SIWEL CO v. LOS ANGELES COUNTY (1945)

Under protest the S. Siwel Co. paid special assessments levied by the city of South Gate, and brought this action to obtain a refund. Upon the appeal from the judgment of dismissal entered after a general demurrer to the complaint was sustained and leave to amend denied, the questions presented for decision concern the validity of the assessments and the scope of certain sections of the Revenue and Taxation Code.

The facts alleged in the complaint and a proposed amended complaint may be summarized as follows: The appellant is the owner of land in the city of South Gate bordering on Wright Road, a highway of general county use. The highway was improved pursuant to a proceeding had under the Acquisition and Improvement Act of 1925, commonly known as the Mattoon Act, Stats.1925, p. 849, Deering's Gen.Laws 1931, Act 3276a, repealed by Stats.1933, chap. 346, p. 949. In 1929, acquisition and improvement bonds to the amount of $43,400 were issued and sold. Special assessments were levied against lands in the district, of which the appellant's property constituted a large part. Levies for the years 1929-1933, inclusive, were paid by the Siwel company, but assessments of the four subsequent years, 1934-1937, inclusive, were allowed to become delinquent. Only about 9 per cent of such assessments were paid by the property owners and the district was in economic distress.

Prior to June, 1938, bonds in the principal amount of $4,000 and interest had been paid in full, but of the outstanding bonds in the principal sum of $39,400, approximately $16,000 were delinquent in payment of principal and all were delinquent in payment of interest. The country was passing through a period of severe economic depression and the land values in the district shrank to a point where the total assessed valuation of all the taxable property within the district was at times less than the face value of the amounts outstanding on the bonded indebtedness. Taxes and assessments against a large percentage of the property in the district had been delinquent for five years and, unless financial aid was made available, a large percentage of the property would be stricken from the tax rolls.

Appropriate legislation had been enacted for the relief of districts in distress. Stats.1935, p. 1250, chap. 354, Deering's Gen.Laws, Act 3303l; Streets & Highways Code, ss 1625.5-1628, St.1935, p. 342, St.1937, pp. 160, 161, 2401. In 1938, acting pursuant to these provisions and prior to the levy of any assessment for that year, the county board of supervisors purchased all of the outstanding bonds of the district and canceled them. The appellant thereafter demanded that the assessments for the years 1934-1937 be canceled. The demand was rejected by both the city and the county. The property owner then made payment under protest, and filed a timely claim for refund, followed by commencement of the present suit.

In challenging the ruling of the trial court that these facts do not state a cause of action entitling the Siwel company to a refund of the amounts paid by it to discharge the assessments levied prior to the retirement of the bonds, the appellant takes the position that these assessments were collectible only for the purpose of meeting the obligation on the bonds, and the right to do so ceased to exist when the bonds were paid and canceled. Therefore, the argument continues, unless the amount paid to satisfy the assessments for the years 1934-1937 is refunded, the city will be unjustly enriches. And the appellant asserts that the procedure specified by the Revenue and Taxation Code may be used by a property owner to obtain a refund of assessments paid under the circumstances related in the complaint.

The city and the county contend that the cancellation of the bonds raised no bar to the collection of assessments theretofore levied. Under section 1626 of the Streets and Highways Code, St.1937, p. 2401, the legislative body of the city was given discretionary power to direct the cancellation of any unpaid taxes and assessments, and in the exercise of that discretion decided not to cancel the assessments levied before 1938 against the property of the appellant and other property owners in the assessment district. If assessments levied prior to 1938 are canceled, the respondents assert, the landowners who defaulted in their obligations will obtain a benefit denied to those who paid the assessments placed against their properties.

The city of South Gate has delegated its functions relating to the collection of taxes to the county of Los Angeles. The Acquisition and Improvement Act, supra, provided that upon the making of levies for the payment of principal and interest on bonds issued in accordance with its provisions, the assessments shall be ‘collected and enforced in the same manner and by the same persons and at the same time and with the same penalties and interest as are other taxes.’ Section 41. The statute, in effect, adopted the procedure provided by general law for the collection of taxes for general municipal purposes.

The relief legislation enacted in 1935 reposes in city and county legislative bodies a broad and wide discretion in the matter of payment of bonds and the cancellation of taxes and assessments. Section 1626 of the Streets and Highways Code provides that ‘boards of supervisors in their respective counties may purchase or redeem at a discount, and may at any time in their discretion cancel or retire, bonds of any special assessment district,’ for payment of which special assessments have been or are to be levied, if the bonds have been used exclusively for the improvement or repair of highways. Payment of any portion of the principal or interest is authorized, or money may be transferred into the interest and sinking fund for the discharge of the bonds.

Act 3303l declares that city and county legislative bodies are ‘hereby fully and completedly authorized and empowered, on the consent of the owners or holders of such bonds or indebtedness, to purchase, adjust liquidate or cancel such bonds or indebtedness, or any part of them or it * * *,’ and to ‘adjust, waive or cancel in whole or in part, any tax or taxes, assessment or assessments, penalty or penalties and interest heretofore levied or taxes against any of the property or properties in such special assessment district which have been taxed or levied for the purpose of meeting the bonds or indebtedness of such special assessment districts.’

A further provision of section 1626 is that ‘Whenever as the result of the * * * cancellation * * * of bonds * * * the legislative body which conducted the proceedings for the issuance of such bonds * * * determines that there is sufficient money in the interest and sinking fund or other proper fund to adequately provide for the retirement of payment of the penalties, interest and principal of all outstanding bonds * * * such legislative body may, in its discretion, direct the cancellation or, if its taxes are collected through another legislative body it may in its discretion by resolution order such other legislative body to direct the cancellation of all or any portion of the unpaid taxes and assessments and the penalties thereon and the lien thereof levied or to be levied for the payment of such penalties, principal and interest. * * * Whenever only a portion of such taxes, assessments and liens are canceled, it may be according to any uniform plan which in the discretion of such legislative body is deemed equitable. * * *’ Sections 1625.5 and 1627 authorize the purchase of the bonds with money from the general fund of the county, or from certain special funds.

From these provisions it is apparent that the county, instead of purchasing all of the bonds of the district, might have bought less than the total number of those outstanding, and then held, as subsisting obligations, either all or a part of those which it acquired. Under ordinary circumstances, it might be expected, the cancellation of all outstanding assessments would follow the purchase and cancellation of all unpaid bonds, whereas the purchase and cancellation of only a part of the unpaid obligation would be accompanied by a corresponding partial relief from assessment collections according to a uniform plan. The statutes import a correlation between bond cancellations and the nullification of assessments. Had the county left outstanding a sufficient number of the bonds to represent an amount of indebtedness equal to the sum which might be realized from levied assessments, there could be no question concerning its right to enforce the collection from the appellant of the amount paid by it under protest. However, after the purchase and cancellation of all of the bonds, which eliminated all indebtedness toward the payment of which assessments might be applied, did the county have the authority to require any further payment by a property owner in the district?

From the fact that by not canceling all of the bonds the county could have retained the right to enforce the collection of assessments, it might seem that the controversy concerns a mere technicality or error of procedure. But the appellant contends that a fundamental principle of taxation is at stake, a principle which underlies the power of special assessment and is inherent in the law which marks the distinction between general and special taxation. This principle is that whereas a general tax is an equal and uniform charge levied to meet the ordinary expenses of government and for general public purposes, a special assessment may be levied only for the purpose of paying for improvements which directly benefit the land specially assessed; its burden rests upon the locality benefited and when that burden is lifted the power to assess ceases. For that reason, the appellant argues, where the obligation for the payment of which special assessments have been levied is discharged, there is no purpose for the collection of such assessments and no right to enforce them.

The fundamental distinction between general taxation and assessment for a special purpose was announced in this state in the early case of Emery v. San Francisco Gas Co., 1865, 28 Cal. 345, and is universally recognized. See 5 McQuillin on Municipal Corporations, 2d Ed., ch. 38, pp. 699 et seq.; 1 Cooley on Taxation, 4th Ed., s 31, p. 105; 1 Page & Jones, Taxation by Assessment, chaps. 1 and 3; Gray on Limitations on the Taxing Power and Public Indebtedness, pp. 6-7; Hamilton on Law of Special Assessment, chap. III, pp. 148, et seq. ‘The terms ‘tax’ and ‘assessment,’ except in the case of specific taxation,' it is said in 24 California Jurisprudence, s 22, p. 38, ‘both include the idea of some ratio or rule of apportionment. While the two terms are sometimes used synonymously, there is a well-recognized distinction between them. A tax is levied for the general public good, and without special regard to the benefit conferred upon the individual or property subject thereto, while a special assessment is levied to force payment for a benefit equal in value to the amount thereof. The latter is not a tax of all the property within a district for general purposes, founded upon the benefits supposed to be derived from the organization of a government, but is a charge upon specific property for a specific purpose, founded upon the benefits supposed to be derived by the property itself. * * * A special assessment is not in the constitutional sense a tax at all.’

Judicial decisions are replete with the emphatic declaration, in varying forms, that the test in all special assessment proceedings is that the amount of the levy should not exceed the particular benefit to the property. ‘The assessment can be levied only for the actual cost of the improvement and the local authorities cannot include in the assessment the expense of any other work than such as is necessary to complete the particular improvement in a reasonable and fair mode.’ 2 Elliott on Roads and Streets, 4th Ed., p. 892. Authorities to the same effect could be multiplied without number, and there appears to be none to the contrary.' County of San Diego v. Childs, 1932, 217 Cal. 109, 117, 17 P.2d 734, 737.

The Acquisition and Improvement Act, supra, pursuant to which the assessments now challenged by the appellant were levided, provided a method for the construction of street improvements, and for the payment of their cost by the issuance of bonds payable by the levy and collection of special assessments against the real property within the district found to be specially benefited by the improvement. Section 41(7) of the act allowed the levy of special assessments ‘clearly sufficient to pay the principal and interest of said bonds as the same shall become payable,’ but it contained no authorization for the levy or collection of a tax for any other purpose. The provision that ‘Any money remaining in any acquisition and improvement district interest and sinking fund after all of the bonds * * * have been retired shall be transferred to the general fund of the county or municipality * * *’ was merely a catch-all for the disposition of surplus money which might ‘remain’ in the fund after payment of the indebtedness because of the impossibility of equalizing tax collections with indebtedness down to the last penny. The act did not authorize, or purport to authorize, any levy or collection of a special assessment after cancellation of the indebtedness. And although the repeal of the statute shall not ‘be applicable to or affect in any way any bonds heretofore issued or authorized to be issued under said act or any assessment levied or authorized to be levied * * * and all of the provisions of said act are retained in full force and effect until all bonds issued * * * under said act shall be fully paid and discharged’, Stats.1933, p. 948, only while there are outstanding obligations is there any authority or duty to levy or collect assessments; the right to assess was not conferred and does not exist apart from the indebtedness.

The fact that the county's payment of the indebtedness without enforcement of collection of the delinquent 1934-1937 assessments would benefit the 91 per cent of the property owners who did not pay for those years, thus discriminating against the 9 per cent who did pay, is beside the point. All owners in the district are benefited by the lifting of the assessments for years subsequent to 1937. The purpose of the relief statutes is to remove economic distress from the district and to get the properties back on the tax rolls. The application of such statutes by the legislative bodies in the exercise of a broad discretion does not necessarily operate with equality as to all property owners; in fact, the contribution of general county funds for payment of the improvement is at the expense of the general taxpayers. A discrimination in some direction is inevitable and not unlawful. City of Dunsmuir v. Porter, 7 Cal.2d 269, 60 P.2d 836; County of San Diego v. Hammond, 6 Cal.2d 709, 719-727, 59 P.2d 478, 105 A.L.R. 1155.

Sections 5096-5107 of the Revenue and Taxation Code, St.1939, pp. 1370-1372, St.1941, pp. 2114-2116, a recodification of section 3804 of the Political Code, provide for a refund of ‘taxes * * * erroneously or illegally collected.’ The word ‘taxes' concededly includes an assessment for public improvements (s 4801, St.1939, p. 1361). Sections 5136-5143, St.1939, pp. 1372, 1373, St.1941, pp. 2112, 2113, a recodification of section 3819 of the Political Code, provide for the recovery of taxes paid under protest on a ‘void’ assessment. Such statutes are to be liberally construed, Brenner v. Los Angeles, 160 Cal. 72, 78, 116 P. 397; Stewart Law & Collection Co. v. Alameda County, 142 Cal. 660, 662, 76 P. 481; Pacific Coast Co. v. Wells, 134 Cal. 471, 474, 66 P. 657, and no sound reason is advanced for distinguishing, under circumstances such as are here shown, between illegality or error arising in the levy and illegality or error arising from subsequent events.

Section 5096 is not limited to the recovery of erroneous or illegal taxes but authorizes thorizes the refund of taxes ‘erroneously or illegally collected.’ Evans v. County of San Joaquin, 67 Cal.App.2d 452, 455, 154 P.2d 468. The use of the word ‘collected’ rather than the term ‘levied’ or ‘assessed’ is most significant. Compare section 4986, St.1941. p. 2641, authorizing a cancellation of taxes ‘levied or charged * * * erroneously or illegally.’

There is no reason to relegate a taxpayer in the situation of the appellant to a proceeding in mandamus to compel cancellation of the assessment, or to enjoin a tax sale, or to other possible remedy. Where the subsequent event which makes the levy unenforceable and its collection ‘erroneous' and ‘illegal,’ would in the event of prior occurrence have rendered the assessment void ab initio, the remedy afforded by sections 5096 et seq. is available to him. Had there been no indebtedness in existence at the time of the levies here in controversy, the assessments would have been void ab initio. They could not have been levied for an improvement already completed and paid for. The later cancellation of the bonds which rendered these levies unenforceable and the collection of the assessments illegal and erroneous entitled the appellant to avail itself of the refund procedure. City of Santa Monica v. Los Angeles County, 1911, 15 Cal.App. 710, 115 P. 945, and Grimes v. County of Merced, 1928, 96 Cal.App. 76, 273 P. 839, are not at variance with this determination. They are distinguishable upon the facts and do not decide the points here presented.

The judgment is reversed with directions to the trial court to overrule the general demurrer to the complaint and to proceed in accordance with the views here expressed.

I dissent.

The assessments in question were levied by defendant city under the Acquisition and Improvement Act of 1925, Stats.1925, p. 849, Deering's Gen.Laws, 1931, Act 3276a. This act was repealed in 1933, Stats.1933, p. 948, with a saving clause that the repeal did not affect any bonds theretofore issued or any assessments theretofore levied. Section 41 of the act provides that assessments shall be ‘collected and enforced in the same manner and by the same persons and at the same time and with the same penalties and interest as are other taxes for state and county purposes * * * and all laws applicable to the levy, collection and enforcement of taxes for state and county purposes * * * are hereby made applicable to said special assessment taxes.’ The assessments paid by plaintiff were validly levied and placed upon the tax rolls. They could have been cancelled under the legislation enacted in 1935 for the relief of special assessment districts (Deering's Gen.Laws, Act 3303l, Stats.1935, p. 1250; Streets & Highways Code, ss 1625, 1626, 1627, 1628, as amended by Stats.1935, pp. 2178, 2199, Stats.1937, p. 160) had the legislative bodies concerned determined that the relief of the district required such cancellation. They determined, however, that the assessments should not be cancelled. The statutes governing such assessments therefore compel their collection unless those statutes violate some constitutional provision.

No such violation is cited in the majority opinion. That opinion rests entirely on the argument that the purpose of the assessments was to pay for the bonds, and that when the bonds were cancelled there was no longer any purpose to be served by the assessments. In my opinion the rights of the defendants after the purchase of the bonds depended, not on the county's holding the bonds, but on the legislation governing relief to special assessment districts. That legislation empowered the legislative bodies granting relief to such districts to determine the extent of that relief and the conditions under which it should be granted. They determined that the relief should not be extended to the cancellation of delinquent assessments but that such assessments shoud be collected. The purpose of the assessments was not fulfilled when the bonds were purchased and cancelled, for the decision that the outstanding delinquent assessments should not be cancelled was in effect a decision that collections on such assessments should be used to reimburse the county and its taxpayers generally for funds advanced to purchase the bonds. Reimbursement is in order here as in other instances where creditors of insolvent debtors accept payment by third parties in settlement of their claims and such parties are subrogated to the claims of the creditors. See 4 Williston, Contracts, Rev.Ed., 3628, 3664; ,4 Pomeroy, Equity Jur., 5th Ed., 640; McClintock, Equity, 210; 50 Am.Jur., Subrogation, ss 28, 70; 23 Cal.Jur. 920; Meyers v. Bank of America, 11 Cal.2d 92, 94, 77 P.2d 1084; Brantley v. Kelly, 226 Ala. 47, 145 So. 649.

The purchase and cancellation of the bonds occurred after the delinquency of the assessments in question. The decline in property values had resulted in an overwhelming number of delinquencies in the payment of special assessments, which often exceeded the actual value of the properties. The districts were unable to meet the interest on their bonds, let alone redeem then as they fell due. The public interest required emergency legislation to rescue the special assessment districts from insolvency and to enable the properties subject to assessments to bear their share in the general tax burden. The legislative bodies of cities and counties were therefore given wide powers to establish and carry out plans to restore the solvency of special assessment districts and to liquidate in whole or in part the indebtedness of such districts. They were given authority to use ‘any and all necessary funds, moneys, taxes, assessments and contributions, from whatsoever source derived.’ Deering's Gen.Laws, Act 3303l, Stats.1935, p. 1250.¹ Their position was comparable to that of a trustee in bankruptcy of such districts.

County boards of supervisors were also given wide powers under sections 1626, 1626.5, 1627 and 1628 of the Streets and Highways Code, as amended by Stats.1935, pp. 2178, 2199, Stats.1937, p. 160. Section 1626 provides among other things that ‘the boards of supervisors in their respective counties may purchase or redeem at a discount, and may at any time in their discretion cancel or retire, bonds of any special assessment district, for the payment of which special assessments * * * have been or are to be levied, if the proceeds of such bonds are or have been used exclusively for the acquisition of rights of way or easements for, or for the construction, maintenance, improvement or repair of highways, bridges or culverts within such county or any city therein. * * *’ Section 1626.5 provides: ‘In accordance with the provisions of sections 1627 and 1628, the boards of supervisors, in their respective counties, may appropriate money to refund, repay and adjust, and may refund, repay and adjust, by any method established by law, the principal, or any portion of the principal, of any special assessments or bonds issued to represent special assessments, which have become liens on lands and which have been levied under the direct or specific assessment method to pay for the acquisition of rights of way or easements for, or the construction, maintenance, improvement or repair of public highways, bridges, or culverts within such county or any city therein. If the board of supervisors shall appropriate money to refund, repay or adjust assessments or bonds levied or issued by a city, it may delegate to the legislative body of such city the disbursement of the funds appropriated therefor, on such terms and conditions as may be agreed upon by the board and the city.’ Section 1627 specifies the county funds that the board of supervisors may use for the relief transactions defined in sections 1626 and 1626.5.

Since the board of supervisors has discretion to determine whether the county should engage in such a relief program, it may make the granting of such relief dependent on the use of other resources, such as outstanding assessments, in addition to county funds. In this as in other instances of a grant-in-aid for a specific purpose, the expenditure of public funds may be made to depend on contributions of others. In the present case, the condition that the owners of the assessed properties should contribute the amount of the delinquent assessments to the relief of the district was apparent from the determination that the delinquent assessments should not be cancelled. So long as they were not cancelled the assets of the district represented by them remained available as a contribution of the property owners to the relief of the district.d

The delinquent assessments did not have to be collected before the purchase of the bonds or before the bonds were cancelled district. The order in which the various steps were taken is immaterial. To delay the relief of the district until the delinquent assessments were actually collected would have led to additional assessments and prolonged the insolvency of the district. So long as the bonds were outstanding, plaintiff and the other property owners were threatened with future assessments, which made the collection of delinquent assessments impractical. The removal of that threat would increase the value of the properties and thus pave the way for the collection of the delinquent assessments. It was therefore in the public interest as well as in the interest of the property owners that the county should advance the funds necessary to purchase the bonds rather than postpone the relief program until the delinquent assessments were collected.

The assessments continued on the tax rolls as valid liens against the property involved, and no statute or rule of law made their validity dependent on the county's holding the bonds until the assessments were paid. Bonds were essential in the relationship between the city, the bondholders, and the property owners. The redemption of the bonds, however, eliminated all outside creditors and made it unnecessary for the county to retain the bonds, for the rights of the defendants depended, not on the county's holding the bonds, but on the relief legislation under which the bonds were purchased and concelled and under which the delinquent assessments were continued on the tax rolls. It is implicit in the decision made under the authority of that legislation not to cancel the delinquent assessments, that collections thereon should be used to reimburse the county for advances made to purchase the bonds. The statutory authority to retain the assessments on the tax rolls after the claims of the bondholders are satisfied is clearly designed to enable the agency, which under authority of the same statute satisfied those claims, to obtain reimbursement for part of its advances. Even before the enactment of the relief legislation of 1935, it was contemplated that legislative bodies could use their general funds to pay the principal and interest due on special assessment district bonds and reimburse those funds out of the subsequent collection of delinquent assessments. Section 41 of the Acquisition and Improvement Act provides: ‘Whenever any of said bonds or any payment of principal or interest thereon shall become due and there shall not be sufficient money in said interest and sinking fund to pay the same, the legislative body which conducted the proceeding may, pending the levy and collection of a special assessment tax therefor, order the amount of money necessary to pay said bonds, or payment of principal or interest so falling due, to be transferred from the general fund of the county or municipality, as the case may be, to said interest and sinking fund, and the amount of money so transferred shall be deemed a loan to said interest and sinking fund and shall be repaid to the general fund from the first money coming into said interest and sinking fund thereafter.’ Deering's Gen.Laws 1931, Act 3276a.

The mojority opinion cites no cases in support of its position. Plaintiff, however, relies upon two lines of cases that are clearly distinguishable. In the first, the improvement was abandoned before completion. Grimes v. County of Merced, 96 Cal.App. 76, 273 P. 839; Bradford v. City of Chicago, 25 Ill. 411; Valentine v. City of St. Paul, 34 Minn. 446, 26 N.W. 457; City of San Antonio v. Peters, Tex.Civ.App., 40 S.W. 827; City of San Antonio v. Walker, Tex.Civ.App., 56 S.W. 952. In the second, the actual cost of the improvement was less than the original estimate. Paving Dist. No. 5 v. Fernandez, 144 Ark. 550, 223 S.W. 24; City of Chicago v. Fisk, 123 Ill.App. 404; In re Schneider, 136 App.Div. 444, 121 N.Y.S. 9; Wolfe v. Edgewood Borough, 58 Pa.Super. 38. Thus in all these cases the assessments exceeded the value of the improvements. In the present case, however, the plaintiff has received the full benefit of the improvements and has not been assessed beyond its cost. In fact, even with the payments in question it has paid less than its pro rata share of the cost of the project. All the property owners in the district should be treated alike. The allowance to plaintiff of a refund of the payments of its delinquent assessments creates a discrimination against the other property owners who paid their assessments, which plaintiff concedes cannot be refunded, and gives plaintiff a windfall as a reward for its delinquency.

FOOTNOTES

1.  This act vests authority in ‘the legislative body of any city or county * * * acting individually or in conjunction with any other such legislative body or bodies, wholly or partly within the boundary of which any special assessment district has been created, and the outstanding bonds or indebtedness of which district are payable by taxes or assessments levied wholly or partly in accordance with the assessed value of lands or property * * * to purchase, adjust, liquidate or cancel such bonds or indebtedness, or any part of them or it, and to carry out any plan or plans for the purchase, adjustment, liquidation, or cancellation of such bonds or indebtedness, or any part of them or it, and if necessary or advisable to carry out such plan or plans under the bankruptcy laws of the United States of America * * * or under any law or laws of the State of California, enacted for the purpose of the purchase, adjustment, refunding, liquidation or cancellation of bonds or indebtedness of special assessment districts. In carrying out any such plan or plans the legislative bodies herein mentioned are fully authorized and empowered to adjust, waive or cancel in whole or in part, any tax or taxes, assessment or assessments, penalty or penalties and interest heretofore levied or taxed against any of the property or properties in such special assessment district which have been taxed or levied for the purpose of meeting the bonds or indebtedness of such special assessment districts.’ Section 1. Such legislative bodies are also authorized ‘to appropriate and use any and all necessary funds, moneys, taxes, assessments and contributions, from whatsoever source derived, for the furtherance, consummation and conclusion of the purchase, adjustment, liquidation or cancellation of any bond or bonds * * * in whole or in part of such districts, and to pay from such funds, moneys, taxes, assessments and contributions all expenses necessary to carry on the furtherance, consummation and conclusion of such plan or plans.’ Section 3.

EDMONDS, Justice.

GIBSON, C. J., and SHENK, CARTER, SCHAUER, and SPENCE, JJ., concur.