State ex rel. Lincoln Fireproof Warehouse Co. v. Board of Review of City of Milwaukee, 442

• Decision Date: 29 June 1973
• Docket Number: No. 442,442
• Citation: 208 N.W.2d 380,60 Wis.2d 84
• Parties: , 89 A.L.R.3d 1114 STATE ex rel. LINCOLN FIREPROOF WAREHOUSE CO., Appellant, v. BOARD OF REVIEW OF the CITY OF MILWAUKEE et al., Respondents.
• Court: Wisconsin Supreme Court

Page 380

208 N.W.2d 380

60 Wis.2d 84, 89 A.L.R.3d 1114

STATE ex rel. LINCOLN FIREPROOF WAREHOUSE CO., Appellant, v. BOARD OF REVIEW OF the CITY OF MILWAUKEE et al., Respondents.

No. 442.

Supreme Court of Wisconsin.

June 29, 1973.

Alan H. Steinmetz, Foley & Lardner, Milwaukee, for appellant.

James B. Brennan, City Atty., Joseph H. McGinn, Principal Asst. City Atty., Milwaukee, for respondents.

WILKIE, Justice.

One issue is dispositive of this appeal: Did the assessor and the board of review properly reject the sale price of the subject property as the best evidence of its fair market value?

This appeal involves the overall question of whether the assessor and the board of review properly applied the real estate tax valuation statute, sec. 70.32(1), ¹ in arriving at the Lincoln assessment here. Appellant Lincoln contends that it shouldered its burden of proving that the sale of the subject property in 1969 by the Chicago, Milwaukee, St. Paul & Pacific Railroad Company was a fair, arm's length transaction and established the fair market value of the property and improvements. The respondents, the board of review and the city of Milwaukee, contend the evidence surrounding the transaction establishes, as a matter of law, that it was not a normal arm's length transaction and, therefore, was properly disregarded by the assessor and the board of review as an indicator of the fair market value. ²

This case does not involve a general review of the reasonableness of the assessment, the rules for which were well set forth a century ago in State ex rel. Pierce v. Jodon. ³ Rather, the narrow question presented is whether the assessor properly disregarded the sale price paid by appellant for the subject property as an indication of its fair market value. Sec. 70.32(1), Stats., requires an assessor to value real estate with the best information available at the 'full value which could ordinarily be obtained therefor at private sale.' ⁴ The very best of the 'best information' of fair market value has long been held by this court to be the actual fair sale of the property or similar property. ⁵ Recently in State ex rel. Markarian v. Cudahy, an appeal from a lower court judgment setting aside a real estate tax assessment, the Chief Justice, for a unanimous court, elaborated upon the rule as follows:

'. . . Commonly stated, sec. 70.32(1) requires real estate to be assessed at its fair-market value which has often been defined as the amount the property could be sold for in the open market by an owner willing and able but not compelled to sell to a purchaser willing and able but not obliged to buy. . . .

'The 'best information' of such value is a sale of the property or if there has been no such sale then sales of reasonably comparable property. In the absence of such sales, the assessor may consider all the factors collectively which have a bearing on value of the property in order to determine its fair market value. However, it is error to use this method 'when the market value is established by a fair sale of the property in question or like property.' . . . The statutory rule of assessment of real estate is restricted to its sale value in the open market and is not concerned with its intrinsic value if the intrinsic value differs either more or less from the sale value. . . .' ⁶

Since it is undisputed in the instant case that the assessor considered a number of factors in addition to the 1969 sale price of $250,000, this court must determine whether the evidence supports the determination that the sale price of the real estate did not adequately reflect the fair market value. In such review it is to be borne in mind that the burden of establishing the sale's fairness rests with the taxpayer challenging the assessment. ⁷ This principle was stated in State ex rel. Evansville Mercantile Asso. v. Evansville as follows:

'There was a contemporaneous sale of the property in question. That being so, the taxpayer still has the burden of showing that the sale was made under normal conditions so as to lead to the conclusion that the price paid was that which could ordinarily be obtained for the property. If those conditions are met there is no occasion to consider other factors and it is wrong to do so.' ⁸

The inquiry, therefore, is whether Lincoln carried its burden of showing the sale was made under normal conditions--that of a seller willing but not compelled to sell to a buyer willing but not compelled to purchase. ⁹

At the hearing before the city of Milwaukee board of review held on September 22, 1971, testimony was heard from three witnesses: Leonard L. Oster, president of Lincoln; R. Peter Tanner, real estate manager for the Milwaukee Road; and Norman W. Steffen, district assessor of the sixth district for the city of Milwaukee. Oster testified on direct examination that his company and the railroad had been formerly associated by virtue of a thirty-two-year lease between 1940 and 1972. He stated that his organization had considered a variety of alternatives as the lease was about to expire. Among these alternatives were entering into a new lease, purchasing the subject property or moving to a new location. According to Oster, his organization viewed a number of new locations and went so far as to make an offer to purchase another property. Oster stated the asking price by the railroad company was 'around' $275,000 which, he noted, his organization felt was too high. The agreed-upon price, according to Oster, was $250,000 and was, he noted, 'a trifle high; but considering the number of years we've been there, we felt that it was a reasonable price.'

On cross-examination Oster testified that there were other leases involved in the transaction. He mentioned there were four stores, display rooms or offices on the first floor and a 'light' manufacturing plant on the second floor of the building. Oster testified that the use to which his organization put the property remained unchanged after the sale. When questioned about fire insurance he admitted the building was insured but could not remember for what amount. Oster further elaborated upon the nature of the buildings viewed for prospective purchase but could not recall the purchase price per square foot.

On redirect examination Oster testified, in response to questions by board members, that his organization had had the property appraised. The appraisal, he stated, was in the sum of $210,000. When asked about the details surrounding the transaction in terms of whether it was forced or whether both parties were satisfied with the sale, Oster stated:

'We started negotiations with the Milwaukee Road to either extend the lease or buy the property because our former lease was expiring.

'. . .

'And we wanted to have sufficient time to either make some agreement or find another place. At the original meetings there was no agreement at all. They wanted a great deal more than we considered the property worth, and in the course of the meetings we got together on a price that we both agreed was mutually satisfactory. We felt that $250,000 might be a little high, but it was a reasonable price. We felt that anything above that, which we did have offers of, were turned down.'

The next witness to testify before the board was R. Peter Tanner, the real estate manager for the Milwaukee Road since 1962, and an industrial engineer dealing with leasing, selling and purchasing railroad properties prior to that date. Tanner testified that preliminay discussions concerning the sale versus continued leasing of the property first occurred in 1965 and continued during the following four years. Tanner stated that during these negotiations two appraisals of the property had been made--one by the railroad staff and another by an independent appraiser, John Bach of Bach, Hiller & Swallow. The house appraisal valued the property, according to Tanner, at between $295,000 and $298,000 and the independent appraisal was $275,000. Tanner stated that prior to the commitment to Lincoln they had contacted 'a number of brokers' and advised them the property was for sale. He admitted the railroad did not make a specific listing agreement with any broker but on cross-examination he elaborated this as standard company procedure. As a result of advising the real estate brokers the Milwaukee Journal Company indicated interest but after some discussion subsequently declined to make an offer to purchase on the ground the asking price of $300,000 was too high. Tanner also noted there were other offers which were 'ridiculous' in his company's opinion.

When asked why the railroad sold the subject property, Tanner stated:

'Well, we have a program of review of all of our properties, and when we have especially a long-term lease with a shipper on the property who has a considerable investment in the property as far as maintenance of the building is concerned, taxes and so on and so forth, and when the property shows no particular potential for commercial or industrial redevelopment, we try to divest ourselves of this type of property.

'In other words, to obtain funds to purchase raw land for industrial development.'

Tanner further stated that there were 'absolutely none' when questioned about any circumstances which placed the railroad in a position where it had to dispose of the property. On the point that this was a completely voluntary corporate decision, Tanner further elaborated:

'Yes, it was a complete corporate decision because part of our procedure in selling the property entails obtaining the approval of the Sales Department, the Operating Department, the Engineering Department, and ultimately the Board of Directors of the Railroad Company and the Mortgage Trustees. The Chief Engineer of the Engineering Department, under our corporate structure, has to satisfy himself that we're obtaining fair market value for the property and that the disposal of the property will not be detrimental to the best...