PEOPLE v. John R. Donaldson, Minnie M. Donaldson and John R. Donaldson, Jr., Defendants and Appellants.

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District Court of Appeal, First District, Division 2, California.

The PEOPLE of the State of California, acting by and through the Department of Public Works, Plaintiff and Respondent, v. August P. CAVA et al., Defendants, August P. Cava and Luigina Cava, Defendants and Respondents, John R. Donaldson, Minnie M. Donaldson and John R. Donaldson, Jr., Defendants and Appellants.

Civ. 17242.

Decided: July 24, 1957

Farr, Twohig & Weingarten, Seaside, for appellants. Noland, Hamerly & Etienne, Salinas, for respondents.

This is an action in eminent domain. Defendants August P. Cava and Luigina Cava are the owners of the real property which is the subject of this action. Defendants John R. Donaldson, Minnie M. Donaldson and John R. Donaldson, Jr., are tenants of a portion of the real property under a five year lease from the Cavas. The Donaldsons operate a tavern on the leased premises.

It was stipulated among all parties to the action that the entire parcel of property had a market value of $116,000. The only issue remaining in dispute was the value of the Donaldson's leasehold interest. A jury trial was had on that issue (Code of Civ.Proc. § 1246.4) resulting in a verdict which awarded the Donaldsons the sum of $3500, the balance of $112,500 going to the Cavas. The Donaldsons have appealed from the judgment that was rendered upon that verdict.

The appellants contend that the trial court erred in refusing to give their proposed jury instruction which reads: ‘Where improvements made by the lessee would lose a substantial part of their value in consequence of their removal, this said readiness with which such improvements could be removed, and whether or not such improvements could be removed without substantially diminishing its own value, are elements which must be considered in this case. If such improvements are part of the leasehold interest of the lessee, the lessee must be compensated for the loss or diminution of value thereto occasioned by the condemnation.’ The language of the proposed instruction is confusing. For that reason alone it was property refused. Ching Yee v. Dy Foon, 143 Cal.App.2d 129, 299 P.2d 668. Moreover, the subject matter of the proposed instruction was covered in other instructions given by the trial judge.

Next appellants complain that the trial court erred in refusing to receive, on the issue of damages, evidence of the reproduction cost of improvements placed on the leased premises by appellants, where it appeared from the testimony that appellants intend operating the same type of business at another location. This contention is without merit. It is based upon an erroneous interpretation of the following language in People v. ocean Shore R., 32 Cal.2d 406, 427, 196 P.2d 570, 584, 6 A.L.R.2d 1179: ‘It has also been held that reproduction cost is a proper test where there is a taking of a going concern with a view to continuing the operation. See In re United States Commission [to Appraise Washington Market Co. Property], 54 App.D.C. 129, 295 F. 950.’ What this language means, and what the federal court held in the case cited, is that reproduction cost is a proper test of the measure of damages where the condemner proposes to continue the operation of the business condemned. Immediately following the language just quoted the court further expressed itself as follows 32 Cal.2d at pages 427–428, 196 P.2d at page 584: ‘The general rule, however, is that the proper measure of damages is not the market value of the land plus the reproduction cost of the improvements, but the market value of the property as improved, in view of all the uses to which it is adaptable and available.’ There is nothing in our case to take it out of this general rule.

Appellants also urge error on the part of the trial court in admitting testimony that the lease between respondents and appellants provides that the appellants must, at their own expense, at the expiration of the term, restore the leased premises to their original condition. No authorities are cited in support of this contention. Manifestly, burdensome covenants of a lease affect the value of the leasehold interest, and evidence thereof is relevant to the issue of market value. The trial court did not err in admitting this testimony.

Appellant complain that the trial court erred in sustaining an objection to the following question asked of John R. Donaldson, Jr., on direct examination following his expression of his opinion of the value of the leasehold interest: ‘Mr. Donaldson, have you received any offers for your leasehold interest within the past two years?’ The objection was sustained on the ground that the question was an improper one on direct examination. The ruling of the learned trial judge was correct as the law existed at the time of the trial. Until recently it was the rule in this state that evidence of offers for the property being condemned, and evidence of the price paid on sales of similar property, were inadmissible on direct examination. Inquiry into those matters was limited to cross-examination, and then only for the limited purpose of testing the weight to be accorded an opinion. See People v. La Macchia, 41 Cal.2d 738, 264 P.2d 15. But in County of Los Angeles v. Faus, 48 Cal.2d 672, 312 P.2d 680, the Supreme Court has reconsidered this rule of exclusion and has flatly held that evidence of prices paid for neighboring properites similar to the property being condemned is admissible on direct examination. And while the court in the Faus case did not have before it the precise question involved in the instant case, to wit, the admissibility on direct examination of evidence of offers to buy the property being condemned, still we are satisfied from a study of the opinion in that case that it contemplates the extension of the new rule of admissibility to offers to buy the condemned property as well as to prices paid for similar property. We think the following reasons support our conclusion in this respect.

The rationale of the former exclusionary rule was that ‘* * * to allow evidence of particular transactions to be presented on direct examination would open up each transaction as a side issue and the investigation would be rendered interminable.’ People v. La Macchia, supra, 41 Cal.2d at page 745, 264 P.2d at page 20. Thus, it was simply the apprehension of involvement in a multitude of collateral issues that prompted the adoption of the former rule of exclusion. Exclusion was based on expedience, not on irrlevance. So, even under the former rule a witness was allowed to state on direct examination that his opinion of value was based on sales of similar property, or on offers for the property being condemned. People v. La Macchia, supra, 41 Cal.2d at page 745, 264 P.2d at page 20; People ex rel. Department of Public Works v. Union Machine Co., 133 Cal.App.2d 167, 284 P.2d 72. It was only evidence of the details of the transaction, particularly the price, that was held to be inadmissible on direct examination. ‘* * * the core of inadmissibility is the consideration.’ People v. La Macchia, supra, 41 Cal.2d at page 748, 264 P.2d at page 23. The Supreme Court having in the Faus case rejected the rule of expedience and adopted the rule of relevance, it follows that details of offers to buy the property being condemned are admissible on direct examination. This is rather clearly indicated by the court's quotation, with approval, of the following passage from Wigmore on Evidence (County of Los Angeles v. Faus, supra, 48 Cal.2d at page 672, 312 P.2d at page 683): “When the conduct of others indicating the nature of a salable article consists in offering this or that sum of money, it creates the phenomena of value, so-called. For evidential purposes, Sale-Value is nothing more than the nature or quality of the article as measured by the money which others show themselves willing to lay out in purchasing it. Their offers of money not merely indicate the value; they are the value; i. e. since value is merely a standard or measure in figures, those sums taken in net potential result are that standard.”

The rule announced in the Faus case is retrospective in its operation. County of Los Angeles v. Faus, supra, 48 Cal.2d at page 672, 312 P.2d 680. The trial court's refusal to receive Donaldson, Jr.'s, testimony as to offers received therefore requires a reversal. See People ex rel. Department of Public Works v. Union Machine Co. supra, 133 Cal.App.2d 167, 284 P.2d 72.

The judgment is reversed.

O'DONNELL, Justice pro tem.

DOOLING and DRAPER, JJ., concur.