional provisions expressly so declaring. A careful examination of these authorities will disclose that they proceed upon the principle that the functions of government should not be interrupted on account of the possible failure of officers to safeguard the title to property acquired for the purpose of facilitating a given governmental activity. The futility of levying a tax to pay a tax is also frequently commented upon. But it is our conclusion based upon a careful examination of all of the authorities cited that none goes so far as to declare the interest of the state in property which is acquired as a mere incident to the pursuit of a governmental function to be superior to claims of third parties based upon anterior tax liens. The ability with which these authorities are analyzed and the commendable zeal with which they are urged upon us, as well as the importance of the question involved, seem to us to justify the inclusion in this opinion of a brief abstract showing the holdings therein. We think that a careful consideration will demonstrate that the question involved here was present in none of the cases and that this case is sui generis.

Santa Monica v. Los Angeles County, 15 Cal. App. 710, 115 Pac. 945, was an action brought by the city of Santa Monica to recover taxes for the year 1903, which taxes it had paid under protest. The lien of the taxes for the year 1903 attached as of the first Monday of March, regardless of the actual date of the assessment. The city acquired the property in question after this date but before the assessment was levied. It was held that the plaintiff took the property subject to the lien for county purposes the same as would a private purchaser; that 1he lien of the county for taxes was not merged in the title taken by the city and, consequently, when the city paid the taxes it was merely discharging an obligation incident 'to the ownership of the property and it could not recover back the amount so paid. It was said that the plaintiff, by its organization as a part of the state government, had not been vested with power to aid the'state in connection with county government or school government under the control of the county authorities and that the taxes so levied upon the property were levied by the county for purposes within its jurisdiction.

In Smith v. Santa Monica, 162 Cal. 221, 121 Pac. 920, the plaintiff sought to quiet title to property to which ho held a tax deed. The taxes for which the property was sold were those of 1894 and 1895. The tax deed was executed on June 10, 1908. The claim of the defendant city was based upon condemnation proceedings instituted in 1895, in which judgment in favor of the city was entered on December 20, 1897, nine years prior to the tax deed. It appears that the state had become the purchaser at the tax sale prior to the date of the judgment in the condemnation case, but it did not attempt to realize upon its lien until some nine years thereafter. The court put the proposition thus: That the state in seeking to enforce the payment of state and county taxes was selling the public property of one of its agencies. It comments on the folly of a sovereign taxing its own property and taking-money out of one pocket to put in another. It relies upon its earlier construction of the provision of the Constitution in People v. Doe G. 1,034, 36 Cal. 220, to the effect that the Constitution and laws with reference to the taxing of property are to be understood as referring to private property and as not including the public property, either of the state or of its subordinate municipal corporations. The court holds that when a municipal corporation acquires property the title which the state takes by the tax collector’s deed is merged in the larger title which the municipality holds under the trust for the public. In conclusion it is held that the controller’s order to the tax collector in 1908, to dispose of and transfer the property, was without authority of law and void.

In Webster v. University of California, 163 Cal. 705, 126 Pac. 974, there was involved the title to a tract of land upon which the board of regents of the state university had foreclosed a mortgage, the plaintiff claiming title through tax deed from the state. The mortgage was given to the regents in 1890 and duly recorded. The taxes which had become delinquent were taxes for the year 1896. The lands were conveyed to the plaintiff by tax deed on April 18, 1905. At the time of the conveyance there was pending an action to foreclose the mortgage owned by the regents. Judgment had been entered in this action on January 19, 1905, and in pursuance of the judgment the lands were sold on May 16, 1905 to the regents, approximately a month after the tax deed to the plaintiff. There was no redemption from the mortgage foreclosure sale and it was followed by a deed to the regents dated September 28, 1905. The court held the title to be in the regents.

At the time of the assessment of the taxes, there was in force in California a constitutional provision segregating the interests of tho mortgagor and mortgagee for purposes of taxation. Under this provision the mortgage interest of the regents could not be taxed for the taxes of 1896, because this interest belonged to the state and was exempt by virtue of that provision in the Constitution exempting property belonging to the state. Therefore, the tax sale carried to the purchaser only the interest of the mortgagor, and the title conveyed by the tax deed was a title subject.to the mortgage.

In Reid v. State, 74 Ind. 252, the action was brought to recover possession of lands claimed by the plaintiffs as alien heirs of alien ancestors. The defendant claimed under 'tax title. The state intervened, claiming title to the lands by escheat. The state substantiated its claims as against the heirs of the alien, the lands becoming vested in the state by escheat on the 10th day of January, 1860. The tax title was based upon a sale in 1862 to pay the delinquent taxes for the years 1859, 1860 and 1861. The holding was to the effect that any assess ment of taxes upon .the land or its sale for delinquent taxes after January 10, 1860, was void as against the state.

In Flanagan v. Land Development Co. 145 La. 843, 83 So. 39, the only applicable holding is a holding by the trial court, approved by the supreme court, to the effect that a city could not in 1910 sell property for its taxes for the year 1908, which property was held by the state on account of the nonpayment of its taxes in 1909.

Foster v. Duluth, 120 Minn. 484, 48 L.R.A.(N.S.) 707, 140 N. W. 129, involved an attempt to realize on a tax lien against property acquired for a public purpose. On July 17, 1905, one Gulusha conveyed certain lots to the city of Duluth and soon thereafter the city constructed thereon an incinerator for the disposal of garbage. The plaintiff held certain tax certificates issued pursuant to a tax judgment rendered in 1907 for the taxes for the year 1905. The lien for the 1905 taxes attached as of May 1st, more than two months prior to the conveyance to the city. The court held the property not subject to taxation after it became public property devoted to public uses, saving that it would not be subject to taxation in the absence of constitutional or statutory provisions making public property subject to the tax laws of the state. It also held that it was equally well established that proceedings for the assessment of taxes on public property or for their collection by judgment and sale are absolutely void, and these proceedings were void notwithstanding that the taxes for the current year may have been a lien on the property before .its transfer. The court said it did not follow that because there was a valid lien the proceedings to enforce the lien were valid, and further remarked that it was not important what became of the lien; that they did not consider whether it still existed as an enforceable lien, whether the plaintiff was entitled to refundment, or whether the lien was merged in the fee title. All that was decided was merely that, after the property was purchased by the city for a public purpose, all proceedings to enforce and collect the taxes were void.

Laurel v. Weems, 100 Miss. 451, 56 So. 451, Ann. Cas. 1914A, 159, Weems filed a bill to quiet title to a certain lot. The city of Laurel set up its ownership. Weems claimed a tax title by virtue of the purchase at tax sale on March 4, 1907. Taxes were assessed in 1906, and on the 20th of March, 1906, the property was conveyed by the owner to tho city of Laurel, the deed being recorded on May 17th. It was for the 1906 taxes that the property was sold oil March 4, 1907. Under the Mississippi statute, a lien for taxes for a given year attached on the first of February, and the contention was that this lien for the taxes of 1906 did not abate when the city purchased the property. The court held that after a municipality purchased a lot the tax officers could not take any further steps looking toward the collection of the taxes; that the subsequent sale was a nullity and that the purchaser acquired no title. The bill was dismissed.

Public Schools v. Trenton, 30 N. J. Eq. 667, involves a question of priority as between a mortgage and certain taxes of the citjr of Trenton under the following facts: The mortgage in question was held by the trustees for the support of the public schools. It represented security for a loan of the public school fund which was made in 1861. The action was to foreclose the mortgage, and the city of Trenton interposed a claim of priority of lien based upon taxes upon the mortgaged premises assessed in the years 1875, 1876 and 1877. Under the charter of the city taxes were made a first lien on the premises, although by a general statute in the state they were a lien only upon the estate which the owner had at the time of the assessment. It was held, however, that by a subsequent constitutional provision requiring property to be assessed under general law and uniform rules the priority provision of the Trenton charter was not abrogated; ffiit it was further held that such charter provision, while giving to the city a lien for taxes prior to the lien of antecedent mortgages held by individuals, did not apply in such a manner as to preclude the trustees of public schools from foreclosing the mortgage as a first lien. It was said that the moneys represented by their mortgage were not legitimately subject to taxation by the city and are excluded from the class of property over which the city’s power of taxation extends; that if the securities of the state were subject to priority of lien, their value would be destroyed by the failure of their agents to make redemption of the premises from sale. In the course of the opinion, however, the court said: “In some respects the state is not endued with the prerogatives of the king. Where the state goes into the market for the investment of money, it takes its securities subject to the vested rights of property of private individuals. This must necessarily be so under a government which protects private prop erty against the state by constitutional prohibitions. Consequently, a mortgage given to the state or its representatives for public moneys, will be subject to all prior estates in the mortgaged premises, and all liens and encumbrances thereon actually vested antecedently in private individuals.” It should be remarked that the school fund in New Jersey was protected by the constitution by being made a perpetual fund which was required to be securely invested and which the legislature was- not competent to appropriate for any other purpose than the support of tho public schools,' and this was commented upon in the opinion.

State v. Locke, 29 N. M. 148, 30 A.L.R. 407, 219 Pac. 790, involves the validity of a tax deed which was issued pursuant to a tax sale for the taxes of 1909. The premises, however, were acquired by the state during the year 1910 and the tax deed was issued on June 1, 1914. The court states the question to be whether or not the acquisition of the property by the state frees it of existing liability for taxes then levied, due and unpaid. Tho court commented on the futility of taking money out of one pocket and putting it into another and upon the danger that the public might lose its property entirely through oversight of its agents in failing to pay taxes, and held that when property is acquired by the state in its sovereign capacity, it thereupon becomes absolved, freed and relieved from any further liability for taxes previously assessed against it and which are unpaid at the time it becomes so acquired ; that, from the moment of its acquisition, the power to enforce the lien is arrested or abated. The claim of the state for such taxes becomes merged in its ownership of the fee.

In the case of Hughes County v. Henry, 48 S. D. 98, 202 N. W. 286, a rural credit loan of $10,000 had been made July 1, 1922, on a section of land. The 1922 taxes were not paid and in December, 1923, the property was sold to the county for want of bidders and a tax sale certificate issued; neither were the taxes paid for 1923. The action was mandamus to compel the rural credit board to pay the taxes. The rural credit act did not specifically direct the board to pay the taxes, but it provided that taxes paid by the mortgagee should become part of the mortgage debt. The court discussed the relative standing of the lien of the mortgage and the lien for the taxes and held that the statute, similar to our § 2186 of the Compiled Laws of 1913, which makes taxes a perpetual lien against all persons and bodies corporate, except tbe United States and the state, did not make the tax lien subordinate to tbe state’s mortgage lien, but it “merely provides that the tax lien is not superior to tbe mortgage lien.” Tbe court held that- it appeared that tbe legislature bad not attempted to make tbe lien of tbe taxes subordinate to tbe lien of rural credit mortgages; that tbe payment of taxes was an incident to tbe making of the loan; that tbe board had power to pay taxes and should be required to do so.

In a concurring opinion in the above case, Mr. Justice Sherwood expressed somewhat stronger views than those embodied in the opinion of tbe court. lie presented the issue as a challenge to the most important sovereign power of the state, that to tax and to collect taxes, saying at page 290 :

“Tbe conflict here is plainly between tbe state in its general sovereign taxing power and a mortgage made by a minor subdivision of tbe same state, and it seems clear that tbe power and lien created by tbe state must be greater than that created by such subdivision.

. . . When tbe state engaged in the business of making rural credit loans, it was clearly not acting in its sovereign capacity, but was engaged in tbe business of loaning money in competition with other citizens of tbe state.”

He then proceeded to quote tbe statement of Chief Justice Marshall in Bank of United States v. Planters’ Bank, 9 Wheat. 904, 6 L. ed. 24-4, as follows:

“It is, we think, a sound principle, that when a government becomes a partner in any trading company, it divests itself, so far as concerns tbe transactions of that company, of its sovereign character, and takes that of a.private citizen. Instead of communicating to the company its privileges and its prerogatives, it descends to a level with those with whom it associates itself, and takes tbe character which belongs to its associates, and to the business-which is to be transacted. Thus many states of this Union, who have an interest in banks, are not suable even in their own courts; yet they never exempt the corporation from being sued. The state of Georgia,, by giving to the bank the capacity to sue. and be sued, voluntarily strips itself of its sovereign character, so far as repects the transactions of the bank, and waives all the privileges of that character- As a member of a corporation, a government never exercises its sovereignty. . . . The government, by becoming a corporator, lays down its sovereignty, so far as respects the transactions of the corporation, and exercises no power or privilege which is not derived from the charter.” (Citing cases.)

Under the reasoning of this opinion, the exercise of the sovereign power of txation is dignified above the action of the state when engaged in a business not directly involving sovereign prerogatives. To concede priority to the mortgage over the tax has an effect on sound government under well defined constitutional principles similar to effects produced in the physical realm by inverting a pyramid.

In Gasaway v. Seattle, 52 Wash. 444, 21 L.R.A.(N.S.) 68, 100 Pac. 991, it appeared that the city of Seattle-had acquired three tracts of land by condemnation proceedings, one in July, 1896, and the others in 1901. The value of the property was paid into court and in turn paid over to the assignee of the owner. At the time of the condemnation proceedings certain taxes had been levied which were then delinquent. In one of the suits the county was made a party. Later the county brought an action to foreclose its lien for taxes including therein the land which had been taken by the city in the condemnation proceedings and which was then in its possession. The court stated that the only question for it to decide was whether the tax lien of the county was superior to the right of the city to condemn and take the property for public use. It appears that the lower court, in deciding the case for the plaintiff, had followed the earlier case of Puyallup v. Lakin, 45 Wash. 368, 88 Pac. 578, which was decided prior to the adoption of an amendment governing condemnation suits. It was then held that under the amendment the question was resolved to whether the county, by reason of its tax lien, is a person having an interest in the land within the meaning of the act, and it was said that the statute was drawn on the theory that a municipal corporation exercising the sovereign power of the state could take land under the power of eminent domain without regard to taxes or tax liens; that under it the city could exercise the full power possessed by the state and that, as the state had full power to fix the subjects of taxation and to exempt property,-it could take away both the power to tax and the subjects of taxation, and that no person or municipality could acquire as against the state a vested right of taxation or the right to insist upon the collection of them when levied; and that, since the city in the condemnation proceedings had acted as 'an arm of the state government, it acquired the lands in such circumstances that its enjoyment could not be taken away, nor its use impaired, by a sale to satisfy a tax; and that the tax lien was not paramount to the right of the state to abolish it.

In State v. Snohomish County, 71 Wash. 320, 128 Pac. 667, the action was brought by the state for the cancellation of tax certificates upon, and to quiet its title to, lands which it had purchased as a site for the state reformatory. It appeared that the land was purchased on May 8th and August 9, 1907; that on July 1, 1909, the county treasurer issued the certificates of delinquency in question for the taxes upon one quarter section for the year 1907, and upon the other for the year 1908. It was agreed that the complaint stated a cause of action in relation to the taxes for the year 1908 and that a demurrer to the complaint might be considered as applicable to the taxes for the year 1907 alone. The lower court sustained the demurrer, thus upholding the claim of the holder of the tax certificate. The question was stated as being whether or not the real estate in private ownership on March 1st of the given year, but which had passed into public ownership when the taxes for that year were levied, might be subjected to the payment of the tax. In deciding this question, the court so construed that provision of the statute which dates the tax lien from the first of March in each year as presupposing that a valid levy affecting the particular property can and will be made following the general taxation law, and that since, both under general principles and under the state Constitution, property of the state was not subject to taxation, all steps taken to subject it to a tax lien after August 9, 1907, were unauthorized; that at that time “the developing process of imposing the tax as a valid creation was arrested.” It was held that the lien was only inchoate on March 1st and since the property had passed into public ownership at such time as to prevent the inchoate lien from maturing, the tax certificate based upon the 1907 tax would not constitute a valid and enforceable lien on the property.

In our opinion, the considerations that support the title and right of the state or public corporations in the above cases as against claims based upon prior taxes are not present in the instant case. The property acquired by the state treasurer in trust in the instant case is not acquired for a public purpose. The constitutional exemption was clearly intended to protect property that was acquired for a public purpose. It was placed in the Constitution at a time when restrictions were imposed upon governmental activities in the direction of private enterprise. See § 185 of the state Constitution, 1889. When the state engaged in the farm loan business, it was not in contemplation that any real property should be acquired to facilitate the operation of the department. A state reformatory, a school, a.waterworks or an incinerator can not be operated apart from the land upon which it is located, but the more successfully a farm loan business is operated, the less the likelihood that any real property will ever be acquired. And when property is acquired in the manner directed by the statute, it is to be held temporarily only. The direction is to dispose of it in order to realize its worth as security. Clearly, the underlying public policy which protects public property from the hazards of tax proceedings is not present to any appreciable extent where the property is held temporarily for such a limited purpose. The State, in the end, is not embarrassed to any greater extent than private lenders in realizing the full value of the property. The loan was originally made on the basis of the property continuing to be subject to taxation, and there is no just reason why the position of the lender should later be arbitrarily improved, especially when this is done at the expense of a limited group of taxpayers as distinguished from the taxpayers in general. So far as the danger of loss of the property through tax proceedings is concerned, it might well be protected during the period of state ownership by considering the lien dormant; or the possibility of such loss might well be considered as an incidental hazard and within legislative contemplation when the state was directed to engage in the business of loaning money upon terms that made the adequacy of its security at all times subject to human judgment, business acumen and foresight. (But we are not called upon to determine which of these alternatives was contemplated.) We are unable to harmonize the high conception of sovereignty, which lies back of the protective doctrine of immunity, with a departmental activity in a business enterprise where success is so largely dependent upon administrative discretion and judgment. Why should the attribute of sovereignty be invoked to avoid a loss (or to make a profit; for it may so result) under a law that outlines many situations requiring official and quasi-official action in connection witb the same business that are fraught with the possibilities of losses (or profits ?) many times as great as usually attach to a mere tax matter on individual tracts ? The state and its agencies and departments are not always synonymous where questions of sovereign attributes are concerned. Sargent County v. State, 47 N. D. 561, 182 N. W. 270. Under such a law the reasons for the immunity have largely ceased and ratio ost legis anima, mutata legis ratione mutatur et lex.

While it is argued that § 176 of the state Constitution, declaring that the property of the state shall be exempt from taxation, so operates to remove automatically all tax liens existing at the time the property is acquired, we find no substantial support in the authorities for such a construction. Its language is prospective. It does not purport to control the effect of the acquisition of title upon existing liens, and it is only upon the principles heretofore in this opinion stated thát existing liens have been held to be extinguished or rendered. dormant. We are of the opinion that this section does not have the force contended for as to existing liens. In this connection may be noted also that other provision of the Constitution (§22) which declares “Suits may be brought against the state in such manner, in such courts, and in such cases, as the legislative assembly may, by law, direct” and § 8175 of the Compiled Laws of 1913, which authorizes suits against the state “respecting the title to property, or arising upon contract. . . .” We do not hold that suits may be instituted upon the tax certificates held by the county. We hold only that the prior taxes should not be abated or canceled.

It is suggested that the legislature when amending and re-enacting the statute under consideration in 1925 (see chapter 100, Session Laws of 1925) refused to so amend § 9 as to strike therefr'om the clause providing for the abatement and cancellation of unpaid taxes (House Bill 185 — indefinitely postponed) and further refused to pass a bill providing for the payment of existing tax liens (Senate Bill 149, 1925 session), it evidenced a purpose to have all tax liens wiped out. Such legislative action is at most equivocal as an expression of legislative intent. On the one hand, it is wholly consistent with our construction of the 1923 act, in that the subsequent legislature might well have considered the previous legislation an adequate direction to cancel the un paid taxes for which the property had not been sold and which wore not included in the certificates; and, on the other hand, it might further have been unwilling either to embarrass the Bank of North Dakota by requiring taxes to be paid, or the certificates to be taken up, or to, at that time, increase the general tax burden by appropriation for that purpose. In any event it is but an equivocal expression or lack of expression by a subsequent legislature.

It may be remarked in this connection too that had there been any doubt, prior to 1925, as to the authority of the Bank of North Dakota to pay delinquent taxes upon lands upon which it had negotiated loans, that doubt was removed by the amendment to § 9. See chapter 100, Laws of 1925. By the 'amendment the bank was authorized to include in the foreclosure “all legal costs and disbursements incurred, including all taxes paid by said bank.'” This is not a direction to pay but a clear recognition of the right of the bank to pay and to recover the amount paid in the foreclosure proceedings. If, in the event of sheriff’s deed in foreclosure issuing, all outstanding tax liens are arbitrarily canceled, it is somewhat singular that the bank would be authorized to pay taxes which could never jeopardize the security for its loan. The 1925 amendment, as we view it, is rather an indication that the direction to cancel unpaid taxes was limited to those accruing after the foreclosure of the mortgage.

Concerning the cancellation of the taxes which wore not due at the time the property was transferred to the state treasurer, as trustee, under the sheriff’s deed in foreclosure, we are of the opinion that this question is controlled by § 176 of the state Constitution which exempts the property of the state from taxation. Under such a provision the ownership and not the use to which property is put, nor even the purpose for -which it is acquired, affords the test of its immunity. San Francisco v. McGovern, 28 Cal. App. 491, 152 Pac. 980; Colorado Springs v. Freemont County, 36 Colo. 231, 84 Pac. 1113; Walden v. Whigham, 120 Ga. 646, 48 S. E. 159; Sumner County v. Wellington, 66 Kan. 590, 60 L.R.A. 850, 97 Am. St. Rep. 396, 72 Pac. 216. These taxes accrued after the sheriff’s certificate of foreclosure sale had been issued, and we have no doubt that it was competent for the legislature; under the liberal construction of constitutional provisions expressly exempting property owned by the state, to provide for the cancellation of such taxes.

There is yet another class of taxes involved in this case, namely, taxes which were delinquent and for which the property had not been sold. "Under the law governing tax sales (Comp. Laws 1913, § 2191), when property is once bid in by the county it is not again offered for sale for subsequent taxes unless the county has made an assignment of the certificate. This statute and the sections governing redemption clearly have the effect of including in the tax certificate held by the county at the date of delinquency all subsequent taxes on the property. In other words, the county as a certificate holder draws to itself the lien of the subsequent unpaid taxes without the formality of a sale. Since its right to hold the property for this amount subject to redemption is included i’n the certificate, and since there has been no apparent attempt to qualify its rights as a certificate holder, the taxes which became delinquent before the sheriff’s deed was issued should not be canceled.

For the foregoing reasons, we are of the opinion that the judgment of the trial court is correct and it is affirmed.

Burke, Burr, and Christianson, JJ'., concur.