State By and Through State Highway Commission v. Nunes

• Decision Date: 13 March 1963
• Citation: 233 Or. 547,379 P.2d 579
• Parties: STATE of Oregon, by and through its STATE HIGHWAY COMMISSION, composed of M. K. McIver, Kenneth N. Fridley and Glenn L. Jackson, Appellant, v. James N. NUNES and Helen M. Nunes, husband and wife, and W. C. Gingrich and Freda Gingrich, husband and wife, Respondents.
• Court: Oregon Supreme Court

Page 579

379 P.2d 579

233 Or. 547

STATE of Oregon, by and through its STATE HIGHWAY COMMISSION, composed of M. K. McIver, Kenneth N Fridley and Glenn L. Jackson, Appellant, v. James N. NUNES and Helen M. Nunes, husband and wife, and W C. Gingrich and Freda Gingrich, husband and wife Respondents.

Supreme Court of Oregon, In Banc.

Argued and Submitted Sept. 11, 1962.

Reargued Feb. 6, 1963.

Decided March 13, 1963.

J. Robert Patterson, Asst. Atty. Gen., Salem, argued the cause for appellant. With him on the brief were Robert Y. Thornton, Atty. Gen., Salem, and L. I. Lindas, Asst. Atty. Gen., and Chief Counsel for Oregon State Highway Commission, Salem.

Stanley C. Jones, Medford, argued the cause for respondents. Joel B. Reeder, Medford, reargued the cause for respondents. On the brief were Jones, Reeder & Bashaw, Medford.

Before McALLISTER, C. J., and ROSSMAN, PERRY, SLOAN, O'CONNELL, GOODWIN and DENECKE, JJ.

O'CONNELL, Justice.

Plaintiff appeals from a judgment of the circuit court of Jackson county in a highway condemnation action to secure a right of way for highway purposes. Defendants had been in the business of selling topsoil, sand, and gravel from the property. The highway necessitated the taking of a part of the land. As a result of the taking plaintiff was deprived of access to a part of his land not taken. Plaintiff alleged that these parts had a value of $7,800. Defendants' amended answer claimed the sum to be $37,250. The jury fixed the value at $24,500 and judgment was entered accordingly.

Plaintiff contends that the trial court erred in overruling plaintiff's objection to the direct examination of James Nunes, one of the defendants, concerning the market price of gravel, topsoil, and sand when sold by the yard. ¹ Plaintiff acknowledges that in fixing the value of land a witness may take into account the fact that the land contains minerals which enhance its value. But it is plaintiff's position that the witness may not ascertain this enhanced value by multiplying the number of units of the mineral by the market price per unit. Defendants concede that the product of such a multiplication process taken alone may not be used as the value of the land or added to the value of the land aside from the minerals. However, defendants argue that quantity, quality and price per unit of the minerals may be considered as a factor in evaluating mineral land.

Pursuing this theory, defendants elicited from their witnesses testimony as to the quantity, quality and price per unit of the sand, gravel and topsoil, but in each instance the witness testified that the materials were evaluated 'in place' and regarded only as a factor in arriving at the value of the land. The trial court adopted the view urged by defendants. Thus, in ruling on plaintiff's objection to the testimony of defendants' witness Nunes as to the then current value of topsoil 'in place,' the trial court said:

'THE COURT: I might say, Ladies and Gentlemen of the Jury, with reference to this, the basic question always is the damage to the Defendant in terms of fair cash market value as of February 9th, 1961, and that is the entire tract. You are not at any time to take an acre, for example, and multiply it by the total acreage to arrive at the amount. Your basic question is to take the damage to the Defendant in terms of fair cash market value to the entire tract, and to not arrive at it by the process of multiplication, if you understand what I mean--that is, by a process of multiplication of cubic yards or a process of multiplication of acres. The basic question is the damage in terms of fair cash market value to the entire tract. That is the question you are going to have to arrive at. The Court is only admitting evidence of the market value of a cubic yard of topsoil or a cubic yard of sand or gravel, insofar as it affords the reason or basis for arriving at the basic question, which is the entire tract.'

Plaintiff objected to the proffered testimony upon the ground that the estimate of the value of the topsoil, sand and gravel on a cubic yardage basis interjected into the case evidence of the value of items of personal property sold as a commodity and as such not related to the value of the land. Defendants countered with the argument that 'It would be impossible for a prospective purchaser or this jury to determine the total value of the land if they didn't know how much the sand and gravel was selling for--not for the purpose of making a multiplication procedure but for the purpose of making an evaluation.' Defendants' position is supported by one line of authority. ² The leading case presenting this point of view is United States v. Land in Dry Bed of Rosamond Lake, Cal., 143 F.Supp. 314, 322 (D.C.Cal.1956). In that case the court said:

'* * * the landowner is entitled to have an expert or lay witness describe the commodity or substance on the land, the quantity thereof, the going price thereof as factors only, upon which the expert may in part base his value as to the fair market value of the parcel in question; that a landowner is not entitled to present testimony as to the fair market value of the mineral or timber or other substance apart from the value of the land. * * * In other words, a clear distinction must be drawn between what is presented and considered as a factor underlying the expert's opinion as contrasted with opinion as to the fair market value of the substance, timber or mineral itself, apart from the land.'

We have not passed upon the precise question presented although in State Highway Comm. v. Arnold, 218 Or. 43, 341 P.2d 1089, 343 P.2d 1113 (1959) we disapproved the use of the multiplication method in arriving at the value of the property in that case.

The cases elsewhere seem to fall into three categories; (1) cases holding that a witness may not use the multiplication method in arriving at the value of land; ³ (2) cases holding that the multiplication method may be used but that the witness may not, at least on direct examination, testify specifically as to the quantity and price per unit of the materials in the land; ⁴ and (3) cases holding that the witness may not only use the multiplication method but he may also explain specifically how he used it, i. e., by referring to the quantity and price per unit of the materials in the land. ⁵ All courts agree that if the multiplication method is used the product arrived at by multiplying the quantity of materials by the unit price cannot be taken as the value of the land but must be used only as a factor in evaluating the land itself. ⁶

From the standpoint of the rationale upon which the cases rest they may be divided roughly into (a) those which regard the multiplication method as intrinsically unsound because it is speculative [these are the cases grouped in (1) above], and (b) those which consider the method as unobjectionable if properly applied [these are the cases grouped in (2) and (3) above]. One other difference in rationale may be noted which explains the conflict between the cases in groups (2) and (3) above. Some courts feel that although the multiplication method is unobjectionable when employed by an expert, it should not be exposed to the jury because it is likely to confuse the jury or be used by them as the sole basis of the estimate of value of the land sought to be taken and thus distort the estimate. This appears to be the rationale of the cases in group (2) above. On the other hand the courts in group (3), which accept the multiplication method as a valid process in arriving at an estimate of value, find no objection in permitting the jury to see specifically how the process was used.

We must make a choice between these competing rationales. We shall first consider whether the so-called multiplication method is an acceptable method if properly employed. There could be no objection to the use of the multiplication method in arriving at a figure to be employed as a factor in evaluating the land ⁷ where the quantity of the material (e. g., sand, gravel, timber) is known and there is a present market for all of the material sought to be taken. The use of the multiplication method presents certain problems where that is not the case. The reasons for rejecting the method are well stated in the quotation from United States ex rel. Tenn. Valley Authority v. Indian Creek Marble Co., 40 F.Supp. 811 (D.C.Tenn.1941) set out in State Highway Comm. v. Arnold, supra, 218 Or. at 77, 341 P.2d at 1105. ⁸ Certainly the use of the multiplication method without making deductions for the cost of production and other operating expenses would not be proper. ⁹

The multiplication of unit price times quantity would be a meaningless computation except as a part of a method of arriving at the profits which the sale of the materials as personal property would produce. The presence of the materials in the land would not enhance the value of the land unless the sale of the materials would yield a net profit. This would suggest that in computing the value of land the multiplication method would, in fact, be nothing more than a capitalization of profits. ¹⁰ However, those courts which accept the multiplication method apparently do not so regard it but consider the product of such computation as one factor only in arriving at the value of the land. ¹¹

It is generally held that evidence of profits derived from a business conducted on land is too speculative to be used in ascertaining the market value of land. However, some courts recognize an exception where the profits proceed directly out of the land condemned and where the profits are the entire or chief source of value. Such an exception was noted in State of Oregon v. Cerruti, 188 Or. 103, 214 P.2d 346, 16 A.L.R.2d 1105 (1950). There it was intimated that in a proper case evidence of profits derived from the use of agricultural lands would be admissible in proving the market value of the land...