No, 11741
I N THE SUPREME C U T O T E STATE O MONTANA
OR F H F
1972
THE STATE OF M N A A ACTING BY AND T R U H
OTN, HOG
THE STATE HIGHWAY COMMISSION O T E STATE
F H
O MONTANA,
F ,
P l a i n t i f f and Appellant,
-vs -
MELVIN D. PALIN e t a l . ,
Defendants and Respondents.
Appeal from: D i s t r i c t Court of t h e Third J u d i c i a l District,
Honorable S i d G. S t e w a r t , Judge p r e s i d i n g .
Counsel of Record:
F o r Appellant :
Daniel J. S u l l i v a n and Donald A. Douglas argued,
Highway Legal Dept., Helena, Montana,
F o r Respondents :
Knight, Dahood and Mackay, Anaconda, Montana.
.
Wade J Dahood argued, Anaconda, Montana.
William F. Sheehan, P h i l i p s b u r g , Montana.
Submitted: September 21, 1972
Decided .-
WV2 7 TO?.
Mr. Chief Justice James T. Harrison delivered the Opinion of
the Court.
This is an appeal by the Montana State Highway Commis-
sion from a jury award of $48,600 to the defendant, Melvin
Palin, in a condemnation suit. The land was used as part of
the interstate highway system. Both parties agreed that the
highest and best use of the land, located along the Clark Fork
River in Granite County, was for grazing. The Palins placed a
value of $52,470 on their lands being taken. The State's appraiser
computed compensation at $9,850. The Palin's expert witness,
Melvin Beck, testified concerning the value of the land and as
the basis of his opinion Beck used what he called the "capitali-
zation of income method". This testimony was objected to by the
State Highway Commission as having no proper foundation.
The controlling issue in this cause is whether this is
an appropriate case for the use of the "capitalization of income
method" to determine the value of the land. We conclude that
it was not.
The argument made by Palin's counsel was that the opinion
testimony given by Beck was supported by substantial evidence
and therefore proper for the jury to consider. The record on
appeal does not support that argument. The testimony of Beck
was based upon hypothetical assumptions and not from any actual
information gathered from Palin or anyone else concerning the
amount of income that could be derived from the land in question.
His testimony concerning the method by which he reached his valuy
ation was:
"Well I first have to determine how many animals
can be grazed and fed on this area."
On voir dire examination it was determined that this carrying
capacity of the land was determined by "observation and study".
In State v. Peterson, 134 Mont. 52, 63, 328 P.2d 617, this Court
held that income or revenue from land was "admissible for the
purpose of arriving at the market value of the property". The
only testimony in this record concerning income from the land is
that of Palin's brother, who testified that he had cut hay on
the land in 1959. He did not testify that the hay had been sold
or used in the ranch operation. The end result of this is that
Beck's testimony was inadmissible because his basic assumption
was not based on income from the land.
This result is not to say we disapprove of the use of
the capitalization of income method in determining the value of
land. We have previously held that it is a proper method within
certain limitations. State Highway Comrn'n v. Heltborg, 140 Mont.
196, 369 P.2d 521; State Highway Cornrn'n v. Bare, 141 Mont. 288,
301, 377 P.2d 357. -
In Bare we reached the same conclusion as in
this case and for the same reason the conclusion reached by the
expert witness was not based on tangible factors. We said:
" * * * Mr. Working's application of the method
* * * is not an appropriate application. Further,
in this case, none of the figures, being based
on one year only, and in part pure estimates,
have such degree of certainty as to be a credible
factor. "
We then went on to point out the testimony from the experts in
Heltborq was the result of a:
" * * * very careful foundation for production
figures, operation figures, and effect of the
taking on those figures, were made before any
effort was made to apply the capitalization of
income method."
This is the error that was committed in this case, the testimony
of Beck was not supported by such a foundation. On the question
of what type of situation is the capitalization of income an
appropriate method to value land, the Supreme Court of Virginia,
in Appalachian Power Company v. Anderson, 212 Va. 705, 187 S.E.2d
148, 154, in a case involving unimproved land held:
"The capitalization of income method of appraisal
is used where income producing property is
condemned and it becomes necessary to ascertain
its value. * * *
"However, in the instant case we are not deal-
ing with income producing property but unimproved
acreage. * * *"
That court went on to cite United States v. Whitehurst, 3 3 7
F.2d 7 6 5 (4th Cir. 1964), where the court held:
" * * * the capitalization of income method of
determining the value of land should not be used
where the determination is based upon pure specu-
lation and is without objective evidential
support."
We therefore hold that the capitalization of income
method of land valuation should be limited to income producing
property where at all possible, recognizing that it may be neces-
sary to use the method in cases where no comparable sales evi-
dence is available. -
But, in those cases, the limitation in Bare
should be strictly adhered to that:
" * * * its use must be based on a foundation
which minimizes to the extent possible conjecture
and uncertainty."
Therefore the district court was in error in overruling
the Highway Commission's motion to strike Beck's testimony and a
new trial must be granted. Because the case must be retried
there is no need to discuss further the other claimed errors
because they should not again
The judgment is revers& '
I
and a )w
e til,re/.
ra,odrd
QI
Associa e Justices