TRAYNOR, J. Defendants levied ad valorem taxes for the year 1944-1945 on a bank deposit of plaintiff Timm Aircraft Corporation assessed to it as a solvent credit. Timm paid the taxes under protest and then brought this action to recover them, contending that the deposit was owned by the United States and was constitutionally exempt from taxation by a state or its subdivisions. Judgment was entered for Timm, and defendants appeal.
Under a contract with the War Department Timm manufactured military aircraft on a cost-plus-a-fixed-fee basis. The contract provided that Timm was not an agent of the United States but an independent contractor at all stages of the manufacture, including the acquisition of materials and the furnishing of labor. Title to all completed work was in the United States and title to all material, equipment, and supplies for which Timm was entitled to reimbursement vested in the United States upon delivery to Timm. The United States could elect to terminate the contract for Timm’s failure to prosecute the work with promptness and diligence or when “conditions arise which make it advisable or necessary in the interest of the Government that work be discontinued under [635]this contract- ” If the United States elected to terminate the contract, it was obligated to make full and prompt settlement of Timm’s claims for reimbursement of expenditures before termination, and of all claims against Timm for obligations incurred by it in the performance of the contract.
To provide Timm with the necessary funds to perform the contract, the United States by two supplemental agreements dated April 13, 1942, and March 13, 1943, agreed to make advance payments to Timm of sums not to exceed the amount specified in the agreements. Timm was required to furnish adequate security for the payments and to deposit the funds in a special bank account or accounts “separate from the contractor’s general or other funds.” The payments were to be used “by the contractor exclusively as a revolving fund for carrying out the purposes of the principal contract and any amendments thereto and not for any other business of the contractor. ’ ’ If the United States terminated the principal contract, Timm was obligated to repay the balance remaining in the account and the United States retained “a lien upon such balances to secure the repayment of the advances, which lien shall be superior to any lien of the bank or any other person upon such account or accounts.” Withdrawals from the account were subject to previous approval by the contracting officer or his representative to insure that the funds would be withdrawn only for the purposes of the principal contract.
Pursuant to these agreements three-party deposit agreements were executed by Timm, the United States, and the California Bank of Los Angeles, under which the advance payments were deposited to Timm’s account, subject to the terms of the supplemental agreements. Checks drawn on the account had to be countersigned by the contracting officer, whose signature indicated the requisite approval of the withdrawal. Timm periodically drew checks on the special account for the estimated amount of current expenditures. Upon certification by Timm that the funds were to be used for the specified purposes, the contracting officer countersigned the cheeks. Timm then deposited these checks to its operating account, from which it paid obligations incurred in the performance of the contract. Vouchers for these expenditures were then forwarded to the contracting officer, and after verification and approval the special account was replenished in the amount of the funds so expended. At all times, the [636]amount of the special deposit, plus the amount in Timm’s operating account, and the aggregate amount of the outstanding vouchers, was equal to the total advanced to Timm under the agreements. The taxes were levied on the balance on deposit in the special account on the tax day.
Defendants contend that the deposit was not the property of the United States, that it was owned by Timm, and that Timm’s interest in the funds deposited was of substantial value to it. Upon examination of the agreements and the statutes under which the advance payments were made, it is our conclusion that this contention is correct, and that the judgment of the trial court must be reversed.
A state tax upon the property or receipts of a private contractor can no longer be avoided on the doctrine of intergovernmental tax immunity merely because the United States eventually bears the burden of the tax. “The asserted right of the one [government] to be free of taxation by the other does not spell immunity from paying the added costs, attributable to the taxation of those who furnish supplies to the Government and who have been granted no tax immunity.” (Alabama v. King & Boozer, 314 U.S. 1, 9 [62 S.Ct. 43, 86 L.Ed. 3, 140 A.L.R 615]; Smith v. Davis, 323 U.S. 111, 116 [65 S.Ct. 157, 89 L.Ed. 107]; Curry v. United States, 314 U.S. 14, 18 [62 S.Ct. 48, 86 L.Ed. 9]; James v. Dravo Contracting Co., 302 U.S. 134, 160 [58 S.Ct. 208, 82 L.Ed. 155, 114 A.L.R. 318]; Metcalf & Eddy v. Mitchell, 269 U.S. 514 [46 S.Ct. 172 70 L.Ed. 384]; Kaiser Co. v. Reid, 30 Cal.2d 610, 628-629 [184 P.2d 879].) In the absence of an express congressional grant of immunity, the tax in question may be avoided only if it is imposed on property of the United States or is so measured by such property as to be in substance and effect a tax thereon. (United States v. Allegheny County, 322 U.S. 174, 186 [64 S.Ct. 908, 88 L.Ed. 1209]; see Powell, The Remnant of Intergovernmental Tax Immunity, 58 Harv.L.Rev., 757, 773-787; cf., New York v. United States, 326 U.S. 572 [66 S.Ct. 310, 90 L.Ed. 326].)
To perform its obligations under the contract, Timm had to make large expenditures for labor and materials. It could not have done so without outside help in view of the time that would elapse before reimbursement. It could have borrowed from a private lender on the strength of the contracts and deposited the money to its account to cover future expenditures. Had it done so, it would clearly have been regarded as the owner of the account for tax purposes despite [637]any obligation to use it only to finance its performance of the contract. Sinc.e interest charges on a private loan, however, would have increased the cost of manufacture to the United States, the Secretary of War chose to pay a part of the contract price to Timm in advance of the expenditures. Timm is no less the owner of the account for tax purposes because the funds were provided by the United States rather than by a private lender.
In view of the prohibition of advances of public funds (Rev. Stats. § 3648, 31 U.S.C.A. § 529), special statutory authorization for payment of advances under war contracts was necessary. Congress therefore authorized the making of “advance, progress and other payments upon such contracts of any per centum of the contract price.” (50 U.S.C.A. App. §§611 [55 Stats. 839], 1151 [54 Stats. 676], 1171(c) [54 Stats. 712] ; Exec. Order 9001 [6 Fed. Reg. 6787], §§ 1, 3. Italics added.) Identical provisions in statutes authorizing advance payments have been construed as authorizing passage of title to the contractor as “payments of sums that are expected to become due on the contract, and in the ordinary course of events do become due and are applied accordingly. ’ ’ (Enright v. United States, 54 F.2d 182, 188; United States v. Butterworth-Judson Corp., 267 U.S. 387 [45 S.Ct. 338, 69 L.Ed. 672].) The United States retains only an equitable lien upon the funds superior to all other liens. (United States v. Butterworth-Judson Corp., supra, 393.)
Moreover, the terms of the supplemental agreement by which the advances were paid to Timm are consistent only with a holding that title to the deposited funds passed to Timm. The agreement expressly gave the United States a lien upon the funds superior to any and all other liens to secure their repayment under certain contingencies. The ownership of a lien on personal property precludes legal title in the lienor. (Civ. Code, § 2888; Standard Auto Sales Co. v. Lehman, 43 Cal.App. 763, 766 [186 P. 178].) Subject to the approval of the contracting officer, Timm was to use the account “as a revolving fund for carrying out the purposes of the principal contract,” to pay the obligations necessarily incurred in performing the contract that Timm would otherwise have had to pay from its general funds. The obligations to be paid were Timm’s, not those of the United States. The provisions by which Timm agreed to repay the funds to the United States upon certain contingencies carry [638]the implication that it was Timm and not the United States that held title to those funds.
Plaintiff contends that the restrictions imposed upon the use of the funds are so general that Timm cannot be said to be their owner for tax purposes. The restrictions relied upon are: (1) the limitation of the use of the deposit account to the purposes of the principal contract; (2) the condition that withdrawals from the account be subject to previous approval by the contracting officer to insure that the funds be used only for those purposes; (3) the condition that the funds must be returned to the United States in the event it chose to cancel the principal contract. The imposition of reasonable restrictions upon the use of property, even the retention of legal title to secure performance of an ex-ecutory contract, does not make the United States the owner of that property for tax purposes. (S.R.A., Inc. v. Minnesota, 327 U.S. 558, 570 [66 S.Ct. 749, 90 L.Ed. 851]; Eisley v. Mohan, 31 Cal.2d 637, 643 [192 P.2d 5]; Dept. of Veterans’ Affairs v. Board of Supervisors, 31 Cal.2d 657 [192 P.2d 22]; Kaiser Co. v. Reid, 30 Cal.2d 610, 625 [184 P.2d 879].) “The form of the transfer is immaterial; the determinative question is whether private rights have supplanted those of the government insofar as the use of the property is concerned. ’ ’ (Eisley v. Mohan, 31 Cal.2d 637, 643 [192 P.2d 5].) There can be no doubt here that it was Timm that used the property. It decided what materials were to be acquired, the source of their acquisition and terms of payment therefor, the wages to be paid and the method of their payment. The United States retained the right of supervision only to insure that the funds would not be used for purposes foreign to the principal contract but would “serv[e] their highest and best use.” This limitation does not affect their ownership. (Kaiser Co. v. Reid, 30 Cal.2d 610, 625 [184 P.2d 879].)
The provision giving the United States the right to cancel the principal contract and compel the return of the funds is common to all war contracts in recognition of the contingency of a sudden termination of the war. The advances in United States v. Butterworth-Judson Corp., 267 U.S. 387, 389 [45 S.Ct. 338, 69 L.Ed. 672], were subject to the limitation that “The United States reserved the right to cancel the agreement at any time that its need for the plant or output ceased.” Despite that limitation the court found that the private contractor held the title to the deposit account. A similar provision in Alabama v. King & Boozer, 314 U.S. [6391] [62 S.Ct. 43, 86 L.Ed. 3, 140 A.L.R. 615], did not make the contractor the purchasing agent of the United States even though the United States was to reimburse the contractor for the purchase price of materials bought by the contractor and would have to pay the sales tax whose levy thereon the court sustained. In Kaiser Co. v. Reid, 30 Cal.2d 610 [184 P.2d 879], this court sustained an ad valorem tax on the interest of the plaintiff in land and shipyard facilities leased to it by the United States. It was contended that the plaintiff had no taxable interest therein because of the reservation by the lessor of the right to cancel the contracts and retake possession of the yards at its election. This court rejected that contention, stating that this reservation was designed only to “protect the government in case of a short war or plaintiffs’ inability to construct vessels properly. So pertinent in this regard is the testimony of the regional counsel for the commission before the boards of equalization: ‘In fighting a war, of course, the only reason for changing a contractor—that is, that would be justifiable—would be that the contractor wasn’t doing his job.’ ” (30 Cal.2d 610, 619.) This holding is equally persuasive here.
It is contended that the present case is distinguished by the fact that the contractor was not free to use the money without prior approval by the government, and that this requirement of prior approval places the fund under the ownership and control of the government. It is not unusual for a creditor who advances money for a specified purpose to require as a condition of the advance that all expenditures be subject to his approval to insure their being made only for that purpose. The situation is analogous to that presented to the United States Supreme Court in the ease of Alabama v. King & Boozer, 314 U.S. 1 [62 S.Ct. 43, 86 L.Ed. 3, 140 A.L.R. 615]. The United States entered into a contract with a builder to construct an Army camp in Alabama on a cost-plus-a-fixed-fee-basis. The builder was to be reimbursed for the cost of all material purchased, and title to the purchased materials vested in the United States upon delivery. All purchases were subject to the prior approval of the contracting officer, in the same manner and for the same purpose as in the present case. The builder purchased lumber from King and Boozer with the approval of the contracting officer for use under the principal contract. Alabama’s effort to collect a sales tax on the transaction was resisted on the theory that [640]the builder purchased the materials as agent o£ the United States and that the tax was invalid because it was levied upon a purchase by the United States. If the right of prior approval of the manner in which expenditures are made constitutes ownership of the funds expended, it would follow that purchases made with that approval are made by the purchaser as agent of the one whose approval must be secured. That contention, however, was rejected:
“But however extensively the Government may have reserved the right to restrict or control the action of the contractors . . . neither the reservation nor the exercise of that power gave the contractors the status of agents of the Government to enter into contracts or to pledge its credit.” (314 U.S. 1, 13; Curry v. United States, 314 U.S. 14, 18 [62 S.Ct. 48, 86 L.Ed. 9].) The reasoning of the court is clearly applicable to the present case and compels the conclusion that Timm was in fact the owner of the funds.
Timm also contends that even if it has a property interest in the deposit, that interest is of no value to it. On the contrary, it was of substantial value to it. It enabled Timm to purchase the materials and hire the labor necessary to the performance of its contract, for which it was to receive a substantial fee. Had its general funds on hand been adequate, it could hardly have avoided taxation thereof by contending that they were valueless to it because they were used only for the performance of the government contract. As this court stated in Kaiser Co. v. Reid, 30 Cal.2d 610, 625 [184 P.2d 879], where plaintiff urged that its interest in property leased from the United States had no value because no profit was directly derived from its use, “even assuming that plaintiff did not make any ‘profit’ out of the shipyards as such, but only out of its ‘services’ in performing the construction work, that fact would not negative the propriety of an assessment based on its ‘beneficial use’ of the property as an entrepreneur engaged in the management of a business enterprise. Plaintiff had a property interest in the shipyards by virtue of its ‘exclusive use and possession’ thereof. ...” That reasoning applies with equal force here.
The judgment is reversed.
Gibson, C. J., Shenk, J., and- Spence, J., concurred.
EDMONDS, J. In my opinion, the special bank account was the property of the United States government, .and there[641]fore erroneously taxed as belonging to Timm Aircraft. The fact that the United States government could have the funds in the account returned to it at any time when, “. . . in the opinion of the Chief of the Air Corps, or his duly authorized representative, the unobligated balance of the advance payments made by the Government . . . exceeds the amount necessary for the current needs of the Contractor, as determined by the Chief of the Air Corps, or his duly authorized representative. ...” (Supplemental Agreement, No. 1, line 89) is inconsistent with any other view.
However I cannot agree that the aircraft company followed the proper procedure in seeking relief under sections 5136-5143 of the Revenue and Taxation Code. The mode of recovery for taxes erroneously or illegally collected from one not the owner of the taxed, property is specified by sections 5096-5107 of the Revenue and Taxation Code. Timm Aircraft did not comply with these sections. It filed no claim for refund, as the statute requires and, for that reason, is not entitled to recover the amount which it paid.
The first question for determination in measuring the corporation’s right to recover is whether the payment made by it was a voluntary one. As stated by Mr. Justice Shenk in Southern Service Co., Ltd. v. Los Angeles County, 15 Cal.2d 1, 7, 8 [97 P.2d 963]: “It is the settled law of this state that illegal taxes voluntarily paid may not be recovered by the taxpayer in the absence of a statute permitting a refund thereof; and in the absence of such statute only illegal taxes paid under duress, coercion or compulsion are considered to have been involuntarily paid and therefore recoverable . . . [T]he filing of a protest with a payment of illegal taxes otherwise voluntarily made does not deprive the payment of its voluntary character. [Citing Brumagim v. Tillinghast, 18 Cal. 265, 269, 271, 275 [79 Am.Dec. 176]; and other authorities].” To the same effect is Security Nat. Bank v. Young (C.C.A. 8th), 55 F.2d 616, 619 [84 A.L.R. 100].
In deciding the Brumagim case, supra, page 271, this court said: ‘ ‘ The illegality of the demand paid constitutes of itself no ground for relief. There must be, in addition, some compulsion or coercion attending its assertion, which controls the conduct of the party making the payment. ... If he voluntarily pay an illegal demand, knowing it to be illegal, he is of course entitled to no consideration; and if he voluntarily [642]pay such demand in ignorance or misapprehension of the law respecting its validity, he is in no better position, for it would be against the highest policy to permit transactions to be opened upon grounds of this character.” The later decisions were reviewed at length in the Southern Service case. Uniformly they hold that a payment of taxes under the circumstances shown by the present record, although made under protest, is a voluntary one.
Statutory authority for the refund of taxes "erroneously or illegally collected” dates from 1872 when the Legislature enacted section 3804 of the Political Code. As later amended, and in effect for many years, it allowed a refund only upon a claim, verified by the person who paid the tax, and filed within three years thereafter.
In 1893, the Legislature enacted section 3819 of the Political Code. It declared that “. . . the owner of any property assessed . . . who may claim that the assessment is void in whole or in part, may pay the same to the tax collector under protest, . . . and when so paid under protest, the payment shall in no case be regarded as voluntarily payment.” By other provisions of the section, “And such owner may at any time within . . . six months after such payment bring an action against the county, ... to recover back the tax so paid under protest; . . . .”
Sections 5096 to 5107 of the Revenue and Taxation Code have continued in effect the provisions of section 3804 of the Political Code. The Legislature also placed in section 5136 et seq., of the new code, the procedure authorized by section 3819 of the Political Code, allowing a property owner to pay, under protest, the amount of a tax and then sue to recover it. But now, as at the time the legislation was included in the Political Code, the statutes apply to different situations. Section 5096 et seq., of the Revenue and Taxation Code do not limit to an owner of property the right to recover a tax “erroneously or illegally collected.” However, they require, as did the predecessor statute, the filing, within a specified time, of a verified claim by the person who paid the tax. The later statutes based upon section 3819 of the Political Code, by their terms, relate only to a “property owner.”
This distinction was expressly recognized in Warren v. San Francisco, 150 Cal. 167 [88 P. 712], which held: “Section 3819 [now sections 5136-5143, Revenue and Taxation Code] has no application. That section provides that the ‘owner’ of any property assessed, who may claim that the assessment [643]is void, may pay his tax under protest, specifying the grounds of the protest; and that when so paid under protest the payment shall not be regarded as voluntary. The plaintiff herein was not the owner ’ of the land assessed nor of any land bordering or adjoining that portion of Caroline Street . . . .”
This application of the statute has been recognized and adopted by the Federal Court of Appeals of the 9th Circuit (Southern Calif. Tel. Co. v. Hopkins, 13 F.2d 814, 819), and also by the United States Supreme Court (Southern Calif. Tel. Co. v. Hopkins, 275 U.S. 393, 399 [48 S.Ct. 180, 72 L.Ed. 329]). In the latter case, Mr. Justice McReynolds said: “Section 3819 gives a remedy to the owner; and Warren v. San Francisco, 150 Cal. 167 [88 P.712], intimates quite strongly that it applies only to actual owners.”
It is difficult to see how any conclusion other than that stated in the Warren case logically can be reached, considering the language used by the Legislature. One remedy (Rev. & Tax. Code, §§ 5096-5107) is open to any person, including an owner, who pays a tax “erroneously or illegally collected” and thereafter files a verified claim for refund within the specified time. The board of supervisors is authorized to allow such a claim when the facts justify that action. The other procedure (Rev. & Tax. Code, §§ 5136-5143) is applicable only to “. . . any property owner . . .” (§§ 5136, 5139). He is not required to file claim, and relief may be given to him only by judgment of the superior court in an action brought within six months after payment of the tax.
I see no valid reason for departing from the construction of a tax statute unanimously placed upon it by the justices of this court in the Warren case 40 years ago and not since challenged. The restriction of the legislation as applying only to “an owner' ’ has been left unchanged by the Legislature, although the statute has been amended in other particulars. Moreover, the decision has been accepted by the Federal Court of Appeals and also by the United States Supreme Court as the law of this state.
Timm Aircraft consistently has maintained that on tax day it was not the owner of the money assessed to it. However, it did not comply with the essential requirements laid down by the Legislature for a nonowner of property who pays a tax erroneously or illegally collected from him. It filed no claim for refund within the time specified, and for that reason it is not entitled to recover.
[644]I therefore concur in the judgment of reversal solely upon the ground that the taxpayer did not follow the procedure entitling it to a refund.