HISE BUILDING AND LOAN COMMISSIONER v. MCCOLGAN FRANCHISE TAX COMMISSIONER (1943)

From a judgment in favor of plaintiff after trial before the court without a jury in an action to recover a franchise tax paid under protest, defendant appeals.

The stipulated facts are:

The Marine Building & Loan Association was duly incorporated and licensed to do business as a building and loan association in the State of California. In 1933, the California State Building & Loan Commissioner, deeming the Marine Building & Loan Association to be in an unsafe financial condition, took over the association and proceeded to liquidate its property, business, and assets.

Defendant, as Franchise Tax Commissioner of the State of California, assessed a franchise tax against the aforesaid building and loan association for the year 1938, in the sum of $250.55. The tax plus interest was paid under protest.

It is necessary for us to determine two questions, which will be stated and answered hereunder seriatim.

First: Are the operations of the State Building and Loan Commissioner in liquidating a building and loan association within the purview of section 4(1), of the Bank and Corporation Franchise Tax Act of California (Act 8488, 2 Deering's General Laws of California 1937, page 3852)?

This question must be answered in the negative. The Building and Loan Commissioner of California derives his power entirely from the provisions of the Building and Loan Association Act. (Act 986, 1 Deering's General Laws of California 1937, page 538.) This act creates the office of Building and Loan Commissioner and, among other things, provides that if it shall appear to the commissioner that any building and loan association is in an unsafe condition or conducting its business in an unsafe or injurious manner such as to render its further proceedings hazardous to the public or to any or all of its investors, the commissioner may forthwith demand and take possession of the property, business, and assets of such association and retain such possession until such association shall, with the consent of the commissioner, resume business or until its affairs be liquidated. (Act 986, section 13.11, 1 Deering's General Laws of California 1937, page 599.)

It is under the foregoing provisions of the Building and Loan Association Act that plaintiff assumed control of the Marine Building and Loan Association. It is stipulated that he retained possession thereof until the affairs of the association were liquidated.

The tax authorized under section 4(1), of the Bank and Corporation Franchise Tax Act, supra, is a tax levied upon financial corporations actively engaged in doing business for the privilege of exercising their corporate franchises within this state.

When the Building and Loan Commissioner exercises the authority conferred upon him by the provisions of the Building and Loan Association Act, supra, to take possession of the property, business, and assets of a building and loan association, the building and loan association's franchise to do business is thereby suspended. (Cf. Mercantile Trust Co. v. Miller, 166 Cal. 563, 569, 137 P. 913. This case was one where the superintendent of banks, under the authority of the California Bank Act, took over the liquidation of a bank and our Supreme Court held that by so doing the bank's franchise to do business was suspended. The Bank Act contained provisions substantially similar to those of section 13.11 of the Building and Loan Association Act, supra.)

It is evident that whatever action plaintiff as Building and Loan Commissioner took in liquidating the affairs of the Marine Building and Loan Association was taken as a public officer performing his statutory duty (Richardson v. Superior Court, 138 Cal.App. 389, 392, 32 P.2d 405) and such action was not taken pursuant to the franchise of the corporation to do business as a building and loan association, since such franchise was suspended by the very act of plaintiff in taking over the affairs of the association.

It follows that defendant improperly levied a tax under the provisions of section 4(1) of the Bank and Corporation Franchise Tax Act of California, supra, and that plaintiff, having paid the same under protest, was entitled to a judgment for the amount thereof.

People v. Richardson, 37 Cal.App.2d 275, 99 P.2d 366, cited and relied on by defendant, is factually distinguishable from the instant case. In People v. Richardson the court pointed out that the superintendent of banks had appointed a conservator for the bank of San Pedro under the provisions of section 135b et seq. of the Bank Act (Statute 1933, page 319, Deering's General Laws, Act 652) and had not taken over the affairs of the bank in the capacity of a liquidator, pursuant to the provisions of section 136 et seq., of the Bank Act, supra. The court stressed the fact that the bank had engaged in business through the conservator, thus making it liable for payment of the franchise tax.

In the case before us the Building and Loan Commissioner took over the affairs of the Marine Building & Loan Association as a liquidator, and after the take over he alone conducted the affairs of the association until it was liquidated. Hence it is evident that due to the factual difference in the cases, People v. Richardson, supra, is not here in point.

Second: Even though the Franchise Tax Act was not applicable in the present case, was plaintiff's recovery barred because he had not paid either a) an income tax as trustee of the assets of the Marine Building and Loan Association, or b) a corporation income tax for said association?

This question will not be considered by us for the reason that the law is established in this state that an appellate court will not consider a theory of a case different from that urged in the trial court, and which theory is presented for the first time on appeal. (Title Insurance & Trust Company v. Graham, 44 Cal.App.2d 660, 662, 112 P.2d 935, and cases therein cited.)

Applying the foregoing rule to the facts of the present case, defendant did not plead by way of counterclaim the right to collect from plaintiff an income or corporation tax. Neither did he in any other way present nor urge to the trial court the defense which he is now pressing in this court. The soundness of the rule here applied is well illustrated by this case, for the reason that we have no record before us from which we could determine the amount of income or corporation tax due defendant from plaintiff. As far as the record before us discloses plaintiff does not owe defendant any tax.

For the foregoing reasons the judgment is affirmed.

McCOMB, Justice.

W. J. WOOD, J., concur. MOORE, P. J. dissents.