Plaintiff 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 the 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, defendants 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-Richmond 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 title 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-Richmond 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-Richmond Industrial Corporation and/or the Parr-Richmond 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 to 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: "Your 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 check 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-Richmond Industrial Corporation or Parr-Richmond 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. Each 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 further 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 against 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 assessment 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 the board of equalization prior to resort to the court.
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).
Defendants rely on S.R.A., Inc. v. State of Minnesota, 327 U.S. 558 [66 S.Ct. 749, 90 L.Ed. 851], but the facts found by the trial court and above discussed clearly distinguish the present situation. The two cases have one point in common, in that the property in both instances was surplus real estate, the legal title to which was vested in the United States. However, there are several points of difference which are material: (1) In the S.R.A. case the contract was the normal vendor-vendee contract, where the government retained legal title only as security for the balance of the purchase price and "in substance [was] in the position of a mortgagee." (P. 565.) Here the vendor-vendee contract, as modified in writing by the escrow instructions, provided for the transfer of title only if and when the government could convey a merchantable title, pending which uncertain event the down payment itself was held in escrow. The government was retaining title not for security but during the time allowed for its agreed performance, and then appropriate deeds were to be executed, and notes, secured by deeds of trust, were to be and were given for the balance of the purchase price. (2) Here the whole transaction centered on acquisition of a merchantable title, a matter not at all involved in the S.R.A. case, where "[a]ll obligations due under the contract had been met." (P. 560.) (3) In the S.R.A. case the buyer was "in possession ... under a contract of sale with uncompleted conditions for execution and delivery of the muniments of title" when the purchase price was paid in full (p. 561), while here the buyer occupied the property under what the trial court found to be "a gratuitous and revocable right to possession" granted by the "letter of intent," an arrangement covering the interval for clearing a good and merchantable title, at which time the muniments of title were to be delivered out of escrow and deeds of trust given back. (4) During that interval Parr did not occupy the status of a normal vendee as in the S.R.A. case, where the vendee had made the down payment and nothing remained to be done by the parties except payment of the balance of the purchase price and execution of the formal conveyance. Here the fact that Parr was not in the position of the conventional vendee during the 16-month escrow period but
In determining the tax on plaintiff's possessory interest the trial court followed the formula similarly used in Kaiser v. Reid, 30 Cal.2d 610, which was a valuation method theretofore judicially approved in cases presenting analogous considerations affecting possessory rights. (Blinn Lbr. Co. v. County of Los Angeles, 216 Cal. 474, 478-479 [14 P.2d 512, 84 A.L.R. 1304]; Hammond Lbr. Co. v. County of Los Angeles, supra, 104 Cal.App. 235, 244-245.) The tax as so computed was then deducted from the amount of tax claimed by defendants, and the judgments herein were entered for the difference.
The judgments are affirmed.
Shenk, Acting C.J., Edmonds, J., Traynor, J., Schauer, J., and Peek, J. pro tem.,
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, 35 Cal.2d 319, 320 [217 P.2d 946]: "It is the general rule that a taxpayer seeking judicial relief from an erroneous assessment must have exhausted his remedies before the administrative body empowered initially to correct the error.... An exception is made when the attempted assessment is a nullity because the property is either tax exempt or outside the jurisdiction.... But resort to the board of equalization is not rendered unnecessary by the fact that, as in the present case, the error is one in the classification of property ... and the tax is assailed as being discriminatory in violation of constitutional mandates....
"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 of 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, 22 Cal.App.2d 418 [71 P.2d 282]. That case involved the assessment of a leasehold interest in tidelands owned by the city. Plaintiff contended that since the leasehold had not taxable value, the tax was one on nonexistent property and resort to the board of equalization was not necessary. In rejecting that contention, the court there said, at pp. 423-424: `But it does not follow that if the property belongs to a class which is subject to taxation it is nonexistent property because under the peculiar circumstances existing it is without taxable value....'" (Emphasis added.) The same rule is stated in Bank of America v. Mundo, 37 Cal.2d 1 [229 P.2d 345]. Similarly
There is no tenable distinction between this case and the rules set forth in the Security Bank case. The cases relied upon by the majority 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, 160 Cal. 72 [116 P. 397], the claim was that all of the property against which the assessment was made was exempt from taxation. In Associated Oil Co. v. County of Orange, 4 Cal.App.2d 5 [40 P.2d 887], the assessment was on nonexistent property and the holding is doubtful in view of the Security Bank case. In Gottstein v. Adams, 202 Cal. 581 [262 P. 314], and Los Angeles v. Board of Supervisors, 108 Cal.App. 655 [292 P. 539], there was no question of exhausting the administrative remedy.
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, 25 Cal.2d 353 [153 P.2d 746]; La Grange etc. Co. v. Carter, 142 Cal. 560 [76 P. 241]; Los Angeles etc. Co. v. County of Los Angeles, 162 Cal. 164 [121 P. 384, 9 A.L.R. 1277].)
I would therefore reverse the judgment.