State By and Through State Public Works Bd. v. Whitlow

• Decision Date: 14 July 1966
• Citation: 52 Cal.Rptr. 336,243 Cal.App.2d 490
• Court: California Court of Appeals Court of Appeals
• Parties: STATE of California, acting By and Through the STATE PUBLIC WORKS BOARD, Plaintiff and Respondent, v. Jesse B. WHITLOW and Esther Whitlow, his wife, Defendants and Appellants. Civ. 11131.

Page 336

52 Cal.Rptr. 336

243 Cal.App.2d 490

STATE of California, acting By and Through the STATE PUBLIC WORKS BOARD, Plaintiff and Respondent, v. Jesse B. WHITLOW and Esther Whitlow, his wife, Defendants and Appellants.

Civ. 11131.

District Court of Appeal, Third District,

California.

July 14, 1966.

McPherson & Mulkey, Chico, for defendants-appellants.

Thomas C. Lynch, Atty. Gen., by Willard A. Shank, Asst. Atty. Gen., William T. Chidlaw, James Sanderson, and William Mayhew, Deputy Attys., Gen., Sacramento, for plaintiff-respondent.

PIERCE, Presiding Justice.

Included in 82 and a fraction acres of defendants' (Whitlows') lands condemned by the state were 37.55 acres already under lease to the state. The jury found the fair market value of all land taken to be $67,110 with no severance damages to adjoining land not taken; it also found $12,034 as the value of the leasehold interests already owned by the state, leaving a net recoverable sum of $55,076. The Whitlows' appeal raises this contention: Nothing should have been deducted for the state's leasehold interests which (appellants urge) became 'merged with the fee' at the time of the filing of the complaint. Assuming arguendo that the leasehold values can be considered at all, the Whitlows also contend: Optional extension periods in the state leases should not have been considered, and an improper method of valuing the leasehold interests was adopted. They further contend: State appraisal witnesses were improperly allowed to adopt 'speculation' as the highest and best use of the property in their evaluations.

We uphold the trial court's judgment against all the above contentions.

The subject property, generally classified as 'cut-over' timber lands with some small fir and pine trees remaining, is located near Magalia, Butte County. The land taken was part of a larger tract totaling 122 plus acres. As of September 1, 1949, the state had leased 20.2 acres of this land for a 20-year term ending August 31, 1969, with an option in the state to renew the term for an additional 25-year term (i.e., until August 31, 1994). As of August 1, 1952, a second lease to the state of 17.35 acres, also for a 20-year term ending July 31, 1972, was entered into. This lease contained an option of renewal for an additional term ending September 1, 1977. Each lease provided for annual rentals of $300 for both the original and renewal terms. The leases forbid assignment but permit subletting.

Although both leases authorize use expressed in broad terms 'for the purpose of conducting therein the business of the State,' they are actually used jointly by the State Department of Conservation, Division of Forestry, and Department of Corrections as a part of 'an honor farm and conservation project.' Inmates also work for the State Departments of Fish and Game and Parks and Recreation, Division of Beaches and Parks. Improvements placed upon the leased property by the state have cost $257,000 and have a replacement value of $404,000.

The land condemned was for expansion--to increase the size of barracks, for mess hall facilities and new equipment sheds. The state decided, in addition to acquiring the additional lands for the purpose described, to condemn the reversionary interest of the Whitlows.

Re: The Contention that the State's Leasehold Interest 'Merged' (i.e., terminated) When the Complaint was Filed.

The Whitlows' proposition is: (1) that when a tenant acquires his landlord's title there is a merger of the leasehold interest with the fee; (2) that although ordinarily in a condemnation action Acquisition does not occur until the final order of condemnation (Code Civ.Proc., sec. 1253 ¹), an Exception exists When the condemnor takes possession at the outset of or pending the proceedings (People ex rel. Department of Public Works v. Peninsula Title Guar. Co., 47 Cal.2d 29, 301 P.2d 1; People v. Joerger, 12 Cal.App.2d 665, 55 P.2d 1269), and in that event the taking effectually takes place at the time of the physical taking and does not await the formal divestiture of title; therefore (3) the same rule must apply here because the state was already in possession under its leases and had made extensive improvements changing the 'status' of the lands before the commencement of condemnation.

Unimpressed by the ingenuity of the Whitlows' argument, the trial court denied its applicability. It ordered that 'merger' took place only when divestiture of title occurred upon the final order of condemnation. The judge also instructed the jury that in awarding the Whitlows just compensation it must subtract the value of the leasehold interests already owned by the state when the proceedings began.

The trial court was right. Whitlows' postulated theory ignores both the law and equity. It ignores equity because it requires the condemnor to pay twice for the leasehold interest. In other words, it requires the state to buy again that which it has already bought And paid for.

Nor does the law command so inequitable a result. For authority the Whitlows' reliance is solely upon the Joerger and Peninsula cases cited supra. In both those cases the condemnors who took possession had had no prior interest in the property. In neither case was the controversy between condemnee and condemnor. In the Joerger case, supra, 12 Cal.App.2d 665, 55 P.2d 1269, the controversy was between the condemnee and a trust deed holder-purchaser at a trustees' sale as to who was the 'owner' entitled to the condemnation award deposited into court by the condemnor. The court held the entire award to be payable to the condemnee.

People ex rel. Department of Public Works v. Peninsula Title Guar. Co., supra, 47 Cal.2d 29, 301 P.2d 1, involved the question whether the owner-condemnee should be required to pay out of the condemnation award a special benefit assessment of a city which became due after the state-condemnor had obtained an order and had taken possession of the condemned land but before there had been a divestiture of title under the final order of condemnation. Finding that the condemnee would derive no benefit from the assessment the Supreme Court reversed a trial court order charging the condemnee's award with the amount of the assessment. Simply stated, in both the Joerger and Peninsula cases the court refused to apply the divestiture-of-title-only-upon-order-of-condemnation rule under circumstances where it would be Inequitable to do so.

No compulsion to create an exception prompted by equitable consideration applies in this case. Here the state Did have a prior interest in the property which it had already bought and paid for. It was not giving up that interest when it elected to acquire Whitlows' interest. By its complaint it expressly so stated. It exercised its power of eminent domain Not to buy an entire fee. Whitlows did not own that. All they owned, and all the state had to 'take' (and pay 'just compensation' for) was what the condemnees had left, to wit: (a) a landlord's interest in the lease, and (b) a reversionary interest in the property (which was a right to retake possession and enjoy full ownership only upon the termination of the leases). When those two rights and interests were fairly evaluated and the sum representing such values paid, the condemnees received the 'just compensation' to which they were constitutionally entitled. (Cal.Const., art. I, sec. 14.) They were entitled to no more. (See Federal Oil Co. v. City of Culver City, 179 Cal.App.2d 93, 99, 3 Cal.Rptr. 519.)

Two other cases cited by the Attorney General illustrate the refusal of the courts to apply the exception to the general rule under circumstances where to do so would be to make an exception born to serve equity Inequitable: Consumers Holding Co. v. County of Los Angeles, 204 Cal.App.2d 234, 22 Cal.Rptr. 106 (where the following sequence of events had taken place (1) commencement of construction of an apartment house by the condemnee; (2) notice by the state of imminently-projected condemnation: (3) filing of the condemnation action and service of summons; (4) a stopping of construction and a tender of possession to the condemnor; (5) a refusal by the condemnor to accept possession until the final order of condemnation); People v. Watkins, 175 Cal.App.2d 182, 345 P.2d 960 (where the condemnor during pendency of proceedings to condemn an easement to widen a street obtained an immediate possession order of that portion of the property which constituted a 7-foot encroachment by the condemnee built in violation of a setback ordinance).

Re: The Contention that the Optional Renewal Provisions of the Leases Should not have been Considered in Evaluating the Leasehold Interests.

The court, first in proceedings outside the presence of the jury, ruled and thereafter instructed the jury that in evaluating the state's leasehold interests the leases were to be considered as though the options of the state to renew had in fact been exercised and the leases ran for the full option periods.

Likening this to a situation where an option to purchase real property is involved in which it has been held that an optionee's right does not entitle him to compensation on condemnation (East Bay Mun. Utility Dist. v. Kieffer, 99 Cal.App. 240, 246, 278 P. 476, 279 P. 178; People v. Ocean Shore R.R. Co., 90 Cal.App.2d 464, 469, 203 P.2d 579), the Whitlows contend that the same rule should be applicable here and that the trial court's order and instruction were error. The theory of the argument is that whether the options of renewal will be exercised is speculative, remote and contingent and therefore equates with the general fule forbidding the allowance of damages of such character. (Arnerich v. Almaden Vineyards Corp., 52 Cal.App.2d 265, 272, 126 P.2d 121.)

In the discussion which immediately precedes this, we have shown that the state's leasehold interests must be evaluated. Both leases contain renewal options. These, like any other...