Opinion
Subsequent Opinion 168 P.2d 156.
Hearing Granted Sept. 20, 1945.
Action by Trabue Pittman Corporation, Limited, against the County of Los Angeles and City of Los Angeles for a tax refund. From the judgment, plaintiff and defendants appeal.
Affirmed in part and reversed with directions in part.
Appeal from Superior Court, Los Angeles County; Joseph W. Vickers, Judge.
Holbrook & Tarr, of Los Angeles, for plaintiff, appellant and respondent.
J.H. O’Connor, County Counsel, S.V.O. Prichard, Asst. County Counsel, and A. Curtis Smith, all of Los Angeles, for Los Angeles County.
Ray L. Chesebro, City Atty., and Louis A. Babior, Deputy City Atty., both of Los Angeles, for City of Los Angeles.
OPINION
DORAN, Justice.
This is an appeal by both the plaintiff and the defendants from a judgment entered in a tax refund case which involves the taxability of banking fixtures installed in leased premises by a national bank, namely, the Bank of America National Trust & Savings Association. The bank’s lessor, plaintiff herein, has appealed from that part of the judgment which denied recovery of taxes paid under protest, in reference to a vault door and door frame owned and installed by the lessee bank but assessed to the plaintiff on the theory that such vault door unit constituted an improvement to plaintiff’s building. The defendants have likewise appealed from the trial court’s holding that certain tellers’ cages, wickets, counters, partitions, etc., were personal property belonging to a national bank and hence exempt from local taxation, and adjudging that plaintiff should recover the amount of taxes assessed against such property and paid under protest. The question here under consideration, therefore, is in respect to the nature of banking fixtures in a leased building,— whether, for taxation purposes they shall be considered as realty or as personalty.
The complaint, occupying 107 pages of the clerk’s transcript, describes the situation and certain alleged discrimination in great detail, the reason for such particularization being explained by plaintiff’s counsel in the opening statement as follows, " * * * we had hoped to present sufficient facts so it would be a test case for several hundred other cases, * * * ".
By stipulation the trial court first proceeded "to take all the evidence and determine the issues as to whether or not the property in question was real estate * * or personalty," and at the end of the trial after the court had rendered its decision as to the nature of the property, plaintiff’s attorney announced that the question of discrimination would not be pursued further and such issue was therefore not passed upon by the court.
It should be noted at the outset that the subject here considered and the opinion as well, are concerned only with property of the character and nature herein described and the relation of the contracting parties with regard thereto. This limitation is noted because of the application of the Federal Constitution and statutes, and Section 16, subd. 1(a) of Article XIII of the California Constitution to the tax problem here presented, a condition which, manifestly, does not apply generally.
It appears from the record that during the years 1930 and 1931 the plaintiff constructed, at the corner of Rimpau Avenue and Washington Boulevard in Los Angeles, a one-story and basement store building, the building being designed for the occupancy of stores and a market, and no part thereof being specially designed for bank use. After having been occupied by a drug store, dress shop and lamp shop, the corner store room was leased on July 31, 1936 for a term of six years by the plaintiff to the Bank of America, at the end of which term the premises were leased to the bank for a new term of five years ending July 31, 1947. Pursuant to the usual practice of the bank, when quarters are leased for a branch bank, the banking officials prepared plans for alteration of the premises, which in this particular instance included both interior and exterior alterations, the construction of a vault room and the installation of a vault door, counter line, partitions, and what appear to be the usual and customary bank fixtures. The cost of the alterations, exclusive of furniture and fixtures, was $11,630.36, which figure did not include the cost or value of the bank vault door which was moved there from a warehouse maintained by the bank for the storage of such vault doors. The value of this particular vault door, the main subject of contention herein, was estimated at $1500, and the cost of moving and installing it was $234. The vault room constructed by the bank after leasing the plaintiff’s store room, was built of reinforced concrete, approximately 17 feet long, 8 ½ feet wide, with a height of 8 ½ feet, and with a door opening 7 feet 5 inches high by 3 feet 6 inches wide, which door opening, as appears from the trial court’s findings of fact, "was not constructed so as to require the installation of any particular type or make of door or door frame and which said opening was devoid of any bars, hooks or other contrivance intended for the hanging thereon or attachment thereto of any door frame or door whatsoever."
The vault door and frame, owned and installed by the bank, is one unit and is described by the bank’s architect as follows: "Well, this door is a Miller make, three and a half inches in thickness, polished steel finish, and there is a double combination and a triple time lock, and then there was a frame, and then there is an inner vestibule which is made of three by three angles and plates." The door unit was skidded in on rollers, "Then the door is put in its position in the opening in the vault, wooden wedges are inserted at the top of the door, and the frame, to hold the door in its vertical position. * * *
"Q. When this has been plumbed and found in a true vertical position then what holds it in that position?
A. The wooden wedges.
"Q. And at all times do these wooden wedges hold it in position?
A. Yes. * * After the door has been tested for its plumbness, then the opening between the inner vestibule and the rough opening in the vault is filled with cement grout."
This cement grout is "Not necessarily tamped" in. As to whether the filler or grout between door and wall formed a bond, the same witness testified, "Well there is a semisort of bond there, but the grout when it dries out the moisture content leaves the grout and there is a tendency for the grout to shrink, so it is possible there might be a slight space between the grout and the concrete wall and in between the grout and the steel vestibule.
"Q. Is that grout placed there for the purpose of making a bond between the vault and frame and the wall of the vault?
A. No, it is not.
"Q. What is it placed in there for?
A. Well, more for fire protection purposes."
The wooden wedges used to hold the vault door in a vertical position are left in place and "They still hold the door in position." The inner flanges of the door unit "are attached to the lining of the vestibule by means of a type of screw or bolt that is screwed in there". The bank has removed similar vault doors from one location to another "a good many times" by loosening the cement grout with a hammer and shoving the door out, and this procedure does not do any substantial injury to the building. Such removal "would take two or three men maybe three or four hours", and it was common practice to thus remove vault doors. Likewise the other bank fixtures such as partitions, counters, etc., can be removed without injury to the building.
The trial court found that by the express provisions of the written lease between plaintiff and the bank, "all title in and to the furniture, fixtures, vault door, vault door frame, safety deposit boxes, business equipment and other personal property, placed in or about the said leased premises by lessee National Bank, remains in lessee National Bank"; likewise that "all custody, possession and control" thereof, "during the pendency of its lease, or any renewal thereof, remains solely in lessee National Bank, together with the right of removal therefrom"; and that plaintiff "has never made or asserted any claim or property right or interest" in any of said business equipment. Mr. B.F. Lane, Assistant Vice President of the bank, testified that the vault door was installed in plaintiff’s building with the intention on the part of the bank to remove it at the termination of the lease or any extension thereof. The court further found that the vault door unit was "a commodity which is the subject of commerce and trade * * * bought and sold on the open market by at least six firms * * *; that similar vault door frames and vault doors in a number in excess of 150 have been removed from premises occupied by banks, jewelers, furriers, building and loan associations, and other types of business within the last five years in Southern California, * * * ".
Quoting from the opening brief filed by plaintiff-appellant, it appears that "During the 1941 assessment season the Los Angeles County assessor, for the first time, included in the assessment of plaintiff’s building, the vault door, counters and trade fixtures, which had been installed by the bank in the leased store room, being the sum of $29,250.00, which according to the assessor, included a valuation placed on the bank’s vault door of $660.00, and on the counter lines, etc. of $910.00, or an aggregate of $1,570.00 on the bank’s property." At the beginning of the trial, the Assistant County Counsel explained this assessment as follows: "Before the San Diego vault door case (San Diego Trust & Savings Bank v. County of San Diego, 1940, 16 Cal.2d 142 [105 P.2d 94, 133 A.L.R. 416] ) was decided by the Supreme Court, it was the general practice in this county to regard trade fixtures installed by lessees as being personal property, including bank vault doors, regardless of the matter of the unity of use, and so forth and so on."
An application was made on behalf of plaintiff to the 1941 Board of Equalization of Los Angeles County to eliminate from the assessment on plaintiff’s building the value placed on the bank’s property, both plaintiff and the bank objecting to the assessment of the vault door and other banking fixtures as "improvements" to plaintiff or to anyone, and claiming that such property was personal property belonging to the bank and therefore not assessable under the provisions of Article XIII, section 16, subd. 1(a) of the California Constitution providing for a tax measured by a national bank’s net income in lieu of all other taxes except taxes on real property, and in view of Section 5219 of the Revised Statutes of the United States, U.S.C.A. Sec. 548 of Title 12, permitting the taxation of real property belonging to national banking associations "to the same extent, according to its value, as other real property is taxed." The Board of Equalization denied the application, plaintiff thereafter paid the taxes under protest and instituted this action for the recovery thereof.
After hearing the testimony and viewing the premises the trial court found that the vault door and frame "were and had become integral parts of the building of the Plaintiff herein, but * * * that the remaining banking fixtures * * * were trade fixtures and should have been classified by the Assessor as personal property of the lessee National Bank.", and rendered judgment accordingly. It may be further noted that the court found that on May 2, 1941, the bank had notified the County Assessor in writing of its claim that the bank vault doors and other banking fixtures "were personalty and not realty and that they should not be assessed to Plaintiff Landlord as constituting a part of the improvements", and that the Assessor thereafter "advised said Bank of his intention to classify for tax purposes such fixtures as ‘improvement’ regardless of the fact that they were located on ‘leased’ premises".
It seems evident from an examination of the briefs and, indeed, from the record of the trial itself, that the decision in this case depends largely upon an interpretation of the rule as laid down in the case of San Diego Trust & Savings Bank v. County of San Diego, 1940, 16 Cal.2d 142, 105 P.2d 94, 133 A.L.R. 416, and the application of that rule to the facts presented in the instant case. In announcing his decision the trial judge said, "My opinion is based largely upon the rule laid down in several cases, particularly the San Diego Bank case, that we must give consideration to the manner of annexation, the adaptability to the use and purpose for which the realty is used, and the intention of the annexing party; that we must also consider, as said in the Southern California Telephone case (Southern California Telephone Co. v. State Board of Equalization, 12 Cal.2d 127, 82 P.2d 422) that where the rights of those not parties to a private agreement are involved, the intent is manifested by the physical fact, with due consideration to the status of the parties by whom the articles have been installed."
The San Diego Bank case referred to above was an appeal from a judgment granting an injunction permanently enjoining the assessor of San Diego County from assessing as real property for local taxation purposes certain bank vault doors and other equipment belonging to the plaintiff banking corporations. Commenting on the facts in the San Diego Bank case, respondent’s brief says: "A closer examination of the case by scrutiny of the record itself reveals that the case involved 15 vaults, 22 vault doors and 1 elevator. Ten of the vaults, 15 of the vault doors and the elevator were located upon premises where the Plaintiff banking corporation owned both the land and the building. Two of the vaults and 4 of the vault doors were upon premises where one of the banks owned the building to which the property in question was attached but leased the land upon which that building was situated. One vault and one vault door were on premises where another of the Plaintiff banks owned the land but leased the building, and two of the vaults and two of the vault doors were upon premises where both the land and the buildings were leased from private owners." Reversing the judgment of the lower court the Supreme Court held that "vaults and vault doors constitue a unit for use together and are improvements to the realty." However, as pointed out in appellant’s brief, the court in the San Diego case expressly withheld determination of the precise question which arises in the instant case, and at page 152 of the opinion in 16 Cal.2d, at page 99 of 105 P.2d __, 133 A.L.R. 416, says, "In those instances where the owner of the vault doors is also the owner of the building to which they are annexed their classification as real property for purposes of taxation creates no further problem. Where the owner of the vault doors has annexed his property to the real property of another, however, the question immediately arises as to whom the tax on the vault doors shall be assessed. We are reluctant to render this decision without first disposing of that question, since we are of the opinion that it could well be considered here. However * * * counsel for both parties stated to the trial court that said question was not to be considered as an issue in this case inasmuch as it was said to be at issue in a proceeding for a writ of prohibition (No. 91,260) ‘trailing’ this case * * *. The trial court, therefore, did not consider the question, nor did the parties discuss it in their briefs. In order therefore to permit the parties the benefit of their briefs and argument we shall not determine that question in this opinion." (Italics added.) It is evident, as commented upon in appellant’s closing brief, that in the San Diego case "No distinction is there noted between the vault doors, etc. installed in leased premises and those installed in premises owned by the banks." Indeed, in that case the Supreme Court says at page 150 of 16 Cal.2d, at page 98 of 105 P.2d __, 133 A.L.R. 416, "It is significant that in nearly every instance the party installing the vault doors owned the building in which the same were installed." The San Diego Bank case, therefore, cannot be deemed authority for respondent’s contention that the vault doors owned by the bank in the instant case were properly assessed as improvements to plaintiff lessor. In the San Diego case the action was brought, not by a lessor having no interest in the vault doors but by banking corporations which in most instances were the owners of both the vaults and the real estate to which they were attached. There is nothing in the San Diego case to indicate that the Supreme Court sought to alter the long established law relating to the trade fixtures of tenants, nor is any arbitrary authority given to tax assessors to declare that the real estate of a lessor is "improved" by trade fixtures in which he has no interest and over which he exercises no control.
It is provided in Revenue and Taxation Code, Section 405, St.1941, p. 3111, that, "Annually, the assessor shall assess all the taxable property in his county, except State assessed property, to the persons owning, claiming, possessing, or controlling it at 12 o’clock meridian of the first Monday in March. The assessor shall ascertain such property between the first Mondays in March and July." (Italics added.) In view of this provision considered in connection with the trial court’s definite finding that "all custody, possession and control" of the vault door and other banking fixtures "remains solely in lessee National Bank, together with the right of removal therefrom" and that the title to said property "remains in lessee National Bank" it is difficult to see where any authority exists for assessing such property to the plaintiff lessor.
The respondents lay particular stress upon the following statement found in the San Diego Bank case, 16 Cal.2d 142, at page 150, 105 P.2d 94, 133 A.L.R. 416: "The nature of a vault door itself suggests an intent permanently to affix it to a vault which by ordinary tests must be said to constitute an improvement to realty. Vaults alone without doors would not be useful as vaults, and would fail in their intended purpose." While the quoted statement was doubtless applicable to the facts of the San Diego case where separate ownership of building and vault door was not involved, it is not controlling in reference to the present litigation. In the instant case the evidence shows the existence of an intent diametrically opposed to that suggested in the quoted statement from the San Diego opinion. The manner of installation, the ease of removal, the general practice of removing such vault doors and their status as a commodity bought and sold on the open market, the fact that the vault door in question was not designed or constructed for installation in the plaintiff’s building, the lease provision giving the bank the right to remove the vault door, and practically every other fact shown by the evidence, is inconsistent with any other intent than that of a temporary attachment to the plaintiff’s building. The matters just mentioned are all incorporated in the trial court’s Findings of Fact. Not least important in this connection is the finding "that said bond could be broken without injury to the walls of the building and the vault door and frame removed without physical injury to the remainder of said building". Also, as found by the court, the assessor’s office was fully advised by the bank on May 2, 1941, in respect to its ownership of the vault doors.
Another case discussed and relied upon by both parties to this appeal is Southern California Telephone Co. v. State Board of Equalization, 12 Cal.2d 127, 82 P.2d 422, in which a writ of mandate to compel the State Board of Equalization to correct an assessment by classifying central office equipment as personal property instead of improvements to realty, was denied. In reference to this case and the San Diego Bank case respondents’ brief contains the following: "While the question presented by the instant case was thus not directly decided in that case (the telephone case), we respectfully submit that the Telephone Company case, supra, coupled with the bank vault door case, supra, (San Diego Bank case) makes it very plain that the property involved in this case constitutes a unit of use which gives to it the character of realty for the purpose of taxation." The instant case, however, is not one dealing with "central office equipment" such as was involved in the Telephone case, but with the equipment of a branch bank located in a leased store building not originally constructed for bank use. In fact, a distinction between "central office equipment" and branch office equipment is recognized in the Telephone case at page 138 of 12 Cal.2d, at page 428 of 82 P.2d __, which recites that, "In no proper sense can equipment in small leased offices be held an improvement to and part of real property owned by another." The facts in the Telephone case were, of course, entirely different from those existing in the present case, and manifestly the decision in the Telephone case is no authority for upholding the assessment of the bank’s vault doors as an improvement to plaintiff’s real estate.
In this connection it is interesting to note the comment of the trial judge in the instant case: "I believe the effect of that case (the Telephone case) is to say that * * * in the case of the main building under that unit rule the so-called fixtures became realty, became a part of the building, within the class of improvement under the Assessor’s right of assessment; but that branch installation, particularly in leased premises, might well be personalty, and not improvement to the real estate. * * * I think the same reasoning could apply to banks. The main offices of the bank, such as at Seventh and Spring and Seventh and Olive, of this Bank of America, have been constructed, in so far as the lower floors are concerned, * * * for banking purposes and might well be considered and determined by the court under the unit rule to be realty; but again when small branches are installed, such as this one— and this is a small branch in so far as its equipment is concerned— the unit rule does not apply and it remained as personalty." (Italics added.) Evidently the trial court was here referring to the counters, tellers’ cages, partitions, etc., which were held to be personalty and not improvements to the plaintiff’s building, rather than to the vault door which that court deemed an improvement to the real estate. However, it cannot be doubted that the vault door, moved to its present position from the bank’s warehouse with the evident intention to remove it elsewhere at the termination of the lease, was as much a part of the banking equipment of this branch bank as were the other fixtures and, so far as the present controversy is concerned, no more of an improvement to plaintiff’s building exists in the one case than in the other. The three tests which, according to the San Diego Bank case, must be applied in determining whether or not an article is a fixture, namely: "(1) the manner of its annexation; (2) its adaptability to the use and purpose for which the realty is used; and (3) the intention of the party making the annexation", have been duly considered in reference to the present controversy but, so far as the vault door is concerned, with a different result from that reached by the trial court.
In seeking to maintain the propriety of the present assessment defendants’ position is stated as follows, "Second, the plaintiff has assumed that ordinary common law cases applying the law of fixtures to the correlative rights of landlord and tenant are determinative of the present case. The Defendant takes the position that in so far as the tax laws have provided definitions for taxing purposes these definitions are to be applied regardless of whether they comport with ordinary common law cases." It is true, as mentioned by defendants, that Section 104 of the Revenue and Taxation Code, St.1939, p. 1277, declares that real estate shall include "improvements", and Section 105, St.1939, p. 1277, provides that "Improvements" include: "(a) All buildings, structures, fixtures, and fences erected on or affixed to the land, except telephone and telegraph lines." (Italics added.) And it is doubtless true, as stated in the above quotation from defendants’ brief, that the definitions contained in the tax laws, in so far as they are comprehensive, are to be applied in taxation matters. In answer to this contention, however, it should be particularly noted that there is no provision either in the Revenue and Taxation Code, or in any of the cited cases, which indicates either directly or by implication, a purpose to depart from the time honored distinctions between real and personal property, nor to discard the usual tests in reference to intention and the manner of affixation, both of which matters were specifically mentioned in the San Diego Bank case.
While it is true that many of the cases dealing with trade fixtures arose in reference to controversies between landlords and tenants or involved other contractual relationships, it is impossible to ignore the analogy between such cases and the present dispute concerning tax assessment, at least in respect to the permanency of attachment to realty and the intent of the parties in making the annexation. Even as it relates to the tax assessor, denominated by the defendants as a "third party" not bound by a "hidden secret intent" contained in the private agreement (lease) between landlord and tenant, such analogy must be preserved, otherwise a confusion in the law would result which would seriously imperil all contracting parties wherever trade fixtures are involved. In other words, there cannot be one interpretation of the law to be applied in the one case, and an entirely different interpretation to be adopted in another case. And in this connection it may be noted that in the present case no "secret" intent was involved, for the assessor was duly notified concerning the situation. Furthermore, the "physical facts" commented upon by defendants as being the proper criterion in reference to intention, indicate that the attachment of the vault door was not intended to be permanent or in any sense an "improvement" to plaintiff’s building.
Defendants’ argument, that the state merely taxes the property and is not interested in ownership, is no answer to plaintiff’s contention. The right to own property is a basic constitutional right. Moreover, individuals retain the constitutional right to contract and, among themselves, determine ownership. Ownership cannot be impressed by law against the will of the individual. In the circumstances, the effort to separate property and ownership is pure fiction. The state is without power, by a series of definitions or otherwise, to attach the property of one person to the property of another against the will of either or both, and then seize the property of the latter because of a failure to pay the taxes on the property of the former. Such a process, obviously, destroys that security in property guaranteed by the Federal Constitution.
Under the evidence in the present case the only rational position is that bank vault doors, when attached as they were in the branch bank in question and under the circumstances herein shown to exist, cannot be properly assessed as improvements to the lessor’s realty. In fact, any other view would place all landlords in a most precarious position, subjecting them to possible tax liability by reason of the fact that a tenant has brought in removable trade fixtures and in some manner temporarily attached such articles to the rented building with the landlord’s consent.
It is axiomatic that, nothing may be done indirectly which cannot, under the law, be done directly. There can be no question, as stated in the appellant’s brief, that "Under the provisions of the Constitution of the United States, a federal instrumentality, including a national banking association, is not subject to taxation by any state, or subordinate entity, or subdivision of such state, except to the extent granted, or permitted, by the statutes of the United States of America, and the sole grant or permission to tax national banking associations, including Bank of America National Trust and Savings Association, Plaintiff’s tenant, is contained in the provisions of section 5219 of the Revised Statutes of the United States, U.S.C.A. sec. 548 of Title 12 * * * ", heretofore mentioned, permitting the local taxation of real estate owned by a national bank but giving no authority for taxation of such bank’s personal property. It is also clear that the only taxation of national banks contemplated in this state is the "in lieu" taxation measured by the bank’s net income, provided for in Section 4a of the State Bank and Corporation Franchise Tax Act (Act 8488, Deering’s Gen.Laws), which taxes are in lieu of any other local taxes except the tax on realty, and expressly authorized by Article XIII, section 16, subd. 1(a) of the California Constitution. In 1896 an attempted assessment on the money and fixtures of a national bank was held void in First National Bank of San Francisco v. City and County of San Francisco, 129 Cal. 96, 61 P. 778. Assessment of personal property and fixtures of a national bank was also held void in City and County of San Francisco v. Crocker-Woolworth National Bank of San Francisco, C.C., 92 F. 273. That this is the law, there can be no doubt.
It would seem, therefore, as maintained in appellant’s brief, that "The assessor of Los Angeles County in this instance endeavored by a mere reclassification to convert personal property into real property and thus bring it within the right to tax under Section 5219(3) above quoted". Such a reclassification, whether based upon a theory of improvement to the lessor’s realty by reason of unity of use, or otherwise, is unwarranted by the evidence in this case. Nor is such a practice justified by reason of the San Diego Bank case or any other decision brought to the attention of the court. Judicial approbation of the assessment levied in this case could only lead to unnecessary confusion, and furthermore would apparently lend approval to an attempt to tax indirectly through the lessor, personal property of a national bank which under the law could not be taxed directly.
For the reasons heretofore given plaintiff is entitled to recover the full amount of tax payments made under protest, covering assessments on both the vault door unit and other banking fixtures installed by the lessee Bank of America. The judgment in so far as it permitted a recovery of taxes paid on the banking fixtures other than the vault door, is to that extent affirmed, but said judgment is reversed in so far as it denied plaintiff a recovery of taxes paid on the vault door unit, and since there is no serious controversy as to the facts the court is directed to enter judgment accordingly.
Plaintiff, appellant and respondent Trabue Pittman Corporation, Ltd., to recover costs on appeal.
YORK, P.J., and WHITE, J., concur.
Hearing granted; TRAYNOR, J., not participating.