No, 11741 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1972 

THE STATE OF MONTANA, ACTING BY AND THROUGH 

THE STATE HIGHWAY COMMISSION OF THE STATE 

OF MONTANA, , 

Plaintiff and Appellant, 

-vs - 

MELVIN D. PALIN et al. , 

Defendants and Respondents. 

Appeal from: District Court of the Third Judicial District, 

Honorable Sid G. Stewart, Judge presiding. 

Counsel of Record: 

For Appellant : 

Daniel J. Sullivan and Donald A. Douglas argued, 

Highway Legal Dept., Helena, Montana, 

For Respondents : 

Knight, Dahood and Mackay, Anaconda, Montana. 

Wade J . Dahood argued, Anaconda, Montana. 

William F. Sheehan, Philipsburg, Montana. 

Submitted: September 21, 1972 

Decided .- WV2 7 TO?. 
Mr. Chief Justice James T. Harrison delivered the Opinion of 

the Court. 

This is an appeal by the Montana State Highway Commission from a jury award of $48,600 to the defendant, Melvin 

Palin, in a condemnation suit. The land was used as part of 

the interstate highway system. Both parties agreed that the 

highest and best use of the land, located along the Clark Fork 

River in Granite County, was for grazing. The Palins placed a 

value of $52,470 on their lands being taken. The State's appraiser 

computed compensation at $9,850. The Palin's expert witness, 

Melvin Beck, testified concerning the value of the land and as 

the basis of his opinion Beck used what he called the "capitalization of income method". This testimony was objected to by the 

State Highway Commission as having no proper foundation. 

The controlling issue in this cause is whether this is 

an appropriate case for the use of the "capitalization of income 

method" to determine the value of the land. We conclude that 

it was not. 

The argument made by Palin's counsel was that the opinion 

testimony given by Beck was supported by substantial evidence 

and therefore proper for the jury to consider. The record on 

appeal does not support that argument. The testimony of Beck 

was based upon hypothetical assumptions and not from any actual 

information gathered from Palin or anyone else concerning the 

amount of income that could be derived from the land in question. 

His testimony concerning the method by which he reached his valuy 

ation was: 

"Well I first have to determine how many animals 

can be grazed and fed on this area." 

On voir dire examination it was determined that this carrying 

capacity of the land was determined by "observation and study". 

In State v. Peterson, 134 Mont. 52, 63, 328 P.2d 617, this Court 

held that income or revenue from land was "admissible for the 
purpose of arriving at the market value of the property". The 

only testimony in this record concerning income from the land is 

that of Palin's brother, who testified that he had cut hay on 

the land in 1959. He did not testify that the hay had been sold 

or used in the ranch operation. The end result of this is that 

Beck's testimony was inadmissible because his basic assumption 

was not based on income from the land. 

This result is not to say we disapprove of the use of 

the capitalization of income method in determining the value of 

land. We have previously held that it is a proper method within 

certain limitations. State Highway Comrn'n v. Heltborg, 140 Mont. 

196, 369 P.2d 521; State Highway Cornrn'n v. Bare, 141 Mont. 288, 

301, 377 P.2d 357. In - Bare we reached the same conclusion as in 

this case and for the same reason the conclusion reached by the 

expert witness was not based on tangible factors. We said: 

" * * * Mr. Working's application of the method * * * is not an appropriate application. Further, 

in this case, none of the figures, being based 

on one year only, and in part pure estimates, 

have such degree of certainty as to be a credible 

factor. " 

We then went on to point out the testimony from the experts in 

Heltborq was the result of a: 

" * * * very careful foundation for production 

figures, operation figures, and effect of the 

taking on those figures, were made before any 

effort was made to apply the capitalization of 

income method." 

This is the error that was committed in this case, the testimony 

of Beck was not supported by such a foundation. On the question 

of what type of situation is the capitalization of income an 

appropriate method to value land, the Supreme Court of Virginia, 

in Appalachian Power Company v. Anderson, 212 Va. 705, 187 S.E.2d 

148, 154, in a case involving unimproved land held: 

"The capitalization of income method of appraisal 

is used where income producing property is 

condemned and it becomes necessary to ascertain 
its value. * * * 

"However, in the instant case we are not dealing with income producing property but unimproved 

acreage. * * *" 

That court went on to cite United States v. Whitehurst, 337 

F.2d 765 (4th Cir. 1964), where the court held: 

" * * * the capitalization of income method of 

determining the value of land should not be used 

where the determination is based upon pure speculation and is without objective evidential 

support. " 

We therefore hold that the capitalization of income 

method of land valuation should be limited to income producing 

property where at all possible, recognizing that it may be necessary to use the method in cases where no comparable sales evidence is available. But, in those cases, the limitation in Bare - 

should be strictly adhered to that: 

" * * * its use must be based on a foundation 

which minimizes to the extent possible conjecture 

and uncertainty." 

Therefore the district court was in error in overruling 

the Highway Commission's motion to strike Beck's testimony and a 

new trial must be granted. Because the case must be retried 

there is no need to discuss further the other claimed errors 

because they should not again 

The judgment is revers& and a )ew trial,,order/d. 'I 

Associa QI e Justices