Opinion ID: 1707762
Heading Depth: 1
Heading Rank: 4

Heading: were the 1955 and the 1960 sixteenth section leases void for inadequate consideration?

Text: Assignments of error No. 1, No. 2, and No. 4 invoke Section 95 of the Mississippi Constitution and question the adequacy of consideration. Both leases were for a one time lump sum payment of $7.50 for a period of ninety-nine (99) years, or an annual payment of $.07575. The Plaintiff Thompson's position is that the statutory procedures were followed and that adequate consideration was paid; on the other hand, the School Board's contention is that the consideration is so grossly inadequate as to constitute a donation of public lands to private persons constitutionally prohibited, rendering the lease void from its inception. The Chancery Court found that in the post World War II period a depressed economy existed in Forest, Mississippi, with land values for the fee simple title extremely low and with land rental values even less. The court further found that, in light of the then existing economic conditions and land values and the condition of Lot 6, the consideration paid by Lackey was adequate under the applicable statutes and the state constitution. Thus the first issue to be analyzed is adequacy of consideration of the lease rental. Two provisions of the 1890 Mississippi Constitution are applicable to our analysis. First is Section 95: Lands belonging to, or under the control of the state, shall never be donated directly or indirectly, to private corporations or individuals... . Section 95, Mississippi Constitution. Section 211 of the 1890 Constitution of the State of Mississippi states in part: The Legislature ... shall provide that the sixteenth section lands reserved for the support of township schools, except as herewith provided, shall not be sold nor shall they be leased for along term than ten (10) years for lands situated outside of municipalities and for lands situated within municipalities for a longer term than ninety-nine (99) years, for a gross sum... . Article 8, § 211 of the Constitution directs the legislature to enact statutory direction for the leasing of these public lands. This constitutional direction was amended in 1961 and in 1986. The procedures for valuing and leasing at the time the leases were executed were provided by statute. In 1946 the Mississippi Legislature passed House Bill No. 63 which became Chapter 443 of the Laws of the 1946 Regular Session of the Mississippi Legislature. That statute provided, in Section 4, that three disinterested freeholders serving as appraisers would appraise the sixteenth section land to be leased and report to the Board of Supervisors. The Supervisors were then authorized to lease the land for seventy-five percent (75%) of the appraisal value thereof. In 1948 the Mississippi Legislature passed Senate Bill No. 292 which became Chapter 497 of the Laws of the 1948 Regular Session of the Mississippi Legislature. That statute amended the 1946 law and required that leases be issued for a reasonable amount. The 1948 law continued the requirement for an appraisal by three disinterested freeholders who would make their recommendations to the Board of Supervisors for a gross sum which the Board would then determine if it was a reasonable amount. Within this tangled web is also the 1978 Reform Act, Miss. Code Ann. § 29-3-1 (Supp. 1988), affecting the leasing of sixteenth section school lands, which sought to correct past abuses in rental determination. Changes of the Reform Act placed limits on lease terms, and included the payment of an annual rental with a rent adjustment clause every ten years on all leases except residential and farm-residential lands. This latter statute implements the trustee's continuing duties as described above. Not addressed by this opinion is the 1989 legislative enactment, Senate Bill 2780, the Tidelands Act passed since the filing of briefs by these litigants.
Within this statutory framework in 1947 the Board of Supervisors of Scott County appointed three appraisers, T.G. McCormick, O.S. Redden, and V.R. Lackey, to make individual reports of appraisement upon several applications for Sixteenth Section Leases. That report stated that the three appraisers felt that it was necessary to establish a basis upon which lands within the municipality should be valued to be released, or existing leases thereof extended 99 years. The conclusion of this report was that a fair market price for sixteenth section land was $10 per acre on undivided property and $10 per lot (less than one acre) on the subdivided property. This 1947 appraisal concludes with the statement that in the opinion of the three appraisers  there is no justification for other than a nominal value for even long term leases of sixteenth section lands in this city.  (Emphasis added). On April 4, 1955 H.L. Lackey applied to the Board of Supervisors of Scott County, Mississippi, for a 99 year lease of Lot 6. That application listed the total assessed value as fixed by the Board of Supervisors, in paragraph 4, at $3,200 with $3,000 being applied to improvements and $200 for the land. The assessed value of Lot 6 as fixed by the Mayor and Board of Aldermen, in paragraph 5, is for a total of $6,000 with the land being worth $2,000 of that total. By order of the Board of Supervisors, O.S. Redden, T.G. McCormick and V.R. Lackey were appointed as appraisers, required by statute to be disinterested freeholders, to appraise the property and report to the Board of Supervisors. The statutory scheme of 1948 required that consideration be issued for a reasonable amount, rather than the former fair market rental. These are the same three individuals that made the general appraisal in 1947 that all properties should be valued at $10 per acre and $10 per lot. These appraisers reported that Mr. Lackey should be charged a one-time payment of $7.50 as a fair gross sum rental for that property for a 99 year period or $.07575 per year. A lease was then issued by the Board of Supervisors to H.L. Lackey under the provisions of Chapter 497 of the Laws of the 1948 Regular Session of the Mississippi Legislature at a rate of $7.50 for 99 years. The plaintiff's proof of adequate consideration was primarily directed toward the depressed economic conditions in Forest, as evidenced by the chancellor's finding, and of the intent of the legislature to promote industrial development. Plaintiff Thompson, as a former legislator, testified to this legislative intent. The proof showed without question that all Sixteenth Section Leases in Forest, regardless of size or location, were leased for a consideration of $7.50 for 99 years. Finding that citizens have a right to rely upon applicable statutory procedure for leasing Sixteenth Section land and be protected thereby, the Chancery Court confirmed the lease. The Court's finding that the Plaintiff relied upon existing statutory leasing procedures overlooks controlling legal principles. At common law no trustee has authority to lease real property held in trust for substantially less than the fair value thereof. Tally v. Board of Supervisors of Smith County, 323 So.2d 547, 550 (Miss. 1975). The trustee certainly has no authority to enter a long term lease at a nominal one time rental, so that the lease is tantamount to a gift. This principle has been embodied in this state's constitution which prohibits donation of public land no matter what legislative procedure is mandated. Miss. Const. Art. 4, § 95 (1890). This Court knows of no rule of law whereby the substantive prohibition of Section 95 may be violated if only certain forms or procedures are met. Section 95 and its non-donation principle have full force and effect in the case of lands held by the state in trust for the schools, for in a sense all lands held by the state are held in trust, only some such as these are dedicated to more specific purposes. This Court has in the past repeatedly held Section 95 applicable to assets a part of the school lands trust. In Keys v. Carter, 318 So.2d 862 (Miss. 1975), for example, the Court stated: The facts alleged in the bill, if supported by proof accepted by the chancellor as the trier of facts, would be capable of supporting a finding that the lease of this 320 acre tract for an annual rental of $170, although the fair value of the lease was $4,000 per year, amounted to an unconstitutional donation, as well as an appropriation of the property to an object not authorized by law. In that event, the lease was and is void and may be attacked in this suit. See Saxon v. Harvey, 190 So.2d 901 (Miss. 1966) and Coleman v. Shipp, 223 Miss. 516, 78 So.2d 778 (1955). Keys, 318 So.2d at 864. Holmes v. Jones, 318 So.2d 865, 869 (Miss. 1975) also held that leasing sixteenth section lands held by the state within the school lands trust for a grossly inadequate consideration was a violation of Section 95 of the Constitution. Edwards v. Harper, 321 So.2d 301, 303 (Miss. 1975) is to like effect, viz school lands having a fair market value of $22,500 where leased for ninety-nine years for $400 are deemed donated when scrutinized under Section 95. In Talley v. Board of Supervisors of Smith County, 323 So.2d 547, 550 (1975), this Court stated that where the consideration paid for a lease [a rental of forty cents per acre] is so small as to amount to a donation of the property, the lease is void. See also Saxon v. Harvey, 190 So.2d 901 (Miss. 1966); Coleman v. Shipp, 223 Miss. 516, 78 So.2d 778 (1955). Although the School Board contends that this lease in question was void from its inception, this position is not entirely correct. This Court construes our former decisions to mean that the lease for an inadequate consideration is voidable and may be attacked for that reason by a school board. Upon a finding by a court of competent jurisdiction of inadequate consideration, the lease may be declared void. Long before Keys, Holmes, Edwards, and Talley, which were decided in 1975, this Court was saying the same thing, finding time and again that grossly inadequate considerations constituted an unconstitutional donation of sixteenth section trust lands. In Koonce v. Board of Supervisors of Grenada County, 202 Miss. 473, 477-78, 32 So.2d 264, 265 (1947) this Court held that supervisors had no authority to sell sixteenth section trust property at such a grossly inadequate price as to violate Section 95 of the Constitution. Likewise, in State ex rel Kyle, Attorney General v. Dear, 209 Miss. 268, 279, 46 So.2d 100, 104 (1950), this Court held that it was beyond the power of the Board of Supervisors to sell sixteenth section timber for a grossly inadequate price as to constitute donation. See also State v. Dear, 212 Miss. 620, 630-31, 55 So.2d 370 (1951) (sale of sixteenth section timber by County Board of Supervisors for $500.00 and which was resold for $4,000.00 held, prima facie, consideration was grossly inadequate). Likewise, this Court held that value does not have to be proved with certainty as to the amount in order to show that the consideration is grossly inadequate. State v. Dear, 209 Miss. 268, 46 So.2d 100, 105 (Miss. 1950). When reviewing on appeal factual determinations made by a trial judge sitting without a jury, this Court employs the substantial evidence standard. UHS-Qualicare v. Gulf Coast Com. Hosp. 525 So.2d 746 (Miss. 1987); Cotton v. McConnell, 435 So.2d 683, 685 (Miss. 1983). In the words of this Court in Tally v. Board of Supervisors of Smith County , We can take judicial notice that little, if any, land in the State of Mississippi could have been purchased on the open market for its reasonable value at such a low price in [1955 or 1960]. 323 So.2d at 551. Even the assessed value of Lot 6 without improvements was $2,000.00, making clear that the $7.50 lease rental was but a miniscule fraction of fair market value. The Chancery Court's finding of fact that an adequate consideration was paid was clearly an erroneous finding and was manifestly in error. See also Estate of Robinson v. Gusta, 540 So.2d 30, 33 (Miss. 1989); Matter of Estate of Varvaris, 528 So.2d 800, 802 (Miss. 1988); State ex rel Coleman v. Dear, 212 Miss. 620, 633, 55 So.2d 370, 375 (1951). On the authority of Section 95 and the many cases applying it to sixteenth section lands, the Court holds that the 1955 and 1960 leases were voidable, and at the election of the state as trustee, may be attacked. Keys, supra ; Talley, supra . The School Board as managing agent has so elected and would clearly be entitled to judgment to that effect were Lot 6 still held by its original lessee. H.L. Lackey, however, is dead, and his heirs no longer hold the lease. The Court today is concerned with the rights of William C. Thompson, the current leaseholder. It is the law in this state that ordinarily one who acquires real property takes it subject to whatever claims lie against it and whatever defects there may be in the title. Hardy v. Wheaton, 374 So.2d 790, 791 (Miss. 1979). The purchaser steps into the shoes of the seller. To the extent that one is a bona fide purchaser, however, an innocent purchaser without notice and who pays fair value, he takes free and clear of hidden claims or title defects. Collier v. Shell Oil Co., 534 So.2d 1015, 1018 (Miss. 1988). In this case appellee Thompson bought the leasehold interest in 1985 at foreclosure sale for a consideration of $7,000.00; he asserts that the existing structure on the property was worthless and a liability for him. But to him it was worth $7,000.00 in 1985 for the balance of approximately seventy-five (75) years. The leasehold value placed on the property by the Board of Supervisors in 1955 and 1960 was a one time payment of $7.50 for ninety-nine (99) years. A comparison of these dates and values, although not an appraisal, speaks volumes to the point of adequacy or inadequacy. A consideration of $7.50 for ninety-nine (99) years is less than a dime a year in rental. Nothing in the record suggests that the economy in Forest and Scott County in 1955 and 1960 was that depressed! The City of Forest had assigned the lot an assessed value of $2,000.00 without considering the improvements. The lease rental paid by Lackey was a mere 0.375 per cent of assessed value! Moreover, the record is wholly devoid of evidence that non-sixteenth section real property of otherwise comparable kind and quality had a fair market value anything like so low. The consideration Lackey paid for this lease is so grossly inadequate as to shock the conscience and to defeat any challenge even of one otherwise claiming the status of a bona fide purchaser. It is not a hidden title defect, but is and has been a matter of public record, so openly blatant as to put any purchaser on notice of a possible defect in the seller's (here the trustee's) title. Peoples Bank & Trust Co. v. L & T Developers, 434 So.2d 699, 708 (Miss. 1983); West Center Apartments, Ltd. v. Keyes, 371 So.2d 854, 856 (Miss. 1979). The tax assessments of city and county gave notice of value that should have suggested a far higher rental was required to meet the constitutional mandate of non-donation. Even the appraiser's report stated that only a nominal value was used. Thompson was charged with all of this knowledge. As was stated in Baldwin v. Anderson, 103 Miss. 462, 60 So. 578 (1913): Inadequacy of consideration, whether in the deed to the purchaser or in the deed to his grantor, is material in ascertaining whether a purchaser shall be charged with constructive notice of defects in the title; and the fact that such consideration is grossly inadequate may under some circumstances alone be sufficient to charge a purchaser with notice of defects in the title. This land, according to the testimony of appellee, is worth $1,000; according to that of appellant $1,600. The consideration paid by Mrs. Glover was $10 cash, and the payment of the note due the Mortgage Company for $350, which note was not then due and would not become due for three and one-half years. Accepting as true the value placed on the land by appellee, the consideration agreed to be paid by Mrs. Glover therefor amounted to only one-third of its value. The sale of land for one-third of its value is, to say the least, unusual, and the recital of such a consideration in a deed, coupled with the fact that the consideration agreed to be paid was the payment of a note of the grantor, which would not become due for three and one-half years, is sufficient to suggest to the mind of the average man that the entire consideration was not expressed in the deed, or that there was a defect in the title, and thus put him upon inquiry before purchasing the land.       A slight investigation would have conducted him to a knowledge of the true state of the title; consequently, he must be charged with knowledge thereof, for whatever is enough to excite attention, or put a party on inquiry, is notice of everything to which such attention or inquiry might reasonably lead. Parker v. Foy, 43 Miss. 260, 5 Am.Rep. 484. 103 Miss. at 467-68, 60 So. at 580. See also, Annotation, 42 A.L.R.2d 1088, 1089-90 (1955); 77 Am.Jur.2d Vendor and Purchaser § 696 (1975). Caveat emptor still reigns at foreclosure sales. Feldman v. Rucker, 201 Va. 11, 20, 109 S.E.2d 379, 385-86 (1959); Ivrey v. Karr, 182 Md. 463, 473, 34 A.2d 847, 852 (Md. 1943); Adams v. Boyd, 332 Mo. 484, 490, 58 S.W.2d 704, 707 (1933); American Law of Property, § 16.211. (1952). If Haden's signature had been forged to the deed of trust, Thompson would have taken nothing at the trustee's sale. Woodson v. Jones, 203 Miss. 152, 155, 33 So.2d 316 (1948). And if the Board of Supervisors had illegally leased the property to Lackey, the same conclusion would obtain. Thompson is not a bona fide purchaser. He was on actual or constructive notice that the $7.50 rental Lackey paid in 1955 and again in 1960 was grossly inadequate consideration. That he was willing to pay $7,000.00 for the property speaks volumes, particularly where, as Thompson testified, he considered the improvements on the lands a liability and not an asset. In State ex rel. McCullen v. Adams, 185 Miss. 606, 188 So. 551 (1939) the Court said, since John Jordan was sufficiently familiar with the value of the land as to be willing to pay a cash consideration of $1,600 therefor he was put on notice of the grossly inadequate price of $160 paid for the land by Adams in purchasing the same from the State Land Commissioner. Adams, 185 Miss. at 614, 188 So. at 553. And in State ex rel. Kyle v. Dear, 209 Miss. 268, 46 So.2d 100 (1950) the Court held that the purchaser was put on notice that $500 was a grossly inadequate consideration for sixteenth section timber when the said defendant had determined that the timber was worth at least $4,000. Dear, 209 Miss. at 278, 46 So.2d at 104; see also, State ex rel. Coleman v. Dear, 212 Miss. 620, 631, 55 So.2d 370, 374 (1951). In sum, this Court answers the issues posed by this assignment and holds that the Chancery Court manifestly erred when it found the consideration for the lease not grossly inadequate; further, this Court holds that, as a matter of law, a one time gross sum payment which amounts to $.07575 per year consideration is grossly inadequate and amounts to a donation of public lands prohibited by the constitution and trust law. Mere compliance with statutory formalities and procedures does not vitiate substantive violation of constitutional prohibitions. Under the authority of Mississippi Constitution Section 95, the common law of trusts regulating the duties of trustee, and prior decisions of this Court, this Court reverses the judgment below and voids the lease of appellee Thompson, but under the hereinafter stated conditions.
In making this decision, the Court is aware of the proof that all sixteenth section leases in Scott County were for $7.50 for 99 years. Although the law has been clear for many years, the Court is cognizant of the fact that sixteenth section lands in many other counties have in the past been leased for nominal rentals. Indeed, there has been a century of disregard of this constitutional mandate and of widespread and long continued acceptance of this practice by former officials. Not unmindful of the impact of this decision, the Court considers it appropriate to repeat a remark made in Transamerica Co. v. Paine Supply Co., 194 So.2d 490, 491 (Miss. 1967) that we know of no way in which custom can change the law as written. Johnson v. Hinds County, 524 So.2d 947, 955 (Miss. 1988) and State Tax Commission v. Fondren, 387 So.2d 712 (Miss. 1980), are to like effect. However, our consideration does not end here. This case is to be remanded to the Board of Trustees of the Forest Municipal Separate School District Board for a new determination of the present rental value by a competent appraiser under Miss. Code Ann. § 29-3-1 et seq., the 1978 Reform Act. Equity dictates, however, that while the appraisal process is in process that appellee shall have the use of the premises in question and the right of first refusal of the new lease and the right to meet the best bid when the rental value is determined. It must be remembered that this action is severe and that leaseholders, lienholders, and title insurance companies must all be considered. Having rights and liabilities that flow from their past involvement in this unlawful practice of nominal rentals on sixteenth section trust lands, these third parties' positions must be taken into account. The right of a lienholder is not present in this case, but that equitable question will have to be addressed in another factual situation. This Court favors the repose of title in real estate transactions and recognizes that this decision will involve an adjustment period. Section 95 has been in the Constitution since 1890. However, inadequacy of consideration may be challenged in the case of leases entered both before or after the Reform Act of 1978. Miss. Code Ann. § 29-3-25. Nothing in this opinion shall be considered to indicate the present rental value, except as to the inadequacy of the present lease rental. However, as appellant Thompson has testified in this suit, the legislature in its 1940's enactments attempted to promote development of its sixteenth section lands. In fact, the policy of the State of Mississippi with its own lands was to make every effort to return forfeited tax lands to private ownership and considered economic development as a factor in sale pricing. This Court recognizes that a public policy of making all reasonable efforts to keep sixteenth section lands leased so that they might be developed and produce revenue from taxation is not an unworthy goal, and this policy may have influenced the past officials in this case, dealing with trust lands. Rental values are determined by a number of factors and the 1947 appraisers consideration of the economic development was warranted. Dodds v. Sixteenth Section Development Corp., 232 Miss. 524, 99 So.2d 897, 904 (1958). However, its emphasis must not overshadow constitutional mandates. Mississippi Constitution § 95. State ex rel Kyle v. Dear, 209 Miss. 268, 279, 46 So.2d 100, 104 (1950). The case is remanded to the Board of Trustees of the Forest Municipal Separate School District for action consistent with 1978 Reform Act.