No. 14366 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1979 

ALBERT JERKE , 

Plaintiff and Appellant, 

THE STATE DEPARTMENT OF LANDS, 

et al., 

Defendants and Respondents. 

Appeal from: District Court of the First Judicial District, 

Honorable Peter G. Meloy, Judge presiding. 

Counsel of Record: 

For Appellant: 

Scribner, Huss & Mulroney, Helena, Montana 

Lawrence D. Huss argued, Helena, Montana 

For Respondent: 

John North argued, Helena, Montana 

Charles W. Jardine argued, Miles City, Montana 

For Amicus Curiae: 

Carl M. Davis, Dillon, Montana 

Filed: MAR - .' 199" 

Submitted: February 6, 1979 
Mr. Chief Justice Frank I. Haswell delivered the Opinion of 

the Court. 

Plaintiff appeals from an adverse judgment in an action 

to cancel a lease following a nonjury trial in the District Court 

of Lewis and Clark County. 

The Prairie County State Grazing District was created 

pursuant to the Grass Conservation Act, section 46-2301 et seq. 

R.C.M. 1947, now section 76-16-101 et seq. MCA. In conserving 

Montana's rangeland resources, the Grazing District procures 

available land and allocates it to its members for use in their 

individual farming or ranching businesses. It does not use the 

land itself. 

Under a 1965 lease, the Grazing District was the lessee 

of a tract of state land lying within Prairie County. This land 

was allocated to David Hess and two other individuals who used 

it for their personal ranching enterprises. 

In early 1975 with the termination of the lease, the 

Department of State Lands, acting on behalf of the Montana Board 

of Land Commissioners, requested competitive bids for the lease 

of the tract. Appellant submitted the only bid. It was based 

on a 26% crop share with a guaranteed minimum of $2,000 per year. 

After appellant's bid was opened, an administrative hearing was 

held where the Grazing District challenged it as unreasonable. 

The Department determined the bid to be bona fide and the highest 

bid received. 

The Grazing District, as the existing lessee, was holder 

of a preference right under section 81-405(1), R.C.M. 1947, now 

section 77-6-205(1) MCA which provides: 

"I£ other applications have been received, the 

holder of the lease has the preference right to 

lease the land covered by his former lease by 

meeting the highest bid made by any other applicant. " 

The right was exercised and the new lease was awarded to the Grazing 

-2- 
District. In the summer of 1975 the land was subleased to David 

Hess. 

Appellant sought to have the lease and sublease set 

aside and to have the District Court order the Department of 

State Lands to award the lease to him. His basic argument, both 

at trial and on appeal, is that the preference right unconstitutionally prevents the State from obtaining full market value for 

the land. We limit our decision to the facts of this case and 

hold the preference statute to have been unconstitutionally applied. 

The proposition that public land is held in trust for the 

people is well settled. State ex rel. Thompson v. Babcock (1966), 

147 Mont. 46, 54, 409 P.2d 808; Toomey v. State Board of Land 

Commissioners (1938), 106 Mont. 547, 559, 81 P.2d 407. The State 

Board of Land Commissioners, acting through the Department of 

State Lands must adhere to a fiduciary standard somewhat higher 

than that of the ordinary businessman. State ex rel. Babcock v. 

Thompson, at 54. In addition, this "trust-like" standard is 

constitutionally defined. 

"No land or any estate or interest therein shall 

ever be disposed of except in pursuance of general 

laws providing for such disposition, or until the 

full market value of the estate or interest disposed 

of, to be ascertained in such manner as may be 

provided by law, has been paid or safely secured 

to the state. " 1972 Mont. Const., Art. X, 511 (2) . See also 1889 Mont. Const., Art. XVII, 51. 

(knphasis supplied.) 

The legislature is thus given authority to determine the 

method by which full market value is ascertained. The statutes 

dealing with the leasing of state land will pass constitutional 

muster as long as the concept of full market value is not abrogated. Rider v. Cooney (1933), 94 Mont. 295, 310, 23 P.2d 261. 

In exercising its constitutional authority, the legislature has provided that full market value shall encompass the 

concept of sustained yield. Section 81-401, R.C.M. 1947, now 

section 77-6-101 MCA. Sustained yield is the policy which favors 
the long term productivity of the land over the short term return 

of income. State ex rel. Thompson v, Babcock, supra. 

The preference right seeks to further this policy by 

inducing the State's lessees to follow good agricultural practices 

and make improvements on the land. This is accomplished by 

guaran,teeing that the lessees will not lose the benefits of their 

endeavors by being outbid when their leases terminate. They are 

preferred and may renew their leases by meeting the highest bid 

submitted. 

Where the preference right does not further the policy of 

sustained yield, it cannot be given effect. In such a situation, 

full market value can be obtained only by pure competitive bidding, 

Here, the Grazing District, the holder of the preference right, 

does not even use the land; it cannot use good agricultural practices or make improvements thereon. Likewise, the actual user 

of the land, who as a member of the Grazing District is prevented 

from bidding on the lease, is not motivated to further the policy 

of sustained yield. There is no guarantee the Grazing District 

will exercise its preference right and moreover, if it does, the 

actual user is not assured the land will be allocated to him. 

To allow the preference right to be exercised in this 

case would be to install the Grazing District as the trustee of 

the land. It, rather than the Department of State Lands, would 

decide who will occupy the land but it would not be bound by a 

constitutional or fiduciary duty. Under such a scheme, the policy 

of sustained yield would have no place. 

To allow an existing lessee who does not use the land to 

exercise a preference right constitutes an unconstitutional application of the preference right statute, section 81-405(1), R.C.M. 

1947, now section 77-6-205(1) MCA. The only way full market value 

can be obtained in such a situation is by pure competitive bidding. 

~ccordingly, the judgment of the District Court is reversed. 
chief Justice 

We concur: