Court Opinion

ID: 9599200
Source: CourtListenerOpinion
Date Created: 2023-08-22 01:15:56.365349+00
Date Added: 2024-06-11T09:42:13.132943
License: Public Domain

MR. JUSTICE ANDERSON,
(dissenting).
This court did not hold a conference on this cause until this day. I have had no opportunity to study or otherwise consider the matters contained therein and therefore proceed to render my opinion without the benefit of comment regarding the opinion of the majority. My results are as follows:
This is an appeal from a judgment and an order granting a permanent injunction preventing Charles L. Sheridan, state treasurer, and John J. Holmes, state auditor, from distributing $5,500,903.10 received as premium first year, so-called rentals, on oil and gas leases on state lands, to the common school interest and income fund, and compelling the placing of that sum in the permanent fund.
The Organic Act of the Territory of Montana provided that sections 16 and 36 in each township shall be reserved for the purpose of being applied to schools in Montana territory.
Article XI, sec. 5, of the Constitution of Montana, provides as follows: “Ninety-five per centum (95%) of all the interest received on the school funds of the state, and ninety-five per centum (95%) of all rents received from the leasing of school lands and of all other income from the public school funds shall be apportioned annually to the several school districts of the state in proportion to the number of children and youths between *464the ages of six (6) and twenty-one (21) residing therein respectively, but no district shall be entitled to such distributive share that does not maintain a public free school for at least six months during the year for which such distribution is made. The remaining five per centum (5%) of all the interest received on the school funds of the state, and the remaining five per centum (5 %) of all the rents received from the leasing of school lands and of all other income from the public school funds, shall annually be added to the public school funds of the state and become and forever remain an inseparable and inviolable part thereof.”
E. C. M. 1947, sec. 81-1712, provides in part as follows: “All fees, rentals, penalties, royalties and bonuses collected for or under such leases shall be paid to the register of state lands and by him credited as follows: All fees and penalties shall be credited to the state general fund; all rentals shall be credited to the income fund of the grant to which the lands under each lease belong; all moneys collected as royalties and bonuses shall be credited to the permanent fund arising from the grant to which the land under each particular lease belongs and become and forever remain an inseparable and inviolable part thereof * * « >>
The salient parts of the Enabling Act are set out and discussed in another part of this opinion.
The practice of the state board of land commissioners has been to offer the school lands of this state for oil and gas lease under competitive bidding. Bids are not accepted for less than the statutory minimum of 75‡ per acre. The bidders are instructed by the board that the amount of the bid is rental for the first year and that thereafter the rental is 75^ per acre per annum. This practice has been carried on since 1944. However, except for the year 1952, there has been little activity in oil and gas leases and therefore the amount received by the state for the first year, so-called, rental has not been great. In the year 1952 the first year, so-called, rentals, over and *465above tbe 15‡ per acre minimum annual rental, netted tbe state $5,790,424.32.
Appellants claim that the amount received is rent income and therefore must be apportioned annually, although the board in its minutes and records refers to this type of proceed as a bonus.
Respondents take the position that the amount received is a bonus and in the nature of a sale of the realty and therefore must be credited to the permanent school fund and remain an inseparable and inviolable part thereof.
A great deal of argument was made by both sides regarding what is intended by the Legislature in its use of the term “bonus.” I think that little difference is made, by what the legislature intended, if there can be found the basis of the distribution of the proceeds in the Organic Act, the Enabling Act and the Constitution of this state.
The appellant says that the practice followed in the instant case has been followed for years and therefore is an established custom and for that reason same should not be disturbed by this or any other court. Here again we must look to the Acts above referred to to find the legal basis for the custom if there is any.
It is my studied opinion that the Congress, in adopting the Enabling Act, had in mind accomplishing two things in connection with land grants, viz.: (1) A source of income, either from the land itself or from the interest from the money derived from the sale thereof, and thus the permanent fund is set up; and (2) that the income from the permanent fund or from the rent of the land should be reasonably uniform from year to year so that it could be expended for school purposes, not all in one year, but equally during all of the years during which the land is parcelled out by lease, or otherwise used for income purposes.
The question of whether or not a large income, representing many years of lease tenure, should or should not be allocated in one year was not a part of the issue in this case. It is my judgment that the large accumulation during one year of so-called first year rental, and allocation thereof in the next year *466to the exclusion of other years during which the lease is to run, was never contemplated by any laws herein referred to or otherwise.
The record discloses that the board of land commissioners lease agricultural land and the highest bidder is required to pay the same rental each year throughout the term of the lease. This practice follows the letter and spirit of the Enabling Act and provides a uniform income which should be allocated as it accrues.
In the ease of State ex rel. Attorney General v. Hatcher, State Treasurer, 115 Tex. 332, 281 S. W. 192, 194, the court pointed out the distinction between grazing leases and mineral leases as follows * * it is generally known that the University has leased its pasture lands for grazing purposes, and that the rentals arising therefrom have not been placed in the permanent fund. Since grass and growing crops are a part of the realty generally, it might be contended that the proceeds from a sale of the grass must also become a part of the permanent fund of this institution. That question is not before us in the case at bar. But, if it was, it seems quite clear to us that the courts recognize a distinction between minerals taken from the land and crops reproducing themselves annually or oftener. The former is a permanent taking of the corpus of the property. The latter does not in any sense permanently deplete the value of the land. Grass dies down each year and comes back in due season, even if not eaten by cattle.”
The board properly considered and felt itself obliged to distinguish between leases granted for a right to explore underground for oil and gas from agricultural and grazing leases. The practice of disposing of an interest in school lands was proper, but that its determination as to disposition of the funds is clearly wrong.
On account of the apparent conflict herein referred to, existing in all the law relative thereto, it is no surprise that men should have differences of opinion on the subject, and I have not the slightest doubt that the members of the board in attempt*467ing to allocate the funds were actuated by the highest and most honorable motives, particularly in view of the fact that the permanent as well as the income fund both are destined for the ultimate benefit of the schools of the state.
R. C. M. 1947, sec. 81-1703, provides in part as follows: “The minimum annual money rentals to be paid * * * for oil and gas leases under the provisions of this act shall be seventy-five cents (75^) for each acre of land leased * * Emphasis supplied.
There is no authority for the board to lease the land for a larger cash rental the first year than for the subsequent years as is contemplated by the terms of the lease. If the board had such authority it is obvious to see how it could, strictly on a rental basis, as appellants say it has the right to do in the instant case, deprive the schools of the use of the substantially equal and uniform sums annually as was contemplated by the Enabling Act, by the Constitution and by the statute itself.
It is conceivable, if this practice were allowed, that the board of land commissioners could, if the lease period is extended for oil and gas leases beyond the present 20 year term, as it is now contemplated under a law passed in the 33rd Legislative Assembly, tie up school lands for a great number of years, giving to the immediate school needs a vast sum of money to be expended currently and giving to the school districts for many years to come the bare minimum income of 75‡ per acre. Such an intention cannot be found in R. C. M. 1947, sec. 81-7103, in the Constitution, or in the Enabling Act or elsewhere.
The very thing which was intended by Congress, by .the framers of the Constitution of Montana, and by the Legislature is made sham by such a procedure.
The Enabling Act, sec. 11, as amended by Chapter 18, Laws of 1949, provides in part as follows: “Except as otherwise provided herein, the said lands may be leased under such regulations as the legislature may prescribe. Leases for the production of minerals, including leases for exploration for oil, gas, and other hydrocarbons and the extraction thereof, shall be for such term of years and on such conditions as may be from time fo time *468provided by the legislatures of the respective states; leases for grazing and agricultural purposes shall be for a term not longer than ten years; and leases for development of hydroelectric power shall be for a term not longer than fifty years. * * *
“With the exception of the lands granted for public buildings, the proceeds from the sale and other permanent disposition of any of the said lands and from every part thereof, shall constitute permanent funds * * Emphasis supplied.
It would seem at first blush that there may be an inconsistency between the two parts of the Enabling Act above quoted. However inconsistent those provisions may appear, they are not so when considered in the light of the intent of Congress when the land was granted.
In the case of School District No. 23 v. Commissioners of Land Office, 166 Okl. 226, 27 Pac. (2d) 149, 153, the court held that all funds arising from oil and gas leases on school lands must go into the permanent fund. The court said: “We think it clear that it was the intention of Congress in passing the Enabling Act, and the framers of the Constitution of the State of Oklahoma, and the people in adopting the same, that all funds arising from bonuses, royalties, and rentals for oil and gas leases contemplated a diminution of the corpus of the school lands and that the same shall be carried into and credited to the permanent funds for the uses and purposes designated in the grant of such lands by Congress to the State of Oklahoma * * *. ’ ’
There are similar decisions in Wyoming and Texas, and these cases were mentioned in a Montana case without approval or disapproval. Toomey v. State Board of Land Commissioners, 106 Mont. 547, 81 Pac. (2d) 407.
It is conceivable that annual rentals for ordinary use of the land were contemplated and gave to the lessee the right to use the surface of the land, to prepare for the operation he is intent upon doing, i. e., to prepare for drilling and exploring for oil and gas and other hydrocarbons. However, since no question was raised as to the right of the state to exact per acre per R-nnn-m for the ordinary use to which the land is to be put, I *469accept tlie position of both parties that the same may be considered as rent. There are cases holding that all of the money paid for oil and gas leases constitute proceeds from the sales of the land which must be placed in the permanent fund. School District No. 23 v. Commissioners of Land Office, supra.
The proceeds of leases are, of course, rents, since that is the name commonly given them; but they may be the compensation for the ordinary use of property, and then may be called ordinary rent. Again, the proceeds may arise from and represent the corpus of the land; but no suitable terminology has been devised to distinguish them from ordinary rent. The distinction is necessary only when there is a dispute existing as to the ownership thereof. The opening up of new mines is not generally an ordinary use and the rents therefor are derived from the corpus of the estate and are different from the rents contemplated by an ordinary agriculture or grazing lease. State v. Snyder, 29 Wyo. 163, 212 Pac. 758. See also McLaren Gold Mines Co. v. Morton, 124 Mont. 382, 224 Pac. (2d) 975, wherein this court approves the rule here announced.
It is my view that Congress did not intend a valuable part of the land should ever be parcelled out when that parcel would become, after the use to which it is put, forever and for all time worthless unless the true market value be obtained therefor and the money paid in consideration of it placed in the permanent fund.
The Enabling Act uses the following language: “* * * the proceeds from the sale * * # of the said lands”. This language contemplates an out-right sale in fee without reservation. However, the words, “and other permanent disposition”, are supplied in the Enabling Act. I am of the opinion that Congress viewed the possibility of sales other than outright sales in fee of every interest, and the disposition of the right to explore and thus deplete the oil and gas deposits is one of the so-called ‘ ‘ other permanent dispositions. ’ ’
The mere fact that the state of Montana always reserves to itself the oil, gas and mineral rights when it sells the land to a *470buyer dispels any other logical conclusion than that it placed a value on the corpus of such an estate which it could, and most likely would, dispose of later.
The Congress, in its wisdom, foresaw the separate interests in the land and provided for the disposition of oil and gas rights by granting to the state a practical method of disposal of the same, namely by lease.
I think that the lease of the right to explore is a mode of sale, and constitutes the best reasonable method by which such a right could be, in fact, disposed of.
True, as appellants argue, the lessee may give up his lease or it may be taken from him for violation of a covenant, but it must be remembered that the contemplation of a thorough exploration is and can be expected once the lease is executed. The exploration is accomplished whether oil and gas are found or not; the only thing the state had to sell is gone for all time. If the lease is terminated before complete exploration, then the state may again sell, according to the mode provided, that which is left to sell, and again it would be sold, most likely, according to the best method provided, namely by lease. Often in the sale of real property the property sold reverts to the seller. In such cases a permanent disposition is contemplated just as it is here.
Here we might say that the state, like any other owner of the oil and gas rights, could by amending the statute relative thereto, sell those rights outright. If this method of sale was used, it is obvious that the proceeds from the sale would go into the permanent fund and no benefit would be exacted from the proceeds of such a sale for the income and interest fund except as provided by law.
It is obvious that Congress wanted to provide the best possible method of disposition of interest in land for the state, and in its judgment the best interests of the state might be served through a sale by a method of so-called leasing.
Congress further provides in the Enabling Act language strongly in support of the above reasoning. The Enabling Act *471goes on to say: “* * * provided, however, that none of such lands, nor any estate or interest therein, shall ever be disposed of except in pursuance of general laws providing for such disposition, nor unless the full market value of the estate or interest disposed of, to be ascertained in such manner as * * * provided by law, has been paid or safely secured to the state. ’ ’
The Constitution of the state has a similar provision. The Act itself speaks of lands, estates and interest therein shall never be disposed of except in pursuance of the law providing for such disposition.
The board of land commissioners has the management and control, as a trustee, of two trusts: (1) The permanent fund, and (2) the interest and income fund. Granting that the state holds the title in fee, it holds it for the benefit of the permanent fund as well as for the benefit of the income and interest fund, and it has no right to sell, by lease or otherwise, the estate for the benefit of the income and interest at the expense of the permanent fund. State v. Snyder, 29 Wyo. 163, 212 Pac. 758.
We find here a set of facts similar to a life estate in the fee with the remainder over to another. Courts almost universally hold that a life tenant has no right whatever, as against a remainderman, to open up new mines or quarries or oil or gas wells, or lease the land to others for that purpose, unless the grant specifically gives to the life tenant such a right. State v. Snyder, supra. If a life tenant has no such right, neither does a trustee.
A tenant for life is entitled to the full use and enjoyment of the property in which he has a life estate, but cannot do anything which has the effect of permanently diminishing the value of the future estate. 33 Am. Jur., Life Estates, Remainders, etc., sec. 217, p. 699; Am. Law Inst. Restatement, Property, Vol. 1, sec. 138, p. 450, Vol. 2, sec. 204, p. 843. Cases on this point are too numerous to cite.
In McLaren Gold Mines Co. v. Morton, 124 Mont. 382, 224 Pac. (2d) 975, 981, the Supreme Court of Montana recognizes that a mineral lease is in effect a sale, and that the so-called *472“rent” is purchase money. There, this court quotes with approval from 3 Lindley on Mines (3rd Ed.), sec. 861, pp. 2134-2138, as follows: “We have already seen that mineral in place is land; that when it is taken therefrom and changed into personal property, real estate has to that extent been destroyed. It is obvious that the normal relation of landlord and tenant does not contemplate destruction of the estate by the tenant, and that such destruction cannot properly be called ‘use.’ It is equally plain that the so-called ‘rent’ in a mining lease is something more than a return for the possession and use of real property. While the contract is in name a lease, it amounts in fact to a sale, and if it grant the right to take all the mineral, it is a sale of real estate — the lessee’s interest is a fee in the mineral and the lessor’s so-called rent is purchase money for real estate.
“ ‘Such rents or royalties are principal, and not income, and must be so treated in the ascertainment of the respective interests of life tenants and remaindermen. * * *’ ”
In the instant case the. individual lessee paid a bonus, or whatever one wishes to call it, for an oil and gas lease and when he received it he paid for a salable right of impairment or diminution of the fee.
In School District No. 23 v. Commissioners of Land Office of Oklahoma, supra, the learned Justice pointed out that no person would pay as much for an agricultural lease under such circumstances where the land has been leased for oil and gas as they would if the oil and gas lease had not been executed. Or, during the life of the oil and gas lease, a well may be drilled upon the leased premises, slush pits dug and a large amount of slush run therein, salt water may be encountered, some of the wells may be producers and others may be dry holes, and a number of other things may happen, which it is common knowledge do happen, to reduce the value of the surface of the land and practically destroy a portion of the same for agricultural purposes and thereby reduce its value.
I think a further plausible reason to show that a salable right *473of impairment or diminution of the land was bought and paid for by the lessee could be summed up in the following manner. The lease provides that the lessee covenants and agrees to drill at least one well upon the leased premises not less than six inches in diameter to the depth of at least one thousand feet, within two years, and further agrees if oil is not found, to drill with diligence to such depths as may be necessary to make a reasonable test for oil and gas. The lease, however, contemplates a complete exploration of the underground possibilities of discovery. The drilling of one well is a minimum requirement only.
It cannot be denied by anyone that the reason for the lessee bidding for his right to lease is because he and others think there is oil or gas under the surface of the premises.
For example, $500 an acre might be bid for a specific 80 acre tract. There may be a lesser value per acre and thus a smaller bid for a contiguous 80 acre tract. It appears to be the board’s duty to lease the state’s land and to obtain therefor the reasonable market value for the lease. The amount of money paid for the right to explore is of no consequence here, provided the state exacts the reasonable market value at the time the sale is made.
Once the lessee has explored the under surface strata as contemplated by the lease two things happen: (1) He either finds oil and eventually depletes the lease; or (2) he does not find oil or gas and abandons the lease. In either case the state of Montana has forever lost its right to a salable value to the land itself and the fee is diminished and impaired to that extent. Surely no one will again bid upon the expectation of finding oil and gas at the levels already explored, when it has once been determined that there is no oil or gas at those depths. The right exhausted, whether oil and gas are found or whether no oil and gas are found, is gone forever and the right of a permanent taking, from a part of the intrinsic value of a fee, was never contemplated by the lease, the Enabling Act, the Constitution, or the laws, whether it be an oil and gas lease or some other type of lease.
*474Article XI, see. 2, of the Constitution of Montana, provides as follows: “The public school fund of the state shall, consist of the proceeds of such lands as have heretofore been granted, or may hereafter be granted, to the state by the general government known as school lands * * *.”
Article XI, sec. 3, of the Constitution of Montana, provides: “Such public school fund shall forever remain inviolate, guaranteed by the state against loss or diversion * * *.”
In the instant case it is my opinion that the money received as a bonus or premium paid as consideration for the lease is a sale of a right to impair or diminish the fee, and, therefore, the money derived therefrom should go into the permanent fund and shall forever remain inviolate as provided by law.
The judgment of the lower court should be affirmed.