Com., Dept. of Highways v. Sherrod

• Decision Date: 22 March 1963
• Citation: 367 S.W.2d 844
• Parties: COMMONWEALTH of Kentucky, DEPARTMENT OF HIGHWAYS, Appellant, v. Lewis B. SHERROD et al., Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 844

367 S.W.2d 844

COMMONWEALTH of Kentucky, DEPARTMENT OF HIGHWAYS, Appellant, v. Lewis B. SHERROD et al., Appellees.

Court of Appeals of Kentucky.

March 22, 1963.

John Breckinridge, Atty. Gen., H. D. Reed, Jr., Asst. Atty. Gen., James B. Stewart, Leslie D. Aberson, Dept. of Highways, Frankfort, for appellant.

Denney & Landrum, James M. Todd, Lasserre Bradley, Lexington, for appellees.

CULLEN, Commissioner.

This is an eminent domain case, involving the taking of a strip for highway widening purposes from the front of a tract of land, a portion of which tract was under lease for commercial use. The appeal is by the Commonwealth from a judgment awarding the landowners $31,075 and the lessees $41,215.

The landowners owned a 12-acre tract just outside the city limits of Lexington, having a 450-foot frontage on U. S. Highway No. 68. In approximately the center of the front part of the tract there was a parcel with a frontage of 150 feet and a depth of 250 feet on which there were a restaurant building and related structures, primarily designed for drive-in trade but with some space for inside customers. This parcel was leased for a period which, at the option of the lessees, could run to 1975 (the condemnation suit was tried in 1960). The remainder of the tract had no structures on it For the purpose of converting the existing two-lane highway into a four-lane highway the state condemned a strip averaging 23 feet in depth along the entire frontage. This embraced some of the parking spaces on the restaurant parcel. In addition, for the purpose of building a culvert and changing the drainage courses, the state condemned an additional 30 feet from the frontage of the gully parcel.

other than a residence and farm outbuildings near the back of the tract. The frontage north of the restaurant parcel was level with the road, but the frontage south of the restaurant parcel was in the form of a wide gully, around 10 feet below the level of the road, which extended back several hundred feet.

The verdict awarded the landowners $1,750 for the land taken from the gully parcel, $750 for the land taken from the frontage north of the restaurant parcel, $5,175 for land taken from the restaurant parcel, $23,250 for resulting damages to the gully parcel, and $150 for use of a temporary construction easement. The verdict awarded the lessees $28,350 as damages for the portion of the leasehold taken, $4,150 as resulting damages to the leasehold interest, $215 for use of a temporary easement, and $8,500 for loss of business during the highway construction period.

We are reversing the judgment because of error in the instructions (other errors also warranting reversal will be discussed at a later point in this opinion). We find the following errors in the instructions: First, the instructions do not state anywhere that the total damages cannot exceed the difference in the value of the entire tract before and after the taking, or that the measure of damages is such difference. They do say in one place that the total damages to the landowners cannot exceed the difference in the value of the entire tract before and after the taking, but this puts too high a ceiling on the total damages to the landowners because the difference in value of the entire tract would embrace damage to the lessees. Second, the instructions, which included interrogatories and blank spaces for filling in amounts of awards, were so confusing, overlapping and contradictory that when the verdict was brought in neither the judge nor any of the parties could understand it, and the judge was required to question the jurors orally in order to determine what the verdict meant. Third, the instructions authorized (and in fact directed) the jury to add together various items of damages to the landowners and to the lessees instead of directing the jury to determine first the damage to the tract as a whole and then apportion that amount between the landowners and the lessees. See Korfhage v. Commonwealth, Ky., 296 S.W.2d 476; City of Ashland v. Price, Ky., 318 S.W.2d 861. Fourth, the instructions gave no basis at all on which the jury could determine the damages to the landowners from the taking of a portion of the restaurant parcel, except that the instructions carried a vague implication that the landowners could be awarded the full value of the land taken and the lessees could be awarded damages to the leasehold on top of that. Fifth, the instructions stated that the measure of damages for the taking of the leasehold is the difference between the fair monthly rental value of the property immediately before the taking and immediately after the taking, multiplied by the number of months remaining in the lease, plus other direct damage to the leasehold. Aside from the fact that this would permit double recovery, it is a distortion and wholly incorrect application of the rule stated in the Ashland case, supra, which is that in order to determine the lease value before the taking, the difference between the fair rental value and the actual rent being paid is to be ascertained. Sixth, the instructions told the jury they could consider the 'value' of the property to the lessees 'in the operation of the business of a drive-in restaurant.' On no basis can this be considered a proper element of damage; not only does it get into the forbidden profit area but it invokes improper consideration of value to The Commonwealth did not in its objections to the instructions specifically pinpoint all of the errors we have noted above; however, some of the Commonwealth's objections were well taken, and when the objections are considered with the theory of the case presented in the Commonwealth's offered instructions we think the Commonwealth sufficiently raised the question of error in the instructions.

the particular owner as distinguished from fair market value. Seventh, the instructions authorized recovery of damages by the lessees for 'reduction in entrance and exit,' which for reasons hereinafter discussed were not properly allowable. Eighth, the instructions authorized recovery by the lessees for loss of profits during the construction period. (The reasons why such a recovery cannot be had are discussed at a later point in this opinion.)

While we are reversing the judgment because of failure of the trial court to observe the existing rules of law in this jurisdiction applicable to eminent domain cases, we have decided to reexamine those rules, abolish some of them, and state new rules that will govern in the event of another trial of this case, and will have application in other cases as stated at the end of this opinion.

DETERMINATION AND ALLOCATION OF DAMAGES FOR LEASED PROPERTY

As related to the leased parcel, and the determination of the respective damages of the landowners and the lessees, the evidence in this case was directed in a loose way towards application of the method outlined in City of Ashland v. Price, Ky., 318 S.W.2d 861. The key to this method is 'to ascertain the present fair rental value, compare it with the rent stipulated in the contract and allow the aggregate difference for the period of the unexpired term of the lease' (318 S.W.2d 863).

Aside from the fact that the foregoing method furnishes no criterion or basis for determining the lessee's damages where only part and not all of the leased property is taken, we have come to the conclusion after thorough reconsideration that the method is completly unsound, unfair and unworkable.

Let us use an illustration that is not far afield from the actual facts of this case: The property as a whole, if sold free and clear of the lease, would have a value of $100,000. The fair rental value would be $12,000 per year (there is testimony in this case that 12% rent is fair for commercial property). The lessees have contracted to pay only $6,000 per year. Their lease has 20 years to run. The state condemns the entire tract. By applying the method outlined in the Ashland case, the lessees would be damaged $120,000 ($6,000 per year for 20 years) or $20,000 more than the whole property was worth. This is so patently absurd as to establish beyond any question the fallaciousness of the method. The foreging illustration is not at all inappropriate because in the instant case the lessees were paying $7,200 a year rent; they said the fair rental was $14,400 a year; their lease had 15 years to run; therefore their damage was $108,000. Yet they testified that the leased property as a whole was worth only $120,000 (one said it was worth only $105,000) and the state took less than one-fourth of the area and none of the structures.

We think that this Court was led into acceptance of the method advanced in the Ashland case by a failure to adhere to the basic touchstone of property damage measurement, namely, fair market value, and by a mistaken, vague idea that somehow a lease interest can be damaged more than outright fee interest.

As concerns the latter proposition, it would seem obvious that if 25% of the market value of property worth $100,000 is taken away from the fee owner, his damages can not exceed $25,000. If, then, the property is leased, how can the total damages rise above $25,000?

There seems to be some idea that the lessee is entitled to compensation for the 'intrinsic' value of his lease, or for loss of business values, or for damages to the particular kind of business operation he is carrying on. The opinion in the Ashland case so indicates. But the landowner himself is not entitled to loss of profits, Newport Municipal Housing Commission v. Turner Advertising Co., Ky., 334 S.W.2d 767. Nor is he entitled to any loss attributable to impairment of the particular business he has chosen to carry on; he is limited to loss of market value. For example, if the owner of land is carrying on a restaurant business and the state condemns such portion of the land as to make it no longer suitable for restaurant...