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ISLAIS CO., Limited, v. MATHESON, City and County Treasurer.a1
Application for writ of mandate to compel respondent to accept a certain sum of money in full payment of an assessment levied for reclamation purposes. Petitioner filed four petitions for writs against respondent, with the Supreme Court, which have been referred to this court for hearing. In addition thereto it has filed three petitions with this court. In every one of the seven petitions the points raised are substantially the same.
Petitioner is the owner of a number of tracts of land situated within the Islais Creek Reclamation District. The district caused an assessment to be levied on June 29, 1928, in the sum of $1,620,150. Thereafter the property owners of the district voted for the issuance of bonds in the amount of the assessment, which were subsequently sold. The bonds were issued and disposed of pursuant to the provisions of section 3480 of the Political Code as amended in the year 1927. In order to meet the payments for principal and interest on the bonds maturing January 1, 1934, respondent treasurer of the city and county of San Francisco, who is ex officio treasurer of the district, made a call for an installment of the assessment. By its terms the installment became payable within thirty days from October 1, 1933, and if not paid became delinquent October 31, 1933. None of the installments on the seven tracts were paid and thereafter, on December 7, 1933, they were sold by respondent to the treasurer of the city and county of San Francisco and his successors, as trustees of the district, for the amount of the call with accrued interest thereon at 7 per cent. to the date of sale, together with a penalty of 20 per cent. computed on both the amount of the call and interest to the date of sale. These sales and the totals for which the tracts were sold were in accordance with the provisions of section 3480 of the Political Code as amended in 1927 (St. 1927, p. 1449, c. 759, § 2) in force when the bonds were issued and sold.
In 1931, section 3480 of the Political Code was amended (St. 1931, p. 754, c. 317, § 6). By the amendment it was provided that in case of called assessments becoming delinquent, the moneys owing after the delinquency should be only the amount of the installment with a penalty thereon of 10 per cent., and the interest rate was reduced from 12 to 7 per cent. The amendment also provided in express terms that it should “apply to all sales for delinquencies, and the proceedings had in connection therewith, on all assessments heretofore or hereafter to be levied.” In 1933 the Legislature again amended section 3480 of the Political Code (St. 1933, p. 1211, c. 472, § 4). The amendment of 1931 with reference to the reduction of the amount of the penalty and the interest on all assessments was re-enacted or carried into the 1933 amendment, and section 8 of this amendment further provided: “This act is hereby declared to be an urgency measure within the meaning of section 1, article IV of the Constitution of the State of California, and it is deemed necessary for the immediate preservation of the public peace, health and safety that this law shall go into effect immediately.”
In the various tracts involved in the several proceedings petitioner, in seeking to redeem from the delinquency of the installments, tendered to the treasurer of the district the amount of the call plus a penalty of 10 per cent. thereon, in conformity with the provisions of the amendments, and made a demand upon the treasurer to accept the sum in full payment of the amount of the delinquent taxes. The tender was refused and these proceedings followed. The petitioner in all seven of its petitions is relying upon the effectiveness of the changes made to section 3480 of the Political Code, as above referred to, to support his tender. Respondent seeks to justify his refusal of the tender upon the ground that the provisions of the amendments of 1931, and re-enacted in the amendments of 1933, to section 3480 of the Political Code, decreasing the penalty on reclamation calls, eliminating interest from the date of delinquency to the date of sale and decreasing the rate of interest required to be paid on redemption, are violative of section 10 of article 1 of the Constitution of the United States and section 16 of article 1 of the Constitution of California, forbidding the impairment of the obligation of contracts, since said amendments it is claimed materially alter the contract existing between the district and its bondholders. This argument is based upon the premise that at the time of the levy of the assessment and the issuance, sale, and delivery of the bonds, the 1927 amendment to section 3480 of the Political Code was in force. This amendment, as above stated, fixed the delinquency penalty at 20 per cent.; and the interest rate after delinquency and prior to sale, and also the interest rate on redemption, at 12 per cent. The section also provided that all moneys collected upon any assessment, including all interest and penalties, should be credited to the bond fund and used exclusively for the payment of the principal and interest of the bonds issued on the assessment. Notwithstanding the existence of these various provisions of section 3480 of the Political Code when the bonds were issued and sold, it is petitioner's claim that the provisions of the statute in reference to the imposition of penalties conferred no vested interest or contractual right, and in so far as the amendments affect the remedy formerly provided by section 3480, the reduction in the amount of the penalties was made by a law validly passed; that the imposition or collection of penalties for delinquency is not a part of the obligation between the district and the bondholders even though the penalties become part of the bond fund, and the amendments result in no impairment within the meaning of the constitutional provisions relied on. Upon this subject we are cited to a great number of authorities. There are unquestionably many decisions to the effect that a statute existing at the time of the issuance of bonds, which statute provides for the security of the bonds or the manner of enforcement thereof, are part of the contract with the bondholders, and a statute cannot be validly passed which either impairs a substantial right thereunder or materially alters the remedy for enforcing the security of the bonds. County of San Diego v. Childs, 217 Cal. 109, 17 P. (2d) 734; Chapman v. Jocelyn, 182 Cal. 294, 187 P. 962. No such situation, however, is here presented. In the instant case the obligation to the bondholders is the payment of the amount due, the security of the assessment until payment and the right to collect payment by the sale of the land. These obligations are in no manner affected or impaired by the amendments. Nowhere is it provided that the bondholders shall share or be benefited in any manner by the collection of the penalties, nor does the fact that the penalties are to be paid into the bond fund show a legislative intent to have the bondholders benefited thereby.
The penalties going into the fund would ultimately inure to the benefit of the landowners, for it would lessen the amount of a call. Under these circumstances there is no impairment of the contract between the district and the bondholders. The bondholders have lost nothing, nor have any of their rights been impaired. The imposition of the original severe penalties was simply an incident of the power of sovereignty. In the exercise of the taxing power the imposition of a penalty is not for the purpose of enhancing the state, but for punishing the taxpayer for nonpayment (24 Cal. Jur. p. 257), and the threat of such penalty is used as a means of inducing property owners to promptly pay the amount due. 44 Cor. Jur. p. 816. A penalty is not part of a tax proper and is therefore subject to legislative control. What the Legislature has imposed in this connection, it may modify. Cooley on Taxation (4th Ed.) § 1821. Generally the right of a bondholder extends only to the amount of the principal and interest and does not extend to proceeds realized from penalties. It is a recognized rule that where persons contract in reference to a subject concerning which the Legislature has in its discretion appended some incident, such as an additional right, they do so in contemplation of the right to repeal that act. The section of the Constitution whereby contracts are secured against impairment is aimed at the different covenants between the parties, and not a purely statutory incident in reference to such agreement. Willcox v. Edwards, 162 Cal. 455, 123 P. 276, Ann. Cas. 1913C, 1392; Moss v. Smith, 171 Cal. 777, 155 P. 90. The right, therefore, to impose penalties or other coercive measures in order to induce prompt payment of taxes or assessments being an incident of sovereignty, the right reserved to the state to change the measures must be read into every contract which is dependent upon the payment of the tax or assessment. Citizens' Savings Bank of Owensboro v. Owensboro, 173 U. S. 636, 19 S. Ct. 530, 571, 43 L. Ed. 840. But even if we were to conclude that the provisions of section 3480 as it existed in 1927, which provided for the severe penalties above mentioned, created a remedy which became a part of the obligation of the bonds, there is another independent ground upon which the change of the penalty may be sustained. The present statute regulating penalties was enacted pursuant to the police power of this state, and therefore such enactment fixing the penalties is paramount to any contractual rights. A fundamental part of this power is the right of the state in times of financial stress or grave or unusual economic conditions to protect the general welfare. The police power which preserves such welfare may be called into being to protect individuals from the payment of excessive penalties or assessments in an economic emergency. If the bondholders had any rights in the penalties they were divested of such rights by the amendments. This question has recently received extensive consideration by the different courts. Home Building & Loan Association v. Blaisdell, 290 U. S. 398, 54 S. Ct. 231, 78 L. Ed. 413, 88 A. L. R. 1481; Ætna Insurance Company v. Chicago Great Western R. Co., 190 Iowa, 487, 180 N. W. 649, 16 A. L. R. 249; Des Moines Joint Stock Land Bank, etc., v. Nordholm (Iowa) 253 N. W. 701; State ex rel. Lichtscheidl v. Moeller, 189 Minn. 412, 249 N. W. 330; Klinke v. Samuels, 264 N. Y. 144, 190 N. E. 324. We do not deem a general discussion of these cases to be necessary. Suffice it to say that the gist of the opinions we have referred to is to the effect that laws enacted for the general public welfare are paramount to contractual rights, and the interdiction of statutes impairing the obligations of contracts does not prevent the state from exercising such powers as are vested in it for the promotion of the public welfare even though contracts previously entered into between individuals may thereby be affected. 12 Cor. Jur. 992.
Parties entering into contracts may not estop the legislature from enacting laws in the bona fide exercise of the police power and do not, by reason of the contracts clause of the Constitution, enjoy any immunity from such legislation. 12 Cor. Jur. 991-992. While this power is subject to limitations in certain cases there is a wide discretion on the part of the Legislature in determining what is and what is not necessary, a discretion with which courts ordinarily will not interfere. An individual may not justly complain of a reasonable legislative invasion of his usual rights for the purpose of averting an immediate danger which threatens the welfare of the community. Unreasonable insistence of contractual rights may work serious injury to the economic welfare of all the people. The vital interests of the community under conditions as they exist at present call for legislation by which the investments of a great number of people may be conserved and ruin averted. From what we have said it follows that the Legislature in reducing the penalties did not interfere with or impair the rights of the bondholders within the meaning of the constitutional provisions invoked, nor are the amendments objectionable, as claimed, for the reason that they do not expressly state that they are temporary in nature. The failure of the Legislature to limit their operation to a definite term does not render the laws invalid. People by Van Schaick v. Title & Mortgage Guarantee Co., 264 N. Y. 69, 190 N. E. 153. Moreover, as shown, the bondholders are not concerned with the change.
A further objection is raised that the legislation involved denies the bondholders equal protection of the law (Const. U. S. Amend. 14). There is no merit in this contention. Home Building & Loan Association v. Blaisdell, supra.
Petitioner is entitled to the relief sought.
Let a peremptory writ issue in accordance with the prayer of the complaint.
TYLER, Presiding Justice.
We concur: CASHIN, J.; KNIGHT, J.
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Docket No: Civ. 9577.
Decided: September 13, 1934
Court: District Court of Appeal, First District, Division 1, California.
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