Case Name: The People of Puerto Rico, etc., Plaintiff, Appellant and Appellee, v. La Sociedad McCormick, Alcaide & Co., S. en C., etc., Defendants, Appellees and Appellants; Floor Coverings Company of Puerto Rico, Intervener, Appellee and Appellant
Court: Supreme Court of Puerto Rico
Jurisdiction: Puerto Rico
Decision Date: 1956-02-29
Citations: 78 P.R. 895
Docket Number: No. 10633
Parties: The People of Puerto Rico, etc., Plaintiff, Appellant and Appellee, v. La Sociedad McCormick, Alcaide & Co., S. en C., etc., Defendants, Appellees and Appellants; Floor Coverings Company of Puerto Rico, Intervener, Appellee and Appellant.
Judges: 
Reporter: Puerto Rico Reports
Volume: 78
Pages: 895–939

Head Matter:
The People of Puerto Rico, etc., Plaintiff, Appellant and Appellee, v. La Sociedad McCormick, Alcaide & Co., S. en C., etc., Defendants, Appellees and Appellants; Floor Coverings Company of Puerto Rico, Intervener, Appellee and Appellant.
No. 10633.
Argued March 1, 1955.
Decided February 29, 1956.
J. B. Fernandez Badillo, Acting Attorney General, and Clemente Pérez Martínez for appellant-appellee. Luis Blanco Lugo and Carlos J. Torres for appellees-appellants Sociedad McCormick, Alcaide & Co., S. en C., and spouses Torres-Alcaide. Martín Travieso for intervener, appellee-appellant.

Opinion:
Mr. Chief Justice Snyder
delivered the opinion of the Court.
On April 19, 1950 the People of Puerto Rico filed a suit in the former Condemnation Court condemning the dominion title to a parcel of land and a building located thereon which belonged to Carlos J. Torres and his wife, hereinafter referred to as Torres. At that time the property was occupied by Floor Coverings Company of Puerto Rico, Inc., hereinafter referred to as Floor Coverings, under a five-year lease executed in 1946. The lease was not recorded in the Registry of Property and Floor Coverings was not joined as a defendant.
On August 7, 1950 Torres filed a motion for delivery to Mm of the sums deposited by the People — $1,528.52 and $17,747.50 — as compensation for the land and building, respectively. The People did not object to this motion. It was granted and the money was delivered to Torres on August 9, 1950.
On August 15, 1950, after receiving permission of the trial court to intervene, Floor Coverings filed an answer praying among other things for the market value of its lease and damages for moving its machinery, Torres, after having been notified with an amended answer which Floor Coverings filed on August 25, 1950, filed a motion of September 7, 1950 agreeing that the sums deposited by the People and withdrawn by Torres were the market value of the condemned land and building and consenting to a judgment to that effect.
Floor Coverings was permitted to file a. second amended answer on January 17, 1951. Torres was also allowed to file an amended answer on January 26, 1951 stating that he accepted that the sums withdrawn by him were the fair market value of the lot and building, but asking the court to hold that these sums belonged exclusively to him and did not include any damages to which Floor Coverings, the lessee, might be entitled.
After a trial on the merits, the lower court entered a judgment in favor of Floor Coverings against the People for $4,000 as compensation for the loss of the lease. The People, Torres, and Floor Coverings all appealed from this judgment.
1 — !
In its appeal the government argues that Torres rather than it is liable for any damages to which Floor Coverings, might be entitled for losing its lease. Briefly stated, the People's thesis is as follows: It condemned the dominion title, not the various interests of particular defendants. Torres conceded both in his pleadings and at the trial that the deposit constituted the market value of the property. As Torres withdrew the entire deposit,.the compensation, if' any, to Floor Coverings for losing its lease must be paid by Torres out of the deposit withdrawn by him.
The trial court was apparently of the view that not only was Torres entitled to the full value of the dominion title but that Floor Coverings was also entitled to an additional sum for the value of its lease. We cannot agree. "A condemnation suit is a proceeding in rem. It is directed not against particular defendants, but against the property itself. Although the exercise of the power of eminent domain extinguishes all previous rights in the property, the government does not condemn the interest therein of a particular defendant." People v. 632 Sq. Mis. of Land, 74 P.R.R. 897, 905. The award of the court stands in the place of the real property and the owners of each interest therein recover out of the award the same proportional interest they had in the condemned property. People v. Registrar, 64 P.R.R. 125, 133. The fact that the dominion title to condemned property is subject to a lease ordinarily has no effect on the compensation the government must pay for the dominion title. The value of the dominion title is determined and then the value of the leasehold is deducted therefrom. . . . "The value of the lessees' term for years was part of the value of the fee itself, and any separate allowance for them was ob vious duplication, so far as concerns the [government]." Judge Learned Hand in United States v. City of New York, 165 F.2d 526, 530 (C.A 2, 1948); United States v. 25.936 Acres of Land, etc., 153 F.2d 277, 279 (C.A. 3, 1946). To the extent the lease impairs the value of the dominion title, the lessee must be compensated out of the amount which represents the full value of the dominion title, and not in addition thereto. Silberman v. United States, 131 F.2d 715 (C.A.l, 1942); State, By and Through State Highway Com'n v. Burk, 265 P.2d 783, 800-2 (Ore., 1954); United States v. Honolulu Plantation Co., 182 F.2d 172 (C.A.9, 1950); MeadoWs v. United States, 144 F.2d 751 (C.A. 4, 1944); Eagle Lake Improvement Co. v. United States, 160 F.2d 182 (C.A. 5, 1947); Bogart v. United States, 169 F.2d 210, 213 (C.A. 10, 1948); United States v. 53¼ Acres of Land, 176 F.2d 255 (C.A. 2, 1949); Mayor, etc., of Baltimore v. Gamse & Bro., 104 Atl. 429 (Md., 1918); 1 Orgel, on Valuation Under Eminent Domain, 2nd ed., pp. 461-3, 483; 4 Nichols, on Eminent Domain, 3rd ed., pp. 162, 171-3; 2 id., pp. 36-9, 51; Annotation, 166 A.L.R. 1211.
"Provided the government makes a reasonable effort to join as defendants all persons who may have an interest in the condemned property, the government has no interest as such in the distribution of the compensation paid to the various claimants." People v. 632 Sq. Mts. of Land, supra, pp. 905-6. The People did not make ". . .a reasonable effort to join as defendants all persons who may have an interest in the condemned property. . ." in this case. Although the lease was unrecorded, the government knew that Floor Coverings was in possession of the property and was operating a rug factory therein. It therefore erred in not joining Floor Coverings as a defendant and in consenting to the withdrawal of the entire deposit by Torres. If for some reason Floor Coverings were unable to collect from Torres any damages to which it is entitled for losing its lease, the government would be liable therefor. But as between Torres and the government, Torres must pay such damages to Floor Coverings, provided the deposit constituted the market value of the dominion title.
The trial court concluded that the deposit covered only Torres' interest in the dominion title and not Floor Coverings' leasehold interest because the People permitted Torres to withdraw the entire deposit knowing that the lease existed. But the fact that the People — whether through carelessness or ignorance of the law as to the rights of a person with an unrecorded lease — improperly permitted Torres to withdraw the deposit, which represented the full value of the property, plays no role on the issues of (1) the value of the dominion title and (2) the portion thereof to which Floor Coverings was entitled by virtue of its lease.
Musanti v. State, 131 N.Y.S. 20 (N.Y., 1911), relied on by the trial court, is not in point. The one-page opinion of the New York Court of Claims in that case merely holds that if the condemnor improperly pays the full value to the owner of the dominion title, it must also pay the tenant for his interest therein. We agree with this holding. As we have pointed out, if Floor Coverings is unable to recover from Torres, the People will be liable to Floor Coverings therefor. But the issue here is different: Is the government liable to a lessee in addition to its liability to the owner of the dominion title for the full value thereof? For the reasons stated, we answer this question in the negative.
Section 2, par. 9 of the Organic Act, 48 U.S.C.A. § 737, 1 L.P.R.A., p. 54, which was in effect when this case arose, does not require a different result. It is true that its provision for just compensation where property is "taken or damaged" by the government of Puerto Rico is broader than the terms of the Fifth Amendment of the United States Constitution. People v. Soc. Agríc. Mario Mercado e Hijos, 72 P.R.R. 740, 746-7; People v. García, 66 P.R.R. 478, 484-6; 2 Nichols, supra, % 6.38 [3], pp. 296 et seq. But we know of no case or author expressing the view that a constitutional provision of compensation for damaging as well as taking-property requires the government to pay the owner of the dominion title its full value and in addition to pay a fixed-term lessee for his interest. Cf. U.S. v. General Motors Corp., 323 U.S. 373, 379-80, as quoted in footnote 23, infra.
There is nothing in our statutes which points to a contrary conclusion. We need not stop to determine the exact scope of the language of the third paragraph of § 282 of the 1930 Civil Code, as it was eliminated from § 282 by Act No. 300, Laws of Puerto Rico, 1946. The measure of compensation in condemnation cases was not expanded by Act No. 105, Laws of Puerto Rico, 1948, amending §• 4 of the Condemnation Act, 32 L.P.R.A, § 2905. Section 4, after stating that a condemnation proceeding shall be in rem, provides that "the complaint may be directed against the owners of the estate, the occupants thereof, and all other persons having a right or interest therein; or it may be directed against the property itself." This provision is in accordance with our view that persons with an interest in the land and with a right to compensation are entitled to notice and a hearing on their claim. People v. 632 Sq. Mts. of Land, supra. But Act No. 105 did not restore the third paragraph of § 282 of the 1930 Civil Code or modify § 282 in any way. Also, nothing contained in § 5(a) and (b) of the Condemnation Act as amended, 32 L.P.R.A. § 2907-8, leads to a different result.
Section 1461 of the Civil Code, 1930 ed., 31 L.P.R.A. § 4068, plays no role in this case insofar as the nature and amount of compensation to the lessee, is concerned. For reasons already stated, when the dominion title was condemned by the government in this case, the lessee became entitled to compensation for his leasehold interest even though the lease was not recorded in the Registry of Property. . .Section 1461 of the Civil Code enables the purchaser of real estate to terminate an unrecorded lease provided that the lessee ". . .be indemnified by the vehdor for the losses and damages he may 'have suffered." We fail to see how § 1461 can be read as increasing the obligations of the government toward a person with an unrecorded lease. To so hold would be in effect to grant more damages to such a lessee than to one whose lease was recorded. Such an anomalous result is not required under the former Organic Act, our statutes relating to compensation or § 1461. The nature and amount of the compensation to a lessee in a condemnation case does not depend on whether or not the lease was recorded; he receives the .same compensation in both cases.
At the trial Torres took exactly the position we have just stated. It is true that at one point in the case he adopted a different theory and moved for permission to file a second amended answer alleging that the sum deposited did not cover the entire value of the property. However, this, motion was never granted and Torres abandoned it. See footnote 2. Instead, he reverted to his original theory and stated repeatedly throughout the trial (1) that the money deposited and withdrawn by him was proper compensation for the entire value of the property, and (2) that as he had withdrawn the deposit, he rather than the government must compensate Floor Coverings for the damages, if any, due to. the early termination of its lease; but that in fact no such damages had been suffered by Floor Coverings.
All parties agree that Torres is solvent. In view of the position he took at the trial that the damages, if any, due-Floor Coverings by virtue of the lease must be paid by him, .the error of the government in failing to join Floor Coverings, and in consenting to the withdrawal of the entire deposit by Torres loses its significance. See text prior to footnote 4. The only other responsibility of the government was to deposit the just compensation for the entire property. People v. 632 Sq. Mts. of Land, supra. Condemnees have the burden of proof to show that the deposit was not sufficient. Torres: did not meet that burden. On the contrary, he conceded that the amount deposited represented the market value of the entire property. It follows that whatever compensation Floor Coverings may be awarded for losing its lease must come from Torres — who is solvent and who withdrew the deposit — rather than by way of an additional deposit therefor by the government. The trial court erred in requiring the People rather than Torres to pay such damages to Floor Coverings.
1-1 I-I
We turn to the question of the amount to which Floor Coverings is entitled because its lease was terminated by the condemnation proceéding. Generally speaking, where the entire balance of a leasehold is condemned, the lessee is entitled to "... the value of the use and occupancy of the leasehold for the remainder of the.. . term. . . less the agreed rent which the tenant would pay for such use and occupancy." United States v.. Petty Motor Co., 327 U.S. 372, 381; United States v. Westinghouse Co., 339 U.S. 261. Floor Coverings endeavoured to come within this rule. It presented Torres and José M. Canals, an expert, as witnesses on the issue of the market value of the lease. Torres fixed its value at $500 to $600 a month, whereas Canals set a figure of approximately $325 a month, in contrast with the contractual rate of $200 a month.
The trial court awarded $4,000 to Floor Coverings for the loss of its lease. Its findings on this point read as follows:
". • . that what Floor Coverings Co. of P.R., Inc., was paying for rent of the building or buildings was not solely $200.00 a month but $200.00 a month and $4,176.66 in improvements for a term of five years, in accordance with the provisions of the contract. That is, an average monthly prorrated expenditure of $269.60 per month. This Court gives credit to the testimony of Carlos J. Torres in his first appearance on the stand with respect to the rental value of the condemned property in the amount of $500.00 to $600.00 monthly. That, together with the testimony of the expert Canals and the lack of proof of the •other parties as to the market value of the property on which to base the value of the intervenor's lease, moves us to conclude that the lease of Floor Coverings Co. of P.R., Inc, had a value of four thousand dollars ($4,000.00). We also state that 'market value method' is not the applicable method to evaluate in this case the value of the damage suffered by the lessee in losing its lease, but rather that of capitalization of the rent."
It is not entirely clear how the trial court arrived at the figure of $4,000.00. It found that the lease had 17 months to run. And it may have allowed 17 X $230.40, or approximately $3,915, since the sum of $230.40 is the difference between (a) the figure of $500 a month supplied by Torres in his original testimony as the market value of the lease and (b) the rent of $200 a month plus $69.60 per month paid by Floor Coverings for improvements and prorated over the five-year period of the lease. Under Canals' testimony the recovery would be considerably less. The trial court was of course not required to follow blindly the testimony of the •expert witness. People v. Soc. Agríc. Mario Mercado e Hijos, supra, p. 762. But there must be some rational basis for the amount of its judgment. On this point we are confronted with several difficulties. First, as hereafter noted, Torres withdrew the foregoing figures in later testimony. See text prior to footnote 14. Second, we are unable to determine to what extent the trial court used "capitalization of rent" rather than "market value" to fix the value of the lease.
• Third, although the trial court awarded no moving costs as .such, see Part III, it apparently took such costs into consideration in fixing the value of the lease, quoting with approval from United States v. Petty Motor Co., 147 F.2d 912 (C.A.10, 1945). But the trial court overlooked the fact that this case had already been reversed by the Supreme Court. United States v. Petty Motor Co., supra. Fifth, none of the parties discuss in their briefs how the trial court arrived at the figure of $4,000. However, we put all these questions aside. We cannot sustain the conclusion of the trial court as to this item because another principle comes into play in this case.
If a ceiling price is validly fixed by law for commodities which are thereafter condemned by the government, the owner is not entitled as just compensation to more than the ceiling price, in the absence of special circumstances establishing hardships peculiarly applicable to the owner. United States v. Commodities Corp., 339 U.S. 121. The court points out at p. 124 that . . ceiling prices of commodities held for sale represented not only market value but in fact the only value that could be realized by most owners. Under these circumstances they cannot properly be ignored in deciding what is just compensation." The court added at p. 125: "We think the congressional purpose and the necessities of a wartime economy require that ceiling prices be accepted as the measure of just compensation, so far as that can be done consistently with the objectives of the Fifth Amendment."
We need not determine what effect ceiling prices for rent under our Reasonable Rents Act as amended — 17 L.P.R.A. § 181 et seq. — would have on the compensation to which the owner of the dominion title of condemned real property would be entitled. The issue here is the value not of dominion title but of a lease. Pursuant to the Reasonable Rents Act, a ceiling price of $200 a month was fixed for this lease. In the Commodities case the Supreme Court specifically rejected the theory that the owner is entitled, in addition to the ceiling price, to a "retention value"; i. e., an allowance for the price the owner could have obtained if he had been permitted to hold the commodity until after price restrictions had been removed. But even if the contrary were the rule and retention value were allowed, there is nothing in the record to indicate that the ceiling price of $200 a month might be modified for the few remaining months of the unexpired lease in this case. Apart from the question of the effect of a ceiling price for rent on the market value of dominion title to real property, see footnote 12, the same rule laid down in the Commodities case for price control of food and merchandise applies to the value of the unexpired portion of a lease of real property which is under rent control. In United States v. Delano Park Homes, supra, it was held that, in determining the value of condemned land, the trial court properly took into consideration that the condemnee could not build thereon at that time because he would have been unable to obtain a priority for building materials during the war emergency. Judge Learned Hand said in the Delano case at p. 474: . . when competent authority has fixed prices at a maximum, or has denied owners some specific use of their property, it is patently a disregard of its authority, either indirectly to allow a higher price on condemnation, or to allow the price to be figured in disregard of the limitation imposed." See United States v. Sanitary Dist., 149 F. 2d 951 (C.A. 7, 1945). Cf. People v. Franceschi, 72 P.R.R. 517,528-9. The value of the lease in this ease therefore cannot be fixed at a higher rate than the ceiling price which was the same amount —$200 a month — as the contractual rate in the lease. Accordingly, there was no damage to Floor Coverings when it was deprived of the unexpired portion of its lease.
As already noted ". . the ceiling price. . . should be accepted as the maximum measure of compensation unless [the owner] has sustained the burden of proving special conditions and hardships peculiarly applicable to it. Cf. Marion & Rye Valley R. Co. v. United States, 270 U.S. 280, 285." United States v. Commodities Corp., supra, p. 128. We find nothing in the record showing that Floor Coverings sustained the burden of proving such peculiar hardships as to except it from the general rule that the ceiling price is controlling. In fact, in its brief here Floor Coverings does not even discuss the effect of the ceiling price on its claim, despite the fact that this issue was presented and argued by Torres both in the trial court and in this Court.
The testimony of Torres does not show any exceptional hardship on Floor Coverings. He testified as a witness for the latter that the remaining portion of the lease was worth $500 or $600 a month. Later he was recalled to the stand by his own counsel and withdrew these figures because in his original testimony he failed to take into consideration (1) that a ceiling price of $200 a month for this lease had been fixed under the Reasonable Rents Act and (2) that the lease had only a short period to run. We therefore agree with the statement which the lower court made several times at the trial that the latter testimony by Torres "killed" his original testimony as to the market value of the lease. The fact that he — and apparently Canals — failed to take the-ceiling price into consideration deprived their testimony of any value on this question.
There was some testimony that it would be difficult and expensive for Floor Coverings to obtain another building reasonably accessible to workers trained in the manufacture of rugs. Apart from the fact that here again such testimony loses its validity because the witnesses ignored the possibility of rent control in estimating the price Floor Coverings would have to pay to rent another building for its factory, the problems of renting a satisfactory building for business purposes during a period of rent control were not unique to Floor Coverings. In addition, ordinarily the government is not required to pay for condemned property on the basis of "... a special value to the owner because of its adaptability to his needs . . ." United States v. Cors, 837 U.S. 325, 332; U.S. v. General Motors, supra p. 379; 4 Nichols, supra, pp. 12-13, 45. The government ".. . must pay only for what it takes and not for opportunities which the owner may lose as the result of the taking. . . ". Dolan, Consequential Damages in Federal Condemnation, 35 Va.L.Rev. 1059. The test is the value of the condemned property, not what it might cost the condemnee to replace it in connection with a business previously established therein. 4 Nichols, supra, pp. 415-6.
A different question would be presented if the government fixed a ceiling price for some commodity or for rent of a particular piece of real estate in order to condemn it at that price. United States v. Felin & Co., supra, p. 646, concurring opinion of three Justices; Braucher, supra, p. 1110; Note, Determination of Just Compensation in a Controlled Market, 17 U.Chi.L.Rev. 125, 126; United States v. Commodities, supra, p. 141, dissenting opinion. But that did not occur here. Since as we have seen ordinarily a lessee is entitled only to the amount by which the market value of a lease exceeds the agreed rent, Floor Coverings — which could not under the Reasonable Rents Act have transferred its lease at a rate higher than the contractual rental of $200 a month — is not entitled, except for the money it spent on improvements as presently noted, to any compensation for its lease.
The lease required Floor Coverings to reconstruct a barn to make it suitable for use as a rug factory in accordance with attached blueprints and specifications. Under the lease the landlord was to contribute $5,032.13 for the cost of these alterations, and any amount in excess thereof was to be paid by the lessee. This excess cost came to $4,176.66. In addition to paying the ceiling price of $200 a month as rent Floor Coverings was therefore required by the lease to make permanent improvements enhancing the value of the property which cost it $4,176.66. Ordinarily such improvements would be taken into consideration in compensating the lessee for the market value of the remaining period of his lease even where as here the permanent improvements would revert to the lessor on termination of the lease. Department of Public Works and Buildings v. Bohne, supra, 324; United States v. 425,031 Square Feet of Land, etc., supra, 800; Mayor etc., of Baltimore v. Gamse & Bro., 104 Atl. 429 (Md., 1918); Me Cormick, The Measure of Compensation in Eminent Domain, 17 Minn.L.Rev. 461, 473, footnote 36. But as we have seen Floor Coverings is not entitled to compensation for loss of its lease as such in view of the ceiling price of $200 a month as rent for the property. Under these peculiar circumstances, since Floor Coverings was deprived of the use of the rug factory for the remaining period of the lease at the ceiling price of $200 per month, it was entitled to receive, out of the sum fixed as the value of the dominion title, the proportionate part of the said $4,176.66 corresponding to the unexpired period of the lease. Otherwise there would be a windfall to Torres who would have been required to permit Floor Coverings to use the property as improved by the latter at the ceiling price of $200 a month for the remaining period of the lease if the property had not been condemned. Cf. Department of Public Works and Buildings v. Bohne, supra; United States v. 425,031 Square Feet of Land, etc., supra; Mayor, etc., of Baltimore v. Gamse & Bro., supra.
In discussing the foregoing item, Floor Coverings argues that it is entitled to $1,183.37. It arrives at this figure by dividing $4,176.66 — the sum it contributed toward the improvements — by 60 months, the life of the lease, obtaining thereby a monthly figure of $69.61. It then multiplies $69.61 by 17, in view of its theory that the remaining period of the lease was 17 months, giving it the figure of $1,183.37.
We accept the monthly figure of $69.61 But we cannot agree that Floor Coverings was entitled to that sum for 17 months. Floor Coverings argues (1) that the lease provided that the five-year period began to run when the improvements were finished, and (2) that since the improvements were finished on September 19, 1946 and the property was condemned on April 19, 1950, the unexpired portion of the lease was 17 months. The difficulty with this contention is that the lease provides that it was to begin to run when Floor Coverings started to reconstruct the building, with a proviso that the rent shall be $100 a month until the improve ments were completed and $200 a month thereafter. Under these terms of the lease Floor Coverings paid $100 a month as rent for two months, beginning, on May 7, 1946, and $200 a month thereafter. The five-year period therefore began to run on May 7, 1946. Floor Coverings was permitted by the government to remain in possession of the property and to operate its rug factory therein until the end of the first week of August, 1950. Consequently, it used the property for 4 years and 8 months, and the unexpired portion of the lease was 9 months. Accordingly, Floor Coverings was entitled to $69.61 x 9, or $626.49.
H b — < h-Í
Floor Coverings appealed from the judgment insofar as it failed to compensate Floor Coverings for (1) moving costs, dismounting its equipment, and remounting it in another building, and (2) the loss of business during the two weeks it took Floor Coverings to move its rug factory. We find no error in these rulings of the trial court.
Where the government condemns only part of the unexpired term of a lease, moving costs and other related items are taken into consideration in determining just compensation for the condemnee. U. S. v. General Motors Corp., supra. But where as here the dominion title — which includes the remaining portion of the lease — is taken, the lessee is not entitled to compensation for such moving costs or for the loss of business while he is moving. United States v. Westinghouse, supra; United States v. Petty Motor Co., supra. The reason for taking such items into consideration in the former case and rejecting them in the latter is as follows: "There is a fundamental difference between the taking of a part of a lease and the taking of the whole lease. That difference is that the lessee must return to the leasehold at the end of the Government's use or at least the responsibility for the period of the lease which is not taken rests upon the lessee. This was brought out in the General Motors decision. Because of that continuing obligation in all takings of temporary occupancy of leaseholds, the value of the rights of the lessee which are taken may be affected by evidence of the cost of temporary removal." United States v. Petty Motor Co., supra, pp. 379—80 (Italics ours).
In disallowing moving costs and loss of profits as com-pensable damages where an entire leasehold is taken, the court said in the Petty Motor case at pp. 377-9:
"The Constitution and the statutes do not define the meaning' of just compensation. But it has come to be recognized that just compensation is the value of the interest taken. This is not the value to the owner for his particular purposes or to the-condemnor for some special use but a so called 'market value.' It is recognized that an owner often receives less than the value of the property to him but experience has shown that the rule is reasonably satisfactory. Since 'market value' does not fluctuate with the needs of condemnor or condemnee but with general demand for the property, evidence of loss of profits, damages to good will, the expenses of relocation and other such consequential losses are refused in federal condemnation proceedings. Mitchell v. United States, 267 U.S. 341, 344; United States ex rel. T. V. A. v. Powelson, 319 U.S. 266, 281; Potomac Electric Power Co. v. United States, 66 App. D. C. 77, 85 F. 2d 243; Orgel, Valuation under Eminent Domain, chap. V. For the purposes of these cases, it is immaterial whether the Government actually took the leaseholds of the tenants in addition to taking the temporary use of the fee or only destroyed the tenants' right of occupancy. If any property is taken, compensation is required. Cf. United States v. Welch, 217 U. S. 333.
"There was a complete taking of the entire interest of the tenants in the property. It has been urged that to measure just compensation for the taking of a leasehold by its value on the market or by the difference between a fair rental as of the time of taking and the agreed rent, is unfair. It is said the unfairness comes from the fact that there is really no market for leaseholds; that their value is something peculiarly personal to the lessee. The same thing is true as to incidental and consequential damages to the owner of a fee. We think the sounder rule under the federal statutes is to treat the condemnation of all interests in a leasehold like the condemnation of all interests in the fee. In neither situation should evidence of the cost of removal or relocation be admitted. Such costs are apart from the value of the thing taken. They are personal to the lessee. The lessee ivould have to move at the end of his term unless the lease was renewed.[ ] The compensation for the value of his leasehold covers the loss from the premature termination except in the unusual situation where there is a higher cost for present relocation than for a future." (Italics ours.)
The provision in our Organic Act of compensation for property "taken or damaged" by the government of Puerto Rico is broader than the terms of the Fifth Amendment of the United States Constitution. See Part I. But even under our constitutional requirement there must be damage to the land itself or to property rights therein; interference with the business conducted on the land, loss of business during the moving period, moving expenses, and cost of reinstallation of equipment are not compensable. People v. Soc. Agríc. Mario Mercado e Hijos, supra, p. 748; Springfield Southwestern Ry. Co. v. Schweitzer, 158 S. W. 1058 (Mo. 1913); 2 Nichols, supra, pp. 348-9, citing Louisiana Highway Commission v. Boudreaux, 139 So. 521 (La., 1932); Annotation, 3 A.L.R. 2d 286, 312, 318-9; Developments in the Law — Damages, 61 Harv. L. Rev. 113, 178; United States v. General Motors Corp., supra. In the latter case the Supreme Court made it clear that ordinarily where as here the dominion title to the property is taken, such items as moving expenses, costs for reinstallation of equipment, and loss of business are not com-pensable even under a constitutional mandate like ours which requires compensation for property "taken or damaged". For the reasons stated in Part I, compensation is not required under our Civil Code and Condemnation Act for moving costs and loss of business. Although we allowed moving expenses under the circumstances involved in People v. Soc. Agríc. Mario Mercado e Hijos, supra, that case is distinguishable. To hold otherwise would be to require compensation for every person occupying condemned property — whether he be the owner of the dominion title or a lessee thereof — for his general moving expenses. Our constitutional requirement of compensation for property taken or damaged — although broader than the Federal provision which is confined to compensation for property taken — does not include such expenses.
IV
In his appeal Torres assigns as the only error the holding of the trial court that the lease was terminated on April 19, 1950 by the condemnation proceeding. The People condemned the land and building in which the rug factory was located but did not condemn the adjacent dwelling and lot which were also covered by the lease. Torres argues that after the condemnation Floor Coverings remained liable for either the entire amount of the rent — or at least the proportionate part corresponding to the dwelling — for the remaining period of the lease.
We need not determine whether we would hold that all —or only the proportionate — part of the rent need be paid where a lease remains in effect after dominion title to real property has been condemned. Cf. Annotations, 163 A.L.R. 679, 43 A.L.R. 1176; Note, Lease Frustration by Eminent Domain, 40 Ill.L.Rev. 558; McCormick, supra, 473, footnote 36; John Hancock Mut. Life Ins. Co. v. United States, 155 F.2d 977 (C.A. 1, 1946), cert. denied, 329 U.S. 774. We put this question aside as we agree with the trial court that in this case the lease did not remain in effect under our Civil Code after the main building and the land on which it was .located were condemned. When the purpose for which a lease was executed is destroyed by a condemnation proceeding, the lease is terminated and the lessee is no longer liable to the landlord for the rent. Section 1458 Civil Code, 1930 ed., 31 L.P.R.A. § 4065. See Note, supra, ;40 Ill.L.Rev. 558, 559-61, and cases cited; 31 Calif.L.Rev. 338 and 445; Annotation, 3 A.L.R.2cl 286, 298. The lease between Torres and Floor Coverings shows on its face that its principal, if not sole, purpose was to operate a rug factory in the barn which was to be reconstructed by Floor Coverings. The small dwelling which happened to be located there was merely incidental thereto. The lease contract was therefore frustrated by the action of the government in condemning the main building and the land on which it was located. It follows that Floor Coverings could not be held liable to Torres under the lease for either the entire rent or for any proportionate part thereof.
The remaining question arises from the fact that Torres collected "rent" at the rate of $200 a month from Floor Coverings for April, May, and June of 1950, despite the fact that the factory building and the land on which it was located belonged to the People from April 19, 1950. Torres concedes that the government is entitled to the major portion of this money for the use of its property. People v. Soc. Agríc. Mario Mercado e Hijos, supra; López v. District Court, 67 P.R.R. 163, 165-6. However, since the dwelling continued to belong to Torres, the latter is entitled to a reasonable amount — which we fix at $35 a month — for its use by Floor Coverings this period. Accordingly, we shall modify the judgment to require Torres to pay the People the sum of $385 for "rent" which was paid to Torres by Floor Coverings during the period when a reasonable sum for its use should have been paid to the government. Torres in turn is entitled to retain the remaining portion of the "rent" paid to him by Floor Coverings for part of April, May, and June of 1950 for the use of the dwelling at the rate of $35 a month.
The judgment of the former Condemnation Court will be modified (1) by eliminating the provision that the People of Puerto Rico shall pay Floor Coverings $4,000 for the loss of its lease, (2) by requiring Torres to pay Floor Coverings $626.49 for the loss of the said lease, and (3) by directing Torres to pay $385 to the People from the "rent" collected by Torres from Floor Coverings after title to the property was vested in the People.
Mr. Justice Negrón Fernández did not participate herein.
Torres had leased the property to McCormick, Alcaide & Co., S. en C., a sociedad owned and controlled by Torres. The sociedad in turn subleased it to Floor Coverings. However, in view of the identity of interest between Torres and the sociedad, we follow the lead of the parties and the trial court in characterizing Torres as the lessor and Floor Coverings as the lessee, for purposes of this case.
On January 31, 1951, a few days after the trial had begun,- Torres moved for permission to file a second amended answer. The motion recited that he had consented to a judgment fixing the sums deposited as the market value of the condemned property under the impression that these sums did not include any damages due to Floor Coverings. The proposed second amended answer alleged that "the total value" of the property was $29,680.75 and prayed that the People be ordered to deposit the additional sum of $10,405, which was exactly the sum claimed by Floor Coverings in its second amended answer. The trial court never granted Torres permission to file this proposed second amended answer. And at the trial Torres abandoned the theory advanced therein that any money due Floor Coverings must be paid by the People. On the contrary, although Torres contended that Floor Coverings had suffered no damages, he repeatedly conceded at the trial that if any money was due Floor Coverings, it must come out of the deposit withdrawn by Torres.
4 Nichols, supra, p. 163 asserts that "... in exceptional cases, where the aggregate value of the separate interests is in excess of the unencumbered fee value, such interests may be separately evaluated", citing Mayor, etc., of City of Baltimore v. Latrobe, 61 Atl. 203 (Md., 1905), and also referring to City of St. Louis v. Rossi, 64 S.W. 2d 600 (Mo., 1933). To the same effect, 1 Orgel, supra, pp. 461-3,470, et seq. But such cases involve peculiar facts. None of them are cases where as here we have an ordinary fixed-term lease from the owner of the dominion title. The only special circumstances here — the procedural snarl which arose because the People improperly failed to join the lessee and because Torres first espoused but finally retracted the theory that compensation for the lease must be awarded to Floor Coverings in addition to the compensation to Torres for the full value of the dominion title — could not affect the value of the interests taken from the respective parties. We therefore need not pass on the question of whether such an exceptional case could ever occur in this jurisdiction.
The complaint contains the following:
"Persons With An Interest Compensation
"a) Carlos J. Torres and his wife Estela Alcaide as owners of the parcel. $1, 528. 52
"b) Carlos J. Torres and his wife Estela Alcaide as owners of certain structures and improvements located on the parcel...$17,747.50
$19, 276. 02"
The government should have added Floor Coverings as a person with an interest in these sums. But the failure to do so does not change the fact that in substance the People, having condemned the dominion title, alleged that the latter was worth the amount deposited.
Exactly the same provision is found in § 9 of Article II of the Constitution of the Commonwealth of Puerto Rico: "Private property shall not be taken or damaged for public use except upon payment of just compensation and in the manner provided by law." I L.P.R.A. p. 181.
Section 282 of the Civil Code, 1930 ed., read:
"No person shall be deprived of his ownership, except it be by a competent authority and for a justified purpose of public utility, and after having been properly indemnified.
"If this requirement has not first been complied with, the district courts shall protect and, in proper cases, replace the owner in possession of the expropriated property.
"The indemnification shall comprise, not on the value of the thing whereof the owner is deprived, but also a compensation for any damages and injuries which may be caused him by the deprivation of property."
Section 282, as amended by Act No. 300 of 1946 — 31 L.P.R.A. § 1113 —now reads as follows:
"No person shall be deprived of his ownership except it be by a competent authority and for a justified purpose of public utility or social benefit, and upon payment of just compensation which shall be fixed in the manner provided by law."
Section 4, as amended by Act No. 105 of 1948, reads in part as follows:
"Said proceedings shall be in rem, and the plaintiff may include in the same complaint, if deemed advisable, one or more properties, whether or not belonging to the same owner; Provided, That when the whole of a estate to be condemned is made up by the grouping of two or more properties or parcels of lands which, due to their abutting each other, constitute, one single piece of property, whether or not belonging to the same owner, said property, the object of condemnation may, for all purposes of the proceedings, be described in the complaint as if it were one sole estate. The complaint may be directed against the owners of the estate, the occupants thereof, and all other persons having a right or interest therein; or it may be directed against the property itself. In this latter case, the •complaint shall recite, as far as it may be possible for the plaintiff to determine, the names of all persons who as owners, occupants, or holders •of any right or interest in the estate, must be served with notice of the proceedings, to the end of any right they may have to the compensation .fixed for the value of the condemned property, or to any damages that .may arise from the proceedings."
Section 1461 reads as follows:
"The purchaser of a leased estate has a right to terminate the lease :in force at the time of making the sale, unless the contrary is stipulated, •and the provisions of the Mortgage Law prevent.
"If the purchaser should make use of this right, the lessee may •demand that he be permitted to gather the fruits of the crop corresponding to the current agricultural year and that he be indemnified by the vendor .for the losses and damages he may have suffered."
In a condemnation case on the issue of compensation "...(1) the-defendant is in effect the plaintiff; (2) he must present his evidence first; and (8) he has the burden of proof as to value." People v. 632 Sq. Mts. of Land, supra, p. 911; People v. García, supra; Canino v. Court of Eminent Domain, 70 P.R.R. 141; U.S. ex rel. T.V.A. v. Powelson, 319 U.S. 266,, 273-4; Dolan, Present Day Court Practice in Condemnation Suits, 31 Va.L.Rev. 9, 17; 6 Nichols, supra, p. 198.
To the same effect, Department of Public Works and Buildings v. Bohne, 113, N.E. 2d 319, 324 (Ill., 1953); United States v. Certain Lands, etc., 183 F.2d 320, 321 (C.A. 3, 1949); United States v. 425,031 Square Feet of Land, etc., 187 F. 2d 798 (C.A. 3, 1951); United States v. Advertising Checking Bureau, 204 F. 2d 770 (C.A. 7, 1953); Annotation, 3 A.L.R. 2d 286, 290; 4 Nichols, supra, pp. 175-7.
We held in School Board of Carolina v. Saldaña et al., 14 P.R.R. 339, 359-64, that a lessee is entitled to compensation in a condemnation proceeding' for the loss of his lease. However, insofar as the measure of damages is concerned as described on p. 360 of the Saldaña case, we note that the latter case was decided prior to the amendment of § 282 of the Civil Code as set forth in footnote 6. See also American R.R. Co. of P.R. v. Quiñones, 15 P.R.R. 1; Veve v. Lloreda, District Judge, 17 P.R.R. 536.
But see the text prior to footnote 18 as to the remaining period of the lease.
"prjce an¿ rent controls restrict the owners' freedom to deal with his property, but the losses that may occur because of such restriction are not compensable because there has been no 'taking'." Note, Recent Constitutional Developments on Eminent Domain, 4 Vand.L.Rev. 673, citing Bowles v. Willingham, 321 U.S. 503, 517 (rent control); Yakkus v. United States, 321 U.S. 414 (price control). See United States v. Felin & Co., 334 U.S. 624; Gladding, McBean & Co. v. United States, 101 Fed.Supp. 358 (Ct. Cl., 1951); Safeway Stores v. United States, 93 F.Supp. 900 (Ct.Cl., 1950) cert. denied 341 U.S. 953; Oro Fina Consolidated Mines v. United States, 92 F.Supp. 1016 (Ct.Cl. 1950); Braucher, Requisition at a Ceiling Price, 64 Harv.L.Rev. 1103; Note, OPA Ceiling Prices as Evidence of Value, 60 Harv.L.Rev. 132; 65 Harv. L.Rev. 1061; Frank, The United States Supreme Court: 19U9-50, 18 U.Chi.L.Rev. 1, 14-5; Note, Marcus, The Taking and Destruction of Property under a Defense and War Program, 27 Cornell L.Q. 476, 528; Note, Determination of Just Compensation in a Controlled Market, 17 U.Chi.L.Rev. 125; 1 Orgel, supra, 2d ed., pp. 122-32; 4 Nichols, supra, pp. 61-3; id., 1954 Cum.Supp. p. 56.
Since the sales price of dominion title to real property is not controlled by our Reasonable Rents Act, the ceiling price affects to some extent, but does not control, the market value of the dominion title. See United States v. Delano Park Homes, 146 F.2d 473 (C.A. 2, 1944); United States v. 49,375 Square Feet of Land, etc., 92 F.Supp. 384, 393 (Dist.Ct., N.Y., 1950).
A long unexpired lease has a greater market value than a comparatively short lease. United States v. Certain Lands, etc., supra.
In view of these statements by the trial court, it is strange as heretofore noted to find the trial court basing its finding of fact as to the -value of the lease on this testimony of Torres.
Floor Coverings might have conceivably argued that a shorter period than 60 months — i.e., from the termination of the improvements until the end of the lease — should be used as the divisor, which would give it a monthly figure slightly higher than $69.61. But Floor Coverings does not make this argument. And the record is silent as to the exact date when Floor Coverings began to enjoy all or part of the improvements. We therefore follow Floor Coverings in using the period of 60 months in amortizing Floor Coverings' contribution to the improvements.
Even if Floor Coverings were correct in contending that the lease provided that the five years began to run on the date the improvements were completed, the record is not clear as to when that occurred. Floor Coverings offered testimony fixing September 19, 1946. But Floor Coverings began to pay rent at the rate of $200 a month on July 7, 1946. The lease provided that the rent shall be $100 a month until the improvements áre completed and $200 a month thereafter. See footnote 17. Quaere, even under Floor Coverings' theory whether the five years began to run on July 7, 1946 rather than on September 19, 1946.
The second paragraph of the lease, executed on April 30, 1946, provides that it shall run "... for the term of five years to begin at the date stated on paragraph twenty-fifth."
The twenty-fifth paragraph reads as follows: "From the day the sub-lessee shall start the alteration and reconstruction of the barn and until the date of its termination, the monthly rental to be paid will be One Hundred Dollars ($100.00); upon termination of the alterations the rental will be Two Hundred Dollars ($200.00) per month as above stipulated.
"Being it understood that the work to be undertaken in order to start the alteration shall start not later than thirty days from the signing of this deed."
For the reasons stated in the opinion, we are unable to agree with the finding of the trial court that the improvements should be calculated on the basis of 17 months. In any event, the trial court did not make a separate award for this item. Instead, as we have seen, the trial court added $69.60 per month to the rent of $200 a month and then, comparing -the figure of $269.60 per month to the alleged market value of $500 a month, awarded Floor Coverings $4,000 for the loss of the lease. See text preceding footnote 10a and footnote 19.
Floor Coverings also assigned as an error the failure of the trial court to allow it a proportionate part of the cost of the permanent improvements made by it, corresponding to the unexpired period of the lease. We passed on this point in Part II. See footnote 18.
Even where such items as moving costs are taken into consideration, because only a part of the unexpired term of the lease is condemned, they are not allowed as independent items but only as elements to be considered in arriving at the market value of the lease for the period it is taken by the government. United States v. General Motors Corp., supra, p. 383; United States v. Westinghouse, supra, pp. 263-4.
The trial court, in refusing to grant moving costs to the lessee in our case, pointed out that such costs "... are the same which normally and inevitably it would have had at the termination of the contract."
To the same effect, 18 U. Chi. L. Rev. 349, 352; 4 Nichols, supra, p. 272; McCormick, supra, 476-8; Minsk v. Fulton County, 64 S. E. 2d 336 (Ga., 1951); United States v. 40,379 Square Feet of Land, etc., 58 F. Supp. 246 (Dist. Ct., Mass., 1944); Mayor, etc., of Baltimore v. Gamse & Bro., supra.
In the General Motors Corp. case, the court said at pp. 379-80: "The sovereign ordinarily takes the fee. The rule in such a case is that compensation for that interest does not include future loss of profits, the expense of moving removable fixtures and personal property from the premises, the loss of good-will which inheres in the location of the land, or other like consequential losses which would ensue the sale of the property to someone other than the sovereign. No doubt all these elements would be considered by an owner in determining whether, and at what price, to sell. No doubt, therefore, if the owner is to be made whole for the loss consequent on the sovereign's seizure of his property, these elements should properly be considered. But the courts have generally held that they are not to be reckoned as part of the compensation for the fee taken by the Government. We are not to be taken as departing from the rule they have laid down, which we think sound. Even where state constitutions command that compensation be made for property 'taken or damage' for public use, as many do, it has generally been held that that which is taken or damaged is the group of rights which the so-called owner exercises in his dominion of the physical thing, and that damage to those rights of ownership does not include losses to his business or other consequential damage.'' (Italics ours.) The court cites Orgel, supra, 1st ed., Chap. V, p. 253 in support of this statement.
In the Mario Mercado ease we said that (p. 747) ". . .when the improvement is attached to the condemned realty, compensation must be granted to cover the costs of removal, under the theory of a partial taking." (Italic ours.) In that case we held that certain machinery formed part of the realty because (pp. 747-8) ".. .the machinery could not be removed from the condemned building unless the latter were torn down...". Floor Covering's does not argue in its brief in this Court that it is entitled to moving costs because its machinery was attached to the realty. This portion of the Mario Mercado case is therefore not applicable here. Cf. United States v. Becktold Co., 129 F.2d 473 (C.A. 8, 1942); Potomac Electric Power Co. v. United States, 85 F.2d 243 (C.A., D.C., 1936); In Re Gratiot Ave., City of Detroit, 293 N.W. 755 (Mich., 1940); Annotations, 156 A.L.R. 397, 34 A.L.R. 1523.
We leave open the question of the liability of the lessee for rent — or a proportionate part thereof — where, contrary to the facts of this case, the condemnation of part of the leased property does not frustrate the principal purpose of the lease.
The testimony was conflicting as to this item. The estimates ranged from $15 to $50 a month. The trial court did not resolve this conflict. Ordinarily we would send the case back to the trial court for a finding- of fact on this question. People v. Soc. Agrie. Mario Mercado e Hijos, supra, p. 755. But in view of the desirability of terminating this prolonged litigation, we have weighed the evidence on this point and have fixed the proportionate value of the dwelling during the period in question at $35 a month.
The government is entitled to the sum of f 165 a month — the sum we have allocated to the condemned building and lot, see footnote 26 — for the 2-% months from April 19 to June 30, 1950, or $385. We note that the government makes no claim against Floor Coverings for use of the property from June 30, 1950 until the end of the first week of August of 1950, the date Floor Coverings terminated its operation of the rug factory.
As noted in Part I, if for any reason Floor Coverings is unable to collect the sum of $626.49 from Torres, the People will be liable to Floor Coverings therefor.