City of Phoenix v. Consolidated Water Co.

• Decision Date: 22 June 1966
• Docket Number: No. 8640,8640
• Citation: City of Phoenix v. Consolidated Water Co., 101 Ariz. 43, 415 P.2d 866 (Ariz. 1966)
• Parties: The CITY OF PHOENIX, a municipal corporation, Appellant, v. CONSOLIDATED WATER COMPANY, a corporation, Spencer D. Stewart and Mary Jane Stewart, his wife, Capital Auto Supply and Stewart Management Company, Appellees.
• Court: Arizona Supreme Court

Page 866

415 P.2d 866

101 Ariz. 43

The CITY OF PHOENIX, a municipal corporation, Appellant, v. CONSOLIDATED WATER COMPANY, a corporation, Spencer D. Stewart and Mary Jane Stewart, his wife, Capital Auto Supply and Stewart Management Company, Appellees.

No. 8640.

Supreme Court of Arizona, In Banc.

June 22, 1966.

Merle L. Hanson, City Atty., Dow Ben Roush, Richard Kamps, Phoenix, Allen L. Feinstein, Phoenix, of counsel, for appellant.

Evans, Kitchel & Jenckes, Phoenix, for appellees.

STRUCKMEYER, Chief Justice.

This is an action by the City of Phoenix, a municipal corporation, against Spencer D. Stewart and Mary Jane Stewart, his wife, doing business as Consolidated Water Company, hereinafter called Consolidated. The City seeks to acquire by eminent domain a water works system owned and operated by Consolidated as a public utility. After trial to the court the value of Consolidated was found to be $3,400,000 and judgment was entered for that sum less $2,450,000 previously paid when the City took possession of the property under A.R.S. § 12--1116 (amended by Laws of 1964, Ch. 147, § 1).

The court below made fourteen findings of fact which in their relevant aspects disclose that Consolidated held a certificate of public convenience and necessity issued by the Arizona Corporation Commission authorizing service as a public utility water company over an area of approximately ten square miles; that on July 24, 1962, Consolidated had in excess of 7,500 meters in service and was furnishing water through a single integrated and continuous grid pipeline system. Consolidated had substantial growth potential since approximately fifty per cent of its certificated area was not subdivided and developed and the existing utilities system had the capacity which could be utilized in such undeveloped areas, thus reducing the unit cost to provide new services. The overall condition of the utility was good and the system was designed and constructed in accordance with sound utility practices.

By finding No. 12 the trial court determined that the fair and equitable value of the plant and property being condemned, including its value as a going concern, was the sum of $3,400,000. While the principal complaint of the City is that the value found by the court is excessive because based on improper evidence, as a further ground for reversal the city asserts that finding of fact No. 12 was insufficient and inadequate for the reason that there were no findings or conclusions on the components of the total worth; that it is, accordingly, impossible to determine how the trial court resolved certain issues and how much consideration it gave to certain items of claimed improper evidence.

By Rule 52(a) of the Rules of Civil Procedure, 16 A.R.S., the court, if requested before trial, 'shall find the facts specially and state separately its conclusions of law thereon * * *.' Manifestly, the purpose of Rule 52(a) is to permit an examination of the basis upon which the trial court relied in reaching the ultimate judgment. 'Of course, the purpose of findings is to tell someone else how the court reached its decision.' Carpenters Union, Local 131 v. Cisco Construction Co., 9 Cir., 266 F.2d 365 at 369, cert. den. 361 U.S. 828, 80 S.Ct. 75, 4 L.Ed.2d 70.

In this case, where the City complains that improper evidence on damages was admitted in evidence, a detailed specification of the items which the court considered in awarding the total amount of its judgment would be both an aid to counsel in preparing the appeal and this Court in resolving the ultimate question presented as to whether the gross judgment can be supported by the record. It has been held that where the record is so clear that the court does not need the aid of findings, it may waive such defect on the ground that the error is not substantial in the particular case. See Hurwitz v. Hurwitz, 78 U.S.App.D.C. 66, 136 F.2d 796, 148 A.L.R. 226.

In this state, by Article 2, § 17 of the Constitution of Arizona, A.R.S.,

'No private property shall be taken or damaged for public or private use without Just compensation having first been made, or paid in to court for the owner, * * *.' (Emphasis supplied.)

By A.R.S. § 9--518 subsec. B. (Laws, 1962), the legislature has provided that in an action commenced by a municipality to condemn a water utility:

'The court or jury shall ascertain the compensation to be paid for the taking of the plant and property of the public utility, Which shall include the fair and equitable value of such plant and property, including its value as a going concern, * * *.' (Emphasis supplied.)

There are no decisions by this Court which establish any particular method or formula to be used in determining the compensation which must be paid to the owner of a water utility upon the taking of his property. It is plain, however, that the City is taking the plant, system and business of appellees and that the court is concerned with the value of appellees' property as a going business. This is not a commercial venture which, if the real property were taken, the business would not be destroyed since it could be moved to another location. This is a case where the owner loses his real estate, plant and equipment, his franchise, his customers and his business. For this he is entitled to 'just compensation' on the basis of a 'fair and equitable value of such plant and property, including its value as a going concern.'

Arizona has long been committed to the rule that value in condemnation cases is to be determined by the market value of the property--by what a willing buyer would pay and a willing seller would accept. Pima County v. DeConcini, 79 Ariz. 154, 285 P.2d 609; Viliborghi v. Prescott School Dist., 55 Ariz. 230, 100 P.2d 178; Mandl v. City of Phoenix, 41 Ariz. 351, 18 P.2d 271. In some instances it is impossible to determine what a willing buyer would pay and what a willing seller would accept simply because there are no sales of comparable property. In that event, resort must be had to other means of fixing market value. E.g., State v. Hollis, 93 Ariz. 200, 379 P.2d 750. Actions for the condemnation of utility properties usually fall within the exception to the rule since public utility properties are seldom bought and sold on the open market. Cf. Arizona Corporation Commission v. Arizona Water Co., 85 Ariz. 198, 335 P.2d 412.

The evidence of the value of the property was contradictory. The owner, Spencer D. Stewart expressed his opinion that his utility system was worth in the neighborhood of $4,500,000 to $5,000,000. He valued the physical plant at $3,500,000 with the balance representing going concern value. John Luthin, an engineer with Brown & Caldwell, consulting engineers, testified in behalf of Consolidated that the value of the utility was not less than $3,140,670. This amount was later reduced slightly due to an admitted mathematical error. He calculated as part of the value the cost of cutting and replacing pavement, boring under driveways and curbs, and destroying and replacing landscaping as of the day of the condemnation, July 24, 1962. These items were included irrespective of whether there were actual costs incurred by Consolidated at the time of installation. The president of a construction and supply company testified in response to a hypothetical question that the value of Consolidated was $3,656,800. This figure included an estimate of going concern value of $757,000 which was based in part on the capitalization of income, on earnings and on the earning power of the system. This witness's opinion as to value also included the sum of $372,000 for cutting and replacing pavement as would be necessary under the physical conditions existing on July 24, 1962, rather than on the date the water system was in fact installed.

One of the City's experts, a consulting civil engineer, testified that the fair value of Consolidated, including going concern value, was $2,457,080. He stated the primary difference between his estimate and that of Luthin, the expert engineer who testified on behalf of Consolidated, was the nonallowance for the cost of cutting and replacing pavement and landscaping as of the 24th day of July, 1962, and of a five per cent finder's fee for a broker locating a new water system for Stewart to acquire. A second engineer for the City testified to a value of $2,500,000.

Patently, the court below rejected the City's evidence of valuation and adopted Consolidated's testimony as a more appropriate approximation of actual value.

We immediately note that the amount awarded by the trial judge in the instant case was not based upon capitalization of income as the controlling factor. At the time of taking, July 24, 1962, the appellees' system was earning approximately $282,000 per year. If this amount were capitalized at six per cent per annum, it would result in an award of $4,700,000. Such an amount would be $1,300,000 more than the valuation fixed by the court. While capitalized earnings cannot be considered as the...