TRABUE PITTMAN CORPORATION v. LOS ANGELES COUNTY (1946)

Plaintiff and defendants have separately appealed from a judgment entered in an action instituted by plaintiff for a tax refund, which appeals have been consolidated and presented upon a single set of briefs. Plaintiff is the owner of a building leased to the Bank of America National Trust and Savings Association. Defendants are the county of Los Angeles and the city of Los Angeles. Plaintiff appeals from that part of the judgment which denied recovery of taxes, paid under protest, in reference to a vault door and door frame owned and installed by the lessee bank and assessed to the plaintiff as real property. Defendants appeal from the portion of the judgment granting recovery as to the levy upon certain tellers' cages, partitions, coupon booths, counters, and other facilities used in the conduct of a bank.

Section 5219 of the Revised Statutes of the United States, 12 U.S.C.A. s 548, permits the taxation of real property belonging to national banking associations ‘to the same extent, according to its value, as other real property is taxed.’ No provision is made in the federal statutes for taxation of personal property belonging to national banking associations. Article XIII, section 16, subd. 1(a), of the California Constitution provides for a tax measured by a national bank's net income in lieu of all other taxes, except taxes on real property.

The main question to be decided in this case is whether equipment installed in plaintiff's building by the Bank of America, a national banking association, and entered upon the tax rolls of defendants for the year 1941, constitutes improvements to real property and is therefore taxable by subdivisions of the State of California, or whether such equipment remains personalty belonging to a national banking association and is therefore not taxable.

During the years 1930 and 1931, plaintiff constructed, at the corner of Rimpau Avenue and Washington Boulevard in the city of Los Angeles, a building designed for the occupancy of stores and a supermarket. No part of the building was especially constructed or designed for use as a bank. The corner store, after having been occupied by a drug store and a dress shop, was leased by plaintiff on July 31, 1936, for a term of six years to the Bank of America for the purpose of establishing a branch bank. The cost of alterations, exclusive of equipment, was $11,630.36. At the expiration of the lease the premises were again leased to the bank for a new term of five years ending July 31, 1947. The leases contained the following pertinent provisions:

‘The lessee accepts the said premises in the condition existing at the time of execution of the within lease, and it is agreed between the lessor and the lessee that all alterations, additions and repairs to be made to said premises, including the installation of vaults, vault doors and safe deposit boxes, together with bank fixtures and eqipment necessary for the operation of the lessee's business in said premises, shall be made to said premises at lessee's own cost and expense.

‘It is agreed that upon the expiration of this lease or upon the expiration of any extension, renewal or sooner termination thereof, lessee may remove all or any part of the furniture, fixtures, vaults, vault doors, vault door frames, safe deposit boxes, business equipment and all other improvements and personal property placed in, on or about said premises by lessee or by any predecessor of lessee, but it is agreed that upon the expiration of said term or any renewal, extension or sooner termination hereof, lessee shall not be required to remove the fixtures, vaults, vault doors, safe deposit boxes and improvements set forth above or any part thereof unless it elects so to do. * * *’

Interior alterations included the construction of a vault room, and the installation of a vault door, counter line, partitions, tellers' cages, wickets, etc. The vault room, built of reinforced concrete, was approximately 17 feet long, 8 1/2 feet wide, with a door opening 7 feet 5 inches high by 3 feet 6 inches wide. In its complaint on file in the instant action, plaintiff makes the following concession in regard to the vault room and store front of the building:

‘That at all times since their erection, and for the tax years 1937-38 to and including the current tax year 1941-42, said store front and vault room have been assessed and taxed, without any objection by plaintiff Landlord or lessee National Bank as to such assessment and tax, to plaintiff Landlord, as a part of the aforesaid improvements and building;

‘That both plaintiff Landlord and lessee National Bank have at all times conceded, and do now concede, that, for tax purposes, the aforesaid store front and concrete vault room are improvements properly taxable to plaintiff Landlord as a part of the aforesaid building.’

The bank installed, in the opening into the vault, a steel vault door frame and door comprising one unit. The door was 3 1/2 inches thick, polished steel finish, and had a double combination and a triple time lock. Wooden wedges inserted at the top of the door and the frame held the door and frame in its vertical position. An inner air space or vestibule, approximately 3 inches in width at the sides and top walls, was composed of 3-inch by 3-inch angles and plates. Concrete grouting, in which crushed rock or gravel was intermixed with cement, was poured into this air space. When hardened the concrete grouting formed a hard and permanent attachment between the vault door frame and the vault room wall or vault door opening.

The door and door frame unit which was installed was a second-hand one taken from the bank's warehouse where a stock of used vault door frames and doors was kept on hand. It had an original cost of $1,800-$1,900. The value thereof at the time of installation was estimated at $1,500. The counter line, with its partitions and wing appurtenances, and the coupon booths were attached to the building by drilling holes in the concrete floors into which were fitted wooden pegs to which a plate board was nailed. The wing through which there was a swinging door was steadied by a metal bracket attached to additional pegs fitted into the floor, and the door plates of the coupon booths were likewise set into the floor.

During the 1941 assessment period, after the decision of this court in the case of San Diego Trust & Savings Bank v. County of San Diego, 16 Cal.2d 142, 105 P.2d 94, 133 A.L.R. 416, the Los Angeles County Assessor added to the figures, which he had in previous years fixed as the assessed value of the improvements, the sum of $660 as representing the increase in the assessed value of the improvements by reason of the attachment thereto of the bank vault door and frame. A figure of $910 was fixed as representing the increase in the assessed value of the improvements by reason of the attachment of some of the other equipment such as counter lines, tellers' cages, wickets, and coupon booths. Prior thereto the bank had notified the county assessor in writing of its claim that the vault door and other banking equipment were personalty belonging to it and should not be assessed to plaintiff landlord as consituting a part of the improvements.

The board of Supervisors of Los Angeles County, sitting as a Board of Equalization, denied an application for a reduction of the assessed valuation placed upon plaintiff's property, by reason of the above mentioned equipment attached thereto, by the lessee bank. Plaintiff paid the tax under protest and instituted this suit. While making an opening statement, plaintiff's counsel indicated that the present case is intended to be a test for several hundred other cases.

The trial court concluded that the vault door and frame were and had become an integral part of the vault room and of the building of the plaintiff landlord, and that the door was properly assessed as a part of the improvements upon plaintiff's property. The trial court further concluded that the articles of banking equipment, other than the vault door, were trade fixtures installed by the lessee bank for the purpose of carrying on its banking business, and that for the purpose of taxation they were personalty belonging to a national banking association and hence exempt from local taxation. Judgment was entered accordingly.

In support of the judgment as to the vault doors, defendants contend that the case of San Diego Trust & Savings Bank v. County of San Diego, 16 Cal.2d 142, 105 P.2d 94, 133 A.L.R. 416, stands for the proposition that vault doors installed by a bank on leased premises are improvements to real property and are taxable as such improvements. Plaintiff contends that the San Diego Bank case is not controlling in the instant controversy.

The tests to be used in determining whether or not an article is a fixture are well settled, namely: (1) the manner of annexation; (2) adaptability to the use and purpose for which the realty is used; and (3) the intention of the party making the annexation. San Diego Trust & Savings Bank v. County of San Diego, 16 Cal.2d 142, 149, 105 P.2d 94, 133 A.L.R. 416; City of Los Angeles v. Klinker, 219 Cal. 198, 25 P.2d 826, 90 A.L.R. 48. The intent that is material is that which is manifested by outward appearances. Private parties such as those bearing the relationship of landlord and tenant may mutually agree that certain property shall be deemed of a particular character, and such agreement will be controlling as to the parties thereto but is not binding upon the taxing authorities. San Diego Trust & Savings Bank v. County of San Diego, supra.

The instant case, insofar as the vault door is concerned, is controlled by the decision in the San Diego Bank case. In that case a number of vault doors belonging to banking corporations were involved. There was testimony that the bank vaults were not built to allow the installation of one particular door. There was evidence that vault doors, varying in thickness, quality, efficiency and cost, were kept in stock by dealers. The testimony as to the character of the doors, and the means by which they were attached, was substantially the same as the testimony in the instant case pertaining to such matters. In the San Diego case this court held such evidence insufficient to overcome the manifestations of the physical facts. It was pointed out that, concededly, vaults were not trade fixtures and that the vault doors had become integral parts thereof. On pages 150 and 151 of 16 Cal.2d, on page 98 of 105 P.2d it was said:

‘The nature of a vault door itself suggests an intent permanently to affix it to a vault which by ordinary tests must be said to constitute an improvement to realty. Vaults alone without doors would not be useful as vaults, and would fail in their intended purpose. Both functionally and physically a vault door is integrated with the vault itself. Certainly vaults and vault doors constitute a unit for use together and are improvements to the realty. (Citations.)

‘The mere fact that said doors can be removed without material damage to the vaults by chipping away with a chisel, jack hammer, or compressed air hammer, the cement grouting which attaches them to the vaults, does not alone establish their character as articles of personalty. * * *

‘The existence or period of use of a vault door is measured by the life of the building to which it is annexed unless it becomes obsolete or mechanically defective. In order to make an article a permanent accession to the land its annexation need not be perpetual. It is sufficient if the article shall appear to be intended to remain where fastened until worn out, until the purpose to which the realty is devoted has been accomplished or until the article is superseded by another article more suitable for the purpose. 26 C.J. 657, s 6.’

The principal factor relied upon by plaintiff to distinguish this case from the San Diego Bank case is that the bank which installed the vault door was not the owner of the premises nor a long term lessee thereof. In the San Diego Bank case, some of the vault doors were installed by owners of the buildings while others were annexed by lessees that occupied the premises under leases ranging in duration from approximately ten to fifty years. In one instance the annexor held the premises under a month-to-month tenancy but had occupied the property for more than twenty years. In the instant case, in 1936, when the vault door and other equipment was first installed, the bank had just leased the premises for a period of six years ending July 31, 1942, and at the end of such term the premises were leased to the bank for a new term of five years. This circumstance, in the instant case, does not furnish a sufficient ground upon which to predicate a distinction. To hold otherwise would furnish an easy means of circumvention of taxation. Furthermore, if the initial length of the lease were deemed controlling, the question of just where the line should be drawn would be a matter which would be difficult, if not impossible, to ascertain.

Plaintiff, in stressing the point now under consideration, loses sight of the character of the business engaged in by the lessee. No showing was made that the bank intended to stay for only a limited time or that it had any intention of moving its quarters so long as its business in that location remained profitable. Mr. B. T. Lane, who is assistant vice president of the Bank of America and whose duties include the installation of equipment in branch banks, testified that it was the desire of the bank to keep branches in one place as long as possible regardless of whether the premises are owned or leased and that when the lease for plaintiff's building was entered into and installations made therein, the bank had the intent to maintain a branch at that location and building as long as good business dictated. This witness also testified that except in the event of unusual circumstances the door would be kept where it was until the premises ceased to be used for bank purposes or the door became obsolete or worn out.

An item of property such as the vault door in the instant case which is rooted into the building in no ordinary manner, which is a necessary adjunct of the business to which the realty is devoted, and which will probably be used there, in the ordinary course of events, for the full length of its economically useful life must be deemed to be permanently annexed for the purposes under discussion. The fact that office locations are sometimes changed and equipment moved does not alter the situation. In distinguishing permanence from transitoriness, it is not necessary to identify it with perpetuality. Southern Cal. Tel. Co. v. State Board of Equalization, 12 Cal.2d 127, 136, 82 P.2d 422. There is little, if any, resemblance between the nature and the manner of attachment of a vault door installed as an integral part of a vault on the one hand, and the nature and customary manner of attachment of trade fixtures such as used by the bank on the other, and it therefore appears that a distinction in classification for the purposes of taxation is entirely proper.

There is further reason why the length of lease cannot, of itself, be considered controlling in characterizing property. The determination here will indicate to local assessors the course to be followed by them in future years, but uniformity of taxation cannot of real or personal uniform classification of real or personal property is established. Just as assessors are not bound by private agreements, they should not be frustrated or hindered in performing their vital functions by the necessity of ferreting out the undisclosed and often secret intentions of lessors and lessees relative to the terms of a lease. For the most part, assessors must be allowed to act on the basis of outward appearances.

We conclude that the findings of the trial court with respect to the vault door and door frame are supported by substantial evidence which places them beyond attack upon appeal.

The appeal by defendants challenges that portion of the judgment of the trial court holding that the equipment installed by the lessee bank, other than the vault door and door frame, constituted personal property exempt from local taxation. Such equipment consisted of tellers' cages, wickets, counters, partitions, coupon booths, and other items having all the characteristics of ordinary trade fixtures. The counter line, with its partitions and wing appurtenances, and the coupon booths were attached to the building by drilling holes in the concrete floor into which were fitted wooden pegs to which a plate board was nailed. The wing, through which there was a swinging door, was steadied by a metal bracket attached to additional pegs fitted into the floor, and the door plates of the coupon booths were likewise set into the floor.

In support of their claim that the above mentioned equipment constituted improvements to the realty, defendants cite the case of Southern Cal. Tel. Co. v. State Board of Equalization, 12 Cal.2d 127, 82 P.2d 422, 428. That case involved the classification of certain central office equipment in a building owned by a telephone company, and equipment in other offices and buildings leased by the company. This court held the central office equipment to be a unit for use and an improvement to realty. It was observed that the system of wire connections there involved was very intricate and that there would be great expense incident to moving most of the equipment as well as that the articles were necessary or convenient to the use of the building for the purpose for which it was designed. At the same time it was ruled that: ‘In no proper sense can equipment in small leased offices be held an improvement to and part of real property owned by another. The mere attachment of switchboard legs and equipment to floor or walls by screws or bolts does not have that effect.’ Defendants assert that the property here involved is likewise a unit of use which gives to it the character of realty. However, this case and the telephone company case are obviously not analogous, and we have condluded that the finding of the trial court that such equipment constitutes trade fixtures is supported by the record and is unassailable upon this appeal. The manner of annexation of this equipment is of a slight and temporary nature as compared with the annexation of the vault door. Such manner of annexation is comparable to the customary manner of annexing trade fixtures generally, and it does not appear from the physical facts that a long term usage of the equipment was necessarily intended.

Defendants further contend that trade fixtures are a part of the realty until removed and are therefore taxable as improvements. It is argued that ‘there is no occasion to have a special doctrine of ‘trade fixtures' if they are personal property.’ In truth, however, it is because an article is a ‘trade fixture’ that it retains its character as personal property. (22 Am.Jur., Fixtures, ss 40, 61.) In the case of a trade fixture there is no intent to make a permanent attachment. (See Civ.Code, ss 660, 1019; Southern Cal. Tel. Co. v. State Board of Equalization, 12 Cal.2d 127, 134, 82 P.2d 422.

The articles of property other than the vault door having been determined by the trial court to be trade fixtures and therefore to be personal property belonging to a national banking association, were not taxable and the judgment of the trial court is correct insofar as it permits a recovery of taxes paid thereon.

The question remains as to whom the vault door should have been assessed. This question was expressly left undecided in the San Diego Bank case by virtue of agreement of the parties. The trial court in the instant case found that the vault door was capable of being separately assessed to the lessee national bank but that the law did not require the assessor to assess it separately to the lessee and that it was permissible for the assessor to assess it to the owner of the building. Plaintiff contends that the tax on any of the property that is determined to be a part of the realty should have been assessed to the lessee bank, the owner thereof, and that failure to do so rendered the entire assessment void. It bases this contention upon section 405 of the Revenue and Taxation Code which provides that taxable property shall be assessed to the persons ‘owning, claiming, possessing, or controlling it,’ and upon section 602(g) of the same code which is to the effect that the assessment roll shall show the cash value of improvements assessed to any person other than the owner of the land. In addition to its attempt to support the finding and holding of the trial court, defendants cite section 2188 of the Revenue and Taxation Code which provides that ‘Every tax on improvements is a lien on the taxable land on which they are located, whether they are assessed to the landowner or to some other person’ and defendants contend that if there was any mistake it was cured by section 613 of the Revenue and Taxation Code, which provides that ‘A mistake in the name of the owner or supposed owner of real estate does not render invalid an assessment or any tax sale.’ Plaintiff's answer to this argument is that what is here involved is not merely a mistake in a name, but a blending in one assessment of the property of plaintiff with other property, whereby it was forced to pay the whole assessment in order to pay the tax on its own property.

We have already held that the vault and vault door composed a unit together and constituted an integral part of the building. Under such circumstances we believe that the entire building, including the vault and vault door, was properly assessed and taxed to the owner of the land. There is nothing in the cited code sections to indicate that a single building should not be assessd as a single improvement. The value of a building is not a summation of the values of the component parts valued separately. The vault door does not now necessarily have the same value that it had when it was segregated, but rather the value of the building in which it has been integrated has become enhanced, and it appears from the record that it was this increase in value that was actually taken into account by the assessor. As shown by the portions of the lease and plaintiff's complaint, set out earlier herein, the right was reserved to the bank to remove all improvements placed in, or on the premises by it, including the vault and vault door. Plaintiff now concedes that the store front and vault, which are improvements installed by the bank, are properly assessed and taxed to plaintiff, and for similiar reasons, hereinabove indicated, we are of the opinion that the vault door was likewise properly so assessed and taxed. An owner of a building may protect himself by contract against any increase in assessment and tax that may result from improvements thereto made by a tenant, and this would seem to be the preferable method of handling the situation rather than to burden the taxing authorities with the necessity of attempting to make multiple assessments upon various items of improvements embraced within a single structure.

Furthermore, we do not believe that plaintiff is in a position to complain of the assessment to it of the vault door for the year here in question. The record reveals that the property statement for the tax year 1941-42, filed by plaintiff as required by sections 441 and 442 of the Revenue and Taxation Code, included the entire building of plaintiff as its taxable property. This was in accord with its practice in previous years in dealing with other tenants when, according to a concession made by plaintiff in its complaint, it ‘expressly or impliedly * * * obligated itself solely and exclusively to pay all taxes on said land and the improvements constituting the said building erected thereon.’ The bank filed no property statement returning the vault door, but did notify the assessor of its claim of ownership of the vault door and of its further claim that the vault door was personalty exempt from taxation. The assessor, however, properly determined that the vault door constituted an improvement to the realty, and we cannot hold that the ensuing assessment to plaintiff was erroneous when such was in accordance with the property statement it had filed, and where such claim of ownership as the bank had made was qualified by a claim that what it owned was personalty.

In any event (assuming but not conceding that the assessment to plaintiff was erroneous), the effect of the above mentioned section 613 of the Revenue and Taxation Code would be at least to preserve the lien for the tax against plaintiff's land. (Rev. & Tax. Code, s 2188.) The assessment was not void. It imposed no personal liability against plaintiff, but was against the property. Klumpke v. Baker, 131 Cal. 80, 82, 63 P. 137, 676; see, also, Webster v. Somer, 159 Cal. 459, 114 P. 575; Palomares Land Co. v. Los Angeles County, 146 Cal. 530, 80 P. 931; Henne v. County, of Los Angeles, 129 Cal. 297, 61 P. 1081; McCracken v. Hummel, 43 Cal.App.2d 302, 110 P.2d 700; Interstate Realty & Imp. Co. v. Clark, 77 Cal.App. 558, 247 P. 244. The case of Kern Valley etc. Co. v. County of Kern, 137 Cal. 511, 70 P. 476, relied upon by plaintiff, is not contrary to the foregoing conclusion as it is clearly distinguishable upon its facts. Furthermore, that case arose upon demurrer and the question of the effect of the provision in regard to mistake in the name of the supposed owner (then contained in section 3628 of the Political Code) was not considered.

The judgment is affirmed.

Assuming that the findings of fact and the conclusions of law made by the trial court characterize the vault frame and door as fixtures within the meaning of section 660 of the Civil Code, as I read the other applicable statutes and apply the principles of construction which I mentioned in detail in San Diego Trust & Savings Bank v. County of San Diego, 16 Cal.2d 142, 155, 105 P.2d 94, 133 A.L.R. 416, these articles may not be assessed to the landowner.

SPENCE, Justice.

GIBSON, C. J., and SHENK, CARTER, and SCHAUER, JJ., concurred. TRAYNOR, J., did not participate herein.