San Pedro Etc. R. R. Co. v. City of Los Angeles , 180 Cal. 18 ( 1919 )

I dissent from that part of the foregoing opinion which readopts the opinion of Mr. Justice Sloss filed at the former hearing of the appeals, and I adhere to the views expressed in the opinion in San Pedro etc. R. R. Co. v. Los Angeles,167 Cal. 425, [52 L.R.A. (N.S.) 991, 139 P. 1071], which has been the declared law of this state upon this subject for more than four years. That property rights have been acquired under the rule announced in that case and in reliance thereon seems to me to be without the possibility of a doubt. Whether the state or its mandatories charge a lessee additional rental under the guise of a tax or merely by arbitrarily increasing the demand and still calling the exaction rent makes no difference, it seems to me. It is in either case a violation of the lessee's contract to enjoy land exempt from taxation for a certain stipulated payment. It cannot justly be said, therefore, it seems to me, that no property rights appear to have been acquired upon the faith of the ruling in the former appeal in L. A. No. 4504. The arguments which impel the application of the rule of "law of the case" in that appeal seem to me equally to apply to this. The constitution and statutes as interpreted by this court form a part of every contract, and I cannot see how this court may now violate the obligation of one contract made and partly performed on the faith of an interpretation now held to be erroneous, while at the same time an exactly similar contract is pronounced inviolable because of "the law of the case."

One reason for the "rule of property" is the presumed dependence upon judicial decisions. In 11 Cyc. 755, the principle is thus stated: "Where judicial decisions may fairly be presumed to have entered into the business transactions of a country and have been acted upon as a rule of contracts and property it is the duty of the court, on the principle ofstare decisis, to adhere to such decisions without regard to how it might be inclined to decide if the question were new. And this rule obtains, although the court may be of the belief that such decisions are founded upon an erroneous principle and are not sound, for when parties have acted upon such decisions as settled law and rights have been vested thereunder, their inherent correctness or incorrectness in the abstract are of less importance than that the rule of property so established should be constant and invariable. So such a rule controls as to decisions involving questions of constitutional law and the construction and operation of statutes." The text is supported by a wealth of citation, including such cases as SacramentoBank v. Alcorn, 121 Cal. 379, [53 P. 813], andSmith v. McDonald, 42 Cal. 484. That this rule should find application to the case here considered is emphasized when we remember that the lessee has spent large sums in the betterment of the property. It is a logical, indeed almost an inevitable, conclusion that the amount of these expenditures was governed, in some degree, by the supposed exemption in favor of the plaintiff.

In the opinion of Mr. Justice Sloss, approved by the majority of the justices of this court, the following paragraph seems to me to be particularly erroneous:

" 'We do not agree with the suggestion made in the closing paragraph of the decision in 167 Cal. 425, [52 L.R.A. (N.S.) 991, 139 P. 1071], that a holding that the plaintiff's leasehold interest is subject to assessment and taxation would make void every assessment against the owner of land subject to a lease without an assessment against the lessee of the value of his leasehold. As has already been said, in the ordinary case the value of the leasehold is included in the value assessed to the owner of the fee. What the constitution and the law require is that all property shall be taxed in proportion to its value. And this is done when the whole value of the land is assessed to the owner of the fee. Section 3628 of the Political Code provides that no mistake in the name of the owner of real property shall render the assessment thereof invalid. The validity of the assessment would not, therefore, be affected by the fact that the values of the several estates in the land are united in a single assessment in the name of the owner of one of such interests.' "

This reasoning takes advantage of a statute intended only to cover cases of misnomer and excuses that which, if the rest of the opinion is correct, is an absolute misassessment of property to the wrong owner, for the assessor knows in every case in which there is a landlord and a tenant that the leasehold and the reversion belong to different individuals. The opinion contains nothing which, in my judgment, logically overcomes the following portions of the opinion in 167 Cal. 425, [52 L.R.A. (N.S.) 991, 139 P. 1071], written by Mr. Justice Henshaw and cited above: "No assessor has the right to assess and tax the leasehold interest if it be taxable at all against the fee which belongs in the remainderman or reversioner, for our laws are just and mandatory to the effect that property shall be assessed against the true owner and in the name of the true owner. (Pol. Code, secs. 3627, 3636.) And if it be held that in general a leasehold is property having a taxable value within our fiscal statutes, it must necessarily follow that every assessment which 'includes the value of both the estate for years and of the remainder or reversion,' which is levied against the landlord, is void as being an assessment against property not his own. The foundation for the rule which ignores the leasehold and puts the assessment of the whole estate upon the landlord is that the leasehold, while property for certain purposes, yet for fiscal purposes is not property at all; and as the tenant may not deny his landlord's title, so his possession is but the landlord's possession, and the value of that possession, whatever it may be, is therefore the property of the landlord and assessable against him. The tenant's right to possession is always in subordination to the landlord's paramount right, and in the eye of the law is no more separate property apart from the landlord's property than would be the landlord's permission to use a part of his land for a private right of way. The true reason, therefore, why, in general, leaseholds conveying the right to possession with the usual usufructuary rights are not assessable against the tenant is that they are not, for fiscal purposes, regarded as property. . . . If, under these circumstances, we are to hold that this leasehold is property within the meaning of our fiscal laws, every leasehold must equally be declared to be property subject to assessment and taxation. The immediate result of this would be to force a declaration that in every case where a lease is in existence, the assessment against the owner for the full value of the property, without an assessment against the lessee of the value of his leasehold, is void. Such a disturbance of our fiscal system is not to be contemplated, saving under the plain mandate of the legislature, and no such mandate has as yet been pronounced."

And in the future assessors may not keep their official oaths if they continue to assess leasehold interests to the owners of the fees. They cannot plead mistake and so take advantage of section 3628 of the Political Code, because they must know, as everybody knows, that commonly leaseholds and reversions belong to different individuals. I sincerely regret that in this later decision the majority of this court is thus disturbing our fiscal system.