In Lambrecht v. State Highway Comm. (1967), 34 Wis.2d 218, 148 N.W.2d 732, the defense was permitted to weaken by direct testimony of its own, an expert opinion presented by the plaintiff.Summary of this case from Peil v. Kohnke
February 3, 1967. —
February 28, 1967.
APPEAL from an order of the circuit court for Oneida county: GERALD J. BOILEAU, Circuit Judge. Reversed.
For the appellants there was a brief by Smith, Puchner, Tinkham Smith of Wausau, and oral argument by Richard P. Tinkham.
For the respondent the cause was argued by Robert D. Martinson, assistant attorney general, with whom on the brief were Bronson C. La Follette, attorney general, and Lee A. Bernsteen, district attorney of Oneida county.
This is an appeal from an order setting aside a jury verdict and granting a new trial in a highway condemnation damage action.
The plaintiffs-appellants, Mr. and Mrs. William H. Lambrecht, own and operate a combination general store and filling station in Oneida county about midway between Minocqua and Lac du Flambeau on State Highway 70. The land is somewhat triangular in shape, consisting of about two acres with 420 feet frontage on Highway 70. There is one large building (about 2,370 square feet), most of which is used as a general store and filling station. A smaller portion of the building is used for living quarters. There is also a rental cabin and a two-pump concrete gasoline service station island. The property was purchased in 1962 for $27,500, and subsequent improvements were made to the building at a cost of $4,500.
The business was family operated by Lambrecht, his wife, and nineteen-year-old son. It is seasonal and all three members of the family work there in the summer time. The husband works elsewhere the rest of the year and the son is a student at Eau Claire. The gross sales of the business increased from $42,000 during the first year of operation to $65,000 in 1965. This resulted in a net profit of $8,000 for 1965 without deduction for rental of living quarters, which were calculated at $1,500 per year, and no deduction for services rendered by the members of the family.
As of September 23, 1965, the defendant, State Highway Commission, took a strip of land 12 feet wide and 420 feet long across the front of the property for highway improvement purposes. Before the taking the property was level with the highway and cars could come into the premises at any point along the highway. The store entrance faced the highway with concrete platform steps located there and a canopy extending from the store toward the highway. The gasoline pumps were located between the front of the store and the highway. The owners could watch the pumps while working in the store.
It was stipulated that after the taking of the 12-foot strip there would be a two-foot difference in elevation of the property and the highway. The 12-foot strip taken included the area where the gasoline pumps were located and brought the highway within seven feet of the canopy and 13 feet of the front of the store. If the building is to be left in its present position the gas pumps will have to be moved to the side of the building. The owners testified this would necessitate the hiring of additional help in the summer time to operate the service station. It would cost $15,000 to $16,000 to move the building back so as to maintain the gasoline pumps and store building in their same relative positions.
All of the real-estate appraisers who testified, both for the owners and the state, agreed that there were no comparable sales in the area which they could use to assist in determining market value. They also all agreed that the highest and best use of the property was a store, filling station, and dwelling.
Mrs. Lambrecht testified that the value before the taking was $50,000 and the value after $34,000, for a value difference of $16,000. Mr. Lambrecht testified the value before taking was $50,000 and the value after $25,000, for a difference of $25,000.
Mr. E.N. Foltz, an experienced real-estate broker in the Minocqua area, on behalf of the owners, testified the value before the taking was $40,000. He based this opinion primarily upon the sales and income of the business operation. His opinion was that the value of the property after the taking was $8,500 (a difference of $31,500) because it could no longer be successfully operated as a business without moving the buildings. He further testified that if the buildings were moved it would cost $15,000-$16,000 to do so and that the value of the 12-foot strip taken was $1,000.
Mr. Patrick Stone, another experienced real-estate broker in the Minocqua-Lac du Flambeau area, testified on behalf of the owners that the fair market value before the taking was $39,000 and after the taking $29,000, a difference of $10,000. His opinion was based, at least in part, on income capitalization. He also testified that if the building was left in its present location there would be a loss of business and greater expense in operating the filling station. He, too, testified that the cost of moving the buildings would be $15,000-$16,000.
Both Foltz and Stone, on cross-examination, admitted that they had testified to substantially lower values before the condemnation commissioners. Foltz's testimony was $15,992 before and $8,500 after, a difference of $7,492; Stone's testimony was $16,620 before and $10,000 after, a difference of $6,620. Both of them testified that their opinions given at the prior hearing were based only on the intrinsic value of the land and buildings without consideration of its income-producing capabilities.
Mr. John Schultz, a state highway employee, testified the value before the taking was $16,000 and the after value $15,250, for a difference of $750.
Mr. Franklin Graham, a professional appraiser who testifies frequently for the state, testified that the before taking value was $19,400 and the after taking was $18,400, a difference of $1,000. He further testified that because there were no comparable sales in the area that he used the cost of reproduction less depreciation method and that the capitalized income method would not reflect fair values because the earnings of the owners and their son were not deducted from net income.
The jury found the fair market value before the taking to be $25,000 and the after value $17,500, a difference of $7,500.
The trial court granted the state's motion after verdict to set aside the verdict and grant a new trial upon the ground that it was error to permit Foltz and Stone to testify to their opinions based upon capitalized income.
The landowners-plaintiffs appeal.
The issues are: Was it error to admit the opinion evidence as to value based in part upon capitalization of income and, if so, was it prejudicial error?
The defendant, State Highway Commission, moved for a new trial upon the following grounds: (1) Because of errors in trial, and (2) in the interests of justice.
In the affidavit in support of the motion, one of the errors at law alleged by the defendant was "over objection, the expert witnesses for plaintiffs based their opinions of value upon an `income approach' basis, which was admittedly founded upon testimony in a prior proceeding as to net income which deducted nothing for plaintiffs' own services; one of the plaintiffs also testified as to value upon the same basis; and the result of the verdict manifests that the jury considered that testimony favorably in reaching their verdict."
The trial court granted the motion for a new trial upon this phase of the motion and in doing so stated as follows:
"This court grants the defendant State Highway Commission of Wisconsin's motion to set aside this verdict and for a new trial because of the fact that the jury had before it testimony on the part of Mr. Foltz and Mr. Stone, two respected real estate men in this community, in which they placed values, but the obvious conclusion from their testimony is that they misunderstood the questions or misunderstood their responsibilities. There was no testimony in this case that would permit them to find values as they did in this case. And in view of the fact that their values now based upon what they claim them to be based upon, the income of the property, is so far different from what they theretofore determined to be the fair market value based upon reconstruction less depreciation, this court must conclude that their testimony was given because of a misunderstanding of their responsibilities in this case or a misunderstanding of the question or based upon an improper formula. They both testified that income property that returned the investment within five or six years would be considered a good investment and upon that basis they fix this value at around 39 or $40,000 before the taking. As a matter of fact, they included, both of them included, in what they thought to be the income derived from the property, the value of the services of three people, the two plaintiffs and their son. Obviously, their services, the value of their services should have been deducted from what they considered to be the net income of the property, and which would result in the true value of the income from the property and in using the formula they used or presumed to use they would have come to a much different conclusion.
"This court from the very beginning felt that this testimony was such that it would shock the conscience of the court to permit this verdict to stand based upon that evidence.
"The court grants the motion of the defendant to set aside the verdict and for a new trial."
The order for new trial was granted "because of error in trial" and not in the interests of justice.
Neither counsel's affidavit nor the court's statement to the effect that Foltz and Stone included the value of the services in the net income are exactly correct.
After Foltz and Stone had testified, counsel for the defendant moved to strike the testimony of Foltz, Stone, and Mrs. Lambrecht as to their opinion of value derived from income approach. The motion was not granted. Foltz and Stone were both recalled and both testified that the fact that value of the services of the owners had not been deducted from the net profit would not change their opinions as to fair market value.
In innumerable cases we have stated that an order for a new trial rests in the discretion of the trial court and the order will not be set aside or reversed unless based upon an abuse of discretion.
"Counsel for defendants states correctly that the granting of a new trial for error or in the interest of justice rests largely in the discretion of the trial court. The rule does not apply, however, where it is clear that the court proceeded upon an erroneous view of law. Weissgerber v. Industrial Comm. 242 Wis. 181, 7 N.W.2d 415; Graff v. Hartford Accident Indemnity Co. 258 Wis. 22, 44 N.W.2d 565; Myhre v. Hessey, 242 Wis. 638, 9 N.W.2d 106."
The State Highway Commission contends that the testimony of net income as given by the owners and used by the appraisers was inadmissible and incompetent to establish fair market value, and cites as authority 5 Nichols, Eminent Domain (3d ed.), p. 340, sec. 19.3 (1):
" Commercial property. If the owner of property uses it himself for commercial purposes, the amount of his profits from the business conducted upon the property depends so much upon the capital employed and the fortune, skill and good management with which the business is conducted, that it furnishes no test of the value of the property. It is, accordingly, well settled that evidence of the profits of a business conducted upon land taken for the public use is not admissible in proceedings for the determination of the compensation which the owner of the land shall receive." (Emphasis supplied.)
However, Nichols states an exception to the rule, 5 Nichols, supra, p. 354, sec. 19.3 (5):
"It has been held that where the character of the property is such that a profit is produced thereby without the labor of the owner being expended thereon or where the profits derived from its use are the chief source of its value evidence of such profits is admissible as a criterion of the value of the property.
"Where property is so unique as to make unavailable any comparable sales data evidence of income has been accepted as a measure of value. . . ."
Cited as authority for the exception is a Wisconsin case, Weyer v. Chicago, W. N.R. Co. (1887), 68 Wis. 180, 183, 31 N.W. 710, wherein it stated:
"The court was asked to instruct the jury that they had no right to take into consideration the income that might have been derived from the strip of land taken if it had not been taken. The court properly refused to give the instruction. In estimating the value of farming land, its productiveness, or the income which may [be] derived from it, is always considered. Indeed, there is no better nor safer criterion than this to get at its real value."
In Stolze v. Manitowoc Terminal Co. (1898), 100 Wis. 208, 214, 75 N.W. 987, the court stated:
"It is conceded that a very liberal rule of evidence prevails in proving the market value of lands — especially lands situated and used and cultivated as these were. It must be so from the very nature of such property. Moore v. C., M. St. P.R. Co. 78 Wis. 124. We perceive no error in allowing the plaintiffs to prove the net profits from the lands in question."
"Under sec. 32.09 (6), Stats., the measure of damages in a condemnation proceeding where there is a severance is the difference between the fair market value of the whole property immediately before the taking and the fair market value of the remainder immediately thereafter. By use of the phrase `and without restriction because of enumeration' found in sec. 32.09 (6), it seems reasonable to conclude that the legislature intended that every element which affects fair market value should be considered. This is in accord with the great weight of authority. See 4 Nichols, Eminent Domain (3d ed. 1962), p. 3 et seq., sec. 12.1, where the author states (p. 4) that, `All elements of value which are inherent in the property merit consideration in the valuation process.' The author also states that evidence is admissible that the remainder area is no longer capable of use for a particular purpose or that its purpose or that its facility therefor has been impaired. See 4 Nichols, supra, sec. 14.243, and cases cited at note 4, page 580."
It is undisputed that the highest and best use of the property prior to the taking was the use to which the property was devoted, namely, a combination general store, filling station, and residence. It was also conceded that there were no comparable sales in the area to consider to assist in forming an opinion as to the fair market value of this property. Foltz and Stone testified, in effect, that purchasers of this type of property were in fact buying property and a means of livelihood and that the volume of business and the profit derived therefrom were factors which both the buyer and seller took into consideration in arriving at a selling price.
Under the facts of this case we deem it was not error to admit the testimony of Foltz and Stone as to their opinions on fair market value calculated to a substantial degree upon capitalized income. They did state they were aware of the fact the value of the services of the owners had not been deducted from the net profit. The validity of their opinions could have been challenged by cross-examination and defense testimony. Mr. Graham, on behalf of the defendant, did testify that he did not use the "income approach" in making his appraisal because it was not a proper method and that if income capitalization was to be used it should be on a rental basis. The credibility of witnesses and the weight of the testimony then became a matter to be resolved by the jury under the instructions of the court. The court did instruct the jury that the weight and credibility must be decided by them and that they were not bound by the opinion of any expert.
It is apparent that the jury did consider and evaluate all of the testimony. As to the before taking market value, Mr. and Mrs. Lambrecht testified it was $50,000, Foltz $40,000, Stone $39,000, Graham $19,400, and Schultz $16,000. The testimony was that the property was purchased in 1962 for $27,500 and that $4,500 worth of improvements were made thereafter. The jury found the value before taking to be $25,000. As to the after taking value, which the testimony reveals was not in a significant degree calculated on capitalization of income, the jury found $17,500. It is our opinion that these findings were within the credible evidence and the jury was justified in finding as it did.
We conclude that the trial court did not commit prejudicial error in the trial in not striking the testimony of Foltz and Stone as to their opinions on value based in part on income capitalization.
The defendant also contends it was error not to assign the burden of proof to the landowners-plaintiffs. The record reveals that both landowners and the highway commission appealed to the circuit court from the award of the condemnation commissioners. At the close of the testimony the trial court and counsel for both parties discussed the proposed verdict and jury instructions. Counsel for the defendant was clearly advised by the court that the burden of proof would not be assigned to either party. The court read to counsel the instruction which was given and then asked: "Do either of you have objection to the court giving that instruction?" The response of Mr. Bernsteen, counsel for the defendant, was: "I have no objection, Your Honor." Clearly, if the instruction was erroneous, counsel for the defendant has waived any error and it will not be considered on appeal.
By the Court. — Order reversed, cause remanded with directions to reinstate the verdict and enter judgment accordingly.