"Different methods of estimating the value of property may properly be employed when it is valued for different purposes. When a valuation is placed on property which has become affected by a public use, for the purpose of ascertaining whether the maximum rate of compensation fixed by law for its use is reasonable or otherwise, it is obvious that the income derived therefrom by the owner before it was subjected to legislative control cannot always be accepted as a proper test of value because the compensation which the owner charged for its use may have been excessive and unreasonable. Again, when property has been capitalized by issuing stock, neither the market value nor the par value of the stock can be accepted in all cases as a proper criterion of value, because the stock may not represent the money actually invested, and furthermore because the property may have been capitalized mainly with reference to its income producing capacity, on the assumption that it is ordinary private property which the owner may use as he thinks proper without being subject to legislative control. On the other hand, however, when property is valued for the purpose last stated, it is clear that the owner thereof is entitled to the benefit of any appreciation in value above the original cost and the cost of improvements, which is due to what may be termed natural causes. If improvements made in the vicinity of the property, the growth of city or town where it is located, the building of railroads, the development of the surrounding country and other like causes, give property an increased value, the owner cannot be deprived of such income by legislative action which prevents him from realizing an income commensurate with the enhanced value of his property."
The language of the late Judge Brewer, sitting as one of the circuit judges in the case of National Water-Works Company vs. Kansas City (62 Fed., 853), is definite as to the necessity of taking into account some elements of intangible value, and is here quoted as giving the views of this eminent jurist:
"The difficult question, however, still remains; and that is, what is the 'fair and equitable value,' which by the statute and ordinance the city is to pay for the water-works? * * * We are not satisfied that either method, by itself, will show that which under all the circumstances can be adjudged the 'fair and equitable value.'
"Capitalization of earnings will not, because that implies continuance of earnings, and a continuance of earnings rests upon a franchise to operate the water-works. The original cost of construction cannot control, for original cost and present value are not equivalent terms. Nor would the mere cost of reproducing the water-works plant be a fair test, because that does not take into account the value which flows from the established connections between the pipes and buildings of the city. * * * A complete system of water-works, such as the company has, without a single connection between the pipes in the streets and the buildings of the city would be a property of much less value than the system connected as it is with so many buildings and earning, in consequence thereof, the money which it does earn. The fact that it is a system in operation, not only with a capacity to supply the city but actually supplying many buildings, in the city—not only with a capacity to earn but actually earning—make it true that the 'fair and equitable value' is something in excess of the cost of reproduction."
The foregoing authorities cover practically all the older cases in the Federal Courts. These cases have been examined, and such of the subject matter has been quoted as would show the conclusions of the Courts as to what constitute the various elements of true value. The latest Federal decision bearing on the subject, and in many ways the most replete with argument, is the case of Consolidated Gas Company vs. City of New York (157 Fed., p. 849), which was decided in December, 1907.
In this case the valuation was determined by the master:
1.—A valuation of tangible assets, consisting of real estate, plant, mains, services, meters and miscellaneous equipment, and the property of subsidiary companies, the whole aggregating $63,357,000. Of this an allowance of $3,616,000 was made by the master for working capital, and this entire amount was treated as tangible property.
2.—Finally, an intangible value of 0,000,000 was assigned by him to the franchise and good will.
Objections were raised, as follows:
(A) Land values represent no original investment by the Company, do not indicate land especially appropriate for the manufacture of gas, and increase the apparent assets without increasing the earning power.