County of San Diego v. Miller

Citation13 Cal.3d 684,532 P.2d 139,119 Cal.Rptr. 491
CourtUnited States State Supreme Court (California)
Decision Date06 March 1975
Parties, 532 P.2d 139 COUNTY OF SAN DIEGO, Plaintiff and Respondent, v. John M. MILLER, Defendant and Appellant. L.A. 30371. In Bank

Robert G. Berrey, County Counsel, and William C. George, Deputy County Counsel, San Diego, for plaintiff and respondent.

CLARK, Justice.

We determine whether the owner of an unexercised option to purchase real property has a right to compensation when the optioned property is taken through the power of eminent domain.

For valuable consideration, appellant acquired an option to purchase property. However, before the option had been exercised, respondent county filed a condemnation action to acquire the land. (Code Civ.Proc., § 1237 et seq.) 1 Appellant filed an answer in the action (Code Civ.Proc., § 1246), alleging the existence of his option and seeking compensation to the extent the land's fair market value exceeds the option exercise price.

Respondent's motion for summary judgment was granted on the ground appellant had no compensable interest in the property. In reaching this decision Judge Froehlich thoughtfully declared: '(I) am having a little trouble here because we all know that people who obtain options on property think they have an interest in the property. As a matter of fact, sometimes the acquisition of an option to acquire real property can be an alternative way of purchasing it.'

'I think an option should be a compensable interest in land, but that doesn't appear to be the law of the State . . ..

'Motion for summary judgment will be granted.'

I

Eminent domain is the power of government to take private property for public use. While it is a power inherent in the state as sovereign (Bauer v. County of Ventura (1955) 45 Cal.2d 276, 282, 289 P.2d 1), its exercise is not without restrictions in both the California and United States Constitutions. 'Private property may be taken or damaged for public use only when just compensation . . . has first been paid . . ..' (Cal.Const., art. I, § 19.) In its original form this prohibition was included in the sentence enumerating To the constitutionally entitled to compensation, the claimant customarily must show he owned a property interest taken by the state. Interests held to constitute property for condemnation compensation purposes include: Fee interests (Brick v. Cazaux (1937) 9 Cal.2d 549, 71 P.2d 588); Leaseholds (San Francisco Bay Area Rapid Transit Dist. v. McKeegan (1968) 265 Cal.App.2d 263, 71 Cal.Rptr. 204); Easements (People ex rel. Dept. Pub. Wks. v. L.A. County Flood, etc., Dist. (1967) 254 Cal.App.2d 470, 62 Cal.Rptr. 287); Rights-of-way (City of Long Beach v. Pacific Elec. Ry. Co. (1955) 44 Cal.2d 599, 283 P.2d 1036); and, most recently, Building restrictions (Southern California Edison Company v. Bourgerie (1973) 9 Cal.3d 169, 107 Cal.Rptr. 76, 507 P.2d 964).

                [532 P.2d 141]  man's other personal rights. 2  Similarly, the Fourteenth Amendment to the United States Constitution mandates that the state shall not take property without due process of law, including the requirement the state make just compensation to the owner of property taken.  (People ex rel.  Dept. Pub. Wks. v. Lynbar, Inc.  (1967) 253 Cal.App.2d 870, 880, 62 Cal.Rptr. 320.)
                

An option, when supported by consideration, is a contract by which an owner gives another the exclusive right to purchase his property for a stipulated price within a specified time. (Caras v. Parker (1957) 149 Cal.App.2d 621, 626, 309 P.2d 104.) It is a Right acquired by contract to accept or reject a present offer within a limited time in the future. (Brickell v. Atlas Assur. Co., Ltd. (1909) 10 Cal.App. 17, 22, 101 P. 16.)

This right to purchase created by an option is a substantial one. It is irrevocable by the optionor (Adams v. Williams Resorts, Inc. (1962) 210 Cal.App.2d 456, 462, 26 Cal.Rptr. 656), and may be exercised against his successors following his death (Bard v. Kent (1942) 19 Cal.2d 449, 452, 122 P.2d 8, 139 A.L.R. 1032). Further, when recorded, the option creates a cloud on the optionor's title for one year following expiration. (Civ.Code, § 1213.5.) Finally, unless the agreement provides to the contrary, an option is generally assignable (Mott v. Cline (1927) 200 Cal. 434, 459, 253 P. 718; see generally, Cal. Real Estate Sales Transactions (Cont.Ed.Bar 1967) § 7.16, p. 263, and cases cited therein); and for tax purposes, the assignment is treated as a sale of the land by the optionee. (See, I.R.C., § 1234(a); and Fed. Tax Reg. § 1.1234--1.)

II

Historically, courts have taken the position that compensation shall not be granted the holder of an unexercised option to purchase. Thus, in Taggarts Paper Co. v. State of New York (1919) 187 App.Div. 843, 847--849, 176 N.Y.S. 97, the court held that the holder of a bare option to purchase 'had no interest in the land itself and no claim against the state for its condemnation.' (Id. at p. 848, 176 N.Y.S. at p. 100; see also, Carroll v. City of Louisville (Ky.1942) 354 S.W.2d 291; Cravero v. Florida State Turnpike Authority (Fla.1956) 91 So.2d 312.) Similarly, in Cornell-Andrews Smelting Co. v. Boston & P.R.R. (1911) 209 Mass. 298, 95 N.E. 887, where the option to purchase was created in conjunction with the optionee's lease of the property, the court concluded the option created no compensable property interest in the lessee-optionee. '(A)lthough the insertion in a lease of an option giving to the lessee at his option a right to buy the fee adds to the value of the lessee's rights under the lease, it is no part of the lessee's estate in the land. It is a contract right California Courts of Appeal have followed this early view denying compensation for an option to purchase. Thus, in East Bay Municipal Utility Dist. v. Kieffer (1929) 99 Cal.App. 240, 278 P. 476, it was stated that the holder of a mere option to purchase land being condemned was not entitled to any part of the award. (See also, People v. Ocean Shore R.R. Co. (1949) 90 Cal.App.2d 464, 203 P.2d 579.) 3 Similarly, dicta in Shaeffer v. State of California (1972) 22 Cal.App.3d 1017, 1021--1022, 99 Cal.Rptr. 861, suggests the lessee-optionee should be denied compensation.

[532 P.2d 142] and nothing more . . ..' (Id. at pp. 306--307, 95 N.E. at p. 890.)

Despite this early view throughout the country denying compensation, substantial exceptions allowing compensation have been recognized in recent years. A majority of courts has departed from the rule enunciated in Cornell-Andrews Smelting Co., now awarding damages to the holder of an option to purchase when the option was created in conjunction with a leasehold estate. (See, e.g., Sholom, Inc. v. State Roads Commission (1967) 246 Md. 688, 229 A.2d 576; Nicholson v. Weaver (9th Cir. 1952) 194 F.2d 804; 23 Tracts of Land v. United States (6th Cir. 1949) 177 F.2d 967; Cullen & V. Co. v. Bender Co. (1930) 122 Ohio St. 82, 170 N.E. 633; cf.: City of Ashland v. Kittle (Ky.1961) 347 S.W.2d 522; Phillips Petroleum Co. v. City of Omaha (1960) 171 Neb. 457, 106 N.W.2d 727.)

Similarly, courts now allow compensation to the holder of an option to renew a lease. (See, e.g., Canterbury Realty Co. v. Ives (1966) 153 Conn. 377, 216 A.2d 426; Land Clearance for Redevelop. Corp. v. Doernhoefer (Mo.1965) 389 S.W.2d 780; United States v. Certain Land (M.D.Ala.1963) 214 F.Supp. 148; State v. Carlson (1958) 80 Ariz. 363, 321 P.2d 1025; United States v. 70.39 Acres of Land (S.D.Cal.1958) 164 F.Supp. 451.)

In at least one state the holder of a bare option to purchase land has been held entitled to share in the condemnation proceeds. (See Synes Appeal (In re Petition of Governor Mifflin Joint School Authority) (1960) 401 Pa. 387, 164 A.2d 221.)

Recent California cases have also demonstrated increased recognition of certain option holder's rights to compensation. Thus, in State of California v. Whitlow (1966) 243 Cal.App.2d 490, 52 Cal.Rptr. 336, it was held that compensation should be awarded to a lessee for his unexercised option to renew his lease (see also People ex rel. Dept. of Water Resources v. Gianni (1972) 29 Cal.App.3d 151, 105 Cal.Rptr. 248; San Francisco Bay Area Rapid Transit Dist. v. McKeegan, Supra, 265 Cal.App.2d 263, 272, 71 Cal.Rptr. 204); and in Cinmark Investment Co. v. Reichard (1966) 246 Cal.App.2d 498, 54 Cal.Rptr. 810, it was decided that when a portion of land subject to an unexercised option was condemned, the optionee was entitled to offset the award against the purchase price.

III

Important changes have occurred in eminent domain law weakening the legal foundation of the Court of Appeal cases denying recovery to the optionee and eroding their authority. The decision in Kieffer--consistent with decisions of other jurisdictions at that time--turned on application of the so-called 'property interest-contractual right' test which in turn depended on common law concepts of property. (Humphries, Compensability in Eminent Domain of Lessee's Option to Purchase (1968) 25 Wash. & Lee L.Rev. 102; Waldman We do not dispute the technical correctness of the Kieffer court's conclusion that--applying traditional common law concepts of property--the option creates in the optionee no estate as such in the land. (Cf. Leslie v. Federal Finance Co., Inc. (1939) 14 Cal.2d 73, 80, 92 P.2d 906.) However, this test is no longer conclusive.

[532 P.2d 143] Rights of Optionee to Compensation in a Condemnation Proceeding When Option is Exercised After the Taking (1968) 14 Wayne L.Rev. 660, 666.) Because the Kieffer court concluded an option created no traditional property interest in the land--only contractual rights--it held there could be no compensation. (99 Cal.App. at pp. 246--247, 278 P. 476.) 4

Recent decisions, both of this and of the federal courts, have held the property-contract labelling process is not necessarily determinative in questions of due process compensation. Instead, compensation issues should be...

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