Pennsylvania Gas & Water Co. v. Pennsylvania Turnpike Commission

236 A.2d 112, 428 Pa. 74, 1967 Pa. LEXIS 444

• Court: Supreme Court of Pennsylvania
• Decided: November 28, 1967
• Docket: Appeal, 85
• Status: Published

Opinions

Opinion by

Mr. Justice Roberts,

The first question raised by this appeal is whether the plaintiff-appellant, the Pennsylvania Gas and Water Company, may show that the highest and best use for its condemned property is as a site for the construction of a reservoir, even though at the time of the condemnation no physical improvements had been made on the property. Finding as a matter of fact that the use of appellant’s property as a reservoir was mere speculation and hence not provable as the highest and best use, see Rothman v. Commonwealth, 406 Pa. 376, 178 A. 2d 605 (1962); Spring City Cas Light Co. v. Pennsylvania Schuylkill Valley R.R. Co., 167 Pa. 6, 31 Atl. 368 (1895), the trial judge rejected much of the proferred evidence by which appellant sought to show 1) that the property was physically suited for a reservoir site; 2) that the appellant was going to construct a reservoir thereon; and 3) that there was a great need in the community for additional water supply-

Following an award of f72,000 (based upon the valuation of appellant’s land for recreational and residential purposes), both the water company and the Turnpike Commission filed exceptions, all of which were subsequently dismissed by the Court of Common Pleas of Lackawanna County.¹ Judgment was entered on the award as made by the trial judge, and this appeal followed.

Since before the turn of the century, appellant water company, and its predecessors in title, have owned several contiguous tracts of land totaling about 275 acres in South Abington Township, Lackawanna County. It is conceded by all concerned that this property was acquired with an eye toward the eventual construction of a reservoir, although it has remained unimproved for over 50 years.² Nevertheless, the appellant’s witnesses did testify that as a matter of sound industry practice water companies frequently hold potential reservoir sites for periods of time as long as this so that future water needs may be adequately met. This is especially true in the present case, since the water company’s property is naturally suitable for a reservoir site given the presence of several creeks which intersect on the lower portion of the tract.

On June 8, 1954, pursuant to the provisions of the Pennsylvania Turnpike Northeastern Extension Act of September 27, 1951, P. L. 1430, 36 P.S. §600.8(a), the Pennsylvania Turnpike Commission condemned 15 acres from the appellant’s tract. The condemned portion was precisely that part of the tract needed for the erection of a dam, without which the reservoir could not be constructed. As a result, the tract, in its present condition, is useless for reservoir purposes.

It is well settled in Pennsylvania that condemnation damages need not be based upon the use currently being made of the condemnee’s property if in fact its highest and best use is shown to be for some other, more valuable purpose.³ Gilleland v. New York State Natural Gas Corp., 399 Pa. 181, 159 A. 2d 673 (1960); Erie City v. Public Service Comm., 278 Pa. 512, 123 Atl. 471 (1924); Stone v. Delaware, Lackawanna & Western Railroad Co., 257 Pa. 456, 460, 101 Atl. 813, (1917) ; Savings & Trust Co. of Indiana v. Pennsylvania Railroad Co., 229 Pa. 484, 488, 78 Atl. 1039, 1040 (1911). However, there is at least one substantial limitation on this principle. Even if a piece of land is physically suited for a particular purpose, it must also appear that such use is not based upon mere speculation. Sgarlat Estate v. Commonwealth, 398 Pa. 406, 158 A. 2d 541, cert. denied, 364 U.S. 817 (1960) ; Laureldale Cemetery Co. v. Reading Co., 303 Pa. 315, 154 Atl. 372 (1931) ; Marine Coal Co. v. Pittsburgh McKeesport & Youghiogheny Railroad Co., 246 Pa. 478, 485, 92 Atl. 688, 690 (1914).

The real problem here arises from the difficulties involved in ascertaining the precise meaning of the terms “speculative use” and “mere speculation.” Both the lower court and the appellee have assumed that a use is speculative whenever the condemnee has made no physical change in his property pointing toward such a use. However, our case law indicates that such is not the rule. See Gill eland, Erie City, and Stone, supra. Nor is it time that to escape the label of “speculative,” the condemnee must show that there are plans to convert the property to the desired use immediately or in the very near future. As this Court said in North Shore Railroad Co. v. Pennsylvania Co., 251 Pa. 445, 449, 96 Atl. 990, 992 (1916) : “'The true rule is that any use for which the property is capable may be considered, and if the land has an adaptability for the purposes for which it is taken, the owner may have this considered in the estimate as well as any other use for which it is capable.’ ”

Moreover, in Marine Coal, supra, it was said at page 486, 92 Atl. at 690-91: “ 'Clearly it [the condemned land] is of insignificant value for agricultural purposes, and there is neither a wharf, a factory, or a saw mill on it, and there may never be. But if its adaptability to these purposes or any one of them give it a present value, the owner is entitled to that value, though in fact no one now proposes to use it for any of these purposes.’ ”

Finally, were it necessary for the condemnee to show that the land was actually being used for the purpose upon which he seeks to base condemnation damages, a suggestion frequently advanced below, there would be nothing left at all of the highest and best use principle; it would become merged with the current use.⁴

A careful study of cases involving the concept of speculative use reveals that the term is given a much more technical and restricted definition than that advanced below. Uses have been termed speculative, and hence not provable as the highest and best use, only in those instances where the condemnee sought a measure of damages that was in essence based on anticipated profits from a use not yet being made of the property. For example, in Laureldale Cemetery Co. v. Reading Co., 303 Pa. 315, 154 Atl. 372 (1931), relied upon both by the appellee and the court below, the plaintiff cemetery company unsuccessfully tried to show that its condemned land was being held for use as burial plots and that the measure of damages should be based upon the profits plaintiff could have earned from the sale of these plots.⁵ This loss of profits measure is clearly distinguishable from the present case. In Laureldale the unimproved lots, qua lots, were worth no more simply because the plaintiff had the business acumen needed to operate a cemetery thereon. However, appellant water company has never claimed that its property should be valued on the basis of profits made from the operation of a reservoir. Nor has it claimed that its land should be valued as though a reservoir already existed on the tract. Instead it claims simply that the land itself is worth more than the $72,000 awarded below because it is physically suitable for a reservoir and because such a project is needed in the area.

This second argument, viz., the need for a reservoir, apparently underlies much of the confusion below regarding the speculative use problem. For even though the valuation of appellant’s property as a reservoir does not fail on the basis of its being a speculative use, nevertheless, in order to establish a reservoir as the highest and best use, the water company must show that a reservoir is needed in the area. A. D. Graham & Co., Inc. v. Pennsylvania Turnpike Comm., 347 Pa. 622, 33 A. 2d 22 (1943). On its face this hurdle may appear somewhat similar to the speculative use issue, insofar as both bear ultimately on the financial success or failure of the suggested venture. Procedurally, however, they are quite different. If in fact it is determined that the condemnee is trying to prove anticipated profits, the court may quite properly exclude such testimony. However, since the condemnee must show that some demand exists in the area for the use sought to be established, far from excluding testimony on this issue as was done below,® the court is under a duty to admit it. Clearly one owning a flat strip in Heath Valley may show that the property is physically suited for a race track or a parking lot. But, without proof of need for such a structure in that area, it would be folly to hold that such is the highest and best use.

There are then two requirements, and only two, for proving highest and best use. First, the condemnee must show the physical adaptability of the land to such a use, and second it must be demonstrated that this use is needed in the area. This second test, however, does not require that the condemnee himself convert the land to its highest and best use. See, e.g., Wadsworth v. Manufacturer’s Water Co., 256 Pa. 106, 100 Atl. 577 (1917); Brown v. Forest Water Co., 213 Pa. 110, 62 Atl. 1078 (1906); Gearhart v. Clear Spring Water Co., 202 Pa. 292, 51 Atl. 891 (1902). Unlike the water company here, in each of these cases the original land owner never intended to construct a reservoir. In fact, were it not for the condemnation there would probably never have been a reservoir at that spot. Nevertheless, in each case the landowner was permitted to show that the highest and best use for the property was as a reservoir site.⁷ Of course, even if the need is present, if the land at the time of the condemnation is not yet physically suited for the claimed best use, the condemnee will not prevail. For example, in Bitting v. Philadelphia Suburban Water Co., 73 Montg. Co. L. Rep. 235 (1956), the condemnee-farmer could not establish a reservoir as the highest and best use, in spite of the condemnation by a water company, since his land, unlike the properties in Wadsworth, Brown and Gearhart, supra, had no natural water or water basin on it at the time of the condemnation. Thus, by analogy, appellant could not, nor does it try, to argue that its property should be valued as a turnpike right of way. In its present condition the land is suitable for a reservoir, not a road.

Having thus disposed of the speculative use issue, we now turn to the second problem posed by this appeal : the relief desired by appellant. For more than a century it has been consistently held by this Court that in condemnation cases the measure of damages is based upon fair market value. Rothman v. Commonwealth, 406 Pa. 376, 178 A. 2d 605 (1962); Mazur v. Commonwealth, 390 Pa. 148, 134 A. 2d 669 (1957); Dyer v. Commonwealth, 396 Pa. 524, 152 A. 2d 760 (1959). Cf. Schuylkill Navigation Co. v. Thoburn, 7 S. & R. 411 (1821). More specifically, the eondemnee is entitled to the difference between the fair market value before and after the taking.

However, in spite of this settled rule, appellant seeks a somewhat unusual form of relief. If possible, the water company would like to be able to purchase another tract suitable for reservoir purposes, or in the alternative, to erect a retaining wall on their existing tract which would enable them to construct a reservoir of the same size as that originally planned. In view of the somewhat unique circumstances of this case, we feel that appellant’s prayer Is not without merit. The water company is a public utility with monopolistic privileges within its own territory. Because of this, there simply does not exist a market, in the classic sense, for reservoir property. It is not traded between water companies. Furthermore, as a public utility, appellant has not only the privilege, but the duty, to supply its area with an adequate amount of water. To do this requires that it replace or repair the property taken by the turnpike; and this simply cannot be done with f72,G00. Finally, appellant offered to prove that in spite of the fifty years during which the condemned tract remained unimproved, the water situation in Lackawanna County demands the construction of a new reservoir.

Admittedly, the use of a replacement value or repair test is a sharp departure from the traditional measure of damages in condemnation cases; but it is not a form of remedy foreclosed by decisions of this Court. In McSorley v. Avalon Borough School District, 291 Pa. 252, 254, 139 Atl. 848, 849 (1927) it was stated: “Evidence of the replacement value . . . should not have been received, unless the circumstances were so peculiar as to render it absolutely essential, in the interest of justice, to require its admission.” (Emphasis supplied.)⁸

We believe that the present case is precisely the type of situation envisioned by the MeSorley court and that therefore appellant is entitled to repair or replacement value as the measure of damages. Nevertheless, we wish to make it quite clear that under normal circumstances fair market value remains the only available relief.⁹

Accordingly the judgment is reversed, a new trial granted and the case remanded to the trial court with instructions that the water company be permitted to introduce evidence on the issue of a reservoir as the highest and best use, as well as on the issue of replacement and repair costs.

Judgment reversed and record remanded with instructions.

Mr. Justice Cohen dissents.

1 The dismissal of the Turnpike Commission’s exceptions was not appealed.

2 Appellant did however attempt unsuccessfully to introduce evidence that some plans had been prepared and that trees had been planted at the dam site to protect the watershed.

3 The 1964 Eminent Domain Code, while not applicable to this case, since appellant’s property was taken long before the effective date of the statute, also states quite clearly that market value may be based either on highest and best available use or present use. Act of June 22, 1964, P. L. 84, 26 P.S. §1-603 (Supp. 1966).

4 If the lower court’s theory is carried to its logical conclusion, appellant could not even have its property valued as residental. since at the time of the condemnation no houses were constructed on the tract, nor were there any plans to subdivide it or construct homes in the future. On the issue of present use versus future use, it is important that we distinguish eases such as Bitting v. Philadelphia Suburban Water Co., 73 Montg. Co. L. Rep. 235 (1956). Reliance upon this decision by the appellee is misplaced. That case does no more than stand for the proposition that a condemnee cannot claim as the highest and best use, any use for which his land is not idiysically nuited at the time of condemnation. The case does not imply that only present use may be the controlling test.

5 See also Sgarlat Estate v. Commonwealth, 398 Pa. 406, 158 A. 2d 541, cert. denied, 364 U.S. 817 (1960). Here tlie condemnee was not permitted to show that the sand and gravel on his condemned property could have been profitably marketed. Compare Rothman v. Commonwealth, 406 Pa. 376, 178 A. 2d. 605 (1962) where plaintiff was permitted to introduce a rough preliminary plot plan in order to show that the highest and best use of his property was for a housing development, even though no such development had been started, with E. M. Kerstetter, Inc. v. Commonwealth, 404 Pa. 168, 171 A. 2d 163 (1961), where a more detailed plan was excluded since its purpose was to show the difference in number of lots before and after condemnation, and also because it, together with eondemnee’s other proferred testimony, would have shown the selling price for similar lots.

6 It should be noted that the rejected evidence concerned demand for a reservoir “since this condemnation in 1954” (record at 40a). While we will not speculate on the exact years with which the water company’s testimony would have concerned itself if admitted, it is well established that demand must be shown as of the date of condemnation, in this case 1954.

7 In citing these three cases we wish to make clear that we are using them only for the proposition that a condemnee is not bound by the use currently being made of his property if it is physically suited for some other purpose. These cases do not stand for the proposition that a condemnee farmer can recover reservoir damages when no demand for a reservoir exists other than that shown by the condemnation and where the farmer himself is unable to construct a reservoir. In each of these cases above there was evidence that other buyers were interested in the farmer’s property for private reservoir use, thus establishing a market value for that use. Of course, when, as in the present case, the condemnee is a water company which can, itself, construct a reservoir, the absence of a market-value based on demand will not preclude the showing of a reservoir as the highest and best use. For a more complete discussion of the market value problem posed by this appeal see text infra.

8 In both Sgarlat Estate, supra note 5, and in Dyer v. Commonwealth, 896 Pa. 524, 152 A. 2d 760 (1959), an unsuccessful attempt was made to argue that market value should not be used. However, the former case involved an attempt to show anticipated profits, while in the latter, the Commonwealth contended that the market value of the condemnees’ remaining uncondemned portion should have been increased by the value of a building which the condemnees, ,at their own expense, had moved from the condemned tract. Rather than depart from the standard test, the Court there wisely limited the Commonwealth to a trespass action for the wrongful removal óf the building.

9 . We need not face the intricate question of how the issue of damages would be decided under the 1964 Eminent Domain Code, since the condemnation antedated the code’s effective date. See Act of June 22, 1964, P. L. 84, 26 P.S. §§1-602 to 1-614 (Supp. 1966).