Dohrmann Co. v. Security Sav. & Loan Assn.

• Decision Date: 11 June 1970
• Citation: 87 Cal.Rptr. 792,8 Cal.App.3d 655
• Court: California Court of Appeals Court of Appeals
• Parties: DOHRMANN CO., a California corporation, Plaintiff and Appellant, v. SECURITY SAVINGS AND LOAN ASSOCIATION, a California corporation, County of Alameda, a body politic, Edwin Meese, Jr., as County Tax Collector, Defendants and Respondents. Civ. 27017.

Page 792

87 Cal.Rptr. 792

8 Cal.App.3d 655

DOHRMANN CO., a California corporation, Plaintiff and Appellant, v. SECURITY SAVINGS AND LOAN ASSOCIATION, a California corporation, County of Alameda, a body politic, Edwin Meese, Jr., as County Tax Collector, Defendants and Respondents.

Civ. 27017.

Court of Appeal, First District, Division 4, California.

June 11, 1970.

Mantalica, Barclay & Teegarden, Los Angeles, Fitzgerald, Abbott & Beardsley, Oakland, for plaintiff and appellant.

Burd, Hunt & Friedman, San Francisco, for Security Savings and Loan Assn.

Richard J. Moore, County Counsel, Thomas J. Fennone, Deputy County Counsel, Oakland, for County of Alameda and Edwin Meese, Jr.

RATTIGAN, Associate Justice.

This appeal presents questions relating to (1) the validity of a tax sale of personal property as affected by the notice given thereof, and (2) the effect of an erstwhile junior encumbrancer's tax purchase of the property.

Appellant Dohrmann Co. (hereinafter 'plaintiff') brought the action, for declaratory relief, against Security Savings and Loan Association ('Security') and Edwin Meese, Jr., as tax collector of the County of Alameda. The complaint sought, among other things, a declaration that plaintiff held a valid security interest in certain personal property, as the unpaid conditional seller thereof and 'prior in right to any and all claims of defendants.' The trial court entered judgment on the pleadings adverse to plaintiff, who appeals.

The Complaint

As will appear, the questions presented require close examination of the allegations in the complaint. We summarize them, and quote them in part, as follows:

The personal property in dispute consists of certain items of hotel and restaurant equipment (occasionally identified in the complaint, and herein, as 'Lot 15'). On September 29, 1961, under a written conditional sales contract, plaintiff sold them to one Stockman 'to be used by Stockman in his business known as Edgewater Inn' and located at a specified address in Alameda County. ¹ The contract provided that plaintiff retained title to Lot 15 until the purchase price ($221,547.53, payable by Stockman in installments) had been paid in full; and that Stockman 'agreed to pay all taxes and assessments levied against' the property.

The Edgewater Inn, a hotel, was constructed on land held by Stockman under lease; he owned 'the leasehold and hotel buildings.' In 1963, he executed and delivered to Security (1) his promissory note evidencing a loan from Security in an unspecified amount, (2) a deed of trust securing its payment and covering the leasehold and buildings at the Edgewater Inn, and (3) a chattel mortgage covering all personal property located on the premises, including the Lot 15 items sold by plaintiff under the 1961 conditional sale contract.

Thereafter Stockman 'failed to pay unsecured personal property taxes due to Alameda County for the fiscal year ending June 30, 1966.' '* * * (P)rior to May 10, 1966, the County of Alameda, acting by and through the (defendant) tax collector, and pursuant to authority vested in it by Revenue and Taxation Code (section) 2914, took possession of the premises of Edgewater Inn for the purpose of seizure and sale, to satisfy the delinquent unsecured personal property taxes levied against the premises and the contents thereof.' On May 10, 1966, defendant tax collector 'posted a Notice of Tax Sale and mailed copies to secured creditors of Stockman,' including plaintiff. ²

On May 16, 1966, a petition in voluntary bankruptcy was filed against Stockman in the United States District Court for the Northern District of California. The tax Sale scheduled for May 19 did not materialize because the bankruptcy court restrained it. Pursuant to subsequent orders in the bankruptcy proceeding, 'Stockman remained as Debtor-in-Possession of the Edgewater Inn, and continued to operate the hotel under the jurisdiction of the Bankruptcy Court.' This arrangement terminated when he was adjudicated a bankrupt on January 3, 1968, at which time '(T)he Trustee in Bankruptcy took possession of the assets of Stockman, including the leasehold, buildings and personal property located at the Edgewater Inn. Among the assets of Stockman of which the Trustees took possession was the personal property (Lot 15) sold by plaintiff to Stockman under the contract of sale dated September 29, 1961.'

On February 13, 1968, the trustee conducted a public bankruptcy sale of all of said assets. No bids having been accepted, and on the same day, the trustees sold them--including the Lot 15 items--to Security at a private sale which was subsequently confirmed by the bankruptcy court. The private February 13 sale was made and confirmed without notice to any of Stockman's creditors, including plaintiff. 'Such sale was subject to any rights which any secured creditor (of Stockman) might have in the property and subject to any and all claims of the (defendant) Tax Collector for taxes then delinquent and unpaid, and Security had knowledge of that fact.' When and before the bankruptcy sale occurred, Security also had 'actual knowledge' that plaintiff claimed a security interest in the Lot 15 property under its 1961 conditional sale contract with Stockman.

On February 20, 1968, 'Security was in possession, as owner, of the leasehold and buildings of Edgewater Inn * * * and of the personal property appurtenant thereto as purchaser from the Trustee in Bankruptcy.' On the same date, defendant tax collector posted, in three public places, notices of tax sale setting a public sale, on February 28, 1968, 'of the leasehold, buildings and all personal property in the premises as to which unsecured personal property taxes were delinquent and unpaid.' No other notice of the scheduled sale was given, and plaintiff was not sent a copy of the notice as posted. Also on the same date (February 20, 1968), Security paid to defendant tax collector the amount of the delinquent property taxes on the leasehold and buildings, but not that portion of the delinquent taxes which was attributable to the personal property on the premises.

On February 28, 1968, defendant tax collector conducted the scheduled public sale of the personal property. Security bid the sum of $18,214.35, the full amount of taxes due (plus penalties and interest), and defendant tax collector executed and delivered to Security a bill of sale covering all the personal property (including the Lot 15 items). Plaintiff received no 'direct notice' of this sale at any time beforehand, and had no 'actual notice' thereof until afterward.

Security was, on February 20, 1968, and still is, in possession of the leasehold, buildings and personal property at the Edgewater Inn, and has been operating the hotel business and receiving the income therefrom. On that date, the fair market value of the Lot 15 property in Security's possession was 'not less then $100,000.00'; the unpaid amount of the purchase price 'currently' due plaintiff, under its 1961 conditional sale contract with Stockman, is $154,544.73.

'At all times since May, 1966, the defendants, and each of them, had actual knowledge: (a) that plaintiff claimed a security interest as unpaid conditional seller in the personal property * * * herein referred to as 'Lot 15'; (b) of the address of the principal office for the transaction of business of plaintiff; (c) that posting of Notice of Tax Sale in three public places was not such notice as would reasonably convey to plaintiff the information contained therein.'

The complaint also set forth the respective positions of the parties as follows: Plaintiff contends that the purported tax sale operated to deny it due process because of the insufficient notice thereof; that Security, paying the delinquent taxes, was 'not a purchaser at a tax sale, but was an owner of property redeeming said property from the tax lien asserted by the (defendant) Tax Collector'; that plaintiff retained its prior security interest in the property; and that Security's assertion of exclusive title to, and its use of, the property constituted a conversion thereof. Defendants contend that the tax sale was valid as against plaintiff; that it vested exclusive title in Security, free and clear of plaintiff's claims; and that Security was a tax sale purchaser, 'not an owner redeeming said property from the tax lien.'

The Judgment On The Pleadings

Both defendants filed general demurrers to the complaint; neither demurred specially. The treatment and disposition of the general demurrers is recited in the judgment, pertinent portions of which are set forth in the margin. ³ They asserted, on behalf of the demurring defendants respectively, that the complaint stated no cause of action against either. The trial court upheld this position, but--following the parties' stipulation--did so by entering judgment on the pleadings, in defendants' favor, rather than by sustaining their demurrers without leave to amend and entering judgment of dismissal accordingly.

The procedure thus followed is both proper and desirable in an action for declaratory relief. (Wilson v. Board of Retirement (1957) 156 Cal.App.2d 195, 200--203, 319 P.2d 426. See Wilson v. Civil Service Comm. (1964) 224 Cal.App.2d 340, 344, 36 Cal.Rptr. 559.) Since the declaratory judgment is on the pleadings, however, it must be reviewed 'the same as would be a judgment of dismissal entered following the sustaining of a general demurrer, and the allegations in * * * (the) * * * complaint must be taken as true, and so taken the question is whether a cause of action has been stated. (Citations.)' (Gill v. Curtis Publishing Co. (1952) 38 Cal.2d 273, 275, 239 P.2d 630, 631. Accord: Beverage v. Canton Placer Mining Co. (1955) 43 Cal.2d 769, 772, 278 P.2d 394; Amacorp Ind. Leasing Co. v. Robert c. Young Associates, Inc. (1965) 237 Cal.App.2d 724, 730, 47 Cal.Rptr. 294.)

It first appears that plaintiff's interest in the Lot 15 items, as...