BOARD OF PORT COM RS OF CITY OF OAKLAND v. WILLIAMS (1936)

This is a proceeding in mandamus to compel respondent, as auditor of the city of Oakland, to certify a contract made by petitioners, Board of Port Commissioners and its members, on behalf of the city. The contract is for the employment and compensation of a real estate firm to negotiate and secure bids for the leasing of certain tidelands belonging to the city. The auditor refused to indorse his certificate on the contract on the ground that a serious controversy had arisen as to the right of the board to make leases of the property in question. The controversy arises from the fact that the property was in 1911, pursuant to statutory authority, leased to some thirteen lessees for twenty-five year periods, with provision for a right of renewal. The board, claiming that the leases were properly terminated, seeks to procure other leases. The auditor points to the fact that the lessees deny that the leases were properly terminated, and refuses to approve the expenditure of money to procure new leases until the right of the board to make new leases is determined. The petition was filed as an original proceeding in this court on the ground that the public interest required a speedy decision.

It may well be doubted whether, under the charter of the city of Oakland, the auditor had any duty in this connection save to certify that there was sufficient unexpended money in an appropriate fund, for the payment of the sums required by the contract. Moreover, it is clear that by this obviously friendly suit between officials of the city of Oakland, an attempt was made to adjudicate the rights of various lessees holding under the present leases, who were not parties to the proceeding. Under such circumstances it would have been highly improper for this court to pass upon the rights of such parties. However, it further appears that counsel for the board notified all lessees of the proceeding, and that some of them have expressed a desire to have the question determined in the present proceeding, thus avoiding long litigation, and permitting the harbor improvement program of the city to proceed without unnecessary delay. One of said lessees, Pacific Steel & Wire Company, has intervened in the action and has filed briefs, so that for all practical purposes this lessee is the defendant in what amounts in a proceeding for declaratory relief. Several others, namely, E. K. Wood Lumber Company, Union Diesel Engine Company, Standard Gas Engine Company, Atlas Imperial Diesel Engine Company, Larue Wharf & Warehouse Company, and E. S. Collins, have through their counsel expressed a desire to have the issues promptly settled in this proceeding. Accordingly, we shall deal with the matter on its merits, with the observation, however, that only one lessee, Pacific Steel & Wire Company, is a party, and only its lease is before the court. Consequently, our decision must be confined to the interpretation of the lease from the city of Oakland to Pacific Steel & Wire Company, in the light of the relevant statute and ordinance.

The controversy had its origin some time prior to 1911, when a number of persons and corporations were in possession of certain tidelands in the city, fronting on the San Antonio estuary. They claimed title under a patent granted in 1889 to one James T. Stratton. Their titles were disputed by the city on the ground that the Stratton patent was illegal and void. Desiring to avoid litigation, the claimants and the city entered into a compromise, which was made effective by the passage of the Tideland Act of 1911 (Stats.1911, c. 654, p. 1254). By the terms of the act, the Legislature transferred to the city all of its interest in these lands, in trust for the promotion of commerce and navigation. The city was given power to lease but not to convey the lands, and particularly it was provided that upon quitclaiming their asserted interests, the persons in possession should be entitled to leases for twenty-five years, with the privilege of renewal under certain circumstances. Upon the passage of the act, the city council passed an ordinance authorizing the leases, and these leases were subsequently executed, delivered, and the quitclaims received from the lessees. The validity of the act and the leases entered into thereunder was established by this court in Oakland v. Larue Wharf, etc., Co. 179 Cal. 207, 176 P. 361. See, also, Oakland v. American Dredging Co., 3 Cal.(2d) 220, 44 P.(2d) 309.

The said leases, made in 1911, expired in June, 1936. Pacific Steel & Wire Company sought to renew for the additional period of twenty-five years, without further rental. The city offered to renew at a rental of $15,000 yearly. This was refused, whereupon the city notified the said lessee that it would not renew, and proceeded to seek other tenants, as already stated. The lessee demanded compensation for its improvements, valued by it at about $200,000, which the city also refused.

The question presented to us is whether the said lessee had a right to renew the lease, without further payment of rental, for twenty-five years, subject to the right of the city to terminate the same upon payment for improvements; or whether the city had the right to decline to renew, upon the expiration of the original term, without paying for improvements. The answer depends upon the construction of the statute and the lease. It may be noted here that the city has terminated all of the leases of these lands.

The relevant portions of the statute declare that the tidelands are granted to the city of Oakland to be used for the promotion of commerce and navigation, and that they shall not be granted to any individual, provided, however, that the city may grant franchises for limited periods for wharves and other public uses, ‘and may lease said lands, or any part thereof, for limited periods, for purposes consistent with the trusts upon which said lands are held by the State of California, and with the requirements of commerce or navigation at said harbor, for a term not exceeding twenty-five years, and on such other terms and conditions as said city may determine, including a right to renew such lease or leases for a further term not exceeding twenty-five years or to terminate the same on such terms, reservations and conditions as may be stipulated in such lease or leases, and said lease or leases may be for any and all purposes which shall not interfere with navigation or commerce, with reversion to the said city on the termination of such lease or leases of any and all improvements thereon, and on such other terms and conditions as the said city may determine * * * provided, however, that each person, firm or corporation or their heirs, successors or assigns now in possession of land or lands abutting on said lands, within the boundaries of the city of Oakland * * *shall have a right to obtain a lease for a term of twenty-five years from said city of said land and wharfing out privileges therefrom with a right of renewal for a further term of twenty-five years pursuant to the provisions of this act and on such terms and conditions as said city may determine and specify, subject to the right of said city to terminate said lease at the end of the first twenty-five years or refuse to renew the same, or to terminate the lease so renewed during the term of such renewed lease on such just and reasonable terms for compensation for improvements at the then value of said improvements as said city may determine and specify.’ (Italics ours.)

Upon receiving its lease, Pacific Steel & Wire Company quitclaimed its interest in the lands, as required by the statute, and this particular lessee also transferred certain additional property as consideration. The lease, entered into June 29, 1911, recites the facts concerning the controversy, the passage of the statute, the desire of both parties to compromise and settle their differences and establish their rights, the desire of the city to obtain dedication to public use of certain streets along the waterfront (the additional consideration mentioned above), and provides for the quitclaim of interests of the company and the dedication of the streets and relinquishment of part of its wharfing out rights by the company. The provisions of the lease pertinent here are as follows:

‘It is further agreed * * * that the dedication of said streets and the relinquishment of part of its wharfing out rights by said Company shall constitute and shall be the rental of said demised premises in full and adequate payment of all rents for said demised premises for the whole period covered by the terms of this lease including the renewal period thereof.’

‘It is further agreed that the City shall have the right to terminate this lease at the end of the first twenty-five years term, or refuse to renew the same or to terminate the lease so renewed during the term of said renewal lease, on such just and reasonable terms for compensation for improvements at the then value of the improvements as the said City may determine and specify. In this behalf, however, inasmuch as the streets now about to be dedicated for public use and the wharfing out rights now about to be quitclaimed to said City by said Company are of great present and future value the City agrees that because of the valuable considerations so for this lease now given and granted to said City by said Company that said City is morally obligated to continue the renewal of said lease for the further term of twenty-five years on the expiration of the first twenty-five years of said term.’

The lease also provides that the terms and conditions of the statute ‘in any way applicable thereto shall be considered to be and are hereby made a part of this lease, whether specifically stated herein or otherwise.’

The first point which is clear from the terms of the statute is that those persons in possession of tidelands at the time of the compromise, who quitclaimed their interests, had a right to receive a lease of those lands for twenty-five years. They gave consideration, in accordance with the agreement, and the city not only had authority to lease to them for such period, but was legally obligated to do so. This point is not disputed.

The second point is that the city had a right to terminate the leases at either of the following times: (1) At the end of the first twenty-five years (by refusing to renew); (2) at any time during the term of the renewed lease. This is likewise admitted by all parties, and the lease makes it perfectly clear that the declared right of renewal is only a ‘moral’ obligation. Accordingly, the city acted within the terms of the statute and the lease in terminating the present lease, that is, in refusing to renew at the expiration of its term.

The third point which appears from consideration of the statute and the lease is that under some circumstances, the city, exercising its undoubted power to terminate, nevertheless must make compensation to the lessee for improvements. The dispute, however, is as to when such compensation must be made, and it is with this narrow question that the instant case is concerned. As pointed out above, there are only two times at which the city could terminate: At the end of the first twenty-five year period, and during the renewed term. The city admits that compensation must be made if the lease is renewed and then terminated, but denies that compensation must be made upon refusing to renew. The effect of the city's contention is that the ‘right to renew’ is illusory, and that the provision of the lease that no further rent should be required for the renewal period is applicable only in the event the city should elect to renew. In other words, the city's view is that it was given the authority to renew the leases at its election, and that no right of renewal or compensation in lieu thereof was given to the lessee.

The question of construction narrows down to the meaning of the statute. An examination of its terms, and particularly the position of the comma in the last sentence of the above quotation, after the words ‘or refuse to renew the same,’ indicates that the city has an absolute right to terminate prior to renewal, and that the provision for compensation of the lessee for improvements only modifies the next clause, dealing with termination after renewal. The rule of construction that ‘relative and qualifying words, phrases and clauses are to be applied to the words or phrases immediately preceding and are not to be construed as extending to or including others more remote’ (59 C.J. 985, note 82) is applicable here, and has been applied in other California cases. See Los Angeles County v. Graves, 210 Cal. 21, 26, 290 P. 444; Hopkins v. Anderson, 218 Cal. 62, 65, 21 P.(2d) 560. If any doubt is cast upon this interpretation by the language purporting to give a ‘right of renewal,’ it must in accordance with the settled rule be resolved in favor of the city and against the private grantee. City of Los Angeles v. San Pedro, etc., R. R. Co., 182 Cal. 652, 655, 189 P. 449.

If such be the interpretation of the statute, then the lease, in so far as it departs from the meaning of the statute, is ineffective, for the statute is the sole source of the city's power to deal with the lands, and the lease itself incorporates the terms of the statute as part of its provisions. The lease must therefore be deemed to provide for compensation for improvements only in the event a renewed lease is terminated.

It follows that the city had power to terminate the leases, and that the proposed contract prepared by petitioners is within the power of the board.

Let a writ issue as prayed.

LANGDON, Justice.

We concur: WASTE, C. J.; THOMPSON, J.; SEAWELL, J.; SHENK, J.; CURTIS, J.