May 5, 1936, Little Red River Levee District'No. 2, and Jndsonia Drainage District of White County, sold to G. D. Moore the merchantable timber on lands of the two districts which overlapped. The lands were acquired by the districts through foreclosures of liens for betterments.
Moore sold the oak timber to J. H. Dailey. The districts executed a joint release in Bailey’s favor. The contract between Moore and the districts called for a cash payment of $250. An additional payment of $3,250 was. to be made on or before May 21,1936, and final payment, of $3,500 matured on or before November 21, 1936.
Agreement between Moore and the districts recited: “The vendors expressly reserve and retain a vendor’s, lien on all of said timber to secure the balance due on purchase money; and, if the vendee cuts, removes, or sells merchantable timber from said land to the extent, value and amount of $3,500 before said notes are paid, the excess shall be applied to the satisfaction of the balance-due. ’1
Another provision is: “All timber not cnt and removed by the vendee within five years from the date hereof shall revert to and become the property of the vendors. After cutting the timber the vendee shall surrender one-fifth of the total acreage each year to the vendors, in tracts contiguous to each other, but, if he needs more time for cutting the timber on any specified tract, he may have additional time, not to exceed one year, upon paying state and county taxes due on the particular tracts which he elects to hold over.”
Before either of the two larger installments was paid, Moore consummated his deal with Bailey. Acceptance by the district was evidenced in writing.2 Bailey’s payment of $4,500 was made to appellants to apply on the Moore contract.
It is contended by appellants that the contract with Me ore gave him a maximum of five years within which to cut and remove the timber, but one-fifth was to be cut each year, and the land from which such timber was cut should be surrendered to the districts. If more timé were required, the vendee had the right of an additional year by paying the state and county taxes ‘ ‘ on the particular tracts which he elects to hold over.”
Appellees contend that, the land being property of the districts, it is not subject to state and county taxes while so held; therefore, they urge, the taxpaying provision of the contract is unenforcible.
The court sustained demurrers to the complaint as to all allegations except one charging appellees with cutting unmerchantable timber. This appeal is from the chancellor’s action in holding that as to the contractual matters pressed by appellants, the complaint did not state a cause of action.
It is well settled that where improvement districts acquire lands under authority given to foreclose betterment liens, such, districts bold in tbeir governmental capacities'; and, during sucb possession, state and county taxes are not assessable.3 But tbe law is otherwise if the-use made of the property after it has been acquired is. other than that contemplated by the statute under which, the district was created.4
First. Time within which the timber was to be removed was five years. But provisions in the contract for surrender of one-fifth of the acreage “each year to the-vendors”; or, in the alternative, to exercise the option of procuring additional time not to exceed one year-through payment of state and county taxes ‘ ‘ due on the-particular tracts,” mean that the parties contemplated that one-fifth of the timber should be cut each year. Date of the contract was the time from which the privilege should run as to the first one-fifth. To procure additional time, payment of state and county taxes was-requisite.
Second. While Bailey’s contract contains language-expressive of absolute release by the districts, there is a. declaration that he, his heirs and assigns, shall hold, “with all the rights and privileges granted unto the said G. D. Moore in the original contract of sale and purchase-hereinabove described.”
The construction placed upon Moore’s contract attaches to 'Bailey.
Moore’s partner was D. E. Benton. Moore and Benton sold timber to R. P. Moore and B. Johnson & Sons,, but these transactions are not pertinent other than for the purpose of identifying the parties.
The construction we have given the contract seems-to have been the' one adopted by thé parties* for in reply to a letter -written to Moore by appellants’ attorney,5 there ivas a reply from. 'Benton, on behalf of the partnership of Moore and Benton; stating that the taxes would be paid.6
In Robinson v. Indiana & Arkansas Lumber & Mfg. Co., 128 Ark 550, 194 S. W. 870, 3 A. L. R. 1426, Mr. Justice -Hart, after stating that the St. Francis Levee District, was a g"ua.s-¿-eorp oration to which certain governmental powers had been delegated, said: “The correctness of the chancellor’s holding depends upon whether the lands were acquired by the levee district in its proprietary capacity or in the exercise of its functions as a governmental agency. In the former, case the lands would not be exempt and in the latter case they would be exempt, from taxation. The distinction, we think, has been recognized in our previous decisions relating to the question.” It was then stated that [the lands] “were not held for any purpose of gain or as an income-producing property,” and, therefore, the proprietary attributes did not attach.
• By Act No. 146 of 1905,7 timber sold as such, without conveyance of the land upon which it is grown, is taxable as personal property, and this is true whether such timber has been cut, or not. In the instant case the timber in question became personal property for purposes of taxation when the contract was signed in May, 1936.
A provision of the contract following the direction for application of the “excess” is: “And to the end that the vendors may know the amount of all sales made by the vendee, he shall furnish them duplicate invoices and bills of lading, statements of receipts and disbursements, and on demand shall exhibit his books for inspection, and examination by agents and representatives of the vendee.”
The “Release of Lien” executed hy appellants May 23, 1936, contained the following language: . . . “do hereby grant, sell, quit-claim and release unto the said J. H. Bailey” [here followed description of acreage], and then: “To have and to hold the same unto the said J. H. Bailey, and unto his heirs and assigns, with all the rights and privileges granted unto the said G. D. Moore in the original contract of sale and purchase hereinabove described.”
Robinson v. Indiana & Arkansas Lumber & Mfg. Co., 128 Ark. 550, 194 S. W. 870; 3 A. L. R. 1426; Kelley Trust Company v. Lundell Land & Lumber Co., 159 Ark. 218, 251 S. W. 680.
Reference is again made to the opinion written by Mr. Justice-Hakt in Robinson v. Indiana & Arkansas Lumber Company, where an: exhaustive review of several cases was made and the distinction drawn between the status of guasi-corporations functioning as governmental agencies, and activities of such agencies serving in a. proprietary capacity.
June 18, 1937, the attorney for appellants wrote G. D. Moore: “By reference to the contract of sale and purchase of timber between the districts and Mr. Moore, dated May 5, 1936, it appears that it is. required of the purchaser to surrender one-fifth of the acreage each year or pay an additional sum equal to the state and county taxes. Accordingly, we will thank you to furnish us a correct description of thé lands you wish to surrender, or else arrange to pay the required additional amount.” [Note — This letter was addressed to G. D„ Moore and D. E. Benton jointly],
June 22, 1937, Mr. Benton wrote: “In reply to yours of recent date, we have decided to pay the state and county tax on the one-fifth-of the timber that G. D. Moore purchased from Little Red River .District. I will look after this in the near future.” [The letter was written on stationery of Benton & Moore, “D. E. Benton, President; G. D. Moore, Secretary”].
Act 146 of 1906 appears as § 13599 of Pope’s Digest: “Hereafter all timber in this state which has been sold separately and apart from the land on which it stands shall be classed as personal property, and shall be subject to taxation as such. And the said timber interests shall be assessed and ithe taxes collected thereon in the county where said timber is located.”