Opinion
December 17, 1937.
1. DRAINAGE DISTRICTS: Taxes: Municipal Corporations. Drainage districts organized under the general law discharge, primarily, governmental and public functions, referable to the police power.
For certain purposes, not necessarily all, drainage districts have been classed as political subdivisions of the State and as municipal corporations.
Property of such a district, used exclusively in the discharge of its prescribed governmental function, is exempt from taxation. [Sec. 6, Art. X, Mo. Const.]
2. DRAINAGE DISTRICTS: Taxes: Municipal Corporations. Portions of a drainage district's detention basin, necessary to store surplus water in flood time, but devoted to cultivation when not needed for storage purposes and which were acquired for the authorized purpose, were exempt from general State and county taxes.
Where there was no fact tending to reflect on the bona fides of the district's acquisition or retention of lands for the protection of its lien for drainage taxes, although the district desired and attempted to sell the land, the lease of the lands for agricultural purposes and the application of the rentals, pending a sale, to the discharge of the expenses and bonded indebtedness, was a husbanding of its resources for the promotion of its governmental and public function.
The rentals derived therefrom were incidental to the primary object and within the spirit of the statute authorizing the protection of the drainage district's lien for taxes.
In an action by a drainage district to quiet title and to free the cloud of any lien for State and county taxes on land claimed by the district and to enjoin the enforcement of such State and county tax liens, under reasonable construction of the tax exempt provision of the Constitution (Sec. 6, Art. X, Mo. Const.), the title to lands acquired by the district in the manner mentioned was in the district, under Section 10766, Revised Statutes 1929, and the plaintiff was entitled to the judgment prayed.
Appeal from Cass Circuit Court. — Hon. Leslie A. Bruce, Judge.
REVERSED AND REMANDED ( with directions).
L.J. Bishop and Patterson, Chastain, Graves Smith for appellant.
(1) The appellant is a drainage district and as such is a municipal corporation whose property is exempt from taxation. Sec. 6, Art. X, Mo. Const.; Sec. 9743, R.S. 1929; State ex rel. Caldwell v. Little River, Drain. Dist., 291 Mo. 72, 236 S.W. 15; State ex rel. Kinder v. Little River Drain. Dist., 291 Mo. 267, 236 S.W. 848. (a) The appellant, a drainage district organized under Article I, Chapter 64, Revised Statutes 1929, is a "municipal corporation" within the meaning of that term as used in Section 6, Article X, Missouri Constitution and Section 9743, Revised Statutes 1929, Sec. 6, Art. X, Mo. Const.; Sec. 9743, R.S. 1929; State ex rel. Hausgen v. Allen, 298 Mo. 448, 250 S.W. 905; Anderson v. Inter-River Drain. Dist., 309 Mo. 189, 274 S.W. 448; State ex rel. Gentry v. Curtis, 319 Mo. 316, 4 S.W.2d 467; Max v. Barnard-Bolckow Drain. Dist., 326 Mo. 723, 32 S.W.2d 583; Sigler v. Inter-River Drain. Dist., 311 Mo. 175, 279 S.W. 50; Houck v. Little River Drain. Dist., 239 U.S. 254, 36 Sup. Ct. 58, 60 L.Ed. 266, affirming 248 Mo. 373, 154 S.W. 739; Honey Creek Drain. Dist. v. Farm City Inv. Co., 326 Mo. 739, 32 S.W.2d 753; Mound City Land Stock Co. v. Miller, 170 Mo. 240, 70 S.W. 721, 60 L.R.A. 190; State ex rel. Applegate v. Taylor, 224 Mo. 393, 123 S.W. 892; Mississippi Fox River Drain. Dist. v. Ruddick, 228 Mo. App. 1143, 64 S.W.2d 306. (b) Generally as to construction of Section 6, Article X, Missouri Constitution and Section 9743, Revised Statutes 1929. The rule of strict construction of constitutional and statutory exemption provisions does not apply to provisions exempting property of municipal corporations. State ex rel. Waller v. Trustees, William Jewell College, 234 Mo. 299, 136 S.W. 397; Cooley on Taxation (4 Ed.), sec. 673; Pasadena v. Los Angeles County, 187 P. 418; State v. City of Columbia, 104 S.E. 337; Commonwealth v. Richmond, 81 S.E. 69. Said provisions should be construed in their plain, ordinary and usual sense. Sec. 655, R.S. 1929; State ex rel. Heimberger v. Board of Curators, University of Mo., 268 Mo. 598, 188 S.W. 128; State v. O'Rear, 277 Mo. 303, 210 S.W. 392; State ex rel. City of Marshall v. Hackman, 274 Mo. 551, 203 S.W. 960. The construction heretofore placed on said provisions by state administrative officials is entitled to great weight. Cooley on Taxation (4 Ed.), sec. 675; State ex rel. Koeln v. St. L.Y.M.C.A., 259 Mo. 233, 168 S.W. 589; In re Graves, 325 Mo. 888, 30 S.W.2d 149; Wright v. Ry. Co., 236 U.S. 674, 35 Sup. Ct. 471, 59 L.Ed. 781; Corporation Comm. v. Oxford Seminary Const. Co., 76 S.E. 640; Brown University v. Granger, 36 A. 824, 36 A.L.R. 847. The construction placed on Section 6, Article X, Missouri Constitution by the Legislature under Section 9743, Revised Statutes 1929, is entitled to great weight. State ex rel. O'Connor v. Riedel, 329 Mo. 616, 46 S.W.2d 131. (c) "Ownership" is the sole test of exemption from taxation as to property of a municipal corporation under Section 6, Article X, Missouri Constitution and Section 9743, Revised Statutes 1929. Section 6, Article X, Mo. Const.; Sec. 9743, R.S. 1929; State ex rel. Millis v. Fleming, 275 Mo. 509, 204 S.W. 1085; 61 C.J., p. 420, sec. 455; San Francisco v. McGovern, 152 P. 980; Otter Tail Power Co. v. Degnan, 252 N.W. 619; Church of The Holy Faith v. State Tax Comm., 48 P.2d 777; Egan Independent Consolidated Dist. No. 1 v. Minnehaha County, 270 N.W. 527; City of Wyandotte v. State Board of Tax Admin., 270 N.W. 211; Omaha v. Douglas County, 148 N.W. 938; Springfield v. Johnson, 37 P. 577; Teneck Township v. State Board of Tax Appeals, 164 A. 895; State v. Belleville, 39 A. 658; Portland v. Welch, 269 P. 868; Colorado Springs v. Fremont County, 84 P. 1113; Steward v. Denver, 202 P. 1085. Board of Education v. Blondell, 232 N.W. 375; State v. Burleigh County, 212 N.W. 217; Summer County Comnrs. v. Wellington, 72 P. 216 Webster v. Univ. of Calif., 126 P. 974; Alvis v. Hicks, 116 So. 612. (d) Real property acquired by a drainage district to protect its lien for delinquent assessments is devoted to a public use. A drainage district organized under the provisions of Article 1, Chapter 64, Revised Statutes 1929, exercises only statutory powers to promote health, sanitation and the reclamation of lands — their functions are exclusively governmental. Sec. 10743, R.S. 1929; Holly v. Rolwing, 87 S.W.2d 651; State ex rel. Marshall v. Bugg 224 Mo. 537, 123 S.W. 827. The exercise, by a drainage district, of its right to protect its lien for delinquent assessments is essential to its purpose and very existence. Secs. 10766, 11020, R.S. 1929; State ex rel. v. McKay, 227 Mo. App. 327, 52 S.W.2d 229; Robinson v. Ind. Ark. Lbr. Mfg. Co., 194 S.W. 870; Portland v. Multomah County, 50 P.2d 1145; Jefferson v. Curry, 71 Mo. 85. Where property is devoted to a public use its character is not altered because an income is incidentally derived therefrom; while it is held awaiting a favorable sale. Osceola v. Board of Equalization, 176 N.W. 284; Nasemond County v. Norfolk, 151 S.E. 143 Mechanics Bank v. City of Kansas, 73 Mo. 555. Roy McKittrick, Attorney General, H.G. Waltner, Assistant Attorney General, and G.R. Chamberlin for respondent.
(1) A drainage district is not a municipal corporation except to the extent authorized by a statute creating it, giving and limiting its powers to organizing, establishing and creating a district with limited powers to-wit, acquiring right of ways and to levy, apportion and collect the taxes for carrying out the purpose of the district. Sec. 6, Art. X, Mo. Const.; Secs. 9743, 10766, 11020, R.S. 1929. (a) A drainage district organized under Article 1, Chapter 64, Revised Statutes 1929, is a limited municipal corporation with strictly defined and limited powers and privileges. Sec. 9743, R.S. 1929; State ex rel. Caldwell v. Little River Drain. Dist., 291 Mo. 72, 236 S.W. 15; State ex rel. Kinder v. Little River Drain. Dist. 291 Mo. 267, 236 S.W. 848. The court correctly held that the appellant acted in the capacity of trustee for the bondholders in holding and receiving the rents and profits of the lands acquired on tax sales, and not used exclusively in the discharge of its prescribed governmental functions. State ex rel. Dist. No. 8 v. McKay, 227 Mo. App. 329; Caldwell v. Little River Drain. Dist., 291 Mo. 81; St. Louis v. Wenecker, 145 Mo. 230; Wilson v. Drainage Levee Dist., 237 Mo. 48; 19 C.J. 761; State v. Englewood Township Drain. Dist. Commrs., 41 N.J.L. 157; Jackson v. Breeland, 103 S.C. 184. The court properly observed that in effect the drainage district is holding the land which it buys at its own tax sale and otherwise in trust for the bondholders. St. Louis v. Weneker, 145 Mo. 230; 19 C.J., p. 572, sec. 271, p. 761; 65 C.J., p. 212, sec. 1. The trustee's options are equitable while debtor's are legal. The trustee occupies a fiduciary relation but the debtor does not. Guardian Trust Cause v. Studdart, 36 S.W.2d 582. "65 Corpus Juris, page 214, section 2B defines it as one who holds the legal title to the trust property for the benefit of another." Lord Coke's definition of a use was "A confidence reposed in some other, not issuing out of the land, but as a thing collateral, annexed in privity to the estate of the land and to the person touching the land for which the cestui que use has no remedy but by subpoena in chancery." Quoted in Willey v. Hoggson Corp., 106 So. 412, 90 Fla. 343. Bouvier's Law Dictionary defines a trustee as one to whom property has been conveyed to be held or maneuvered for the benefit of another. The power to levy and to collect taxes does not carry with it the power to hold the land tax free and the one power is not complementary to the other. Drainage Dist. v. Hetlage, 102 S.W.2d 702. The State and county tax lien continues, as a matter of course if the property is taxable, and the statutes so provide. Sec. 11020, R.S. 1929.
The Grand River Drainage District of Cass and Bates Counties, Missouri, is a corporation organized under Article 1, Chapter 64, Sections 10743-10808, Revised Statutes 1929 (Mo. Stat. Ann., pp. 3462-3530). Section 10766, Revised Statutes 1929 (Mo. Stat. Ann., p. 3494), authorizing drainage districts organized under said article to protect their lien for drainage taxes, was added as a new section to said Article 1 in 1927 [Laws 1927, p. 181]. Section 11020, Revised Statutes 1929 (Mo. Stat. Ann., p. 3659), relating to drainage and levee districts generally, was enacted in 1929 [Laws 1929, p. 178, sec. 1] and authorized such districts to protect their lien for drainage or levee taxes. Said Grand River District states it acquired the several tracts of land here involved under authority of said statutory provisions, and that it holds the same tax exempt as a "municipal corporation." The real estate market being depressed, said district has been unable to make a sale of said tracts at a fair price, and since their acquisition, has rented the tracts as farm land and applied the rentals received to the expenses and bonded indebtedness of the district. The Collector of Revenue presents no issue concerning said district's acquisition of or right to acquire said lands under said statutory provisions. He questions the right of said district to hold and use said lands tax exempt; and the sole contested issue, as briefed for review by the litigants, is whether or not land so acquired and held by said drainage district is exempt from assessment and sale for general taxes accruing subsequent to its acquisition by the drainage district. The judgment nisi held it was proper subject matter for taxation.
Applicable constitutional and statutory provisions are:
"The property, real and personal, of the State, counties and other municipal corporations, and cemeteries, shall be exempt from taxation. . . . ." [Sec. 6, Art. X, Mo. Const., 15 Mo. Stat. Ann., p. 748.]
"All laws exempting property from taxation, other than the property above enumerated, shall be void." [Sec. 7, Art. X, Mo. Const., 15 Mo. Stat. Ann., p. 754.]
"The following subjects are exempt from taxation: . . . fourth, lands and other property belonging to any city, county, or other municipal corporation in this state, . . ." [Sec. 9743, R.S. 1929] (Mo. Stat. Ann., p. 7863).
Briefly and broadly speaking: Drains are established to take off water. Our General Assembly has provided for the creation of local organizations, under general laws, known as drainage districts, which discharge, primarily, the governmental and public function, referable to the police power, of draining land for agricultural and sanitary purposes for the promotion of the public health, welfare and convenience. Incidental thereto, a properly conceived, constructed and maintained drainage district enhances the value of individual realty holdings therein and permits of an increase in revenue from taxation. For certain, not necessarily all [Wilson v. King's Lake D. L. Dist. (Banc), 237 Mo. 39, 46, 139 S.W. 136, 139(4)], purposes drainage districts have been classed as political subdivisions of the State and as municipal corporations [State ex rel. Hausgen v. Allen (Banc), 298 Mo. 448, 458 (III, IV), 250 S.W. 905, 907(III, IV); Anderson v. Inter-River Drainage Dist., 309 Mo. 189, 209, 274 S.W. 448, 453(3); Max v. Barnard-Bolckow Drainage Dist., 326 Mo. 723, 728, 32 S.W.2d 583, 584(1); and see State ex inf. Gentry v. Curtis (Banc), 319 Mo. 316, 328, 4 S.W.2d 467, 470].
State ex rel. Caldwell v. Little River Drainage District (Dec. 19, 1921), 291 Mo. 72, 81, 236 S.W. 15, 17(4), held personal property (office furniture, engineering instruments, et cetera) owned by a drainage district and used exclusively in discharging its governmental functions was exempt from taxation for State and county purposes, stating: "Our conclusion is that the defendant is a municipal corporation within the meaning of that term as used in the provision of the Constitution dealing with tax exemptions, and that its property, used exclusively in the discharge of its prescribed governmental function, is exempt from taxation." So, too, State ex rel. Kinder v. Little River Drainage District (Dec. 31, 1921), 291 Mo. 267, 236 S.W. 850, held that drainage districts are "municipal corporations" within the meaning of said Section 6, Article X, Missouri Constitution [219 Mo. l.c. 278(IV), 236 S.W. l.c. 851(IV)]; and, also, that the portions of a drainage district's detention basins "necessary to store the surplus water in flood time" but devoted to cultivation when not needed for storage purposes was acquired for authorized purposes and was exempt from general state and county taxes, stating, with reference to such cultivated realty: "It would be the duty of the district to husband its resources in that way and obtain any revenue it could by the use of such land, and such use would not subject the land to taxation" [l.c. 282 and 852(3), respectively]. However, the opinion points out [l.c. 276 and 850, respectively] that drainage district legislation authorizes such districts to protect against the injurious effect of water and does not authorize them, as corporate entities, to engage in commercial or money-making enterprises, or to acquire property, real or personal, for speculative or commercial purposes.
The Collector of Revenue does not question the correctness of the rulings that drainage districts are "municipal corporations" within the meaning of Section 6, Article X of our Constitution, upon which, as we understand his brief, he concedes the case turns. He, however, contends the Grand River district, under the facts of the instant case, is holding and using the lands here involved in a proprietary and not in a governmental and public capacity and that it may not engage in the commercial enterprise of acquiring real estate and leasing it for profit or holding it for speculative purposes tax exempt to the detriment of the State, counties and other political subdivisions.
The instant case was presented under stipulated facts to the effect that after acquiring the lands involved appellant desired to sell the same to satisfy its drainage taxes; that, although it endeavored so to do, it has been unable to obtain a fair price therefor and is holding said lands to protect its lien for drainage taxes. The record presents no fact reflecting or tending to reflect on the bona fides of appellant's acquisition or retention of the lands in controversy for the protection of its lien for drainage taxes. Appellant is holding the lands until it is practical to dispose of them. Its lease of the lands for agricultural purposes and the application of the rentals, pending a sale, to the discharge of its expenses and bonded indebtedness is a husbanding of its resources for the promotion of its governmental and public functions. Rentals derived therefrom are incidental to the primary object and within the spirit of the statute authorizing the protection of its lien for drainage taxes. Such rentals and any proceeds from sales of the lands will stand in lieu of the taxes. The conduct of a commercial enterprise for profit or speculation in land values is not established by the record. Drainage districts are of statutory origin, possessing only such power as is expressly delegated or necessarily implied from those granted. So long as they proceed in conformity with the expressed or implied authority conferred, we perceive no reason why they may not successfully invoke the protection of Section 6, Article X of our Constitution. [Consult annotations in 3 A.L.R. 1439 and 101 A.L.R. 787; Robinson v. Indiana Ark. L. M. Co., 128 Ark. 550, 557(4), 194 S.W. 870, 872(4).] We, therefore, reserve for a record presenting the issue whether or not they may acquire and hold, under said Sections 10766 or 11020, lands tax exempt for commercial or speculative purposes or in nonconformity with the spirit of the statutes.
Respondent also directs our attention to St. Louis v. Wenneker (Banc), 145 Mo. 230, 234(I), 47 S.W. 105(I). That case holds that property held by a city as trustee for the benefit of a particular class is not tax exempt under said Section 6, Article X of our Constitution. The case involved property given by will to the City of St. Louis in trust "to furnish relief to all poor emigrants and travelers coming to St. Louis on their way bona fide to settle in the west." Appellant is required to appropriate a sufficient amount of its drainage tax for the purpose of paying the principal and interest of its issued bonds, "and the same shall, when collected, be preserved in a separate fund for that purpose and no other." [Sec. 10788, R.S. 1929, Mo. Stat. Ann., p. 3515; State ex rel. v. Little River Drainage District (Banc), 334 Mo. 753, 762(4), 68 S.W.2d 671, 674(5).] Section 10766, supra, provides that upon conveyance to the district ". . . such lands shall thereupon become the property of the drainage district, and may be held, disposed of, and conveyed by the board of supervisors at such price and on such terms, as in the discretion of the board of supervisors may be to the best interest of the district." Under the statute title vests in the district for the benefit of the district as well as any holders of its bonds for the protection of the lien of the district for drainage taxes. It is only when the district disposes of the land and receives the sale price that the drainage taxes are "collected," and the officers of the district may be said to become statutory trustees. The facts are not analogous to those in St. Louis v. Wenneker, supra.
Giving the aforesaid tax-exempt constitutional provision that reasonable construction to which it is entitled when invoked by governmental agencies performing a public service [consult Washington University v. Baumann (Banc), 341 Mo. 708, 108 S.W.2d 403, 411(4).], the judgment nisi is reversed and the cause remanded with directions to enter judgment in conformity herewith. Cooley and Westhues, CC., concur.
The foregoing opinion by BOHLING, C., is adopted as the opinion of the court. All the judges concur.