Saratoga Fire Protection District v. Hackett

making of the public improvements’. . . .” ’ [Citations.]” (Los Angeles County Metropolitan Transportation Authority v. Continental Development Corp. (1997) 16 Cal.4th 694 , 715-716 [ 66 Cal.Rptr.2d 630 , 941 P.2d 809 ] (Continental).) The United States Supreme Court has stated, “ ‘[t]he just compensation required by the Constitution to be made to the owner is to be measured by the loss caused to him by the appropriation. He is entitled to receive the value of what he has been deprived of, and no more. To award him less would be unjust td him; to award him more would be unjust to the public.’ . . . [T]he high court [also] said, ‘[t]he fundamental right guaranteed by the Fourteenth Amendment is that the owner shall not be deprived of the market value of his property under a rule of law which makes it impossible for him to obtain just compensation. . . .’” (Id. at p. 715, quoting Bauman v. Ross (1897) 167 U.S. 548 , 574 [ 17 S.Ct. 966 , 976, 42 L.Ed. 270 ] and McCoy v. Union Elevated R.R. Co. (1918) 247 U.S. 354 , 365-366 [ 38 S.Ct. 504 , 507-508, 62 L.Ed. 1156 ].)

The measure of compensation provided by the eminent domain law is the “fair market value” (§ 1263.310) defined as the highest price on the date of valuation that would be agreed to by a willing seller, under no obligation nor necessity to sell, and a willing buyer, under no similar obligation or necessity to buy, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available. (§ 1263.320, subd. (a); Merced Irrigation Dist. v. Woolstenhulme (1971) 4 Cal.3d 478 , 488 [ 93 Cal.Rptr. 833 , 483 P.2d 1 ].) California state law does provide for some adjustments to the value of the property. If any improvements to the property are removed or destroyed during the pendency of the action, those improvements are not included in the valuation of the property. (§ 1263.230.) But if improvements are made to the property during the pendency of the action, the government need not compensate the owner for them unless the improvements were required to be made by a public utility to its utility system, the government consented in writing, the improvement was authorized by a court order upon noticed motion (§ 1263.240), or made in good faith under a preexisting contractual obligation. (City of Santa Barbara v. Petras (1971) 21 Cal.App.3d 506 [ 98 Cal.Rptr. 635 ].)

“[T]he primary purpose of the Legislature in enacting section [1263.120, formerly section 1249] was to protect the parties against fluctuations in the market value of real property.” (Redevelopment Agency v. Maxwell, supra, 193 Cal.App.2d at p. 418.) In our case, the parties agreed that between the date of valuation and the date of trial, the value of the property increased; however, they did not agree on the dollar amount of the increase. Nevertheless, plaintiff argued strenuously, and the trial court agreed, that the

court was “constrained” to apply section 1263.120 even though the court felt that to do so was somewhat unfair.

Both the United States and California Supreme Courts have held otherwise. The United States Supreme Court has stated, “[h]owever reasonable it may be to designate the date of trial as the date of valuation, if the result of that approach is to provide the owner substantially less than the fair market value of his property on the date the United States tenders payment, it violates the Fifth Amendment.” (Kirby Forest Industries, Inc. v. United States (1984) 467 U.S. 1 , 17 [ 104 S.Ct. 2187 , 2198, 81 L.Ed.2d 1 ] (Kirby).) The California Supreme Court reflected that the Kirby court “recognized that any substantial increase in fair market value between the dates of valuation and taking must be paid in order to provide ‘just compensation.’ Thus, the condemnee in a federal proceeding may move, after the taking, to amend the award in order to litigate the issue of interim increase in fair market value. [Citation.]” (Gilmore, supra, 38 Cal.3d at p. 799, fn. 9.) Recently, the Court of Appeal for the Second District stated, “[a]t least since Gilmore it has been the law in California that state statutory provisions must fail if they conflict with this constitutional requirement. ‘This element of “just compensation” is constitutionally required and “cannot be made to depend upon state statutory provisions.” ’ [Citation.]” (Community Redevelopment Agency v. Force Electronics (1997) 55 Cal.App.4th 622 , 633 [ 64 Cal.Rptr.2d 209 ].)

Historically, in Citizens Utilities Co. v. Superior Court (1963) 59 Cal.2d 805 [ 31 Cal.Rptr. 316 , 382 P.2d 356 ], the California Supreme Court refused to apply section 1249, the predecessor to section 1263.120 challenged here, to the valuation of a public utility system that did not compensate the utility for improvements to the system which were required to be made by law. (As stated, ante, the exception was codified in 1975 in section 1263.240 (Stats. 1975, ch. 1275, § 2, p. 3450, operative July 1, 1976).) The court stated, “[i]t has been held that section 1249 is not inflexible and does not always apply, even in private condemnations. In Redevelopment Agency v. Maxwell[, su pra,] 193 Cal.App.2d 414 . . . , it was held that, in spite of the mandate of the section, if the property sought to be condemned were destroyed by fire after summons issued, that fact should be considered by the trier of fact in determination of the award. If involuntary destruction of the property after issuance of summons may be considered in diminution of an award of compensation, in spite of the language of section 1249, it follows that involuntary betterment of the property may and should be considered in assessing the award if the improvements are of use and benefit and add to the value of the property sought to be condemned. [Citation.] ffl] Thus, the trial court held, and held properly, that the problem could be solved by simply devising a procedure whereby the value of petitioner’s water system

would be assessed as of the date of trial rather than the date of summons. Petitioner challenges the power of the trial court to so improvise. The trial court had such power. The provision of the Constitution compelling the payment of just compensation for a public taking of property (Cal. Const., art I, § 14 [(now § 19)]) is self-executing. Since this is so it has consistently been held, in inverse condemnation cases, that inherent power is reposed in the trial court to provide for the assessment of just compensation in situations not within the purview of existing statutory provisions. [Citations.] The trial court, in the instant case, was empowered to devise a procedure whereby the value of petitioner’s water system could be justly and constitutionally assessed. This it did by providing that in the case of petitioner the condemned property should be assessed not as of the date of the summons, but as of the date of trial. This was a proper exercise of the inherent power of the trial court. It certainly protected petitioner for any increased value to its properties caused by involuntary improvements made after summons and up to the date of trial or of judgment. Inasmuch as the Legislature has failed to provide a procedure to cover the contingency involved, pursuant to its inherent powers the court had the power to devise a proper procedure.” (Id. at pp. 811-812.)

Similarly, in an inverse condemnation action against a city to recover subsidence damage to property, an appeals court approved the trial court’s instruction to the jury to assess damages based on the property’s fair market valué in 1981, the date of commencement of trial, rather than 1977, the date of injury, in view of the appreciation of the property during the interval and plaintiffs’ prompt pursuit of their available remedies. (Leaf v. City of San Mateo (1984) 150 Cal.App.3d 1184 , 1190-1191 [ 198 Cal.Rptr. 447 ], overruled on other grounds in Trope v. Katz (1995) 11 Cal.4th 274 , 286 [ 45 Cal.Rptr.2d 241 , 902 P.2d 259 ].)

The California Supreme Court has held that a court has the power to order a condemner to pay market rate interest rather than the statutory rate of interest in order to comply with the constitutional requirement of “just compensation.” In Gilmore, a public agency that took possession of property it condemned before the condemnation price was set or fully paid (§ 1255.010 et seq.), was required to pay interest on the balance due at the prevailing market rate to provide constitutional just compensation and not at the legal rate provided in section 1268.310. The court stated: “a statutory interest ceiling cannot prevail where it falls short of constitutional ‘just compensation’ .... When the delay occurs during times of inflationary market interest rates which substantially exceed the statutory rate, application of the lower statutory limit denies the condemnee ‘the full equivalent of the [property’s] value ... at the time of the taking paid contemporaneously

with the taking.’ [Citation.] [ft] Many courts have recognized that, while the statutory rate of interest may apply if it is constitutionally adequate, ultimate determination of the rate of interest required for ‘just compensation’ is a judicial function. An adequate rate, these cases hold, must reflect conditions in the usual interest markets. [Citations.]” (Gilmore, supra, 38 Cal.3d at p. 797.)

Similarly, our Supreme Court recently declined to apply section 1268.310 which requires interest on compensation to be computed as of the date the state takes possession of the property in a case in which the state took possession of the property over 30 years before. In that case, the condemnee agreed the state could take possession of the property in 1969. The parties desultorily negotiated the price in the following years, but no compensation was paid for over 30 years until the condemnee filed an inverse condemnation action demanding compensation. (Edison, supra, 22 Cal.4th at pp. 795-796.)

In finding that section 1268.310 should not control, the court stated, “we believe this case presents the rare situation where the literal application of a statute contravenes the legislative intent behind its enactment and extends its reach far beyond those situations contemplated by the Legislature. [ft] Ordinarily, the literal meaning of the words of a statute governs. [Citation.] We will not, however, apply the literal language of a statute ‘when to do so would evidently carry the operation of the enactment far beyond the legislative intent and thereby make its provisions apply to transactions never contemplated by the legislative body.’ [Citation.] ‘A code may strive for comprehensiveness, but exceptional situations will arise.’ [Citation.] As a result, we may decline to apply a statute in those rare cases where ‘it is obvious that the Legislature cannot have intended the statute to apply.’ [Citation.] [ft] These principles of statutory construction are especially germane in the eminent domain context because ‘the amount to be paid for property taken by the government is, under the Constitution, a matter for the courts rather than the Legislature . . . .’ [Citation.] Thus, courts have eschewed a literal application of our eminent domain statutes if such an application ‘ignores’ the purpose behind the statutes. [Citation.] Courts have also found one of these statutes inapplicable where the Legislature did not anticipate the particular facts of the case and undoubtedly did not intend for the statute to apply there. [Citation.] Finally, courts have refused to apply our eminent domain statutes where their application would give the condemnee a ‘ “windfall” ’ not intended by the Legislature. [Citations.]” (Edison, supra, 22 Cal.4th at pp. 798-799.)

Applying these principles in our case, the constitutional requirement of “just compensation” requires the payment of fair market value to defendant.

Defendant was precluded from placing before the court evidence of unusual circumstances which, if believed by the trier of fact, would make it unjust to apply section 1263.120 to defendant’s award. Defendant should have been allowed to try to establish that there was a substantial increase in the value of his property between December 1999 and October 2000. There was no indication that the increase in value of defendant’s property was due to bad faith improvements by defendant or to elements of value that the government created. (See United States v. Fuller (1973) 409 U.S. 488 , 492 [ 93 S.Ct. 801 , 35 L.Ed.2d 16 ] (Fuller).) Consequently, the court should have admitted the evidence. Just as the rules are not to be applied to give the condemnee a “windfall” (Edison, supra, 22 Cal.4th at p. 799), they should not be applied to give the government a windfall. (Continental, supra, 16 Cal.4th at p. 715.) Thus, section 1263.120—“like ‘all condemnation law, procedure and practice[—]is but a means to the constitutional end of just compensation to the involuntary seller, the property owner.’ [Citation.]” (Edison, supra, 22 Cal.4th at p. 800.)

“In the absence of an applicable statute, equity must ‘operate’ [citation], and courts must devise their own procedure for ensuring just compensation [citation].” (Edison, supra, 22 Cal.4th at p. 803.) Under these circumstances, the trial court had the inherent power “ ‘to adopt working rules in order to do substantial justice in eminent domain proceedings.’ [Citation.]” (Fuller, supra, 409 U.S. at p. 492 [93 S.Ct. at p. 804].)

The trial court’s error in excluding defendant’s evidence of the fair market value of the property at the time of trial “requires a reversal of the judgment because it resulted in a miscarriage of justice. (Cal. Const., art. IV, § 13.) Without this evidence, [defendant] could neither defend [his] position nor challenge the State’s. ‘ “ ‘ “[A]fter examination of the entire cause, including the evidence,” [we are] of the “opinion” that it is reasonably probable a result more favorable to [defendant] would have been reached in the absence of error.’ ” [Citation.]’ [Citation.]” (People ex rel. Dept. of Transportation v. Tanczos (1996) 42 Cal.App.4th 1215 , 1220 [ 50 Cal.Rptr.2d 70 ].)

Disposition

The judgment is reversed. Costs to defendant.

Elia, J., and Wunderlich, J., concurred.

A petition for a rehearing was denied May 14, 2002, and the opinion was modified to read as printed above.