Opinion
In Bank.
Appeals from Superior Court, Los Angeles County; Fred H. Taft, Judge.
Melvin, J., dissenting.
Albert Lee Stephens, City Atty., Charles S. Burnell, Asst. City Atty., and Jess E. Stephens, Deputy City Atty., all of Los Angeles, for appellant.
A. S. Halsted, W. F. Palmer, W. W. Peck, Fred E. Pettit, Jr., and James E. Kelby, all of Los Angeles, for respondent.
SLOSS, J.
The above-entitled actions were brought to recover from the city of Los Angeles certain taxes paid under protest. In each, judgment went in favor of the plaintiff, and the defendant appeals. The facts of the two cases are substantially the same, and the appeals are submitted on a single set of briefs. The litigation in L. A. No. 4504 has, however, had a prior history, which requires a disposition of this case upon considerations other than those governing L. A. No. 4600.
This is the second appeal in L. A. No. 4504. Judgment was originally given in favor of the defendant on the sustaining of its demurrer to plaintiff's second amended complaint, and on appeal that judgment was reversed by Department 2 of this court. San Pedro, etc., Co. v. Los Angeles, 167 Cal. 425, 139 P. 1071,52 L. R. A. (N. S.) 991. In accord with the direction of this court, the court below overruled the demurrer, and permitted the defendant to answer. Upon trial, it was found that all the averments of the plaintiff's complaint were true, and that certain allegations of the answer were true There is, however, no claim that the allegations so set up by way of defense affect the determination of the legal questions involved, which remain precisely the same as those presented and decided upon the first appeal. We are therefore, in L. A. No. 4504, bound by the conclusions expressed in the opinion heretofore rendered. Where, upon successive appeals, no difference in the facts appears, this court has consistently followed the rule of ‘ the law of the case,’ a rule founded on the simple principle that ‘ this court has no appellate jurisdiction over its own judgments, and such judgment, therefore, constitutes an estoppel of record of the highest character, and is conclusive between the parties as to the matters adjudged.’ Klauber v. San Diego St. Car Co., 98 Cal. 105, 107, 32 P. 876. The first of the judgments appealed from must accordingly be affirmed.
On the appeal in L. A. No. 4600 we are, however, at liberty to consider the appellant's contention that the former decision of this court was erroneous, and that it should not be followed. That decision has, to be sure, the persuasive force attaching to any deliberate expression of the court. No property rights appear, however, to have been acquired on the faity of the ruling, and if, upon further consideration, we should feel satisfied that a wrong conclusion was reached, it is right and proper that we should so declare, to the end that the true rule, as we now see it, should be established and enforced.
The essential facts are stated in the opening paragraph of the opinion in the earlier case:
‘ Appellant is the tenant of certain lands under a lease from the city of Long Beach, which lease acquires validity through a ratifying act of the Legislature. It is, in legal contemplation, a lease by the state of certain of its tide and submerged lands. The city of Los Angeles assessed this leasehold and levied a tax thereon which by appellant [plaintiff] was paid under protest. In due time appellant [plaintiff] brought its action for the recovery of the tax.’
The single question, as stated in the opinion to which we have referred, is ‘ whether under the laws of this state it is contemplated that leasehold interests, such as this, may be taxed to the lessees.’ Considering this question, the department held, in effect, that while a leasehold is, ‘ under certain circumstances and for certain purposes,’ property, it is not property within the meaning of our fiscal laws.
[That a leasehold interest is property is a proposition not open to dispute. The thing of which there may be ownership is called ‘ property." Civ. Code, § 654. Interests in real property are called ‘ estates.’ Civ. Code, § 701. They are classified by section 761 of the same Code as (1) estates of inheritance; (2) estates for life; (3) estates for years; (4) estates at will. The interest of the plaintiff under the lease from the state is an estate for years. There may be ownership of such estate. It is therefore property.
The portion of the opinion in brackets was adopted and included as a part of a rehearing opinion rendered in Case No. 4600. The headnotes applicable to it are set forth as a part of the rehearing opinion. See 179 P. 393.
[Is it property for the purposes of taxation? Our Constitution declares (article 13, § 1): ‘ All property in the state, except as otherwise in this Constitution provided, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law. * * *’ The section exempts property belonging to the state, and certain other kinds of property, not including interests like the one here involved. With respect to all property not so exempted, the provision of the Constitution that it shall be taxed in proportion to its value, to be ascertained as provided by law, is direct and mandatory. Const. art. 1, § 22. The provision for the taxation of all property not exempt is repeated in section 3607 of the Political Code.
[The constitutional provision is not self-executing. It imposes upon the Legislature the duty of providing a mode whereby to ascertain the value of the property to be taxed. McHenry v. Downer, 116 Cal. 20, 24, 47 P. 779,45 L. R. A. 737. See De Witt v. Hays, 2 Cal. 463, 468, 56 Am. Dec. 352. If, then, the Legislature had not provided any mode for the assessment of leasehold estates, it might well be said, as was said in the former opinion, that such an estate is not ‘ property for the purposes of taxation’ under our fiscal laws. But there does not appear to be any such deficiency in our revenue laws. Section 3617 of the Political Code declares that the term ‘ property’ includes ‘ all matters and things, real, personal, and mixed, capable of private ownership,’ and that the term ‘ real estate’ includes ‘ the possession of, claim to, ownership of, or right to the possession of land.’ A leasehold estate carries a right to the possession of the land leased. Civ. Code, § 819. It is therefore real property within the above definition. Other sections of the Political Code provide for the listing of real property, the description and valuation thereof, and contain a complete scheme for the assessment of the property, and the levy and collection of the taxes. This scheme is as readily adaptable to an estate for years as to a freehold estate.
[It is true that the Code makes no specific provision for separate assessments of leasehold and reversion to the lessee and the owner of the fee, respectively. The usual procedure in this state, as elsewhere, has been to assess the entire value of the land to the owner of the reversion. Such assessment covers the value of the leasehold as well as of the reversionary interest, the sum of the two being comprised in the value of a complete ownership of the land. Graciosa Oil Co. v. Santa Barbara, 155 Cal. 140, 99 P. 483,20 L. R. A. (N. S.) 211. The state thus receives the tax upon every interest in the land, and the requirement of the Constitution, and of section 3607 of the Political Code, is satisfied. Where, however, the state owns the reversion, its reversionary interest, like all property owned by it, is exempt from taxation. In such a case it cannot be said that the private property right of the lessee is taxed through the medium of the taxation of the interest of the owner. Still less can it properly be said that because the interest of the state is not taxable, the private owner of a leasehold interest should be exempt from paying taxes upon the property that is owned by him.
[An illuminating discussion of the question is found in Trimble v. Seattle, 231 U.S. 683, 34 S.Ct. 218, 58 L.Ed. 435, a case which was not called to the attention of the Department on the former appeal. The Supreme Court of Washington had upheld an assessment on certain leaseholds of tidelands owned by the state. The assessment of the leaseholds was authorized by statutes enacted after the execution of the leases by the state. A writ of error was granted to review the judgment of the state court. The plaintiff in error contended that the leases imported an obligation that the lessor should pay all taxes and assessments, and that the federal Constitution prohibited the impairment of this contract by a subsequent law. The Supreme Court of the United States held that no such obligation was included in the lease, saying:
[‘ In ordinary cases the whole property is taxed and which party shall bear the burden is not a matter of public concern. But when the state makes the lease, the supposed obligation would be an obligation not to tax— a restriction of public import not lightly to be imposed [citing cases]. It is urged that to deny the state's obligation discriminates unconstitutionally against this class of lessees, since all others are free from the burden. But that is not true. Whether landlord or tenant shall pay a tax is a matter of private arrangement, and the practice one way or the other has no bearing on the matter. The argument from inequality really works the other way. If these leaseholds are not taxable, they are a favored class of property; for ordinarily leaseholds are taxed even if they are lumped and included in the value of the fee. When an interest in land, whether freehold or for years, is severed from the public domain and put into private hands, the natural implication is that it goes there with the ordinary incidents of private property and therefore is subject to being taxed.’
[In Graciosa Oil Company v. Santa Barbara, supra, a separate assessment of a leasehold interest to the lessee was upheld. The case was discussed at some length in the opinion on the former appeal in the first of the cases before us, and it was pointed out that the lease in the Graciosa Case carried with it a right to take a part of the substance of the land itself. There is, no doubt, a distinction between the grant of such right and an ‘ ordinary lease for usufructuary purposes,’ and it may be conceded that the decision in the Graciosa Case is not a controlling authority in favor of the appellant's contention here. On the other hand, that decision does not, as suggested by the former opinion dealing with the rights of the parties to the present appeals, support the respondent's position that its leasehold interest is not taxable. What was said in Graciosa Oil Company v. Santa Barbara regarding the mode of taxing property leased by one private individual to another had no reference to a case like this, where the lessor is a governmental agency whose property is exempt from taxation. The opinion fully recognizes that, in the usual case, the assessment to the owner of the fee includes the value of both the reversion and the leasehold interest, and that, under such conditions, both interests are assessed, and the mandate of the Constitution is followed.
[The principle that a possessory right in public land is private property, and that it may be assessed for purposes of taxation to the person in possession, although in point of law he may have no right as against the state or government owning the land, has long been settled in this state. People v. Shearer, 30 Cal. 646, 655; People v. Frisbie, 31 Cal. 146; People v. Cohen, 31 Cal. 210. The first two of these cases are referred to in the decision of the first appeal in San Pedro, etc., R. Co. v. Los Angeles, and they are sought to be distinguished upon the ground that the possession of the claimant was one designed to ripen into an ownership of the fee, under the land laws of the United States. But a careful examination will show that this ground of distinction is not tenable. In the Shearer Case the court pointed out that the occupant had not made the payment which was necessary to vest in him any legal or equitable right as against the government. He was, however, in possession, and his right as possessor was held to be property subject to taxation. The court said:
[‘ The possession itself of the public lands and the improvements thereon, whether by naked trespassers, or those who claim in addition a right of pre-emption, as to everybody except the United States, have always in California, and in most, if not all of the new states, been regarded as valuable property interests. The transfers of such possession and improvements have always been held to constitute a valuable consideration for a promise. The possessors often derive and enjoy large revenues from them. Contracts for such possession, and rights growing out of them, are constantly recognized, protected, and enforced by the courts, and, in this state, a very large share of the litigation in the courts maintained by means arising from taxation grows out of this very class of rights. * * * Such possession of the public lands, and the improvements put upon them, are therefore, recognized and protected as a valuable species of property in the possessor.’
[It was further said that these possessions ‘ exist wholly independent of pre-emption laws, without any pre-emption right or intention to claim such right, and always anterior to the existence of those rights. * * * And this property is property in the citizen or inhabitant having possession, and not in the United States. This property, so recognized and protected, in our judgment is clearly not exempt from taxation.’ Page 660. And accordingly it was held that such possessory rights should be assessed and that ‘ the value of the possessory right should be put down and not the value of the land itself,’ as the basis of the assessment for taxation. A mandate was issued to the assessor to compel him to do so.
[This conclusion was reached regardless of whether the person in possession was intending to claim as pre-emptioner or homesteader, or whether his possession could ever have ripened into a fee. Nor was the decision in People v. Frisbie put upon any such theory. Each of these cases was decided upon the ground that possession of land, with or without right or expectation of right or title from the government, was a species of property in the possessor, and as such subject to taxation. The inability to tax the fee vested in the public is therefore no obstacle to the taxation of the possessory right, whatever its nature may be. If a bare possession by the sufferance of the real owner is subject to taxation where the estate of the real owner is exempt because the state or the United States is such real owner, it is impossible to uphold the proposition that the estate of one holding a valid estate for years under lease from the state is not subject to taxation. That estate is not included in any assessment to the landlord or owner of the estate in remainder.
[We do not agree with the suggestion made in the closing paragraph of the decision in 167 Cal. 425, 139 P. 1071, 52 L. R. A. (N. S.) 991, that a holding that the plaintiff's leasehold interest is subject to assessment and taxation would make void every assessment against the owner of land subject to a lease without an assessment against the lessee of the value of his leasehold. As has already been said, in the ordinary case the value of the leasehold is included in the value assessed to the owner of the fee. What the Constitution and the law require is that all property shall be taxed in proportion to its value. And this is done when the whole value of the land is assessed to the owner of the fee. Section 3628 of the Political Code provides that no mistake in the name of the owner of real property shall render the assessment thereof invalid. The validity of the assessment would not, therefore, be affected by the fact that the values of the several estates in the land are united in a single assessment in the name of the owner of one of such interests.]
We conclude, therefore, that the department decision in San Pedro, etc., R. Co. v. Los Angeles, 167 Cal. 425, 139 P. 1071,52 L. R. A. (N. S.) 991, should not be followed.
In L. A. No. 4504 the judgment is affirmed.
In L. A. No. 4600 the judgment is reversed, with directions to the trial court to enter judgment on the findings in favor of the defendant.
We concur: ANGELLOTTI, C. J.; SHAW, J.; WILBUR, J.; RICHARDS, Judge pro tem.; LORIGAN, J.
MELVIN, J.
I dissent from order of reversal in the case designated as L. A. No. 4600, and adhere to the views expressed in the opinion in San Pedro, etc., Co. v. Los Angeles, 167 Cal. 425, 139 P. 1071,52 L. R. A. (N. S.) 991, which has been the declared law of this state upon this subject for more than four years. It seems to me highly probable that property rights have been acquired under the rule announced in that case and in reliance thereon. Moreover, I believe that the opinion delivered in Department and so long unquestioned is in accord with the better reason and the weight of authority.
FN1 146 P. 880.