City of Bonner Springs v. Coleman

• Decision Date: 06 March 1971
• Docket Number: No. 45902,45902
• Citation: 481 P.2d 950,206 Kan. 689
• Parties: CITY OF BONNER SPRINGS, Appellant, v. James R. COLEMAN et al., Appellees.
• Court: Kansas Supreme Court

Page 950

481 P.2d 950

206 Kan. 689

CITY OF BONNER SPRINGS, Appellant, v. James R. COLEMAN et al., Appellees.

No. 45902.

Supreme Court of Kansas.

March 6, 1971.

Rehearing Denied April 14, 1971.

Syllabus by the Court

1. A naked statement of gross income is too uncertain and depends upon too many speculations and contingencies to safely be accepted as evidence of the usable value of property upon which a business is carried on.

2. Although an expert appraiser of real estate may use the gross income method in arriving at value of real property in an eminent domain proceeding, it is error to submit directly to the jury evidence of gross income from which the jury is to estimate the value of real property or damages to the landowners because of the taking in an eminent domain proceeding.

3. In determining whether the erroneous admission of evidence is prejudicial it is proper to examine the evidence in light of the entire record.

4. In an appeal to the district court in an eminent domain proceeding, the record is examined and it is held, the rights of the condemner were prejudicially affected by the direct submission to the jury of evidence of gross income from a business on property, part of which was being condemned.

Donald H. Corson, Jr., Kansas City, argued the cause, and James H. Barnes and Wayne H. Phillips, Kansas City, were with him on the brief, for appellant.

J. D. Lysaught, of Weeks, Thomas, Lysaught, Bingham & Johnston, Chartered, Kansas City, argued the cause, and L. D. McDonald, of Weeks, Thomas, Lysaught, Bingham & Johnston, Chartered, Kansas City, was with him on the brief, for appellees.

HATCHER, Commissioner:

This is an appeal by the condemner from a verdict in a condemnation case.

There is but a single question requiring our consideration-was it error to admit into evidence the testimony of the landowners and exhibits showing the gross income from the business operated on or about the condemned property for the purpose of showing the value of the property and the damages to the landowners?

The land was being condemned for street and highway purposes by the city of Bonner Springs, Kansas. During the years 1963 to 1967, the appellees owned and occupied the real property, a part of which was condemned in this action. The property consisted of a tract of land with a 225 foot frontage and 125 feet deep. It contained a brick and tile building 50 feet wide by 105 feet deep which had been an old silent movie theater. Prior to the time the appellees occupied the property it had stood vacant for six or seven years. Improvements were made over the course of several years including the addition of a paint and body shop. At the time of the condemnation the Colemans engaged in the business of selling farm equipment, trucks and parts, and rented and repaired farm equipment and trucks. They also sold ITCO parts, appliances and hardware. The largest dollar volume of the business consisted of the farm equipment and truck sales.

At the trial in the court below the landowners first introduced their evidence.

Mr. James R. Coleman, the owner of the land and the operator of the business thereon, testified in substance to the facts above. He further testified:

'Q. All right, sir. Without going into those specific figures, Jim, do you have any indication as to how your store was doing, generally speaking, in the area?

'A. Do you mean in dollars?

'Q. No, stay away from dollars. Did you win any awards?

'A. For the last four years-it could have been five, I am not sure-we have been the top-volume dealer for the J. I. Case in the Kansas City branch, and that covers all of Kansas, part of Colorado, part of Missouri, and part of Arkansas.'

Mr. Coleman made no attempt to give an opinion as to the value of the land condemned or the damages resulting.

Mrs. Golden Coleman, wife of James R. Coleman, next took the witness stand. She testified that she was responsible for the bookkeeping and had prepared an itemization of the gross income from the business broken into different categories. She also had a final yearly total for the gross income come for the year 1967. These calculations were introduced as exhibits.

The exhibits showed the business produced for 1963 a gross income of $607,000.00, for 1964 a gross income of $706,000.00, for 1965 a gross income of $885,000.00, for 1966 a gross income of $1,229,000.00 and for 1967 a gross income of $1,229,000.00.

The exhibits also divided the gross income for 1966 into the following categories:

"Farm machinery and trucks

Sales and rentals $1,026,416.00

Machinery Parts 105,545.00

ITCO Parts 15,364.00

Appliances and Hardware 40,967.00

Labor 37,490.00

Miscellaneous 3,620.00"

The exhibits further showed that the gross income of the business increased 100% between 1963 and 1967.

Golden Coleman made no attempt to adjust the gross income to reflect estimated values. Neither did she give any opinion of property values or damages to the landowners.

Although the annual gross income of $1,229,000.00 was left dangling before the jury, it does not appear that the figure was ever used to prove any point in the case.

Appellees' first expert witness testified:

'Q. Would you tell the jury specifically how you used the gross income and the percentages to arrive at your valuation on the income approach?

'A. After checking the gross volume that the business was doing and analyzing the business, it was my opinion, due to additional land, that the tractor sales and the machinery sales, although it was the largest volume of the business, I assigned no percentage rental to that; I think that would be speculation, I think to a degree it's order-taking and it's a wonderful operation, but I think if Mr. Coleman was a tenant of mine, I don't think he would agree to pay me percentage rental on his farm machinery. * * *'

He further testified on cross-examination:

'Q. Mr. Stanley, if I understood you correctly-there has been considerable mention of the implement business and of the additional lots. For the purposes of your income approach only, is it a correct statement that you used approximately one-fifth of the total gross income of the Colemans for purposes of establishing your income approach evaluation?

'A. It figures approximately one fifth-what I used, other than the implement business-the sales of implements, new and used implements.

'Q. So, in other words, that $1,000,000.00 that they had in addition to that, you didn't even consider for purposes of figuring your lease rental?

'A. No, it was attributed to other factors.'

It would appear that the witness did not use the $1,000,000.00 gross income derived from the implement business, although it was shown in appellees' exhibits introduced in evidence.

Appellees' second expert witness testified that he arrived at a figure of $76,094.00 as the value of the property before the taking based on cost of replacement less depreciation. He also used the gross income approach and arrived at a comparable figure of $86,800.00. We quote his testimony in part:

'Q. Now, when you have a conflict in the two methods of approach that you used in the evaluation of this property, Mr. Vickers, how do you reconcile this?

Tell the jury what you feel are the damages to the Colemans.

'A. Well, the way that I reconcile this is because there is a considerable disparity in its valuation. The operation that Mr. Coleman conducted at this point had somewhat to do with location of part of his business in a section not at this location.

'Q. Would that be the rental lot that we referred to earlier?

'A. The rental lot we referred to. I took that into consideration, also, in my value before, but even taking it into consideration and deducting a large figure for the capitalizing of the rent that he (landowner) paid for that lot of $46,666.00, I still arrive at its valuation indicated by capitalization of $86,000.00. This would indicate that it's a very valuable property for his business. Generally speaking, the cost of replacement less depreciation should be the ceiling of value; this should be the ceiling or the topmost value; so, therefore, if I am to arrive at a valuation of this property, I would have to go back to the cost of replacement less depreciation, because this is what I think that this property could be replaced for-76,094.00-so that it's my opinion that the value of the property, irrespective of the higher figure due to the income or capitalization approach-the value of the property before the taking was $76,094.00.' (Emphasis ours.)

We are not informed of the exact amount the witness deducted from the gross profits before he attempted to arrive at this rental figure for the purpose of capitalization, but we are informed that it was a large figure. We are also informed that he discarded the value so arrived at in favor of the value arrived at by cost of replacement less depreciation.

Appellees' third expert witness testified:

'Q. Excuse me, Mr. Martin, maybe I misunderstood. You are indicating to the jury you did not use the income approach, sir?

'A. That's correct, I did not use it because both he and his wife worked in their business and I don't think it would be a fair approach because his sales far exceeded the average business of that nature.'

He also mentioned the gross sales and stated:

'* * * Now, if I come in here with an income approach, I think it would be a little bit ridiculous; in other words, it would be lots higher than what I am using.'

He did not use an income approach.

The appellant contends it was error to admit into evidence the landowners' testimony and exhibits showing gross sales where gross sales are not competent evidence and particularly wher the evidence is not necessary to support an appraisal value or used by experts in arriving at their value of the land.

We are forced to agree.

The narrow limits of appellant's objection must be understood. No objection is made to expert witnesses ascertaining the gross...