No, 11741 IN

### THE SUPREME COURT OF THE STATE OF MONTANA 1972

THE STATE OF MONTANA, ACTING BYAND THROUGH THE STATE HIGHWAY COMMISSION OF THE STATE OF MONTANA, , Plaintiff and Appellant,



### -vs

# - MELVIN D. PALIN etal.

# , Defendants and Respondents.

Appeal from: District Court of theThird Judicial District, Honorable Sid G. Stewart, Judge presiding. Counsel of Record: ForAppellant

### : Daniel J. Sullivanand 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

# .- WV27 TO?.Mr. Chief Justice James T. Harrison delivered the Opinion of the Court. This is an appeal by the Montana StateHighway 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 landsbeing 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 testimonywas objected to by the State Highway Commission as having no proper foundation. The controlling issue in this cause iswhether this is

an appropriate case for the use of the "capitalization of income method" to determine the value of the land. We conclude that itwas not. The argumentmade by Palin's counselwas that the opinion testimony given by Beck was supportedby substantial evidence and therefore proper for the jury to consider. The record on appealdoes 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 themethod by which he reached his valuy ationwas: "Well 

### I firsthave to determine howmany animals canbe grazed and fed on this area." On voir dire examination itwas determined that this carrying capacity of the land was determined by "observationand study". In Statev. Peterson, 134Mont. 52, 63, 328 P.2d 617,this Court held that income or revenue from land was "admissible for thepurpose of arriving at themarket value of the property". The only testimony in this record concerning income from the land is that of Palin'sbrother, 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 testimonywas 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, 140Mont. 196, 369 P.2d 521; State Highway Cornrn'n v. Bare, 141Mont. 288, 301, 377 P.2d 357. In Bare we reached the same conclusion as in 

# - this case and for the same reason the conclusionreached by the expert witness was not based on tangible factors. We said: 

### " 

## * * * Mr. Working's application of the method 

## * * 

## * isnot 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 Heltborqwas the result of a: 

### " 

## * 

## * * very careful foundation for production figures, operation figures,and effect of the taking on those figures,were made before any effortwas 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 appropriatemethod to value land, the Supreme Court of Virginia, in Appalachian Power Company v. Anderson, 212Va. 705, 187 S.E.2d 148, 154, in a case involving unimproved land held: "The capitalization of incomemethod of appraisal is used where income producing property is condemned and it becomes necessary to ascertainitsvalue. 

## * * 

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"However,in the instant casewe are not dealing with income producing property but unimproved acreage.

## * 

## * 

## *" That court went on to cite United Statesv. Whitehurst, 337 F.2d 765 (4thCir. 1964), where the court held: 

### " 

## * 

## * * the capitalization of incomemethod 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 allpossible, recognizing that itmay be necessary to use themethod in caseswhere 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 courtwas in error in overruling the Highway Commission'smotion to strikeBeck's testimony and a
new trialmust be granted. Because the casemust 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 

### e Justices 

# QI