Court: Arizona Supreme Court; May 18, 1960; Arizona; State Supreme Court
The State of Arizona appeals a judgment from a condemnation suit awarding damages to James Lyle McDonald and Ada McDonald, along with R.E. Rockwell and Irene Rockwell, for properties taken for highway expansion. In 1955, the Arizona State Highway Commission initiated the relocation of part of the heavily traveled Holbrook-Lupton Highway (U.S. 66) and sought a wider right-of-way of 255 feet, affecting lands owned by the defendants. The McDonalds owned approximately 540 acres of unimproved land primarily intended for business development, adjacent to the scenic Painted Desert. They previously granted a right-of-way easement for $10 per acre, including a provision for two 30-foot turnouts. The Rockwells, who owned about 200 acres with a roadside business, also granted an easement, with additional conditions for turnouts included in the agreement.
Following the passage of the "Highway Act of 1956," the highway was designated part of the National system of interstate defense highways, necessitating further land acquisition for a 314-foot, four-lane freeway. The State filed this suit to condemn an additional 59-foot strip of land from both property owners. The condemnation sought to acquire four parcels from the McDonald property (totaling 8.40 acres) and two parcels from the Rockwell property (totaling 3.64 acres), situated adjacent to the existing highway right-of-way.
The Rockwells will be completely put out of business due to the construction of a 59-foot strip that eliminates access to their roadside business and blocks all gates along their 4,300 feet of south frontage and 3,000 feet of north frontage, with no planned frontage roads. They also cannot cross from one side of their property to the other. In contrast, the McDonald property, which has two miles of frontage, will have limited access through one "ranch gate" on each side of the highway, allowing only five cars per day. The state's engineering testimony indicates that any business attempting to use these gates would face immediate closure. Under the master highway plan, there will be no facilities for gas, food, or any business within an 11.5-mile stretch including these properties.
The state's amended complaint sought to acquire the strip and eliminate all access rights to the adjacent parcels. During the trial, the state acknowledged it was violating an agreement regarding access rights and conceded the owners were entitled to compensation. The jury awarded $14,250 to the McDonalds and $60,000 to the Rockwells, leading to a judgment against the state. The trial court defined "fair market value" as the highest price that property would bring if sold on the open market under normal circumstances. Evidence of comparable sales was scarce due to large property ownerships and few transactions in the area, with only one significant sale noted between the Rockwells. The court allowed evidence of a 1954 sale contract between R.E. Rockwell and his son for the same property, despite state objections, which included land and a "going business." The principal issues raised on appeal pertain to the admissibility of evidence relevant to determining the value of the condemned land.
The contract stipulated a total price of $50,000 for the sale of a business, including $10,500 as a down payment, with monthly payments of $200. At trial, a balance of $31,700 remained. The sale encompassed a stock of goods and a liquor license, with both real property and business goodwill priced together, without separate evaluations of their components. The court emphasized that in condemnation cases, just compensation is based on the fair market value of the land, not business damages unless specified by law. The trial court allowed extensive examination of witnesses to assess the sale value of personal property, enabling the jury to derive the real estate contract price. Although the lump sum price could be seen as prejudicial, it was not misleading given the jury's instruction that business injury is not viewed as property under eminent domain statutes.
The trial also included testimony from Charles H. Jacobs about an option he granted the U.S. Park Service for 920 acres at $75,000, followed by a sale of a quarter section for $15,000. Jacobs claimed his property was similar but valued higher than the Rockwell property. The State objected to this testimony, arguing that an option to purchase is irrelevant to market value, citing a Minnesota case that ruled options are not sales and should not be used to demonstrate value. No evidence was presented to qualify Jacobs as an expert on property values.
An option to purchase real estate is deemed irrelevant for a jury's determination of market value due to numerous contingencies, as the optionee has no obligation to buy. Consequently, admitting evidence of such an option was an error. In the case of the Jacobs property, part of it was sold to the United States under eminent domain, and objections were raised regarding the materiality of this testimony in assessing market value. The court ruled the evidence's weight was more pertinent than its admissibility. The prevailing view suggests that prices paid by a condemner for similar land, even without initiated proceedings, are inadmissible, although some later rulings indicate that such evidence can be admissible with a proper foundation.
The burden lies on the party presenting such evidence to prove that the sale was voluntary and not made under compulsion. The court criticized the lack of preliminary evidence demonstrating that the Jacobs sale to the Park Service was voluntary, thus ruling it was an error to admit this evidence. Additionally, evidence presented by witness J. Leslie Hansen regarding the State of Arizona's settlement with Dowdy was also contested as immaterial without a proper foundation. Hansen's testimony about the settlement amount of $30,000 was permitted despite objections, reinforcing the idea that price paid for similar land lacks relevance without a proper basis. Lastly, Ernest Wesson's testimony about an offer to purchase the Rockwell property was allowed, despite the State's objection, as there is insufficient established Arizona law on this matter, necessitating reliance on external legal precedents.
Evidence of unaccepted offers to purchase real property is generally not admissible for establishing market value, as they are considered inferior to actual sales evidence. This is due to their representation of a single party's opinion and challenges in verifying their authenticity. Courts typically exclude such offers unless they serve as admissions against the owner. There is a distinction between offers related to property taken and property not taken, as well as between offers made by the property owner and those from third parties.
In Illinois, a minority of courts allow limited admission of offers to purchase as evidence of market value, particularly in the absence of actual sales of comparable properties. However, these offers must be bona fide, made in cash, by a knowledgeable and financially capable individual, and reflective of fair market value rather than personal preferences. The burden lies on the party seeking to admit this evidence to demonstrate its legitimacy.
In the case referenced, Wesson's offer was deemed inadmissible as it did not meet the bona fide criteria, being neither a cash offer nor made by someone with sufficient funds. Further, the relevance of trades or exchanges in determining market value was considered, illustrated by Cody O. Harris's testimony regarding his property purchase. Harris recounted acquiring land for $2,500, supported by a recorded deed and revenue stamps, and also mentioned an unexercised oral agreement with the seller, which effectively increased the total consideration to $7,000. This testimony served as a comparable sale for property valuation without objection.
The State sought to strike Harris' testimony regarding a "swap" or "option," but the court did not rule on this motion. Additionally, the court refused to give plaintiff's instruction No. 25, which stated that sales evidence must involve monetary transactions rather than exchanges. This refusal was deemed erroneous, as exchanges do not reliably indicate market value, supported by precedent in Hay v. Boggs, which emphasized the inadequacy of exchange-based valuations. The court also erred in allowing Joe Linnane to testify about property values, as he was not formally qualified as an expert, though he had relevant experience in the area. The trial court did not abuse its discretion in admitting Linnane’s testimony, given his familiarity with local property values. Lastly, the court rejected the State's proposed instruction No. 17, which claimed that establishing a new highway does not create a taking of access rights. The court found this principle misapplied, noting that the easements granted to the defendants provided reasonable access that did not impede the land's highest and best use.
Proposed highway changes will deprive defendants of their vested rights to ingress and egress, which is a compensable loss according to relevant case law. A lengthy instruction submitted was properly refused as it would unnecessarily extend the opinion. The court considered all assigned errors raised by the State and found them meritless. A stipulation at trial determined that the court would decide the matter of expert witness fees. Defendants filed a cost bill for $1,375.50, which the State objected to. The court ultimately allowed the cost bill in full, leading to the State's appeal. Under A.R.S. 12-1128, the court has discretion to allow or apportion costs, while Rule 54(f) limits costs against the State to what is permitted by law. A.R.S. 12-332 lists taxable costs but does not include expert witness fees. Defendants argue that without compensation for expert witnesses, they cannot receive just compensation as mandated by the Constitution. A review of case law shows varying interpretations of statutes regarding expert witness fees, but courts allowing such costs often rely on different statutory frameworks. Arizona's statute, adopted from California, was interpreted in prior cases to mean that "just compensation" pertains only to property value, excluding additional costs such as expert fees. The court concludes that the term "cost" in A.R.S. 12-332 does not encompass expert witness fees, suggesting any legislative change should come from the legislature rather than judicial decision. The order allowing expert witness fees is set aside, and the judgment is reversed, directing a new trial. Chief Justice Struckmeyer and Justices Udall, Johnson, and Bernstein concur, while Justice Phelps is disqualified and replaced by Judge Porter Murry.
