No. 14522 INTHE SUPREMF,COURT OFTHE STATE OFMXTANA 1979

DAYIDNORMAN, Plaintiff andRespondent,

THE STATEOF MXTANA; THE STATE HIGHbmY~SSION OF THE STATE OF MXTANA; et

### dl., Defendant andAppellant, and

Defendant andRespondent.



### Appealfrom: DistrictCourtof theSecondJudicialDistrict, HonorableJames D. Freebourn, Judgepresiding. Counsel of Wrd: ForAppellants: N. A. Mtering, 

### James R. Beck and DonaldA. Douglas, Helena,

Mntana DonaldA. Douglas argued, Helena, mntana For Respondents: Corette, 9nith, Dean, Pohlman

### andAllen, Butte, Mntana Kendrick Smithargued, Butte, Mntana MTaffery andPeterson, Butte, Mntana WilliamD. Murray, Jr., argued, Butte, Mntana

Submitted: Wch20, 1979 Decided: 

## JUN 131979 

## -pr;7 c &<.-7Q Filed: '-Mr. Justice John C. Sheehy delivered the Opinion of the Court.

The State of Montana appeals from a judgment and order dated June 

### 8, 1978,of the District Court, Second Judicial District, Silver Bow County sitting without a jury. The judgment and order quieted title to a certain parcel of land in David Norman and awarded damages against the State to William Gozden. On September 18, 1946, the State of Montana purchased a certain parcel of land in Butte, Montana, from William and Paul Gozden. The State Highway Department in 1974 decided to sell thisparcel containing 5.3 acres as excess highway lands and published a notice to that effect asking for bids. Envelopes presumably containingbids were received by the Department including one from respondent Gozden,but the Department decided towithdraw the parcel of land from sale and returned the "bids"unopened. In February 1975, the State,acting through the Department of Highways, again sought to dispose of this same excess land and prepared an advertising copy for publication in the Montana Standard,Silver Bow County, Montana, and a letter of instruction for suchpublication dated February 6, 1975. This copy and letter were placed in the regular Department of Highways' office channels for mailing to theMontana Standard in the regular course of the Department's business. This copy,however,was never published by the newspaper. No bids were received by the Department of Highways by the time specified in the notice and the official in charge of

excess lands,unaware no publication was made, assumedthe lack of bids was due to a doubling of appraised value from 1974 to 1975. Subsequently,in the summer of 1975, respondent Norman was advised by another party that the land

was available for sale. Norman visited the local office of the Department of Highways for information. As a result of his inquiries Norman wrote a letter to the official responsible for the sale of excess lands offering to purchase the parcel in question for $5,962.50 which was 90% of the 1975 appraised value of $6,625.00. Norman was advised his offer would be considered. Thereafter, in September 1975, the offer was accepted and Norman secured a quit claim deed to the property from the State,paid the $5,962.50 and recorded the deed. He also erected a fence around the property. At no time prior to the sale did the officials involved ascertain whether in fact publication had been made as required by statute before a private salemay be consummated. Testimony at trial indicated the officials responsible for sale of excess lands customarily did not wait for proof of publication before sale of lands. In September 1976, the Department of Highways received

a letter from an individual questioning the validity of the sale. The Department then inquired of the Montana Standard whether publication had been made. Receiving no answer, the Department searched the back issues of the newspaper and determined no publication had been made. Thereupon, in February 1977, the Department tendered to Norman the purchase price previously received and offered to pay him the cost of the fence that had been erected. Norman refused the offer and instituted this quiet title action. Norman named as defendants the State of Montana and William Gozden, original owner of the property. Norman claimed in the alternative,to quiet title to the property in questionin himself, to estop the State of Montana from denying the validity of the sale, or to require the State to pay damages of $26,600 to Norman for its failure to convey the property to him. Defendant Gozden answered and crossclaimed against the State for $30,000 damages alleged to have arisen from the State'snegligence. Gozden claimed the State's negligence in not ascertaining whether publication had been made, prevented him from exercising his right pursuant to statute as original owner to reacquire the property. At the trial before the Hon. James Freebourn, sittingwithout

a jury, the testimony elicited the facts set forth above. In addition, Norman testified he had been offered $26,600 for the land approximately three weeks after notification by the State that the salewas invalid. Gozden also testified, based upon his experience in land sales in the area, the property was worth $6,000per acre in 1978. The court entered its findings, conclusions, judgment, and order on June 8, 1978. The court concluded the Statewas estopped from questioning the title of Norman and quieted that title in Norman. The court further concluded the State

was negligent in not following the procedures for sale as outlined by statute. The court concluded with respect to Gozden that the State's negligence had precluded him from exercising his statutory rights to reacquire the property and awarded damages in the amount of $25,837.50. (Thecourt arrived at this figureby deducting from the total price of 5.3 acres at $6,000per acre, $31,800, the amount Gozdenwould have had topay to reacquire the property, $5,962.50.) The issues raised by this appealmay be framed as follows. 1. Was the District Court correct as amatter of law in concluding appellant State of Montana was estopped from

### denying the validity of its deed to respondentNorman? 2. Are the findings and conclusions of the District Court supported by substantial,credible evidence? 3. 

### If the deed isheld valid as to these parties, is respondent Gozdenprevented by the prohibition against retroactivity from asserting his right as a prior owner to reacquire the property? With respect to the first issue, the State contends the constitutional and statutory framework for the sale of excess lands established publication of notice of an intended sale,

### a condition precedent to the grant of power to sell. Without suchpublication, appellant argues therewas no authority to sell and the "sale"was thereforevoid. The State then asserts it cannotbe estopped to deny the deed because its agents had

no authority to make the "sale". In response,Norman asserts the State in disposing of excess landswas acting in a proprietary capacity and is therefore subject to estoppel both by deed and on equitable grounds. Therefore,Norman argues, the State isprecluded from denying the validity of its deed to him and from asserting any right or title in derogation of the deed. The question presented to this Court by the first issue iswhether the Statemay be estopped, either by deed or equitably from denying the validity of its deed to respondentNorman. If this Courtdecides the Statemay not be estopped then we need not consider the other issues raised. Estoppel by 

### deed precludes one party to a

### deed from asserting as against the other party any right or title in derogationof the deed, or from denying the truth of any material factsasserted in it. 28

### Am.Jur.2d Estoppel 

### - and Waiver 84, 

### p. 602. 

### Equitable estoppel is a term applied to a situation -5-where, because of something which he has done or omitted to do, a party isdenied the right to plead or prove an otherwise important fact. 28Arn.Jur.2d Estoppel - and Waiver S27,p. 627. Generally, the State,when acting in a proprietary capacity as it was here, is subject to either doctrine. Strand v. State (1943),16 Wash. 2d 107, 132 P.2d 1011, 1016; Peoplev. Gustafson (1942),53 Cal. App. 2d 230, 127 P.2d 627, 634; 31 C.J.S. Estoppel SS49, 140,pp. 354, 695. However, it iswidely recognized that regardlesswhether acting in a governmental or proprietary capacity, a state cannot be estopped by the unauthorized acts of its officers

or agents. Murphy v. State (1947),65Ariz. 338, 181 P.2d 336, 355; Strand v. State, 132 P.2d at 1017. See,Utah Power & Light Co. v. United States (1916),243 U.S. 389, 37 S.Ct. 387, 61L.Ed. 791. Thus, this Courtmust decide whether the actions of the State in this cause were unauthorized or merely improper. The 1972Montana Constitution provides in Article XI S11, that all lands of the State acquired by grant shall be public landsheld in trust for the people. The section further provides that no such land shallbe disposed of exceptpursuant to the statutes providing for such disposition The section also indicates "full market value" should be received for the property; this Court has indicated "full market value" as used in this provision means actual value. Rider v. Cooney (1933), 94Mont. 295, 23 P.2d 261. The lands in question here were acquired by the State in 1946 by purchase from William and Paul Gozden and therefore fall within the ambit of the above constitutionalprovision. See section 70-1-507 MCA (formerly section 67-1508,R.C.M. 1947.) To effectuate the policy respecting lands held in trust for the people announced by Article XIS11, the legislature enacted,with respect to State lands designated as excess -6-highway lands, sections 60-4-202, -203, -204, -205 MCA (formerlysections 32-3910, -3911, -3912, -3913,R.C.M. 1947). These sections provide for first a public sale and then, if necessary, a private sale. The Department of Highwaysmust publish notice of the intended sale stating a value of the property based upon an appraisal made within threemonths of the date of sale. Section 60-4-203 MCA. The original owner or his successor in interest is given the opportunity tomeet the highest bid received pursuant to the published notice. Section 60-4-204MCA. 

### If "afterproper notice ispublished" no bid is received nor an offer by the original owner is made, the Departmentmay sell the property at a private sale. Section 60-4-205MCA. No Montana casesdirectly address the question presented, namely,whether the State's action here was unauthorized or merely improper;however, in Franzke v. Fergus County (1926), 76 Mont. 150, 245 P. 962,an analogous situationwas at issue. There the county commissioners attempted to sell county property via an executory contract. Although authorized by statute to sell county lands, the mode the commissioners chose did not conform exactly to the procedure provided by the statute. This Court held the county was without authority to sell the land in such a manner and the contract would thereforebe void, stating, "since the Legislaturehas seen fit to indicate with particularity the essential steps necessary to be taken, and has prescribed the precisemode of procedure, the statute must be held to exclude any other." 245 P. at 964. InMurphy v. State (1947), 65Ariz. 338, 181 P.2d 336, the Arizona Court was faced with a problem similar to the one presented by this appeal. In 1940, the State exchanged landswith Murphy without regard to provisions of ~rizona'sEnabling Act, constitution and statutes requiring notice, bidding and amount of land thatmay be conveyed to an individual. When the State later sued to cancel the deeds,

one of the arguments opposing its suitwas that the doctrine of estoppel prevented the State from denying the validity of the transaction and resulting deeds. The Arizona Supreme Court disagreed, stating: "The state is not estopped to deny its deed against a bona fidemortgagee of its grantee where its officers were not authorized by 

### -- law in the first to deed away its land and, as in this case,were positively prohibited fromdoing sowithout complying with 

### -- the provisions

### of -- the [EnablingAct] 

### --- and the Constitution." 181 P.2d at 355-356. (Emphasis added.) See, Pennerv. State (Okla. 1955), 302 P.2d 144, 150. The Montana Constitution unequivocally states that no lands shall be disposed of without complying with the appropriate statutoryprovisions. Thoseprovisions require publication of notice before 

### any sale is consummated. We conclude therefore that not having complied with the statute, the State through its Department of Highways, was without authority to make the sale and cannot be estopped from denying the validity of the deed. Franzke, supra; Murphy, supra; Strand v. State, 132 P.2d at 1017. See also, Utah Power & Light Co. v. United States, 243 U.S. at 409;Walsonavich

v. United States (3rdCir. 1964), 335 F.2d 96, 101; Stone v. United States (8thCir. 1961), 286 F.2d 56, 59;Weatherly v. Jackson (1934),123 Tex. 213, 71 S.W.2d 259, 266. Because therewas no authority tomake the sale, the resulting deed

was void. Franzke, 245 P. at 965. We recognize it was the negligence of the State's agents that caused the situationwhich gave rise to this appeal. However, the interestwe seek to protect is that of the citizens -8-of this State to receive the highest value from the sale of the lands their State government holds in trust for them. Strict compliance with the constitutionaland statutory provisions relating to those lands is the best mode to insure that protection. It is generally conceded that while estoppelmay be effected against State government, itmay not be asserted where itwould interfere with the protection of the public's interest in lands. Peoplev. Bradford

(1939), 372 Ill. 63, 22 N.E.2d 691; 28 Am.Jur.2d Estoppel and Waiver S122,p. 782. The United States Supreme Court has indicated that the government's efforts to enforce and maintain a policy respecting lands held in trust for the people stand on a different plane from an ordinary suit to regain title or remove a cloud upon it. Utah Power and 

### --- Light Co., 243 U.S. at 409. Becausewe conclude the Statewas without authority to issue this deed and thus it is void,we need not consider the remaining issues of this appeal. The judgment of the District Court quieting title to this land in David Norman is reversed

as is the injunction against the State and William Gozden enjoining them from asserting any claim or interest in this realproperty. The award of damages to William Gozden is also reversed. Because the sale and deed were void, Gozden has suffered no actual damage and can now assert his interest under the statute as a prior owner should the land be again put up for sale. The State of Montana is directed to tender again the purchase price of the property paid 

### by Norman plus the cost of any improvementsupon the land to the date of this opinion to David Norman. In addition, because its negligence has caused Norman to be without the use of the amount of his purchase price for almost fiveyears, and because it is regaining property currentlyworth over $31,000, the State is directed topay,pursuant to our authority as stated in section 3-2- 204 MCA (formerlysection 93-216,R.C.M. 1947), interest upon the sum of $5,962.50 at 6%per annum from September 16, 1975 until the date of this opinion. Judgment reversed and remanded to the District Court with instructions to enter judgment according to this opinion. Because of the circumstancesunder which this case arose,we award costs on appeal to respondents Norman and Gozden against the State.

Justice 

# u

We Concur:

pie£Justice