Opinion
PARR-RICHMOND
11-3-1953
INDUSTRIAL CORP. v. BOYD et al. * Civ. 15414, 15415.
Thomas M. Carlson, City Atty. of City of Richmond, Frederick Bold, Jr., Sp. Asst. to City Atty., Richmond, for appellants Forrest J. Simoni, City Tax Assessor and City Tax Collector of City of Richmond and City of Richmond. Francis W. Collins, Dist. Atty. of Contra Costa County, Charles L. Hemmings, Dep. Dist. Atty., Martinez, for appellants S. S. Boyd, County Tax Collector of Contra Costa County, Justin A. Randall, County Assessor of Contra Costa County and Contra Costa County. Bronson, Bronson & McKinnon, San Francisco, for respondent.
PARR-RICHMOND INDUSTRIAL CORP.
v.
BOYD et al. *
Nov. 3, 1953.
Hearing Granted Dec. 30, 1953.
Thomas M. Carlson, City Atty. of City of Richmond, Frederick Bold, Jr., Sp. Asst. to City Atty., Richmond, for appellants Forrest J. Simoni, City Tax Assessor and City Tax Collector of City of Richmond and City of Richmond.
Francis W. Collins, Dist. Atty. of Contra Costa County, Charles L. Hemmings, Dep. Dist. Atty., Martinez, for appellants S. S. Boyd, County Tax Collector of Contra Costa County, Justin A. Randall, County Assessor of Contra Costa County and Contra Costa County.
Bronson, Bronson & McKinnon, San Francisco, for respondent.
GOODELL, Justice.
Respondent commenced two actions under sections 5136-5143 Revenue and Taxation Code to recover State and County and City taxes paid under protest. The property is located in the City of Richmond and the city's tax proceedings adopted the pattern employed by the County of Contra Costa, hence the city and its officers were joined as defendants with the county and its officers. In the first action, which embraced the 1948-1949 taxes, the judgment was against the county for $27,265.28 and interest, and against the city for $12,312.72 and interest. In the second, which embraced the 1949-1950 taxes, the judgment was against the county for $31,227.93 and interest, and against the city for $11,339.85 and interest. 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. On appeal the cases are consolidated.
The taxes were levied and assessed by the county and the city on the basis that title to the real property was vested in the taxpayer on the first Monday in March of both years. The taxpayer's position throughout has been that all it had on the first Monday in March of both years was, as the court found, 'a qualified and contingent possessory interest in the form of a gratuitous and revocable right to possession'; that the assessments should have been made only against such possessory right, and not as if it held the whole beneficial interest. Such was the ground of the protests on which this litigation was based.
The property in question is described as parcels 2 and 5 of the Richmond Shipyards, consisting of about 115 acres improved with various buildings, wharves, shipways and other structures, which had been a Government shipyard during World War II.
In 1947 it was under the control of the War Assets Administration as surplus property and on August 15, 1947 that agency listed it (with other property) for sale and invited bids. The invitation stated that title would be conveyed by quitclaim deed without warranty, express or implied.
A conditional bid of $320,000 was submitted on behalf of respondent for parcel 2, and $125,000 for parcel 5. One condition was that both parcels should be treated as a unit. Another condition was that: '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 nominees as referred to in Rider A, 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. The invitation also contained the restriction that the successful bidder could not make any sale or lease of the property, or any part thereof, for three years after acquisition without the Government's consent. Respondent's bid contained the condition that this restriction would have to be waived or removed.
The bid was rejected, not because of these conditions attached to the offer, but solely because the prices bid were not acceptable. The Government made a counter proposal of higher figures, and after negotiations the parties agreed on $500,000 for both parcels. On September 23, 1947 the original bid, amended only as to price, was approved by the Government.
On January 21, 1948 a formal acceptance was made by the Government in a communication to Parr termed a 'letter of intent' which inter alia read as follows: 'Consent is hereby granted 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, 1 for its own account, and its action in so doing shall constitute concurrence in and acceptance of the arrangements, terms, and conditions of this Letter of Intent.'
The letter of intent contained also the following provision respecting 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 * * * such payment to be in the form of a certified or cashier's check made payable to the Treasurer of the United States.'
On January 30, 1948 Parr delivered to the title company a cashier's check for $122,412.42 accompanied by a letter of instructions reading in part as follows: 'However, 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 * * * will you please acknowledge receipt of same upon the copy enclosed herewith so that we may in turn hand it to the War Assets Administration as evidence of the fact that this money has been deposited with you in the above numbered escrows.'
In January, 1948 Parr took possession of both parcels under the provision in the letter of intent (quoted above) respecting possession, and on the first Monday in March of both tax years held possession thereunder. It was not until June 1, 1949 that title passed, at which time two quitclaim deeds bearing that date were executed, acknowledged and delivered by the United States of America to respondent as grantee--one 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. 2 Contemporaneously therewith two deeds of trust dated and acknowledged on June 1, 1949--one for each parcel--securing the balance of the purchase price (after the down payment) were delivered by the title company to the Government. Thus the down payment was in escrow from January 30, 1948 until June 1, 1949--sixteen months.
This brings us to the findings. When bids were invited, each bidder was required to specify the purposes for which he intended to use the property. The Parr bid stated that its purpose was to develop the property as an industrial area; to bring in new industries by long-term leases and by sales. These avowals, plus Parr's insistence on the removal of the three-year restriction against sales and leases, make it perfectly clear that a merchantable title was the sine qua non of Parr's intended purchase. In that connection the 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.' (Emphasis added.)
The Court found also that under the letter of intent Parr agreed to purchase the property if, as and when the Government could convey a good and merchantable title, and that the Government agreed on its part to convey such title if, as and when it could do so; further that during all of 1948 the sale was wholly executory 'and at all of said times there were clouds, encumbrances and adverse claims upon the title to said realty which adversely affected said title to a substantial degree, and which rendered said title unmerchantable'.
The court found also that on the first Monday in March, 1948 there was uncertainty as to whether the Government would be able to convey a good and merchantable title and if so, when and that on that date Parr's only interest, right or title to the property was 'a qualified and contingent possessory interest in the form of a gratuitous and revocable right to possession', the reasonable duration of which was found to be a period of one year.
The court found that 'As of the first Monday of March, 1948, for the tax year 1948-49, 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 court 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 concluded that under the terms of the conditional agreement 'plaintiff was not obligated to purchase said realty unless and until said condition were met, and unless said condition were met within a reasonable time plaintiff was not obligated to purchase said realty and the U.S.A. was not obligated to sell said realty in any event, and said conditional agreement would terminate; said conditional agreement did not effect an equitable conversion as to said realty on the first Monday in March, 1948, or at any time during the tax year 1948-49, and at no time prior to or during said tax year was plaintiff the legal or equitable owner of said realty by virtue of said conditional agreement or otherwise.' (Emphasis added.)
The 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 defendants.
Appellants contend that the equitable title of a purchaser of land from the United States under an executory contract of sale is taxable as real property, and not as a possessory interest. Respondent concedes this in the following statement: 'Did plaintiff have the equitable title, or beneficial ownership of the property on March 1, 1948? If it did, the tax is valid. If it did not, the tax is void. That is the principal issue of the case. The issue is not met by defendants' argument that an equitable title may be taxed as realty. Certainly it may. Nor is it met by defendants' statement, 'There is no dispute that on tax day plaintiff had a vendee's equitable title under an executory contract of sale.' That is the dispute!' (Emphasis added.)
Appellants' whole contention that equitable title vested as of September 23, 1947, or at some other time prior to June 1, 1949, is completely answered by the creation of the escrow.
'That there must be a binding contract based on a valid consideration to support an escrow admits of no debate. Thomas v. Birch, 178 Cal. 483, 489, 173 P. 1102; Holland v. McCarthy, 173 Cal. 597, 602, 160 P. 1069; 10 Cal.Jur. 581.' Los Angeles High School District v. Quinn, 195 Cal. 377, 383, 234 P. 313, 315. That contract consisted of Parr's conditional bid and the Government's letter of intent. However, the letter of intent contained the escrow provisions already quoted which, of course, became part and parcel of the contract.
'Where a deed is placed in the hands of a third person, as an escrow, with an agreement between the grantor and grantee that it shall not be delivered to the grantee until he has complied with certain conditions, the grantee does not acquire any title to the land, nor is he entitled to a delivery of the deed until he has strictly complied with the conditions [citation].' Los Angeles High School District v. Quinn, supra, 195 Cal. 377, 383, 234 P. 313, 315. The Quinn case is followed in Promis v. Duke, 208 Cal. 420, 425, 281 P. 613 and Brown v. Wilson, 89 Cal.App. 764, 766, 265 P. 351. In Bullock v. McKeon, 104 Cal.App. 72, 79-80, 285 P. 392, 396, it is said: 'The terms of an escrow instruction are to be strictly construed, and until the other party has complied with such terms as so construed, he can gain no rights under them. Dyson v. Bradshaw, 23 Cal. 528; Los Angeles High School Dist. v. Quinn, 195 Cal. 377, 234 P. 313; McCarthy & Meyer v. Bank of Italy, 68 Cal.App. 166, 228 P. 724.'
The question of the vesting of equitable title was resolved by the holding that 'at no time prior to or during said tax year was plaintiff the legal or equitable owner * * *.' That conclusion was inevitable by reason of the following facts (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; (c) the escrow provisions in the letter of intent were tacit admissions by the Government that it needed time to make the title good, and (b) the sixteen-month delay accentuated this. If any possible doubt remained it is definitely settled by the recital in both quitclaim deeds that they became effective as of their date, which was June 1, 1949. Any provision found in the earlier writings to the effect that title would be conveyed as of 12:01 a. m. September 23, 1947 was entirely superseded and nullified by the deeds themselves which made it perfectly clear that title vested on June 1, 1949, and not before.
Appellants' argument that 'Whatever clouds may have been on the title were interests of no value none of which were assessed for taxes', falls of its own weight, not only because it is wholly unsupported by any reference to the record, but because of the sixteen-month duration of the escrow.
Appellants rely chiefly on S.R.A., Inc., v. State of Minnesota, 327 U.S. 558, 66 S.Ct. 749, 754, 90 L.Ed. 851, but the facts found by the trial court, herein and already fully discussed, differentiate the two cases. There is one point common to both cases which, however, is not material, i. e., the property in both instances was surplus real estate the legal title to which was vested in the United States, but as the court there points out such contracts 'are construed as contracts between private parties.' The opening sentence of the opinion states the sole question presented in the S.R.A. case as follows: 'A question as to the power of the State of Minnesota to tax realty within the boundaries of that state, when the legal title remains in the United States is presented by this writ of certiorari.' The two concurring opinions also emphasize that this was the only question in the case. There are several points of difference: (1st) There the contract was the normal vendor-vendee contract where legal title was retained as security for the balance of the purchase price and the court said: 'In substance it [the vendor] is in the position of a mortgagee.' Here the vendor-vendee contract, as modified in writing by the escrow instructions, provided for the passage of title only if and when the vendor could convey a merchantable title, pending which (uncertain) event the down payment itself was to be, and was, held up in escrow. Instead of the vendor retaining title as security, deeds were to pass and notes, secured by deeds of trust, were to be, and were, given for the balance of the purchase price. (2nd) The whole sale hinged on a merchantable title, a matter not at all involved in the S.R.A. case, where, as the court said, 'All obligations due under the contract had been met.' (3rd) 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, while here the buyer occupied the property under what the court found to be 'a gratuitous and revocable right to possession' given by the letter of intent, to carry over during the interval while the title was being straightened out so that a good and merchantable title could be conveyed, at which time the muniments of title were to be delivered out of escrow and deeds of trust given back. (4th) 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. The fact that Parr was not in the position of the conventional vendee during the sixteen-month escrow perid but was waiting to see if it was to get any title, alone and by itself distinguishes this from the ordinary vendor-vendee cases where, as respondent concedes, the vendee holding equitable title is taxable as if vested with full legal title.
The doctrine of equitable conversion 'is a mere fiction resting upon the principle that equity regards things which are directed to be done as having actually been performed where nothing has intervened which ought to prevent such a performance.' 19 Am.Jur. p. 2, § 2. 'The purpose of the doctrine of equitable conversion is to give effect to the intention of the * * * contracting parties, and it will be given an effect contrary to such intention'. Id. p. 4, § 4. Some of the California cases so holding are In re Estate of Pforr, 144 Cal. 121, 128, 77 P. 825; In re Estate of Gracey, 200 Cal. 482, 488-489, 253 P. 921 and McCaughna v. Bilhorn, 10 Cal.App.2d 674, 678-679, 52 P.2d 1025. The findings in this case carry the implication that here there was no such intention, which conclusion, as stated above, inevitably followed from the escrow.
The question of equitable conversion is the principal point on this appeal. Appellants, however, contend also that 'The complaint does not state a cause of action for judicial review of the determination of value made by the Boards of Equalization.' Section 1607, Rev. & Tax Code, provides that 'A reduction in an assessment on the local roll shall not be made unless the party affected * * * makes and files with the county board a verified, written application for it, showing the facts claimed to require the reduction.'
Plaintiff alleged that in July of each of the two tax years it filed 'a verified petition for cancellation of erroneous and illegal assessments and for reduction in assessments' with the Board of Supervisors sitting as a Board of Equalization, both of which petitions were denied. Copies annexed to the complaints show clearly that the ground thereof was not that the valuations by the assessor of the real estate at $229,090 and the improvements at $335,000 were over-valuations calling for 'A reduction in an assessment on the local roll * * *', § 1607, supra, but that the ground was that the assessments were illegal in toto because they treated the title as vested in Parr whereas it remained vested in the United States, while Parr had nothing but a revocable possessory interest which was not assessed. Respondent has stipulated that these allegations 'are in no way essential to plaintiff's cause of action, and * * * may be stricken as surplusage.' That being so, there is no reason to discuss this point at any length. The complaint in each action states a cause of action based on an illegal tax because it was not levied and assessed against Parr's mere possessory interest. See United States v. Allegheny County, 322 U.S. 174, 187, 64 S.Ct. 908, 915, 88 L.Ed. 1209; Gottstein v. Adams, 202 Cal. 581, 262 P. 314; City of Los Angeles v. Board of Supervisors, 108 Cal.App. 655, 292 P. 539. We close this part of the discussion with the following language from Associated Oil Co. v. County of Orange, 4 Cal.App.2d 5, 9, 40 P.2d 887, 889:
'While in one sense it is true that almost any mistake which results in an excessive assessment amounts to an overvaluation of the property of a taxpayer, we think there is a real and distinct difference between those cases in which it may properly be said that the error is one of overvaluation and those cases in which the overvaluation is a mere incidental result of an erroneous assessment of property which should not have been assessed. This distinction was recognized in Brenner v. [City of] Los Angeles, 160 Cal. 72, 116 P. 397, 399, in which case the court said: 'But we are of the opinion that, in so far as Henne v. County of Los Angeles (129 Cal. 297, 61 P. 1081), places in the same category the mere overvaluation of property in an assessment thereof, and the inclusion in such an assessment of property not taxable at all, that case should be overruled.''
Appellants' third and last contention is that 'The formula for determining the assessment approved in the case of Kaiser Co. v. Reid is not applicable to the assessment of plaintiff's equitable title to the property.' This very statement shows that it is based on the equitable title theory which, as already appears, we are unable to follow.
Respondent has conceded throughout this litigation that its possessory interest was taxable and therefore that it would 'be inequitable for plaintiff to seek to recover taxes which in equity it should pay.' The rule is that the recovery in such cases should be limited to the difference between the tax paid and that which properly should have been paid and that rule was followed in this case.
In arriving at the tax on Parr's possessory interest the court followed the formula used in Kaiser Co. v. Reid, 30 Cal.2d 610, 184 P.2d 879. The tax, computed according to that formula was then deducted from the amount of tax claimed by the appellants and the judgments herein were entered for the difference. Appellants do not attack the accuracy of the computations, but simply stand on their basic contention that the taxes claimed, and paid under protest, based on their equitable title theory, were right and Parr's contention wrong. Parr's position was made perfectly clear in its brief and appellants have not seen fit to answer it (or any of the other contentions of respondent) since they filed no closing brief. We find no merit in appellants' third contention.
The judgments are affirmed.
NOURSE, P. J., and DOOLING, J., concur. --------------- * Subsequent opinion 272 P.2d 16. 1 See footnote infra. 2 This is noted because of the recital in the letter of intent (quoted above) that 'the title to which is being conveyed to you as of 12:01 a. m. September 23, 1947'. Title was conveyed on June 1, 1949, as of June 1, 1949, according to the language chosen by the Government in the conveyances which it prepared.