United States v. Petty Motor Co.

327 U.S. 372, 66 S. Ct. 596, 90 L. Ed. 729, 1946 U.S. LEXIS 2733

Opinions

Me. Justice Reed

delivered the opinion of the Court.

This writ of certiorari under Judicial Code § 240 brings here for review certain problems relating to the just compensation for tenants in condemnation proceedings to take their entire leaseholds when the United States had already taken over the lessors’ interest in the property which the tenants occupy. Certiorari was granted to consider the holding of the circuit court of appeals, 147 F. 2d 912, affirming the judgments of the district court, that evidence by a tenant of the costs of moving and reinstallation of equipment was admissible to establish the value of his leasehold under the rule announced in United States v. General Motors Corp., 323 U. S. 373. As this issue presents an important phase of the law of eminent domain,¹ we granted certiorari. 325 U. S. 848.

These cases arise out of a petition for condemnation of the temporary use for public purposes of a building in Salt Lake City, Utah, filed November 9, 1942, which sought to take the use of the building for the Government through June 30, 1945, with the right of election upon the part of the United States to surrender the premises on June 30, 1943, or June 30, 1944, upon sixty days written notice to the owner.² The owner and tenants were parties defendant. An order for immediate possession was entered on November 11, 1942, subject to authorization to the tenants to continue their occupation of their premises for short periods which varied from six to twenty days.

While the condemnation proceedings were pending the owner of the property made arrangements with the United States which resulted in the dismissal of the action against the owner. There is no claim by the United States that this arrangement released it from liability to the tenants for its taking of their leaseholds. As the value of the use of the totality of property, which was taken, thus lost all meaning, the Government accepts a separate responsibility to compensate the tenants for any legally recognized interest which they may have in the property. See Duckett & Co. v. United States, 266 U. S. 149.

Although an earlier surrender might occur by the election of the United States, the estate sought did not necessarily expire until June 30, 1945. Prompt possession was required from the tenants and all of them were required by the order of possession to vacate the premises which they occupied within various short periods of which twenty days was the longest. The judgments stated the issue was the amount due the tenants for the taking of their occupancy of their premises and found in dollars the just compensation for the rights taken. These facts, we conclude, resulted in the taking by the United States of the temporary use of the building until June 30, 1945. When the shortening of the term is wholly at the election of the lessee, the term of the leasehold for the purpose of determining the extent of the taking must be considered to be its longest limit.³ All rights of all the tenants, except the Independent Pneumatic Tool Company, which is one of the respondents here, terminated before the end of the Government’s lease by the lapse of time or, in the case of the Tool Company, by a “termination on condemnation” clause. With the exception of the Petty Motor Company and the Independent Pneumatic Tool Company, the tenants were tenants under oral contracts on a month to month basis. This entitled them only to notice of termination fifteen days prior to the end of a rental period. Utah Code Ann. (1943), Title 104r-60-3 (2). The Petty Motor Company held a lease which expired .October 31, 1943, with an option for an additional year. Consequently its rights under its lease ended before those which the Government sought by its petition.

The lease of .the Independent Pneumatic Tool Company included a clause for its termination on the Federal Government’s entry into possession of the leased property for public use.The lease of .the Independent Pneumatic Tool Company included a clause for its termination on the Federal Government’s entry into possession of the leased property for public use.⁴ The events connected with the Government’s entry just set out appear to meet the requirements for termination. This does not seem to be controverted. The contention of the Tool Company, as we understand it, is that the tenant is barred from claiming any “of the award of the landlord” but that the condemnor is not relieved of liability to the lessee. This position seems inconsistent. If the Tool Company, with its termination on condemnation clause, was the only tenant and condemnation of all interests in the property was decreed, the landlord would take the entire compensation because the lessee would have no rights against the fund. There would appear to be no greater right where the landlord has been otherwise satisfied. Condemnation proceedings are in rem, Duckett & Co. v. United States, 266 U. S. 149; United States v. Dunnington, 146 U. S. 338, 350-54, and compensation is made for the value of the rights which are taken. United States v. General Motors Corp., 323 U. S. 373, 379. The Tool Company had contracted away any rights .that it might otherwise have had. We are dealing here with a clause for automatic termination of the lease on a taking of property for public use by governmental authority. With this type of clause, at least in the absence of a contrary state rule, the tenant has no right which persists beyond the taking and can be entitled to nothing.* ***⁵

In order to inform the jury as to the value of the tenants’ interests where there was a right to continue the occupation of their respective premises, the trial court permitted the introduction of evidence, over the Government’s objections, not only as to the value on the market of the use and occupancy, over and above the agreed rent, for any remainder of a term which may have existed in the respective tenants after they were dispossessed, but also allowed evidence of the expenses incurred in moving and the reinstallation of equipment. The trial court’s instructions made clear that the evidence was submitted to the jury not for a finding oil the cost to the tenants of relocating their businesses but as an element in determining the “value” of their tenancies for that portion of their term which was left upon the termination of the lease. The admission of the evidence and its submission to the jury was approved by the circuit court of appeals on the theory that epnsideration of such elements of cost was compelled by the General Motors case. 323 U. S. 373. The court of •appeals recognized that here the Government took the entire term of all the lessees except the Tool Company and possibly the Petty Motor Company but was of the opinion that the principles of the General Motors case applied when any leasehold was taken. 147 F. 2d 912, 914. In so holding, the court of appeals was in error.

The Constitution and the statutes do not define the meaning of just compensation. But it has come to be recognized that just compensation is the value of the interest taken. This is not the value to the owner for his particular purposes or to the condemnor for some special use but a so-called “market value.” It is recognized that an owner often receives less than the value of the property to him. but experience has shown that the rule is reasonably satisfactory. Since “market value” does not fluctuate with the needs of condemnor or condemnee but with general demand for the property, evidence of loss of profits, damage to good will, the expense of relocation and other such consequential losses are refused in federal condemnation proceedings. Mitchell v. United States, 267 U. S. 341, 344; United States ex rel. T. V. A. v. Powelson, 319 U. S. 266, 281; Potomac Electric Power Co. v. United States, 66 App. D. C. 77, 85 F. 2d 243; Orgel, Valuation under Eminent Domain, chap. V. For the purposes of these cases, it is immaterial whether the Government actually took the leaseholds of the tenants in addition to taking the temporary use of the fee or only destroyed the tenants’ right of occupancy. If any property is taken, compensation is required. Cf. United States v. Welch, 217 U. S. 333.

There was a complete taking of the entire interest of the tenants in the property. It has been urged that to measure just compensation for the taking of a leasehold by its value on the market or by the difference bétween a fair rental as of the time of taking and the agreed rent, is unfair. It is said the unfairness comes from the fact that there is really no market' for leaseholds; that their value is something peculiarly personal to the lessee.⁶ The same thing is true as to incidental and consequential damages to the owner of a fee. We think the sounder rule under the federal statutes is to treat the condemnation of all interests in a leasehold like the condemnation of all interests in the fee. In neither situation should evidence of the cost of removal or relocation be admitted. Such costs are apart from the value of the thing taken. They are personal to the lessee.⁷ The lessee would have to move at the end of his term unless the lease was renewed. The compensation for .the value of his leasehold covers the loss from the premature termination except in the unusual situation where there is a higher cost for present relocation than for a future.

United States v. General Motors Corp. was a different case. In it only a portion of the lease was taken. We there said, p. 382:

“When it takes the property, that is, the fee, the lease, whatever he may own, terminating altogether his interest, under the established law it must pay him for' what is taken, not more; and he must stand whatever indirect or remote injuries are properly comprehended within the meaning of 'consequential damage’ as that conception has been defined in such cases. Even so the consequences often are harsh. Eor these whatever remedy may exist lies with Congress.”

There is a fundamental difference between the taking of a part óf a lease and the taking of the whole lease. That difference is that the lessee must return to the leasehold at the end of the Government’s use or at least the responsibility for the period of the lease which is not taken rests upon the lessee. This was brought out in the General Motors decision.⁸ Because of that continuing obligation in all takings of temporary occupancy of leaseholds, the value of the rights of the lessees which are taken may be affected by evidence of the cost of temporary removal.

Upon a new trial, each tenant, other than the Independent Pneumatic Tool Company, should be permitted to prove damages for the condemnation of its rights for any remainder of its term which existed after its ouster by the order of possession but not costs of moving or relocation.⁹ The remainder which may exist will depend upon the Utah law on the requirement for notice to terminate the tenancies at will.¹⁰ Some tenants of this group will not be entitled to anything because the notice given them by the order of possession is more than the Utah statutory requirement. The value of the remainder of the term of the Petty Motor Company’s lease includes the value of the right to a renewal for a year, if such right continues under Utah law, as well as the value of the period ending October 31, 1943. The measure of damages is the value of the use and occupancy of the leasehold for the remainder of the tenant’s term,' plus the value of the right to renew in the lease of Petty, less the agreed rent which the tenant would pay for such use and occupancy.

Reversed.

Mr. Justice Frankfurter and Mr. Justice Jackson took no part in the consideration or decision of these cases.

1

See United States v. 10,620 Square Feet in Canadian Pacific Bldg., 62 F. Supp. 115.

2

No one questions the authority of the United States to condemn this temporary interest. Second War Powers Act, 56 Stat. 177, § 201. United States v. General Motors Corp., 323 U. S. 373.

3

In United States v. General Motors Corp., 323 U. S. 373, note 3, a different situation existed. While the estate there sought did not necessarily expire during the existing national emergency, the order for possession, the verdict and the judgment were for that part of the leasehold interest in the property extending from June 19, 1942, to June 30, 1943. We said: “The case now presented involves only the original taking for one year. If, on remand, the case be treated as involving the Government’s option of renewal, the additional value of that interest must be included in the compensation awarded.”

4

The clause reads as follows:

“If- the whole or any part of the demised premises shall be taken by Federal, State, county, city, or other authority for public use, or under any statute, or by right of eminent domain, then when possession shall be taken thereunder of said premises, or any part thereof, the term hereby granted and all rights of the Lessee hereunder shall immediately cease and terminate, and the Lessee shall not be entitled, to any part of any award that may be made for such taking, nor to any damages therefor except that the rent shall be adjusted as of the date of such termination of the Lease.”

5

See United States v. 10,620 Square Feet in Canadian Pacific Bldg., 62 F. Supp. 115; United States v. 8286 Sq. Ft. of Space, 61 F. Supp. 737, 740-43; United States v. 21,815 Square Feet of Land, 59 F. Supp. 219; United States v. 3.5 Acres of Land, 57 F. Supp. 548; United States v. Improved Premises, 54 F. Supp. 469, 472; Goodyear Shoe Machinery Co. v. Boston Terminal Co., 176 Mass. 115, 57 N. E. 214. Cf. United States v. Entire Fifth Floor in Butterick Bldg., 54 F. Supp. 258.

6

See Metropolitan West Side Elevated R. Co. v. Siegel, 161 Ill. 638, 44 N. E. 276; McMillin Printing Co. v. Pittsburg, C. & W. R. Co., 216 Pa. 504, 65 A. 1091.

7

Compare United States v. Improved Premises, 54 F. Supp. 469, 472; United States v. Entire Fifth Floor in Butterick Bldg., idem, 261; United States v. Certain Parcels of Land, idem, 562; Wm. Wrigley, Jr., Co. v. United States, 75 Ct. Cls. 569; Thermal Syndicate, Ltd. v. United States, 81 Ct. Cls. 446, 454.

8

323 U. S. 373, 380, 383:

“The question posed in this case then is, shall a different measure of compensation apply where that which is taken is a right of temporary occupancy of a building equipped for the condemnee’s business, filled with his commodities, and presumably to be reoccupied and used, as before, to the end of the lease term on the termination of the Government’s use ?”

“Some of the elements which would certainly and directly affect the market price agreed upon by a tenant and a sublessee in such' an extraordinary and unusual transaction would be the reasonable cost of moving out the property stored and preparing the space for occupancy by the subtenant. That cost would include labor, materials, and transportation. And it might also include the storage of goods against their sale or the cost of their return to the leased premises. Such items may be proved, not as independent items of', damage but to aid in the determination of what would be the usual— the market — price which would be asked and paid for such temporary occupancy of the building then in use under a long-term lease.”

9

The fact that some tenants had occupied their leaseholds by mutual consent for long periods of years does not add to their rights. Emery v. Boston Terminal Co., 178 Mass. 172, 185, 59 N. E. 763:

“It appeared that the owners had been in the habit of renewing the petitioners’ lease from time to time, and an attempt was made to give this fact the aspect of an English customary tenant right. The evidence merely showed that the landlords and the tenants were mutually satisfied and were likely to keep on together. It added nothing except by way of corroboration to the testimony that they both intended to keep on. Changeable intentions are not an interest in land, and although no doubt such intentions may have added practically to the value of the petitioners’ holding, they could not be taken into account in determining what the respondent should pay. They added nothing to the tenants’ legal rights, and legal rights are all that must be paid for. Even if such intentions added to the saleable value of the lease, the addition would represent a speculation on a chance, not a legal right. The court was right in excluding expert evidence as to an increase in value from that source.”

10

United States ex rel. T. V. A. v. Powelson, 319 U. S. 266, 279.