TIMM AIRCRAFT CORPORATION v. BYRAM (1949)

From a judgment in favor of plaintiff after trial before the court without a jury in an action to recover a refund of an alleged solvent credits tax paid under protest by plaintiff upon a special checking account in a Los Angeles bank, defendants appeal.

Facts

On or about April 7, 1942, the United States of America entered into a cost-plus-fixed-fee contract (hereinafter referred to as “production contract”) with plaintiff providing for the manufacture and delivery to the United States by plaintiff of a specified quantity of troop-carrying gliders, spare parts, et cetera. By the terms of the production contract the United States agreed to reimburse plaintiff for all cost incurred in the performance of the contract and to pay plaintiff in addition a fixed fee as compensation. The United States was also authorized by the contract to make advance payments to plaintiff up to thirty per cent of the estimated cost of the contract.

About a week after the execution of the production contract the United States entered into a supplemental agreement (hereinafter designated “financing contract”) with plaintiff which provided the machinery for making the advance payments authorized by the production contract. Payments were to be made substantially as follows: The advance payments were to be deposited in a special account separate and apart from plaintiff's other funds; this account was to be replenished from time to time by further advance payments and reimbursements made to plaintiff by the United States for expenditures previously made under the production contract; the account was to be used by plaintiff exclusively as a revolving fund of working capital for the performance of obligations to the United States under the production contract.

As security that the advance payments would be thus used, three specific restrictions were placed upon plaintiff's use of the account: First, withdrawals by plaintiff could be made only after prior written approval by a United States representative.¹ Second, whenever the United States representative deemed the balance of the account to be in excess of current needs under the production contract, he could require plaintiff to return such excess to the United States. Third, the United States representative could direct the bank with respect to the withdrawal of funds in accordance with the terms of the financing contract. In addition, the balance in the account was declared to be security for repayment of the advance payments to the United States, and the United States was expressly given first lien upon the balance of the account superior to any one else, including the bank.

Shortly after the execution of the financing contract, the California Bank of Los Angeles (hereinafter designated “the bank”) entered into a tripartite agreement with plaintiff and the United States by which it was agreed that the account would be established at the bank, held and administered pursuant to the terms of the financing agreement. When the financing contract was thereafter amended a new tripartite agreement was executed to conform with the changes made in the financing contract.

On the first Monday of March, 1944 (the tax date) there was on deposit in the bank in the special account, entitled Timm Aircraft Corporation Advance Payment Account, the sum of $453,353.43. The sum of $453.35 was assessed by the county tax collector against plaintiff on the theory that the account was a solvent credit of plaintiff. Thereafter plaintiff applied to the board of equalization of Los Angeles county for the cancellation of this assessment. The board of equalization denied the application, whereupon plaintiff paid the tax under protest. The present action was instituted to recover the amount of the tax upon the ground that the account belonged to the United States rather than to plaintiff.

Questions

First: Was the special bank account the property of plaintiff and as such taxable as a solvent credit of plaintiff?

This question must be answered in the negative. While the money remained in the bank account it was neither the legal nor the equitable property of plaintiff because: (1) plaintiff could not obtain the money without the consent of the government through its duly authorized representative; (2) the duly authorized representative of the government could deny his consent, under the terms of the contracts, on any grounds he saw fit; and (3) the contracting officer or the Chief of the Air Corps could order the bank at any time to pay over the full amount of the special deposit to the United States, and if this had been done plaintiff would have had no cause of action against the bank. It would have no claim against the United States in debt, assumpsit or any other form of action for the amount thus taken from the bank. Plaintiff's only claim would be against the United States for reimbursement of its costs under the contract, and a legal defense to any assertion by the government that the contract was not performed on time to the extent that the delay was caused by the government's failure to make payments when due.

Article XIII of the state constitution authorizes the taxation of “property”. The term “property” in the broadest meaning is ownership; the unrestricted and exclusive right to a thing; the right to dispose of a thing in every legal way, to possess it, to use it, and to exclude every one else from interfering with it. (Black's Law Dictionary (3d Ed., 1933), p. 1447.)

In Douglas Aircraft Co. v. Byram, 57 Cal.App.2d 311, at page 317, 134 P.2d 15, 18, Mr. Justice Bishop says, “A common characteristic of a property right, is that it may be disposed of, transferred to another.”

In Yuba River Power Co. v. Nevada Irr. Dist., 207 Cal. 521, 524, 279 P. 128, 129, the definition of property is given as “the exclusive right of possessing, enjoying, and disposing of a thing; it is ‘the right and interest which a man has in lands and chattels, to the exclusion of others;’ and the term is sufficiently comprehensive to include every species of estate, real or personal.”

In view of the foregoing definitions the special bank account in the instant case was not property of plaintiff since it did not have the attributes which constitute property as defined above. Plaintiff could not obtain any part of the money without the consent of the government's agent, neither did plaintiff have the ownership, that is, the unrestricted right to possess it, to use it, or to exclude every one else from interfering with it. Plaintiff did not have the power to dispose of the account, to transfer it, to pledge or hypothecate it. The account had no exchangeable value and did not go to make up part of plaintiff's wealth or estate. Therefore since the bank account was not the property of plaintiff it was not properly taxable by respondent tax collector.

Second: Has plaintiff taken the necessary preliminary steps in order to recover the tax which it paid under protest?

This question must be answered in the negative. Plaintiff paid the tax under protest and then instituted the present action to recover the tax so paid. Following the procedure outlined in section 5138² and 5139 of the Revenue and Taxation Code.³ Section 5139 of the code reads in part: “The action may be brought only: * (c) By the owner, his guardian, executor, or administrator.” (Italics ours.) Thus plaintiff's ownership of the taxed property is an essential element of his statutory right to recover the tax as paid under protest. Plaintiff did not own the property which was assessed and upon which he paid taxes under protest. The foregoing sections of the Revenue and Taxation Code are inapplicable to the present situation (see Warren v. City and County of San Francisco, 150 Cal. 167, 170, 88 P. 712), since ownership of the property assessed is an essential prerequisite to the maintenance of a suit under sections 5138 and 5139 for the recovery of a tax paid under protest.

On the other hand, plaintiff may not maintain his action under the provisions of section 5103,⁴ and 5104 of the Revenue and Taxation Code⁵ for the reason that it has not filed a claim for refund pursuant to the provisions of section 5097⁶ (see section 5104) of the Revenue and Taxation Code.

The right to a return of taxes is purely statutory and the terms of the governing statutes constitute the full measure of plaintiff's right. (Southern Service Co., Ltd., v. Los Angeles, 15 Cal.2d 1, 11, 97 P.2d 963.) Therefore since plaintiff has not complied with the provisions of the above mentioned statutes it was not entitled to maintain the action.

The judgment is reversed.

FOOTNOTES

1.  In practice this was accomplished by requiring that all checks drawn on the account by plaintiff be first approved by a representative of the United States countersigning such check.

2.  Section 5138 reads as follows: “Within six months after the payment, an action may be brought against a county or a city in the superior court to recover the taxes paid under protest.“If all or any portion of the taxes paid under protest and sought to be recovered were collected by officers of the county for a city, an action must be brought against the city for the recovery of such taxes and judgment must be sought against the city. Where actions are brought against both a county and a city such actions may be joined in one complaint.“Any city for which county officers collect taxes may provide for the defense by counsel for the county of actions brought against the city under this article, in which event it shall be the duty of such counsel to defend such actions, or the city may provide that such actions shall be defended by its own counsel.”

3.  Section 5139 reads: “The action may be brought only:“(a) As to portion of the assessment claimed to be void.“(b) On the grounds specified in the protest.“(c) By the owner, his guardian, executor, or administrator.”

4.  Section 5103 reads: “If the board of supervisors rejects a claim for refund in whole or in part, the person who paid the taxes, his guardian, executor, or administrator may within six months after such rejection commence an action in the superior court against the county or a city to recover the taxes which the board of supervisors or the city council have refused to refund.“If all or any portion of the taxes sought to be recovered were collected by officers of the county for a city, an action must be brought against the city for the recovery of such taxes and judgment must be sought against the city. Where actions are brought against both a county and a city such actions may be joined in one complaint.“Any city for which county officers collect taxes may provide for the defense by counsel for the county of actions brought against the city under this article, in which event it shall be the duty of such counsel to defend such actions, or the city may provide that such actions shall be defended by its own counsel.”

5.  Section 5104 reads: “No action shall be commenced or maintained under this article unless a claim for refund shall have been filed in compliance with the provisions of this article, and no recovery of taxes shall be allowed in any such action upon a ground not asserted in the claim for refund.”

6.  Section 5097 reads: “No order for a fund under this article shall be made except on a claim:“(a) Verified by the person who paid the tax, his guardian, executor, or administrator.“(b) Filed within three years after making of the payment sought to be refunded.”

McCOMB, Justice.

MOORE, P.J., and WILSON, J., concur.