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Condemnation Law - Constitutional Limitation on the Power of Eminent Domain

10.12.2004

STATUTORY REFERENCES
Chapter 40A of the North Carolina General Statutes
Chapter 136 of the North Carolina General Statutes
OTHER REFERENCES
Nichols, The Law of Eminent Domain
SOURCE FOR FORMS
Loeb, Jr., Ben F., Eminent Domain Procedure for North Carolina Local Governments (available through the Institute of Government, The University of North Carolina at Chapel Hill)

CONSTITUTIONAL LIMITATION ON THE POWER OF EMINENT DOMAIN

Neither the United States nor the North Carolina Constitution authorizes the taking of private property. Such right is an inherent power of government. The Fifth Amendment to the United States Constitution was adopted to limit the government's sovereign right of eminent domain by prohibiting the taking of private property without just compensation.

The North Carolina Constitution, Article I §19, as interpreted by the courts of this State, contains a similar limitation upon the sovereign's right to take property without just compensation.

TWO CONSTITUTIONAL REQUIREMENTS

Under the Constitutional provisions cited above, and the case law interpreting them, there are two Constitutional limitations on the exercise of the power of eminent domain:

  • The taking of private property must be for a public use or purpose
  • Just compensation must be paid to the owner of the property taken or damaged.

PUBLIC USE

The power of eminent domain, as an attribute of the sovereignty, is vested exclusively within the legislature which may authorize the taking of property. Accordingly, the power of eminent domain is dependent upon statutory authorization and statutes granting such power must be strictly construed. State v. Core Banks Club Properties, 275 N.C. 328, 167 S.E.2d 385 (1969).

The legislature grants the right of eminent domain to a public agency or to a quasi-public private corporation because the public interest requires that on occasion private property be taken for the public use or benefit designated within the statute and in the manner prescribed by statute. Raleigh, Charlotte & Southern RR v. Mecklenburg Mtg. Co., 166 N.C. 168, 82 S.E. 5 (1914).

The issue of what constitutes a public use for which private property may be subjected to the power of eminent domain has expanded as government's role in society has increased. State Highway Comm. v. Batts, 265 N.C. 346, 144 S.E.2d 126 (1965). It is now the prevailing view that public benefit, not necessarily public use is sufficient to authorize a taking. The issue of what is a public use, purpose or benefit is a judicial question to be determined by the court as a matter of law. This determination is reversible upon appeal.

EXTENT OF TAKING

If the condemnor has met its burden of showing that the purpose of the taking of private property is for a public use, the rights or interests in the property to be acquired by the condemnor are primarily left to the discretion of the condemnor, and do not become subject to judicial inquiry except on the allegation of fact tending to show bad faith or an oppressive or manifest abuse of discretion on the part of the condemnor. U.S. v. 2606.84 acres, 432 F.2d 1286 (5th Cir. 1970); Redevelopment Commission v. Grimes, 277 N.C. 634, 178 S.E.2d 345 (1971). For example, a power company's choice of a route for its electric transmission line across private property will not be interfered with when there is neither allegation nor evidence that the company acted either arbitrarily or capriciously or in a manner constituting an abuse of discretion in selection of the route. Duke Power Co. v. Ribet, 25 N.C. App. 87, 212 S.E.2d 187 (1975).

In a recent case, however, the North Carolina Court of Appeals held that the condemnor had exceeded its authority to condemn property when it condemned a fee interest in the property when the court determined that an easement in the property was sufficient. The City of Charlotte v. J. Ernest Cook and wife, Ruby H. Cook, and Crescent Electric Membership Corporation, Case No. COA96-364 (January 21, 1997). This case is on appeal as of the date of preparation of this manuscript.

DISPOSITION OF EXCESS PROPERTY

In the event property is condemned in excess of that what is required, N.C. Gen. Stat. §40A-70 and N.C. Gen. Stat. §136-19 govern the disposition of such surplus property. Such statutes generally require that the property first be offered to the original landowner.

RIGHT OF CONDEMNOR TO ENTER PROPERTY PRIOR TO CONDEMNATION

Under both Chapters 40A, exclusive condemnation procedures for private condemnors and local public condemnors (except where a local public condemnor has been authorized to use Chapter 136) and Chapter 136, condemnation procedures for the Department of Transportation and other state agencies through the Department of Administration and a few cities expressly authorized, the condemnor may enter onto private property for the purpose of conducting preliminary surveys and to gather other engineering data. N.C. Gen. Stat. §40A-11; N.C. Gen. Stat. §136-120. Under both statutes, however, the condemnor must pay the landowner for any damage to property.

THREE SEPARATE EMINENT DOMAIN PROCEDURES IN NORTH CAROLINA

There are three primary condemnation procedures utilized by condemnors in North Carolina. They are:

A. Article 2, Chapter 40A Procedure - Private Condemnor

An Article 2, Chapter 40A ("Article 2") condemnation is a special proceeding before the clerk of superior court and is utilized by private condemnors such as power companies and railroads. The purposes for which private condemnors may acquire property by eminent domain are set forth in N.C. Gen. Stat. §41A-3. The rules of civil procedure apply to an Article 2 condemnation proceeding. Virginia Electric Power Company v. Tillet, 316 N.C. 73, 340 S.E.2d 62 (1986). Article 2 is not a "quick-take" procedure; title does not vest in the petitioner upon the filing of a petition, but rather upon the entry of final judgment and the payment of the required just compensation. The petition must be filed in the county where the land lies. N.C. Gen. Stat. §40A-20.

  1. Petition: An Article 2 proceeding is commenced by the filing of a petition seeking the appointment of three commissioners by the clerk of superior court to determine the amount of just compensation due to the landowner for the taking. In order to establish jurisdiction, the petition must contain allegations which satisfy each of the elements required under N.C. Gen. Stat. §40A-20. Either the private condemnor or the condemnee landowner may file a petition under Article 2. If the petition is filed by the condemnee alleging a "taking" of property, it is commonly referred to as an "inverse condemnation."
  2. Service of Process: A summons, together with a copy of the petition, must be served upon all persons whose estates or interests are to be affected by the proceedings, at least 10 days prior to the hearing. Trustees under deeds of trust should be made parties; however, it is not necessary to name the beneficiaries or noteholders as parties since they have no interest in the property which is the subject of the proceeding. Persons holding purchase options on the affected property must also be served. N.C. Gen. Stat. §40A-23 provides for service by publication on unknown persons who may have an interest in the property sought to be condemned or those whose interests cannot be ascertained by reasonable diligence. In such cases, the State Treasurer shall be served as custodian of the Escheat Fund and may become a party to the action.
  3. Lis Pendens: A notice of lis pendens must be filed with the clerk of superior court in the form and manner provided by N.C. Gen. Stat. §1-116. The filing of such notice shall be constructive notice to any person who subsequently acquires any interest in or lien upon the property, and the condemnor shall take the property free and clear of the claims of any such person.
  4. Answer to Petition: It is not necessary to file an answer in an Article 2 condemnation if the respondent does not dispute the condemnor's right to condemn. Answers are permitted pursuant to N.C. Gen. Stat. §40A-25, and in most instances, attorneys do in fact file responses. Responses must be filed within 10 days of the date of service pursuant to N.C. Gen. Stat. §1-394, except that the court may extend the time for an additional 10 days. N.C. Gen. Stat. §1-398. The United States or any state or local government which is a party to the action is given an additional period to file a response.
  5. Notice to Respondents of Hearing to Appoint Commissioners and Hear Proofs and Allegations of Parties: After the time for answering the petition has expired, or answers have been filed, and upon 10 days' written notice to the respondents, a hearing will be held before the clerk of court to appoint commissioners and to hear evidence regarding the allegations of the parties raised in the pleadings. N.C. Gen. Stat. §§40A-25 and 26. Respondents must be given such notice whether or not they have filed answers. See Randleman v. Hinshaw, 267 N.C. 136, 147 S.E.2d 902 (1966); Collins v. State Highway Commission, 237 N.C. 277, 74 S.E.2d 709 (1953).
  6. Hearing Before Clerk of Court on Petitioner's Application For Appointment of Commissioners: N.C. Gen. Stat. §40A-25 specifically provides for the clerk of court to hear the proofs and allegations of the parties. If no sufficient cause is shown against granting the prayer of the petition, the clerk will enter an order for the appointment of three disinterested residents of the county where the condemned property is located and to fix the time and place for the first meeting of the commissioners. The hearing before the clerk is usually informal and the petitioner's right to condemn is rarely contested by a respondent. If such right is challenged, the clerk must conduct a formal hearing on the issues raised and then rule on the respondent's challenge. If the clerk of court determines that the petitioner has proven its right to condemn the respondent's land, then the clerk appoints the three commissioners.
  7. Commissioners' Hearings: The better practice is for the clerk to preside at the commissioners' hearing. The first duty of the clerk is to take the oath of the commissioners. One of the commissioners is typically elected chairman for the purpose of completing the written report and filing it with the clerk. The burden of proof as to the amount of just compensation at the hearing before the commissioners is on the respondent landowner. Board of Education v. McMillan, 250 N.C. 485, 108 S.E.2d 895 (1959). The landowner offers evidence first and is entitled to make opening and closing arguments. N.C. Gen. Stat. §40A-12 sets forth the rules of procedure applicable to Chapter 40A proceedings.
  8. Commissioners' Report: The form of the commissioners' report is set forth in N.C. Gen. Stat. §40A-27. The judgment must be recorded in the county where the land is situated. The final judgment and plat is typically certified to the register of deeds for recording as in the case of deeds.
  9. Exceptions to Report: The parties have 20 days after the filing of a report to file exceptions to it. N.C. Gen. Stat. §40A-28(a). The clerk must then hold a hearing on the exceptions.
  10. Appeal: "An appeal to the Superior Court from a condemnation proceeding puts the issue of compensation for damages resulting from the taking before the court denovo." Metropolitan Sewerage District of Buncombe County v. Trueblood, 64 N.C. App. 690, 693-694, 308 S.E.2d 340, 342, cert.denied 311 N.C. 402, 319 S.E.2d 272 (1983). Since upon appeal the parties are entitled to a trial denovo, the clerk typically confirms the commissioners' report. Such appeal must be made within 10 days after the confirmation of the order. N.C. Gen. Stat. §40A-28(c). Upon appeal, the matter is transferred to the civil issue docket of the superior court for a determination of all matters in controversy. N.C. Gen. Stat. §40A-28(c).
  11. Possession by Condemnor: The condemnor may enter and take possession of the property upon payment into court of the sum awarded by the commissioners pursuant to N.C. Gen. Stat. §40A-28(d).
  12. Final Judgment; Vesting of Title: When final judgment is entered in favor of the petitioner and upon payment of the commissioners' award or, on appeal, the verdict of the jury, all persons who are parties to the proceeding are divested of title and interest in the property. N.C. Gen. Stat. §§40A-28(b) and (d).
  13. Costs: The court, in its discretion, may award to the owner a sum to reimburse owner for appraisers, engineers and plats provided the appraisers and engineers testify and the plats are received into evidence. N.C. Gen. Stat. §40A-8(a).

B. Article 3, Chapter 40A Procedure - Local Public Condemnors

An Article 3, Chapter 40A ("Article 3") condemnation is a civil action in superior court and is the sole method for condemnation of property by local public condemnors in the absence of a local act by the legislature authorizing the use of Chapter 136 procedures. N.C. Gen. Stat. §40A. It is a "quick-take" procedure that varies depending upon the purpose for which the property is being condemned. It is similar in some respects to a Chapter 136 proceeding; however, there are also significant differences.

  1. To Notice Owners: Under an Article 3 proceeding, the condemnor must provide a notice of action letter at least 30 days prior to the filing of the complaint. The required elements of a notice of action are set forth in N.C. Gen. Stat. §40A-41.
  2. Complaint and Declaration; Deposit: An Article 3 proceeding is a civil action commenced by the filing of a complaint containing a declaration of taking. N.C. Gen. Stat. §40A-41 sets forth the allegations which must be contained in the complaint, including a prayer that there be a determination of just compensation. The filing of the complaint must be accompanied by the deposit with the clerk's office of the sum of money estimated by the condemnor to be just compensation for the taking.
  3. Summons: Upon the filing of the complaint and the deposit of estimated just compensation, the 120-day summons, together with the complaint and notice of deposit, is served in accordance with the rules of civil procedure.
  4. Memorandum of Action: Contemporaneously with the commencement of the action, the condemnor must record a memorandum of action with the register of deeds in the county where the land is located in order to provide record notice as to the pendency of the action in accordance with the requirements of N.C. Gen. Stat. §40A-43.
  5. Vesting of Title and Public Condemnor's Right of Possession: Under Article 3, the time at which a local public condemnor acquires title to and the right of immediate possession of the property is dependent upon the type of public condemnor and the purpose for which the property is condemned. A detailed analysis of N.C. Gen. Stat. §40A-42 should be made in order to determine those instances in which a "quick-take" is available. For certain delineated purposes, a city and county have "quick-take" authority, i.e., title to the property and the right to immediate possession vests in the condemnor immediately upon the filing of the complaint and deposit of the estimated just compensation, unless the owner institutes an action for injunctive relief. Otherwise, title and the right to possession vests in the condemnor only upon (i) filing of an answer requesting only a determination of just compensation, (ii) failure to answer within 120 days of service, or (iii) upon disbursement of the deposit to the owner in accordance with N.C. Gen. Stat. §40A-44. All issues raised by the pleadings regarding vesting of title and possession by the condemnor are determined before a superior court judgment, either in or out of session, upon 10 days' written notice by either party. N.C. Gen. Stat. §§40A-42(d) and (e) and 40A-47.
  6. Disbursement of Deposit to Property Owner: If there is no dispute as to title to the property, the defendant owners may apply to the court for disbursement of the money deposited in the court by the condemnor as just compensation as payment thereof or as a credit against just compensation. No notice to the condemnor of the hearing upon such application for disbursement of deposit is necessary.
  7. Answer and Reply: Any person whose property has been taken by a local public condemnor by the filing of a complaint may file an answer within 120 days of the date of service. The answer must contain the allegations set forth in N.C. Gen. Stat. §40A-45(a). No answer is filed to the declaration of taking and notice of deposit. The answer must be served on the condemnor, but failure to serve the condemnor does not make the answer invalid. The allegations of the answer will be deemed denied; however, the condemnor may file a reply within 30 days of the receipt of a copy of the answer, but failure of the landowner to file answer within 120 days constitutes an admission that the amount deposited is just compensation, and is a waiver of any further proceeding to determine just compensation; provided, at any time prior to the entry of the final judgment, the judge may, for good cause shown and after notice to the condemnor, extend the time for filing the answer by 30 days. N.C. Gen. Stat. §40A-46.
  8. Filing of Plat: N.C. Gen. Stat. §40A-45 requires that the condemnor shall cause a plat of the property taken and such additional area as may be necessary to properly determine just compensation to be filed within 90 days of the receipt of the answer, and that a copy thereof be mailed to the parties or their attorney; provided, that the condemnor shall not be required to file such plat in less than six months from the date of filing of the complaint.
  9. Determination of Issues Other Than Damages: Upon motion and 10 days' notice by either party, the judge, either in or out of session, shall hear and determine all issues raised by the pleadings other than the issue of just compensation. All questions preliminary to the determination of the amount to be paid to the defendant landowners are questions to be determined by the superior court judge and not by a jury. N.C. Gen. Stat. §40A-47; N.C. Gen. Stat. §136-108. In addition, N.C. Gen. Stat. §40A-13 provides that "Either party shall have a right of appeal to the appellate division for errors of law committed in any proceeding . . . in the same manner as in any other civil actions and it shall not be necessary that an appeal bond be posted." See State Highway Comm'n v. Nickles, 271 N.C. 1, 155 S.E.2d 772 (1967) for an analysis and discussion of the types of issues in a condemnation proceeding which are subject to immediate appeal.
  10. Use of Commissioners: Although not typically utilized, N.C. Gen. Stat. §40A-48 provides that either party may request an appointment of three commissioners to determine just compensation. The procedure for making such determination is set forth in N.C. Gen. Stat. §40A-48(b). Within 30 days after the mailing of the final commissioners report, either party may file exceptions to the report and demand a trial de novo by a jury on the issue of just compensation. If no exception is filed to the report of the commissioners within 30 days after mailing, final judgment shall be entered by the judge "upon a determination and finding by him that the report of commissioners plus interest computed in accordance with N.C. Gen. Stat. §40A-53 [6% per annum] . . . awards to the property owners just compensation." If the judge determines, in his discretion, that the award does not provide just compensation, he shall set aside the award and order the case be placed on the civil issue docket for a determination of just compensation by a jury. N.C. Gen. Stat. §40A-48(d).
  11. Continuance of Case Until Project Completed: N.C. Gen. Stat. §40A-50 further provides: "Upon his own motion, or upon motion of any of the parties the judge may, in his discretion, continue the cause until the project is completed or until such earlier time as, in the opinion of the judge, the effect of the condemnation upon said property may be determined." Such a motion by any of the parties will be granted upon a proper showing that the effect of condemnation upon the subject property cannot presently be determined. See also N.C. Gen. Stat. §136-110.
  12. Refund of Excess Deposit to Condemnor: In the event the landowner receives less money, as evidenced by the final judgment, than the amount deposited by the condemnor with the clerk of court as an estimate of just compensation, the condemnor is entitled to recover from the landowner such excess and court costs "incident thereto." In the event there are no funds left on deposit to cover such excess due the condemnor, the condemnor is entitled to a judgment for the excess sum against the person(s) having drawn down the deposit. N.C. Gen. Stat. §40A-56. The statute does not expressly grant the condemnor a lien on the remaining or other lands of the condemnee-owner to secure the repayment, but it appears that the court would have authority to enter such judgment in favor of the condemnor at the time of the entry of the final judgment in the action. Upon proper filing, the judgment would constitute a lien.
  13. Court Costs:
      • Attorney Fees: The condemnor pays all costs taxed by the court, including attorney fees when an attorney is appointed for unknown parties or for parties whose whereabouts are unknown. N.C. Gen. Stat. §40A-32(a).
      • Reimbursement of Owner for Charges Paid Appraisers, Engineers, etc.: Under N.C. Gen. Stat. §40A-8, the court, in its discretion, in both Article 2 (private condemnors) and Article 4 (local public condemnors) may award to the owner a sum to reimburse the owner for charges he has paid for appraisers, engineers and plats, provided the appraisers and engineers testify in the case and the plats are received into evidence as exhibits by order of the court. In the event the condemnor is not authorized to condemn the property or abandons the condemnation, the court shall, after making appropriate findings of fact, award each owner of the property sought to be condemned a sum that, in the opinion of the court based upon its findings of fact, will reimburse the owner for his (1) reasonable costs, (2) disbursements, (3) expenses, including reasonable attorney fees, appraisal and engineering fees, and (4) any loss suffered by the owner because he was unable to transfer title to the property from the date of the filing of a complaint by a local public condemnor under the quick-take procedure of N.C. Gen. Stat. §40A-42.

C. Article 9, Chapter 136 Procedure - Department of Transportation and Department of Administration (State Agencies)

  1. General: Article 9, Chapter 136 is the exclusive procedure for condemnation by the Department of Transportation for the public highway system and by the Department of Administration. Effective January 1, 1982, all authority of local governments to utilize the procedure of Chapter 136 was repealed. Exceptions are (i) condemnation for a public street under agreement with the Department of Transportation and (ii) certain local acts enacted by the General Assembly since 1983.
  2. Commencement, Venue, Complaint and Declaration of Taking: Condemnation under Chapter 136 is a civil action which must be instituted in the superior court of the county where the property is located. A Declaration of Taking must accompany the filing of the complaint. The allegations which must be contained in the complaint and declaration are specifically set forth in N.C. Gen. Stat. §136-103. In addition to the allegations set forth in the statute, the complaint or declaration should contain an allegation that the condemnor and the owner are unable to agree on the price of the land sought to be condemned. State Highway Comm'n v. Matthis, 2 N.C. App. 233, 163 S.E.2d 289 (1968).
  3. Deposit of Estimated Compensation; Memorandum of Action: The filing of the complaint and declaration of taking must be accompanied by the deposit of a sum of money estimated by the condemnor to be just compensation for the taking. N.C. Gen. Stat. §136-103. Additionally, the condemnor must record a memorandum of action in the register of deeds meeting the requirements of N.C. Gen. Stat. §136-104.
  4. Vesting of Title and Condemnor's Immediate Right of Possession: Title to the land or interest in land, together with the right to immediate possession vests in the condemnor upon the filing of the complaint and declaration and the deposit of the . N.C. Gen. Stat. §136-104. Such right, however, may be enjoined pursuant to a restraining order issued by a judge pending final hearing on appeal. State Highway Comm'n v. Batts, 265 N.C. 346, 144 S.E.2d, 126 (1965)
  5. Disbursement of Deposit to Property Owner: The persons named in the complaint may apply to the court for disbursement of the money deposited as estimated just compensation as either full compensation or a credit against just compensation, without prejudice to further proceedings to determine just compensation. There can be no disbursement unless specifically authorized by an order of the superior court judge entered at a hearing after proper notice to all interested parties except the condemnor.
  6. Answer: The owner has twelve months to file an answer in actions filed by the Department of Transportation and 120 days in actions filed by the Department of Administration. Failure to timely answer constitutes an admission that the amount deposited by the condemnor with the court is just compensation. N.C. Gen. Stat. §136-106 and 107. The allegations required to be contained in the answer are set forth in N.C. Gen. Stat. §136-106.
  7. Filing of Plat: Within 90 days of the receipt of the answer, or six (6) months from the date of filing of the complaint, whichever is later, the condemnor shall file a plat of the land taken and such additional area as may be necessary to properly determine damages, and shall mail a copy to the parties or their attorney. N.C. Gen. Stat. §136-106.
  8. Determination by Judge of Issues Other than Damages: After the filing of the plat, the judge shall, in or out of session, hear and determine all issues raised by the pleadings other than the issue of damages. N.C. Gen. Stat. §136-108. Ten days' notice must be given by the moving party. N.C. Gen. Stat. §136-108.
  9. Immediate Appeal from Judges' Determination of Issues Other Than Damages: N.C. Gen. Stat. §136-119 provides that when the state condemns property under Chapter 136, either party shall have the right of appeal to the Supreme Court for errors of law committed in any proceedings provided for in Article 136 in the same manner as in any other civil actions. No appeal bond is required.
  10. Use of Commissioners in Chapter 136 Cases: N.C. Gen. Stat. §136-109 sets forth the procedure by which either the condemnor or the property owner may request that three commissioners be appointed to determine just compensation. Either party may except from the report of the commissioners and demand a trial de novo by a jury as to the issue of damages.
  11. Attorney Appointed For Unknown Parties; Guardian Ad Litem for Minors, Incompetents and Others Under Disability: N.C. Gen. Stat. §136-110 provides for the judge to appoint a competent attorney to appear for parties or unknown persons or whose residence is unknown, and to appoint guardian ad litem for minors, incompetents, or other parties under a disability and without general guardians.
  12. Continuance of Case Until Project Completed: Pursuant to N.C. Gen. Stat. §136-110, the judge, upon his own motion, or upon motion of any party upon a proper showing that the effect of the condemnation cannot be presently determined, may continue the case until the highway project is open to traffic, or until, in the opinion of the judge, the effect of the condemnation may be determined.
  13. Refund of Excess Deposit: In the event the landowner is determined to be entitled to less money, as evidenced by the final judgment, than the amount deposited by the condemnor with the court as an estimate of just compensation, the condemnor is entitled to recover from the landowner such excess and court costs incident thereto. In the event there are no funds left on deposit to cover such excess due the condemnor, the condemnor is entitled to a judgment for the excess sums against the persons having received the deposit. N.C. Gen. Stat. §136-121; see N.C. Gen. Stat. §40A-56 for a similar provision.
  14. Court Costs and Attorney Fees: The condemnor shall pay all costs taxed by the court. N.C. Gen. Stat. §136-119. In the event the condemnation is abandoned by the condemnor or it is ruled that the condemnor cannot acquire the property by condemnation, then the court shall award the owner such sum as will reimburse him for reasonable cost, disbursements and expenses, including reasonable attorney fees and engineering fees actually incurred. Additionally, when the landowner institutes a proceeding under G.S. 136-111 (inverse condemnation) and receives an award for the taking, the court shall reimburse the owner-plaintiff for the same costs. N.C. Gen. Stat. §136-119; Department of Transportation v. Winston Container Co., 45 N.C. App. 638, 263 S.E.2d 83 (1980).
  15. Dispute as to Those Entitled to Payment of Just Compensation: The general rule is that if there are adverse and conflicting claimants to the deposit or final award of compensation, the condemnor is not affected thereby and payment of the amount of the award into court releases the condemnor from further involvement with the adverse claimants. The trial judge may direct that the sum awarded to the owners be paid into court by the condemnor and the court may retain the cause for determination of who is entitled to the moneys deposited or awarded and may order a reference to ascertain the facts. N.C. Gen. Stat. §136-117; see City of Charlotte v. Charlotte Park and Recreation Comm'n, 278 N.C. 26, 178 S.E.2d 601 (1971).

VIII. VALUATION/JUST COMPENSATION IN CONDEMNATION

A. Constitutional Requirement of Just Compensation

As earlier stated, the U.S. and North Carolina Constitutions mandate that just compensation be paid for the taking of land for a public purpose. North Carolina has enacted statutes for determining just compensation. The pertinent provisions are set forth in Article 4, Chapter 40A, applicable to private and local public condemnors, and Article 9, Chapter 136, applicable to the North Carolina Department of Transportation and the Department of Administration.

B. "Total Taking" - Rule for Measuring Damages

In a "total taking" of property the measure of damages is the same under both Chapter 136 and Chapter 40A, i.e., the fair market value of the entire tract on the date of taking. N.C. Gen. Stat. §§136-112 and 40A-64(a); DeBruhl v. State Highway Comm'n, 247 N.C. 671, 102 S.E.2d 229 (1958).

C. "Partial Taking" - Rules for Measuring Damages

  1. Chapter 136 Condemnations: In a Chapter 136 condemnation, the measure of damages in a partial taking is determined solely under the "before and after" rule. This is the difference between the fair market value of the property immediately before the taking and the fair market value of the remainder immediately after the taking, off-set by any general or special benefits. N.C. Gen. Stat. §136-112(1); Department of Transportation v. Bragg, 308 N.C. 367, 302 S.E.2d 227 (1983).
  2. Chapter 40A Condemnations: In Chapter 40A condemnations, the measure of compensation in a partial taking is the "greater of" (1) the difference between the fair market value immediately before and after the taking, i.e., the "before and after" rule, or (2) the fair market value of the property taken, i.e., same rule as in a total taking. N.C. Gen. Stat. §40A-64. Thus, where there is a partial taking in a Chapter 40A condemnation, G.S. 40A-64(b) qualifies the basic "before and after" rule by authorizing a greater (but not a smaller) recovery, if greater compensation is warranted after comparing the respective market values of what the owner possessed before and after the taking.The principal difference between the "greater of" rules expressed in G.S. 40A-64(b) and the conventional "before and after" rule expressed in G.S. 136-112(1) is that the latter can sometimes result in a zero award (if the remainder after the taking is more valuable than the entire tract before the taking, because of off-setting benefits), while under G.S. 40A-64(b), the award cannot be less than the value of the property taken.

D. Time of Valuation - Date of Taking

The point in time when property is "valued" in a condemnation action is the "date of taking." Metropolitan Sewerage Dist. of Buncombe County v. Trueblood, 64 N.C. App. 690, 693-94, 308 S.E.2d 340, 342, cert. denied, 311 N.C. 402, 319 S.E.2d 272 (1983).

E. Just Compensation - Market Value - Factors to be Considered

As noted earlier, neither the Constitution nor applicable statutes such as G.S. 136-112 and 40A-64 contain provisions defining the factors to be considered by the jury in determining just compensation or fair market value. State Highway Comm'n v. Hettiger, 271 N.C. 152, 155 S.E.2d 469 (1967); State Highway Comm'n v. Gasperson, 268 N.C. 453, 150 S.E.2d 860 (1966); see also Colonial Pipeline Co. v. Weaver, 310 N.C. 93, 310 S.E.2d 338 (1984).

In U.S. v. Cors, 337 U.S. 325, 332 (1948), the Supreme Court of the United States said:

The Court in its construction of the constitutional provision has been careful not to reduce the concept of 'just compensation' to a formula. The political ethics reflected in the Fifth amendment reject confiscation as a measure of justice. But the Amendment does not contain any definite standards of fairness by which the measure of 'just compensation' is to be determined. (Citations omitted) The Court in an endeavor to find working rules that will be substantial justice has adopted practical standards, including that of market value. (citations omitted) But it has refused to make a fetish even of market value, since it may not be the best measure of value in some cases.

Nevertheless, market value is usually equated with just compensation, as set forth in G.S. 136-112 and 40A-64.

F. Fair Market Value Vis-a-Vis Cost of Replacement

For an interesting U.S. Supreme Court case holding that the fair market value, not the cost of replacement, is "just compensation" for land condemned for a public purpose, see U.S. v. 564.54 Acres of Land, 441 U.S. 506 (1979).

G. What Constitutes Larger Tract Affected by Condemnation

As a practical matter, before proceeding to appraise a tract of land in a partial-taking case, the parties to the condemnation action must determine the boundaries of the larger tract affected by the taking. This determination is important to both the condemnor and the owner because (1) the condemnor may be able to show an off-set, or (2) the owner may want to reduce the size of the larger tract to avoid the condemnor claiming off-set of benefits to the remaining acreage, or (3) if there is no claim of off-set of benefits by the condemnor, the owner may desire to include other land owned by him in the area in the larger tract in order to show damages caused by the taking to such remaining lands.

Under North Carolina law and the law of most jurisdictions, when the whole or a part of a particular tract of land is taken under eminent domain, the owner is not entitled to compensation for injury to other separate and independent parcels of land belonging to him which may result from the taking. But the owner is entitled to all damages in the unit of land affected by the taking. Furthermore, the condemnor is not entitled to the general or special benefits which accrue to other separate and independent parcels owned by the condemnee, but the condemnor is entitled to benefits, if any, that accrue to the unit of land affected by the taking. Department of Transp. v. Bragg, 308 N.C. 367, 302 S.E.2d 227 (1983). To recover under §136-112(1), the area affected and the area taken must constitute a single tract. Id. Particular attention should be given to Barnes v. State Highway Commission, 250 N.C. 278, 109 S.E.2d 219 (1959), which contains an excellent discussion and analysis of the proper factors to be considered in determining the larger tract affected by a condemnation.

H. Larger Tract Affected - Chapter 40A Rule Applicable to Private and Local Public Condemnors

Under Chapter 40A in partial-taking condemnations, for the purpose of determining compensation due the owner, "all contiguous tracts of land that are in the same ownership and are being used as an integrated economic unit shall be treated as if the combined tracts constitute a single tract." N.C. Gen. Stat. §40A-67 (emphasis added); see City of Winston-Salem v. Tickle, 53 N.C. App. 516, 281 S.E.2d 667 (1981); see generally U.S. v. 2.33 Acres of Land, More or Less, 704 F.2d 728 (4th Cir. 1983).

I. "Before and After" Rule in Partial-Taking Condemnations

When the entire property is taken in condemnation, the just compensation required is the fair market value of the property taken on the date of taking and this is arrived at by standard appraising techniques. The comparative sales approach is primarily used, then the capitalization of income approach and, last, the reproduction cost less depreciation. The last method is used if there are not enough sales to make a market or the property is not income-producing. Sometimes a combination of these techniques is used. It should be noted that the capitalization of income approach is not favored by the federal courts, U.S. v. 69.1 Acres of Land, 942 F.2d 290 (4th Cir. 1991), although it is approved by the state courts when no other method is available. City of Statesville v. Cloaninger, 106 N.C. App. 10, 4415 S.E.2d 111 (1992). But the valuation problem most unique to condemnation litigation is the partial taking where the condemnor takes part of an entire tract and the owner must be compensated for the part taken and the loss of value to the property that remains or the damage to the remaining portion as a result of the severance, off-set by special or general benefits, if any. Attention should be given to the explanation and interpretation of the "before and after" rule as stated in Barnes v. State Highway Comm'n, 250 N.C. 378, 109 S.E.2d 219 (1959).

It is important to understand that "fair market value" is really based on assumptions, not facts - and the most "believable" appraisal witness, whether expert MAI or lay landowner, will have the most impact upon a jury's verdict.

J. General and Special Benefits to Remainder of Larger Tract Affected by the Taking

  1. Definition: "Special benefits" are benefits that accrue only to the landowner whose land is condemned and not to surrounding landowners. "General benefits" are benefits common to the land being condemned and to all neighboring landowners. See Department of Transp. v. McDarris, 62 N.C. App. 55, 302 S.E.2d 277 (1983).
  2. Burden of Proof: Although the landowner carries the burden of proof in establishing the damage to his property in a condemnation action, the condemnor carries the burden of proving any off-setting benefits. Kirkman v. State Highway Comm'n, 257 N.C. 428, 126 S.E.2d 107 (1962).
  3. Off-Setting Benefits in Chapter 136 Condemnations: The distinction between special and general benefits is no longer important in Chapter 136 condemnations, since N.C. Gen. Stat. §136-112(1) provides that consideration shall be given to both special or general benefits. Board of Transp. v. Rand, 299 N.C. 276, 263 S.E.2d 565 (1980); N.C. Gen. State. §136-112(1); see also State v. Forehand, 67 N.C. App. 148, 312 S.E.2d 247, cert. denied, 311 N.C. 307, 317 S.E.2d 940 (1984); State v. Thrift Lease, 75 N.C. App. 152, 330 S.E.2d 28 (1985), in which landowner was denied compensation because of the increase in his remaining property due to the condemnation.
  4. Off-Setting Benefits in Chapter 40A Condemnations:
    • Compensation to Reflect Project as Planned: Article 4 (Just Compensation) of Chapter 40A provides that the amount of compensation due the owner shall not reflect an increase or decrease in the value of the property due to the condemnation, except as provided in Article 4. See N.C. Gen. Stat. §40A-63. There is one pertinent provision in Article 4, which is taken from Section 1006 of the Uniform Eminent Domain Code ("Uniform Code") which, in effect, provides for off-setting both special and general benefits, except that the award cannot be less than the fair market value of the property taken. N.C. Gen. Stat. §§40A-66 and 64(b)(ii); see 10 Nichols The Law of Eminent Domain, App. D-3 for a reprint of the Uniform Act, approved by the National Conference of Commissioners on Uniform State Laws in August, 1974. N.C. Gen. Stat. §40A-66, captioned "Compensation to Reflect Project as Planned," provides:
    • If there is a taking of less than the entire tract, the value of the remainder on the valuation date shall reflect increases or decreases in value caused by the proposed project including any work to be performed under an agreement between the parties.
    • The value of the remainder, as of the date of valuation, shall reflect the time the damage or benefit caused by the proposed improvement or project will be actually realized.
      N.C. Gen. Stat. §40A-66 (emphasis added).
  5. Compensation Cannot Be Less Than Value of the Land "Taken": In partial takings under Chapter 40A, if the value of the remainder is more valuable than the entire property before the taking (because of off-set of benefits), compensation to the owner cannot be less than "the fair market value of the property taken" under the "greater of" rule. N.C. Gen. Stat. §40A-64(b)(ii). Thus, unlike a Chapter 136 condemnation, under Chapter 40A there can be no zero awards irrespective of the amount of the off-setting benefits since the measure of damages in partial takings is the greater of (1) the difference between the before-and-after fair market values of the property taken, or (2) the fair market value of the property taken.
  6. Interest as Part of Just Compensation: In an Article 2, Chapter 40A condemnation, if the private condemnor pays into court the sum appraised by the commissioners and enters into possession of the land sought to be condemned and the condemnation case is then appealed, the condemnee is entitled to interest on the principal sum set by the commissioners (or the amount set by a jury on appeal if it is a larger sum) from the date of possession of the property by the condemnor. Carolina Power & Light Co. v. Briggs, 268 N.C. 158, 150 S.E.2d 16 (1966); City of Winston-Salem v. Wells, 249 N.C. 148, 105 S.E.2d 435 (1958); DeBruhl v. State Highway Comm'n, 247 N.C. 671, 10 S.E.2d 229 (1958).
    In Article 3, Chapter 40A and Chapter 136 condemnations, the landowner may withdraw the amount deposited with the court as an estimate of just compensation. Thus, the superior court judge is required to add interest on the amount awarded to the landowner above the sum so deposited from the date of taking to the date of judgment. N.C. Gen. Stat. §§136-113 and 40A-53. No interest is required for the amount deposited because the landowner has the right to use that money. N.C. Gen. Stat. §§136-113 (applicable to Departments of Transportation and Administration) provides for the trial judge to add interest at the legal rate (8% per annum) on the amount awarded as compensation from the date of taking to the date of judgment. N.C. Gen. Stat. §40A-53 (applicable to local public condemnors) provides for the trial judge to add interest at 6% per annum on the amount awarded as compensation from the date of taking to the date of judgment.

K. Proration of Property Taxes

A property owner whose property is totally taken in fee simple by any condemnor shall be entitled to reimbursement of the pro rata portion of real property taxes paid "which are allocable to a period subsequent to vesting of title in the condemnor, or the effective date of possession of such real property, whichever is earlier." N.C. Gen. Stat. §§40A-6 and 136-121.1.

L. Condemnation of Property Subject to Lien

N.C. Gen. Stat. §40A-68 (applicable to private and local public condemnors), provides:

Notwithstanding the provisions of an agreement, if any, relating to a lien encumbering the property:

  1. If there is a partial taking, the lienholder may share in the amount of compensation awarded only to the extent determined by the commissioners or by the jury or by the judge to be necessary to prevent an impairment of his security, and the lien shall continue upon the part of the property not taken as security for the unpaid portion of the indebtedness until it is paid; and
  2. Neither the condemnor nor the owner is liable to the lienholder for any penalty for prepayment of the debt secured by the lien, and the amount awarded by the judgment to the lienholder shall not include any penalty therefore.

Thus, section (1) changed prior law in North Carolina under which a lienholder, upon a partial taking, was entitled to all of the condemnation award or a full discharge of his lien from the award. See 27 Am. Jur. 2d §257. Under section (2) prepayment penalties in notes or other obligations secured by the lien of a deed of trust on the property sought to be condemned are declared unenforceable.

Since the right to mortgage one's property is within the constitutional guaranty of freedom of contract, the law in force at the time the mortgage or deed of trust or other indenture was executed is held to be the law which determines the force and effect of the mortgage agreement. See Brine v. Hartford Fire Ins. Co., 96 U.S. 627 (1878); 55 Am. Jur. 2d §5. Thus, the restrictions of N.C. Gen. Stat. §40A-68 would apply only to liens that were executed or became effective on January 1, 1982, and thereafter.

M. Condemnation of Property Subject to Life Tenancy

When property is condemned the question always arises whether or not the award should be distributed proportionately between the life tenant and the remainderman. In the absence of a statute to the contrary, the great majority of courts considering the issue have ruled that the award stands in the place of the realty and must be maintained as a whole, with the life tenant receiving the income produced by investing the award and the corpus being reserved for ultimate distribution to the remaindermen. See Redevelopment Comm'n v. Capehart, 268 N.C. 114, 150 S.E.2d 62 (1966); 29A C.J.S. Eminent Domain §199; 27 Am. Jur. 2d §252.

Even prior to January 1, 1982, the court in a Chapter 136 condemnation could enter an appropriate order ascertaining the life tenant's interest in the award and authorizing payment of the amount to the life tenant. N.C. Gen. Stat. §136-104.

Effective January 1, 1982, Chapter 40A granted wide latitude to trial courts to apportion the award among life tenants and remaindermen or authorize any other equitable arrangement. N.C. Gen. Stat. §40A-69.

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