Full opinion text
JAMES M. CARTER, District Judge. This condemnation case, involving industrial lands and buildings within the city of San Diego, was tried to a jury. The jury were selected on January 2nd and 3rd, and the trial continued to and actually commenced, on January 22, 1957. The trial proceeded continuously, except for a lapse of two weeks caused by the death of a leading member of the Bar, one of counsel in the case, and terminated in a verdict on May 27, 1957. At that time the transcript of the trial numbered 7,493 pages. An industrial plant termed the “Plan-cor,” had originally been assembled and constructed by the United States government for the use of Convair, a manufacturer of air planes during World War II. Following the conclusion of the war, there was public clamor for disposition of alleged surplus property. There were several sales made of portions of the original assembly. A large area of land and several buildings were sold to the County of San Diego. Small segments were sold to the Veterans Administration and others, and a portion of the original assembly containing five to six buildings was never sold and still remains the property of the government. The portion of the Plancor, consisting of three immense assembly buildings, the drop hammer building, and several smaller ones, and a large parking lot were offered for sale. The government had difficulty finding a buyer and finally on May 4, 1948, this portion of the original Plan-cor was sold to Charles W. Carlstrom for $1,050,000. This is the portion of the Plancor later condemned by the government and involved in this proceeding. There followed the Korean incident and the increased activity of the Air Corps in connection with scientific advancements involving jets, guided missiles, etc, Convair required increasing space, and from time to time entered into leases with Carlstrom for portions of the property. On April 29, 1953, the government, by declaration of taking, took a fourteen month’s term with the right to renew from year to year until June 30, 1958. Prior to the expiration of the fourteen month term, which ended June 30, 1954, the government elected to extend the term, to and including June 30, 1955. In May of 1955, the government gave notice of its election to further extend the term to June 30, 1956, but before that extension began, and on June 16, 1955, the government filed in this proceeding a declaration of taking, with accompanying deposit, for the acquisition of the fee estate subject only to easements for highways, utilities, and pipelines. Following the government’s initial taking of the term for fourteen months, and before its fee taking, there were numerous transfers of portions of the fee of the property. The term taking and the fee taking were effected in the same proceeding, and during pretrial there were involved a vast number of legal problems which set the case apart as far more complex than the average condemnation case. These problems involved the effect of the government’s takes, rights of lessors and lessees, the effect of the subsequent transfers of the fee, and a myriad of problems which only able counsel, spurred on by the prospect of a verdict running into the millions, could dredge up by detailed and efficient research. Judge Peirson M. Hall had originally undertaken the case at a time when a second judge in the Southern Division (San Diego) was serving by rotation. Upon the assignment of Judge CARTER to the Southern Division as the second permanent judge, in April 1956, the case was transferred to him. At that stage of the proceedings, there had been prepared a series of questions of law to be submitted to the court for rulings prior to trial. They were as follows:— . , , 1. What is the proper “unit” of value, i.e. should the entire tract be considered a unit for valuation purposes, or' should separate fee parcels be separately valued? 2. Should value or compensation be determined before questions of ownership ? (aside from the right of occupancy). 3. What rights or parking privileges, if any, do the respective defendants have in the so-called Parcel 10-A? 4. What is the proper measure of just compensation? 5. How is the value of the option to renew to be determined? 6. Do subsequent purchasers have the right to appear and present evidence ? 7. Do lessees have the right to present evidence? 8. Does the lessee (Convair), which also became the lessee of the government after the taking, have the right to introduce evidence? 9. Should oral grants be shown on the map and should the holders of such grants be permitted to introduce evidence ? 10. Can removal costs and loss of going concern value be proved where less than the unexpired lease term is taken? 11. Should rental compensation be reduced as to those who remained in possession after the taking ? If so, when should this adjustment be made? 12. Were the leases terminated by the taking? 13. What is the proper forum for determining disputes as to the leases, etc. ? As a result of prior hearings before Judge Hall, there had been evolved a proposed pretrial order on the leasehold taking, and this proposed order had been served upon and studied by all counsel. Upon taking over the case, extensive pretrial hearings were had. The court eventually wrote various memoranda of law and made various pretrial orders, disposing of most of the legal problems before trial. The court is indebted to Judge Hall for his efficient preliminary work in the matter. Various legal memoranda have been grouped herein under the respective portions of the pretrial orders to which they pertain; and in addition to the four formal pretrial orders, there are included other pretrial rulings on matters of law. The Verdicts The court had ruled that the extended period of the term taking for the twelve months from July 1, 1954 to June 30, 1955, would not be submitted to the jury but would be computed at 12/14ths of the amount of the verdict for the period of fourteen months from May 1, 1953, to June 30, 1954. This ruling, hereafter discussed, was based on the ground that the option to renew must be separately valued and paid for and that therefore the term renewal was to be valued at the same rate as the original term. The court therefore required the jury to return a verdict as to the value of the fourteen months’ term take, another verdict as to the value of the option right and a third verdict as to the value of the fee taken. There was a contention in the case by the defendants that the various parcels both on the term take and on the fee take were reasonably subject to unitization, and that as a unit the combined parcels had a greater fair market value than if appraised separately. The court therefore required the appraisers to be ready to testify as to the fair market value of the parcels, individually and to the fair market value of the parcels as unitized. But in order to determine which measure the jury used, the court submitted three special interrogatories or questions to the jury, which were answered as follows: Questions “As To Term Taking “In the term and option taking, was there a reasonable probability of the unitization of all the parcels except parcel 1, as of the date of the taking on May 1, 1953, or in the reasonably near future thereafter? “Yes- “As To The Fee Taking “No X “(1) In the fee taking, was there a reasonable probability of the unitization of all the tracts in the fee taking except Tract A-100 at the date of taking on June 16, 1955, or in the reasonably near future thereafter? “Yes X ~~ “No - “(2) In the fee taking, was there a reasonable probability of the unitization of all the tracts, including Tract A-100 on the date of taking on June 16, 1955, or in the reasonably near future thereafter? “Yes X “No----- “Dated May 27, 1957. Signed G. Campbell Janney, Foreman of the jury.” A discriminating jury found that the parcels in the term taking were not subject to unitization, but that the parcels in the fee taking were subject to unitization, either excluding Tract A-100 or including Tract A-100. Separate counsel had represented the owners of Tract A-100. The drop hammer and drop hammer building were located on this Tract and the facility was a necessary and integral part of the metal fabrication carried on by Convair during its war time use of the Plancor. During the subsequent period of private ownership, the building had been converted to a storage warehouse, and at the time of taking, on April 29, 1953, was under long term lease for such commercial purpose. Because of the foregoing facts the issue on unitization was submitted in the alternatives above. The verdicts were as follows:— Term Taking Par No. Fair Mkt. Val. of 14 Mo. term (fixed by jury) Fair Mkt. Val. of 12 Mo. Eenew. (computed) Fair Mkt. Val. of Opt. to ren. (fix. by jury) Port. verd. for 14 Mo. term which is enhancement because of Park Priv. (fix. by jury) 5 $ 62,000.00 $ 50,928.55 $17,712.00 ; 1,600.00 6 185,000.00 151,964.24 52,856.00 8,600.00 7 202,000.00 9-A 315,000.00 258,749.92 90,000.00 10,850.00 9-B 700.00 575.00 200.00 100.00 X 12,000.00 9,857.14 3,428.00 405.00 776,700.00 638,003.38 221,880.00 31,105.00 Fee Taking Tract No. Fair Mkt. Value as of 6/15/55 (fix. by jury) Portion of Verd. which is enhancement because of Park. Privilege (fix. by jury) A-100 $ 275,000.00 $7,500.00 A-101 1,146,000.00 49,600.00 A — 102 2,830,000.00 111,500.00 A — 106 30,000.00 700.00 A — 107 49,000.00 1.300.00 A — 108 122,000.00 2.400.00 A — 109 195,000.00 5.400.00 A — 120 22,000.00 300.00 A-121 208,000.00 1.700.00 4,807,000.00 Totals 180,400.00 The totals are as follows: Term, taking 14 Mos. $776,700.00 12 “ 638,003.38 Option 221,880.00 $1,636,583.38 Fee Taking 4,807,000.00 $6,443,583.38 In addition to the verdicts on the Parcels and Tracts submitted to the jury, several Tracts and Parcels were settled at various times before the jury’s verdict. These included Parcels 1, 9-C and 10-A of the term acquisition and Tracts B-200, B-201, and A-110 to A-119 inclusive of the fee acquisition. The amounts paid on the Tracts and Parcels settled before verdict, taking into account the area and improvements closely approximated the verdicts later returned by the jury on other Tracts and Parcels, and are accordingly set forth hereafter. Parcel 1, term taking (same property as Tract A-100 in fee) $ 76,552.07 Parcel 9-C, term taking 14.880.00 Parcel 10-A, “ “ (Midway) 23,034.15 Parcel 10-A “ “ (Ace Van) 1,552.85 Tracts A-110-119, fee taking 69.300.00 Tract B-200 “ “ (Ace Van) 61.750.00 Tract B-201 “ “ (Midway) 617,500.00 There follow the pretrial orders, and the memoranda of the court filed in connection therewith. For convenience, pretrial order No. 2 on the leasehold taking will be called “Lease Order No. 2” and pretrial Order No. 3, on the fee taking will be called “Fee Order No. 3.” Pretrial Order No. 1 (6/21/56) “It Appearing that the United States may concede that certain parcels of land owned by certain land owners may be considered as separate parcels for the purpose of evaluation, even though the said land has not been set forth as a separate parcel in the complaint or amended complaint; and it being necessary that appraisers employed by the parties may know what parcels are to be appraised; “It Is Ordered that the United States, on or before July 16, 1956, either (1) file further amendments to the complaint, or (2) in the alternative, by such date, advise (the court and) counsel of the description of such parcels which may be considered as units, and thereafter, prior to trial, prepare the amendments describing the parcels. “Dated: June 21, 1956. “James M. Carter “United States District Judge” Pretrial Order No. 2 (8/10/56) “As to the questions of law presented upon pretrial with respect to which the parties seek an order in advance of the trial, the court will rule upon the trial, in the absence of controlling precedents to the contrary and subject to modification at the trial to prevent manifest injustice, as follows:” Public Use I. (Lease Order No. 2) “The use for which the plaintiff condemned the term taken herein, pursuant to the Declaration of Taking and the Complaint filed April 29, 1953, is a public use and the plaintiff has the lawful right to take and acquire the term and estate set forth in said Complaint and said Declaration of Taking.” What Was Taken II. (Lease Order No. 2) “The estate so taken by the said Declaration of Taking for said public use is a term for years commencing May 1, 1953, and ending June 30, 1954, extendible for yearly periods thereafter at the election of the United States until June 30, 1958, notice of which election shall be filed in the proceeding at least thirty (30) days prior to the end of the term thereby taken, or subsequent extensions thereof, together with the right to remove within a reasonable time after the expiration of the term taken, or any extension thereof, any and all improvements and structures placed thereon by or for the United States of America, subject, however, to existing easements for public roads and highways, public utilities, railroads and pipe lines, and to such rights and reservations as are set out in Schedule ‘A’ attached to the Declaration of Taking and made a part thereof.” II. (Fee Order No. 3) “The estate so taken by the said Declaration of Taking for said public use is the fee simple title, subject to existing easements for public roads and highways, public utilities, and railroads, effective as of June 16, 1955. In this connection the Court rules that the plaintiff in the leasehold taking herein by the filing in these proceedings of the original Declaration of Taking filed April 29, 1953, and the Notice of Election to extend the term taken filed May 19, 1954, and May 31, 1955, effectively extended the leasehold taking to June 30, 1956; further in this connection the Court rules that upon the filing of the Declaration of Taking cf the fee on June 16, 1955, the then existing leasehold for the period July 1, 1955, to June 30, 1956, was thereupon merged into the fee. The Court further rules that any payment for the leasehold taking for the period of June 17, 1955, to and including June 30, 1955, constitutes an unjust enrichment to the defendants who receive the same, and some stipulation or order must be entered into or made to provide therefor.” Memorandum I. The Declaration Of Taking, The Complaints And The Questions Presented Thereby. In the original complaint filed April 29, 1953, and the Declaration of Taking filed the same date, the language as to the taking is substantially the same and reads, “a term for years commencing May 1, 1953 and ending June 30, 1954, extendable for yearly periods thereafter at the election of the United States until June 30, 1958, notice of which election shall be filed in the proceeding at least thirty days prior to the end of the term hereby taken or subsequent extensions thereof, together with the right to remove” improvements, etc., * * * On May 19, 1954, Notice of Election was given to extend the term in the following language: “* * * United States * * * pursuant to the privilege of election vested in said plaintiff by the declaration of taking on file herein, hereby elects to extend the term of exclusive possession and use of the property which was condemned in the above entitled proceeding for an additional period of one year, commencing July 1, 1954 and ending June 30, 1955.” On July 30, 1954, a supplemental Declaration of Taking was filed but it contained merely a recital concerning the election and an estimate of the just compensation for the additional term of one year, commencing July 1, 1954, and ending June 30, 1955. We pass it as adding nothing to the original Declaration of Taking. The First Amendment to the Complaint and the “Amendment to Declaration and Supplemental Declaration of Taking,” each dated March 24, 1955, only corrected an error in the description of certain parcels. We pass them also as not being of significance to our problem. On May 31, 1955, Notice of Election to extend the term for an additional year commencing July 1, 1955, and ending June 30, 1956, was given in identical language as the prior Notice of Election, except for the period of the term. On June 16, 1955, the “First Amended Complaint in Condemnation” was filed and it described the estates to be taken as follows: (a) “A term of years commencing May 1, 1953, and ending with the filing of this First Amended Complaint” and the Declaration of Taking filed the same day, and (b) Upon the conclusion of the exclusive use and occupancy described in sub-paragraph (a) above, the estate taken is the fee simple title subject to existing easements * * * ”. Objection was heretofore made by defendant land owners concerning the language of the First Amended Complaint and the Declaration of Fee Taking. The objection was justified in that in substance the government attemped to end the term taking with the filing of the First Amended Complaint on June 16, 1955. Thereafter, on August 23, 1955, the government filed an Amendment to the First Amended Complaint reading as follows: “5. The estates in the property to be acquired for said public uses * * * are as follows: (a) A term for years as more particularly described in paragraph 3 of the Declaration of Taking filed herein on April 29, 1953, under which said Declaration of Taking the right of use and occupancy was thereafter extended; (b) The fee simple title in and to the properties described in the original Complaint in Condemnation, as amended by the First Amendment to Complaint in Condemnation filed March 24, 1955, the First Amended Complaint in Condemnation, and Declaration of Taking filed herein, subject, however, to existing easements * * * effective upon the filing of the said declaration of fee taking, to-wit, June 16, 1955.” This amendment temporarily solved the dilemma and cured the defects in the First Amended Complaint, but it left open the questions we must now decide, namely, (1) when did the government’s fee taking become effective? (2) what did the government take by way of term? We pass the second question until after we dispose of the fee and option problems. II. The Government’s Fee Taking Was Effective On June 16, 1955, Subject To An Existing Term. On June 16, 1955, there is no dispute that the government had an existing term in the property, regardless of the election filed May 31, 1955. The government’s term, by virtue of the pri- or election of May 19, 1954, ran to June 30, 1955. Thus, there was still two weeks of that term left when the First Amended Complaint and the Fee Taking Declaration was filed on June 16, 1955. The court has no doubt that the government, having taken a term for years, may thereafter take the fee. What the government decides to take is a matter solely within the prerogative of the Executive Department rather than the Judiciary, Old Dominion Land Co. v. United States, 1925, 269 U.S. 55, 46 S.Ct. 39, 70 L.Ed. 162; Mead v. City of Portland, 1906, 200 U.S. 148, 26 S.Ct. 171, 50 L.Ed. 413. The United States can “always acquire a greater interest in the property than it already possessed,” United States v. 6.74 Acres of Land in Dade County, Florida, 5 Cir., 1945, 148 F.2d 618, 620. Nor does the taking of the fee by the government on. June 16, 1955. subject to the term estate it already owned and possessed, run contra to the cases relied upon by the defendants, United States v. Bauman, D.C.Or.1943, 56 F.Supp. 109; United States v. 16,572 Acres of Land, More or Less, D.C.S.D. Tex.1942, 45 F.Supp. 23; United States v. Sunset Cemetery Co., 7 Cir., 1943, 132 F.2d 163; Catlin v. United States, 1945, 324 U.S. 229, 65 S.Ct. 631, 89 L.Ed. 911. The taking on June 16, 1955, was not an attempt to diminute the term ending June 30, 1955, which had already been taken, without the consent of the parties or court in contravention of 40 U.S.C.A. § 258(f), nor an attempt to enlarge or vary the term taking, but was in effect a new taking of a new estate, that is the fee subject to an existing term already held by the government. It was therefore not an attempt to amend the original taking. The court concludes that on June 16, 1955, by the First Amended Complaint and by the Declaration of Taking, the fee, subject to the existing term in the government, was taken. We discuss later whether that term ran to June 30, 1955 or to June 30, 1956. III. Method of Valuation of The Option and The Term Estate. The method to be used in valuation in this case presents a difficult problem as to the option and the term estate. The three major defendants have proposed three different methods of valuation, and the government, a fourth method. 1. Mr. Janofsky, representing the Children’s Aid Society and Assemblies of God, urges that there be determined the fair market rental value for the first fourteen months, as of May 1, 1953, including as an integral part, the value of the option to renew affecting the property until June 30, 1958. That the same method be used as of July 1, 1954, to evaluate the fair market rental value of the first option year, July 1,1954 to June 30, 1955, that is, include as an integral part, the value of the option. And that the same method be used for the second option year July 1, 1955 to June 30,1956, but valuation to be placed as of July 1, 1955. 2. Rubin and Seltzer, representing the Salvation Army urge that the method be as follows: Ascertain the fair market rental value for the first fourteen months, including as an integral part thereof the value of the option to renew. That the rental for any extended term, or terms, shall be fixed as of May 1, 1953, but not necessarily at the same rate as that for the original term. Apparently Rubin & Seltzer would value the option only once, but would value the terms separately, all as of May 1, 1953. This approach differs from Janofsky’s, in that Janofsky would value the option at the beginning of each term as part of the fair market rental value of the term. 3. Mr. Burrill, representing defendant Carlstrom, would ascertain the fair market value for the first fourteen months’ term and include as an integral part thereof, the value of the option to renew. The rental value for extended terms would be at the same rate per year, i.e. ^iths of the value fixed for the first term. This would inferentially include the value of the option, in the value fixed for each additional term. 4. Mr. McPherson, representing the government, on the other hand urges that two separate valuations be made. First; That the fourteen months’ term be valued and that the annual rate for additional terms be thereby fixed, that is, twelve-fourteenths of the amount fixed for the first fourteen months’ term; and urges that since the government could separately condemn a term on each July 1st, there was no object in taking an option or no real consideration for the government’s payment for an option unless there existed a right for the renewal of the term at the same rental basis. Secondly, the government says that the option to renew is to be separately valued, as it affected the property until June 30, 1958, and just compensation therefor is payable whether or not the option was in fact exercised. There are no authorities squarely in point on these propositions. We are impressed by re-reading various of the Supreme Court decisions, United States v. General Motors Corp., 1945, 323 U.S. 373, 65 S.Ct. 357, 89 L.Ed. 311; United States v. Petty Motor Co., 1946, 327 U. S. 372, 66 S.Ct. 596, 90 L.Ed. 729; and United States v. Westinghouse Elec. & Mfg. Co., 1950, 339 U.S. 261, 70 S.Ct. 644, 94 L.Ed. 816, that the Supreme Court has approached similar condemnation problems largely on a basis of logic and common sense and with an intent to apply the general principles of property law to the particular problems. We think there is no alternative but to adopt the same approach to our problem. We start therefore with general principles: (1) The option right, which the government has taken, has resulted in contingently tieing up landowner’s property to a future date of June 30, 1958. For this the government concedes it must pay just compensation, whether or not the option was exercised. (2) The government has taken and used the fourteen months’ term and all but two weeks of an extended term of one year. Certainly for the first and second year terms (minus two weeks) the government must pay just compensation. (3) The government elected on May 31, 1955 to take a third year term, but before it went into possession and occupancy, which would have begun on July 1, 1955, it filed on June 16, 1955, a taking of the fee. Query: Whether the government must pay for the use and occupancy of a third year term which it claims it never used and occupied. The query is made more important by the fact that we start with the premise that the government must pay for the option, whether fully exercised or not. A. The Effect of The Option To Renew Passing for a moment, the valuation of the option, we are of the view that the option to renew had the effect of permitting the renewal of the term, at the government’s election upon the same rate of rent as the previous term. We base this conclusion on the following line of reasoning: The power of eminent domain is an inherent attribute of sovereignty, is inexhaustible and may be exercised as often and as many times and at such periods as may be necessary to discharge and perform a Congressional mandate to accomplish the public use authorized and directed. The government therefore, without an option, could have taken a term for fourteen months beginning May 1, 1953 and subsequently by a separate taking, taken a term for one year, beginning July 1, 1954 and successive terms thereafter as long as it desired. What therefore, was the reason and purposes of taking an option to renew the terms upon the filing of an election? The option would be meaningless unless it is to be held that the rental for the renewed term was at the same rate as the previous term. Secondly, the government must pay a consideration for the option, as we have already stated. It must pay just compensation for that option. What consideration would there be for the government’s option and for the monies paid therefor, unless it was a premium for the privilege of exercising the right to continue occupancy at the rental first established? There is little in the books that help us on this matter. There is a sentence in United States v. Westinghouse Elec. & Mfg. Co., 1950, 339 U.S. 261, at page 265, footnote 3, 70 S.Ct. 644, at page 647, reading, “Problems relating to the valuation of renewal options are not before us on this record. It need hardly be said that provision for renewal does not necessitate the same rental for the renewed period as for the initial period * * * The problem was not before the court and the statement appears only in the footnote, and certainly is not controlling. Jackson, in his dissent in the same case, approached the problem in more detail, stating, “The United States needs no such option, for its inherent condemnation power, by its very nature, is a perpetual option to take, at any time, any property it needs * * * He then proceeded, “If, let us say, the price level should fall, the Government, even though it wants the property, is not bound to keep it on the option terms * * * it may abandon the option and take the property under a new declaration, thereby getting a new valuation in the light of the lower price level. If, however, prices go up, the Government can use its condemned option to keep the owner from enjoying the rising value of his property as other owners may do. The taking of a term with an option to lengthen is therefore no more than a hedge against inflation.” 339 U.S. at page 272, 70 S.Ct. at page 650. [Emphasis supplied.] We submit that Jackson’s approach is far more realistic than the single sentence in footnote 3, and it is in accord with the ordinary commercial and real property view as to the nature of an option. “ ‘A general covenant to extend or renew implies an additional term equal to the first, and upon the same terms, including that of rent, except the covenant to renew; to include which would make the lease perpetual.’ Taylor’s Landlord and Tenant, § 332; 16 R.C.L. 887 * * * Penilla v. Gerstenkorn, 1927, 86 Cal.App. 668, at page 670, 261 P. 488, at page 489. The case relied upon by the defendants, United States v. Certain Parcels of Land, D.C.Md.1944, 55 F.Supp. 257, in turn relied upon the earlier case, United States v. 16.747 Acres of Land, D.C.Del.1943, 50 F.Supp. 389, 391. In the earlier case the court said, “Certainly an expert appraiser can determine a fair annual rental, determined as though the government had rented the property for a year with an option to renew from year to year * * * ”, and followed this by a quotation from Johnson v. United States, 4 Ct.Cl. 248-250, “The amount thus found may be regarded in future as the established and agreed rent of the premises as long as the govemment shall elect to occupy under the implied lease.’ ” [Emphasis supplied.] We conclude that what the government is paying for, when it takes the option, is the right to a renewal of the term at the same rental. Nor can the defendants who owned the land on May 1, 1953, be hurt by this ruling, for the jury will be told that the rent they fix for the first fourteen months’ term will determine the rent which the government must pay for additional years of renewal of the lease on a basis of %4ths of what is allowed for the first term; and the jury will be told that for this privilege, of renewal at the same rental, the government is paying for an option which runs until 1958; and that the defendants are entitled to just compensation, that is a fair market value, as of May 1, 1953, of that option, which has the effect just enumerated, and just compensation for the option, whether it is exercised or not. Thus, the jury in awarding compensation, may fix in the award for the option, that amount of money which will compensate such defendants for the fact that their propery is tied up on a renewable term at a fixed rental. But land owners who became purchasers, subsequent to the May 1, 1953 taking of the option, say they are hurt; that such a ruling gives all the option money to the original fee owner and leaves them only the rental value of the term taken. The answer to this is that such subsequent purchasers took the property, subject to the rights the government had acquired on May 1, 1953 and with notice thereof. The option money is being paid because this will represent just compensation to the then land owner for the option taken which contingency tied up and encumbered his property to June 30, 1958, and which gave the government the right to renew the term at its sole election on the same rental as the first term. The option right was taken only from the land owners of May 1, 1953 and not from the subsequent purchasers of the fee. B. Should The Option Be Valued Separately Or As Part Of The Award For The Term. Again we approach the problem largely on a basis of logic, with what little help we can gather from the cases. In United States v. General Motors Corp., 1945, 323 U.S. 373, at page 377, in footnote 3, 65 S.Ct. at page 359, the court said, “The case now presented involves only the original taking for one year. If, on remand, the case be treated as involving the Government’s option of renewal, the additional value of that interest must be included in the compensation awarded.” [Emphasis supplied.] It will be noted the court did not say that one lump sum must be awarded for the term and the option, but that the value of the option must be included in the award. It is true that in the same ease, in speaking of the elements of removal damage, re labor, materials, transportation and storage, as affecting fair market value for a lease, the court said, “Such items may be proved, not as independent items of damage but to aid in the determination of what would be the usual- — -the market — price which would be asked and paid for such temporary occupancy of the building then in use under a long term lease,” 323 U.S. at page 383, 65 S.Ct. at page 362. But in the same case, in speaking of the tenant’s right to fixtures and equipment taken, the court said, “In respect of them, the tenant whose occupancy is taken is entitled to compensation for destruction, damage or depreciation in value. And since they are properly distinct from the right of occupancy such compensation should be awarded not as a part of but in addition to the value of the occupancy as such,” 323 U.S. at page 384, 65 S.Ct. at page 362. In United States v. Westinghouse Elec. & Mfg. Co., 1950, 339 U.S. 261, at page 268, 70 S.Ct. 644, at page 648, 94 L.Ed. 816, the court said, “Even in the cases where the event is still open, the cost of moving out, insofar as it is to be reflected in just compensation, may be treated as a segregated item.” [Emphasis supplied.] We do not think it is a matter of substance, whether the option right is valued separately from the term or as a part of it, so long as the ultimate award reflects a consideration of and an allowance for both the option and the term. In this case it would seem more logical, more workable and more just to have the option separately valued from the term and then include both in the final award. Such a procedure meets the requirements stated by Judge Fee, in United States v. Bauman, supra, 56 F.Supp. at page 118: “* * * What has been said establishes the fact that a stipulation permitting the United States to renew this lease from year to year in perpetuity without the consent of the landowner constitutes the taking of a valuable property interest at the present time, for which just compensation must be paid in the proceeding.” [Emphasis supplied.] Furthermore, such a procedure obviates the vice in the suggestions made by Mr. Janofsky, who would have the option valued each time there was a renewal of the term; the vice in the suggestion of Rubin and Seltzer, that the option be valued as a part of the first term taken but that the rental for additional terms need not necessarily be at the same fixed rate; and the vice in the suggestion of Mr. Burrill that the option be valued as part of the first term taken and that each additional term be valued at %.ths of the amount first fixed, which of course included the option' right and therefore the result is that the option right is valued in each of the succeeding terms. There is a further vice in the suggestion of the defendants, which we obviate by the method herein determined. Mr. Janofsky’s method would only value the option as part of each term taken. Thus he would value it on May 1, 1953, July 1, 1954 and July 1, 1955. Actually the option taken gave further rights of renewal of the term on July 1, 1956, and July 1, 1957. On each of the first three dates he would value the option as including the right “to renew for yearly periods to June 30, 1958.” Thus, you have either duplicating valuations of the option or possibly no valuation for the right to exercise the option on July 1, 1956 and July 1, 1957. True, on appeal defendants could not complain of an erroneous method urged upon and adopted by the court, but bad law might result. Mr. Burrill’s method definitely results in duplicating the value of the option and makes no provision for valuing the right to extend on July 1, 1956, and July 1, 1957. The court concludes that the option right should be valued separately from the term as of May 1, 1953 but included in the general award of compensation. By this method, the defendants are paid for the term taken, and paid for the option taken, whether used or not. IV. What Term Did The Government Take? Should The Defendants Receive Compensation For The Term From July 1, 1955 to June 30, 1956? A. The Problem and The Contentions The more difficult problem is what was the term taken by the government as affected by the fee taking on June 16, 1955? Reading the original complaint and the original Declaration of Taking, it involved a term for years commencing May 1, 1953, extendable at the election of the United States until June 30, 1958. Nothing remained for the government but to give notice of elections to extend for yearly periods, at least thirty days prior to the end of the first term taken, or 30 days prior to the end of the subsequent year terms taken. After such original taking, the United States on May 19, 1954, “ * * * pursuant to the privilege of election vested in the plaintiff by the Declaration of Taking on file herein,” (obviously referring to the Declaration of Taking of April 29, (1953), elected to take the additional year. We have already commented that the Supplemental Declaration of Taking filed July 30, 1954, was nothing but a further estimate of compensation. On May 31, 1955, the second election was exercised by use of language identical to the first election. There is no dispute by any of the parties that there was still in existence approximately two weeks of the second term. Defendants now contend that the taking of the third year term was completed upon the notice of election of May 31, 1955, although the money or compensation for the term was not due and payable until July 1, 1955; that the election on May 31, 1955 did everything provided for in the original declaration of taking to make the third year term effective; that therefore the government has taken the term and cannot, by the fee taking, cut down the term previously taken; that the defendants are entitled to a third year’s rent which must be valued and compensation awarded; and that if the fee taking was effective on June 16, 1955, the fee must be valued, not as a fee absolute but as a fee less the third year term already taken. The government, on the other hand, contends it never went into the use and occupancy of the third year term; that it had merely filed its election to renew under the option and that it should not therefore pay for the third year term; that in any event, if it took the third year term, then a merger has taken place; that the third year term, if it was taken, merged with the balance of the fee taken; that the government, in substance, becomes its own landlord for the third year which the government says is an impossibility. B. Was The Third Year Term Taken? (a) The effect of the election of May 31, 1955. The government concedes it took an option to renew the term. California lease and option law, we think, assists in our problem. To avail itself of an option for renewal, “a tenant must apprise the lessor in unequivocal terms of his unqualified intention to exercise his option in the precise terms permitted by the lease. 32 Am.Jur., sec. 979, p. 822. ;See, Braun v. Leo G. MacLaughlin Co., 93 Cal.App. 116, 120-121, 269 P. 191 * * An option is an offer by which a promisor binds himself in advance to make a contract if the optionee accepts upon the terms and within the time .designated in the option. Since the .optionor is bound while the optionee is .free to accept or not as he chooses, .courts are strict in holding an optionee ¡bo exact compliance with the terms of .the option,” Hayward Lumber & Investment Co. v. Construction Products Corp., 1953, 117 Cal.App.2d 221, 228-;229, 255 P.2d 473, 477. (Emphasis supplied.) “Where a lease gives to the lessee the option of a renewal for a given term at the same rental, undoubtedly a notice of election given in time is suificient to extend the term. Andrews v. Marshall Creamery Co., 118 Iowa 595, 92 N.W. 706, 96 Am.St.Rep. 412; Ewing v. Miles, 12 Tex.Civ.App. 19, 33 S.W. 238; Wiener v. Graff, 7 Cal.App. 580, 95 P. 167. * * *,” Bettens v. Hoover, 1909, 12 Cal.App. 313, at page 316, 107 P. 329, at page 331. “The lessee exercised his right by giving the lessor a written notice to -that effect. This was all that was necessary to extend the lease for another term. Howell v. City of Hamburg, 165 Cal. 172, 131 P. 130; Wiener v. Graff, 7 Cal.App. 580, 95 P. 167. * * Becker v. Submarine Oil Co., 1921, 55 Cal.App. 698, at page 700, 204 P. 245, .at page 246. We think the election above, was sufficient to «extend the term. (b) The Possession of the Government The government claims it never went into possession of the third term. “Options for renewal such as that under consideration are generally held to be in the nature of a present demise for the full period including the renewal period,” Erickson v. Boothe, 1947, 79 Cal.App.2d 266, 272, 179 P.2d 611, 615. (Emphasis supplied.) The above case has an extended discussion of this problem, and quotes from other cases and texts, 79 Cal.App.2d at pages 272 to 276, 179 P.2d at pages 614 to 617. At page 273 of 79 Cal.App. 2d, at page 615 of 179 P.2d it quotes from Orr v. Doubleday, Page & Co., 223 N.Y. 334, 119 N.E. 552, 1 A.L.R. 338, “The language in question of the lease at bar means that the demise was for ten years absolutely and for ten additional years in case the lessee so elected, and gave the required notice of its election. The lease is a present demise of the premises. The defendant entered into occupation under it. The lessor had no choice or decision in the matter of renewal * * * The only acts called for to effect the renewal are on the part of the defendant * * * A new lease would be useless. The acts of the defendant alone were intended, inasmuch ( ) as the lease enumerates no other act to extend the stipulations of the lease to the occupation through the additional years * * * ”. This gist of the cases cited is that upon renewal, (to use the words of a California case cited) “the lease would then become a lease for both the original and extended terms,” Wiener v. H. Graff & Co., 1908, 7 Cal.App. 580, 583, 95 P. 167, 169. We think that upon the election of May 31, 1955 the term was extended to June 30, 1956, and that no new entry into possession on July 1, 1955 was required. (c) Deposit of Fair Compensation Nor does the fact that a deposit of estimated fair compensation was to be later made, have any bearing on the existence of the third term, in view of the government’s possession. Upon the election by the optionee, “ '* * * [P]ayment or tender is not essential unless it is a condition precedent.’ 66 C.J. 500.” Murfee v. Porter, 1950, 96 Cal.App.2d 9, 18, 214 P.2d 543, 549. Accord, Cates v. McNeil, 1915, 169 Cal. 697, 705-706, 147 P. 944. Unless the option contains a condition precedent requiring the payment of money, all the optionee need do to make the option effective, is to give the proper notice, Cates v. McNeil, supra, Lack v. Western Loan & Building Co., 9 Cir., 1943, 134 F.2d 1017, 1021. Sec. 258a, Title 40 U.S.C.A. requires, as one condition for the passing of title, the deposit of the estimated compensation. Because the term here taken was coupled with an option, it may be possible that the present situation differs from a case where no option was taken and where successive terms were taken by successive declarations of taking. In the latter ease, each declaration of taking would have to be accompanied by the estimate and deposit of fair compensation before title to each successive term would pass to the government. In fact when the second year term was taken, the election' to extend the term was filed May 19, 1954, and there was filed on July 30, 1954 a so-called declaration of taking which merely recited the making of the election and estimated the just compensation for the second year term. The government concedes it took the second year, term even though the just compensation was not estimated and deposited until at least thirty days after the start of the term. However, we would not want to fly in the face of See. 258a insofar as the passing of title is concerned. Suffice it to say, the government elected to take the third year term under its original declaration of taking and being already in possession, and the term being merely extended (see cases, supra), the government was then in possession of a term running to June 30,1956. C. What Was The Effect Of The Fee Taking, On The Term Running To June 30, 1956? Having held that the government has taken a term running to June 30, 1956, what was the effect of the fee taking on June 16, 1955? The power of eminent domain is an inherent power of sovereignty. The time, manner and method of its exercise are and can be regulated only by the mandate of Congress and by the application of the provisions of the Fifth Amendment. United States v. Jones, etc., 1883, 109 U.S. 513, 3 S.Ct. 346, 27 L.Ed. 1015; Berman v. Parker, 1954, 348 U.S. 26, 75 S.Ct. 98, 99 L.Ed. 27. See Boom Co. v. Patterson, 1878, 98 U.S. 403, 406, 25 L.Ed. 206. Sec. 258a, Title 40 U.S.C.A., states in part, “Upon the filing said declaration of taking and of the deposit in court, to the use of the persons entitled thereto, of the amount of the estimated compensation stated in said declaration, title to the said lands in fee simple absolute, * * * shall vest in the United States of America * * * ”. (a) Sec. 258a, Title 40 U.S.C.A. is not Modified or Limited by Rule 71A, Rules of Civil Procedure, 28 U.S.C.A. We must now consider the construction of Sec. 258a, Title 40 U.S.C.A. (Act of Feb. 26, 1931, c. 307, § 1, 46 Stat. 1421) and Rule 71A, Rules of Civil Procedure. First, the law is clear that §§ 258a to 258e [Act of Feb. 26, 1931, c. 307, §§ 1-5, 46 Stat. 1421] is a supplementary condemnation statute and adds to the other statutes on condemnation, the right of the government to take title immediately upon fulfillment of the conditions set forth in Sec. 258a. The statute so states, See. 258d, Title 40 U.S.C.A. The original report of the Advisory Committee reads in part as follows concerning Rule 71A: “Rule 71A is not intended to and does not supersede the Act of February 26, 1931, c. 307, §§ 1-5 (46 Stat. 1421), 40 U.S.C. §§ 258a-258e, which is a supplementary condemnation statute, permissive in its nature and designed to permit the prompt acquisition of title by the United States, pending the condemnation proceeding, upon a deposit in court. See United States v. 76,-800 Acres, More or Less, of Land, in Bryan and Liberty Counties, Ga., D.C.S.D.Ga.1942, 44 F.Supp. 653; United States v. 17,280 Acres of Land, More or Less, Situated in Saunders County, Neb., D.C.D. Neb.1942, 47 F.Supp. 267 * * The note to subdivision (i) of Rule 71A concerning dismissal reads as follows: “Note to Subdivision (i). Both the right of the plaintiff to dismiss by filing a notice of dismissal and the' right of the court to permit a dismissal are circumscribed to the extent that where the plaintiff has acquired the title or a lesser interest or possession, viz., any property interest for which just compensation should be paid, the action may not be dismissed, without the defendant’s consent, and the property owner remitted to another court, such as the Court of Claims, to recover just compensation for the property right taken. Circuity of action is thus prevented without increasing the liability of the plaintiff to pay just compensation for any interest that is taken. Freedom of dismissal is accorded, where both the condemnor and condemnee agree, up to the time of the entry of judgment vesting plaintiff with title. And power is given to the court, where the parties agree, to vacate the judgment and thus re-vest title in the property owner * * * >> Rule 71A(i) which became effective August 1, 1951, contained therein the principles previously established by case law, namely that if the plaintiff had not acquired title or a lesser interest in the property, or had not taken possession, and if no hearing had begun to determine compensation, the plaintiff could dismiss as a matter of right [Rule 71A(i) (1)]. Before the entry of judgment vesting plaintiff with title or possession, the parties might stipulate to a dismissal in whole or in part without an order of court or on stipulation the-court might vacate any judgment that had been entered. [Rule 71A(i) (2)].. Power was given the court before compensation had been determined and paid for property and after hearing and: motion, to dismiss the action as to-particular property, except it was not. permitted to dismiss the action as to property of which the plaintiff had taken possession, or in which the plaintiff had taken title or a lesser interest. [Rule 71A(i) (3)]. The substance of these parts of the-rule are in line with the prior case law,. United States v. Sunset Cemetery Co.,. 7 Cir., 1942, 132 F.2d 163; United States v. Bauman, D.C.Or.1943, 56 F.Supp. 109; United States v. 16,572 Acres of Land, D.C.Tex.1942, 45 F.Supp. 23. Thus, we conclude there is-nothing in Rule 71A which prevents the-government taking more, or a greater estate in property after an earlier taking. Rule 71A definitely puts limitations on attempts by the government to-decrease or limit a taking, after title has vested or the government has gone-into possession. An analysis of defendants’ cases, squares with the above conclusion. United States v. Sunset Cemetery Co., 7 Cir., 1942, 132 F.2d 163 held that, when the government by declaration, of taking, had taken the fee simple subject only to highway easements, it therefore took an existing easement for-drainage purposes, and after the vestIng of the title in the government, it could not divest itself of the drainage easement by amending the declaration of taking. United States v. Bauman, D.C.Or.1943, 56 F.Supp. 109, held that when the government in October 1942 sued to condemn a term for years running to June 1945, cancellable by election in June 1943 or June 1944, and took possession under court order, the government could not by a declaration of taking in September 1943, vary its taking by describing a term running to June 1944 with options to renew throughout the national emergency. The declaration of taking was stricken and a motion to file an amended complaint, describing the shorter term, was denied. United States v. 16,572 Acres of Land, D.C.Tex.1942, 45 F.Supp. 23, held that where the government by declaration of taking had taken the fee simple, it could not amend the declaration of taking and the complaint to exempt oil and mineral rights from the taking. We do not consider that Catlin v. United States, 1945, 324 U.S. 229, 65 S.Ct. 631, 89 L.Ed. 911, cited by defendants, or the same case in the Circuit, United States v. Catlin, 7 Cir., 1944, 142 F.2d 781, assists in any way. None of these eases hold that once the government has taken a part of the fee, or a lease, it cannot take more. On the other hand, in Simmonds v. United States, 9 Cir., 1952, 199 F.2d 305, the government having sued for a 15 year’s easement was permitted to amend, to sue for the fee. In United States v. 6.74 Acres of Land in Dade County, Fla., 5 Cir., 1945, 148 F.2d 618, the government, owning and in possession of a negotiated lease, could nevertheless file a declaration of taking and take the fee. In United States v. Certain Parcels of Land in City of Baltimore, D.C.Md.1944, 55 F.Supp. 257, the fact that there was in existence, the Bethlehem lease, which the government had the right to take over as assignee, did not prevent the government from taking a term by condemnation, though it got no greater or other interest than it could have obtained under the terms of the lease. (b) Merger and Effect Thereof. Having concluded that the government took the third year term as an extended part of the term already taken, the question now arises as to what is the effect of the fee taking and whether the third year term must be valued separately, or as part of the fee. The government urges that a merger occurred. There is no doubt as to the general rule of property law that when an estate for years and a greater estate vest in the same person without'an intermediate estate being in existence, a merger occurs, Jameson v. Hayward, 1895, 106 Cal. 682, 39 P. 1078; Buell v. Simon Newman Co., 9 Cir., 1946, 154 F.2d 35, construing California law; and the same case below, Buell v. Simon Newman Co., D.C.No.Cal.1945, 61 F. Supp. 157. Equity, on a proper showing will prevent the merger, Jameson v. Hayward, supra. The controlling consideration is the intention, expressed or implied, of the person in whom the estates unite. Ito v. Schiller, 1931, 213 Cal. 632, 635, 3 P.2d 1; Jansen v. Burton, 1931, 117 Cal.App. 66, 70, 3 P.2d 324; Jameson v. Hayward, supra, 106 Cal. 688-689, 39 P. 1079-1080. In the Jameson case, the action was for partition between tenants in common of an estate for years and, in commenting upon the merger, the court says: “In consonance with these principles, equity will prevent or permit a merger as will best subserve the purposes of justice and the actual and just intent of the parties (citing cases). In other words, equity is not guided by rules of law as to merger (citing cases). In the absence of an expression of intention, if the interest of the person in whom the several estates have unvtecL, as shown from all the circumstances, would be best subserved by keeping them separate, the intent so to do will ordinarily be implied. Such is the rule enunciated in the cases cited supra.” 106 Cal. at pages 688-689, 39 P. at page 1080. In our case it was the obvious and declared intention of the government to take the fee as of June 16, 1955. Even if equitable considerations, running in favor of the landowners, could be considered, rather than the intention of the party in whom the estates unite, we see no such equitable considerations. We hereafter discuss valuation and show that the defendant landowners cannot be hurt. Moreover, the government’s right to secure complete and perfect title by fee taking under Sec. 258a should not, and cannot be limited or restricted. As the Fifth Circuit said in United States v. 6.74 Acres of Land in Dade County, Fla., 5 Cir., 1945, 148 F.2d 618, 620, “The holding of the court below that the Government * * * could not condemn more than the reversionary interest in Tract No. 2, proceeds upon the assumption that the Government would thus- acquire a perfect title to the property from its lessor, and denies to the Government the right in condemnation cases to resort to a course which would establish in it an indefeasible title, good against the world. We find nothing in the Congressional Acts under which the Secretary of War proceeded that permits courts to inquire into and to thus limit the right of the Government in condemnation proceedings. * * * It does, however, make a difference to the Government, whether it obtains a fee title by operation of law or by eminent domain since under the latter course it acquires a title which is unassailable.” Simmonds v. United States, supra, and United States v. Certain Parcels of Land in City of Baltimore, supra, confirms our view that the government took the fee simple absolute on June 16, 1955 and the existing third year term merged therein. (c) The Right to the Rent follows the Fee. After June 16, 1955, the government Would be Entitled to the Rent (the Fair Market Value) of the Third Year Term, if it existed Separately and did not Merge with the Fee. Where a lease exists and the fee is sold, the parties may by agreement determine who takes the future rent payments. But in the absence of such agreement, the right to the rent follows the fee title. Fahrenbaker v. E. Clemens Horst Co., 1930, 209 Cal. 7, 9, 284 P.905, holds: “ ‘Rent is not, in common law regarded as accruing from day to day, as interest does, but it is only upon the day fixed for payment that any part of it becomes due. The result of this principle is that, ordinarily, the person who is on that day the owner of the reversion is entitled to the entire installment of rent due on that day, though he may have been the owner of the reversion or rent but a part of the time which has elapsed since the last rent day. * * * When the landlord makes a conveyance of the reversion, the grantee is entitled, in the absence of a contrary stipulation, to all of the rent which falls due at the next rent day.’ Tiffany on Landlord and Tenant, § 176 * * * ”. (Emphasis supplied.) The case is significant because there was an involuntary transfer of the fee. In accord with the above case, Kier Corp. v. Treasure Oil Company, 1943, 57 Cal.App.2d 829, 840, 136 P.2d 59; Ogden’s California Real Property Law, 1956, Sec. 8.32, p. 337. See: Hindin v. Caine, 1951, 104 Cal.App.2d 238, 231 P.2d 83; See In re Owl Drug Co., D.C.Nev.1935, 12 F.Supp. 446; Teich v. Arms, 1907, 5 Cal.App. 475, 90 P. 962; Civil Code Sec. 1111. Murphy v. Hopcroft, 1904, 142 Cal. 43, 75 P. 567, illustrates the reverse situation. Rents due before the passing of the fee, cannot be recovered by the new fee owner. We conclude that the rights to rents follow the fee in the absence of express agreement. In the case at bar there was no agreement since the title passed by operation of law. The defendant landowners, after June 16, 1955, would have had no rights to rents due July 1, 1955. They likewise have no right to the equivalent of rent, i. e. the fair market value of the third year term, due July 1, 1955, even if no merger occurred. (d) How Compensation shall be Determined for the Fee. It is obvious defendants are urging their contention that a third year term was taken and must be valued apart from the fee, because they think it will result in more money for the landowners — i. e. that the allowance for "the third year term, plus the allowance for the fee as of June 16, 1955, less “the existing third year term, will be .a larger amount than if the fee simple was valued free and clear as of June 16, 1955. But the decision of this court that the option is to be valued separately for its full effective term, whether exercised or not, has changed the whole picture on valuations of term and fee. By our holding that the government took the fee simple absolute on June 16, 1955, and that a merger of the estates then occurred, the defendants cannot be hurt on the valuation of the fee simple absolute as of June 16, 1955. We pass for a moment the question of the remaining two weeks of the second year term. We have held that the first and second year terms are to be valued at the same rental rate, that is the second year term, at Uiéths of the first year term and the option is to be valued separately. Because of this holding, if the third year term was to be valued separately, it would also be valued as of May 1, 1953 at the same rate as the first year term (%4ths of the first year term). If the third year term was valued separately as of July 1, 1955, it would undoubtedly be worth more than when valued as of May 1, 1953. Of course the compensation for the option right would make the owner whole. The fallacy of the defendants’ thinking, that they could secure more money by the valuation of the third year term separately, plus the valuation of the fee on June 16, 1955 less the value of the third year term, is now apparent. Under such a system they would receive a third year term valued as of May 1, 1953 but the jury would be instructed to deduct from the fee valuation on June 16, 1955, the value of a third year term valued as of July 1, 1955. Thus, the amount that would be deducted by the valuation of the third year term to diminish the fee, would be undoubtedly more than the defendants would receive for their separate valuation of the third year term as of May 1, 1953. We think the mechanics of the matter will work out as follows: The fee taking eliminates all lesser titles and vests the entire title in the government. The jury will make an award of just compensation for the fee simple absolute and not for particular parts of the title. On distribution of the fund the former owners will be entitled thereto, less the rights of the lessees. The lessee will b