dissenting. In 1977, the City of Fayetteville deemed it necessary to condemn a tract of appellant Wilson’s land and deposited $100.00 in the registry of the trial court as the amount necessary to make compensation for the land taken. See Ark. Code Ann. § 18-15-303(b)(1) (1987). The City then obtained an order of possession for the land, see Ark. Code Ann. § 18-15-303(b)(2) (1987), and has possessed the land since then. The appellant has had the $100.00, and the interest it has earned over that period of time. In October 1988, more than eleven years after the taking, the condemnation case was heard, and the jury found that the true value of the tract at the time of the taking was $29,000.00. The trial court entered judgment for the $29,000.00, less the $100.00 deposit, but refused to award interest from the time of taking until judgment. The court of appeals affirmed the award of $29,000.00, but remanded the case to the trial court “for a determination of ‘a proper rate’ of interest from the time of taking until judgment.” City of Fayetteville v. Wilson, CA90-139, slip op. at7 (Ark. App. Nov. 15, 1989).Upon remand, the trial court found that the interest rate should be set at 9.25 % per annum because that was the average rate paid by local banking institutions on certificates of deposit, but it made the award of simple interest.
I.
Procedure
The majority opinion states that the trial court “considered and rejected the compounding of interest.” In fact, the trial court did not exercise its discretion involving the compounding of interest, since it thought that this court had prohibited the awarding of compound interest as a matter of law. In his letter opinion the trial judge wrote:
Some question has also arisen as to whether or not the interest is to be compounded or if it is to be simple interest. In the Vick case, supra, [Arkansas State Highway Comm’n v. Vick, 284 Ark. 372, 682 S.W.2d 731 (1985)] the Supreme Court allowed ten percent simple interest. Therefore, . . . they have spoken on the issue and have only allowed simple interest.
The trial court’s order provides: “Based upon the holding in Vick, supra, the Court finds that such prejudgment rate of interest should be computed as simple interest without compounding.” Thus, it seems clear that the trial judge thought that, as a matter of law, he did not have discretion to award compound interest and did not exercise any discretion with regard to the compounding of interest. Since the majority opinion holds that, as a matter of law, compound interest could have been awarded, and since the trial court did not think that it had the discretion to award such interest, it seems clear that the case should be reversed and remanded for the trial court to exercise its discretion. We have long held that the erroneous failure of a trial court to exercise its discretion is reversible error. Acklin v. State, 270 Ark. 879, 606 S.W.2d 594 (1980); Gould & Co. v. Tatum, 21 Ark. 329 (1860).
The trial court held that it could not compound the interest. The appellant assigns the ruling as error, and the majority opinion holds that the ruling was error. Even so, the majority opinion declines to reverse and remand for the trial court to exercise its discretion. Instead, the majority implies that the appellant asks us to award compound interest as though we were reviewing this case de novo and as though we would grant the relief which the trial court should have given. The majority opinion states:
This is an issue of first impression in Arkansas, and we are mindful that a landowner is entitled to the full equivalent of the value of the land as if paid contemporaneously at the time of taking. Arkansas State Highway Comm’n v. Stupenti, supra. However, were we to reverse the circuit court and mandate compound interest in this case, we would in effect be requiring that henceforth just compensation under the Arkansas Constitution include compound interest in land condemnation cases. We refuse to take such a dramatic step.
The fallacy of the statement is that the appellant has not asked us to “take such a dramatic step” because he has not asked this court to mandate that interest be compounded. Rather, he has quite properly asked that the trial court be reversed and “be given opportunity to fix the subject interest rate within the full range of prudent, locally-available investments in evidence. Interest on these investments should be evaluated as it actually exists, without artificial exclusion of any benefit of compounding.” Reply Brief of Appellant at 14 (emphasis added). The appellant also asks that the case be remanded for the trial court to exercise its discretion on compounding, and the majority opinion for some unknown reason denies that relief.
The majority opinion holds that compound interest can be considered by trial courts, but affirms the trial court in this case even though it refused to consider the compounding of interest. If this precedent is followed, the result could be that on the same day a trial court in Fayetteville might refuse to consider awarding compound interest while a trial court in Jonesboro might award compound interest, and both would be approved by this court in this day of nationally competitive interest rates. The reason for such a holding is that the majority opinion does not delve deeply into the applicable substantive law.
II.
Substantive Law
In Seaboard Air Line Ry. v. United States, 261 U.S. 299, 304 (1923), the United States Supreme Court explained that when private property is taken for public use, “[t]he compensation to which the owners is entitled is the full and perfect equivalent of the property taken.. . . [This] means substantially that the owner shall be put in as good position pecuniarily as he would have been if his property had not been taken. [Citations omitted. Emphasis added.]” The award must be a full and fair reimbursement. Id. at 306. Another decision suggests acceptance of the principle that constitutionally proper interest must reflect market conditions. In Kirby Forest Indus., Inc. v. United States, 467 U.S. 1, 10-11 (1984), the Court affirmed that interest is compensation for the delay between the taking and payment, necessary to place the landowner “in as good a position pecuniarily as he would have occupied if the payment had coincided with the appropriation. Phelps v. United States, 274 U.S. 341, 344 and Seaboard Air Line R. Co. v. United States, 261 U.S. 299, 306 (1923).” The Court stated that in cases such as the one at bar, where the government obtains title and possession before a final condemnation judgment is rendered, the landowner is constitutionally entitled to interest on any delayed payment “sufficient to ensure” a monetary position as favorable to him as if payment and taking had coincided. Kirby Forest Indus., Inc., 467 U.S. at 10. In a footnote, the court explained that this principle of “full and perfect” financial equivalency “underlies several decisions by Courts of Appeals, holding that the six percent rate of interest prescribed by [the federal condemnation statute] is not a ceiling on the amount that can and must be paid by the Government. [Emphasis added.]” Id. at 11 n. 16.
In Arkansas State Highway Comm’n v. Stupenti, 222 Ark. 9, 13, 257 S.W.2d 37, 40 (1953), we said, “Just compensation means full compensation,” and additionally quoted from Jacobs, et al. v. United States, 290 U.S. 13 (1933) as follows:
The owner is not limited to the value of the property at the time of the taking; ‘he is entitled to such addition as will produce the full equivalent of that value paid contemporaneously with the taking.’ Interest at a proper rate ‘is a good measure by which to ascertain the amount so to be added.’
In Arkansas State Highway Comm’n v. Vick, 284 Ark. 372, 375, 682 S.W.2d 731, 732 (1985), we said, “As a matter of just compensation and due process under the federal and state constitutions, a landowner cannot be denied interest on the unpaid part of the award during the time he is deprived both of the use of the land and of the money representing its value.”
During the period in which the government has taken possession of the land but has not paid an amount representing its full value, eleven years in this case, the landowner becomes “an involuntary lender to a debtor he would often prefer not to have.” Redevelopment Agency of the City of Burbank v. Gilmore, 700 P.2d 794, 806 (Cal. 1985). That involuntary lender is forced to loan an uncertain amount of principal to an uncertain date of maturity. As this case turned out, the landowner had involuntarily loaned the City of Fayetteville $28,900.00 for a period of eleven years. If the interest on that involuntary principal is not compounded then “as the unpaid interest accumulates, the accumulated interest is the equivalent of an interest-free loan.” Borough of Wildwood Crest v. Smith, 563 A.2d 73, 75 (N.J.Super. 1988). We have said that the landowner “cannot be denied interest on the unpaid part of the award during the time he is deprived both of the use of the land and of the money representing its value.” Arkansas State Highway Comm’n v. Vick, 284 Ark. at 375, 682 S.W.2d at 732. Yet, there is no doubt that a landowner is deprived of interest on the unpaid part of the principal when he is forced to give an interest-free loan on the accumulated interest.
Another way of demonstrating the unfair and erroneous holding of the majority opinion is as follows. The City of Fayetteville deposited $100.00, which allegedly represented the market value of the land at the time it took possession. The landowner could deposit that money at an average rate of 9.25 %, and at the end of the first year, he would have had $109.25. He could have then deposited $109.25 and earned interest and compounded it the same way for the full eleven years. It is undisputed that each of the local financial institutions compounded depositors’ interest. However, because the City did not deposit the remaining $28,900.00 of market value, the landowner is deprived of the benefit of compounded interest on that amount. Yet, it is without question that the landowner is constitutionally entitled to sufficient interest on any delayed payment to place him “in as good a position pecuniarily as he would have occupied if the payment had coincided with the appropriation.” Kirby Forest Indus., Inc. v. United States, 467 U.S. at 10 (emphasis added).
As previously set out, the compensation constitutionally due is the “full and perfect” monetary equivalent of the fair market value of the condemned property dating back to the time of taking. Under the federal and state constitutions, interest is an element of this just compensation, and its computation becomes a task of the trial court. Most of the modern cases authorize the trial courts to find the rate which would have been earned by a reasonably prudent person investing funds so as to produce a reasonable return while maintaining safety of principal. See Redevelopment Agency of the City of Burbank v. Gilmore, 700 P.2d at 804, for a listing of cases to that date, and see also Lea Co. v. North Carolina Bd. of Transport., 345 S.E.2d 355, 360 (N.C. 1986), for an additional listing. “Since a prudent investor would diversify his interest portfolio,. . .the trial court should consider prevailing rates, during the period of delay, for investments of varying length and risk. Typically, these have included short, medium, and long-term government and corporate obligations.” Redevelopment Agency of the City of Burbank v. Gilmore, 700 P.2d at 804. In general, the trial court would examine, upon proof by the parties, the rates prevailing during the period a condemnation payment was delayed for all forms of money-market obligations available in the local area, including governmental and private, that prudent depositors and investors normally purchase for income purposes, and whose terms or maturities fall within the period of delay. Here, there was testimony that there were banks, savings and loans, investment bankers, and securities institutions in Fayetteville, and they had available local certificates of deposit, secondary market certificates of deposit, government securities, and corporate bonds rated AAA, or very safe bonds. Many published services accurately track money-market trends. Examples include the publications of Moody’s Investors Service and the comprehensive monthly Federal Reserve Bulletin. The United States Court of Claims has utilized Moody’s Composite Index of Yields on Long Term Corporate Bonds. Georgia-Pacific Corp. v. United States, 640 F.2d 328 (1980). In Lea Co. v. North Carolina Bd. of Transport., supra, the trial court looked at the prime rates, prime commercial paper, long term U.S. Bonds, AAA rated utility bonds, and federally insured notes and mortgages.
NOVEMBER 2, 1992. 838 S.W.2d 366Some courts, in determining the factors to be considered in setting the rate of interest, have considered the cost of money to the governmental entity taking the land. See United States v. Blankenship, 543 F.2d 1272 (9th Cir. 1976). However, the government’s cost of borrowing, as such, simply is not relevant to determining the amount necessary to restore the landowner to a monetary position as favorable to him as if the payment and taking had coincided.
This cases should be reversed and remanded, and the trial court should be given instructions to let the truth of the marketplace determine the monetary equivalent of the condemned property. The majority opinion does not so hold, and accordingly, I dissent.
Holt, C.J., and Newbern, J., join in the dissent.