Opinion
Decided January 19, 1935.
Assessments — Street improvements — Mortgagee of property not entitled to notice, when — Section 3818, General Code — Immaterial that assessment power exercised by subdivision of state — Section 3812, General Code — Special assessment lien superior to pre-existing mortgage lien — Section 3897, General Code — Priority of special assessment not prevented, when — Section 3898, General Code — Constitutional law — Section 28, Article II, Constitution — Retroactive laws.
1. Section 3818, General Code, providing that the "owner" of property to be assessed for street improvements shall be notified, does not entitle the mortgagee of such property to any notice, and the fact that no notice is given the mortgagee is not sufficient to defeat the lien priority of the assessment.
2. For ordinary purposes general taxes and assessments are synonymous, both being levied by virtue of the sovereign power of the state for the public good, and the fact that the assessment power granted by Section 3812, General Code, is exercised by a subdivision of the state as a delegated power, can make no appreciable difference.
3. By virtue of Section 3897, General Code, special assessments assessed and levied against a property for street improvements have priority over a pre-existing, duly executed and recorded, mortgage lien thereon.
4. Section 3898, General Code, providing for the collection of special assessments and stipulating that "the owner shall not be liable, under any circumstances, beyond his interest in the property assessed," does not prevent the lien of the special assessment from being superior to a pre-existing mortgage lien on the property.
5. By virtue of Sections 3897 and 3898, General Code, assessments for street improvements are liens senior to a mortgage lien recorded prior to such assessments, and are not rendered violative of Section 28, Article II, of the Ohio Constitution, prohibiting retroactive laws. Subsequently enacted Sections 5713 and 5719 recognize the existence of priority as created and understood by the prior sections, in which respect they are likewise declaratory and constitutionally retroactive.
APPEAL: Court of Appeals for Cuyahoga county.
Messrs. Farquharson, Curtiss, Gillie Miller, for appellant.
Mr. Ezra Z. Shapiro, director of law, Mr. Alfred Laurence, Mr. Frank T. Cullitan, prosecuting attorney, and Mr. Gerald W. Miller, for appellee.
This is an action begun by plaintiff, L.G. Collister, as county treasurer, against Anna Kovanda and others for the purpose of collecting certain delinquent general taxes, special assessments, and the interest and penalties thereon, that had previously been levied and assessed against her property. It is asked that all of such be declared a first lien as against the premises, and that they all be sold to satisfy the lien.
The appellant, Joseph S. Kaufman, answers the treasurer's petition, and by way of cross-petition alleges the fact to be that in 1903 Anna Kovanda executed and delivered to the Society for Savings Bank a mortgage upon these premises to secure a promissory note for $3,500, due and payable in one year from date, and it is averred that the balance now remaining due thereon is $2,000.
It is further made to appear from the pleadings and the evidence that in the years 1925 and 1926 the city of Cleveland proceeded to and did open a street along the side of the Kovanda property, and improved the same. It is established that these improvements were of benefit to the premises and that the assessments as determined, to wit, $3,170.45, and $2,844.26, were not paid in cash and were thereupon levied against the premises. It is not claimed that the proceedings creating the special assessments were in any manner contrary to law, but it is asserted that they were in all respects in accordance with law, save and except in that the mortgagee bank was not notified of the passage of the ordinance of necessity or of any of the other proceedings incident to the levying of special assessments for these improvements in a manner equivalent to the service of summons as in civil actions. It is evidenced that it was notified by publication of the ordinance as provided by law.
It is also proved and conceded that since 1925 the general taxes have not been paid, and that the accumulated sum thereof now due is $2,080.22. The appellant now acknowledges that the general taxes, by reason of long established custom and understanding, rather than by any positive provision of substantive law of this state, are, after the payment of costs, the first and best lien on the premises.
The further interesting fact is disclosed that Kaufman became the assignee of the mortgage, and the debt for which it is given to secure, some time after the commencement of this suit — even after the mortgagee bank had filed an answer and cross-petition in this cause.
We shall proceed to a consideration of the question presented, which is whether special assessments subsequently assessed and levied against a property have priority over a pre-existing mortgage lien thereon, duly executed and recorded, which it is claimed antedates the statute creating the assessment lien.
We are cited to several authorities bearing upon that phase of the case which pertains to the claim of insufficiency of notice to the mortgagee. This shall receive but brief consideration, for it is provided by statute, Section 3818, General Code, that the "owner" of the property to be assessed shall be notified. It is not prescribed that the owner of any lesser interests therein shall be notified; and it has been held in Davis v. City of Cincinnati, 36 Ohio St. 24, that "the `owner' referred to * * * must, as a general rule, be one having a freehold estate in the premises assessed. * * * Any other construction would lead to absurd consequences." We might here remark that the only suggested exception to the general rule arises in the case of an existing life estate. See, further, Village of Put in Bay v. Stimmel, 7 C.D., 380, 18 C.C., 644, and Forrester Plaster Co. v. City of Cleveland, 21 C.D., 231, 12 C.C. (N.S.), 123. Upon these authorities and the reason thereof it must be determined that the mortgagee bank was not entitled to notice as an owner, for the statute contemplates only notice upon the legal owner of the fee. This is in entire accord with authorities of sister states construing statutes similarly worded. It is however conceded by the appellant, and so considered by this court, that the question of notice is not the crux of this action and is not the determining factor in the issue presented.
The appellant, as a premise to his rather ingenious argument, makes the point that special assessments are not general taxes, and are unlike general taxes, and that hence the former are not governed by the rules applicable to the latter. It is held in Lima v. Cemetery Association, 42 Ohio St. 128, 51 Am. Rep., 809, that:
"In a general sense, a tax is an assessment, and an assessment is a tax; but there is a well recognized distinction between them, an assessment being confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity, and levied with reference to special benefits to the property assessed."
This case is approved of in Jackson, Treas., v. Bd. of Edn., Cedarville Twp., Greene County, 115 Ohio St. 368, 154 N.E. 247. It is thereby settled in this state that in a general sense general taxes and assessments are synonymous, for both are levied by virtue of the sovereign power of the state for the public good. The fact that that power, in the present instance, is exercised by a subdivision of the state, as a delegated power, Section 3812, General Code, can make no appreciable difference in the source of that power, the governmental purpose inherent in its creation, or the ends intended to be accomplished by its exercise. For although a special improvement is local in its cost, it is not local in its usage; for the entire public is benefited thereby. The fact that the cost of the improvement is borne locally does not destroy its taxable feature and make it something other than a tax, for it is levied and collected under the taxing power. These observations are made with the thought in mind that the power of taxation is indispensable to and a primary adjunct of government, which it can not barter away or abrogate by a statute creating preference and priority over the inalienable right of the state to tax for public good; and this is true irrespective of whether the tax be general or special in character. And since everyone holds his property subject to the government's right to tax for its maintenance and the public weal, it must follow that one must anticipate that taxes will be levied against the res.
But we are further admonished that the constitutional guaranty protecting a vested interest created by contract is being impaired. This claim is deserving of the closest scrutiny. Having in mind the question before us in the light of the claims made, we have made diligent search and find that our Supreme Court has but once considered this precise question, and therein refrained from deciding it. See Northern Ind. Rd. Co. v. Connelly, 10 Ohio St. 159. We, therefore, are at liberty to exercise unfettered judgment in determining the query.
It is generally conceded to be the law that a vested lien's priority, under the constitutional guaranties against impairment of contract and of due process of law, can not be made subservient to a special assessment thereafter levied unless the law delegating the right to municipal corporations to levy special assessments clearly states or generally indicates that the right to do so is granted thereby. If this state had no such statutes, then without doubt the appellant's mortgage would have priority.
Hamilton in his work on the Laws of Special Assessments, 699, Section 708, clearly and concisely states what we would now here adopt:
"A lien for public taxes and assessments is upon the property, and is paramount to all liens acquired by personal contract, when so provided by statute. There is no difference in this respect between taxes for street improvements and general taxes. Both are levied under the sovereign power of the state, and both are levied under the theory that they are for the general good, and the same powers for enforcing their collection are generally given. Such lien is superior to all other liens, prior or otherwise. Although the lien of a prior recorded mortgage is superior to that of a special assessment, it is within the power of the legislature to change the rule, and make the mortgage lien secondary to that of the assessment."
Many authorities are here listed to which attention is directed. We also find a similar statement and compilation of cases in 2 Page Jones on Taxation by Assessment, 1770, Section 1068. See also notes appearing in 30 L.R.A. (N.S.), 761, and 19 Ruling Case Law, 412, Section 192.
Now has Ohio so provided by statute? In 1869 Sections 2285 and 2286, Revised Statutes, were enacted (66 Ohio Laws, 240), now Sections 3897 and 3898, General Code, and they stand in practically the same form. Sections 3897 and 3898 are quoted respectively:
"Special assessments shall be payable by the owners of the property assessed personally, by the time stipulated in the ordinance providing therefor, and shall be a lien from the date of the assessment upon the respective lots or parcels of land assessed. * * *"
"If payment is not made by the time stipulated, the amount assessed, together with interest, and a penalty of five per cent thereon, may be recovered by suit before a justice of the peace, or other court of competent jurisdiction, in the name of the corporation, against the owner or owners, but the owner shall not be liable, under any circumstances, beyond his interest in the property assessed, at the time of the passage of the ordinance or resolution to improve."
These sections are found under the title of "Assessments"; and in as much as they provide for a lien, and the collection thereof in the name of the corporation, the sections are remedial in character and should have a liberal construction. In the case of Moerlein Brewing Co. v. Westmeier, 2 C.D., 555, 4 C.C., 296, is to be found a holding that Section 2285, Revised Statutes, now Section 3897, General Code, is authority for the proposition that an assessment is a lien upon assessed premises prior to a mortgage recorded before the assessment proceedings were made. This finding is of course sustainable upon the theory that a lien was created by statute, and if not clearly stated it was the general intent and purpose of the act to create such a lien; and a tax lien being paramount, it was sufficient without employment of the words "first" or "prior." Considerable respectable authority may be found sustaining this statutory interpretation. This same view is entertained, but not applied, in City of Toledo v. Barnes, 4 C.D., 195, 8 C.C., 684. The case of Clifton v. City of Cincinnati, 5 Dec. Rep., 570, presents a like conclusion; and we find in 3 W.L.B., 512, that leave to file petition in error in the Supreme Court was denied. The case of Donahue et al., Recrs., v. Brotherton, 10 O.D. (N.P.), 47, 7 N.P., 367, is also of interest.
Appellant says that the words, "but the owner shall not be liable, under any circumstances, beyond his interest in the property assessed at the time," as they appear in Section 3898, General Code, have a special significance. In his conception the city had no lien other than upon Kovanda's equity of redemption in the property. He would have this court write into the statute that it had a lien against the property "subject to whatever valid and bona fide incumbrance may then be against it." If this were its true meaning then any owner might defeat a contemplated improvement, badly needed by the general public, by simply mortgaging his property to the amount of its worth. This was not the intent of the Legislature. Its true purpose was to restrict assessment liability to the property itself, and to change the then law, which held the owner of property personally liable for improvement assessments.
In 1917 the Legislature — out of a super-abundance of caution and a desire to effect a further remedy for collection of delinquent taxes and assessments levied against land — enacted Sections 5713 and 5719, General Code (107 Ohio Laws, 735). These sections are also remedial and deserve like liberal interpretation. Respectively, they provide in part:
"The state shall have a first and best lien on the premises described in said certification, for the amount of taxes, assessments and penalty, together with interest thereon at the rate of eight per cent. per annum, from the date of delinquency to the date or [of] redemption thereof, and the additional charge of twenty-five cents for the making of said certification, and sixty cents for advertising."
"Judgment shall be rendered for such taxes and assessments, or any part thereof, as are found due and unpaid, and for penalty, interest and costs, for the payment of which, the court shall order such premises to be sold without appraisement. From the proceeds of the sale the costs shall be first paid, next the judgment for taxes, assessments, penalties and interest and the balance shall be distributed according to law."
These sections are found to have been later amended and reenacted (114 Ohio Laws, 825) without material change in respect to their present application to this suit.
But it is urged that if these sections make the lien a first and best lien they are retroactive in effect; and that if it was so intended they deny constitutional guaranties. It may be said that before a law takes effect, giving a tax or assessment lien priority over a vested lien existing when the law is enacted, there must be an indication of intention to make the law retroactive, for there is a presumption to the contrary. These two sections simply accentuate and clarify Sections 3897 and 3898, General Code, and the construction placed thereon by the courts, and create as well an additional remedy to be enforced in the name of the county treasurer. They do not amend or repeal the two earlier sections. If it were not intended to make these later sections retroactive, the Legislature would have plainly said so. If it were not for a long and well-settled understanding, engendered by reason of the enactment and retention of Sections 3897 and 3898, it might be forcibly argued that Sections 5713 and 5719, General Code, contemplate no retroactive effect.
The author of the note appearing in 30 L.R.A. (N.S.), 761, 762, makes this statement:
"It is within the power of the legislature not only to make the lien of a special assessment prior to mortgages given after the passage of a statute giving such liens superiority over prior mortgages, but even to give such liens priority over mortgages given before the passage of such a statute."
Murphy v. Beard, 138 Ind. 560, 38 N.E. 33, has this to say:
"The ownership in fee of the real estate [or the mortgage lien] affected by such uses, while a vested right, is not more sacred than the right of the public to appropriate such real estate to such uses. When ownership is acquired, it is necessarily with the implied understanding that it is subject to this paramount right of the public."
And it was therein held that the mortgagee was not entitled to notice, and that the assessment did not deprive the mortgagee of a vested right. Baldwin v. Moroney, Treas., 173 Ind. 574, 91 N.E. 3, 30 L.R.A., (N.S.), 761, and German Sav. Loan Society v. Ramish, 138 Cal. 120, 69 P. 89, also discuss the retroactive effect of such legislation, and also conclude that assessments are for the general good and stand upon the same plane as general taxes.
It is held in Wabash Eastern Rd. Co. v. East Lake Fork Special Drainage District, 134 Ill. 384, 10 L.R.A., 285, that special assessments are an exercise of the taxing power, and that the liens thus created are not upon any specific interests in the land, but upon the land itself, that is, upon the res. It is therein reasoned:
"It is urged that the Drainage Law, so far as it attempts to give a lien for assessments superior to the liens of existing incumbrances, is unconstitutional because it violates the obligation of contracts or divests vested rights. This clearly can not be so. Every property-owner holds his property subject to the exercise of the taxing power, and it is immaterial, so far as this question is concerned, what may be the nature of his interest, whether the fee, an estate in expectancy, an estate for years or a mere lien. This is true, as every one must admit, in relation to general taxes, where the only return to the tax-payer is the protection and security which the government gives him, and a fortiori should it be true in case of special assessments where, in theory at least, he receives an adequate and complete return for the money assessed in the enhanced value of the estate or property which he owns or to which his lien attaches."
It is said in Provident Inst. for Savings v. Mayor of Jersey City, 113 U.S. 506, 5 S. Ct., 612, 28 L. Ed., 1102, that the federal Constitution nowhere therein prescribes that states may not pass retroactive laws; and we do not conclude that Section 28 of Article II of the state Constitution has in the instant case been violated by Sections 5713 and 5719, General Code, but rather that the assessment lien is senior to the mortgage lien by virtue of Sections 3897 and 3898, General Code, and the construction thereon placed by the courts.
Decree accordingly.
MONTGOMERY, J., concurs.
LEMERT, J., dissents.
SHERICK, P.J., LEMERT and MONTGOMERY, JJ., of the Fifth Appellate District, sitting by designation in the Eighth Appellate District.