Riley v. District of Columbia Redevelopment Land Agency

246 F.2d 641, 100 U.S. App. D.C. 360, 1957 U.S. App. LEXIS 3604

Opinions

FAHY, Circuit Judge.

The case is before the full Court now on reconsideration of an unreported decision of a division of the Court of May 17, 1956.

* In that decision, by a divided Court, a judgment of the District Court for appellant in the sum of $7,-000.00, awarded to her by a jury as compensation for her home, which had been taken in condemnation proceedings by the District of Columbia Redevelopment Land Agency, was set aside. The case was remanded for further proceedings, including a new trial if necessary. A majority of the full Court now reach the same conclusion for the reasons herein stated.

The property had been bought by appellant as a home in 1951. She undertook to pay $9,950.00, of which some $300.00 was paid in cash and $9,655.00 was represented by three notes secured by trusts on the property. The notes called for monthly payments, including principal and interest, of $72.50. Appellant installed a new furnace and gas and did some roofing, guttering and other work at a total cost of $877.00. The home thus represented obligations and expenditures of some $10,800.00. In March, 1955, the jury awarded appellant $7,000.00 as just compensation, that is, as the fair market value of the property. This was $3,800.00 less than she had paid for it, plus the improvements referred to, and would leave her without the property and still owing some $1,-900.00 on the deferred purchase price notes.

The jury was properly instructed that the property at the time of the taking,

“ * ■* * js ke appraised at its fair market value as of June 21, 1954, the date of the taking by the Land Agency, with reference to the most advantageous, highest or best use or uses to which it can be put. By fair market value is meant what the property would sell for in cash or terms equivalent to cash, when offered for sale by one who is willing but is not obliged to sell, to one who desires but is not obliged to buy.”

It has long been recognized that the fair market value may be either what the property would sell for in cash or on terms equivalent to cash. Kerr v. South Park Commissioners, 117 U.S. 379, 386-387, 6 S.Ct. 801, 29 L.Ed. 924; Shoemaker v. United States, 147 U.S. 282, 304, 13 S.Ct. 361, 37 L.Ed. 170.¹ These are alternative criteria for establishing the fair market value.

The terms are equivalent to cash if the deferred purchase money notes are such that under normal conditions the notes can be turned into cash at their face amount. Thus, the principal of the notes is not increased by the addition thereto of a charge for credit. The rate of interest earned by the notes and their underlying security are factors to be considered in determining their cash value.

We think in this case the jury should have been given such an explanation of the expression “terms equivalent to cash.” The chief evidence as to the fair market value of the house was the 1951 sale to appellant for $9,950.00 on terms, prior to her expenditure of $877.00 for improvements, and the 1954 valuations of the two Agency appraisers, neither of which exceeded $7,000.00. The proper determination of the fair market value of the property, in face of this divergent evidence, required an understanding of what terms are “equivalent to cash.” Without it the jury² could not reach a reasoned conclusion as to the relationship between the 1951 credit sale to appellant and the fair market value of the property.³ A credit sale is indicative of the fair market value of the property only to the extent to which the notes can be turned into cash, that .is, are “equivalent to cash.”

The circumstances of this ease made it especially necessary that such an explanation be given. Unjustified doubt was cast on the relation of the 1951 sale to the 1954 fair market value by a factual error of the two Agency appraisers. One of these appraisers testified that in reaching his valuation he gave little weight to the sale to appellant “because the third trust would run at perpetuity * * *. The monthly payment was not enough to pay even the interest on the property.” The other appraiser made a similar statement. Yet the contract of sale and appellant’s receipt book, both of which are in the record, reveal that the monthly payments of $72.50 covered all interest and were reducing the principal each month. At the time of the trial $752.70 had already been paid on the principal, in addition to the $295.00 down payment. These erroneous statements could not fail to influence the jury toward the view of the Agency appraisers that the 1951 purchase by appellant was at a price grossly in excess of the fair market value of the property.

The erroneous statements weakening the $9,950.00 figure become more serious when considered with the foundation for the much lower valuations of the Agency appraisers. They relied largely upon reproduction costs calculated on a rule of thumb cubic footage basis, less depreciation. The testimony of one appraiser, especially, would, have led the jury to believe that this is a formula for arriving at the fair market value. This is not so. While the jury could be informed by the witness of these calculations in explanation of the process by which he arrived at his opinion of fair market value, the calculations were not themselves evidence of fair market value for this type of property. There is no necessary relationship between reproduction cost and market value. Cost of reproduction is a method of valuation usually resorted to “where the character of the property is such as not to be susceptible to the application of the market value doctrine.” 4 Nichols, On Eminent Domain, § 12.313 (3rd ed. 1951). There is no indication that this is the case here. Furthermore, the rule of thumb basis for estimating cost of reproduction, used by the Agency appraisers, has been described as being “not even approximately accurate, except for a few highly standardized types of structures.” 2 Orgel, Valuation Under Eminent Domain § 193 (1953).⁴ There is no showing that this was such a standardized structure. Accordingly, if such testimony is repeated on a new trial the jury should be cautioned that it is before them only in explanation of the process by which the witness arrives at his opinion of fair market value, not as independent evidence of such value, and, further, that the cubic foot cost method of computing reproduction cost is not entitled to great weight in such a case as this even in arriving at reproduction cost.

The wide divergence between the recent credit sale of the house and the evaluations of the Agency appraisers, plus the serious factual error made by the appraisers, and the uncertain method used by them in making their evaluations, made it necessary that the jury be instructed as to the meaning of a sale on terms equivalent to cash, so as to be able to relate the 1951 sale to fair market value. Such an instruction is not required in every case. There have been innumerable condemnation proceedings throughout the country, including now the cases affecting other parcels of land which were tried with this one in our District Court, which we do not draw in question. Those cases are not before us for decision. We have pointed out the special circumstances which lead us to hold that the failure to explain the meaning of “terms equivalent to cash” impairs this particular judgment. We shall set it aside and remand the case for further proceedings not inconsistent with this decision, which may include a new trial.⁵

It is so ordered.

Opinion vacated June 5, 1957.

1

. In this jurisdiction the phrase “on terms of reasonable credit” has, at times, been substituted for “terms equivalent to cash.” District of Columbia Redevelopment Land Agency v. 70 Parcels of Land, D.C., 153 F.Supp. 840; United States v. 177 Parcels of Land, District Court Docket 10-55. We think these to be synonymous.

2

. Juries in condemnation proceedings, consisting of five members, are selected from a special list of persons whose only statutory qualification, in addition to those required of jurors in other cases, is that they must be freeholders of the District of Columbia. Sections 16-629, 16-603, D.C.Code (1951). As used here we think the term “freeholder” means only one who owns land in fee or for life or for some indeterminate period.

3

. The error we have discussed was not preserved for review in accordance with Rules 46 or 51, Fed.R.Civ.P., 28 U.S. C.A. But the subject was among those considered in the present context to be of such importance as to warrant special consideration by Court appointed amici as well as counsel for the parties in connection with the rehearing en banc. We therefore notice the error in our discretion to do so. Shokuwan Shimabukuro v. Higeyoshi Nagayama, 78 U.S.App.D.C. 271, 140 F.2d 13; Montgomery v. Virginia Stage Lines, 89 U.S.App.D.C. 213, 191 F.2d 770.

4

. Cf. In re United States Commission, etc., 54 App.D.C. 129, 295 F. 950; Wilson Line v. United States, 78 F.Supp. 821, 825, 1111 Ct.Cl. 764.

5

. We find no inconsistency between the views expressed in Circuit Judge Washington’s concurring opinion and those herein set forth.