39 N.W.2d 164 | Minn. | 1949
The questions for decision are:
(1) Whether a transaction between the government of the United States and a contractor constitutes a mortgage, where the transaction *265 is evidenced by three written instruments, viz.: A contract, a lease, and a combined warranty deed and bill of sale, which provided in effect that the contractor should acquire land, erect thereon a building and equip it for manufacturing a product to be used for national defense; that, after having completed the erection and equipment of the facility mentioned, the contractor should convey and transfer title thereto to the government for a purchase price to be determined in the manner provided by the contract upon condition subsequent that the title should revert to the contractor upon payment by it, after the President had declared the facility to be no longer needed for defense purposes and while the lease or an extension thereof was in force, of an amount equivalent to the purchase price paid by the government less depreciation of the property computed according to contractual formula; that during the life of the lease the contractor should pay a stipulated rental for occupation and use of the facility; that upon payment of such sum the government would execute written instruments to evidence the reversion of the title; and that, if such payment was not made, the title vested in the government by the warranty deed and bill of sale should become indefeasibly vested in it;
(2) Whether, if such a transaction constitutes a mortgage, the property is immune from state taxation because of the federal government's ownership of an interest therein as mortgagee; and
(3) Whether a declaratory judgment, determining that the mortgagor was liable as against the claim of federal immunity from taxation for a personal property tax based on its ownership of personal property, is res judicata in a proceeding to enforce payment of personal property taxes of the question whether the mortgagor is liable for such taxes as against the defense of federal immunity therefrom.
Pursuant to authority granted by 22 USCA, § 411-419 (Lend-Lease Act), and 55 U.S. St. 53-55 (Defense Aid Supp. Appropriation Act, 1941), the government arranged with the dairy company to have it acquire and operate a milk processing plant for manufacturing *266 nonfat dry milk solids or such other products as might be specified by the government, which were to be first offered for sale to it. The transaction was evidenced by three writings, viz., a contract, a lease, and a combination warranty deed and bill of sale.
The contract (dated June 9, 1944), so far as here material, provided that the dairy company should acquire, if it was not the owner thereof (and it was stipulated that it was not), a tract of land upon which to erect the processing plant; that the dairy company should construct thereon at its own expense the processing plant and equip it according to the government's plans and specifications; that the dairy company should also equip certain creamery receiving stations in the trade area surrounding the plant; that the dairy company, after it had constructed and equipped such property, which it was agreed was to be referred to as the "facility," should convey and transfer title thereto to the government; and that the government should pay the dairy company a price therefor to be determined according to the contract, which afterward was agreed to be $415,285.51. The contract provided that "title to the facility shall however, be subject to the following condition to be provided for, substantially, in each instrument of title or conveyance," viz., that if the President of the United States should declare that the facility was no longer needed for defense purposes and the dairy company should during the lease or a continuation thereof pay a sum of money to the United States equivalent to the total consideration paid by the government for the facility, not including the cost of the land, less an annual depreciation of ten percent thereof, title to the facility should "revert" to the dairy company, but that the government should not be responsible for the condition or state of repair of the facility at the time title thereto "reverts" to the dairy company. It was further agreed that "upon the reverting of the title" as aforesaid the government should execute and deliver to the dairy company written instruments "to evidence the happening of the reversion of title"; that, should the dairy company fail to make the payment within the time specified, "said condition subsequent shall be null and void," and title to the facility "then vested in the Government *267 shall be indefeasible." It was also provided that the dairy company should pay for documentary revenue stamps and filing and recording fees, and that it should bear loss caused by fire prior to the acceptance of the facility by the government.
Simultaneously (on June 9, 1944), the government executed a written lease of the facility to the dairy company for a term of five years for the purposes stated in the contract, reserving an annual rental equivalent to 11 percent of the total consideration paid for the facility. Under the lease, the dairy company was obligated to offer for sale to the government all products processed in the facility; to keep the facility insured at its own expense against loss by fire and other hazards to be specified; and to pay, at least ten days prior to delinquency, "all taxes assessed or other governmental charges that may be legally imposed upon or constitute a lien against the facility or any part thereof." There were covenants against subleasing and subletting by the dairy company. The dairy company was granted the right to renew the lease, as follows: (1) If the President had not made the declaration mentioned and if the lease was still in force, to renew it for another term of five years upon the same terms and conditions as those contained in the original lease; and (2) if at the end of such renewal period the President had not made such declaration and if the lease as renewed was still in force, to renew it for another term of ten years upon the same terms, etc., except that the rental was to be $10 per month. The lease contained provisions authorizing the government to terminate the lease as renewed.
On November 24, 1945, the dairy company, in consideration of $415,285.51, of which $322,810.24 represented the purchase price of the land and the cost of the buildings, including permanent fixtures and installations, by a combination warranty deed and bill of sale conveyed the facility to the government, subject to the condition subsequent, which by the terms of the contract was to be included in *268 the deed and bill of sale and which was set forth therein substantially in the language of the contract.3
By amendments to the contract and the lease executed on November 6, 1945, it was agreed, among other things, that title to the facility should be considered as having vested in the government on April 1, 1945; that the term of the lease should be considered as commencing on April 1, 1945; and that the provision of the lease obligating the dairy company first to offer to the government products processed in the facility be deleted.
The dairy company has been at all times in possession of the facility and has operated it ever since it became capable of use. *269
On July 31, 1946, the President made a declaration that the government no longer needed the facility for defense purposes.
The dairy company has not exercised its right to terminate the lease and to pay the amount due the government in order to obtain a reversion to it of the title which it conveyed to the government.
Pursuant to M.S.A. cc. 273 and 275, a real estate tax for the year 1945 amounting to $3,249 was assessed against the real estate in question, effective as of May 1, 1945 (May 1 is the tax day), and a personal property tax for the year 1945 amounting to $6,143.33 was assessed against the dairy company effective as of May 1, 1945, based upon its ownership of machinery and equipment in its plant located in the village of Sebeka.
Thereafter, the dairy company commenced a declaratory judgment action to have determined whether it was liable for the taxes in question. The district court sustained demurrers to the complaint upon the ground that, while a taxpayer has a right in such cases to maintain an action for a declaratory judgment to have determined its liability for both real property and personal property taxes, the dairy company upon the merits was liable for the taxes in question. On appeal, we affirmed so far as the order concerned the dairy company's liability for the personal property tax and reversed so far as it concerned its liability for the real estate tax. Land O' Lakes Dairy Co. v. Village of Sebeka,
Subsequently, judgment was entered in the proceedings to enforce payment of real estate taxes for the year 1945 against the real property for the amount of the real estate tax then due. Pursuant to *270 the judgment, the real estate was bid in at the tax sale for the state of Minnesota. There has been no redemption from the sale, nor any assignment or transfer by the state of its rights as purchaser at the sale. It is the enforcement of the tax judgment which the dairy company seeks to have enjoined. The district court found as a fact that the assessment embraced "without qualification all interests in said [the dairy company's real] property," and as a conclusion of law that the dairy company was not entitled to any relief. In a memorandum made part of its decision, the court found that the warranty deed was "in reality a mortgage to secure the Government for the money it advances and for the faithful performance of the contract by the lessee [the dairy company]" and that "The rights acquired by the state in such proceedings aresubordinate to the rights in the rem [sic] held by the United States Government." (Italics supplied.) No assignments of error thereon have been made in this court. The dairy company appeals from the judgment entered pursuant to the court's findings and conclusions.
In answer to the citation in the proceedings to enforce payment of the 1945 personal property taxes, the dairy company pleaded that the government owned the property for which it was taxed and that the government was immune from such a tax. The state asserted that the declaratory judgment, which was shown by stipulation, was res judicata of the dairy company's tax liability, and the trial court so held. In its memorandum it indicated that, aside from res judicata, it would have held the dairy company liable for the tax, upon the grounds that the relation between the dairy company and the government was that of a mortgagor and mortgagee and that governmental immunity from taxation had no application under the circumstances.
Briefly, the dairy company contends that the transaction constituted a sale and a lease back. The state contends that the transaction was a mortgage, for the reason that, while the instruments used to evidence it were in the conventional form of a contract, lease, and deed and bill of sale, in substance the transaction was one under which the government was to advance the money for the construction *271 and equipment of the facility and take title thereto as security for not only the money advanced but also for performance by the dairy company of its contract to manufacture war materiel, and that the terms of the condition subsequent under which title was to revert to the dairy company are not only indicative of intention to mortgage, but are the conventional way of doing so. The dairy company, answering this contention, contends that there was no mortgage because there was no debt and no personal liability on its part to pay a debt. The state counters that neither a debt nor personal liability to pay one is necessary — that the advance may be wholly upon the security without personal obligation on the part of the borrower.
1. A mortgage of realty is a conveyance of realty intended as security for the payment of money, or the performance of some act. Lundeen v. Nyborg,
A chattel mortgage is a conveyance of personalty intended as security for the payment of money, or the performance of some act. Thoen v. First Nat. Bank,
We think that the combined warranty deed and bill of sale here is in form and substance a mortgage of both realty and of personalty. It contains all the elements of one. It contains language of absolute conveyance. The conveyance is expressly made upon condition subsequent, so denominated therein, that it shall be void upon payment of money by the dairy company, whose right to do so was conditioned by keeping the lease in force and by performance of its contract to manufacture the war materiel mentioned. Both the contract and the deed refer to the title conveyed by the dairy company to the government as adefeasible one. This is plain from the clause that the title vested in the government shall become indefeasibly vested in it upon the dairy company's default. The covenants binding the dairy company to repair, to insure, and to pay taxes are such as are ordinarily included in a mortgage or a contract for deed. If an absolute sale as distinguished from a mortgage was intended, the covenant binding the dairy company to pay taxes was just so much surplusage and consequently meaningless. In case of an absolute sale, the property would have been immune from state taxes, and, consequently, federal governmental immunity from state taxation without the covenant would have afforded the federal government adequate protection against the taxes in question. If, however, a mortgage was intended, the property was subject to state taxation (see infra); and in that event a covenant such as we have here was necessary to afford the government protection against such taxes. The covenant can be given effect only by holding that a mortgage was intended. The fact that such a covenant was made is a token of intention to mortgage rather than to convey absolutely and indefeasibly. It seems clear also that the government intended to advance to the dairy company the money necessary to construct *273
and to equip the facility and to hold title thereto as security for the money advanced and the dairy company's performance of the contract; that the government did not intend to acquire the facility to hold it permanently; and that, when the purposes of the government had been achieved, it intended to return the facility to the dairy company upon payment of the balance of the money due. While the language of the condition subsequent is not that the deed shall become void upon the happening of the condition, but is rather that upon the happening thereof the title acquired under the deed shall "revert" to the dairy company, the language of the condition is equivalent to a declaration that upon the happening thereof the deed shall become void. The word "revert," as used in the condition subsequent, means that upon performance of the condition title shall go back to the dairy company. See, Bybee v. Oregon
California R. Co.
"* * * A chattel mortgage is a present transfer of title to the mortgaged property, with a defeasance. Upon the payment of the debt or the performance of the obligation secured, the title to the property reverts to the mortgagor." (Italics supplied.)
To the same effect: In re Herkimer Mills Co. Inc. (D.C.)
A sale and lease back, even though there is no provision for defeasance of title upon performance of stipulated conditions, will be treated as a mortgage where it appears that the conveyance was for security for a debt or for the performance of an act. Helvering v. *274
F. R. Lazarus Co.
Whether a transaction between the United States and a war contractor is a mortgage is to be determined by the rules stated. In cases arising under contracts let during World War I, where a transaction was not in the form of a mortgage, but was in substance one as security for the payment of money or the performance of an act, the federal courts held the transaction to be in effect a mortgage. United States v. Shelby Iron Co.
We hold that the transaction here is a mortgage under the rules stated.
2. Where the real nature of the transaction is a loan upon the security of real estate, it is a mortgage, even though the loan is made wholly upon the security and without any personal obligation on the part of the borrower. Hewitt v. Baker,
3. In determining whether the dairy company's property is clothed with federal immunity from the taxes in question, it is necessary to consider the nature of such taxes.
A real estate tax is one in rem against real property without personal liability therefor on the part of the owner thereof, and a judgment recovered in proceedings for the enforcement of such a tax likewise is one in rem against the property without personal liability against the owner. Wilking v. County of Chippewa,
A personal property tax is not one upon such property, but rather one in personam against the owner because of his ownership of such property and measured by the value thereof. In re Petition of S. R. A., Inc. supra; State ex rel. Vossen v. Eberhard,
"* * * The proceeding for the collection of taxes upon personal property is one in personam, and not in rem. This radical distinction must be kept in mind: In the one case the tax is against the person, although estimated in amount according to the value of the personal property possessed, and is never a lien upon the property assessed; in the other the tax is against the land, and becomes a lien thereon, but is never made a personal obligation against the owner. The state has no claim upon the personal property assessed, and it may be disposed of by the owner without regard to its assessment for taxes."
While personal property taxes are not a tax upon property and the tax is imposed upon the owner thereof in personam, such taxes are, by virtue of M.S.A.
4. Facts stated in the trial court's memorandum made part of its decision, which are not inconsistent with facts specifically found, become part of the findings (Wilson v. Davidson,
5. A state may constitutionally impose a nondiscriminatory tax upon the interest of a mortgagor in land, the legal title to which is held by the United States as mortgagee, so long as the rights of the United States remain unaffected. S. R. A., Inc. v. Minnesota,
"Any difference between a security right obtained under a mortgage and that provided for by the retention of the legal title under an executory sales contract is a matter of form only and not of substance."
We in effect so held in the first S. R. A. case (
The Supreme Court of the United States adopted this view. After pointing out that such a tax did not "impinge" upon federal rights, the court said (
"* * * The possibility of repossession by the United States is not enough to block a tax sale in which the paramount rights of the United States are protected."
and —
"* * * Where beneficial interest has passed to a vendee, the retention of legal title does not give a significant difference from the situation of a deed with a lien retained or amortgage back to secure the purchase money." (Italics supplied.)
Here, because the transaction is in fact a mortgage, it comes squarely within the reasons for the rule announced by both the Supreme Court of the United States and by us in the S. R. A. cases.
It makes no difference that the mortgagee or vendee has not paid the money due to the United States or demanded a deed. It is sufficient for present purposes at least that he has a right to do so upon making payment, even though he has not done so. S. R. A., Inc. v. Minnesota,
The fact that the property is "owned by a private person and used by him in performing services for the Federal Government" does not render it immune from nondiscriminatory state ad valorem taxes. Oklahoma Tax Comm. v. Texas Co.
The fact that the entire real property was assessed for the tax is no ground for holding that the property is immune from the tax upon federal grounds. This contention was answered by the Supreme Court of the United States in the S. R. A. case in the following language (
"The only other contention of petitioner which we need mention is that the State has included the interest of the United States in the valuation of the land, and has therefore subjected that interest to taxation. But no deduction need be made for the interest of the Government since that interest is for security purposes only and is *278 not beneficial in nature. The whole equitable ownership is in the petitioner and the value of that ownership may be ascertained on the basis of the full value of the land."
The dairy company cites contra, among other cases, those of Van Brocklin v. Tennessee,
It follows here that the dairy company's interest in the property taxed (real estate) is not immune from state taxation upon grounds of federal immunity. The tax in question is nondiscriminatory. Being subordinate to the rights of the federal government, it neither affects nor impinges upon them. See, In re Petition of S. R. A., Inc.
6. Personal property taxes, being only in personam and not against the property, have no effect upon the property, except where the state attempts to enforce its lien therefor against the property. The taxpayer's tax liability and the state's lien rights against the particular property involve separate questions. At this stage of the proceedings, only the liability of the taxpayer for the tax is involved. Since the tax may be collected out of the taxpayer's other property, it may never become necessary to resort to the property on the ownership of which the tax is based. The question is whether one using property, upon which the government holds a mortgage, to serve the government is immune upon federal grounds from a personal property tax imposed upon him in personam. We think that this question is answered emphatically in the negative by the *279 Oklahoma Tax Comm. case, supra, and the numerous decisions of the Supreme Court of the United States there cited.5
7. No reason occurs to us why the judgment in the declaratory judgment action, that the dairy company is liable for the personal property tax notwithstanding its claim of federal immunity therefrom, is not res judicata here of its liability for such tax. We hold that it is. The fact that the declaratory judgment determined a federal question does not render it any less a bar. Angel v. Bullington,
In conclusion, we hold that the dairy company's interest in the and is subject to the real estate tax in question and that it is liable in personam for the personal property tax in question. We reach this conclusion without considering whether the dairy company's covenant to pay taxes created such a liability. The liability is independent of the covenant. This disposes of the questions raised on the appeals. It follows that there should be an affirmance in both cases.
Affirmed.
"PROVIDED, HOWEVER, That if, after the date of a declaration by the President of the United States of America that the above described premises and said machinery, equipment and personal property are no longer needed" for defense purposes "and at any time during the life of a lease between the parties hereto," or "of any extension or renewal" thereof, the dairy company shall pay to the government "a sum of money to be determined as hereinafter provided, the title to" the facility "shallrevert" to the dairy company, which sum to be so paid shall be as follows: "The above stated total consideration paid [$415,285.51]" by the government to the dairy company for the facility "less an amount representing depreciation, obsolescence and loss of value due to use of said premises and of said machinery, equipment and personal property for national defense purposes, which said amount shall be calculated at the rate of ten (10) per cent per annum, commencing April 1, 1945, of the total consideration first above stated, less the consideration paid the said party of the first part for the land described herein without improvements, which amount represents Three Thousand Two Hundred Two and 76/100 Dollars ($3,202.76)"; and
The government shall not be responsible for the condition or state of repair of the facility "at the time title theretoreverts" to the dairy company, and the dairy company "shall accept" the facility "in the condition in which" it then is. The dairy company "covenants that if it fails to make payment of the sum of money as provided within the time above prescribed, such condition subsequent shall become of no force and effect and the fee simple title to" the facility "herebyvested in the said party of the second part [government] shallthen become indefeasibly vested in the said party of the secondpart." (Italics supplied.)