

                                                             11th
Court of Appeals
                                                                  Eastland,
Texas
                                                                        Opinion
 
Duer Wagner & Co. et
al[1]
Appellants
Vs.                   No. 11-00-00276-CV -- Appeal
from Nolan County
City of Sweetwater
Appellee
 
This is an
appeal from a condemnation proceeding wherein the only issue in the trial court
was the value of the property taken by eminent domain.  The parties waived a jury trial, and the
trial court found that the land had a total value of $556,110.  Duer Wagner appeals.  We reverse and remand.  
Duer
Wagner owned an undivided 39.232955 percent of the 1,798.4 acres that were
condemned by the City of Sweetwater. 
The City condemned the property in order to obtain water from the
underlying aquifer as an additional, municipal water supply source.  For many years prior to the condemnation,
the City had purchased water from the owners of that property.  After Duer Wagner purchased the property,
the price charged for water increased dramatically.  The City ultimately terminated its contract to purchase water
from Duer Wagner.  Subsequently, unable
to agree upon a purchase price for the property in question, the City brought
condemnation proceedings.  Pursuant to
TEX.R.CIV.P. 11, the parties entered into an agreement regarding the propriety
of the condemnation and the ownership of the property; they stipulated that the
only issue to be tried was the value of the property condemned.  




Compensation
for real property taken by eminent domain is measured by the fair market value
of the land at the time of the taking. 
TEX. PROP. CODE ANN. ' 21.042(b) (Vernon Supp. 2003); Exxon Pipeline Company v. Zwahr, 88
S.W.3d 623, 627 (Tex.2002); City of Harlingen v. Estate of Sharboneau, 48
S.W.3d 177, 182 (Tex.2001).  Thus, the
question arises as to how to measure the market value of the property.  The Sharboneau court set forth the
long-recognized definition of market value and the three traditional approaches
to determining that value:  
Market
value is Athe price the property will bring when
offered for sale by one who desires to sell, but is not obliged to sell, and is
brought  by one who desires to buy, but
is under no necessity of buying.@  The three traditional
approaches to determining market value are the comparable sales method, the
cost method, and the income method. 
(Citations omitted) 
 
City of Harlingen v.
Estate of Sharboneau, supra at 182; see Religious of the Sacred Heart of Texas
v. City of Houston, 836 S.W.2d 606, 615-16 (Tex.1992).  Under the comparable sales method, which is
the favored approach, data for voluntary sales of similar property is gathered
and then adjusted based upon the differences in the properties.  If insufficient comparable sales figures
exist or if the comparable sales method is otherwise inadequate as a measure of
fair market value, the cost approach or the income approach may be
appropriate.  City of Harlingen v.
Estate of Sharboneau, supra at 183.  At
issue in the present case was the use of the income approach.  The income approach is deemed appropriate
when the property would, in the open market, be priced according to the income
that it already generates.  City of
Harlingen v. Estate of Sharboneau, supra at 183; see Coastal Industrial Water
Authority v. Trinity Portland Cement Division, General Portland Cement Company,
523 S.W.2d 462, 466-71 (Tex.Civ.App. - Houston [1st Dist.] 1975, writ ref=d n.r.e.); Brazos River Conservation and
Reclamation Dist. v. Costello, 169 S.W.2d 977, 987-89 (Tex.Civ.App. - Eastland
1943, writ ref=d w.o.m.). 
No matter which of the three methods is used, Athe goal of the inquiry is always to find the
fair market value of the condemned property...an amount that a willing buyer
would actually pay to a willing seller.@  City of Harlingen v. Estate of
Sharboneau, supra at 183.  




The record
in this case shows that, on the day that the jury trial was set to commence,
the trial court granted the City=s motion in limine regarding the use of the income approach to
valuation.  The next day, the trial
court entered an order excluding Duer Wagner=s expert witnesses because their opinions were admittedly based upon
the income approach.  In its order, the
trial court ruled that the income approach was invalid as a matter of law.  Based upon the trial court=s determination, Duer Wagner=s attorneys decided to withdraw their request
for a jury trial (rather than wasting the jury=s time) and to preserve the issue for appeal by presenting the
testimony of their expert witnesses in Abills of exceptions.@  Duer Wagner=s attorneys called their valuation experts to
the stand to make Abills
of exceptions@ or offers of proof regarding their opinion
as to the value of the property based upon the income approach.  The trial court refused the tender of each
of Duer Wagner=s bills of exceptions.  The City then called its witnesses to
testify regarding the value of the condemned property.  After closing arguments, the trial court
took the case under advisement. 
Subsequently, judgment was rendered and findings of fact were made.  
In one of
its findings of fact, the trial court found: 

There
was not sufficient evidence
that there was a market in the area of the condemnation for water at the prices
or in the quantities or for the projected term used by [Duer Wagner=s] expert witnesses to project the value
of the property based on its income, i.e., the use of the income approach to
value. 
                        After hearing all the evidence, the court
concluded that the evidence introduced by all parties concerning the income
approach to value was admissible in evidence, but it further found that the
evidence so admitted lacked reliability. 
(Emphasis added)  
 
In its conclusions of
law, the trial court stated:  
[T]he income approach to determine value may
or may not be proper in determining the value of ranch/farm land such as the
property in question....Assuming the income approach to be proper and
appropriate, which the Court has done for the purpose of this conclusion,
the fair market value of the property in question, based on a preponderance of
the credible evidence in the case, should be determined by comparable sales in
the area....The Court determined that it would fully consider testimony
introduced by the parties regarding the income approach to value of [Duer
Wagner=s] experts, but finds that such experts= analysis failed to consider actual sales from the water field or
anywhere else in the area and failed to consider in a meaningful way actual
expenses and is therefore so speculative as to cause it to lack credibility....Although
the Court took into consideration the testimony concerning the income approach
to value, it found that the results of that approach when using sporadic
sales and varying quantities of water were speculative. (Emphasis added)
 
The trial
court erred by excluding as a matter of law any testimony using the income
approach to valuation and then considering such excluded Aevidence@ when reaching its findings of fact and conclusions of law.  Thompson v. Johnson, 51 S.W. 23, 24
(Tex.1898).  There was no evidence upon
which to base the trial court=s findings and conclusions with respect to the income approach to
valuation.  By the exclusion of the
offers of proof with respect to the income approach, Duer Wagner was left with
nothing but tendered bills of exceptions and an issue preserved for appeal.  The trial court erred by considering the
excluded testimony and by basing its findings and conclusions upon such
non-evidence.  Duer Wagner need not have
and, indeed, may not have put forth all of their proof in their bills.  Consequently, we must reverse the judgment
of the trial court and remand the cause for a new trial.  Duer Wagner=s second issue is sustained insofar as it relates to the trial court=s erroneous injection into evidence of the
excluded testimony after the conclusion of the trial.  The remaining issues need not be addressed.  TEX.R.APP.P. 47.1.  
The
judgment of the trial court is reversed, and the cause is remanded to the trial
court for further proceedings.  
 
W. G.
ARNOT, III
CHIEF
JUSTICE 
 
June 18, 2003
Panel consists of: Arnot, C.J., and
Wright, J., and McCall, J. 




[1]Appellants, referred to as ADuer Wagner@ in
this opinion, are Duer Wagner & Co.; Duer Wagner, Jr.; Duer Wagner, III;
Bryan C. Wagner; James D. Finely; Trade Exploration Corp.; Junia F. Stoddard;
W. E. Leroux Trust; Dennis D. Corkran; John David Andrews; Jacque Oil &
Gas; H. E. Patterson; Headington Oil Co.; R. J. Sullivan Trust; and Unit
Petroleum.  


