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while persons like Mrs. Riley would benefit from being freed of the hardships of deficiency judgments, they would not necessarily receive any actual monetary compensation for their investment, or for their efforts over the years to purchase homes.

It is suggested that more equal treatment and greater equity might be achieved, without distortion of the market value concept of compensation, if public agencies were authorized to purchase or condemn notes or other evidences of debt, as well as the real property-each at its market value. The Government would pay the full fee value of the property. Noteholders would receive the full market value of their notes, and could proceed to purchase other notes in the market. The purchase or condemnation of the notes by the Government would terminate the right of the lenders to claim continued interest. And the difference between the market value of the property and

the market value of the notes would be paid to the property owner. This may be illustrated as follows:

Case I

[blocks in formation]

Present law

Noteholders. First trust note is paid in full including interest, second trust note is paid substantially in full, and the second and third trust noteholders are entitled to sue the property owner for deficiency judgments.

Property owner.- Property owner receives no cash payment and he is in debt for $3,000, plus interest on the notes to the dates of payment.

Effect of suggestion.-All noteholders would receive "just compensation"; i.e., the fair market value of their notes, or a total of $7,500, homeowner would be free from debt, and he would receive $500 for his equity.

Case II

Fair market value of real property at time of


Outstanding debt on notes secured by Fair market

trusts or mortgages at time property value of notes acquired

at time property

acquired Mortgage




$3, 100


$3,100 1,600 1, 100 5,800



property should be valued as a whole, for the purpose of determining the compensation to be paid by the condemnor. This is commonly known as the unit rule or the unit method of valuation. The award is then distributed among the various persons interested in the property, in which proceedings the condemnor is not concerned (United States v. Dunnington, 146 U.S. 338, 351 (1892); Bogart v. United States, 169 F. 2d 210, 213 (C.A. 10, 1948); United States v. 26,699 Acres of Land in Long and McIntosh Counties, Ga., 174 F. 2d 367, 368 (C.A. 5, 1949); Phillips v. United States, 243 F. 2d'1 (C.A. 9, 1957)).

Generally speaking, the distribution to each of the parties of their share of the value of the whole property acquired by the United States is made according to State law. Thus, the right of the lessee to obtain compensation for fixtures or other improvements placed upon the real property or “real estate” taken varies, depending upon the terms of the lease, common-law principles, or State statutes (United States ex rel. T.V.A. v. Powelson, 319 U.S. 266, 279 (1943); United States v. Certain Property, Etc., 306 F. 2d 439 (C.A. 2, 1962); note, 3 A.L.R. 2d 286).

b. The railroad lessee problem The railroad lessee or permittee problem is one of the more disturbing problems arising out of the acquisition of railroad rights-of-way by relocation agreements between Federal agencies and the railroad companies. These agreements may result in noncompensable losses to owners of structures and other improvements constructed on the rights-of-way under leases, licenses, or permits from the railroad. This problem has arisen on numerous occasions in dam and reservoir projects constructed by the U.S. Army Engineers.

This problem has been the subject of a number of congressional enactments in the nature of private relief bills. In view of the interest which has been shown in this problem the staff prepared a questionnaire for the U.S. Army Engineers. The completed questionnaire will be found in appendix G, and it includes a list of enactments by Congress on this subject and other pertinent data, some of which is summarized herein.

In acquiring these rights-of-way the Army enters into a relocation contract with the railroad. The contract provides that the Army will relocate the rail lines and appurtenances and the railroad will convey the old right-of-way and appurtenances to the United States. The Army generally requires the railroad to terminate the leases and have the lessees remove their improvements. If this is not accomplished prior to acquisition by the Government, the Government becomes the landlord and gives the tenant appropriate notice as provided by the lease, permit, or license.

As a general rule such leases, licenses, and permits are for indefinite periods, and may be terminated on 30 days notice by either party. Generally they provide for the removal of the improvements by or at the cost of the lessee, licensee, or the permittee. These improvements frequently are substantial, and include structures such as grain elevators, oil and gasoline storage facilities, and others. As stated by a representative of the Wabash Railroad the leases for all practical purposes continue in effect indefinitely. See hearings before Senate Committee on Public Works on S. 931, 88th Congress, 1st session, pages 6-7. On these same pages it was shown that one concern, the Farmers Grain Co., Inc., obtained a loan from the Small Business Administration in the amount of $250,000, secured in part by a mortgage on buildings and other structures located on the right-of-way of the Wabash Railroad.

Structures and buildings owned by railroad lessees, licensees and permittees are bought and sold in the market.

Lessees, licensees, and permittees on railroad rights-of-way are eligible for reimbursement of moving expenses, and related costs even though they may not have compensable interests in real estate. But relocation payments are not authorized for moving structures and improvements unless they are readily demountable or movable type buildings or trailers. Payments are not authorized for improvements that could ordinarily be classified a real property.

When Congress has provided relief such as contained in the act of July 14, 1960, 74 Stat. 480,502—

The Secretary of the Army is authorized and directed to pay to any bona fide lessee or permittee owning improvements, which are or which were situated on a railroad right-of-way, the fair value of any such improvements, which have been or will be rendered inoperative or be otherwise adversely affected by the construction of the Tuttle Creek Reservoir project on the Blue River, Kans., as determined by the Secretary, or by the U.S. District Court for the District of Kansas on which is

conferred jurisdiction for this purposethe "fair value” of the improvements and structures has been determined with heavy reliance upon the cost of reproduction less depreciation.

The views of the Department of the Army on this subject are contained in a letter dated June 21, 1963, to Hon. Charles A. Buckley, chairman, Committee on Public Works, House of Representatives, with respect to H.R. 1136, 88th Congress, a bill for the relief of certain railroad lessees in the Red Rock Reservoir on the Des Moines River, Iowa. The Army stated:

In the acquisition of property by the Federal Government, the essential guidelines concerning entitlement to payment have been established as a result of court interpretation of the guarantee of just compensation contained in the Fifth Amendment to the Constitution of the United States. Under these determinations it has been held that "tenants at will," or licensees under revocable licenses, do not possess a compensable property interest. In connection with similar situations previously encountered by this Department at other projects, the Comptroller General pointed out that the Government could and should terminate the leases upon succeeding to the rights of the railroad companies. (See Comptroller General Decisions B-95443, Aug. 4, 1950, and B-104527, Aug. 15, 1951). Because of the limited rights of occupancy the removal of the tenant-owned improvements on the railroad's rights-of-way at Red Rock Reservoir are among the consequential damages for which no compensation is required.

The Department of the Army is aware that "just compensation determined in accordance with case law established by the courts," does not always fully compensate owners and tenants for all of their losses. However, these consequences are found in all governmental acquisitions and are not peculiar to the Red Rock project or to any single group of projects.

It is likewise well established that unless there is a "taking," the Government is not liable. Here the property rights of the lessees involved in this bill are not being taken by the Government. The obligation of the lessees to remove their structures was created by a previous voluntary agreement between the parties; the Government here is merely succeeding to the rights of the railroad company pursuant to these leases. Had the railway company disposed of its land by sale to a private party, there can be no question but that the purchaser could compel the lessees to remove their structures without incurring any obligation to compensate the lessees for the loss thereof. Thus there appears no legal or equitable basis for compensating these lessees merely by reason that the

purchaser is the United States. The Army's view on the railroad lessee problem set forth in the three preceding paragraphs raises several important issues.

In view of the ruling in United States v. Petty Motor Co., 327 U.S. 372, 380 (1946), previously quoted herein, it is to be doubted that it is the rule in all States that tenants at will do not have compensable interests in real property. The Comptroller General's opinions previously referred to herein cannot be regarded as going beyond the general rules of landlord and tenant law under the facts presented to him. The Comptroller General in these decisions declined to comment upon the application of the law of eminent domain to the factual situations presented to him.

Also, it would seem that in view of the broad power which has been delegated to the executive agencies for the acquisition of property, the method and means of acquiring real property or “real estate” are presently solely within the discretion of the executive agency clothed with that authority.

In any event, however, the acquisition by condemnation of all right, title, and interest in the railroad right-of-way would not automatically solve all the problems of the railroad lessee. First, the relocation of the railroad rails and appurtenances invariably would still be settled separately after condemnation proceedings are instituted because of the great difficulty in evaluating such property. Second, as has been previously shown with respect to the settlement with the owner of one interest or the principal owner, the lessees, and the court as well, would be faced with a determination of the value of their legal rights Under the language of the Petty Motor Co. case, supra; Messer v. United States, 157 F.2d 793 (C.X. 5, 1946); and Southern California Fisherman's Ass'n. v. United States, 174 F. 2d 739 (C.A. 9, 1949), the duty of the lessee under the terms of the lease to remove the improvements would seem to present an insurmountable problem. Despite the fact that leases seem to continue indefinitely, and are bought and sold in the market, the likelihood is that the lessee's compensation would be

limited to the slight value, if any, which can be found in his right of occupancy for the remaining 30 days of his term, plus the removal or salvage value of his buildings and structures.

Thus, if lessees are to be assured of compensation for their buildings and structures, without special acts of Congress, general legislation must be provided. 3. Improvements and fixtures-Conflicts in Federal law

There is no uniform rule in Federal eminent domain law as to whether certain types of improvements and fixtures constitute realty or personalty, when the Government acquires "real estate." As a general rule, the Government acquires only real estate, which may be the full fee title or some lesser interest in real property. Since the Fifth Amendment requires payment only for the property taken, there are many occasions which require a determination as to what is realty and what is personalty. If it is realty, its value must be considered in determining just compensation. If an improvement or fixture is personalty, its value may not be considered in determining just compensation for the “real estate.” The owner must move it at his own expense and assume any loss in its value, unless there is a statute authorizing payment for such expenses and losses.

As many authorities recognize, there is a wide divergence in the law of the various States relating to improvements and fixtures. This may be attributed to judicial decisions interpreting and expanding the common law, to broad statutory enactments which make sweeping changes in common law rules, or to decisions founded on provisions of State constitutions requiring compensation for taking and damage” in contrast to the “taking” provision of the Fifth Amendment and the constitutions of many other States (2 Nicholas, Eminent Domain (3d ed. 1950), sec. 5.81 (1), p. 207; 18 American Jurisprudence, Eminent Domain, sec. 254, p. 893, et seq.; note, Eminent Domain—Lessees' Damages, 3 A.L.R. 2d, 286, 302; Sackman, Fixtures in Condemnation Concepts New and old' (1964); Institute on Eminent Domain, Southwestern Legal Foundation).

Before discussing the conflicting decisions in the Federal courts, reference will be made to some aspects of the law of fixtures and changed conditions affecting such law. As one eminent authority has observed :

Modern society has destroyed the ancient simplicities of land use and has raised new problems as to the line of demarcation between “realty” and “personalty.”. Land use has become increasingly dependent upon supplementing structures, tools, and machinery. The more complex organization of society, and of the doing of work, and of the procuring of needed capital, has multiplied the participants in the use of land and has made divisions of ownership into lessor and lessee, possessor and future interest owner, borrower and lender, conditional vendor and vendee, chattel mortgagor and mortgagee, more frequently important. The function of the law of fixtures is to locate in the galaxy of participants, the benefit of the structures, tools, and machinery which have made possible desired utilization of land (5 Powell on Real Property Fixtures, sec. 651, p. 47).

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