Lead Opinion
Plаintiff brought two actions to recover taxes paid under protest on certain property in Richmond for the tax years 1948-1949 and 1949-1950. (Rev. & Tax. Codes, §§5136-5143.) The cases were consolidated for trial, and it was stipulated that evidence would be produced only in the first case and that the judgment therein would govern the second case. The tax assessments by the county of Contra Costa and the city of Richmond followed the same pattern, the levy in each instance resting on the premise that title to the real property was vested in plaintiff on the first Monday in March of both years. Plaintiff, on the other hand, has consistently claimed that all it had on thе respective tax dates was, as the trial court found, “a qualified and contingent possessory interest in the form of a gratuitous and revocable right to possession”; that the assessment should have been made only against such possessory right, and not as if it held the whole beneficial interest. In line with plaintiff’s admitted tax liability on its possessory interest in the property, respective judgments were entered against the county and the city reflecting the offset between the taxes paid by plaintiff under protest and the amounts assessable because of plaintiff’s limited possessory right. From such judgments defendants appeal.
As grounds for reversal, dеfendants argue these points; (1) plaintiff’s failure to seek relief from the board of equalization on the alleged improper assessments as preliminary to judicial review; (2) plaintiff’s possession of equitable title in the property on the respective dates as justifying its liability for the full fee tax assessments; and (3) plaintiff’s adjusted tax liability as a matter referable to the taxing authorities for determination in new assessment proceedings rather than subject to computation by the trial court in effecting an equitable offset. In the light of the record and applicable legal principles, defendants’ objections are not well taken.
The property involved is known as Parcels 2 and 5 of the
On August 15, 1947, Parr-Richinond Terminal Corporation, an affiliate of plaintiff, submitted conditional bids for both parcels, separately stating the amounts offered for the realty and the personal property thereon. Inasmuch as the tax issue here relates wholly to the realty ownership, only the bids relating thereto need be noted—$320,000 for Parcel 2 and $125,000 for Parcel 5. One condition was that each parcel should be treated “as a unit as to lands and buildings and personal property.” Another condition (Rider D) specified: “This bid is also subject to the ability of bidder to procure a policy-of titlе insurance in its name or in the name of its nominee ... as of the date of the completion of this transaction, in the event of acceptance hereof, showing good and merchantable title to said property free and clear of any lien or encumbrance which would substantially affect its value. ’ ’ Before bidding Parr had learned from a preliminary title report that the title was not then merchantable. It was also stipulated that the three-year restriction on sale or lease of the property, as stated in the invitation to bid, supra, would have to be waived or removed (Rider A).
On January 21, 1948, the government’s formal acceptance was communicated to Parr in a so-called “letter of intent,” stating that “under date of September 23, 1947, the War Assets Administration approved the sale to the Parr-Bichmond Industrial Corporation of Parcels Nos. 2 and 5 . . . together with certain buildings, improvements, and personal property ... in accordance with the terms and conditions of your offer of August 15, 1947, as amended. . . . The quitclaim deed as prepared will convey title as of 12 ¡01 a. m. September 23, 1947.” This letter gave “consent to the Parr-Bichmond Industrial Corporation and/or the Parr-Bichmond Terminal Company, as the case may be, to enter upon and use the land, buildings, improvements, and personal property, the title to which is being conveyed to you as of 12:01 a. m. September 23, 1947, for its account ...” and also “the immediate right tо resell or lease, subject to the terms and conditions as specified in your offer of August 15, 1947, any or all of the land, buildings, improvements and/or personal property located on Parcels 2 and 5 without prior authorization from the War Assets Administration.” The letter also provided for the escrowing of the down payment: “Tour company, in accepting this Letter of Intent, agrees, prior to entering into possession, to deposit with the . . . Title Company . . . the agreed upon initial payment of . . . $122,412.42 ...” On January 30, 1948, Parr delivered a cheek in the stated amount to the title company, accompanied by a letter of instructions reading in part as follows: “. . . whichever corporation does take title, you are authorized to deliver to the War Assets Administration the sum of . . . $122,412.42 . . . upon their depositing with you a Quitclaim Deed duly executed by said War Assets Administration, which will vest merchantable title in favor of either Parr-Bichmond Industrial Corporation or Parr-Bichmond Terminal Company as such determination shall be made. . . . Upon receipt of this letter and the check enclosed herewith
On January 31, 1948, Parr acknowledged and accepted the “letter of intent.” During that same month Parr had taken possession of both parcels in accord with the letter’s authorization, and on the first Monday in March of both 1948 and 1949 held possession thereunder. It was not until June 1, 1949, that title passed pursuant to two quitclaim deeds executed as of that date, acknowledged and delivered by “the United States of America, acting by and through War Assets Administration,” to plaintiff as grantee—one deed for each parcel. Bach deed concluded with the statement, “This Quitclaim Deed, executed this 1st day of June, 1949, shall be considered effective as of the day and year first hereinabove written,” which was June 1, 1949—the date the government actually conveyed title, not September 23, 1947, as recited in the “letter of intent.” The title company thereupon delivered to the government two deeds of trust dated and acknowledged on June 1, 1949—one for each parcel—securing the balance of the purchase price. Thus the down payment was in escrow from January 30, 1948, to June 1, 1949— 16 months.
As above noted, the government’s invitation to bid required each bidder to specify the purposes for which he intended to use the property. The Parr bids stated that its purpose was development of the property as an industrial area, bringing in new industries by long-term leases and by sale. These declarations, plus Parr’s insistence on the removal of the three-year restrictions against sales and leases, make it clear that a merchantable title was an indispensable requisite of Parr’s intended purchase. To that point the trial court found that “plaintiff’s bid contemplated the long-term lease or sale of part or all of said realty to industrial firms desiring to locate in the city of Richmond, and . . . that purpose could not be achieved unless and until plaintiff could obtain a merchantable title to said realty; Rider D of plaintiff’s bid recited the express condition of merchantable title, and went to the essence of plaintiff’s conditional bid and the conditional agreement subsequently entered into between the U.S.A. and plaintiff.”
The trial court found also that under the “letter of intent”
The trial court furthеr found that “As of the first Monday of March, 1948, for the tax year 1948-1949, defendant county . . . assessed all of said realty against plaintiff in the same manner and with the same effect as though plaintiff were the owner in fee of said realty with full beneficial ownership and use thereof. Said realty was . . . assessed . . . [at] $229,090.00 for real estate, and $335,000.00 for improvements, together with an assessment of $25,500 for certain personal property then situated on said realty; said assessment . . . was . . . charged to plaintiff upon the assessment roll of the county as an assessment against real estate, improvements, and personal property, and not as an assessment agаinst plaintiff’s said possessory interest. In said assessment defendant county . . . did not segregate the plaintiff’s qualified and contingent possessory interest in said realty from the fee ownership of the United States, and did not assess said possessory interest to plaintiff, but instead erroneously assessed the entire fee ownership of said realty to plaintiff; a proper segregation of plaintiff’s qualified and contingent possessory interest in said realty and a proper assessment of said interest . . . would have resulted in an assessed value ... of $71,581.00. ...” The trial court also found and concluded that the assessments when made by both county and city were illegal and void for the reason that the United States was the owner in fee of the property taxed against Parr, and that Parr’s possessory interest had not been assessed at all.
The trial court deducted the taxes which it found Parr should have paid on its possessory interest from the amount paid under protest and entered judgment for the difference against the respective county and city defendants. Defendants attack this judgment on both procedural and substantive grounds.
Defendants first claim that plaintiff’s protest of tax assessments raises a question of valuation which should have been presented to the board of equalization before a judicial review was sought. (Rev. & Tax. Code, § 1607.) Plaintiff alleged that in July of each of the two tax years it filed “a duly verified petition for cancellation of erroneous and illegal assessments and for reduction in assessments” with the respective board of supervisors and the city council, each sitting as a board of equalization, and that the petitions were denied. Copies attached to the complaint show that the ground of plaintiff’s protest was not a claim of overvaluation of an owner’s property calling for “a reduction in an assеssment on the local roll” (Rev. & Tax. Code, § 1607), but rather was a claim of illegality against the assessments in toto as based on an erroneous ownership—the fee interest in Parr, not its revocable possessory interest in the property, a separate taxable item which was not recognized and assessed at all. During the trial plaintiff stipulated that the allegations of “demand and refusal” of relief by the respective boards of equalization were “set up as a part of the background” but “are in no way essential to plaintiff’s cause of action and . . . may be stricken as surplusage.”
Plaintiff is correct in its distinction as to the necessity for recourse to thе board of equalization prior to resort to the court. Where the owner of property rights claims that
There now remains the principal issue of whether the challenged tax assessments may be supported under the doctrine of equitable conversion. Defendants contend that while the government may have held legal title to the property, plaintiff held equitable title under an executory contract of sale, an interest assessable on the basis of the full value as “real property” (Rev. & Tax. Code, §104), rather than a mere segregable “possessory interest” (Rev. & Tax. Code, § 107). The doctrine of equitable conversion “is a mere fiction resting upon the principle that equity regards things which
The trial court resolved the question of the vesting of equitable title by holding that “at no time prior to or during said tax year was plaintiff the legal or equitable owner. ...” The record clearly supports that conclusion: (a) Parr knew before it bid that a variety of matters— including uncompleted proceedings in eminent domain— rendered the title unmerchantable; (b) the government accepted the conditional bid which called for a merchantable title; (e) the escrow provisions in the “letter of intent” were tacit admissions by the government that it needed time to make the title good; and (d) the 16-month delay before execution of the quitclaim deeds accentuated the time consideration required for the removal of all clouds and encumbrances on the title. Defendants argue that the government’s letter of September 23, 1947, which was accepted by Parr in-conclusion of the parties’ negotiations as to the price to be paid for the property, constituted their contract. That letter made no reference to Parr’s offer and its conditions as to merchantable title. However, it was followed by the government’s formal acceptance in the “letter of intent,” and the trial court properly concluded that this latter document, later in point of time—January 21, 1948—and incorporating the government’s invitation for bids along with the terms of Parr’s conditional bids, constituted the conditional agreement between the parties. The “letter of intent” contained the escrow provisions above quoted, which thereby became part of the parties’ contract. Any doubt as to the parties’ intentions was settled by the recital in both quitclaim deeds that they became effective as of their date, which was June 1, 1949. As so executed, the deeds themselves super
Defendants rely on S.R.A., Inc. v. State of Minnesota,
As between the vendor and vendee, real estate is ordinarily taxable to the vendor where the sale is conditional. (2 Cooley on Taxation [4th ed.], §603, p. 1274.) The fact that the contract of sale may have specifically provided that the purchaser should pay the taxes is immaterial; the vendor remains liable where the sale is not absolute, for property must be assessed to the owner. (Robertson v. Puffer Mfg. Co.,
Defendants finally contend that the trial court erred in itself determining plaintiff's tax liability rather than remanding the matter to the tax authorities for appropriate assessment proceedings. Plaintiff has conceded throughout this litigation that its possessory interest was taxable (Bev. & Tax. Code, §107), and therefore that it would be “inequitable” for it “to seek to recover taxes which in equity it should pay. ’ ’ In such cases the rule applies that recovery should be limited to the difference between the tax paid and
In determining the tax on plaintiff’s possessory interest the trial court followed the formula similarly used in Kaiser v. Reid,
The judgments are affirmed.
Shenk, Acting C. J., Edmonds, J., Traynor, J., Sehauer, J., and Peek, J. pro tern.,
Notes
Assigned by Chairman of Judicial Council.
Dissenting Opinion
I dissent.
It appears that the plaintiff taxpayer should have first pursued his remedy before the board of supervisors sitting as a local board of equalization before court action and in such action the court is limited to a review of the evidence before the board.
The factual situation should first be clarified. The majority opinion indicates that this is a case where taxes were assessed against property plaintiff did not own. That is not the case. Taxes on real property are not assessed against a person. They are assessed against the property. Property may be
The general rule with regard to the necessity for first applying to the board of supervisors as a board of equalization is stated in Security-First Nat. Bank v. County of Los Angeles,
“Plaintiff contends, however, that its bank vault doors and counterlines were ‘exempt’ from taxation under constitutional principles, and that consequently prior application to the board of equalization was not a prerequisite to the maintenance of this action. The contention cannot be sustained. The vault doors, and counterlines admittedly were located within the county, city and district in which they were assessed. Clearly, they were property of a nature taxable by defendants. . . . The fact that similar property оf others had been systematically misclassified as personalty and therefore relieved of the burden of special assessment district taxes would ordinarily require that plaintiff also be excused from paying such taxes. ... It does not follow, however, that plaintiff’s vault doors and counterlines were tax exempt as claimed. A somewhat similar problem was presented in Los Angeles etc. Corp. v. Los Angeles County,
There is no tenable distinction between this case and the rules set forth in the Security Bank case. The cases relied upon by the mаjority do not support the statement that resort need not be had to the local board of equalization where the person who is named as owner of the property assessed is not the owner. In Brenner v. Los Angeles,
In any event it would appear that the matter should have been remanded to the local board of equalization to ascertain the value of the possessory interest and reduce the assessment accordingly, because it is that board, rather than a court, which has jurisdiction over valuation questions. (Universal Consol. Oil Co. v. Byram,
I would therefore reverse the judgment.