Nelson v. McAllister Dist. Imp. Co.

C.E. Livesay acquired title from Deschutes county, Oregon, to the north half of the southeast quarter of section 36, township 15 south of range 10 east of the Willamette meridian, on April 30, 1932. During that same month and prior to the sale to the defendant Livesay, Deschutes county had, through foreclosure proceedings for collection of delinquent state, county, and school taxes, acquired title to the property above described. No question is raised as to the legality of the assessment of taxes upon this land for state, county, and school purposes, or the validity of the foreclosure proceedings and subsequent sale of the property for delinquent taxes.

Section 5, chapter 172, Laws 1911, provides for the recording of a notice by the owners of land in an improvement district created pursuant to that act, to the effect that the lands described in the notice are to be improved by irrigation or drainage, and that from the time of the recording of such notice "all the debts and obligations of said corporation [the district improvement company] theretofore or thereafter created shall be a lien upon all the land described in said notice prior to every lien attaching to said land subsequent to the date of recording said notice, except state, county and school taxes" [italics supplied]. It is the defendant Livesay's contention that when the county foreclosed its lien for delinquent taxes and purchased the property, the said land was freed from all liens for the debts and obligations of the McAllister District Improvement Company existing prior to the date of such foreclosure proceedings.

The McAllister District Improvement Company was organized prior to July 10, 1918. On that date the company filed with the county clerk of the county in which the land was situated the notice above mentioned. The bonds on which this suit is based are dated August 1, 1918.

The law providing for the creation of improvement districts such as the one here involved was enacted in 1911 by chapter 172 of the laws of that year, and amended by chapter 101, Laws 1917. By § 28 of chapter 267, Laws 1907 (later codified as § 3684 L.O.L.), all taxes thereafter lawfully to be imposed, charged or levied upon real property were declared to be a lien upon such real property from and including the day on which the warrant authorizing the collection of taxes was issued, and it was therein further provided that "such liens shall have priority to and shall be fully paid and satisfied before any and every judgment, mortgage or other lien or claim whatsoever, except the lien for a tax for a subsequent year". In 1917 § 3684, supra, was amended to provide that all taxes thereafter lawfully imposed "shall be and they are hereby declared to be a lien upon real property from and including" the first day of March of the year in which they were levied until the same should be paid. The 1917 amendment reincorporated the provision above noted as to the priority of the lien of such taxes. The priority of the lien of taxes imposed for state, county, school and other governmental purposes has not been materially changed since the passage of the two enactments above noted: chapter 305, § 9, Oregon Laws 1935.

When the law was enacted providing for the creation of improvement districts such as the McAllister district, the state law relating to state, county and school taxes distinctly and unequivocally provided that the lien of such taxes should have priority over every judgment, mortgage or other lien or claim, and in making the debts and obligations of these districts a lien upon the property within each district the legislature was careful to require that such liens be given priority over every other lien attaching to the land subsequent to the date of the recording of the notice, except the lien of state, county and school taxes. When the plaintiff purchased the bonds here involved he was charged with knowledge of the law.

In Keene v. City of Seattle, 31 Wn. 202 (71 P. 769), which involved the priority of state taxes over city assessments, the court called attention to a former decision in the same jurisdiction, McMillan v. City of Tacoma, 26 Wn. 358 (67 P. 68), wherein it was held that the holder of general tax delinquency certificates was not required to pay delinquent street assessments which were a lien upon the real estate, before being entitled to such certificates of delinquency. The court further said:

"It is unnecessary to repeat here the argument used in that case. The statutes were there discussed, showing that it has been the evident policy of the legislature of this state to make the lien for general taxes paramount over every other claim or burden that can attach to lands, and that in the nature of things such a course is not only wise, but necessary. We said in that opinion: `This policy of the legislature is not only wise, but, in the nature of things, is necessary, in order that the existence and continuation of government may not be imperiled. The state and its subordinate municipalities can not exist without the collection of public revenue, and serious confusion would result if the lien of taxes levied for that purpose should be made inferior to, or equal with, local assessments or other liens.'"

See also, in this connection: Osterberg v. Union Trust Co.,93 U.S. 424 (23 L.Ed. 964); California Loan Trust Co. v.Weis, 118 Cal. 489 (50 P. 697), and the annotation to AdvanceThresher Company v. Beck, Ann. Cas. 1913B, 517, at 520.

The title which a purchaser at a tax sale acquires is thus described in 26 R.C.L. 401, § 360:

"It is held in most jurisdictions that the title conveyed by a sale for nonpayment of taxes is not merely the title of the person who had been assessed for the taxes and had neglected to pay them, but a new and paramount title to the land in fee simple absolute created by an independent grant from the sovereign and free from all equities and incumbrances existing prior to the sale upon the title of the previous owner. Under this view the sale extinguishes all prior incumbrances on the land or interests in it, though held by persons who were not liable for the tax or in default for not paying it, such as the lien of pre-existing mortgages and judgments, landlords' liens, and inchoate rights of dower."

And in Black on Tax Titles (2d Ed.) 528 § 420, we find this:

"In a considerable number of the states, the revenue laws are so framed that a valid tax sale, and the maturing of the title in the purchaser, will create in him a new and original title, going back no further than the tax sale, and not incumbered with any previous liens or collateral interests. It is the theory of these statutes, and of most of the decisions interpreting them, that the land itself is taxed, not the title; and consequently when the land is sold, the land is transferred to the tax purchaser, dissevered, as it were, from any previous ownership or claim of interest. * * * And it is held in these states, and very correctly, where the tax is made a paramount lien, that the title thus created is new and independent, its validity being tested by nothing outside of the tax proceedings."

Under the Bancroft Bonding act (§§ 56-2001 to 56-2010, inclusive, Oregon Code 1930), relating to street and sewer assessments, it is provided (see § 56-2003, supra) that all unpaid assessments and interest thereon shall be and remain a lien on each lot assessed, and that "such lien shall have priority over all other liens and incumbrances whatsoever". This court, however, in Hughey v. Cornell, 137 Or. 589 (3 P.2d 781), after referring to a statute which provided that all purchasers, except the county, buying property through tax foreclosure sale acquired the property subject to all unpaid city assessment liens, remarked: "In the absence of such statutory provision, it is clear that the purchaser in the tax sale would take the property free and clear of any outstanding liens of a municipality."

In the majority opinion herein, in discussing the contention that a purchaser at a tax foreclosure sale acquired title to the tract of land within the district free of the lien of the bonds, it is observed that if that contention be true, "then the statute affords no security to a bondholder, since, by the simple device of not paying the taxes assessed against the lands within the district, the landowners, by having their lands sold for taxes and bid in by some person acting in their behalf, can extinguish all liens". It is a well-known principle of law that what can not be done directly can not be done indirectly. In Nickum v.Gaston, 24 Or. 380, 384 (33 P. 671, 35 P. 31), the same contention was answered by this court with relation to mortgaged property and the duties and obligations of the mortgagor, in the following language:

"He [the mortgagor] is under a legal obligation to pay the taxes, and can not, by neglecting to perform this duty, and suffering the land to be sold in consequence of such neglect, add to or strengthen his title by purchasing at the sale himself, or by subsequently buying from a stranger who purchased thereat. By such purchase he does not acquire, as against the lienholder, any title or right to the property better than he had before, but the sale will operate only as a mode of paying the taxes, leaving the title in the same condition as if no sale had been made. `This principle is universal,' says Judge Cooley, `and it is so entirely reasonable as scarcely to need the support of authority. Show the existence of the duty and the disqualification is made out in every instance.'"

The lien holder is not helpless in a situation of this kind. It is not necessary for him to sit idly by and see the property covered by his lien sold for taxes. Section 69-843, Oregon Code 1930, provides that any person having a lien by mortgage or otherwise "upon any land on which the taxes have not been paid may pay or redeem such taxes" and shall have an additional lien on such land for the amount of money so paid, which "shall be collectible with, as part of, and in the same manner as the amount secured by the original lien".

Another reason urged for holding that Livesay did not acquire title to the tract of land free from the debts and obligations of the improvement district is the provision in the law governing the organization of such district to the effect that every owner of land described in the articles of incorporation of a district improvement company is a member of said corporation "and said membership is lost or gained through the respective sale or purchase of any of said land, as the case may be". From this language of the statute it is argued that the legislature did not intend to say that the lien of state, county or school taxes should be prior to the debts and obligations of the district, but that they should be on a parity. Such would the holding necessarily be, if the purchaser at a tax foreclosure sale took the property burdened with the lien of such debts and obligations.

It was not intended, by stating who should be members of the district, to include a county which became a purchaser at a tax foreclosure sale, any more than it was intended by the language used in the Bancroft Bonding act, supra, to make the land purchased by the county at a tax foreclosure sale subject to a lien for street and sewer assessments. Since the property in the ownership of the county is not subject to the lien of the obligations of the district, it must necessarily follow that a purchaser from the county would acquire the same title and rights to the land that the county had.

When the legislature referred to membership in the district organization it did not intend to include the state, counties or school districts. As was said in State Land Board v. Campbell,140 Or. 196 (13 P.2d 396), with reference to the priority of tax liens as against land mortgaged to the State Land Board: "It is a universally accepted rule that words of a statute applying to private rights do not affect those of the state, and that the sovereign authority is not bound by the general language of a statute which tends to restrain or diminish the powers, rights or interests of the sovereign, and when the rights of a commonwealth are to be transferred or affected, the intention must be plainly expressed or necessarily implied." The county of Deschutes, in foreclosing the certificates for delinquent taxes, was acting as an agency of the state, and the same principle of law should apply to it in that capacity as would apply to the state, were the latter attempting in its own name to enforce the payment of delinquent state taxes.

If the title acquired by the county on foreclosure proceedings or the title acquired by the individual from the county after such foreclosure proceedings is to be burdened with the lien of the debts and obligations of an improvement district, language more explicit should have been used by the legislature than that which refers to membership in the district, and should not be conflicting with the express declaration that the lien for taxes is superior to the lien for the debts and obligations of the district. To hold that the land acquired on a sale for delinquent taxes is still subject to the debts and obligations of the improvement district might, and in many instances doubtless would, defeat the recovery of taxes levied for state, county and school purposes.

In addition to what is hereinbefore said as to the title acquired upon foreclosure proceedings for delinquent taxes, we find in the brief of the appellant, who is attempting to foreclose the lien of his bonds, this statement: "Livesay defended on the ground that he was the grantee of a purchaser at a delinquent tax sale, and plaintiff admitted by a reply that this defense was good, except that he maintained Livesay was a necessary party and would be liable if he used water in the future."

In the oral argument before this court counsel for the appellant conceded that the title acquired by Livesay was free and clear of any lien which had existed in favor of the plaintiff at the time of the tax foreclosure proceedings, and disclaimed any right to foreclose the plaintiff's lien against the property so acquired by Livesay.

Question next arises as to the procedure to be followed in foreclosing the lien granted by the statute to creditors of the district improvement company. It is the contention of the appellant that such lien should be foreclosed pursuant to § 6-501, Oregon Code 1930, in the same manner as liens created by mortgages. The defendants who are respondents here argue that the said section does not apply to liens of this nature and that the proper procedure is to cause assessments to be levied and collected against the property by the improvement district, in the same manner that cities and other municipalities levy and collect assessments for improvements and other obligations.

Reverting to chapter 172, supra, we find that § 7 thereof prescribes the duties and powers of the district, including the powers to sue and be sued, to contract and be contracted with, to purchase, condemn by the right of eminent domain, possess and dispose of such real and personal property as may be necessary or convenient to carry into effect the objects of the corporation. Subdivisions 7 and 8 of § 7 specify the following powers of the district improvement company:

"7. To prescribe, fix, make, assess and charge and collect rates, tolls, fees, fines, and charges for the use of water, or for the use of any of the irrigation or drainage works of the company, or for the violation of any of the by-laws, rules and regulations of the company and such rates, tolls, fines, fees and charges shall be a lien on the crops produced as prescribed in section 6544 of Lord's Oregon Laws, and also upon the land to which the water or drainage was furnished.

"8. To make, levy and collect an assessment or assessments either ratably, or in proportion to the benefits received as the by-laws may provide upon the lands described in the articles of incorporation for the purpose of paying any or all of the expenses, debts or obligations of the company; provided that in no case shall there be more than one assessment paid upon any lands in any one year."

Section 9 of the same chapter reads thus:

"The rates, tolls, fees, charges, fines, and assessments for any one year shall become due and payable on or before the first day of October of said year, or as provided by the by-laws of the corporation, and the lien of the same upon any of the lands described in the articles of incorporation may be enforced and foreclosed by a suit in equity and upon the sale of said land on such foreclosure the corporation or any member thereof may be a bidder and purchaser."

In Rathfon v. Payette-Oregon Slope Irrigation District,76 Or. 606 (149 P. 1044), this court held that a district created under chapter 172, Laws 1911, as amended by chapter 101, Laws 1917, was a quasi-public corporation and that the property within its specified area was exempt from inclusion within a state irrigation district. The court further held that the law permitting the creation of such voluntary improvement district had for its object much the same purpose as the irrigation laws of this state. See, also, Edlredge v. Mill Ditch Co., 90 Or. 590 (177 P. 939).

From the above quoted section it is apparent that the district improvement company is given power to raise by assessments against the property within the district the necessary revenue to pay debts and obligations of the district, and is granted a lien on the property for such assessments, with power to enforce the collection of said assessments by a suit in equity.

It is alleged in the complaint and admitted in the answer of all the defendants that the McAllister District Improvement Company is "the owner of an irrigation ditch sometimes known as the McAllister Ditch Company", and that the ditch carries water to the lands described in the complaint.

The bonds involved in this suit contain a provision that "all of the taxable real and personal property of the McAllister ditch which supplies water for irrigation of the McAllister District Improvement Company are hereby pledged for the prompt payment of this bond, and the interest thereon as the same matures". The bonds also contain the following recital: "It is hereby declared that provision has been made in accordance with law by said McAllister District Improvement Company for the levy and collection of assessment sufficient to pay the interest upon this bond as the same matures in accordance with the laws of the state of Oregon." It will therefore be noted that in executing the bonds the district improvement company recognized the necessity of at least making assessments for the payment of interest on these obligations, and the holders of the bonds took with knowledge of that fact. Mandamus proceedings would lie to compel the officers of the district improvement company to make the necessary assessments to raise revenue for the payment of these bonds: Noble v. Yancey, 116 Or. 356 (241 P. 335, 42 A.L.R. 1178); Kollock v. Barnard, 116 Or. 694 (242 P. 847); State exrel. Sondheim v. McClain, 136 Or. 53 (298 P. 211); State exrel. First National Bank of Baker v. Melville, 149 Or. 532 (39 P.2d 1119, 41 P.2d 1071).

On the other hand, if the liens of these bonds were to be foreclosed as other liens such as mortgages against the real property, let us see what difficulties would be presented. The statute provides that after filing the notice hereinbefore mentioned "all the debts and obligations of said corporation theretofore or thereafter created shall be a lien upon all the land described in said notice prior to every lien attaching to said land subsequent to the date of recording said notice, except state, county, and school taxes, whether such debt or obligation of said corporation be in existence at the time such later lien attaches or be created afterwards". The statute, however, does not specify the priorities of the various liens created by the debts and obligations of the district improvement company.

In the case at bar, according to the amended notice which was filed in 1920, the district comprises over 1,300 acres of land. More than fifty parties were made defendants in this case. In order to foreclose in a suit in equity the lien created by these bonds it would be necessary to make a party defendant every one who had an interest in the land, as well as all those who held mortgages or incumbrances against the land, and all the creditors of the district improvement company, if their liens were to be barred. Every holder of an incumbrance initiated subsequent to the filing of the above notice, in order to protect his lien, would then be forced to appear in court, set forth his lien and ask that it be foreclosed. The question then arises whether all the lands within the district are to be sold to satisfy the liens of creditors of the district improvement company. If all these lands are sold to the highest bidder, how are the creditors of the corporation to be paid? Are the proceeds of the sale, if insufficient to pay all the creditors, to be prorated among them? If the proceeds of the sale exceed the debts and obligations of the corporation, how is the excess to be distributed among the owners of the land and the remaining lien claimants? How would it be possible for the owner of any tract of land within the district to redeem his land from the sale without paying the entire indebtedness of the corporation in addition to the liens created by himself against his own land? And if it be argued that the creditors of the district improvement company may proceed against any individual tract, then difficulties equally or more serious would be encountered.

It was never intended by the legislature that the lien of the bonds might be satisfied by the bondholders through bringing foreclosure proceedings against the owners of land in the district. By providing that the debts and charges against the district shall be an "obligation" on the land within the district, and "shall run with the land" the legislature has said in effect that the land in the district shall be held for the debts of the district in like manner as the property within any municipality.

For the reasons here given, I dissent from the majority opinion to the extent of its treatment of the propositions hereinabove discussed.