Twin-State Engineering & Chemical Co. v. Iowa State Highway Commission, TWIN-STATE

• Decision Date: 11 May 1972
• Docket Number: No. 54896,TWIN-STATE,54896
• Citation: 197 N.W.2d 575
• Parties: ENGINEERING & CHEMICAL COMPANY, a Corporation, Appellee, v. IOWA STATE HIGHWAY COMMISSION and the State of Iowa, Appellants.
• Court: Iowa Supreme Court

Page 575

197 N.W.2d 575

TWIN-STATE ENGINEERING & CHEMICAL COMPANY, a Corporation, Appellee, v. IOWA STATE HIGHWAY COMMISSION and the State of Iowa, Appellants.

No. 54896.

Supreme Court of Iowa.

May 11, 1972.

Shaff, Farwell & Seneff, Clinton, for appellants.

Lane & Waterman, Davenport, for appellee.

MASON, Justice.

This is an appeal by the condemnor, Iowa State Highway Commission, from a partial condemnation award of $9000 for the taking of approximately 0.1 acre of land subject to plaintiff's lease and the taking of the right to direct access to and from Primary Road No. U.S. 61. It presents for determination correctness of the court's rulings on objections to plaintiff's evidence relative to the loss of business profits and correctness of the court's instruction defining the extent of the jury's consideration of such profits in arriving at the fair and reasonable market value of plaintiff's leasehold interest.

We recount the facts leading up to this lawsuit.

Plaintiff-corporation, Twin-State Engineering & Chemical Company, is engaged in the business of distributing herbicides and insecticides for rural cropping and also manufactures liquid fertilizer materials. From 1959 until 1968, plaintiff operated a facility in downtown DeWitt consisting of tank storage facilities and a warehouse for storage of chemicals. In the fall of 1967, negotiations were entered into by plaintiff and Harry Barber for the lease of approximately one acre of ground on highway 61 north of DeWitt for the purpose of constructing a new facility. October 9, 1967, an application was made to the Iowa State Highway Commission for access to the property covered by the lease, and the access was approved by the highway commission November 8.

A lease dated January 1, 1968, and acknowledged by the Barbers February 3 and acknowledged by plaintiff February 8 was entered into for the lease of approximately one acre of ground on the west side of highway 61 at the annual rental to Mr. Barber of $400 per year. The lease was for a term of ten years with two five-year options. In February and March of 1968, a sixteen by thirty-two foot warehouse building of frame construction with a concrete floor was constructed on the leased ground. Plaintiff also put in the culvert and had installed part of the gravel for the access road.

Plaintiff received verbal notice in March and written notice in April 1968 that approximately one-tenth of an acre along the entire frontage of its leasehold and its rights of direct access to and from U.S. Highway No. 61 were being condemned by the highway commission. Plaintiff then stopped construction. July 9 a condemnation commission filed its report assessing plaintiff's damages at $400.

At the time of the condemnation, plaintiff was continuing to operate its business at its facility in downtown DeWitt and had not commenced operating business at its new leasehold site.

After being notified of the appraisement of damages made, plaintiff perfected its appeal to the Clinton district court and filed petition seeking $85,000 as damages. Trial by jury followed and plaintiff's damages were ascertained at $9000.

Defendant relies on five assignments of error for reversal. The first four are based on adverse rulings on admissibility of plaintiff's evidence as to loss of profits and instruction 6 relating to the permissible use of this evidence by the jury in determining the measure of damages. These assignments are argued in one division in defendant's written brief. The fifth assignment argued in a separate division, is predicated on the contention the verdict is excessive.

I. As previously indicated, the principal controversy in this lawsuit involves the matter of what evidence is properly admissible in the determination of just compensation for plaintiff's loss by public taking. Two of plaintiff's witnesses, one of whom was Robert Hovey Tinsman, Jr., president of plaintiff-corporation, were allowed to testify over objection as to their estimation of net profits lost to the plaintiff as a result of the condemnation. It at all times has been plaintiff's position such evidence is admissible not as an independent element of damage but as bearing on determination of the fair and reasonable market value of plaintiff's leasehold interest. Defendant maintains consideration of such evidence is improper.

It is well settled a lessee is entitled to an award of just compensation for the public taking of his leasehold interest absent terms to the contrary on the lease agreement. Korf v. Fleming, 239 Iowa 501, 516, 32 N.W.2d 85, 94; Hawbaker v. Iowa State Hgwy. Comm., 253 Iowa 573, 577, 113 N.W.2d 296, 298; Comstock v. Iowa State Hgwy. Comm., 254 Iowa 1301, 1317, 121 N.W.2d 205, 215; State v. Starzinger, 179 N.W.2d 761, 765 (Iowa 1970); Nidy & Company v. State, 189 N.W.2d 583, 584 (Iowa 1971), and authorities cited in these opinions. The leasehold interest is legitimate 'property' for which a taking is to be compensated. Iowa Constitution, Article I, section 18; R. & R. Welding Supply Co. v. Des Moines, 256 Iowa 973, 976, 129 N.W.2d 666, 668; State v. Starzinger, 179 N.W.2d at 765.

It is further agreed a taking by destruction of access is compensable. Re Condemnation of Land (Johnson County), 256 Iowa 43, 52, 126 N.W.2d 311, 316; Ft. Dodge, D.M. & So. v. American Etc. Corp., 256 Iowa 1344, 1354, 131 N.W.2d 515, 522; Jones v. Iowa State Highway Comm., 259 Iowa 616, 623, 144 N.W.2d 277, 281, appeal after remand, 157 N.W.2d 86; Skaff v. Sioux City, 168 N.W.2d 789, 793 (Iowa 1969), and authorities cited in these cases.

Where less than the entire tract is taken, just compensation is generally based on the difference between reasonable market value of the entire tract and of the remaining portion after the taking. Nedrow v. Michigan-Wisconsin Pipe Line Co., 245 Iowa 763, 769, 61 N.W.2d 687, 690; Jones v. Iowa State Highway Comm., 259 Iowa at 621--622, 144 N.W.2d at 280; Townsend v. Mid-America Pipeline Company, 168 N.W.2d 30, 33, (Iowa 1969); Bellew v. Iowa State Highway Commission, 171 N.W.2d 284, 289 (Iowa 1969); Powers v. City of Dubuque, 176 N.W.2d 135, 138 (Iowa 1970); Van Horn v. Iowa Public Service Company, 182 N.W.2d 365, 370--371 (Iowa 1970); Note, Contemporary Studies Project: New Perspectives on Iowa Eminent Domain, 54 Iowa L.Rev. 737, 843.

Where condemnation of a fee interest is sought, generally evidence of business profits is inadmissible as an independant element of damage or as relevant in determining the value of the land because it is too uncertain and depends upon too many contingencies. Wilson v. Iowa State Highway Comm., 249 Iowa 994, 1006, 90 N.W.2d 161, 169; Comstock v. Iowa State Hgwy. Comm., 254 Iowa at 1309, 121 N.W.2d at 210; Broadcasting Corp. v. State Highway Comm., 256 Iowa 1251, 1256, 130 N.W.2d 707, 710; Note, supra, 54 Iowa L.Rev. at 849. See also 5 Nichols on Eminent Domain, Third Ed., section 19.3; Lewis on Eminent Domain, Third Ed., section 727; 27 Am.Jur.2d, Eminent Domain, section 431; 29A C.J.S. Eminent Domain § 154.

In this regard, it is stated in 1 Orgel on Valuation Under Eminent Domain, Second Ed., section 162, pages 661, 662:

'The fundamental reason for the exclusion of evidence of profits lies in the rule of substantive law that the condemnor takes only the real property, not the business located thereon. * * *

'* * *

'* * * (The) courts have generally stated that business profits are the result of so many factors and that their repercussion on the market is so remote, that the evidence is more likely to mislead than to aid in the determination of market value. * * *.'

It is plaintiff's position that the principles of law stated in the cases cited by defendant, Wilson v. Iowa State Highway Comm., 249 Iowa 994, 90 N.W.2d 161, 169; Comstock v. Iowa State Hgwy. Comm., 254 Iowa 1301, 121 N.W.2d 205; and Broadcasting Corp. v. State Highway Comm., 256 Iowa 1251, 130 N.W.2d 707, do not apply to its leasehold situation.

It must be conceded that Wilson and Broadcasting Corp. involve condemnation of the fee interest rather than a leasehold. Comstock, although dealing with a leasehold, was not concerned with profits from the ordinary use of property, cultivation or occupancy, but with condemnation of a leasehold providing for the removal and depletion of the physical property leased, removal of gravel--a part of the intrinsic nature of the land itself. See 27 Am.Jur.2d, Eminent Domain, section 431.

Although the court in Nidy & Company v. State, 189 N.W.2d at 585, was speaking relative to the 1959 amendment to what is now section 472.14, The Code, this statement in the opinion is appropriate for consideration in arriving at the answer to the question stated in the first sentence of this division:

'* * * We have often stated generally the purpose and intent of eminent domain laws are to secure a person from loss due to a taking of his property for public use, and have said he is to be made 'whole,' as nearly as possible, by way of adequate compensation for his loss. * * *.'

Perhaps with this purpose in mind this court in Interstate Finance Corp. v. Iowa City, 260 Iowa 270, 274, 149 N.W.2d 308, 311, in discussing the measure of damages for condemnation of a leasehold interest, said:

'The measure of damages for a leasehold interest taken under eminent domain is declared generally to be the fair market value of the leasehold or unexpired term of the lease. 27 Am.Jur.2d, Eminent Domain, section 352. We have held the measure of damages for a leasehold interest taken under eminent domain is the market value of the unexpired term of the lease over and above the rent stipulated to be paid. * * * (citing authorities).'

Interstate Finance and Comstock both quote at length from Korf v. Fleming, 239 Iowa 501, 32 N.W.2d 85, 3 A.L.R.2d 270, cited and relied on by plaintiff.

We also quote from the Korf opinion, 239 Iowa at 517--519, 32 N.W.2d at 94--95, 3 A.L.R.2d 270, but not necessarily the same parts...