The City of Baxter Springs v. The Estate of G. Frank Bilger

• Decision Date: 11 February 1922
• Docket Number: 23,223
• Citation: 110 Kan. 409,204 P. 678
• Parties: THE CITY OF BAXTER SPRINGS, Appellee and Appellant, v. THE ESTATE OF G. FRANK BILGER, Deceased, et al., Appellees (W. B. FOSHAY COMPANY et al., Appellants and Appellees)
• Court: Kansas Supreme Court

204 P. 678

110 Kan. 409

THE CITY OF BAXTER SPRINGS, Appellee and Appellant, v. THE ESTATE OF G. FRANK BILGER, Deceased, et al., Appellees

(W. B. FOSHAY COMPANY et al., Appellants and Appellees)

No. 23,223

Supreme Court of Kansas

February 11, 1922

Decided January, 1922

Appeal from Cherokee district court; FRANK W. BOSS, judge.

Judgment reversed.

SYLLABUS

SYLLABUS BY THE COURT.

1. PUBLIC UTILITY--Purchase of Waterworks System--Methods of Ascertaining Value Thereof. Methods adopted by engineers in ascertaining the value of a public utility plant are matters of evidence, when presented to a court, and not rules of law.

2. SAME--Purchase of Waterworks System--Properties Appurtenant to the System. On the purchase of a waterworks system by a city from the owners of the system, as between the city and the owners, the service lines between the mains of the system and the property line of its consumers belong to the owners of the system, whether put in by such owners or by its consumers, where the franchise does not specify who shall pay the expense of putting in such service lines.

3. SAME--Purchase of Waterworks System--Deductions from Engineer's Report in Determining Value. In an action to determine the value of a waterworks system, deductions from the amount ascertained by engineers to be the value may be made by the court where it, after a consideration of all the evidence, finds that such deductions should be made.

4. SAME. In an action to ascertain the value of a waterworks system, the court may deduct from the total valuation placed thereon by engineers the value of any part of the plant as fixed by the engineers where the court finds from the evidence that that part has no value whatever.

5. SAME--Deductions for "Functional Depreciation." In such an action, the amount that shall be deducted for what is named "functional depreciation" is a matter that must be determined by the court from the evidence.

6. SAME--Judgment--Costs--Compensation to Appraisers. The judgment taxing costs and awarding compensation to appraisers is not disturbed.

Fred A Walker, of Columbus, and John M. Kinkel, of Topeka, for appellant Foshay Company.

R. E. Rosenstein, Grant Waggoner, both of Baxter Springs, and Edward E. Sapp, of Galena, for appellee City of Baxter Springs.

OPINION

MARSHALL, J.:

In this action the city asked the district court to ascertain the value of the waterworks system of Baxter Springs, built under a franchise granted by the city, which franchise provided that the city might purchase the waterworks system at any time after five years. This action was commenced on December 1, 1919, on which day the city had elected to purchase the plant. Section 7 of the franchise ordinance reads:

"Said city shall have the right to purchase, at any time after five years after publication of this ordinance, all machinery, mains, pipes and all other properties that are part of and used in the operation of waterworks system and business of grantee or assigns, at their actual value, exclusive of any value to the franchise granted by this ordinance; such purchase by said city to be governed by and be in conformity with the provisions of Section 12 of Chapter 82 of the Session Laws of the State of Kansas, for the year 1897."

The parties stipulated that each should appoint an appraiser; that the court should appoint a third one; that the three should constitute a commission to appraise and ascertain the value of the plant and system exclusive of the franchise; that the commission of appraisers might examine "personally and by experts and such other persons as necessary and familiar with the cost and construction and condition of such plants and resort to other means within their power in order that they may arrive at the value thereof"; that upon the filing of the appraisement in the district court, either party should have the right to present further testimony; that the court should modify or modify and confirm the report; and that either party could appeal to the supreme court from the finding and order of the district court. Appraisers were appointed; they made a report; the matter was heard in the district court; additional evidence was there introduced; the value of the property was ascertained; and judgment was rendered accordingly. The owners of the plant and the city appeal.

The city urges three propositions: first, that the "court erred in including value of service lines and partial value of privately constructed lines"; second, that the court erred "in the method used at arriving at the value of the water plant and system"; third, that the court erred "in refusing to allow a sufficient sum for functional depreciation."

The owners of the plant urge three propositions: first, that the court erred in deducting $ 2,000 from the value of the plant on account of the private ownership of service lines; second, that the court erred in deducting from the report of the appraisers $ 4,977.21 on account of the method adopted by the appraisers in determining the value of the plant; third, that the court erred in deducting from the value of the plant $ 3,200 on account of a lease on wells and buildings.

1. A consideration of practices that are followed in the valuation of public utility properties will be of substantial benefit in reaching a conclusion on the matters presented by these appeals. Values of such properties are ascertained principally for one of three purposes--taxation, rate making, or purchase. Different principles are followed in ascertaining the value of property for each of these purposes, although there is much discussion that the true value for one is the correct value for each of the other two. Valuations are made by taxation officers or bodies, by public utilities commissions or rate-making bodies, and by courts. Officers and bodies intrusted with the valuation of property for the purpose of levying taxes thereon, acting honestly in the performance of their duties, undertake to place as high a valuation on the property as it will reasonably bear when compared with other property. Rate-regulating bodies, acting just as honestly and undertaking to protect the public which they in a sense represent, make the valuation as low as it can be reasonably done. A court, when compelled to place a valuation on a public utility property, must ascertain the actual value without exaggeration on the one hand or undervaluation on the other. This inevitably leads to the different bodies placing different valuations on the property.

Most commodities have a known or easily ascertained value--the price at which the commodity sells in the market where men go to buy and sell. Public utility properties are not within this class of commodities; there is no market for them. They have a value, but that value cannot be accurately named as so many dollars in answer to a single, simple question. Other means must be resorted to for the purpose of ascertaining the values of these properties. The means most frequently and almost exclusively used has been that of employing engineers, skilled in the work of constructing such plants, of operating them, or of ascertaining their value, and of having those engineers make the valuations of the plants. Different methods are employed by engineers for this purpose. Two engineers, operating separately but under the same method in ascertaining the value of a single plant, will come to different conclusions because, in many of the steps taken, it is the judgment of the engineer that must be exercised and that judgment controls his conclusion, while the judgment of the other engineer on the same subject may be different and a different conclusion be reached. In nearly every controversy over the valuation of a public utility plant, the engineers for the opposite sides come to different conclusions concerning the value, that difference many times running into millions of dollars. Of the different methods used by engineers in doing this kind of work, one is known as the original cost of construction, another as the cost of reproduction at the time of the valuation, and another as the cost of reproduction based on the average prices of material and labor covering a selected number of years ending with the time named for the date of the valuation. Others may exist or be yet devised. Each of these probably has its advantages over the others. A tax commission or a public utilities commission may adopt one method to the exclusion of the other two, but a court is not justified in doing the same thing.

Engineers testify as expert witnesses concerning their work, the manner in which they did it, and the conclusions reached by them. Their testimony must be considered just the same as the testimony of other expert witnesses. The court may be convinced that the method of one engineer is the best and may follow it, but the court is not justified in so doing until it has carefully considered the evidence presented by those using the other methods. These methods are not rules of law, but are matters of evidence and should be considered by the court as such. Certain factors are common to all these methods, such as the value of a going concern, the franchise value (excluded by the ordinance and stipulation in the present action), good-will value, depreciation, overhead expense, engineering cost, interest on idle money, etc. Of course, engineers in ascertaining the value of a plant should take into consideration every possible factor that enters into that value and should lay those factors before the court; and the court, when weighing the testimony of such engineers, should consider the conclusions reached, the methods adopted, and every factor that entered into the valuation and give to each factor such weight as ...