#### Denniston vs. The Unknown Owners, etc.

*Taxation. Fox and Wisconsin rirer land grants.*

1. By ch. 98, Laws of 1853, and ch. 112, Laws of 1856, the Box and Wisconsin Improvement Company became the agent of the state to make the improvement of those rivers required by the acts of Congress granting lands to the state for that purpose.

2. Although said ch. 112 contains a conditional grant to the company *in form,*of all said lands then- unsold, this was not to take effect until the execution by the company of a deed of the lands to certain trustees, in trust to secure to the state the application of the proceeds to the making of said improvement and the payment of debts already contracted therefor, and under these circumstances the company took no estate in the lands.

3. The grant and the trust deed were parts of the same transaction, and would operate only as the legislature intended they should operate.

4. Under this act the state was not divested of its title to the lands so as to render them liable to taxation, under the general laws of the state, while the legal title remained in such trustees.

5. Land not sold by the trustees before 1866 was therefore not liable to taxation in 1863.

APPEAL from the Circuit Court for *&v. Croix*county.

Action by the holder of a tax deed to quiet the title to a large number of parcels of' land described therein.

These lands were a portion of a large body of lands granted by congress to this state, 'to aid in the improvement of the navigation of the Fox and Wisconsin rivers. The only question involved is, whether the state had .parted with the title so as to tender them subject to taxation in 1863, when the taxes for *352■which they were sold were assessed; and the pleadings raising that issue and the facts bearing upon it, sufficiently appear in the opinion.

The action was commenced in June, 1868. The several owners of the lands appeared and answered, and the action was tried by the court, and judgment entered in favor of the plaintiff, in October, 1868. The defendants appealed.

Stevens, *Flower & Morris,*for appellants,

contended that the title to the lands in question, which' became vested in the state as trustee by the acceptance of the grant and the selection of the lands, remained so vested at the time of the tax sale in 1864, unless it had passed from the state by the act of 1853 (chap. 98), or by that of 1856 (chap. 112), and the proceedings had under them. No proceedings affecting the land were had under the act of 1853; and none under that of 1856, except the execution of the trust deed by the Eox and Wisconsin Improvement Company, until 1866, three years after the tax sale, when the trust and judicial sale was had under which the appellants acquired their title. Under the act of 1853 that oompany acquired no title, but merely the right to acquire title by the deposit of stocks or the payment and surrender of state indebtedness. The provision requiring the company to surrender state indebtedness, in order to select and acquire lands, is waived and not continued by the act of 1856, without any consideration moving from the company to the state. If the title became absolutely vested in the company by that act, the lands became immediately subject to a $500,000 mortgage, given by the company on all its property then owned and thereafter to be acquired by grants from the state or the United States for the completion of the improvement, which, with taxes, would have consumed them. It cannot be presumed that such was the intention of the legislature.

The act of 1856, granted the lands to the company, but required them *eo instanti,*before the law should take effect, to execute a deed of trust of the whole property. The grant and *353tbe trust deed were parts of tbe same transaction, and 'in contemplation of law took effect at tbe same moment. The company acquired no beneficial interest or power to use, sell, or mortgage, or to charge existing mortgages thereon. *Bees v. Ludington,*13 "Wis., 276. The' trustees, to whom tbe trust of applying tbe lands to tbe improvement was delegated by both tbe state and tbe company, were appointed by tbe governor, with tbe consent of the company, and were trustees for both; for tbe state to tbe extent of tbe lands granted, and for tbe company to tbe extent of tbe property conveyed by it. *Butler v. Mitchell,*15 Wis., 355. Being state officers, and having only tbe rights expressly given by tbe trust deed, tbe balance of tbe interest remained in tbe state. That interest is, in section 3 of tbe act, called “ tbe prior lien of tbe state;” and, section 10 provides for tbe conveyance to tbe company of “tbe interest of tbe state in said lands,” when tbe purposes of tbe act are accomplished. These lands were appropriated by Congress for a particular purpose and *no other,*and they were granted to tbe company “ subject to tbe trust and conditions of said grants by Congress,” and it was not competent for tbe legislature to make them subject to taxation, and thus divert them from that purpose. Even Congress could not divert them to any other purpose. 13 Peters, 498; *Barclay v. Howell, Lessee,*6 id., 498; *Min-' nesota v. Bachelder,*1 Wall., 109; *McGee v. Mathis,*4 id., 143; *Sisley v. Harwell,*4 Chand., 106; *Douglass v. Hastings,*11 Wis., 448; *Constitution of Wisconsin,*art viii., sec. 12. Taxation is diversion, and may exhaust tbe property. *Jones v. Keep’s Estate,*19 Wis., 369; *Taylor v. Davis,*22 Wis., 229.

Tbe state has no power to tax tbe means employed by tbe general government to execute its constitutional powers. *Mc-Culloch v. Maryland,*4 Wheat., 316; *Sayles v. Davis,*22 Wis., 229. It cannot tax lands appropriated by congress to tbe use of Indians. *New York Indians,*5 Wall, 761; *Kansas Indians,*id., 737.

Tbe state, as trustee, cannot be permitted to obtain any ben*354efit to itself at the expense of tbe *eestuis que trust. Sloo v. Law,*3 Blatcb., 459. By issuing certificates of indebtedness, made a charge upon these lands, the state had practically mortgaged them, and to diminish the security by taxing them would be a breach of the contract between it and the holders of the certificates, as well as of the contract created by the terms of section 9 of the act of 1858, that, “ until the said improvement is complete, no part of said grant shall be diverted to any other object.” *Neustadt v. III. Gent. It. R.*Go., 31 Ill., 184; *B. and M. R. R. Co. v. Bayne,*19 Iowa, 137; *Stryker v. Folk Go.,*22 id., 131; *B. & Si. J. R. R. Co. v. State,*87 Mo., 265; *Des Moines N. & R. Co. v. Polk Oounty, 10*Iowa, *1; Tollman v. Treasurer of Butler county,*12 id., 531, 536.

At the time these lands were -taxed the state had such an interest in them as to render them not liable -to taxation. They were expressly exempted by section 4 of the act of 1853, until sold by the company, such -exemption not to continue longer than ten years. That exemption applied to lands thereafter-to be located, which the governor was by that section directed to secure, as well as to those previously selected. 8 Op. Att’y den., 246, 247, 255, 390; *Allison v. Balfacre,*11 Iowa, 450; *Foley v. Barrison,*15 How. (U. S.), 447; *VanValkeriburg v. McCbud, 21*Cal.,-330. These lands were *all*selected under the act of Congress of 1846, of which that of 1854 may be regarded ns an act of confirmation, taking effect as of the date of the original act. *Leese v.. Clark,*18 Cal., 535. The act of 1856 contains nothing repealing the exemption clause in that of 1853; but it expressly continues in force' all the provisions of that act which are consistent with it, excepting one. The exemption did not expire until at least ten year’s from the date of the act, more than one month after the tax in question was assessed.

The act of 1861 did not make these lands taxable on and after 1863. It was not designed to take effect until after a-sale under the trust deed, which did not take place until 1866.

*355*H. O. Baker*and *John 0. Spooner,*for respondent.

Tbe lands selected nndei tbe grants vested in tbe state of Wisconsin in fee simple, and tbe United States no longer bad any interest therein. *Veeder v. Guppy,*3 Wis., 502. By tbe terms of tbe act of 1853, tbe company acquired all tbe right, title and interest of tbe state in tbe works of improvement and their appurtenances, tbe state taking as security for tbe completion of tbe improvement, tbe individual bonds of tbe members of tbe company. Tbe lands were granted upon condition, tbe company having tbe right to acquire absolute title only upon transfer of United States or state stocks, or deposit of certificates of indebtedness outstanding against tbe improvement fund. This condition in tbe grant was simply an additional security to tbe state. Tbe act of 1856 changed the policy. Its terms are those of present grant. It is an absolute conveyance upon tbe one condition that tbe trust deed be made. It vested tbe legal title in tbe company on tbe performance of that condition. Tbe title of tbe trustees proceeded from tbe company, and was really tbe title of tbe company. Tbe fact that they were to act for tbe security of tbe state does not involve tbe existence of any lien in its favor upon tbe lands. Its security for tbe faithful application of tbe avails of tbe lands was in the supervision of tbe trustees. Tbe exaction of this security was not inconsistent with a conveyance of all the interest of tbe state to the company. Tbe state bad no interest or lien by reason of tbe certificates of indebtedness, they being not a state debt, but simply charges upon tbe improvement fund, and representing tbe interest of tbe holders in such fund. Tbe state, being bound in honor to see them paid out of tbe fund, made them a prior lien thereon. Tbe state bad no interest in tbe lien of tbe holders of tbe bonds of tbe company, for the payment of which also, tbe trustees held tbe lands as security. None of tbe interests which tbe trust deed was designed to protect were of such a character as would preclude tbe exercise of tbe taxing power under tbe general laws of tbe state.

*356The state could convey the lands absolutely without a violation of its trust; and as between it and the company or those claiming under it, the transfer would be valid whether security was exacted or not. The defendants, claiming title under the company cannot raise the question of a breach of trust on the part of the state. The United States are the *cestuis que*trust, and they alone can call the state to account for such a breach. *Balter v.*Gee, 1 Wall., 333. These lands were not expressly exempted from taxation. Such an exemption must be clearly expressed and cannot be implied. Section 4 of the act of 1853 applies simply to’the lands which the company *did*acquire, not to those they could have acquired by the surrender of certificates of indebtedness. These lands never passed to the company until the act of 1856 was enacted. If the exemption be considered as applying to the lands embraced in the original grant, and those authorized by the act of 1854, to be selected to make up deficiencies, still it could not apply to these additional lands, acquired under the resolution of 1855. These lands were without the three mile limit of the original grant, and, therefore must have been selected under the grant of 1854, or that of 1855, and the defendants, in order to maintain their defense, were bound to show, but have not shown, that they were selected under the act of 1854.

Lyon, J.

The plaintiff claims to be the owner of a large number of parcels of land in the county of St. Oroix, containing in all nearly seven thousand acres, by virtue of a certain tax deed dated March 27, 1868, executed to him by the clerk of the board or supervisors of that county, and which deed was duly recorded on the 30th day of June, 1868. These lands were assessed for taxation in the year 1863, were returned delinquent to the county treasurer for the taxes of that year, and were duly sold by him in 1864. The deed thereof to the plaintiff was executed upon the surrender by him of the treasurer’s certificates of such sale. Such deed, and all of the proceedings prior thereto, seem to be in regular form.

*357This action was brought by tbe plaintiff, under tbe statute, for tbe purpose of barring tbe former owners of tbe lands described in sucb tax deed, and those claiming under them, of all right, title, interest or claim in sucb lands. Tbe complaint sets out tbe tax deed, and is in tbe usual form of complaints in sucb actions.

Tbe action is in form against “ tbe unknown owners ” of tbe lands affected by it, and service of tbe summons was made by publication thereof pursuant to tbe statute. Tbe former owners of all sucb lands,’ each of whom owned a portion thereof in severalty, appeared and severally answered tbe complaint, except that tbe trustees of tbe estate of a deceased former owner answered jointly as such trustees. Each answer contained, amongst other things, an averment that none of tbe lands to which it relates were liable to taxation in 1863 ; and each answer also contains a full and detailed statement of tbe facts hereinafter stated in support of sucb averment.

Concerning those facts there is no contest between tbe parties. It is conceded that all of tbe lands in controversy were granted by tbe United States to this state to aid in the improvement of tbe Eox and Wisconsin rivers, and that tbe defendants are severally tbe owners of tbe lands claimed by them respectively, unless their title thereto has been divested by sucb tax deed.

Tbe circuit court held that the tax deed was valid, and gave judgment for tbe plaintiff in accordance with tbe prayer of tbe complaint Tbe defendants have all appealed therefrom to this court.

From this brief statement of tbe case it is apparent that tbe controlling question to be determined is, Were, tbe lands in controversy liable to taxation in 1863?

It is quite unnecessary to give a detailed history of tbe legislation by congress and in this state concerning tbe lands granted to tbe state to aid in tbe improvement of tbe Eox and Wisconsin rivers. It is sufficient to say that when chap. 112 of tbe general laws of 1856 was enacted, tbe title to tbe land in con*358troversy in this action was in tbe state of Wisconsin, as trustee for tbe purposes expressed in tbe several acts of congress-making sucb grant. It is conceded tbat, until tbe law of 1856 was enacted, tbe lands were not taxable. Did tbey become liable to taxation by virtue of tbat law ? If so, tbey were properly assessed in 1863. If not, inasmuch as tbeir *status*remained unchanged until 1866, except as it was affected by tbe act of 1856, tbey were not taxable in 1863.

Tbe act of 1856 granted to tbe Fox and Wisconsin Improvement Company all tbe lands then unsold which bad theretofore been granted by congress to tbe state, in aid of such- improvement, of which tbe lands in controversy were part, but subject to certain conditions; one of which conditions was, that within ninety days after tbe passage of tbe act tbe company should make a deed of trust to three trustees, to be appointed by tbe governor with tbe assent of'the company, conveying sucb lands so granted to tbe company by tbe state, and all other property, rights and franchises belonging to tbe company, to sucb trustees and tbeir successors, in trust for certain uses and purposes therein expressed, amongst which are tbe following; 1st. To secure *to the state*tbe faithful application of all moneys arising from tbe sale of sucb lands to tbe construction and completion of tbe works of improvement contemplated by tbe act as therein provided, and to tbe payment of all outstanding unpaid evidences of indebtedness issued on tbe part of tbe state for or on account of said improvement, and interest thereon. 2d. For the payment of any bonds theretofore issued, or tbat might thereafter be issued by tbe company, on account of tbe improvement; and 3d. A certain trust relative to tbe improvement of tbe Wisconsin river. Tbe fourth section of tbe act gave tbe trustees power to sell tbe land on the requisition of tbe company, but under stringent restrictions to secure tbe application of tbe proceeds to tbe uses and trusts created by tbe act. It does not appear tbat this power was ever called into requisition, or tbat any land was sold under it.

*359Tlie company executed the trust deed required by the act, to trustees duly appointed, and the title to the lands described in the complaint remained thereafter unchanged, until the same were sold by the trustees in 1866, pursuant to a decree or judgment of the circuit court for the county of Fond du Lac, and pursuant also to certain other provisions of the act of 1856.

Did the act of 1856, and the trust deed executed by the company pursuant to the requirement of that act, divest the state of its title to these lands, so as to render them liable to taxation under the general laws of the state ?

When that act was passed, the state held these lands charged with the trust that the proceeds thereof should be applied to the improvement of the navigation of the Fox and Wisconsin rivers and uniting them with a canal at or near the portage, and to no other purpose, and the state was restricted by the terms of the grant from making sales of the land any faster than the work on the improvement progressed.

The state attempted to make the improvement by appointing a board of public works to supervise and carry it on, This was in 1848. The plan was a failure, and in 1858 was abandoned, but not until an indebtedness to quite a large amount had been contracted on account of the improvement. In 1853 the legislature granted the unsold lands so held by it in trust to the Fox and Wisconsin Improvement Company, on condition that the company should only have the title to the lands they paid for at the rate of one dollar and twenty-five cents per acre, which payment might be made to the state treasurer in outstanding evidences of indebtedness against the improvement funds, or in United States or any state stock at their market value. The company undertook to pay off all such indebtedness, and complete the improvement, pay all indebtedness of the state as trustee on account thereof, settle with and pay contractors, etc.; and the stockholders of the company were required to give bonds to the state in the sum of $25,000 each, condi tioned for the performance of such agreements and covenants *360of the company within three years from the passage of the act. The original grant by congress was made in 1846, and did not include the lands in controversy in this action.

But by another act passed in 1854, and by an explanatory resolution of congress, approved March 3d, 1855, the grant was largely increased; and, under the last act and resolution, the title to the lands described in the complaint became vested in the state, but subject to the same trusts, and the same restrictions upon the sale thereof, as were the lands granted by the act of 1846.

When the act of 1856 above mentioned was passed, tlie time limited for the Improvement Company to complete the work and to pay and discharge the debts and liabilities against the improvement fund, had expired, and the work remained unfinished, and the debts unpaid.

In disposing of the additional land granted to the state, it is natural to suppose that the legislature intended to secure the accomplishment of these most desirable objects. It must be presumed that by the act of 1856, the legislature intended to so dispose of these lands as to secure the completion of the work as soon as practicable, and also the payment of all lawful claims and demands against the improvement fund. In no other way could it fully discharge its obligations to the United States, which it had voluntarily assumed.

The state must perform its functions through the instrumentality of duly appointed officers and agents. In this way alone could it improve the navigation of these rivers, and unite them by a canal. By the acts of 1853 and 1856, the Eox and Wisconsin Improvement Company became the agents of the state to make the improvement required by the act of congress granting these lands to the state. The legislature was willing that the company should have all of the lands so granted to the state, when it should perform its contract with the state, and not before. It did not propose to pay the company in advance. But, for the purpose of guaranteeing performance by *361the state, and securing the prompt conveyance of these lands to the company when it should lawfully he entitled thereto, the act provides for the appointment of other agents, to wit: the three trustees, above mentioned, to make a conveyance of the lands to the company when it should have fully performed its contract with the state, or to sell and convey the lands and apply the proceeds for the benefit of the state and of all parties interested therein, as provided in the act and in the trust deed executed by the company pursuant thereto.

To accomplish these objects it was not necessary to vest the title to the lands in the company or the trustees. In view of the obligations of the state to the United States in respect to the original grant it was not wise to do so. That the legislature did not intend to divest the title of the state by the law of 1856, is apparent from certain provisions contained therein. Sec. 10 provides, among other things, as follows: “ When all the purposes of this act are accomplished, *and not*before, the said trustees shall convey to the company *the interest of the state in the said*lands, work and other property herein mentioned.” The record shows that the purposes of the act were not all ae-complished until long after 1863.

Again, it is enacted in sec. 15, that the provisions of the Revised Statutes relating to. trusts, trustees and trust estates, shall not be applied to the trusts provided for in that act. It seems quite clear that by this provision the legislature intended to guard the state against any claim that might be made, that the act divested the title of the state by applying to the act, and the trusts which it created, the statutory doctrine of uses and trusts.

Construing the law of 1856, and the whole of it, in the light of the obligations of the state to the general government, and with a due regard to the circumstances which led to its enactment, and the objects designed to be accomplished by it, we are satisfied that the legislature did not intend to divest the’ title of the state to the lands in controversy, but that it only intended to *362confer upon tbe trustees a power in trust in relation thereto, leaving tbe title and ownership of tbe state intact.

We are also of opinion that tbe act fully carries out tbe intention of tbe legislature in that behalf.

It is true that a conditional grant, in form, was first made to tbe company, but it did not take effect until tbe execution of tbe trust deed, which instantly passed tbe same to tbe trustees. No principle is better settled than that tbe company, under such circumstances, took no estate in tbe lands. Tbe grant and tbe execution of tbe trust deed are parts of tbe same transaction, and can operate only as tbe legislature intended that they should operate. *Rees v. Ludington,*13 Wis., 281.

Upon tbe whole case, we are of tbe opinion that tbe legal effect of tbe act of 1856 is precisely tbe same that it would have been bad it simply authorized tbe commissioners of tbe school and university lands, or any officer or agent of tbe state, to sell tbe lands in controversy, and apply tbe proceeds of such sales to tbe uses and purposes specified in tbe act. Had tbe act so provided, no one would contend for a moment that tbe commissioners, or officer or agent thus authorized would thereby take any estate or beneficial interest in tbe lands. In such case tbe state would continue to be tbe owner of tbe lands, although other parties might have an interest in tbe proper application of tbe proceeds thereof.

We conclude, therefore, that tbe state was tbe owner of the lands described in tbe complaint in 1863, and that tbe same were not liable to assessment and taxation in that year.

These views render it unnecessary to consider tbe question of tbe right of tbe state to subject tbe lands to taxation before tbe trusts upon which the same were granted by congress to tbe state were fully executed.

*By the Ccmt*— Tbe judgment is reversed, and tbe cause remanded with directions to tbe circuit court to dismiss tbe complaint