Henderson v. City of Missoula

This action was brought to recover taxes paid under protest. Edmond J. Ouimet was totally and permanently disabled while serving in the United States Army during the World War. As a result of this disability and service he was granted and paid service compensation, pensions, and adjusted compensation by the United States.

In September, 1919, he married the plaintiff; they were divorced in 1930. On February 10, 1922, Edmond J. Ouimet was adjudged incompetent by the district court of the fourth judicial district of the state, and a guardian was appointed for him. He continued under guardianship until his death. On January 30, 1930, his guardian was authorized to purchase certain real estate for the benefit of his ward with funds received from the United States as pensions, compensation, and adjusted compensation. The title to the real estate was taken in the name of the guardian as trustee for his ward. In June, 1934, the guardian conveyed a life estate in this real property, with remainder over to the minor son of his ward.

Plaintiff, the mother of the child, after the death of her former husband was appointed guardian of her child's estate, consisting of this real property. The defendant city levied taxes against this property for the year 1936, which were paid by plaintiff, as guardian, under protest; she claiming the property to be exempt from all taxation. This suit followed. Judgment was entered by the trial court in favor of the plaintiff for the amount of the taxes paid under protest and restraining the city of Missoula from levying further taxes against the property until the disability of the minor child is removed. The appeal is from the judgment.

The pertinent portion of section 1998, Revised Codes, relating to exemptions of property from taxation is as follows: "* * * And all property, real or personal, in the possession of legal guardians of incompetent veterans of the World War or minor dependents of such veterans, where such property is funds or derived from funds received from the United States as pension, compensation, insurance, adjusted compensation, or gratuity, shall be exempt from all taxation as property of the United States while held by the guardian, but not after title passes to the veteran or minor in his or her own right on account of removal of legal disability."

Our Constitution provides, with reference to exemptions from taxation, as follows: "The property of the United States, the state, counties, cities, towns, school districts, municipal corporations and public libraries shall be exempt from taxation; and such other property as may be used exclusively for the agricultural and horticultural societies, for educational purposes, places for actual religious worship, hospitals and places of burial not used or held for private or corporate profit, institutions of purely public charity and evidences of debt secured by mortgages of record upon real or personal property in the state of Montana, may be exempt from taxation." (Sec. 2, Art. XII.)

All property within the state is subject to taxation unless it is included within some of the exemptions mentioned in section 2, Article XII, supra, as provided by section 1 of the same Article.

The case was tried below in effect upon an agreed statement of facts. The sole question there, as here, may be stated as follows: Does the real property in question, in the circumstances of the case, fall into any of the classes of property enumerated in section 2, Article XII, as exempt? If the property is not within some one of these classes, then the quoted portion of section 1998 is violative of section 1, Article XII, of the Constitution. Manifestly, it cannot be so classified unless it is property of the United States.

We said in the case of State ex rel. Tipton v. Erickson,[1] 93 Mont. 466, 19 P.2d 227, 228: "In the determination of the question of the constitutionality of any Act, a statute, if possible, will be construed so as to render it valid. (Hale v. County Treasurer, 82 Mont. 98, 265 P. 6.) It is presumed to be constitutional, and all doubts will be resolved in favor of its validity if it is possible so to do. (State ex rel. Toomey v. State Board of Examiners, 74 Mont. 1, 238 P. 316, 320.) The invalidity of a statute must be shown beyond a reasonable doubt before the court will declare it to be unconstitutional. (Herrin v. Erickson, 90 Mont. 259, 2 P.2d 296.) And a statute will not be held unconstitutional unless its violation of the fundamental law is clear and palpable. (Hill v. Rae,52 Mont. 378, 158 P. 826, L.R.A. 1917A, 495, Ann. Cas. 1917E, 210.)"

Section 450 of Title 38, U.S.C.A., provides that payments of compensation, adjusted compensation, pensions, etc., may be paid by the Veterans' Administration to the guardian of an incompetent claimant appointed by a court of competent jurisdiction of the state of the residence of the claimant. It further provides that when such guardian, in the opinion of the administrator of the Veterans' Administration, is not properly executing the duties of his trust or is attempting to collect inequitable or illegal pay, fees, commissions, or allowances for duties performed or expenses incurred, such administrator or his attorney is authorized to appear in any court, either of original or appellate jurisdiction, and make proper presentation of these matters. If such guardian refuses to make proper account upon notice, the administrator may refuse to make further payments to him. The administrator is authorized to appear or intervene in any court as an interested party in any litigation instituted by himself, or otherwise, directly affecting any money paid to such guardian. Any funds remaining in the hands of a guardian of an incompetent veteran, which under the laws of the state in which the ward has his residence would escheat to the state, escheat to the United States, and it is the duty of such guardian to remit them to the Veterans' Administration after the payment of proper charges of administration.

Section 454, which was in effect until August 12, 1935, and section 454a of the same Title, exempt the payments made to veterans, such as those here before us, from taxation. The benefit of this exemption does not, under the decisions of the United States Supreme Court, extend to real property which has been purchased with the proceeds of pensions, compensation, etc. (Lawrence v. Shaw, 300 U.S. 245, 57 Sup. Ct. 443,81 L. Ed. 623, 108 A.L.R. 1102; Trotter v. Tennessee,290 U.S. 354, 54 Sup. Ct. 138, 78 L. Ed. 358.)

The question has frequently arisen in cases of insolvency of banks in which the proceeds of pensions, compensation, etc., had been deposited, as to whether a preference might be claimed on the theory that such funds were the property of the United States, giving effect to the provisions of section 450 of Title 38, U.S.C.A. These cases turn upon the point whether the title to these funds upon payment to the guardian of the veteran remains in the United States or passes to the veteran.

There is diversity of opinion among the state courts, some holding that the title does not pass. (Anderson v. OliviaState Bank, 186 Minn. 396, 243 N.W. 398, 83 A.L.R. 1086; Stateex rel. Spillman v. First State Bank, 121 Neb. 515,237 N.W. 623.) Others holding to the contrary. (Shippee v. CommercialTrust Co., 115 Conn. 326, 161 A. 775; Puffenbarger v.Charter, 112 W. Va. 488, 165 S.E. 541.) After the rendition of these decisions, the Supreme Court of the United States, in the case of Spicer v. Smith, 288 U.S. 430, 53 Sup. Ct. 415,77 L. Ed. 875, 84 A.L.R. 1525, decided that upon payment by the United States to the guardian of an incompetent, the title to these funds passed. All of these decisions were rendered subsequent to the amendment of section 1998 in 1931, which introduced into that section the quoted portion, supra.

When our legislature met in 1931, with section 450 of Title 38, U.S.C.A., in effect, it was a debatable question whether, upon the payment of these funds to the guardian of an incompetent veteran, the title passed or remained in the United States. In the absence of section 1998 we would be inclined to follow the decision of the Supreme Court of the United States. By this statute the legislature declared the policy of the law of this state as to when the title to these funds vested.

This court, in the case of State v. Gateway Mortuaries,[2] Inc., 87 Mont. 225, 287 P. 156, 157, 68 A.L.R. 1512, said: "What is the public policy of a state, and what is contrary to it, is not to be measured by the private convictions or notions of the persons who happen to be exercising judicial functions, but by reference to the enactments of the lawmaking power, and, in the absence of them, to the decisions of the courts. When, however, the legislature has spoken upon a particular subject and within the limits of its constitutional powers, its utterance is the public policy of the state. (Mr. Chief Justice Brantly, inMacGinniss v. Boston Mont. C.C. S.M. Co., 29 Mont. 428,75 P. 89, and Parchen v. Chessman, 49 Mont. 326,142 P. 631, 146 P. 469, Ann. Cas. 1916A, 681.)" The legislature in declaring this policy was acting within its power, unless it may not determine when and in whom the title to the property or funds vests, which is attempted to be transferred or conveyed.

A familiar illustration of a valid exercise of this legislative power is found in section 6935, Revised Codes. Under this statute if A conveys real property to B, who fails to record his conveyance, and A thereafter conveys to C, who is a subsequent purchaser in good faith for a valuable consideration, and who thereupon first records his conveyance, C takes the title as against B. Statutes of this character are upheld as being valid. (12 C.J. 1058; Vance v. Vance, 108 U.S. 514,2 Sup. Ct. 854, 27 L. Ed. 808; Conley v. Barton, 260 U.S. 677,43 Sup. Ct. 238, 67 L. Ed. 456.)

Since a debatable question existed under the federal statutes[3, 4] as to whether the title to funds paid to a guardian of an incompetent veteran by the United States remained in it, the legislature might well, instead of leaving the matter of declaring the policy of the law in that respect to the courts, exercise that power itself and thereby settle the question in this jurisdiction.

It being an admissible construction that the title to these funds remained in the United States after their delivery to the guardian, and one which some courts by able opinions have adopted, and the legislature having the power and the right to declare the policy of the law, we must, in the light of the rules by which we are guided in determining the constitutionality of Acts of the legislature, uphold section 1998 as being a valid exercise of legislative power.

Judgment affirmed.

ASSOCIATE JUSTICES STEWART and ANGSTMAN concur.

MR. CHIEF JUSTICE SANDS takes no part in the above decision.