Lead Opinion
Thе issue for our consideration is whether the BTA’s valuation of the property was unlawful or unreasonable. For the reasons that follow, we find that the BTA’s decision was both unlawful and unreasonable, and, accordingly, we reverse the decision of the BTA.
R.C. 5713.03 provides, in part:
“In determining the true value of any tract, lot, or parcel of real estate under this section, if such tract, lot, or parcel has been the subject of an arm’s length sale between a willing seller and a willing buyer within а reasonable length of time, either before or after the tax lien date, the auditor shall consider the sale price of such tract, lot, or parcel to be the true value for taxation purposes.”
This court has held, on a number of prior occasions, that “[t]he best evidence of the ‘true value in money’ of real property is an actual, recent sale of the property in an arm’s-length transaction.” Conalco v. Monroe Cty. Bd. of Revision (1977),
In Walters, id. at the syllabus, this court defined what is meant by the phrase “arm’s-length sale”: “An arm’s-length sale is characterized by these elements: it is voluntary, i.e., without compulsion or duress; it generally takes place in an open market; and the parties act in their own self-interest.” (Emphasis added.)
In the case at bar, the BTA recognized, in light of Ratner and Waters, supra, that the question before it was “whether the sale of the subject property can be considered an arm’s-length sale, considering the totality of the circumstances surrounding the transaction. If it can, such sale would be used as the most probative evidence of the value of the property. If it cannot be so established, then the Board must look to other evidence of value set forth in the record before it.” However, in considering whether the sale was an arm’s-length transaction, and in rejecting Lakeside’s contention that economic necessity had forced Lakeside to purchase the property at an excessive price, the BTA applied the test for economic coercion set forth in Blodgett, supra,
In Blodgett, supra, syllabus, we held that “[t]o avoid a contract on the basis of duress, a party must prove coercion by the other party to the contract. It is not enough to show that one assented merely because of difficult circumstances that are not the fault of the other party.” (Emphasis added.) In Blodgett, we also stated:
“The law of duress as a reason to avoid a contract has evolved to encompass ‘economic duress’ as well as physical compulsion. 1 Restatement of the Law 2d, Contracts (1981), Section 176, Comment a. * * * A person who claims to have been a victim of ecоnomic duress must show that he or she was subjected to
“The United States Court of Claims summarized what a party must prove to establish duress: ‘[“]An examination of the cases * * * makes it clear that three elements are common to all situations where duress has been found to exist. These are: (1) that one side involuntarily accеpted the terms of another; (2) that circumstances permitted no other alternative; and (3) that said circumstances were the result of coercive acts of the opposite party. * * * The assertion of duress must be proven to have been the result of the defendant’s conduct and not by the plaintiffs necessities. * * *[”]’ (Emphasis added.) Urban Plumbing & Heating Co. v. United States (1969), [
Blodgett sets forth the applicable standards for avoiding a contract on the basis of economic duress. However, Lakeside does not seek to avoid any contract in this case. Rather, Lakeside claims that economic necessity forced it to purchase the property for an excessive price and that, therefore, the sale price should not have been considered by the BTA as the determinative factor in calculating true value. Accordingly, the issue here is whether the sale of the subject property was an arm’s-length transaction and reflective of true value— not whether the sale contract may be аvoided. Thus, the strict standards outlined in Blodgett for avoiding a contract on the basis of duress are clearly inapplicable here.
The BTA’s decision in this case highlights what appears to be an ongoing battle between the BTA and the Court of Appeals for Franklin County over the correct standard to be applied in considering whether a sale transaction constitutes an “arm’s-length sale” within the meaning of Walters, supra,
In Columbus Bd. of Edn. v. Franklin Cty. Bd. of Revision (Jan. 28, 1992), Franklin App. Nos. 90AP-317 and 90AP-324, unreported,
“The BTA apparently misconstrued this definition [of arm’s-length sale set forth in the syllabus in Walters, supra,
“An objective approach requires the BTA to consider whether, in general, an informеd willing buyer would have paid an informed willing seller $325,000 in the open market for this property without the special circumstances that Grange contends prompted it to pay the alleged premium price. Instead, the BTA considered only whether the individuals involved (Grange and the estate), under these circumstances willingly exchanged the property for a purchase price of $325,000. Obviously, they did since the seller (the estate) would be quite willing to accept a price greatly in excess of the actual fair market value where a buyer (Grange) is so anxious to acquire the property (for whatever reason) that it is willing to pay a substantial premium for the property — that is, an amount substantially in excess of its fair market value. The subjective motives of the buyer and seller may, therefore, be utilized to demonstrate the sale was the result of compulsion or duress.” Columbus Bd. of Edn, supra, at 6-7,
On remand from the court of appeals’ decision in Columbus Bd. of Edn., supra, the BTA did not reassess the arm’s-length nature of thе transaction under the criteria established by the appellate court. See Columbus Bd. of Edn. v.
Meanwhile, in Columbus Bd. of Edn. v. Franklin Cty. Bd. of Revision (Sept. 29, 1992), Franklin App. No. 92AP-281, unreported,
In the case at bar, the BTA brought to a head the conflict between its decisions and those of the Court of Appeals for Franklin County on the issue regarding the proper standard to apply in determining whether a sale of property was an arm’s-length transaction and the best evidence of true value. Specifically, in its decision, the BTA rejected the views of the Tenth District Court of Appeals on the issue of economic duress by expressly relying on Blodgett, supra,
“In considering whether a sale constituted an arm’s-length transaction, both the appellant [Lakeside] and the appellee school board discussed the applicability of [Columbus Bd. of Edn., supra, Franklin App. Nos. 90AP-317 and 90AP-324,
“This Board did not necessarily agree with the Tenth District Court of Appeals’ views оn economic duress as expressed in [Columbus Bd. of Edn., supra, Franklin App. Nos. 90AP-317 and 90AP-324, unreported,
“ ‘ “Subjective motives” relied upon by an individual buyer or seller in entering into a given transaction may be examined to determine if the sale was the result of compulsion or duress. * * *
“ ‘The fact that a buyer may be influenced by certain subjective factors or circumstances, alone, does not cause the sale price to be аn unreliable measure of true value. * * *
“ ‘Accordingly, a sale should not be disregarded merely because the parties are influenced by subjective factors or circumstances. These factors may affect the price a buyer ultimately elects to pay. But, all parties are subject to subjective factors or circumstances of one kind or another. * * * ’
“We find such earlier pronouncements to be dispositive of the facts herein.
“Based upon the foregoing case law and a thorough review of the record, this Board has concluded that the subject sale was arm’s-length in nature, a reflection of the real estate market and the motivations of buyers and sellers which drive the ‘bargains’ made and ultimately establish real property tax valuations.” (Emphasis added.)
Today, we resolve this ongoing conflict between the BTA and the Court of Appeals for Franklin County by specifically reсognizing that compelling business circumstances of the type at issue in this case are clearly sufficient to establish that a recent sale of property was neither arm’s-length in nature nor representative of true value. In this regard, we note that the BTA apparently accepted the credibility of Lakeside’s witness, Steven Kimmelman, who testified concerning
Here, Prime Properties offered to sell the subject property to Triton for a stated price. The price was non-negotiable. The property was not offered for sale on the open market. The record is clear that Triton felt compelled to purchase the property for the stated price. Failure to purchase the property would have resulted in the loss of a significant portion of Triton’s business, which, in turn, would have resulted in Triton’s bankruptcy. Triton attempted to secure financing for the transaction, but even Triton’s primary asset-based lender would not finance the acquisition of the property, apparently due to the excessive asking price. Indeed, Triton’s primary asset-based lendеr prohibited Triton from applying any cash or working capital toward the purchase of the property. Lakeside was formed by the principals of Triton to purchase the property for the price that had been demanded by the seller. Lakeside, Triton and others undertook some extraordinary, if not desperate, efforts to obtain sufficient financing for the transaction. Under these circumstances, we reject the BTA’s conclusions that Lakeside’s acquisition of the property was an arm’s-length transaction and that the $1.2 million purchase price was representative of true value. Rather, in light of the undisputed evidence in this case, we find that Lakeside’s purchase of the subject property was not “voluntary, ie., without compulsion or duress,” within the meaning of Walters, supra,
The record clearly establishes that Lаkeside never had any real choice but to purchase the property in question. The choice between Triton’s survival on the one hand and swift and sure corporate death (bankruptcy) on the other hand presented Lakeside with no true alternative but to pay the price demanded by the seller. Accordingly, we hold that the July 1991 sale of the subject property was not an arm’s-length sale due to the compulsive business circumstances fueling Lakeside’s decision to acquire the property in question. Thus, the sale price was not indicative of the subject property’s true market value. In so holding, we are keenly aware of the principle set forth in Cuyahoga Cty. Bd. of Revision v. Fodor (1968),
Contrary to the assertions of appellee Cleveland Board of Education, we find that the case at bar is distinguishable from this court’s holding in Cardinal Fed. S. & L. Assn. v. Cuyahoga Cty. Bd. of Revision (1975),
Having determined that the BTA erred in finding that the July 1991 sale of the subject property was an arm’s-length transaction and the best evidence of true value, the next question that arises is what was the true value of the subject property? That issue is to be resolved by the BTA on remand.
For the foregoing reasons, we reverse the decision of the BTA and remand this cause for further proceedings. On remand, the BTA is instructed to make a determination of true value consistent with our opinion that the July 1991 sale of the subject property was not an arm’s-length transaction and is not reflective of true value.
Decision reversed and cause remanded.
Notes
. Lakeside has urged us to modify the BTA’s decision by holding that the true value of the property is $620,000 based upon the expert appraisal evidencе offered at the BTA hearing. However, the BTA specifically rejected Lakeside’s appraisal evidence in this case, and, as we have held on a number of occasions, “[t]he BTA need not adopt any expert’s valuation. It has wide discretion to determine the weight given to evidence and the credibility of witnesses before it.” R.R.Z. Assoc. v. Cuyahoga Cty. Bd. of Revision (1988),
Dissenting Opinion
dissenting. I respectfully dissent. The fact that Lakeside had a unique business need for this specific property and was willing to pay a premium for it does not support a conclusion that the sale was other than at arm’s length.
The standard of review requires this court to accord deference to the factual determinations of the taxing authority and to disturb a property valuation by the BTA only if it affirmatively appears from the record that the valuation is unreasonable or unlawful. Cuyahoga Cty. Bd. of Revision v. Fodor (1968),
The BTA reasonably resolved the factual issues in favor of the presumption that the sale represents the true value. The majority opinion assumes that the BTA accepted the credibility of Lakeside’s witness, Steven Kimmelman. Although no contrary testimony was presented, the BTA would not have been unreasonable in discounting Kimmelman’s testimony that the company had no choice but to buy, that the Santa Fe would have canceled the bid, and that Triton would no longer have been a ramp and therefore would have gone into bankruptcy and then out of business. That testimony was speculative and suspect.
Lakeside claims that it was blindsided and coerced into the purchase of this property when the lessor notified it of the lessor’s intention to terminate the lease. The BTA was asked to believe that the continuing use of this parcel was the only thing between Lakeside and bankruptcy. Yet the only claim Lakeside ever had on continued access was a lease subject to termination any time with six months’ notice.
Taking advantage of another’s financial difficulty is not duress. Rather, the person alleging financial difficulty must prove that it was caused by the one accused of coercion. 13 Williston on Contracts (3 Ed.1970) 708, Section 1617. The difficulty that Lakeside faced was not caused by the lessor; it was always within the contemplation of the parties that the lease could be terminated. When the lessor stated that it would terminate the lease, Lakeside had to make a business decision whether to buy the property. This is not an unusual or peculiar situation in the sale of real estate. Given this, I fail to see the “wrongful or unlawful act or threat * * * [which] deprive[d] the victim of his unfettered will,” as Williston defines “economic duress.” 13 Williston on Contracts (3 Ed.1970) 704, Section 1617. There is no evidence of an “improper threat” by the lessor as
Also tenuous as a basis for reversing the BTA is the fact that Triton’s regular lender would not make the loan. A myriad of factors could have affected that decision, and besides, the purchasers were able to acquire the financing. As for the price paid for the property, Kimmelman testified that Prime Properties would not negotiate on the price. Lakeside, however, never attempted to negotiate or counter the asking price. Likewise, the majority seems to accord weight to the testimony that this property was not offered for sale on the' open market. This was the precise objection that Justice Douglas raised to the definition of an arm’s-length sale in Walters, supra, saying: “[P]rivate sale transactiоns which are at arm’s length occur every day.” Walters,
For the foregoing reasons, I would affirm the decision of the BTA as being neither unreasonable nor unlawful.