CULLINAN v. GREY (1940)

The defendant, City of Glendale, has appealed from a judgment foreclosing liens, represented by bonds, for street improvements, owned by the plaintiff, D. Cullinan, and by the cross-complainant, Gertrude Ham, to secure payment for work performed on San Fernando road in Los Angeles county under the Street Improvement Act of 1911. Stats. of 1911, p. 730; 2 Deering's Gen.Laws of 1937, p. 3674, Act 8199. It was held that bonds subsequently issued and held by the City of Glendale, to secure levies of assessments against the same land for the same purpose, but issued under the Street Opening Act of 1903, Stats. of 1903, p. 376, 2 Deering's Gen.Laws of 1937, p. 3650, Act 8198, are subject to the said liens held by the plaintiff and Gertrude Ham.

It is claimed by the appellant that its bonds which were subsequently issued under the Street Opening Act of 1903 are nevertheless entitled to priority over the bonds previously issued and held by the plaintiff and Gertrude Ham.

The cause was presented on a written statement of facts, which, upon every material issue, supports the allegations of the complaint of the plaintiff and the cross-complaint of Gertrude Ham.

The stipulation of facts shows that the plaintiff is the owner of three street improvement bonds of the series numbered 124, issued by the City of Glendale, September 25, 1926, under the Street Improvement Act of 1911, to secure liens against lots Nos. 19 and 31, tract 4646, and lot No. 13 of tract 4280 of Los Angeles county, for the improvement of San Fernando road, portions of which bonds remain unpaid; that said bonds were issued pursuant to assessments regularly and lawfully made for street work, and that they were first created as valid liens against said lots; that the cross-complainant, Gertrude Ham, is the owner of one bond of series No. 194, issued March 20, 1928, by said City of Glendale under the same Street Improvement Act of 1911, to secure a lien against lot No. 19, tract 4646 of Los Angeles county, for street work on San Fernando road, created by the levy of assessment therefor, and which was recorded as a first lien on said lot 19, subject only to the said liens held by the plaintiff; that the defendant, City of Glendale, is the owner of three street improvement bonds, Nos. 10, 11 and 23 of series 239, issued October 24, 1929, incident to levies of assessments for work on the San Fernando road, under the Street Opening Act of 1903, which liens were registered subsequently to the bonds secured by liens held by both the plaintiff and Gertrude Ham.

Based on the written stipulation of facts, judgment was rendered against the City of Glendale, determining that its bonds, which were issued incident to valid assessments for street improvements, created liens subject to those which were previously created on the same property in favor of the plaintiff and the cross-complainant, Gertrude Ham. From that judgment this appeal was perfected.

The sole question to be determined is whether the statutes created liens for street improvements on the same property, which should be given force and effect in the reverse order in which they were originally created. In other words, should the liens of the appellant, which were created last, take precedence over those of the plaintiff and the cross-complainant, which were previously created?

The appellant's lien was created September 21, 1929, by a levy of assessment for street improvements under the Street Opening Act of 1903. Its bonds, which are secured by that levy, were issued under the Improvement Bond Act of 1911. (Stats.1911, p. 1192.) Section 6 of the Bond Act, upon which the appellant relies in support of its contention that its bonds are entitled to priority over those of the plaintiff and Gertrude Ham, reads as follows: “Improvement bonds issued hereunder shall by their issuance be conclusive evidence of the regularity and validity of all proceedings thereto. The amount due upon any such bond shall be a lien upon the lot described in such bond superior to all other liens, charges, and encumbrances except the liens of prior assessments and of municipal, state and county taxes.”

The plaintiff's bonds were issued September 25, 1926. The cross-complainant's bonds were issued March 20, 1928. The bonds of both the plaintiff and the cross-complainant were issued prior to those belonging to the appellant. In 1927, the Street Improvement Act of 1911, which was in effect when the appellant's liens in question were created, was amended. This amendment occurred before the appellant's lien was created. Section 23 of the Act of 1911, as amended in 1927, Stats.1927, p. 1406, provides in part: “Said warrant, diagram and assessment, shall be recorded in the office of said superintendent of streets. When so recorded the several amounts assessed shall be a lien upon the lands, lots, or portion of lots assessed, respectively, and such lien shall so continue until it be discharged of record. Such lien shall be subordinate to all special assessment liens previously imposed upon the same property, but it shall have priority over all special assessment liens which may thereafter be created against the said property.

The preceding language of the amendment of 1927 gives all liens for street improvements priority over liens which are thereafter created. Since the lien for which appellant's bonds were issued was created after that amendment went into effect, and the plaintiff's bonds were given to secure liens created before that time, it necessarily follows that the plaintiff's bonds have priority over the appellant's bonds. Thompson v. Clark, 6 Cal.2d 285, 298, 57 P.2d 490.

It has been frequently held that a street assessment is a contract, and that the provisions of a statute then in force are necessary parts of that contract. Chapman v. Jocelyn, 182 Cal. 294, 187 P. 962; Welsh v. Cross, 146 Cal. 621, 81 P. 229, 106 Am.St.Rep. 63, 2 Ann.Cas. 796.

The Street Opening Act, under which the appellant's liens were created, contains no language which may be construed as granting priority over previous unsatisfied liens under the circumstances of this case. Section 20 of that act merely provides that after the assessment has been approved by the city council the superintendent of streets shall record the assessment and diagram in his office, from which date of recording “each of such assessments shall be a lien upon the property against which it is made”. Nor does the act of 1911, under which the appellant's bonds were issued, contain language which may be construed to grant its bonds priority over previous liens. In fact, section 6 of that act specifically excepts “the liens of prior assessments”. The plaintiff's and cross-complainant's liens were certainly based on prior assessments against the same land for the same purpose of street improvements.

Section 66 of the Street Improvement Act of 1911, under which the respondent's liens attached, and incident to which his bonds were issued, provides that when bonds are so issued “said assessment shall be a first lien upon the property affected thereby until the bond issued for the payment thereof, and the accrued interest thereon, shall be fully paid.” That language of the statute clearly created a “first lien” upon the land, to secure payment of the assessment “until the bond * shall be fully paid”. Liens are either general or special in character. Sec. 2873, Civ.Code; 16 Cal.Jur. 298, sec. 5. All liens which are involved in this action are special in nature since they were created by statute to secure particular street improvements. It is apparent the legislature used the words “first lien” to indicate that it should be prior to all liens subsequently created “until the bonds shall be fully paid”. To hold that a subsequent lien would supersede one specifically declared to be a “first lien” until the obligation was fully paid would nullify the meaning of the language employed. When a person agrees to furnish a first mortgage lien to secure a debt, unquestionably he guarantees that the lien shall be prior to all others. Appeal of Green, 97 Pa. 342, 347.

In 1921, section 23 of the Act of 1911 was amended (Stats.1921, p. 292) to provide that the assessments so imposed should become liens “subordinate to all special assessment liens previously imposed upon the same property, but it shall have priority over all special assessment liens which may thereafter be created against the said property”. In 1927, section 23 was again amended, Stats.1927, p. 1406, to eliminate the two-year limitation of the lien. It provided that “such lien shall so continue until it be discharged of record. Such lien shall be subordinate to all special assessment liens previously imposed upon the same property, but it shall have priority over all special assessment liens which may thereafter be created against the said property.” Section 66 of the Improvement Act of 1911, with respect to the creation of a lien to secure the payment of bonds which are issued incident to the levy of street assessments, has never been amended. It remains exactly as it was in 1911 when it provided that “said assessment shall be a first lien * until the bond issue * shall be fully paid”. The 1927 amendment of section 23 of the act was created in 1929, and we assume it would be bound by the law as it then existed. In any event, the provisions of section 66 of the Act of 1911 has been in force during the entire time involved in this case. That section created a first lien in favor of the respondent's bonds, until they are fully paid. Certainly, under such circumstances, it may not be said the appellant is entitled to a lien prior to those which were previously created in favor of the respondent. The language of the statute precludes that contention.

In support of its assertion that the rule of the validity of liens to secure special street assessments should be enforced in inverse order with respect to the time when they are created, numerous cases are cited by the appellant, among which are Woodill & Hulse Elec. Co. v. Young, 180 Cal. 667, 182 P. 422, 5 A.L.R. 1296; Balaam v. Pac. State Savings & Loan Co., 219 Cal. 612, 28 P.2d 1053, and Neary v. Peterson, 1 Cal.2d 703, 37 P.2d 82. We are of the opinion that rule is not applicable to the facts of this case because the reasons for invoking it are not present, and it is contrary to the language of the statute with respect to such liens. The amendment in 1927 of section 23 of the Street Improvement Act of 1911, and the provisions of section 66 of that act with respect to bonds leaves no room for the application of the inverse order rule.

The doctrine which recognizes the validity of tax liens in inverse order with respect to the time when they are created, in the absence of statutes to the contrary, is founded on the theory that liens for general assessments of taxes are superior to special levies for particular purposes because of the paramount necessity of levying taxes to maintain the government, or that liens for street improvements which enhance the value of the property should have preference over previous liens which do not benefit the property. We assume that when the reasons for that rule are absent the rule should not apply, and that the doctrine of inverse order of liens would not then be enforced. In the present case the question of priority of liens for general taxes to maintain the government is not involved. All of the liens which are involved in this suit were created to secure obligations to pay for street improvements on the same property. Nor does the application of the rule of priority apply because of the enhancement of the value of the property improved. That reason applies with equal force to each of the liens in the present case, for each of them was created to secure special assessments for street improvements. We may not assume that the last assessment would enhance the value of the property more than any of the prior assessments which were made for the same purpose. We are of the opinion the rule of enforcing liens in inverse order with respect to the time when they are created has no application to the circumstances of this case.

The judgment is affirmed.

Mr. Justice THOMPSON, delivered the opinion of the court.

We concur: PULLEN, P.J.; TUTTLE, J.