Opinion
McCOMB, J.
Plaintiff appeals from a summary judgment, which ordered dismissal of its action (brought pursuant to § 5138 of the Rev. & Tax. Code) seeking refund of a general property tax paid under protest. Each of the parties sought a summary judgment, and it was stipulated that such a judgment be entered in favor of one side or the other.1
[166]*166Facts:2 On the first Monday in March 1968, plaintiff had $272,285 worth of candles stored in a warehouse. The candles had been purchased in Japan and were stored in their unbroken original packages. Defendant assessed the. candles at a value of $68,071 and levied a tax of $5,990.24 upon the goods. After being denied an import exemption, plaintiff paid the taxes under protest.
Plaintiff maintains a continuing credit relationship with Walter E. Heller & Co. (Heller), in accordance with a written agreement dated February 10, 1967. Under their arrangement, Heller supplies working capital financing, amounting to approximately 80 percent of plaintiff’s inventory and accounts receivable. In return, plaintiff has pledged all its inventory and accounts receivable (including those thereafter acquired) as security for the indebtedness owing by it to Heller. Heller does not provide letter of credit financing for the importation of goods from, foreign countries, since its financing charges are higher than bank charges, With respect to plaintiff’s importation of candles from Japan, how'ever, Heller cooperates with United California Bank (UCB) in the following manner: UCB opens a letter of credit for the account of the Japanese suppliers of the candles. When the shipping documents are received, UCB pays its foreign correspondent bank for drawing on the letter of credit and charges that amount to plaintiff’s advance account. Plaintiff’s debt to UCB is secured by a lien on the candles. After the candles have cleared customs, they are delivered to Lawrence Warehouse, a public warehouse in San Francisco, where warehouse receipts are issued to Heller. On delivery of the warehouse receipts, Heller pays UCB and adds the amount of the payment to the balance of its continuing loan to plaintiff, UCB’s [167]*167security interest in the candles is discharged by the payment to it, and Heller becomes the prime lien holder.
Question: Does the immunity extended to imports by article I, section 10, paragraph 2, of the United States Constitution continue while the goods remain in their unbroken original packages even if the importer makes use of them by hypothecation after they have reached this country?
No. In Brown v. Maryland, 25 U.S. (12 Wheat.) 419 [6 L.Ed. 678], the Supreme Court of the United States stated that things imported are imports entitled to constitutional immunity from state and local taxation and that this import immunity continues until the importation process has been completed. At page 441 [6 L.Ed. at p. 686], the court said: “. . . when the importer has so acted upon the thing imported that it has become incorporated and mixed up with the mass of property in the country, it has, perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the state; but while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports, to escape the prohibition in the constitution.”
Pursuant to this reasoning, the courts have held that an article loses its status as an import in any of the following circumstances: When the original package is broken (Brown v. Maryland, supra, 25 U.S. (12 Wheat.) 419; Sugarman v. State Board of Equalization, 51 Cal.2d 361 [333 P.2d 333]); when the imported article is irrevocably committed to the use for which it was imported (Youngstown Co. v. Bowers, 358 U.S. 534 [3 L.Ed.2d 490, 79 S.Ct. 383]; May v. New Orleans, 178 U.S. 496 [44 L.Ed. 1165, 20 S.Ct. 976]); when the imported article is sold (Waring v. The Mayor, 75 U.S. (8 Wall.) 110 [19 L.Ed. 342]; Brown v. Maryland, supra, 25 U.S. (12 Wheat.) 419); when the imported article is consigned by the importer to dealers solely for the purpose of offering the goods for sale in domestic commerce (Comineo Products, Inc. v. State Tax Commission, 243 Ore. 165 [411 P.2d 85]); and when the imported article is pledged to a third party after its arrival in this country (Southern Pac. Co. v. City of Calexico (S.D.Cal.) 288 F. 634; State v. Harper (Tex.Civ.App.) 188 S.W.2d 400).
In the present case, the goods had not been removed from their original packages or sold (the use for which they were imported) and would thus appear to be still clothed with import status and immunity. Defendant, however, contends that Southern Pac. Co. v. City of Calexico, supra, 288 F. 634, which held that goods in their original packages in a warehouse being held for sale are stripped of their immunity and incorporated into [168]*168the general mass of goods if they are pledged or hypothecated, demands a contrary result here. We have concluded that there is merit to this contention.
In Calexico, it was said at page 641: “In substance, there could not be much difference between a sale of the cotton and a pledge or hypothecation of it as for money advanced. In the one instance, following the usual course, for value received the importer would part with the title and possession; in the other instance, for value received, he would subject himself to the right to be deprived of both the title and possession. In either event the importer would be ‘so acting upon the thing imported’ as to incorporate and mix it with the mass of property in the country. For a purpose beneficial to himself an equitable disposition of the property was had in the pledge created. This giving of a lien upon the property, arising out of a beneficial use thereof, served to divest it of its character as an import and subject it to the jurisdiction of the state.”
Unlike the situation in Calexico, in the present case the hypothecation was in accordance with a financing plan formulated prior to importation of the goods; and plaintiff seeks to distinguish the case on that basis. We have concluded, however, that, looking to the substance, rather than the form, of the transaction (see Hooven & Allison Co. v. Evatt, 324 U.S. 652, 663 [89 L.Ed. 1252, 1262, 65 S.Ct. 870]), (1) no loan was made to plaintiff by Heller on the goods until after their arrival in this country, and (2) Heller did not obtain a security interest in the goods until after their arrival here.
With respect to (1) above, no contention is made that Heller advanced any sums with respect to the goods sought to be taxed until after their arrival.
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Opinion
McCOMB, J.
Plaintiff appeals from a summary judgment, which ordered dismissal of its action (brought pursuant to § 5138 of the Rev. & Tax. Code) seeking refund of a general property tax paid under protest. Each of the parties sought a summary judgment, and it was stipulated that such a judgment be entered in favor of one side or the other.1
[166]*166Facts:2 On the first Monday in March 1968, plaintiff had $272,285 worth of candles stored in a warehouse. The candles had been purchased in Japan and were stored in their unbroken original packages. Defendant assessed the. candles at a value of $68,071 and levied a tax of $5,990.24 upon the goods. After being denied an import exemption, plaintiff paid the taxes under protest.
Plaintiff maintains a continuing credit relationship with Walter E. Heller & Co. (Heller), in accordance with a written agreement dated February 10, 1967. Under their arrangement, Heller supplies working capital financing, amounting to approximately 80 percent of plaintiff’s inventory and accounts receivable. In return, plaintiff has pledged all its inventory and accounts receivable (including those thereafter acquired) as security for the indebtedness owing by it to Heller. Heller does not provide letter of credit financing for the importation of goods from, foreign countries, since its financing charges are higher than bank charges, With respect to plaintiff’s importation of candles from Japan, how'ever, Heller cooperates with United California Bank (UCB) in the following manner: UCB opens a letter of credit for the account of the Japanese suppliers of the candles. When the shipping documents are received, UCB pays its foreign correspondent bank for drawing on the letter of credit and charges that amount to plaintiff’s advance account. Plaintiff’s debt to UCB is secured by a lien on the candles. After the candles have cleared customs, they are delivered to Lawrence Warehouse, a public warehouse in San Francisco, where warehouse receipts are issued to Heller. On delivery of the warehouse receipts, Heller pays UCB and adds the amount of the payment to the balance of its continuing loan to plaintiff, UCB’s [167]*167security interest in the candles is discharged by the payment to it, and Heller becomes the prime lien holder.
Question: Does the immunity extended to imports by article I, section 10, paragraph 2, of the United States Constitution continue while the goods remain in their unbroken original packages even if the importer makes use of them by hypothecation after they have reached this country?
No. In Brown v. Maryland, 25 U.S. (12 Wheat.) 419 [6 L.Ed. 678], the Supreme Court of the United States stated that things imported are imports entitled to constitutional immunity from state and local taxation and that this import immunity continues until the importation process has been completed. At page 441 [6 L.Ed. at p. 686], the court said: “. . . when the importer has so acted upon the thing imported that it has become incorporated and mixed up with the mass of property in the country, it has, perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the state; but while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports, to escape the prohibition in the constitution.”
Pursuant to this reasoning, the courts have held that an article loses its status as an import in any of the following circumstances: When the original package is broken (Brown v. Maryland, supra, 25 U.S. (12 Wheat.) 419; Sugarman v. State Board of Equalization, 51 Cal.2d 361 [333 P.2d 333]); when the imported article is irrevocably committed to the use for which it was imported (Youngstown Co. v. Bowers, 358 U.S. 534 [3 L.Ed.2d 490, 79 S.Ct. 383]; May v. New Orleans, 178 U.S. 496 [44 L.Ed. 1165, 20 S.Ct. 976]); when the imported article is sold (Waring v. The Mayor, 75 U.S. (8 Wall.) 110 [19 L.Ed. 342]; Brown v. Maryland, supra, 25 U.S. (12 Wheat.) 419); when the imported article is consigned by the importer to dealers solely for the purpose of offering the goods for sale in domestic commerce (Comineo Products, Inc. v. State Tax Commission, 243 Ore. 165 [411 P.2d 85]); and when the imported article is pledged to a third party after its arrival in this country (Southern Pac. Co. v. City of Calexico (S.D.Cal.) 288 F. 634; State v. Harper (Tex.Civ.App.) 188 S.W.2d 400).
In the present case, the goods had not been removed from their original packages or sold (the use for which they were imported) and would thus appear to be still clothed with import status and immunity. Defendant, however, contends that Southern Pac. Co. v. City of Calexico, supra, 288 F. 634, which held that goods in their original packages in a warehouse being held for sale are stripped of their immunity and incorporated into [168]*168the general mass of goods if they are pledged or hypothecated, demands a contrary result here. We have concluded that there is merit to this contention.
In Calexico, it was said at page 641: “In substance, there could not be much difference between a sale of the cotton and a pledge or hypothecation of it as for money advanced. In the one instance, following the usual course, for value received the importer would part with the title and possession; in the other instance, for value received, he would subject himself to the right to be deprived of both the title and possession. In either event the importer would be ‘so acting upon the thing imported’ as to incorporate and mix it with the mass of property in the country. For a purpose beneficial to himself an equitable disposition of the property was had in the pledge created. This giving of a lien upon the property, arising out of a beneficial use thereof, served to divest it of its character as an import and subject it to the jurisdiction of the state.”
Unlike the situation in Calexico, in the present case the hypothecation was in accordance with a financing plan formulated prior to importation of the goods; and plaintiff seeks to distinguish the case on that basis. We have concluded, however, that, looking to the substance, rather than the form, of the transaction (see Hooven & Allison Co. v. Evatt, 324 U.S. 652, 663 [89 L.Ed. 1252, 1262, 65 S.Ct. 870]), (1) no loan was made to plaintiff by Heller on the goods until after their arrival in this country, and (2) Heller did not obtain a security interest in the goods until after their arrival here.
With respect to (1) above, no contention is made that Heller advanced any sums with respect to the goods sought to be taxed until after their arrival. At that time, UCB required payment; and Heller, in order to provide the new loan thus needed by plaintiff to pay its indebtedness to UCB and obtain a release of UCB’s lien, paid UCB the amount “specified” by plaintiff and added the amount of the loan to plaintiff’s total indebtedness to it.
With respect to (2) above, it is contended that from the inception of the transaction Heller had a lien, which was subordinated to the lien of UCB, and that Heller’s lien became prime once plaintiff’s indebtedness to UCB had been satisfied. As a result, it is said, there was no new hypothecation to Heller. Upon analysis, however, it will be seen that any supposed lien in favor of Heller before the goods were placed in the warehouse was illusory, in view of the fact that UCB’s lien was to secure the full purchase [169]*169price of the goods; and clearly Heller did not succeed to UCB’s security interest, since it insisted on a higher rate of interest than was paid to UCB. In other words, by the making of a new loan and the giving of a new security interest, the goods were refinanced after they came to rest in San Francisco.
As found by the trial court, Heller’s intent that its security interest come into being only after the goods reached San Francisco appears from the following excerpt from the letter agreement entered into between Heller and UCB: “It is our intention to continue to lend money to [plaintiff] and to have a security interest in its accounts receivable and in its inventories after the inventories reach a Lawrence or other warehouse. It is your intention to continue to finance [plaintiff’s] imports and to have a security interest in the merchandise which it imports prior to the time that such merchandise reaches such warehouse.” (Italics added.)
Likewise, the declaration of James Diez, outlining the procedure followed by UCB with respect to the financing of the goods, shows that UCB interpreted the letter agreement to provide for a substitution of lien holders after the arrival of the goods in this country. In the declaration, Mr. Diez states: “In brief, UCB advances the purchase money to [plaintiff] which buys candles in Japan and imports them into the United States. By the terms of the letter of credit, the imported goods are at all times until payment therefor pledged to UCB as security for UCB loans to [plaintiff]. Payment is due to UCB when the goods arrive locally and are placed in a public warehouse.
“[Plaintiff’s] imports are stored at Lawrence Warehouse, which in turn issues warehouse receipts to Heller. Heller pays UCB and is substituted for the bank as pledge-holder of the imported goods.” (Italics added.)
Plaintiff argues that since it was required to pay a higher rate of interest to Heller, the substitution of Heller as lender did not result in the making of a use of the goods beneficial to plaintiff. It must be remembered, however, that UCB was unwilling to continue its loan to plaintiff and would have exercised its lien had plaintiff not satisfied the loan. Under the circumstances, the result of the refinancing with Heller was to save the goods for plaintiff. Thus, by the refinancing plaintiff made a beneficial use of the goods.
Although, as indicated in Calexico, tax immunity is not divested merely because a lien arises by operation of law for the required storage or transportation of the imported goods (see pp. 642-643 of 288 F.), in the [170]*170present case Heller’s lien was not a lien of such type, but was one voluntarily given by plaintiff.
The judgment is affirmed.
Wright, C. J., Burke, J., and Sullivan, J., concurred.