MEYER v. STATE BOARD OF EQUALIZATION

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District Court of Appeal, Third District, California.

MEYER et al. v. STATE BOARD OF EQUALIZATION.*

Civ. 8193.

Decided: April 29, 1953

Edmund G. Brown, Atty. Gen., James E. Sabine, Irving H. Perluss and Norman B. Peek, Deputy Attys. Gen., for appellant. Anthony J. Kennedy, Sacramento, for respondents.

Plaintiffs, H. L. E. Meyer, Jr., and Bess Taylor Meyer, doing business as H. L. E. Meyer, Jr., & Co., commenced an action against defendant State Board of Equalization to recover the amount of sales tax paid on certain transportation charges on coke. The trial court rendered judgment in favor of plaintiffs in the sum of $2,452.35 with interest. Defendant Board of Equalization has appealed from said judgment.

The facts are not in dispute and are substantially as follows:

Plaintiffs Meyer had paid to the State Board of Equalization a sales tax on gross receipts arising from sales of coke by Meyer to various companies throughout the state, from April 1, 1943, to and including March 31, 1946. Meyer had not included transportation charges incurred in shipping the coke as part of the gross receipts. Revenue and Taxation Code section 6012 includes as a part of taxable gross receipts, which is the measure of the sales tax, ‘(c) The cost of transportation of the property prior to its sale to the purchaser.’ The Board determined that these transportation charges were subject to the measure of the sales tax and made a determination assessing an additional sales tax against Meyer for this reason. Meyer paid the tax and, after exhausting their administrative remedy, then filed a complaint for recovery of sales tax. For the purpose of that action, the parties stipulated that a sale of coke to the General Metals Corporation of Oakland, California, was representative of the sales made to other purchasers during the taxable periods involved. The facts of that transaction were as follows: General Metals gave Meyer a purchase order for coke. A ‘coke sales contract’ was issued by Pickands, Mather & Co., agents for Interlake Iron Corporation as seller, to Meyer as buyer, with General Metals named as consignee. The seller shipped 65,020 pounds of coke from South Chicago, Illinois, to the consignee under a uniform straight bill of lading, the original of which, together with weight certificate and invoice, were sent to Meyer; the invoice recited that 65,020 pounds of coke had been sold to Meyer ‘F.O.B. Cars Oakland, California, Transportation Charges Collect and Allowed.’ Meyer then prepared their own invoice and sent it to General Metals together with the original bill of lading and weight certificate; this invoice showed that Meyer had sold 65,020 pounds of coke to General Metals, and was in the amount of $752.28, computed at ‘$23.10 per 2,000# (pounds) for car Oakland, Calif. Transportation charges collected and allowed’; a deduction of $328.35 for freight was allowed, leaving a balance of $423.93 to which was added a $5.83 charge for sales tax, making a total of $429.76.

The trial court found, in part, that Meyer at no time either had or transferred possession or title to the coke, and that Meyer collected from General Metals and remitted to Pickands the purchase price of the coke exclusive of transportation charges. The conclusions of law below were that Meyer had acted as brokers, that they did not make a sale of the coke within the meaning of the Sales and Use Tax Law, Revenue and Taxation Code, section 6006, that the assessment by the Board constituted an unlawful burden on interstate commerce and that the transportation charges upon which the assessment had been based were exempt from sales or use taxation under the provisions of section 6352 of the Revenue and Taxation Code. Judgment was entered granting plaintiffs the refund they sought. The documents covering the representative sale to General Metals together with the pleadings and exhibits constitute the record on appeal.

In contending that the judgment should be reversed appellant Board of Equalization makes three major contentions:

‘I. Meyer made a taxable sale within the meaning of the Sales and Use Tax Law, and the holding of the trial court that Meyer acted as a broker in this transaction is erroneous.

‘II. The imposition of the tax was not a burden on interstate commerce, and the holding of the trial court to the contrary was erroneous.

‘III. Title to the coke passed from Meyer to General Metals at the point of delivery and the transportation charges properly were included in the measure of the tax.’

Appellant first urges that respondents made a taxable sale and that the trial court's holding that they were brokers is erroneous. Revenue and Taxation Code section 6006, in so far as here material, defines a ‘sale’ as ‘Any transfer of title or possession * * *.’ Appellant points to the coke sales contract between Pickands and Meyer as showing that Pickands agreed to sell and the Meyers agreed to buy; the Meyers were described as the buyer; the Meyers were obligated to buy, receive and pay for the coke. Pickands' invoice to Meyer stated: ‘Sold to H. L. E. Meyer, Jr. & Company’; Meyer's invoice to General Metals recites the phrase ‘Bought of H. L. E. Meyer, Jr. & Co.’ Further, appellant points out that there were no dealings between Pickands and the consignee General Metals, because Pickands sent the original bill of lading, weight certificate and invoice to Meyer, whereupon Meyer sent the bill of lading, weight certificate and their own invoice to General Metals. Respondents in no way brought the shipper and consignee together so that they contracted among themselves. Appellant contends that the facts do not support respondents' position that the sale was by the shipper Pickands to the consignee General Metals because the shipment was pursuant to the contract between Pickands and Meyer, and that in so far as Pickands was concerned, delivery to General Metals was delivery to Meyer. The authority relied upon by appellant is Graybar Electric Co. v. Curry, 1939, 238 Ala. 116, 189 So. 186, affirmed per curiam 308 U.S. 513, 60 S.Ct. 139, 84 L.Ed. 437, rehearing denied 308 U.S. 638, 60 S.Ct. 259, 84 L.Ed. 530, which involves facts almost identical with those here in that Graybar, upon receipt of a purchase order, would order the goods from the manufacturer consigned to the customer, the manufacturer would send its invoice to Graybar and Graybar would send its own invoice to the customer; the manufacturer billed Graybar and Graybar paid the manufacturer; Graybar billed the customer and the customer paid Graybar. The transaction was held to be a taxable sale, both Graybar and the customer being Alabama concerns, although the manufacturer was out of state. In the course of its opinion the Supreme Court of Alabama said, 189 So. at page 190:

‘These goods were ordered by the customers in Alabama, from the complainant in Alabama, for consumption here. In the orders the cost price of the goods which the customers were to pay was stated and fixed, and agreed on, in each order. These orders were accepted by the complainant in Alabama, and carried with them the agreement that the goods were to be delivered to the purchasers in Alabama. It was no benefit to the purchasers that the goods were to be shipped ‘in interstate movement’ for the reason that the price of the goods would be the same, whether shipped ‘in interstate movement’ or not. Evidently this provision as to ‘interstate movement’ was to preclude, if possible, the imposition of a sales tax on the goods in Alabama. The transactions were Alabama sales within the provision of the Alabama Sales Tax Law. The form or language of the customers' orders cannot affect the case.'

Respondents in reply assert that it was established by the pleadings that, for tax purposes, they were not the sellers. They point out that Paragraph VIII of the complaint alleged: ‘That said sales were made by Pickands Mather & Co., Cleveland, Ohio, as agent for Interlake Iron Corporation, South Chicago, Illinois, and plaintiffs as broker to purchasers in California.’ They point out further that this allegation was admitted by the answer by failure to deny it, although specifying other paragraphs as being denied in whole or in part.

This contention cannot be sustained. It appears from the record that after the cause was argued and briefed the court in its memorandum opinion granted appellant permission to file an amendment to its answer and a fourth paragraph was added to the answer reading as follows: ‘Admits the allegations contained in Paragraph VIII of said complaint, save and except that defendant denies generally and specifically each and every allegation of said Paragraph VIII of said complaint commencing with the word ‘plaintiffs' in line 4, page 3, of said complaint, and ending with the word ‘California’ in line 5, page 3 of said complaint.' By this amendment appellant traversed the allegation in the complaint that plaintiffs were brokers, but respondents argue that since the trial was had on September 7, 1951, upon a stipulation of facts executed on August 29, 1951, the amendment to the answer on November 27, 1951 is ineffective to change the facts established by the pleadings. However, an examination of the stipulation of facts discloses no admission or statement that respondents were acting as brokers and it is clear that no such admission could have been intended by appellant or they would not have contested the action. The failure to deny it in the original answer was undoubtedly an oversight and when appellant's attention was called to it in the argument or briefs before the trial court permission to file the amendment was sought and was granted by the court. Respondents now claim that: ‘It would indeed be a treacherous jurisprudence which permitted a party to lure his adversary to trial upon a stipulation of facts through admissions made in the pleadings and after trial withdraw those admissions so as to leave his adversary short of proof on what then became an issue. Our jurisprudence is not of that order.’ However, counsel for respondents could and should have moved to reopen the case for further testimony, although it is difficult to conceive how further testimony could have changed the documentary evidence.

As this Court said in Jackson v. Pacific Gas & Electric Co., 95 Cal.App.2d 204 at page 211, 212 P.2d 591, at page 595:

‘We think the correct rule with respect to reference to former pleadings which have been substituted by amended pleadings filed by leave of court is that the abandoned and substituted pleadings may be considered only for certain limited purposes, but not to bind the pleader to an untrue an erroneous admission against interest which was inadvertently contained therein, but which has been subsequently disavowed and corrected in an amended pleading filed by leave of court, in which, or accompanying which, satisfactory explanation is made of the reason which caused the original erroneous statement. Otherwise, it would be useless and futile to correct an innocent mistake of fact by stating the truth with respect thereto and explaining the cause of the erroneous statement. The primary function of our courts of justice is to ascertain the truth and real facts of a case and to administer justice accordingly. If courts were to bind litigants to inadvertent untrue statements of facts and forbid them the inherent right to correct the false by substituting the true facts, they would become partisans to miscarriages of justice.’

And as we said in Feigin v. Kutchor, 105 Cal.App.2d 744 at page 747, 234 P.2d 264, at page 267:

‘Plaintiff argues also that the trial court erred in permitting the filing of defendant's Second Amendment to Answer denying plaintiff's right to possession, but there is no merit in this contention, for as stated in 21 Cal.Jur. 193. ‘A court may, in its discretion, permit amendment of pleadings * * * after evidence is all in, pending argument of counsel, and even after submission of the cause. It is unusual to find it necessary to amend the complaint after a case has been submitted, but there is, under the power given by section 473 of the Code of Civil Procedure, no limitation as to the time before judgment entered when the power of the court ceases.’ And as stated in Andrus v. Smith, 133 Cal. 78, at page 81, 65 P. 320, at page 321: ‘The court did not err in allowing plaintiff to amend her complaint after the cause was tried and submitted, but before findings had been filed or judgment given. The submission was set aside, and defendant allowed to answer the amended complaint and to introduce further evidence. This was the correct practice, and was in furtherance of justice, and for the purpose of having the case disposed of upon its merits.’ And in Burrows v. Burrows, 18 Cal.App.2d 275, at page 279, 63 P.2d 1135, at page 1136, the court said: ‘Under the provisions of section 470 of the Code of Civil Procedure, the trial court is invested with discretionary power to permit and even to order the pleadings of the parties to be amended at any stage of the trial of the cause, and even after its submission, so as to make such pleadings conform to the proofs; and it has been uniformly held that this discretion will not be interfered with upon appeal except in cases of its manifest abuse.’ (Citing cases.) See, also, Valencia v. Shell Oil Co., 23 Cal.2d 840, 848, 147 P.2d 558.

‘* * * A trial is more than a contest between opposing counsel, and a trial judge is more than an umpire in a battle of wits between opposing counsel. The administration of justice is not improved by slavish adherence to technical rules of pleading, but counsel and court should cooperate in having the pleadings so shaped that the controversy between the parties litigant may be fully and fairly determined upon its merits and in accordance with substantial justice.’

Appellant next attacks the conclusion of the trial court that the imposition of the tax involved in the instant case was an unlawful burden upon interstate commerce in violation of Article I, section 8, clause 3, of the Constitution of the United States.

Appellant contends that the transaction was between a California seller (respondents) and a California buyer (General Metals, the consignee), and that under such circumstances the fact that the coke was shipped from outside of California is immaterial. Appellant cites Wiloil Corporation v. Com. of Pennsylvania, 294 U.S. 169, 55 S.Ct. 358, 79 L.Ed. 838, in which it was held that a gallonage tax imposed by a state upon a distributor of liquid fuel is not rendered repugnant to the commerce clause of the Federal Constitution by the fact that the distributor caused fuel sold to customers in the State to be shipped from another state for delivery in tank cars on the purchaser's siding as agreed. In that case the court said, 294 U.S. at page 174, 55 S.Ct. at page 359, 79 L.Ed. at page 840:

‘* * * The precise question is whether the mere fact that appellant caused the fuels to be shipped from Delaware for delivery in tank cars—deemed original packages (Askren v. Continental Oil Co., 252 U.S. 444, 449, 40 S.Ct. 355, 64 L.Ed. 654 [659]—on purchasers' sidings as agreed makes imposition of the tax repugnant to the commerce clause. There is nothing to indicate legislative purpose to discriminate against liquid fuels brought into Pennsylvania to be delivered in fulfillment of sales contracts or there to be used or sold. The commerce clause does not prevent taxation of goods by the state in which they are found merely because brought from another state, for that would unduly trammel state power of taxation and produce gross inequality and injustice. Woodruff v. Parham, 8 Wall. 123, 137, 19 L.Ed. 382 [386].’

And in the Graybar case, supra, the court said, 189 So. at page 190:

‘It is not ‘within the power of the parties by the form of their contract to convert what was exclusively a local business, subject to state control, into an interstate commerce business, protected by the commerce clause.’ Superior Oil Co. v. State of Mississippi ex rel. Rush H. Knox, Attorney General, 280 U.S. 390–396, 50 S.Ct. 169, 170, 74 L.Ed. 504; Browning v. [City of] Waycross, 233 U.S. 16, 23, 34 S.Ct. 578, 58 L.Ed. 828–832.

‘The facts of the case must determine whether it falls within the protection of the commerce clause of the Federal Constitution, and not the words of the contract. The desire to make its act an act in commerce among the states is unimportant, when the facts show it to be otherwise.’

We are unable to agree with respondents' contention that there was no contract between themselves and General Metals, or that ‘all that took place in California was the placing by General Metals Corporation of a purchase order with respondents.’ Nor can we agree with respondents' contention that the various invoices involved did not create a contract, or that the transaction was entered into by a broker on behalf of his principal and formed a contract between the seller and principal, thus necessarily involving interstate commerce. Indeed, if respondents were merely brokers in the transaction it is difficult to understand why they would pay the sales tax on the coke itself, and yet they paid that tax without protest. As we analyze the various documents relating to the transaction, it was one between a California seller (respondents) and a California buyer (General Metals). Respondents by reason of their coke sales contract purchased the coke from Pickands and resold it to General Metals in California. The taxable sale here involved was made between respondents and General Metals, both of whose activities were localized and centered in California and the fact that the coke was shipped from without the state was immaterial.

Appellant's final contention is that title to the coke passed from respondents to General Metals at the point of delivery and the transportation charges were properly included in the tax. Respondents in reply contend that the tax is invalid because, they assert, it was levied upon transportation charges, separately stated, which accrued after sale.

Under the Sales and Use Tax Law the measure of the sales tax is the gross receipts of a retailer from the sale of tangible personal property. Bigsby v. Johnson, 1941, 18 Cal.2d 860, 863, 118 P.2d 289, 291.

Section 6012 of the Revenue and Taxation Code provides in part that:

“Gross receipts' mean the total amount of the sale * * * price, * * * without any deduction on account of any of the following:

‘(c) The cost of transportation of the property * * * to its sale to the purchaser.’

This section further provides that:

“Gross receipts' do not include any of the following:

‘(g) Transportation charges separately stated, if the transportation occurs after the sale of the property is made to the purchaser.’

Thus, whether these transportation charges are properly includible within the measure of the tax depends on where title to the coke passed.

In general, the cases dealing with the question of passage of title usually are concerned with the interpretation of a contract of sale or contract to sell. However, respondents and General Metals never entered into any express contract to sell. It would seem that there was merely an offer (purchase order) to buy a certain amount of coke. See Harvey v. Duffey, 1893, 99 Cal. 401, 406, 33 P. 897, 899; Imported Liquors Co. v. Los Angeles Liquor Co., 9 Cir., 1945, 152 F.2d 549. The only way this offer could be accepted was by delivery of the coke to General Metals. Title to the coke could not as a matter of elementary contract law pass until delivery. See Auto Spring Repairer Co. v. Mutual Auto Accessories Co. of America, 1911, 72 Misc. 402, 130 N.Y.S. 140. While perhaps respondents might be able to show an implied contract to sell or an acceptance of the offer of General Metals by the purchase of the coke from Pickands and consignment to General Metals, nevertheless the fact that no express contract to sell was entered into by the parties indicates that they never intended title to pass until the coke was actually received.

However, even assuming that there existed a contract by which respondents agreed to sell to General Metals, title and not pass until the goods were delivered to General Metals.

Rule 5 of Section 1739 of the Civil Code provides as follows: ‘If the contract to sell requires the seller to deliver the goods to the buyer, or at a particular place, or to pay the freight or cost of transportation to the buyer, or to a particular place, the property does not pass until the goods have been delivered to the buyer or reached the place agreed upon.’

It immediately is apparent that this case falls precisely within Rule 5 of Section 1739, because the contract between the parties required delivery of the coke in Oakland.

Thus, the purchase order of General Metals given to respondents contained instructions to ship to ‘Iron Plant’ at ‘701–105th Ave., Oakland 3, California;’ the invoice from Pickands to respondents is for $32.51 ‘Net Tons Chicago Solvay Foundry Coke At $22.10 Per Ton F.O.B. Cars Oakland, California, Transportation Charges Collect And Allowed:’ and the invoice from respondents Meyer to General Metals is for ‘65,020 lbs.’ of coke at $23.10 per 2,000# (pounds) fob car, Oakland, Calif. Transportation charges collected & allowed.'

That this evidence demonstrates that title passed from Meyer to the purchaser at the delivery point is supported by the general rule applicable to f. o. b. shipments: ‘Where the contract provides for a sale f. o. b. the point of destination, the title is generally held not to pass, in the absence of a contrary intention between the parties, until the goods have been delivered at the point designated.’ 46 Am.Jur., Sales, sec. 442, p. 609. This rule was adversely applied to State of California in the case of Standard Oil Co. v. Johnson, 1944, 24 Cal.2d 40, 45, 147 P.2d 577, 580, wherein the court stated:

‘Whether or not delivery to a carrier constitutes delivery to the buyer depends upon the intention of the parties as ascertained from the contract and the other circumstances of the case, and ordinarily, unless a contrary intent appears, where the seller contracts to deliver goods at a given destination and he delivers them to a carrier consigned to the buyer with freight charges paid by the seller (f. o. b. point of destination), the delivery to the carrier does not constitute delivery to the buyer and title does not pass until the goods have arrived at their destination.’

We are satisfied that the record clearly shows that the title to the coke passed from respondents to General Metals at the point of delivery in California and that the transportation charges were incurred prior to the passage of title and were properly a part of the ‘gross receipts' and subject to the sales tax.

In view of the foregoing we conclude that the court erred in determining: (1) That respondents acted as brokers instead of sellers; (2) That the assessment of the tax was an unlawful burden upon interstate commerce; and (3) That the transportation charges upon which the assessment was based were exempt from sales or use taxation under Section 6352 of the Revenue and Taxation Code.

The judgment is reversed.

SCHOTTKY, Justice.

VAN DYKE, P. J., and PEEK, J., concur.