San Geronimo Develop. Co. v. Treasurer of Puerto Rico

• Decision Date: 30 April 1956
• Docket Number: No. 4913.,4913.
• Citation: 233 F.2d 126
• Parties: SAN GERÓNIMO DEVELOPMENT CO., Inc., Petitioner, Appellant, v. TREASURER OF PUERTO RICO et al., Appellees.
• Court: U.S. Court of Appeals — First Circuit

233 F.2d 126 (1956)

SAN GERÓNIMO DEVELOPMENT CO., Inc., Petitioner, Appellant, v. TREASURER OF PUERTO RICO et al., Appellees.

No. 4913.

United States Court of Appeals First Circuit.

Heard February 7, 1956.

Decided April 30, 1956.

COPYRIGHT MATERIAL OMITTED

Nelson Gammans, New York City, for appellant.

Manuel J. Medina Aymat, Asst. Atty. Gen., with whom José Trias Monge, Atty. Gen., of Puerto Rico, was on brief, for appellees.

Before MAGRUDER, Chief Judge, and BIGGS and WOODBURY, Circuit Judges.

MAGRUDER, Chief Judge.

This case involves so-called "property" taxes assessed to appellant San Gerónimo Development Co., Inc., by action of the Treasurer of Puerto Rico on October 26, 1949, covering the tax years 1946-1947, 1947-1948, 1948-1949, and 1949-1950, in the aggregate amount of $27,938.26.

The nature of the property interest held by appellant that was thus subjected to local taxation resulted from a peculiar series of transactions which have been described extensively in two previous decisions of this court. See Baker v. United States, 1 Cir., 1928, 27 F.2d 863, certiorari denied 1929, 278 U.S. 656, 49 S.Ct. 185, 73 L.Ed. 565; United States v. San Gerónimo Development Co., Inc., 1 Cir., 1946, 154 F.2d 78, certiorari denied 1946, 329 U.S. 718, 67 S.Ct. 50, 91 L.Ed. 623.

In 1919 the San Gerónimo tract, a part of the Military Reservation of San Juan owned by the United States, was formally transferred to the Navy Department and become known as the San Gerónimo Naval Reservation. In that year the Navy Department leased to Lieutenant Commander Virgil Baker, Retired, an unused portion of the reservation for a term of five years, with permission to Baker to erect and occupy a concrete dwelling thereon. Baker at that time was in charge of the Naval Radio Station at San Juan. There followed a series of negotiations between Baker and the Navy Department in which Baker sought to obtain ownership of the tract leased to him.

As a result of these negotiations there was included in the Naval Service Appropriation Act of July 12, 1921, 42 Stat. 122, at the request of the Secretary of the Navy, the following provision:

"Sec. 5. That as consideration for a suitable site and requisite rights, privileges, and easements for a receiving and distant-control radio station in Porto Rico the Secretary of the Navy be, and he hereby is, authorized to exchange or lease for such period as he may deem proper any land under naval control in Porto Rico not otherwise required for naval purposes: Provided, That in time of war or national emergency, if necessary, the Navy Department shall have without cost free and unlimited use of any land so exchanged or leased." 42 Stat. 139.

The foregoing provision was enacted to give the Secretary of the Navy power to lease or permanently transfer to Baker the tract of land of which that involved in the present case formed a part. Pursuant to this statutory authority, an agreement of lease to Baker for 999 years was entered into on July 15, 1921, between the United States, represented by the Acting Secretary of the Navy, and Lieutenant Commander Baker. The document recited that the irrevocable lease to Baker and his heirs and assigns for 999 years "for such use and improvement as they may deem proper" was made in consideration of a certain deed of conveyance which Baker and his wife had already executed in favor of the United States of certain properties in Puerto Rico for a distant-control radio station. There was no provision for any annual rental payments and therefore no possibility existed that the United States might reenter the property before the expiration of the lease for nonpayment of rent. It is true the lease contained a covenant on the part of Baker to make certain improvements on the property. Thus there may have been at the outset a possibility of reentry by the United States for nonperformance of such covenant; but if so, this possibility has long since become extinct (see Baker v. United States, supra, 27 F.2d at pages 864, 874) and may be left out of account so far as the interests of the present appellant are concerned.

It was recited in the lease that in accordance with the desire of the Navy Department this lease for 999 years was granted in lieu of the complete transfer of title provided for in previous agreements between the parties, and was accepted by Baker in complete and entire satisfaction of all such previous agreements. Also the lease provided, though this was probably unnecessary in view of the mandate in the Act of Congress, that it was mutually understood and agreed "that the Navy Department shall have in time of war or national emergency, if necessary, free and unlimited use without cost, of the site of land herein leased."

In Baker v. United States, supra, 27 F.2d 863, the United States brought suit to cancel the Baker lease for fraud and for nonfulfillment of the covenanted improvements, but this court upheld the lease and directed that the complaint be dismissed.

Since 1921, by derivation from Baker, the tract covered by the "lease" has been subdivided into parcels transferred to various sublessees or assignees.

In 1929, the President of the United States, under authority of § 7 of the Organic Act, 39 Stat. 954, 48 U.S.C.A. § 748, issued a proclamation transferring to the People of Puerto Rico "all the right, title, and interest of the United States" in and to the Military Reservation of San Juan, including the San Gerónimo tract under lease to Baker. Proclamation Aug. 26, 1929, 46 Stat. 3004. Thus the People of Puerto Rico became vested with the technical reversion in fee after the expiration of the 999-year lease. In the appropriate Registry of Property this dominion "title" of the People of Puerto Rico was duly recorded.

In 1930 Baker assigned all of his remaining interest under the "lease" to the San Gerónimo Development Co., Inc., appellant herein, a corporation the stock of which was wholly owned by Baker and his wife. On various dates in 1938 and 1939 appellant further subdivided the tract in question by assignments to Rosales, De la Haba, Rodriguez, and Mera. The respective parcels were transferred to these assignees for the remainder of the 999-year period. In each case the assignment was in consideration of a lump sum payment rather than in consideration of annual rental payments.

On October 26, 1949, the Treasurer of Puerto Rico assessed a property tax against San Gerónimo Development Co., Inc., on those portions of the old Baker tract still in appellant's possession during the taxable years; and he also made similar assessments against appellant's assignees Rosales, De la Haba, Rodriguez, and Mera. These parties paid the taxes so assessed, and brought suit in what was then the Tax Court of Puerto Rico, praying that the assessments be set aside and that the tax payments be refunded. The Tax Court held in favor of the Treasurer. Upon review by certiorari, the Supreme Court of Puerto Rico entered judgments affirming the judgments of the Tax Court. Appeal was then taken to this court by San Gerónimo Development Co., Inc., but not by Messrs. Rosales, De la Haba, Rodriguez, or Mera.

No challenge was made in the insular courts, nor before us, to the valuations by the Treasurer on the basis of which the taxes were assessed, appellant's consistent position having been that no tax at all was due to the People of Puerto Rico on the interests in the San Gerónimo tract derived by appellant from the United States of America in the manner above stated.

Apparently it was generally assumed in the earlier years (though there was no court decision on the point) that due to the form in which the transaction between Baker and the Navy Department was cast, the tract in the hands of Baker and his successors would be free from local property taxes for ten centuries. At least, it is conceded that until October 26, 1949, the Treasurer had made no attempt to assess such property taxes on the San Gerónimo tract.

Appellant's argument that the decision of the Supreme Court of Puerto Rico was erroneous is an ingenious and elaborate one, but it seems to us to be over-conceptualistic in its approach. Appellant says: "The Court below should not be permitted to dress up as a local question a question which is in substance a Federal one." We agree, and we do not think that the court has done that. Upon the contrary, it seems truer to say that appellant has attempted to dress up as a federal question a question which in the last analysis is a local one.

The interpretation of § 5 of the Naval Service Appropriation Act of 1921, 42 Stat. 139, and of the deed which the Secretary of the Navy executed pursuant to the authority thereof, is no doubt a federal question. The Navy was authorized to "exchange or lease" the San Gerónimo tract in consideration of the conveyance by Baker to the United States of certain property suitable as a site for a radio station. But in whichever form the transaction was to be cast, Congress decreed that "in time of war or national emergency, if necessary, the Navy Department shall have without cost free and unlimited use of any land so exchanged or leased." The Secretary of the Navy chose to execute to Baker a lease for 999 years, with a technical reversion in fee to the United States at the end of that time, and of course, with the reservation throughout the period of the lease of the right of free user in time of war or national emergency. In Baker v. United States, supra, 27 F.2d at 869, we said: "It appears that the form of the transfer, namely, a long lease, was undoubtedly adopted by the Navy Department in order that there should be no question of retaking the entire property from the defendant Baker, without cost, `in case of war or national emergency.'" As we pointed out in United States v. San Gerónimo Development Co., Inc., supra, 154 F.2d at page 85, this reason for the form of the transaction exhibited an unnecessary caution by the ...