SCHEAS v. ROBERTSON

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District Court of Appeal, Second District, Division 3, California.

SCHEAS v. ROBERTSON et al.

Civ. 17626.

Decided: December 08, 1950

Robt. E. Rosskopf, John F. Bender and Gizella M. Allen, all of Los Angeles, for appellant. Cyril A. Walton, Los Angeles, for respondents.

Appeal by plaintiff from a judgment for defendant in an action for partition of a parcel of realty predicated upon the ownership of a street improvement bond.

Plaintiff is the owner of Bond 138, Series T, issued March 18, 1929, by the city treasurer of Manhattan Beach under the Improvement Act of 1911. Streets and Highways Code, sec. 5000 et seq. The bond was issued in the amount of $220.84, and was payable in 10 annual installments commencing January 2, 1930, with interest payable semiannually. It was delinquent on January 2, 1939, but was not thereafter foreclosed.

City and county taxes for the year 1929–30 became delinquent and the property, which was subject to the lien of the bond, was sold to the state in 1930, and deeded to the state in 1935. On June 21, 1939, the property was sold by the state to J. K. Bennett. On January 25, 1947, defendants Earl T. Robertson and G. V. Williams purchased the property from Bennett. The court found that they purchased in good faith for a valuable consideration and that they were bona fide purchasers for value. It was also found that ‘the lien of plaintiff, if any, and any and all right, title and interest claimed by plaintiff’ in the property is barred by the provisions of Civil Code section 2911 and Code of Civil Procedure section 330. The court concluded that defendants are the owners of the realty in fee simple; that the lien of Bond 138 has been extinguished; and that plaintiff has no right, title, interest or lien in, to or upon the property.

Plaintiff's position: The lien of the bond continues until paid; it was on a parity with the delinquent tax lien; Bennett, by the 1939 deed from the state, acquired title subject to the parity bond lien; the subsequent grantees took the title acquired by Bennett subject to the parity bond lien; defendants, even though they purchased the property after January 1, 1947, were not in fact, and could not in law be, bona fide purchasers for value as against the bond lien.

The bond was issued March 18, 1929, as a lien on the property. The Improvement Act of 1911, as amended, provided that ‘such lien shall so continue until it and any bonds issued to represent the assessment are discharged of record.’ Streets and Highways Code, sec. 5372. The tax lien arose in March, 1929, and continued as a lien until the property was deeded to the state in 1935. The effect of the deed to the state was to give the state the absolute title free of all encumbrances except, among other things, liens for special assessments, Revenue & Taxation Code, sec. 3520, subject to right of redemption. People v. Maxfield, 30 Cal.2d 485, 487, 183 P.2d 897. The sale by the state passed the title of the state to Bennett, and eliminated the right of redemption. The acquisition of the state's title did not ipso facto destroy plaintiff's rights flowing from his bond lien, but left them intact. Revenue and Taxation Code, sec. 3712. From the time that Bennett acquired title from the state, until January 1, 1947, the title of Bennett and the bond lien were on a parity and the owner of the bond lien had a right to maintain an action for partition. Code Civ.Proc. sec. 752, as amended in 1943; Elbert, Ltd. v. Nolan, 32 Cal.2d 610, 613, 615, 197 P.2d 537.

The sole remedy given the bondholder by the Improvement Act of 1911, as originally enacted, in case of default, was to have the treasurer sell the property in foreclosure of the lien. Stats.1911, p. 730, sec. 67 et seq. The lien was for two years from the date of recording. If it was not foreclosed within two years, it ceased to exist. Stats.1911, p. 730, sec. 23. In 1921 a ‘separate, distinct and cumulative remedy’ was given, whereby the bondholder might bring an action to foreclose the bond. Stats.1921, p. 297, sec. 76. In 1927 section 76 was amended to provide that the action to foreclose the bond could only be filed after six months and not more than four years from the date of the last delinquency. Stats.1927, p. 1411. The time within which the bondholder in the present case could bring an action to foreclose the bond expired long prior to January 1, 1947; but the lien continued to exist and Bennett had a right to bring an action for partition until January 1, 1947. Elbert, Ltd. v. Nolan, 32 Cal.2d 610, 197 P.2d 537; Raisch v. Myers, 27 Cal.2d 773, 167 P.2d 197; Ward v. Chandler-Sherman Corp., 76 Cal.App.2d 373, 172 P.2d 900.

Prior to 1945 Civil Code section 2911 read: ‘A lien is extinguished by the lapse of the time within which, under the provisions of the Code of Civil Procedure, an action can be brought upon the principal obligation.’ In 1945 the section was amended to read:

‘A lien is extinguished by the lapse of time within which, under the provisions of the Code of Civil Procedure, either:

‘1. An action can be brought upon the principal obligation, or

‘2. A treasurer, street superintendent or other public official may sell any real property to satisfy a public improvement assessment or any bond issued to represent such assessment and which assessment is secured by a lien upon said real property; whichever is later.

‘Anything to the contrary notwithstanding, any lien heretofore existing or which may hereafter exist upon real property to secure the payment of a public improvement assessment shall be presumed to have been extinguished at the expiration of four years after the due date of such assessment or the last installment thereof, or four years after the date the lien attaches, or on January 1, 1947, whichever is later, or in the event bonds were or shall be issued to represent such assessment, the lien shall then be presumed to have been extinguished at the expiration of four years after the due date of said bonds or of the last installment thereof or of the last principal coupon attached thereto, or on January 1, 1947, whichever is later. The presumptions mentioned in this paragraph shall be conclusive in favor of a bona fide purchaser for value of said property after such dates.’

In 1945 section 330 was added to the Code of Civil Procedure. Section 330 limited the power of a treasurer, street superintendent, or other public official, to foreclose a public improvement bond to a period of four years after the due date of said bond or of the last installment thereof or of the last principal coupon attached thereto, or prior to January 1, 1947, whichever is later, and provided that sale could not be made thereafter.

The reasons which prompted the 1945 legislation are stated at length in Rombotis v. Fink, 89 Cal.App.2d 378, 390, 201 P.2d 588. Discussing the effect of the amendment of Civil Code section 2911 and the enactment of Code of Civil Procedure section 330, the court in the Rombotis case stated, 89 Cal.App.2d at page 384, 201 P.2d at page 591:

‘The 1945 enactments of the Legislature, however, disclose a complete revisory plan with reference to the duration and extinction of assessment liens. In addition to the enactment of sections 330 and 2911 above quoted, the Legislature amended the Assessment Bond Refunding Act of 1933, * * * the Improvement Act of 1911, * * * the Street Improvement Act of 1913, * * * the Street Opening Act of 1903, * * * the Street Opening Bond Acts of 1911 and 1921 and the Street Opening Act of 1889, * * * to provide, generally, that the lien of bonds or assessments should expire four years from the date of the last installment, whereas theretofore these acts provided variously that the lien should continue ‘until paid’, ‘fully paid’, or provided no duration period. It also amended section 329 of the Code of Civil Procedure to provide a two-year limitation on liens arising under street improvement proceedings taken under other than state laws. In the amendments to the various improvement acts no reference is made to liens already in existence, but in sections 329 and 330 of the Code of Civil Procedure, and in section 2911 of the Civil Code, the Legislature made express and specific provision for the extinction of such liens. These enactments reflect a clear purpose to provide a definite statute of limitations as to all liens arising under special assessments. They constitute a ‘revision of the entire subject’, * * *

‘It is plain from its comprehensive enactments that the Legislature intended to and did provide a definite statute of limitations and a definite period of time upon the expiration of which street improvement liens would be not only unenforceable by foreclosure but also would be presumed to have been extinguished; and further that the Legislature intended its enactments to apply retrospectively, giving the holders of liens which had theretofore attached either four years or until January 1, 1947, whichever was later, in which to take action. The legislation took effect September 15, 1945, thus giving the holders of old liens 15 1/212 months in which to act.’

The court continued, 89 Cal.App.2d at pages 386–392, 201 P.2d at page 592: ‘It is to be noted that the Legislature did not ipso facto extinguish any substantial right. The remedy of foreclosure in court or through sale by a city or county treasurer or other official was preserved by granting what the Legislature deemed a reasonable time after the effective date of the legislation for the bondholder or lienholder to take action. * * * [A]dequate time was allowed any bondholder to preserve any right which he might have. Adequate protection was afforded all who had not in fact abandoned their rights, but had merely delayed in perfecting them. The only rights sought to be extinguished were those where the inference could reasonably be drawn from inaction that the rights had been abandoned. The extinguishment resulted, not from the legislation itself, but from the conduct of the bondholder in continuing to fail to assert his right after due notice. The legislation in question does no more than recognize the logical inference to be drawn from long inaction on the part of the bondholder—that the claim has been paid, abandoned or otherwise extinguished. * * * [U]nder section 2911 of the Civil Code as amended in 1945, the lien is ‘presumed to have been extinguished’, and so far as the plaintiff in the present cause is concerned, the trial court having found him to be a ‘bona fide purchaser for value’, the presumption is ‘conclusive.’ * * * Whatever may be the situation as between the holder of an outlawed bond and the original owner of the property who seeks to avoid payment, a bona fide purchaser is entitled to a decree quieting his title.' The Rombotis case squarely held that Civil Code section 2911 is a statute of limitation.

The principles of the Rombotis case govern the decision of the case at bar. The only difference between that case and this is: In the Rombotis case, the finding that the purchaser of the tax title was a bona fide purchaser for value was not attacked. In this case, plaintiff questions the finding that defendants were bona fide purchasers for value. Elbert, Ltd. v. Nolan, 32 Cal.2d 610, 197 P.2d 537, did not decide that a bond lien continues after January 1, 1947, as that case was decided on facts which arose prior to the 1945 legislation. Thus the question is whether the finding that defendants were bona fide purchasers for value is supported by the evidence.

Defendants purchased the property on January 25, 1947. Defendant Robertson paid Bennett $125 for the deed. In addition, he paid $203.77 for a certificate issued on a foreclosed bond, and $211.30 for miscellaneous fees, a total of $540.07 for a marketable title. He testified that in 1947 the value of the property was $750. Robertson knew at the time he purchased that he was buying a tax title. He had access to a title report with respect to the property which showed the existence of Bond 138. He took into consideration the fact that there were existing bonds against the property, and obtained the opinion of a lawyer before he purchased. He ‘anticipated paying off the certificate’ on the foreclosed bond. He had advice to the effect that it would not be necessary to pay Bond 138.

A bona fide purchaser, within the meaning of section 2911 of the Civil Code, is one who takes in good faith and for value and in reliance on the presumptions afforded by that section. Rombotis v. Fink, supra, 89 Cal.App.2d 378, 392, 201 P.2d 588. A purchaser for value is presumed, prima facie, to be an innocent purchaser in good faith. Fly v. Cline, 49 Cal.App. 414, 423, 193 P. 615. It is evident that defendants were purchasers for value. The title report told defendants that the bond had been issued and that it was unpaid of record. The fact that defendants had actual or constructive notice of the recorded status of the bond does not mean that they were not bona fide purchasers within the meaning of section 2911. To so construe section 2911 would make inoperative the sentence reading, ‘The presumptions mentioned in this paragraph shall be conclusive in favor of a bona fide purchaser for value of said property after such dates', and completely frustrate the purpose of the legislature in enacting the 1945 legislation. The meaning of the phrase ‘bona fide purchaser’, as used in section 2911, cannot be that which is ordinarily given to it. Generally one is not a bona fide purchaser if he has either actual or constructive notice of an outstanding interest, and constructive notice is imparted by the record of muniments of title. All street assessment liens for which bonds were issued under the Improvement Act of 1911 were recorded, and the act provided that the lien continued until it and any bonds issued to represent the assessment were discharged of record. Streets and Highways Code, sec. 5372. All persons are deemed to have notice of the record. Streets and Highways Code, sec. 5373. No one can be a bona fide purchaser if the record is sufficient to impart notice to him of the existence of an unextinguished bond lien. We cannot assume that the legislature did a useless act in creating the conclusive presumption in section 2911. Neither actual nor constructive notice of the record can be considered as showing want of good faith in the purchaser of the property. The lien of a street improvement bond may be extinguished by merger. 10 Cal.Jur. 606, sec. 10. Plaintiff does not assert that defendants had knowledge that the obligation evidenced by the bond and the lien securing the bond were not extinguished. We think the evil to which section 2911 was directed was the inability of a prospective purchaser of the property to ascertain the present existence of the bond and the bondholder and whether the bond has been abandoned or extinguished in fact—as distinguished from the record—, such as acquisition by the original owner, or his successor in interest. Although one may have notice that the bond is unpaid of record, he is, nevertheless, a ‘bona fide’ purchaser within the meaning of section 2911 if he does not have actual knowledge that the lien is existent. The evidence, together with the presumptions afforded by section 2911, supports the finding that defendants were bona fide purchasers for value. The bond lien is conclusively presumed to have been extinguished.

Appellant suggests that inasmuch as defendants knew the bond was unpaid of record, and that a predecessor in interest acquired title through a tax deed, they were under the duty to ascertain whether the lien securing the bond was in fact abandoned or otherwise extinguished. The suggestion is groundless in view of the provision of section 2911 that ‘Anything to the contrary notwithstanding,’ the lien of the bond is ‘presumed to have been extinguished’. A purchaser may rely on that presumption. Rombotis v. Fink, supra, 89 Cal.App.2d 378, 201 P.2d 588.

One of amici curiae argues that the lien was extinguished on January 1, 1947, irrespective of whether defendants were bona fide purchasers for value. In view of the fact that defendants were bona fide purchasers for value, it is unnecessary in this case to decide that question.

Affirmed.

VALLÉE, Justice.

SHINN, P. J., and WOOD, J., concur.