text:
    [Sac. No. 5198.
    In Bank.
    September 2, 1938.]
    A. P. COSTA, Respondent, v. FRANK B. NEVES, Appellant. AMOS O. WILLIAMS, as Administrator etc., Appellant, v. A. P. COSTA et al., Respondents.
    [Sac. No. 5199.

      C. Ray Robinson, James D. Garibaldi, Willard B. Treadwell and John H. Machado for Appellants.
    Andey R. Schottky and Edward Bickmore for Respondents.
   THE COURT.

This cause was transferred to this court after decision by the District Court of Appeal, Third District. We are of the opinion that the District Court of Appeal arrived at the correct conclusion in its decision of the case. There was, however, certain language in the opinion which we deemed inappropriate. This language we have deleted from the opinion at places therein indicated by asterisks. As thus modified we adopt the sa'me as the opinion of this court. It is as follows:

“In this appeal two cases have been consolidated, an action for "unlawful detainer, and an action to quiet title by the administrator of the estate of Bastos, deceased.
“The facts upon which each action is based are so intermingled that one statement will cover both.
“For some time prior to March, 1933, Alfonso Bastos was the owner of a ranch in the county of Merced. About that time Bastos, being in some financial difficulty with Larry Ferreira, executed to his brother A. P. Costa, a mortgage thereon for $10,000.00. Shortly prior to the giving of this mortgage Ferreira had filed an action against Bastos alleging that Bastos was indebted to him in a sum in excess of $5,000.00. The court found, and the facts are apparently not in dispute, that Bastos received no consideration from Costa for the execution of said note and mortgage and that these instruments were executed with the intention to delay and defraud Ferreira, the creditor of Bastos and in the collection of any judgment he might obtain against Bastos.
“In November, 1933, Ferreira recovered a judgment of $5,000.00 against Bastos, and thereafter an execution was issued on said judgment directed to the sheriff of the county of Merced, which officer duly levied upon the ranch property of Bastos.
“Thereafter and in December, 1933, the real property was sold under execution by the sheriff to Ferreira, for the sum of $500.00 and the sheriff’s certificate of sale under said execution was delivered and duly recorded. About two months after the sale Bastos deeded said real property to A. P. Costa which deed was duly recorded. As to this transaction the court found that said Alfonso Bastos received no consideration for the making and execution of said deed. Some two or three months after the recording of this deed Ferreira made and executed a quitclaim deed of said real property to Costa. This deed was never recorded but was delivered to an attorney for Bastos. The consideration for the quitclaim deed made by Ferreira was paid by Bastos by a cash payment, and the transfer of certain personal property belonging to Bastos, the quitclaim deed being made by Ferreira in consideration of said cash payment and transfer of the personal property. At the same time Ferreira delivered to Bastos a full satisfaction of the judgment against him.
“Prior to the foregoing and in November, 1933, Bastos had by parol lease rented this ranch to Frank Neves, one of the defendants and appellants herein. Neves entered into possession of the property under the terms of the lease with the understanding that in March, 1934, Bastos would execute a written lease of the property for a term of five years, but during the interim Neves was to continue in possession of said property under the terms of the parol lease.
“In May, 1934, Bastos died, without making any written lease to Neves, and letters of administration were issued to Amos 0. Williams as public administrator, plaintiff and appellant herein. Thereafter the administrator entered into a written lease with Neves, since which times Neves has continued to occupy said premises and to pay the rents specified therein.
“Thereafter Costa filed an action in unlawful detainer against Neves, the possessor of the real property. Neves in his answer denied that he had ever been a tenant of Costa and denied that Costa was the owner of or entitled to the possession of said premises.
“Upon the trial, judgment in the unlawful detainer suit was entered in favor of plaintiff Costa, the court holding that Neves was guilty of unlawful detainer, and awarded judgment against defendant for unpaid rentals.
“In the action to quiet title, judgment was entered in favor of defendants Costa and wife. It is from these judgments that these appeals have been taken.
“Respondent contends that the judgments as entered by the trial court are fully supported by the law and the facts in the case; as to the action to quiet title it is maintained that the holder of an equitable title . . . cannot quiet title as against the holder of the legal title, and that a resulting trust cannot be declared in favor of a plaintiff in a quiet title action where the complaint contains no allegations with reference to any resulting trust. It is also maintained that a conveyance of real property with intention to defraud creditors is valid and is effective between the parties thereto and their successors in interest.
“Taking up appellants’ contention, that if the grant deed was not fraudulent the appellants must prevail, they point out that Ferreira became the owner of the property by virtue of the sheriff’s sale based upon the judgment recovered by Ferreira against Bastos, and that anything that Bastos may have done after Ferreira became vested with the title was not fraudulent as far as Ferreira was concerned. Ferreira became the owner of the property by virtue of the sheriff’s sale in December, 1933. It was not until February, 1934, that Bastos attempted to deed this property to Costa.

"Section 3441 of the Civil Code provides that a creditor can void the obligation of his debtor for fraud only when the fraud obstructs the enforcement, by legal process, of his right to take the property affected by the transfer or obligation. A conveyance therefore, cannot be set aside by a creditor no matter how tainted with fraud, unless some specified property upon which he has a right to file his claim has by the fraudulent conveyance been placed beyond his reach. The mere intent to delay or defraud is not sufficient, but there must also be an injury to the creditor which must be affirmatively shown. (12 Cal. Jur., p. 976; Brown v. Campbell, 100 Cal. 635 [35 Pac. 433, 38 Am. St. Rep. 314] ; Sewell v. Price, 164 Cal. 265 [128 Pac. 407].)

“Therefore, inasmuch as Ferreira had already obtained the legal and equitable title to the property by execution on a judgment against Bastos he was not deprived of the property, and there is nothing to show that either Bastos or Costa succeeded in placing the equity of redemption beyond the reach of Ferreira. As a matter of fact it appears that Bastos exercised his right to redemption and paid off and satisfied the judgment of Ferreira and therefore it is apparent that Ferreira was in no way defrauded. It is therefore obvious that no matter with what intent this conveyance may have been made, it was not in fact fraudulent.

“ In regard to the quitclaim deed from Ferreira to Costa, the court found that Costa paid no consideration for such quitclaim deed to either Ferreira or to Bastos, but the consideration was paid by Bastos to Ferreira. Inasmuch, therefore, as Costa paid nothing for the quitclaim deed, and the consideration moved from Bastos to Ferreira, Costa is not entitled to the property, but it must be that he held the property in trust for Bastos, the party paying the consideration, and who had title thereto before said deed was executed.

“These findings are all amply supported by the evidence, and there can be no doubt that the consideration for the transfer of the title of Ferreira to Costa was paid by Bastos, and that Costa became the constructive trustee for Bastos of the title to the property received by him from Ferreira during his lifetime.

“Respondents contend that even conceding the administrator had an equitable title, under the pleadings of this ease, that is, an action to quiet title, he cannot set up this defense; that is, in an ordinary action to quiet title, a trust cannot be established.

“The complaint in this action alleges that Bastos, through his representative Williams, is the owner of the property and entitled to the possession thereof and that Costa, the defendant, is claiming the same without right. Costa, upon his part, introduced the deeds showing title in himself and set up his legal title, and claimed thereby possession of the property. As against this evidence the plaintiff was entitled to show that he was the equitable owner of the property, and that defendant held the title in trust for him. That this is the rule and has been already recognized is held in Calkins v. Calkins, 63 Cal. App. 292, 293 [218 Pac. 611]. The court there said:

“ ‘ . . . The plaintiff may allege that he is the owner of the property and that the defendant without right withholds from him its possession, and if the defendant sets up title in himself the plaintiff may be permitted to show that he is the equitable owner and the defendant holds the title in trust for him. In other words, under such pleadings the plaintiff may introduce evidence to avoid the affirmative defense and to recover, if in good conscience he ought.’
“See, also Marsh v. Smith, 46 Cal. App. 692 [189 Pac. 1037].

“ If we are correct, therefore, in holding that Costa did not secure any interest or title in the real property, then Costa is not entitled to recover the lands from Neves. Neves dealt with Bastos during his lifetime, and after the death of Bastos entered into a lease with the administrator and has paid all the rents reserved thereunder to the administrator. Under these facts we cannot find that Neves is guilty of unlawful detainer.

“We are therefore of the opinion that in the action to quiet title brought by Williams as administrator, the court erred in finding that Costa was the owner of the property, and in the action brought by Costa against Neves the court erred in finding defendant Neves guilty of unlawful detainer. ’ ’

It is therefore the judgment of this court that judgment in both cases be reversed and that the trial court enter judgment in accordance herewith.

Rehearing denied. -


source: Caselaw Access Project

author: SEAWELL, J.

license: Public Domain

text:
    [S. F. No. 15946.
    In Bank.
    September 2, 1938.]
    SOUTHERN CALIFORNIA TELEPHONE COMPANY, (a Corporation), Petitioner, v. STATE BOARD OF EQUALIZATION, etc., et al., Respondents.

      Alfred Sutro, Francis N. Marshall and Pillsbury, Madison & Sutro for Petitioner.
    U. S. Webb, Attorney-General, John J. Dailey, Deputy Attorney-General, Ray L. Chesebro, City Attorney (Los Angeles), and John W. Holmes, Deputy City Attorney, for Respondents.
   SEAWELL, J.

Petition for writ of mandate to be directed to the State Board of Equalization. Since 1935 the property of telephone and telegraph companies, other than their franchises, is assessed by the State Board of Equalization. (Art. XIII, see. 14, Const., as amended in 1933, effective January 1, 1935.) Upon the value as thus assessed cities, counties and other local taxing districts levy ad valorem taxes. The State Board of Equalization assessed the central office equipment of petitioner Southern California Telephone Company as improvements to realty for the fiscal year 1937-1938, with the result that taxes in the amount of approximately $36,000 have been levied against said property which would not have been charged against it if it had been assessed as personal property. The prayer of the petition is that the board be directed to correct its assessment by classifying said property as personal property and to transmit notice of the correction to the local tax officers.

The alternative writ of mandate was granted on December 16, 1937. As grounds for applying to this court for extraordinary relief by writ of mandate, petitioner alleged that to remit it to the remedy of payment of the additional taxes under protest and action thereafter to secure a refund would involve a multiplicity of actions, and that only by applying to this court could a determination be had before the taxes became delinquent.

The hearing upon the return to the writ was not held until May 4, 1938. In the meantime petitioner had paid, under protest, the bulk of the taxes to which it objects to. avoid penalties for delinquency, and it is to be inferred from petitioner’s briefs that all said taxes have now been paid. The respondent board urges that by reason of this payment it would be an idle and ineffective act to grant petitioner the relief sought, that is, correction of the assessment, and that the remedy by claims and actions to recover the taxes is adequate. (Sec. 3804, 3819, Pol. Code.) Respondent board further points to the fact that the local tax officers by whom refunds must be made of taxes illegally collected are not parties to this proceeding. It also contends that after the time for hearing objections to the assessment has passed, it is without authority to reclassify property except where error appears from the “assessment book, or from maps, block books or other papers” of the board (sec. 3663c, Pol. Code), and that the error of classification herein, if any, does not thus appear.

Respondent board alleges in its answer, and petitioner admits, that the additional taxes of approximately $36,000 which have resulted from the classification of petitioner’s office equipment as improvements to realty have been levied by only six taxing districts. Five of these districts are in Los Angeles County, the sixth, in which a tax of only $25.51 was levied, is in Orange County. Of the total of $36,623.08 additional taxes, $33,389.99 were levied in Los Angeles County on behalf of the Los Angeles County flood control district. The districts in question—flood control, sanitation and water districts—tax land and improvements to land, but not personalty.

Petitioner observes in its briefs that the determination of the propriety of the board’s classification is of importance not only to it, but to its parent corporation, The Pacific Telephone and Telegraph Company, which owns central office equipment in other jurisdictions in the state, and, like petitioner, has been subject to additional taxes by reason of the board’s classification. Petitioner contends that this court should order the correction of the assessment if it is erroneous notwithstanding that since the issuance of the writ it has paid taxes under protest. The theory of petitioner is that upon a determination of this proceeding in its favor the local authorities in the jurisdictions where it has made tax payments will allow petitioner’s claims for refunds, or if it is required to resort to actions, the nature of the central office equipment will be concluded by the decision of this court in the instant proceeding. It also urges that a determination here will indicate to the board the course to be followed by it in future years. (American Securities Co. v. Forward, 220 Cal. 566, 571 [32 Pac. (2d) 343, 96 A. L. R. 1268]; Union Safe Deposit Bank v. Menlo Park, 3 Cal. (2d) 264 [43 Pac. (2d) 811].) If it is required to resort to actions brought in the lower courts a final determination cannot be had on appeal until the time for assessment and payment of taxes for one or more ensuing fiscal years has elapsed, with the consequent necessity of bringing additional suits to recover taxes based on these later assessments.

We are of the view that it is not necessary to consider the above arguments for the reason that a fatal objection exists as to the granting of the writ. The instant case on the facts alleged in the petition involves directly only the assessment of central office equipment in the six taxing districts wherein petitioner has been compelled to pay additional taxes of approximately $36,000 by reason of the board’s classification. In the affidavits presented by it petitioner does not set forth a particular description of the equipment in its offices in said districts. In fact it does not give the names or location of said offices. Its descriptive matter is general, without reference to particular offices. The photographs of central office equipment filed with this court show with two exceptions equipment owned not by petitioner but by The Pacific Telephone and Telegraph Company. This lack of descriptive matter concerning the particular offices involved in this proceeding is accounted for by the fact that petitioner has submitted its case on the theory that the similarity of equipment is such that a uniform classification can be adopted for central office equipment without regard to the particular office in which it is located.

Desirable as a uniform classification may be in the interests of administrative expediency, we are of the view that upon the showing made in this proceeding it cannot be held as a matter of law that equipment in all petitioner’s offices is either personalty or realty. Large offices are located in specially designed metropolitan buildings, built and owned by the telephone company. In small communities equipment is often located in premises devoted to other purposes, as in a grocery store or lunchroom, in which the telephone company leases space. In such cases the switchboard may be approximately the size of an ordinary desk, and the other equipment occupies an insignificant space. Whether any of petitioner’s offices in the taxing districts involved in this proceeding are of this type does not appear.

In the instant ease, in view of the state of the record, it cannot be ascertained in which offices the equipment remains personalty, and in which it is an improvement to realty. It is not made to appear that the respondent board has incorrectly assessed petitioner’s equipment in any office, since the nature of the equipment in the particular offices involved in not shown. In this situation a writ of mandate cannot be granted.

Between 1911 and 1935, public utilities paid to the state a tax on their operative property which was measured by a percentage of the gross receipts from operation. (Art. XIII, see. 14.) In 1935 the respondent board for the first time assessed petitioner’s property on an ad valorem basis. It assessed central office equipment as personalty in 1935 and 1936. The assessment of 1937, for the fiscal year 1937-1938, for the first time classified it as improvements to realty.

The term “improvements”, as defined by section 3617, Political Code, for tax purposes, includes, “All buildings, structures, fixtures, fences, and improvements erected upon or affixed to the land, except telephone and telegraph lines.” By section 660, Civil Code, the term “affixed to land” is defined as follows: “A thing is deemed to be affixed to land when it is attached to it by roots, as in the case of trees, vines, or shrubs; or imbedded in it, as in the case of walls; or permanently resting upon it, as in the case of buildings; or permanently attached to what is thus permanent, as by means of cement, plaster, nails, bolts, or screws. ...”

The petitioner’s central office equipment is briefly described by it as including ‘ ‘ all mechanical and electrical devices used in making telephone connections—i. e., in making a connection for the duration of the conversation between the line of the calling party and the line of the party called—and includes that part of the subscriber lines and trunk lines which is within the central office”. Central offices are of two kinds, those in which the equipment is manual, and those which have dial equipment.

The general description of equipment given by petitioner in its affidavits suggests its large offices. It describes first the manual type equipment. Switchboards are mounted in cabinet-like frames which rest on the floor. The frames of the switchboards are secured by means of bolts screwed into holes in the floor. Inside the switchboard contains a mass of wires. Main and intermediate distributing frames are of metal and are made .secure by bracket members through which bolts are screwed into the floor and generally into the ceiling. Frames have several shelves each holding a mass of wires. Cables are made up of a bundle of small individual copper wires, and are described by petitioner “as the connecting links which carry subscriber lines from one piece of central office equipment to another”. Cables are supported by cable racks or runways, which are iron frames usually suspended from the ceiling by bolts and also fastened to the framework of the distributing frames, relay racks and other equipment.

The relay racks have an iron framework screwed to the floor and in some instances into the ceiling by bolts. The iron framework of the relay racks has tiers of narrow iron strips holding the relays, which are small electro-magnetic switches. The coil rack is also an upright iron framework, kept in place by bolts screwed into the floor. It holds electrical coils, which act as distributors of electrical energy from the power plant, and thus supply telephone connections with current suitable for talking and signaling purposes.

The fuse panel is an upright slate or composition panel holding a large number of small electrical fuses set in rows. It is held by an iron framework which, like the other frames, is held secure by bolts fastened to the floor and usually in the ceiling. The power plant includes a power board in an iron framework bolted to the floor and to a wall or the ceiling. On the board are mounted fuses, overload protectors, switches to start motors, rheostats, current and voltage meters and other electrical equipment. The power plant also includes charging machines, which are heavy and rest on the floor without fastening, and ringing machines which rest on tables secured by bolts.

Registers for counting calls made on individual subscribers lines are mounted on iron frames bolted to the floor. The test desk and chief operator’s desk are generally screwed to the floor. Operators’ chairs, operators’ head sets and breast sets, test sets and maintenance tools are not fastened to the building in any way, but are freely movable.

Offices which have the dial type equipment are of two kinds —offices with “step-by-step” equipment and offices with “panel” type equipment. Equipment in dial offices, as in manual offices, is largely mounted in metal frames which extend from the floor close to the ceiling, the frames being screwed to the floor by means of bolts. Photographs indicate that the frames are set in rows, and, as petitioner says, bear a resemblance to the book stacks in a large library, with narrow aisles between.

It is settled that in disputes between private persons the intention of the parties is controlling in determining whether an article is a fixture and part of the realty or is personalty. In M. P. Moller, Inc., v. Wilson, 8 Cal. (2d) 31, 37 [63 Pac. (2d) 818], the rule is thus expressed: “This court has recognized the test of intention to make the article a permanent addition to the realty as manifested by the physical facts, and has accepted the character of the annexation and the use for which the article is designed as subsidiary elements employed for the purpose of testing the intention of permanency. (City of Los Angeles v. Klinker, 219 Cal. 198 [25 Pac. (2d) 826, 90 A. L. R. 148]; Gosliner v. Briones, 187 Cal. 557 [204 Pac. 19]; Oakland Bank of Savings v. California Pressed Brick Co., 183 Cal. 295 [191 Pac. 524]; Lavenson v. Standard Soap Co., 80 Cal. 245 [22 Pac. 184, 13 Am. St. Rep. 147].) Thus whether an article is or was physically affixed to the building is only one of the criteria in determining whether there was an intention to make it a permanent accession to the real property. ’ ’

By definition in section 660, Civil Code, a thing becames a fixture when it is “permanently attached” to the realty, and permanence has reference to intent. By virtue of the importanee of intent, a lessee may be permitted to remove an article installed by him and constituting a trade fixture. (See. 1019, Civ. Code.) The respondent board recognizes the importance of intent in disputes between private persons. But it contends that for purposes of taxation the “physical facts” alone should be considered. On this theory no consideration would be given to the circumstance that articles have been installed by a lessee and are trade fixtures removable by him at the end of his term. In this regard it may be said that under the above cited cases the “intent” to which weight is given where rights of those who are not parties to any private agreement are concerned, is intent as manifested by the physical facts, with due consideration to the status of the party by whom the articles have been installed. The respondent board, as we understand its contention, does not maintain that annexation, as by bolts and screws, is the only “physical fact” to be considered, to the exclusion of such facts as the nature of the article itself and its special adaption to the purposes for which the building is particularly designed. Consideration of these so-called “physical facts” alone would not provide a rule of thumb applicable without practical difficulty in all cases.

Respondent board further contends that the attachment of petitioner’s office equipment is made with intent that is shall be “permanent”, as that word is used in section 660, Civil Code. Petitioner, in support of a contrary contention, points to the fact that it may be detached by a simple operation of removing bolts and screws. The bolt and screw holes which remain cannot be said to be a substantial injury to the building. Central office equipment removed from one office is customarily used in assembling equipment in other offices unless it is too obsolete. Petitioner places special emphasis on the fact that when it removes from office premises it always removes all office equipment. Said equipment is of no use in the building but to itself. Petitioner’s vice-president in charge of operations lists fourteen instances in which it has removed from central offices and the premises have been used thereafter for a wide variety of purposes.

Petitioner also refers to the Uniform System of Accounts for Telephone Companies in accordance with which it is now required to keep its accounts by the Federal Communications Commission and the California Railroad Commission. Separate accounts are maintained for plant and for central office equipment. The plant account includes the cost of “buildings and all permanent fixtures, machinery, appurtenances and appliances installed as a part thereof”. The central office account includes the cost of the equipment which the board has classified as improvements in the instant case. Overemphasis cannot be given to the placing of central office equipment in a separate account from plant, including “permanent fixtures”. Said accounting classification is not shown to have been made for purposes of taxation, nor with intent to establish the legal status of central office equipment as realty or personalty.

The respondent board states that the “permanency of location of most of the central office equipment is determined not so much by the bolts and screws as by the multitude of wires that lace and interlace the equipment, binding its parts into a complex, intricate machine”. In the Hollywood central office about 180,000 wires are attached to the main distributing frame, in addition to many thousands of “jumper wires” on the frame itself. If the frame were to be moved and used in a different position it would be necessary to disconnect and reconnect all these wires.

Measured in terms of investment 97 per cent of central office equipment is housed in buildings owned by petitioner, most of which have been specially designed for that purpose. The fact that articles affixed are necessary or convenient to the use of a building for the purpose for which it is designed is generally treated as tending to indicate they are realty. (Dauch v. Ginsburg, 214 Cal. 540 [6 Pac. (2d) 952]; M. P. Moller, Inc., v. Wilson, supra; Broadway Improvement etc. Co. v. Tumansky, 2 Cal. (2d) 465 [41 Pac. (2d) 553].) Petitioner disputes the applicability of this principle in the instant case. In the ordinary case of articles necessary or convenient for the use of a building designed for a special purpose, the building, with equipment, has a resale or leasing value for the purpose for which it has been specially built. The equipment should pass with the building as part of the realty for the convenient use thereof. But when the telephone company ceases to use a central office, any market value is for the building without equipment.

However, the fact that central office buildings are constructed for a special use favors permanence of location and attachment of fixtures. In the territory which it serves petitioner is the only company engaged in the highly specialized business of supplying telephone service. By reason of this fact there are not available other buildings constructed for this specialized business. Furthermore, the special suitability of telephone offices restricts their salability for other purposes. These two factors— dearth of other specially designed buildings and difficulty of disposal of buildings designed for a business in which only petitioner is engaged—strongly favor permanence of location of telephone offices. In all but one of the fourteen fundamental plan areas of the Los Angeles exchange, petitioner has acquired land for future expansion. The anticipated span of recently constructed large offices is thirty-five years.

The great expense incident to the moving of the equipment in a large office to another telephone office or to another position within the same building make for permanence of location of telephone equipment. The estimated average life of central office equipment is twenty years. Thirty-three and one-third per cent of the cost of installing central office equipment is for labor. Disconnection and reconnection of thousands of wires and cables involve much labor, with some loss in adapting old equipment to a new location. Furthermore, the equipment is so arranged that routine wire changes, such as those necessitated daily by subscribers changing addresses and telephone numbers can be made without disturbing the permanence of location of equipment. The conclusion is inescapable that the complex mass of interconnected wires, cables, electrical and other equipment which is contained in a large central office serving many thousands of subscribers, as described and illustrated by photographs in this proceeding, constitutes together with the specially constructed building in which it is housed, and to which it is attached, a unit, which in its entirety is an improvement to realty. The fact that equipment is sometimes moved and office locations changed does not militate against this conclusion. Absolute permanence is not required.

Central office equipment includes such articles as head sets, breast sets and operators’ stools, which are readily portable and not attached by bolts or screws to the building. Said property is specially designed for use in connection with the attached portions of the equipment, most of it is not usable except with telephone equipment, and from the standpoint of investment it represents less than one per cent of the total equipment. There are also certain heavy machines, such as charging and ringing machines, which although not readily portable are not attached to the building by bolts or screws. Including these machines petitioner states that the percentage of nonattached property in terms of investment is between six and one-half and ten per cent. We are of the view that respondent’s contention that the nonattached portions of the equipment and the attached portions together constitute a unit for use together and are improvements to realty, must be sustained. The detached portions of the equipment are constructively annexed. (City of Los Angeles v. Klinker, 219 Cal. 198, 207 [25 Pac. (2d) 826, 90 A. L. R. 148]; White v. Cincinnati etc. R. R., 34 Ind. App. 287 [71 N. E. 276].)

We have heretofore referred to the fact that the petitioner also operates a number of small offices. It owns 75 office buildings, and has equipment in 67 buildings or parts of buildings leased by it. From the standpoint of investment 97 per cent of its equipment is in owned buildings, due to the fact that it owns its large offices where the greatest investments are made. Photographs of several small offices occupying leased space in buildings devoted to other purposes, such as lunchrooms, have been filed in this proceeding. The switchboard in these offices approximates in size a desk and the other equipment occupies but little space. 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.

It would seem that the office equipment in the bulk of petitioner’s office will readily fall into one classification or the other. Petitioner may"establish that the board’s assessment of central office equipment as improvements to realty is erroneous as to certain offices in actions brought.by it to obtain refunds of taxes arising from such classification. In such actions the facts relating to the particular offices involved may be fully developed.

Petitioner further contends that central office equipment should be held to constitute “telephone lines” within the exception provided in section 3617, Political Code. The provision is as follows: “Third—‘Improvements’. The term ‘improvement’ includes:

“1. All buildings, structures, fixtures, fences and improvements erected upon or affixed to land, except telephone and telegraph lines.” (Italics ours.) Although the entire telephone system may be said in a broad sense to constitute a “telephone line”, we are of the view that central office equipment should not be held to be “telephone line” within the above exception. Said exception has reference to lines of the company outside central office buildings, which lines are commonly located in or under public streets and roads or on rights of way over private lands.

Petitioner relies on our decision in General Pipe Line Co. v. State Board of Equalization, 5 Cal. (2d) 253 [54 Pac. (2d) 18]. That case involved a construction of the provision of section 14, article XIII, Constitution, which requires the State Board of Equalization to assess “all pipe lines, flumes, canals, ditches and aqueducts not entirely within the limits of any one county”. It was held that the section applied to lines of an intercounty pipe line which was used for private and not public utility purposes. The court further held that the pumps, boilers and other appurtenances were part of the “pipe line” for assessment by the State Board of Equalization. Any other construction would have resulted in assessment of the “line”, strictly speaking, by the state board, and the appurtenances by which it was operated by the local assessors, which' it was the purpose of the section to avoid. We do not regard said case as controlling the operation of section 3617, Political Code.

The alternative writ is discharged and the peremptory writ of mandate is denied.

Waste, C. J., Curtis, J., Edmonds, J., and Langdon, J., concurred.


author: THE COURT. EDMONDS, J., Dissenting.

text:
    [S. F. No. 16017.
    In Bank.
    September 2, 1938.]
    CHARLES T. BUTTERWORTH et al., Petitioners, v. HAROLD J. BOYD, as Controller, etc., et al., Respondents.

      Cushing & Cushing and Ben C. Duniway for Petitioners.
    William P. O’Brien, as Amicus Curiae, on Behalf of Petitioners.
    John J. O’Toole, City Attorney, Thomas P. Slevin, Deputy City Attorney, and Frank L. Fenton for Respondents.
    Joseph McInerney, Vladimir Vucinich, Charles H. Brennan, O’Brien, Dibert & Acton, Lillian M. Wollitz, U. S. Webb, Attorney-General, and Lionel Browne and Neil Cunningham, Deputies Attorney-General, as Amici Curiae, on Behalf of Repondents.
   THE COURT.

This is a petition for a writ of mandate to compel respondents, the controller and treasurer of the city and county of San Francisco, to make available to petitioners certain funds deducted from the compensation of employees and teachers in San Francisco under the Health Service System established by charter amendment in 1937.

The proposal to establish a system of health service for city employees, upon payment of small, fixed monthly sums, was first submitted to a referendum vote of such employees, who declared themselves in favor of it by a vote of 7,428 to 939. Thereafter the charter amendment was submitted to the electorate by the board of supervisors, and upon approval by a vote of the people, became effective by concurrent resolution of the legislature on April 14, 1937. (Stats. 1937, p. 2781.)

The amendment adds section 172.1 to the Charter of the City and County of San Francisco. Its chief provisions are as follows:

1. A “health service system” for municipal employees is established, to be administered by a “Health Service Board”. The board consists of nine members, elected by members of the system for three-year terms at elections supervised by the registrar of voters. Each board member gives a $10,000 bond, the premium being paid from funds of the system. (Subds. 1, 2.)
2. The “members of the system” are (1) all employees of the city and county who are members of the retirement system, and (2) all teachers and employees of the board of education who are members of the retirement system. Exemptions, however, are permitted as follows: (1) “Any employee who adheres to the faith or teachings of any recognized religious sect, denomination or organization and, in accordance with its creed, tenets or principles, depends for healing upon prayer in the practice of religion shall be exempted from the system upon filing annually with the Health Service Board an affidavit stating such adherence and dependence and disclaiming any benefits under the system.” (2) The board “shall have the power to exempt” any person whose annual compensation exceeds $4,500, and (3) any person “who has otherwise provided for adequate medical care”. For the purposes of the first election, all employees eligible for membership are deemed members. (Subds. 1, 2.)
3. The board has power, by a two-thirds vote of its members, “to adopt a plan or plans for rendering medical care to the members of the system, or for the indemnification of the costs of said care, or for obtaining and carrying insurance against such costs”. The board is further empowered to put the said plans into effect and administer them; to make rules and regulations for transaction of its business, granting of exemptions, and admission to the system of members; and to appoint and fix the compensation of a secretary and other employees, to hold office at the pleasure of the board. (Subd. 3.)
4. The board has power “to make provision for the participation in the benefits of the system by the dependents of members, retired municipal employees and temporary municipal employees, provided that such participation shall be without cost to the city and county”. (Subd. 3.)
5. The board “shall determine and certify to the controller” the monthly sum to be paid by members of the system into its fund, and the controller “shall deduct said sums from the compensation of the members” aud deposit them with the treasurer of the city and county to the credit and for the use of the system. ‘ ‘ Such deductions shall not be deemed to be a reduction of compensation under any provision of this charter.” The board has control over the administration and investment of the funds, provided that all investments “shall be of the character legal for insurance companies in California”. Disbursements may be made only upon audit by the controller, who exercises the same accounting and auditing powers as the charter gives him over other municipal boards, officers and commissioners. (Subd. 4.)
6. “Members of the system shall have and possess no claim or recourse against any of the funds of the municipality by virtue of the adoption or operation of any plan for rendering medical care, indemnifying costs of said care or carrying insurance against such costs, but the claim and recourse of any such member shall be limited solely to the funds of the system. All expenses of the system shall be borne exclusively by the funds of the system and the city and county shall not appropriate or contribute funds in any manner for the purposes of the system hereby established and provided. ’ ’ (Subd. 6.)
7. “The term ‘medical care’ shall include the services of physicians, surgeons, nurses, persons licensed to treat human diseases without the use of drugs, hospitalization, medicines and appliances and dental, optical and other medical treatments and services.” All such services “shall be performed in accordance with the provisions as to professional conduct” prescribed by the state law. Members are not entitled to medical care in the municipal health and hospital facilities, except ordinary emergency service. (Subd. 5.)
8. No member is required to accept the services or medical supplies of any practitioner or hospital selected by the board, but “subject to the rules and regulations of the board”, any member may “select of his own choice” any duly licensed physician, etc., and the board “shall make provision for the exercise of such choice, and is hereby expressly prohibited from entering into any exclusive contract for the rendering of such services”. The only restrictions on the power of choice are (1) it is “subject to the rules and regulations of the board”; (2) the doctor or hospital chosen must render the services “pursuant to said rules and regulations”; and (3) the services or supplies must be furnished “at uniform rates of compensation to be fixed by the board”. Such rates, and any contract respecting the rendering of such services, is subject to review by, and requires the approval of the retirement board of the city and county.

Pursuant to the powers conferred by the charter amendment, an election was held on May 8, 1937, at which the petitioners were chosen as the members of the Health Service Board. They commenced performance of their duties, and after some nine months of study and consultation with professional advisers, adopted “Plan No. 1” for the rendition of medical services, and rules and regulations to carry it into effect.

Following the adoption of the plan, the board determined upon the sum of $2.50 as the monthly deduction from compensation of members of the system, payable commencing March 15, 1938. This was certified to respondent controller, who made the deductions, but refused to make the .funds available to petitioners until the legality of the charter provision was determined. Respondent treasurer likewise refused to make disbursements of funds for the same reasons. Accordingly petitioners sought relief in this court, and an alternative writ of mandate issued. Respondents filed a demurrer to the petition, and the matter is presented solely on questions of law. Counsel for respondents and various amici curiae make a number of contentions of unconstitutionality and alleged conflict with state law, and also attack the project as arbitrary and special legislation. It is á familiar observation that the courts are not concerned with the policy of duly enacted laws, but only with their validity; and in our opinion the present legislation violates no constitutional guaranties. But it may be pointed out, in this connection, that the overwhelming vote of city employees in favor of the measure was matched by the reception of the plan by the members of the medical profession. Over a thousand physicians, a majority of the licensed practitioners in the city, and nearly all of the city’s hospitals, agreed to furnish services under the plan. And petitioners ’ brief states that among those who have joined'the staffs are the president of the State Board of Health, the president of the California State Medical Association and past presidents of that association, the president of the San Francisco County Medical Society and several past presidents of that society, the president of the American College of Physicians, and leading members of the staffs of the medical schools of the University of California and Stanford University.

The first question is whether the city may by its charter provide for a regulation of this character. The answer to the question depends on whether the establishment of the health service system is a “municipal affair”.

Under the provisions of article XI, section 8, of- the California Constitution, a city or city and county having a freeholders’ charter adopted pursuant to said section has the power of “municipal home rule”. The section provides: “It shall be competent in any charter framed under the authority of this section to provide that the municipality governed thereunder may make and enforce all laws and regulations in respect to municipal affairs, subject only to the restrictions and limitations provided in their several charters, and in respect to other matters they shall be subject to general laws.” In the early stages of municipal home rule in California, the charter prevailed only where it expressly covered the particular power exercised. Under the liberalizing constitutional amendment of 1914, the charter is not a grant of power but a restriction only, and the municipality is supreme in the field of municipal affairs even as to matters on which the charter is silent. The history of the movement has been fully covered in decisions and law review comments, and need not be repeated here. (See Bank v. Bell, 62 Cal. App. 320 [217 Pac. 538]; 15 Cal. L. Rev. 60; 11 Cal. L. Rev. 446.)

The purpose of the constitutional provisions was ro make municipalities self-governing and free from legislative interference with respect to matters of local or internal concern. “It was to enable municipalities to conduct their own business and control their own affairs, to the fullest possible extent in their own way. It was enacted upon the principle that the municipality itself knew better what it wanted and needed than the state at large, and to give that municipality the exclusive privilege and right to enact direct legislation which would carry out and satisfy its wants and needs.” (Fragley v. Phelan, 126 Cal. 383, 387 [58 Pac. 923].) No exact definition of the term “municipal affairs” can be formulated, and the courts have made no attempt to do so, but instead have indicated that judicial interpretation is necessary to give it meaning in each controverted ease. The comprehensive nature of the power is, however, conceded in all the decisions, and it is recognized that it is not fixed but fluctuates in scope, and that changes in conditions make necessary new and broader applications thereof. (See Bank v. Bell, supra; 15 Cal. L. Rev. 60; 11 Cal. L. Rev. 94, 446.)

In applying these principles, the following activities, similar to that under consideration here, have been held to be municipal affairs and hence within the city’s legislative power: Providing for the compensation of a municipal officer or employee, irrespective of whether the duties of the office are exacted by the charter or imposed by state law. (Trefts v. McDougald, 15 Cal. App. 584, 587 [115 Pac. 655]; Popper v. Broderick, 123 Cal. 456 [56 Pac. 53].) Providing for removal of municipal officers. (Scheafer v. Herman, 172 Cal. 338 [155 Pac. 1084].) Providing for pay of municipal employees while absent on sick leave. (Jackson v. Wilde, 52 Cal. App. 259 [198 Pac. 822].) A pension or retirement system for municipal employees. (Klench v. Board of Pension Fund Commrs., 79 Cal. App. 171, 179 [249 Pac. 46]; Richards v. Wheeler, 10 Cal. App. (2d) 108, 111 [51 Pac. (2d) 436].) Supervision of sanitary conditions in a city, and provision for the health of its inhabitants, by establishment of a local board of health. (People v. Williamson, 135 Cal. 415, 421 [67 Pac. 504].) Protection of property and lives through the licensing and regulation of a private patrol system. (In re Hitchcock, 34 Cal. App. 111 [166 Pac. 849].) (See, also, 15 Cal. L. Rev. 60.)

There can be no question, under these authorities, of the power of the city to establish a system of medical service for its employees or their dependents. Proper medical attention, freely available to all such employees and such dependents, should have a direct and beneficial effect on their health, and therefore their efficiency. If a pension or retirement system, or provision for sick leave payments at the expense of the municipality is within the municipal power, the present plan, entirely self-supporting, and having a tendency to decrease sickness and lessen the expense of sick leave must equally be so.

With the municipal power to act in this field established, there remains only to consider briefly the specific details in which the plan is said to be invalid.

First it is contended that the charter sets up no standard for the expression “adequate medical care”, in its provision for exemption of those who are already provided with such care. The contention is made that the lack of criteria for determining this question leaves the matter within the uncontrolled discretion of the board, which may destroy the whole plan by broadening the grounds of exemption, or may discriminate among the employees. It may be observed at the outset that at most this argument challenges the validity of this particular exemption provision alone, and is in no sense an attack on the system itself. The system is applicable to the great majority of the city’s employees, and the comparatively few exemptions could be severed without destroying the general plan. (See Bacon Service Corp. v. Huss, 199 Cal. 21 [248 Pac. 235]; 22 Cal. L. Rev. 228.) But in truth the term is clear enough. As defined in subdivision 5 of the charter (see supra) it refers to the treatment by licensed doctors, etc., and in view of the great complexity and rapid changes in medical science' it is neither desirable nor possible to set forth in a statute any detailed outline of particular services. This is one of the innumerable situations in which only the broadest type of standard may be stated, and the details must be left to the expert administrative board or officer chosen to carry out the legislative direction. Terms equally general have been frequently upheld against objections of uncertainty, and standards equally broad have been sustained against the objection of undue delegation of legislative power. (See People v. Globe Grain & Milling Co., 211 Cal. 121 [294 Pac. 3]; Tarpey v. McClure, 190 Cal. 593 [213 Pac. 983]; People v. Monterey Fish Products Co., 195 Cal. 548 [234 Pac. 398, 38 A. L. R. 1186]; Dominguez Land Corp. v. Daugherty, 196 Cal. 468 [238 Pac. 703]; 19 Cal. L. Rev. 448; 15 Cal. L. Rev. 408.) The suggestion that the board, chosen by vote of members of the system, might, in disregard of the purposes for which it was created and in defiance of constitutional limitations, exercise its delegated powers in a discriminatory manner, is fully answered by numerous decisions of the courts. It is to be presumed that the board will exercise its powers in conformity with the requirements of the Constitution; and if it does act unfairly, the fault lies with the board and not the statute. Constitutional guaranties against arbitrary and discriminatory action are read into the law, and the courts will compel administrative officials to respect them. (People v. Globe Grain & Milling Co., supra; Gaylord v. Pasadena, 175 Cal. 433 [166 Pac. 348].)

It is next contended that the amendment makes an unconstitutional delegation of legislative power to the board i to perform municipal functions, in violation of article XI, section 13, of the California Constitution. But this section merely prohibits the legislature from interfering with the j municipalities in respect of their municipal affairs, and has j no application to the appointment of boards or officers pursu- ! ant to valid charter provisions. (In re Pfahler, 150 Cal. 71, 87 [88 Pac. 270,11 Ann. Cas. 911, 11 L. R. A. (N. S.) 1092].)

It is suggested that the charter provision is in conflict with the state Insurance Code in that it authorizes what is in effect an insurance business without a certificate of authority from the insurance commissioner; and it is contended in this connection that the subject of insurance is of statewide concern and not a municipal affair. Nothing of substance is contained in this last statement, for though insurance may be a matter of general concern, the health and efficiency of city employees is a municipal affair; and a plan established by charter to safeguard the health, peace of mind and working efficiency of such employees is validly applied to them, though it might be entirely improper if applied to objects beyond the scope of municipal power. A still more obvious answer to counsel’s suggestion is that the Insurance Code deals with the private business of insurance, and neither expressly nor impliedly purports to regulate governmental activities of municipalities. It is of course a well-settled doctrine that general words in a statute which might have the effect of restricting governmental powers are to be construed as not applying to the state or subdivisions. (Estate of Miller, 5 Cal. (2d) 588 [55 Pac. (2d) 491]; Balthasar v. Pacific Elec. Ry. Co., 187 Cal. 302 [202 Pac. 37, 19 A. L. R. 452].) These same considerations dispose of the further contention that the charter permits the board to practice medicine in violation of the state Medical Practice Act.

It is next argued that the charter denies due process of law in providing for a compulsory deduction in an uncertain amount from the salaries of municipal employees. A conclusive answer is that no one has a vested right in his public employment except in so far as the right is conferred by statute or other valid regulation; that the employment is accepted under the terms and conditions fixed by law; and that one of the terms of the employment in the present case is the provision for the benefits of the health service system at the charge imposed therefor. The charter governs the salaries of city employees; by the amendment to the charter, in force at the time the municipal salaries were fixed for the current fiscal year, the deduction was authorized and made accordingly. It is well settled that public employees have no vested right in any particular measure of compensation or benefits, and that these may be modified or reduced by the proper statutory authority. (Pennie v. Reis, 80 Cal. 266, 269 [22 Pac. 176]; Snell v. Byington, 2 Cal. App. (2d) 127 [37 Pac. (2d) 734]; Casserly v. Oakland, 6 Cal. (2d) 64 [56 Pac. (2d) 237].) If salaries can be reduced it is certainly clear enough that compensation provisions may be modified by substituting for a fraction thereof the valuable protection of comprehensive medical service. It is immaterial that the amount of the deduction is not limited to a stated sum; it is limited to the amount nece'ssary to carry out specific purposes. Obviously, the board must be given some leeway in fixing the amount in accordance with its experience; and the nature of the plan, in the light of economic studies, is such that the amounts will always be small in relation both to the total salaries and- the benefits received. A safeguard against excessive exactions is found in the democratic control over the elective members of the board; and doubtless any attempt by the board to deprive employees of the substantial benefits of their compensation would be ground for redress in the courts.

It should not be forgotten, in this connection, that the deduction herein considered has none of the compulsory features of a tax, for no one is compelled to pay anything, unless he voluntarily seeks the public employment under the terms and conditions which the law imposes. (See McAuliffe v. City of New Bedford, 155 Mass. 216 [29 N. E. 517].)

The further contention is made that the exemptions under the charter constitute a denial of equal protection of the law; but a mere glance discloses that the classification is reasonable and proper. For example, the power to exclude those receiving salaries of over $4,500, a small fraction of the employees, is based upon the reasonable legislative determination that such persons may be able to provide themselves with sufficient medical care. The exemption of those who rely on healing by prayer is designed to avoid interference with the free practice of religion. And the exemption of those who already have adequate medical care avoids the arbitrary imposition of the facilities of the system upon those who already have provided for equal facilities from another source.

The next contention is that the plan cannot legally include the school teachers and others employed by the San Francisco School District, which, though it covers the same territory as the city and county, is a separate entity. This contention, if sustained, would only exclude this group of employees from the benefits of the system without affecting the validity of the plan itself; and the objection could only be properly raised by those whose rights were invaded by inclusion in the system. (See People v. Perry, 212 Cal. 186 [298 Pac. 19, 76 A. L. R. 1331].) We are satisfied, however, that the objection is, on the merits, unsound. The school system has been held to be a matter of general concern, rather than a municipal affair, and consequently is not committed to the exclusive control of local governments. But the cities may make local regulations beneficial to and in furtherance of the school system, provided that these provisions do not conflict with the general law. (Whitmore v. Brown, 207 Cal. 473 [279 Pac. 447]; Esberg v. Badaracco, 202 Cal. 110 [259 Pac. 730]; Anderson v. Board of Education, 126 Cal. App. 514 [15 Pac. (2d) 774, 16 Pac. (2d) 272].) The power-thus to regulate the schools by charter provisions is in fact recognized and declared in the state School Code, section 5.405, which declares: “Nothing in this part shall be construed so as to repeal or negate any provisions concerning employees of school districts contained in the charter of any city, county, or city and county heretofore or hereafter adopted and approved in conformity with article XI of the constitution of this state. ’ ’ Certainly a regulation designed to promote the health and efficiency of teachers is in furtherance of the objects of the school system, and it does not conflict with any general law. The state law establishes teachers’ tenure, but the charter does not affect tenure. It only provides for a deduction from the monthly salary, and it has been expressly held in this state that the tenure law does not carry with it any assurance against change in salary. Hence, just as in the case of other municipal employees, a reduction or modification of compensation impairs no vested rights. (Abraham v. Sims, 2 Cal. (2d) 698 [42 Pac. (2d) 1029]; Emerson v. Board of Trustees, 23 Cal. App. (2d) 432 [73 Pac. (2d) 935]; Hodge v. Board of Education, 22 Cal. App. (2d) 341 [70 Pac. (2d) 1009].)

Amici curiae make the suggestion that the plan interferes with the freedom of religion, on the ground that it provides an exemption for employees believing in healing by prayer, and requires the employee to disclose his religion by filing of the affidavit making the exemption claim. It seems unnecessary to point out that there is no interference with the practice of religion in the mere disclosure of a particular faith to a board which has nothing to do with its practice. In no way does the charter permit the slightest interference with the practice or belief in any religious faith. (See Hamilton v. Regents of University of California, 293 U. S. 245 [55 Sup. Ct. 197, 79 L. Ed. 343].)

Finally, we are told that some of the rules and regulations and practices of the board are, or may be arbitrary or discriminatory with respect to particular individuals. There is no reason to consider such a contention at this time, for the only issue before us is whether the charter amendment and the plan adopted thereunder are valid. If so, the respondents must release the money to the board in order that it may carry out its duties. If in the performance thereof, the rights of any individual are infringed, the regular procedure of the courts is available to test the action. It is premature and irrelevant to deal at this time with speculative future acts of the board which involve no present invasion of private rights. (See People v. Globe Grain & Milling Co., supra.)

There being no valid objection to the system and plan herein considered, it follows that respondents must perform the duties imposed upon them and make available to petitioners the funds collected.

Let the writ issue as prayed for.

HOUSER, J.—I concur in the judgment.

EDMONDS, J., Dissenting.

The charter provision of the City and County of San Francisco which is attacked in the present proceeding provides, in effect, for compulsory health insurance of municipal employees. It allows the Health Service Board, a private organization over which the city has no control, to' order the city controller to deduct an amount to be determined by it from the compensation of each employee of the city and deposit such sum “with the treasurer of the City and County to the credit and for the use of the system”. Certain persons shall be and others may be exempted from this requirement. The money taken from the employees’ salaries may be paid out by the treasurer only upon “audit by the controller and the controller shall have and exercise the accounting and auditing powers over the funds of the system which are vested in him by this charter with respect to all other municipal boards, officers and commissions”.

The city attorney contends that the amendment grants unlawful delegation of power to the Health Service Board. He relies upon section 13 of article XI of the Constitution of California, which provides, in part, that “the legislature shall not delegate to any special commission, private corporation, company, association, or individual any power to make, control, appropriate, supervise or in any way interfere with any county, city, town or municipal improvement, money, property or effects. ...” The legislature in approving the charter amendment, in effect delegated to an association of individuals the power to make, control, appropriate and supervise certain property interfering with the operation of the municipality. This association,, created neither by election of the city’s voters nor appointment by its officers is given the authority to determine the amount of money to be taken by the controller from the salaries of the employees for the purpose of carrying on a non-public engagement, and further permits the use of the facilities of the offices of the registrar and treasurer for the purpose of administering that which is unquestionably not of a general public character.

If, notwithstanding the constitutional provision, the Health Service Board can lawfully carry out the plans it has undertaken, then innumerable organizations can be created for the purpose of carrying on cooperative enterprises of various kinds. It is said that the successful operation of the health service will increase the employees’ peace of mind. Undoubtedly many municipal employees would feel that they had more social security if they could purchase groceries through a cooperative organization. Their economic status would be improved if they could secure housing through group purchasing power. But to set up such organizations with funds compulsorily taken from each employee’s salary through the machinery of the city government constitutes, in my opinion, a violation of the constitutional provision.

The city attorney also claims that the health service plan is not a municipal affair but, on the contrary, is nothing more than a private engagement affording an opportunity for certain employees of the city and county to procure stated kinds of medical care for an amount to be fixed by the board selected by the employees to run the system. Such a program, he says, does not concern the government of the municipality. In Bank v. Bell, 62 Cal. App. 320 [217 Pac. 538], the court defined “a municipal affair” as follows: “In defining a ‘municipal affair’ it has been said that ‘the true test is that which requires that the work should be essentially public and for the general good of all of the inhabitants of the city. It must not be undertaken merely for gain or for private objects. Gain or loss may incidentally follow, but the purpose must be primarily to satisfy the need, or contribute to the convenience of the people of the city at large. 'Within that sphere of action, novelty should impose no veto’ Sun Printing etc. Assn. v. New York, 8 App. Div. 230 [40 N. Y. Supp. 607].” In Fragley v. Phelan, 126 Cal. 383, 387 [58 Pac. 923], it was held that “ ‘municipal affairs’ as those words are used in the organic law, refer to the internal business affairs of a municipality”. See, also, In re Hitchcock, 34 Cal. App. 111, 114 [166 Pac. 849].

All of the decisions construing the phrase “municipal affair” define it as referring to those things which are so intimately connected with the government of a municipality as to affect all of its people, or as including a city’s right to compensate employees in addition to the amount of wages paid. But the health service plan neither affects all of the inhabitants of the city nor is it limited to employees. It includes dependents of employees related by consanguinity or marriage, retired city employees, retired school teachers, members of the board of education and employees of the public school system. Medical care is to be given by private physicians having no contractual relation with the city but acting solely for the Health Service Board, over which the city has no control. “Members of the system shall have and possess no claim or recourse against any of the funds of the municipality by virtue of the adoption or operation of any plan for rendering medical care . . . but the claim and recourse of any such member shall be limited solely to the funds of the system. ’ ’ It is, therefore, obvious that the plan has nothing to do with the public health, security, or general welfare. It is simply social health insurance for a restricted group of individuals who are compelled to participate in it.

For another reason, at least a portion of the charter provision is invalid. Section 172.1 of the charter requires all teachers to become members of the system. Membership in the system is made compulsory. School teachers are not employees of the city and county of San Francisco but of a school district, a governmental entity entirely separate from .the city and county. The teachers derive their credentials from the state, and their compensation from funds of the school district and the state. Under sections 8 and &/% of article XI of the Constitution, a municipality is strictly limited to the enactment of laws in respect to “municipal affairs”. The courts have frequently declared that the public school system of the state is not a “municipal affair” but a “state affair”, a matter of general and not local concern. (People v. Martz, 2 Cal. (2d) 136, 138 [39 Pac. (2d) 422]; Gerth v. Dominguez, 1 Cal. (2d) 239, 242 [34 Pac. (2d) 135].)

I am of the opinion that the writ should be denied.


text:
    [S. F. No. 15690.
    In Bank.
    September 2, 1938.]
    THE PEOPLE ex Rel. STATE BOARD OF MEDICAL EXAMINERS, Respondent, v. PACIFIC HEALTH CORPORATION, INC. (a Corporation), Appellant.

      Knight, Boland & Riordan for Appellant.
    U. S. Webb, Attorney-General, and Lionel Browne, Deputy Attorney-General, for Respondent.
    Hartley F. Peart, Howard Hassard and Gilford R. Rowland, as Amici Curiae on Behalf of Respondent.
   THE COURT.

This is an appeal from a judgment in quo warranto against defendant holding its activities violative of the California Medical Practice Act (now sections 2000-2496 of the Business and Professions Code).

The facts are stipulated. Defendant Pacific Health Corporation, Inc., is a corporation organized under the general corporation law of the state of California, with its principal place of business in San Francisco. Upon application of persons in good health, the defendant issues a contract by the terms of which defendant undertakes to pay for services rendered by physicians, hospitals, ambulance and medical laboratories under certain circumstances, and the applicant pays the required sum or premium therefor. When a contract holder becomes sick or is injured, defendant advises him from whom these services are to be obtained, that is, the physician, hospital or ambulance available to him. After the services are rendered, defendant pays the charges. Defendant keeps a list of physicians and surgeons approved by it, and to obtain the benefits of the service the contract holders must, save as to emergency expenses not exceeding $50, accept a doctor from the list.

Defendant is a stock corporation, operated for profit. It advertises its service and' solicits the public for purchase of its contracts, paying commissions to its soliciting agents. The money collected from contract holders is paid into the general fund, and this, together with the capital and surplus, is invested. The charges for medical services are paid out of the general fund and income from investments.

Upon these facts the lower court concluded that defendant was illegally engaged in the practice of medicine, in excess of its corporate rights, powers and franchises. It was ordered that defendant be excluded from such practice, and that its articles of incorporation be amended to conform to the decree. We are in accord with the court’s conclusion.

The issue presented herein is not new, and has been considered in this state by recent cases which are controlling. It is an established doctrine that a corporation may not engage in the practice of such professions as law, medicine or dentistry. (People v. Merchants Protective Corp., 189 Cal. 531 [209 Pac. 363]; Painless Parker v. Board of Dental Examiners, 216 Cal. 285 [14 Pac. (2d) 67]; Pacific Employers Ins. Co. v. Carpenter, 10 Cal. App. (2d) 592 [52 Pac. (2d) 992]; Benjamin Franklin Life Assur. Co. v. Mitchell, 14 Cal. App. (2d) 654 [58 Pac. (2d) 984]; People v. United Medical Service, 362 Ill. 442 [200 N. E. 157, 103 A. L. R 1229]; see notes, 25 Cal. L. Rev. 91; 10 So. Cal. L. Rev. 329; 30 Ill. L. Rev. 533.) This doctrine is not challenged by defendant, which seeks to distinguish its activities from those previously held to constitute illegal practice of medicine. It is stated that defendant does not itself undertake to perform medical services, but merely to furnish competent physicians; that the contracts do not contemplate that services shall be performed at its offices, but elsewhere; and that the doctors are not employed by defendant on a salary basis, nor directed by defendant, but are compensated for actual services after they are rendered. Defendant’s theory is that the doctors are independent contractors, and that this fact absolves it of the charge of practicing medicine.

We are unable to agree that the. policy of the law may be circumvented by technical distinctions in the manner in which the doctors are engaged, designated or compensated by the corporation. The evils of divided loyalty and impaired confidence would seem to be equally present whether the doctor received benefits from the corporation in the form of salary or fees. And freedom of choice is destroyed, and the elements of solicitation of medical business and lay control of the profession are present whenever the corporation seeks such business from the general public and turns it over to a special group of doctors. As the court said in Pacific Employers Ins. Co. v. Carpenter, supra, 10 Cal. App. (2d) 601: “But we need not quibble here over the use of terms as it is immaterial whether the appointed practitioners are termed employees, agents or appointees of the petitioner. The fact remains that petitioner’s agreement was to furnish, in consideration of the premium paid by the insured, the services of doctors and dentists who were to be appointed, engaged, hired or employed by petitioner for the purpose of furnishing such services. Any such agreement is clearly condemned as unlawful and against public policy by the authorities above cited.”

The foregoing case is so similar in its facts to the instant case as to be conclusive on the issue before us. (See, also, Benjamin Franklin Life Assur. Co. v. Mitchell, supra.)

Defendant suggests that the Medical Practice Act should be strictly construed so as not to prohibit its activities; but this argument ignores the basic policy of the law, of which the statute is merely declaratory, against corporate practice of the learned professions, directly or indirectly. (See authorities cited supra.)

Although, as we have already pointed out, defendant does not challenge but fully concedes that corporations cannot practice the learned professions, the procedure which it seeks to defend is within the prohibition of this doctrine. To avoid this result, defendant launches into a discussion of the effect of an adverse decision upon other organizations and activities. Our attention is called to certain data from medical and lay sources in support of the movement for group medicine and health insurance, and we are told that a decision against defendant will outlaw all fraternal, religious, hospital, labor and similar benevolent organizations furnishing medical services to members. We have given careful consideration to this argument and we find it wholly unconvincing.

The question of the effect of this decision upon any other organizations is not squarely before the court, and the information in the record as to their character and activities is meager and unsatisfactory. If we undertook to determine their legality in this proceeding, in which they are not represented, our decision would have no binding force. But it should be pointed out that the fear of applying the holding of this case to such philanthropic associations as those mentioned does not exist in the minds of the directors thereof, nor has it been suggested that the public authorities contemplate any attack on them. This illusory apprehension is expressed by defendant alone, in an attempt to bolster up its case by bringing it within the general class of associations furnishing medical or health benefits which have been tacitly approved for generations. But a most obvious and, to us, a fundamental distinction must be made between defendant and these other institutions. In nearly all of them, the medical service is rendered to a limited and particular group as a result of cooperative association through membership in the fraternal or other association, or as a result of employment by some corporation which has an interest in the health of its employees. The public is not solicited' to purchase the medical services of a panel of doctors; and the doctors are not employed or used to make profits for stockholders. In almost every case the institution is organized as a nonprofit corporation or association. Such activities are not comparable to those of private corporations operated for profit and, since the principal evils attendant upon corporate practice of medicine spring from the conflict between the professional standards and obligations of the doctors and the profit motive of the corporation employer, it may well be concluded that the objections of policy do not' apply to nonprofit institutions. This view seems almost implicit in the decisions of the courts and it certainly has been the assumption of the public authorities, which have, as far as we are advised, never molested these organizations.

The other question raised by defendant’s proffered materials is whether the time has come, as indicated by the movement for health insurance and group medicine, to reverse the long-settled policy against corporate medical practice and declare it legal and proper. . A simple answer would be that the few extracts from the opinions of writers which we find in the briefs furnish us with no evidence whatsoever of a widespread change in social viewpoint sufficient to repudiate the existing law of practically all the states. All that we have before us is the proof of a controversy which has raged for years, between medical men, sociologists and others, as to the future course of medical practice. The desirability of present methods and the suggested reforms, including various kinds of insurance and group treatment, are hotly debated. (See 25 Cal. L. Rev. 91, 93.) Public policy may change, and doubtless where statutes do not cover the field, the court may follow such changes, but the court must, in such case, declare the public policy, the social view of people generally, and not merely its own private choice among hopelessly conflicting views of desirable reform of settled practices or principles in this field. In the present circumstances there can be no true declaration by this court that a change in social viewpoint now requires the abandonment of the rule against corporate practice of medicine. Such a drastic change should come from the legislature, after the full investigation and debate which legislative organization and methods permit. Though certainly aware of the controversy, and with presumed knowledge of our decisions preventing corporate practice (see supra), the legislature thus far has not acted, and until it does we deem it proper to follow the existing law. (See Pacific Employers Ins. Co. v. Carpenter, supra, 10 Cal. App. (2d) 602.)

We might observe, in conclusion, that an admission of the desirability of some form of health insurance or group medicine by no means requires approval of the activities of defendant. It is perfectly possible to bring adequate medical service to the vast numbers of people who now can ill afford it by some means which will protect both the profession and the public from the evils of corporate .control of the practitioner. An example is found in the system adopted by the city and county of San Francisco for the furnishing of medical service to its employees, approved by us in Butterworth v. Boyd, S. F. 16017, this day filed. (Ante, p. 140 [82 Pac. (2d) 434].)

The future of group medicine would seem to lie either in such well considered plans, submitted to and adopted by the proper legislative authority, or in a carefully regulated statute setting forth the means by which private organizations may offer such services.

The judgment is affirmed.

EDMONDS, J., Dissenting.

This case presents only two questions for decision: (1) Does the plan followed by the appellant in providing health service for its contract holders violate the provisions of the Medical Practice Act, and (2) If not, is its plan violative of public policy? I find nothing in the act which expressly or by implication prohibits a corporation from hiring a physician regularly licensed to practice in this state to care for its employees or members, and I see no reason for holding that the plan contravenes public policy.

The decision to the contrary relies upon the cases of Painless Parker v. Board of Dental Examiners, 216 Cal. 285 [14 Pac. (2d) 67], People v. Merchant’s Protective Corp., 189 Cal. 531 [209 Pac. 363], Pacific Employers Ins. Co. v. Carpenter, 10 Cal. App. (2d) 592 [52 Pac. (2d) 992], and Benjamin Franklin L. Assn. Co. v. Mitchell, 14 Cal. App. (2d) 654 [58 Pac. (2d) 984], The two appellate court decisions are directly in point in support of respondent’s position. The opinions in those cases clearly hold that a health insurance plan similar to that involved in the present ease is violative of the Medical Practice Act and of public policy, in that it contemplates and provides for the practice of medicine by a corporation, although it may be noted that the Benjamin Franklin case was decided by a divided court. The Painless Parker case involved the unlawful practice of dentistry by a corporation in violation of the Dental Practice Act, a statute substantially different from the Medical Practice Act in that it expressly prohibited the practices there involved. There can be no doubt, and appellant concedes, that within certain constitutional limitations the legislature may declare that the employment of physicians by lay persons or corporations constitutes the practice of medicine. The Dental Practice Act did so declare. The Medical Practice Act contains no such provision, and the appellant expressly excludes dental care from its contracts.

The Merchant’s Protective Corporation case, supra, is likewise not controlling. The evidence in that case showed that the corporation contracted to hire attorneys to render legal advice to members of the corporation. It attempted to justify its action, according to the opinion of the court, upon the ground that “it is merely an agency for the bringing of attorneys and clients together and is not itself engaged in practicing law.’ ’ It was held that this contention was not supported by the facts in that under its articles and contracts the eorporation itself, through attorneys, purported to give legal advice. The implication of the opinion is that if the corporation were in fact an agency which for a fee brought attorneys and clients together, its activities would have been within the law.

The present case involves a factual and legal situation fundamentally different from the contract for legal services. Here the corporation is acting as an agency for bringing the doctor and patient together. In addition it underwrites or insures the cost of such medical care. The doctor in caring for the insured is not rendering medical care on behalf of the corporation. When the doctor starts treatment of the member, the relationship of doctor and patient, with all that such a relationship implies, is created. The situation is legally no different from that where A (who may be a layman or a corporation) secures medical services for B from C, a duly licensed physician, C agreeing to look solely to A for his fee. Could it be successfully contended that A is practicing medicine? I think not. As I read the articles of incorporation and the contracts here involved the corporation does not directly or indirectly agree to perform any medical service; it merely agrees to pay for it when rendered by persons duly licensed to render it. It is true that the member does not have unlimited choice in the selection of a doctor, and that he must select a physician approved by the corporation. But there is nothing in the stipulated facts indicating that the corporation directly or indirectly supervises the doctors in the professional service rendered the member.

There are cases in this state and elsewhere recognizing that, in the absence of a statute providing to the contrary, a corporation or a layman may lawfully employ a doctor to care for its patrons or members. These cases hold that practices substantially similar to those here involved do not constitute the unlawful practice of medicine. In Renwick v. Phillips, 204 Cal. 349 [268 Pac. 368], it was held that a storekeeper may employ a person licensed under the Medical Practice Act to treat his patrons. In that ease the Board of Medical Examiners had revoked the license of Dr. Ben-wick upon the ground that he had aided and abetted one Boy Finney, a lay person, to practice medicine. This court stated: “The petitioner (Benwick) was a licensed chiropodist. The said Boy Finney conducted a chiropodist parlor, equipped with a variety of foot remedies and appliances which he prepared and sold there. He employed the petitioner and respondent herein to act as a chiropodist in connection with his said establishment and to give such treatment and perform such operations as only could be done by the holder of a regular chiropodist’s license so to do. In so far there teas nothing illegal or unprofessional in the relations or conduct of Dr. Renwick in his connection with said Finney at the latter’s place of lousiness. ...” This decision was written by Justice Richards, who six years before had written the opinion in the Merchant’s Protective Corporation case, supra. In Pilger v. City of Paris Dry Goods Co., 86 Cal. App. 277 [261 Pac. 328], it was held that “there can be no doubt that a corporation may undertake to furnish the services of a competent physician or the services of a competent chiropodist”. In State Electro-Medical Institute v. State, 74 Neb. 40 [103 N. W. 1078, 12 Ann. Cas. 673], the Supreme Court of Nebraska held that although a corporation may not practice medicine, it may contract with its members to furnish them with medical care. The court stated: “The intention of the law is that one who undertakes to judge the nature of a disease, or to determine the proper remedy therefor, or to apply the remedy, must have certain personal qualifications; and, if he does these things without having complied with the law, he is subject to its penalties. Making contracts is not practicing medicine. Collecting the compensation' therefor is not practicing medicine, within the meaning of this statute. No professional qualifications are requisite for doing these things.” See, also, State ElectroMedical Institute v. Platner, 74 Neb. 23 [103 N. W. 1079, 121 Am. St. Rep. 706]; State v. Lewin, 128 Mo. App. 149 [106 S. W. 581],

Respondent and amici curiae appearing on its behalf, urge that the plan of the appellant violates public policy. But if the policy were as contended by respondent it would be clearly stated in the pertinent statutes. This the legislature has not seen fit to do. In recent years the subjects of health insurance and group medicine have been the frequent source of discussion and investigation, and both lay and professional opinion concerning them is sharply divided. The need for some such service, particularly for persons of low income, is conceded by all parties to the controversy. The courts, in the absence of legislation, should not on the ground of public policy place a stumbling-block in the way of working out this problem. It is not a proper function of the courts to thus block the natural growth of social and economic processes.

The attempt of lay associations or corporations to retain doctors for the purpose of rendering medical services to their members in return for the payment of dues or a premium is by no means a modern development. Judicial notice can be taken that for many years fraternal, employee, and hospital associations, and various medical-hospital services have been rendering such services to their members through doctors employed by them. Respondent does not question the propriety of their activities. If this court holds that the plan adopted by appellant is unlawful on the ground urged by respondent, that is, that it permits a corporation to unlawfully practice medicine, it inevitably and necessarily follows that all of such associations are likewise unlawfully practicing medicine. Such a conclusion, adversely affecting the interests of thousands of individuals, should only be reached if compelled by statutory enactment or by clear public policy. Neither is present in the instant case.

It is claimed that the medical profession will be commercially exploited if private corporations interested solely in a profit are permitted to engage in activities such as are here involved. If that is an evil the solution rests with the legislature and not with the courts. It may be added that under the Workmen’s Compensation Act insurance companies through doctors employed by them are daily rendering-medical service to thousands of injured employees, to the apparent satisfaction of all concerned.

The judgment should be reversed.

Waste, C. J., and Houser, J., concurred.

Rehearing denied. Edmonds, J., and Houser, J., voted for a rehearing.


author: THE COURT.

text:
    [S. F. No. 16113.
    September 21, 1938.]
    HAROLD E. POMEROY, as State Relief Administrator, etc., Petitioner, v. HARRY B. RILEY, as State Controller, et al., Respondents.
    Louis Heilbron for Petitioner.
    U. S. Webb, Attorney-General, W. R. Augustine, Deputy Attorney-General, and Jess Hession, for Respondents.
   THE COURT.

The petitioner, as State Relief Administrator, and State Relief Commission of the State of California, seeks the issuance of a writ of mandamus directing and commanding Harry B. Riley, as the Controller of this state, to set up on the books of his office for the 1937-1939 biennium the sum of $48,000,000 for the relief from hardship and destitution due to and caused by unemployment, which amount includes not to exceed $500,520 for the administration expenses of the State Controller in connection-therewith.

Petitioner seeks a similar writ directing and commanding the respondent, Arlin B. Stockburger, as Director of the Department of Finance, to approve the budget for unemployment relief for said 1937-1938 biennium, which budget has been framed upon the basis of this alleged appropriation of $48,000,000 for said biennial period.

Respondent Stockburger, as Director of Finance, admits all the allegations of the .petition and signifies his willingness do approve this proposed fiscal year budget, but is prevented from so doing by reason of the failure and refusal of' respondent Riley, as Controller, to set up on his books more than $40,733,450 for unemployment relief for the designated biennium, which amount is $7,266,550 less than that alleged by petitioner to have been appropriated for said purposes.

The controversy as to this disputed item arises out of the following proceedings taken during the last session of the legislature: The original appropriation bill, following the budget, provided for an appropriation of $48,000,000 for the relief from hardship and destitution due to unemployment. As the bill was finally passed by this legislature it contained provisions for expenditures out of such appropriation of certain amounts for additions and repair to various state institutions, colleges, schools and other state agencies totaling the sum of $7,266,550. The Governor vetoed that added portion of the bill, which designated these amounts for said designated purposes, and expressly indicated that the amount for general unemployment relief was not thereby reduced but should remain at $48,000,000. The bill was returned to the legislature and an attempt was made without success to override the Governor’s veto.

The respondent Riley contends that the amount of the original appropriation, as contained in the appropriation bill, was by the legislature, in designating a portion thereof to particular purposes and'the veto of the Governor as to said designation reduced by the amount so designated for such purposes. This same question was raised and decided adversely to the contention of respondent Riley in the two recent cases of Reardon v. Riley, 10 Cal. (2d) 531 [76 Pac. (2d) 101], and Railroad Com. v. Riley, ante, p. 48 [82 Pac. (2d) 394], On the authority of those eases we are of the opinion that the peremptory writ should issue as prayed for, and it is so ordered.


text:
    [L. A. No. 16550.
    In Bank.
    September 21, 1938.]
    THE COLBURN BIOLOGICAL INSTITUTE (a Non-profit Corporation) et al., Respondents, v. FANNIE SHAFFER, as Trustee, etc., Appellant.
    Charles M. Easton and Palmyra Pressly for Appellant.
    H. F. Poyet and John F. Poole for Respondents.
   THE COURT.

We are here confronted with another phase of the protracted litigation that has been waged on several fronts by the members and trustees of The Colburn Biological Institute, a nonprofit corporation, for control of the organization and its properties. Upon a prior appeal wherein the opposing factions likewise were at loggerheads, we affirmed a judgment of the Superior Court of Los Angeles County determining that Dr. Nora H. Bates, Dr. Alice M. Farwell, C. Cecelia Oberdorfer and Dr. Fannie Shaffer constituted the board of trustees of the institute. (Colburn Biological Institute v. DeBolt, 6 Cal. (2d) 631 [59 Pac. (2d) 108].) On the authority of that decision and in reliance on article XIII of the by-laws of the institute, to the effect that “Any document or resolution of the trustees or of any committee, if signed by three-fourths of the trustees or by all of the members of any committee, will be as binding upon the institute as though passed at a regular meeting of the committee or a special, stated or annual meeting or adjourned meeting of the trustees,” the three trustees first above named have moved this court to substitute Henry T. Poyet as attorney of record herein for the institute in order that they and the institute, through such substituted attorney, may procure the dismissal, contemporaneously moved, of the present appeal prosecuted by the trustee last above named purportedly for and on behalf of the plaintiff institute from an order granting a neAV trial to the plaintiffs in the action AA'herein, as stated, the rival factions are again contending for control of the organization. The new trial Avas moved for and granted under the provisions of section 953e of the Code of Civil Procedure Avhich provides for such relief, in the discretion of the trial court, Avhen the death of the phonographic reporter precludes the procurement of a record of the trial proceedings.

Inasmuch as three of the four persons heretofore determined by this court to be the trustees of the institute have joined in urging the respective motions, we are of the víbav that under the provisions of article XIII of its by-laws, above quoted, they are in a position to speak for and on behalf of the institute and effect should therefore be given to their desires in the premises. Moreover, a granting of the requested relief will be another step toward the termination of this litigation and Avill do much to obviate a contrary adjudication as to the personnel of the institute’s trustees. Diametrically opposed judgments upon this legal issue Avould present an anomalous and wholly unsatisfactory situation. (Inyo Chemical Co. v. City of Los Angeles, 5 Cal. (2d) 525 [55 Pac. (2d) 850]; Southern Pac. Co. v. City of Los Angeles, 5 Cal. (2d) 545, 548 [55 Pac. (2d) 847].)

The application for leave to take additional evidence is denied.

The motions for substitution of attorneys and to dismiss the appeal are, and each is, granted and the appeal is dismissed.

Rehearing denied.