In 1962 Arizona, as lessor, and petitioner, as lessee, executed
a 10-year grazing lease of certain tracts of land which had been
granted to Arizona to be held in trust under the New Mexico-Arizona
Enabling Act. In 1966, the United States filed a condemnation
complaint in connection with a flood control dam and reservoir
which included the leased tracts. In allocating the stipulated
compensation payable by the United States for the tracts, the
District Court awarded Arizona a certain amount for its fee
interest and petitioner one amount for the improvements and another
amount for "its leasehold interest at the time of taking and its
reasonable prospective leasehold interest." The Court of Appeals,
while recognizing that petitioner was entitled to compensation for
the improvements, and finding it unnecessary to determine
petitioner's rights based upon the provisions of the lease or upon
state law, held that, under the Enabling Act, Arizona, as trustee,
had no power to grant a compensable leasehold interest, and that
petitioner therefore never acquired a property right for which it
is entitled to compensation.
Held:
1. Nothing in the Enabling Act, apart, possibly, from the extent
it may incorporate Arizona law by reference, prevents the usual
application of Fifth Amendment protection of the outstanding
leasehold interest whereby the holder of such an interest is
entitled to just compensation for the value of that interest when
it is taken upon condemnation by the United States. Pp.
424 U. S.
300-308.
2. To be determined on remand are (1) whether, under state law
and the provisions of the lease, petitioner could not possess a
compensable leasehold interest upon the federal condemnation; (2)
if petitioner did possess such an interest, how it is properly to
be evaluated and calculated (with the subsidiary questions of the
relevance of possible lease renewals and of possible value
additions by reason of petitioner's development of adjoining
properties); and (3) if that interest proves to be substantial,
whether it is permissible to find from that fact a violation of
the
Page 424 U. S. 296
Enabling Act's requirement that a lease, when offered, shall be
appraised at its "true value" and be given at not less than that
value. Pp.
424 U. S.
308-311.
495 F.2d 12, reversed and remanded.
BLACKMUN, J., delivered the opinion of the Court, in which
BURGER, C.J., and STEWART, MARSHALL, POWELL, and REHNQUIST, JJ.,
joined. WHITE, J., filed a dissenting opinion, in which BRENNAN,
J., joined,
post, p.
424 U. S. 311.
STEVENS, J., took no part in the consideration or decision of the
case.
MR. JUSTICE BLACKMUN delivered the opinion of the Court.
This case presents an issue of federal condemnation law -- as it
relates to an outstanding lease of trust lands -- that, we are
told, affects substantial acreage in our Southwestern and Western
States.
I
Under § 24 [
Footnote 1] of
the New Mexico-Arizona Enabling Act, 36 Stat. 572 (1910), specified
sections of every township in the then proposed State were granted
to Arizona "for the support of common schools." By § 28 [
Footnote 2]
Page 424 U. S. 297
of the same Act, 36 Stat. 574, as amended by the Act of June 5,
1936, c. 517, 49 Stat. 1477, and by the Act of June 2, 1951, 65
Stat. 51, the lands transferred
"shall
Page 424 U. S. 298
be by the said State held in trust, to be disposed of in whole
or in part only in manner as herein provided and for the several
objects specified . . . and . . . the . . . proceeds of any of said
lands shall be subject to the same trusts as the lands producing
the same."
Arizona, by its Constitution, Art. 10, § 1, [
Footnote 3] accepted the lands so granted and its
trusteeship over them.
Among the lands constituting the grant to Arizona were two
parcels herein referred to as Tract 304 and Tract 305,
respectively. [
Footnote 4] On
February 8, 1962, Arizona, as lessor, and petitioner Alamo Land and
Cattle Company, Inc. (Alamo), as lessee, executed a grazing lease
of
Page 424 U. S. 299
these tracts for the 10-year period ending February 7, 1972.
App. 6-14. By Arizona statute, Ariz.Rev.Stat.Ann. 37-281D (1974),
incorporated by general reference into the lease, App. 7, Alamo may
not use the lands for any purpose other than grazing.
On May 31, 1966, while the two tracts were subject to the
grazing lease and were utilized as part of Alamo's larger operating
cattle ranch, the United States filed a complaint in condemnation
in the United States District Court for the District of Arizona in
connection with the establishment of a flood control dam and
reservoir at a site on the Bill Williams River. The tracts in their
entirety were among the properties that were the subject of the
complaint in condemnation. The District Court duly entered the
customary order for delivery of possession. [
Footnote 5]
Thereafter, the United States and Arizona and, separately, the
United States and Alamo, stipulated that "the full just
compensation" payable by the United States "for the taking of said
property, together with all improvements thereon and appurtenances
thereunto belonging" was $48,220 for Tract 304 and $70,400 for
Tract 305, and thus a total of $118,620 for the two. 1 Record 156,
162. [
Footnote 6]
At a distribution hearing held to determine the proper
allocation of the compensation amounts, the only parties claiming
an interest in the awards for the two tracts were respondent
Arizona, asserting title through the federal grants to it, and
petitioner Alamo, asserting a compensable leasehold interest in the
lands and a compensable
Page 424 U. S. 300
interest in the improvements thereon. The State conceded that
Alamo was entitled to receive the value of the improvements, but
contested Alamo's right, as lessee, to participate in the portion
of the award allocated to land value. The District Court, with an
unreported opinion, App. 1-5, awarded Arizona $57,970 for its fee
interest, and awarded Alamo $3,600 for the improvements and $57,050
for "its leasehold interest at the time of taking, and its
reasonable prospective leasehold interest." 1 Record 227-228. On
appeal, the United States Court of Appeals for the Ninth Circuit,
while recognizing that Alamo was entitled to compensation for the
improvements, held that, under the Enabling Act, Arizona "had no
power to grant a compensable property right to Alamo," and that
"Alamo therefore never acquired a property right for which it is
entitled to compensation."
United States v. 2,662.92 Acres of
Land, 495 F.2d 12, 14 (1974). The Court of Appeals thus
reversed the judgment of the District Court insofar as it concerned
the leasehold interests. It remanded the cause for the entry of a
new judgment in accordance with its opinion.
Id. at 15.
Because the Ninth Circuit's decision appeared to implicate this
Court's decision in
Lassen v. Arizona ex rel. Arizona Highway
Dept., 385 U. S. 458
(1967), and because it was claimed to be in conflict with
Nebraska v. United States, 164 F.2d 866 (CA8 1947),
cert. denied, 334 U.S. 815 (1948), we granted Alamo's
petition for certiorari. 420 U.S. 971 (1975).
II
The
Lassen case was an action instituted by the Arizona
Highway Department to prohibit the application by the State Land
Commissioner of rules governing the acquisition of rights-of-way
and material sites in federally donated lands held by Arizona in
trust pursuant to the provisions of the Enabling Act. What was
involved,
Page 424 U. S. 301
therefore, was the acquisition of interests in trust lands by
the State itself. The Supreme Court of Arizona held that it could
be presumed conclusively that highways constructed across trust
lands always enhanced the value of the remainder in amounts at
least equal to the value of the areas taken, and therefore refused
to order the Highway Department to compensate the trust.
State
v. Lassen, 99 Ariz. 161,
407 P.2d 747
(1965). This Court unanimously reversed. In so doing, it observed
that the more recent federal grants to newly admitted States,
including Arizona, "make clear that the United States has a
continuing interest in the administration of both the lands and the
funds which derive from them." 385 U.S. at
385 U. S.
460.
The Court read § 28 of the Enabling Act with particularity. It
emphasized the Act's requirements that trust lands be sold or
leased only to "
the highest and best bidder'"; that no lands be
sold for less than their appraised value; that disposal of trust
lands be "`only in manner as herein provided'"; that disposition in
any other way "`shall be deemed a breach of trust'"; and that every
sale or lease "`not made in substantial conformity with the
provisions of this Act shall be null and void.'" 385 U.S. at
385 U. S.
461-462. The Court then examined the purposes of the
Act, and concluded that the grant
"was plainly expected to produce a fund, accumulated by sale and
use of the trust lands, with which the State could support the
public institutions designated by the Act."
Id. at 463. Sales and leases were intended. The
"central problem" was "to devise constraints which would assure
that the trust received in full fair compensation for trust lands."
Ibid. The Court concluded, for reasons stated in the
opinion, that the Act's procedural restrictions did not apply when
the State itself sought trust lands for its highway program.
Page 424 U. S. 302
The Court then turned to the standard of compensation Arizona
must employ to recompense the trust for the interests the State
acquired. It concluded that the terms and purposes of the grant did
not permit Arizona to diminish the actual monetary compensation
payable to the trust by the amount of any enhancement in the value
of remaining trust lands. The Court emphasized that the Enabling
Act
"unequivocally demands both that the trust receive the full
value of any lands transferred from it and that any funds received
be employed only for the purposes for which the land was
given."
Id. at 466. It again stressed the requirements of the
Act, and noted that
"these restrictions in combination indicate Congress' concern
both that the grants provide the most substantial support possible
to the beneficiaries and that only those beneficiaries profit from
the trust."
Id. at 467. All this was confirmed by the background
and legislative history of the Enabling Act. Accordingly, it held
that, even where the State itself is the acquisitor, the Act's
designated beneficiaries were to derive the full benefit of the
grant. Thus,
"Arizona must actually compensate the trust in money for the
full appraised value of any material sites or rights-of-way which
it obtains on or over trust lands."
Id. at 469 [
Footnote
7] (footnotes omitted). This standard, it was said, "most
consistently reflects the essential purposes of the grant."
Id. at 470.
Much of what was said in
Lassen had also been said,
several decades earlier, in
Ervien v. United States,
251 U. S. 41
(1919), when the provisions of the same Enabling Act were under
consideration in a federal case from New Mexico. The Court's
concern for the integrity of the conditions imposed by the Act,
therefore, has long been evident.
Page 424 U. S. 303
But to say,. as the Court did in
Ervien and in
Lassen, that the trust is to receive the full value of any
lands transferred from it is not to say that the Act requires, in
every Arizona case where a leasehold is outstanding at the time of
the federal condemnation, that the trust is to receive the entire
then value of the land and the possessor of the leasehold interest
is to receive nothing whatsoever. What the Act requires -- and we
think that this is clear from
Ervien and
Lassen
-- is that the trust is to receive, at the time of its disposition
of any interest in the land, the then full value of the particular
interest which is being dispensed.
It has long been established that the holder of an unexpired
leasehold interest in land is entitled, under the Fifth Amendment,
[
Footnote 8] to just
compensation for the value of that interest when it is taken upon
condemnation by the United States.
United States v. Petty Motor
Co., 327 U. S. 372
(1946);
A. W. Duckett & Co. v. United States,
266 U. S. 149
(1924).
See United States v. General Motors Corp.,
323 U. S. 373
(1945);
Almota Farmers Elevator & Warehouse Co. v. United
States, 409 U. S. 470
(1973); 2 P. Nichols, Eminent Domain § 5.23 (Rev.3d ed.1975); 4
id. § 12.42[1]. It would therefore seem to follow that,
when a lease of trust land is made, the trust must receive from the
lessee the then fair rental value of the possessory interest
transferred by the lease, and that, upon a subsequent condemnation
by the United States, the trust must receive the then full value of
the reversionary interest that is subject to the outstanding lease,
plus, of course, the value of the rental rights under the lease.
The trust should not be entitled, in addition to all this, to
receive the compensable value,
Page 424 U. S. 304
if any, of the leasehold interest. That, if it exists and if the
lease is valid, is the lessee's.
See State ex rel. La Prade v.
Carrow, 57 Ariz. 429, 433-434, 114 P.2d 891, 893 (1941).
Ordinarily, a leasehold interest has a compensable value
whenever the capitalized then fair rental value for the remaining
term of the lease, plus the value of any renewal right, exceeds the
capitalized value of the rental the lease specifics. The Court has
expressed it this way:
"The measure of damages is the value of the use and occupancy of
the leasehold for the remainder of the tenant's term, plus the
value of the right to renew . . . less the agreed rent which the
tenant would pay for such use and occupancy."
United States v. Petty Motor Co., 327 U.S. at
327 U. S. 381.
See Almota Farmers Elevator & Warehouse Co. v. United
States, supra. A number of factors, of course, could operate
to eliminate the existence of compensable value in the leasehold
interest. Presumably, this would be so if the Enabling Act
provided, as the New Mexico-Arizona Act does not, that any lease of
trust land was revocable at will by the State, or if it provided
that, upon sale or condemnation of the land, no compensation was
payable to the lessee. The State, of course, may require that a
provision of this kind be included in the lease.
See United
States v. Petty Motor Co., 327 U.S. at
327 U. S. 375
376, and n. 4;
see also 4 Nichols,
supra, §
12.42[1], pp. 12-488 and 12-489.
A difference between the rental specified in the lease and the
fair rental value plus the renewal right could arise either because
the lease rentals were set initially at less than fair rental
value, or because during the term of the lease the value of the
land, and consequently its fair rental value, increased. The New
Mexico-Arizona Enabling
Page 424 U. S. 305
Act has a protective provision against the initial setting of
lease rentals at less than fair rental value. This is specifically
prohibited by § 28. The prohibition is given bite by the further
very drastic provision that a lease not made in substantial
conformity with the Act "shall be null and void." Thus, if the
lease of trust lands calls for a rental of substantially less than
the land's then fair rental value, it is null and void, and the
holder of the claimed leasehold interest could not be entitled to
compensation upon condemnation.
On the other hand, the fair rental value of the land may
increase during the term of the lease. [
Footnote 9] If this takes place, the increase in fair
rental value operates to create a compensable value in the
leasehold interest. It is at this point, we feel, that the Court of
Appeals erred when it held that the Act, by its terms and apart
from the extent to which it incorporated Arizona law by reference,
barred Arizona from leasing trust land in any manner that might
result in the lessee's becoming constitutionally entitled to just
compensation for the value of its unexpired leasehold interest at
the time of the federal condemnation. Instead, the Act is
completely silent in this respect.
Arizona, however, suggests that this usually acceptable analysis
may not be applied under the New Mexico-Arizona Enabling Act. It
argues, as the Court of Appeals held, 495 F.2d at 14, that, under
that Act, the State, as trustee, has no power to grant a
compensable property
Page 424 U. S. 306
interest to Alamo, as lessee. It bases this thesis on the
Enabling Act's provision in § 28 that no "mortgage or other
encumbrance" of trust land shall be valid, and it claims that a
lease is an encumbrance, citing, among other cases,
Hecketsweiler v. Parrett, 185 Ore. 46, 52, 200 P.2d 971,
974 (1948) (agreement to sell real estate free and clear of
encumbrances), and
Hartman v. Drake, 166 Neb. 87, 91,
87 N.W.2d
895, 898 (1958) (partition). One seemingly apparent and
complete answer to this argument is that § 28 goes on to authorize
specifically a lease of trust land for grazing purposes for a term
of 10 years or less, and further provides that a leasehold, before
being offered, shall be appraised at "true value."
See
n 2,
supra. These
provisions thus plainly contemplate the possibility of a lease of
trust land and, in so doing, intimate that such a lease is not a
prohibited "mortgage or other encumbrance." [
Footnote 10] Furthermore, Arizona statutes in
other contexts specifically protect the lessee's interest.
Ariz.Rev.Stat.Ann. §§ 41-511.06, 37-291 (1974).
See Ehle v.
Tenney Trading Co., 56 Ariz. 241. 107 P.2d 10 (1940). To this
the State responds that, while a lease is possible, it falls short
of being a compensable interest when the property is sold because
the Act prohibits the sale unless the trust receive the full
appraised value of the land. The argument assumes that such
compensation is to be measured by the entire land value despite the
presence of the outstanding lease. That approach overlooks the
actuality of a two-step disposition
Page 424 U. S. 307
of interests in the land, the first at the time of the granting
of the lease, and the second at the time of the condemnation. Full
appraised value is to be determined and measured at the times of
disposition of the respective interests, and if the State receives
those values at those respective times, the demands of the Enabling
Act are met. The State's argument would serve to convert and
downgrade a 10-year grazing lease, fully recognized and permitted
by the Act, into a lease terminable at will or into one
automatically terminated whenever the State sells the property or
it is condemned. The lessee is entitled to better treatment than
this if neither the Enabling Act nor the lease contains any such
provision. We have noted above that the Act or the lease, or both,
could provide for that result. The Act, however, does not
specifically so provide. Whether either the Act or the lease does
so through incorporation of state law is an issue not addressed by
the Court of Appeals, and it is to be considered on remand. We
merely note that the fact that it is within Arizona's power to
insert a condemnation clause in a lease it makes of trust land does
not mean that the State may claim the same result when its lease
contains no such clause.
IV
Alamo suggests that the Court of Appeals' decision is at odds
with the above-cited case of
Nebraska v. United States,
164 F.2d 866 (CA8 1947),
cert. denied, 334 U.S. 815
(1948). There, in the face of a totality claim like that made by
Arizona here, the Eighth Circuit ruled that trust lands in Nebraska
were to be treated as any other property, and that condemnation
proceeds were subject to allocation between the State as trustee
and the holder of an outstanding agricultural lease. The Nebraska
Enabling Act of April 19, 1864, c. 59, 13 Stat. 47, was an earlier
edition of this type of statute, and was adopted
Page 424 U. S. 308
more than four decades before the New Mexico-Arizona Act. It did
not contain the detailed restrictive provisions that appear in the
1910 Act and that were developed and utilized as passing years and
experience demonstrated a need for them. Because of this, one may
say, as Arizona does, that the Nebraska case is distinguishable
from the present one. But the decision is not devoid of
precedential value, for it is consistent with our analysis of the
New Mexico-Arizona Act in its recognition of the possibility of a
compensable leasehold interest in trust land upon federal
condemnation, and it demonstrates that the existence of that
interest is not incompatible with the trust land concept.
See
also United States v. 78.61 Acres of Land, 265 F.
Supp. 564 (Neb.1967), a post-
Lassen case;
United
States v. 40,021.64 Acres of Land, 387 F.
Supp. 839, 848-849 (NM 1975).
V
Finally, the Court of Appeals observed, but only in passing, 495
F.2d at 14, that the lease recited that it was made subject to the
laws of Arizona; that, if the State "relinquished" the property to
the United States, the lease "shall be null and void as it may
pertain to the land so relinquished"; and that no provision of the
lease "shall create any vested right in the lessee." The court also
observed,
ibid., that Ariz Rev.Stat.Ann. § 37242 and
37-293 [
Footnote 11]
restrict a lessee's participation in the
Page 424 U. S. 309
proceeds of a sale of public land to the value of improvements.
Having made these observations, however, the court thereupon
concluded that it did not find it necessary
Page 424 U. S. 310
"to determine the rights of Alamo based upon these lease
provisions or the state law." 495 F.2d at 14.
The significance of the provisions referred to and of the cited
statutes will now be for determination upon remand. We note only
that the land in question was condemned, and thus does not appear
to have been technically "relinquished" by Arizona to the United
States; that we are not at all sure that there is language of
restriction in §§ 37-242 and 37-293; and that Ariz.Rev.Stat.Ann. §§
37-288 and 37-290, respectively, permit forfeiture for violation of
the conditions of a lease or for nonpayment of rent, and
cancellation of a lease if the leased land is reclassified to a
higher use, and thus could explain the lease's provision against
vesting in the technical sense that it is not subject to any
contingency whatsoever.
Page 424 U. S. 311
To repeat: we hold that nothing in the Enabling Act apart,
possibly, from the extent it may incorporate Arizona law by
reference, prevents the usual application of Fifth Amendment
protection of the outstanding leasehold interest. We leave for
determination on remand the following: (1) whether, under state law
and the lease provisions, Alamo could not possess a compensable
leasehold interest upon the federal condemnation; (2) if Alamo did
possess such an interest, how it is properly to be evaluated and
calculated (with the subsidiary questions of the relevance of
possible lease renewals [
Footnote 12] and of possible value additions by reason of
Alamo's development of adjoining properties,
cf. United States
v. Fuller, 409 U. S. 488
(1973)); and, (3) if that interest proves to be substantial,
whether it is permissible to find from that fact a violation of the
Enabling Act's requirement that a lease, when offered, "shall be
appraised at [its] true value" and be given at not less than that
value.
The judgment of the Court of Appeals is reversed, and the case
is remanded for further proceedings consistent with this
opinion.
It is so ordered.
MR. JUSTICE STEVENS took no part in the consideration or
decision of this case.
[
Footnote 1]
"Sec. 24. That, in addition to sections sixteen and thirty-six,
heretofore reserved for the Territory of Arizona, sections two and
thirty-two in every township in said proposed State not otherwise
appropriated at the date of the passage of this Act are hereby
granted to the said State for the support of common schools. . .
."
[
Footnote 2]
"Sec. 28. That it is hereby declared that all lands hereby
granted, including those which, having been heretofore granted to
the said Territory, are hereby expressly transferred and confirmed
to the said State, shall be by the said State held in trust, to be
disposed of in whole or in part only in manner as herein provided
and for the several objects specified in the respective granting
and confirmatory provisions, and that the natural products and
money proceeds of any of said lands shall be subject to the same
trusts as the lands producing the same."
"Disposition of any of said lands, or of any money or thing of
value directly or indirectly derived therefrom, for any object
other than for which such particular lands, or the lands from which
such money or thing of value shall have been derived, were granted
or confirmed, or in any manner contrary to the provisions of this
Act, shall be deemed a breach of trust."
"No mortgage or other encumbrance of the said lands, or any part
thereof, shall be valid in favor of any person or for any purpose
or under any circumstances whatsoever. . . . Nothing herein
contained shall prevent: (1) the leasing of any of the lands
referred to in this section, in such manner as the Legislature of
the State of Arizona may prescribe, for grazing, agricultural,
commercial, and homesite purposes, for a term of ten years or less;
. . . or (4) the Legislature of the State of Arizona from providing
by proper laws for the protection of lessees of said lands, whereby
such lessees shall be protected in their rights to their
improvements (including water rights) in such manner that, in case
of lease or sale of said lands to other parties the former lessee
shall be paid by the succeeding lessee or purchaser the value of
such improvements and rights placed thereon by such lessee."
"All lands, leaseholds, timber, and other products of land,
before being offered, shall be appraised at their true value, and
no sale or other disposal thereof shall be made for a consideration
less than the value so ascertained. . . . "
"No lands shall be sold for less than their appraised value. . .
."
"
* * * *"
"A separate fund shall be established for each of the several
objects for which the said grants are hereby made or confirmed, and
whenever any moneys shall be in any manner derived from any of said
land the same shall be deposited by the state treasurer in the fund
corresponding to the grant under which the particular land
producing such moneys was by this Act conveyed or confirmed. No
moneys shall ever be taken from one fund for deposit in any other,
or for any object other than that for which the land producing the
same was granted or confirmed. . . ."
"Every sale, lease, conveyance, or contract of or concerning any
of the lands hereby granted or confirmed, or the use thereof or the
natural products thereof, not made in substantial conformity with
the provisions of this Act shall be null and void, any provision of
the constitution or laws of the said State to the contrary
notwithstanding."
[
Footnote 3]
"All lands expressly transferred and confirmed to the State by
the provisions of the Enabling Act approved June 20, 1910,
including all lands granted to the State and all lands heretofore
granted to the Territory of Arizona, and all lands otherwise
acquired by the State, shall be by the State accepted and held in
trust to be disposed of in whole or in part, only in manner as in
the said Enabling Act and in this Constitution provided, and for
the several objects specified in the respective granting and
confirmatory provisions. The natural products and money proceeds of
any of said lands shall be subject to the same trusts as the lands
producing the same."
[
Footnote 4]
Tract 304:
"All of Section 2, Township 10 North, Range 13 West, Gila and
Salt River Base and Meridian, Yuma County, Arizona."
Tract 305:
"All of Section 36, Township 11 North, Range 13 West, Gila and
Salt River Base and Meridian, Yuma County, Arizona."
App. 1-2.
[
Footnote 5]
No question is raised as to the propriety or effectiveness of
the condemnation procedure.
[
Footnote 6]
These figures were also the compensation estimated for the
respective tracts in the declaration of taking and paid into court.
1 Record 15.
[
Footnote 7]
The full-value provision does not exclude an appropriate
deferred payment arrangement. 385 U.S. at
385 U. S. 469,
n. 21.
[
Footnote 8]
"[N]or shall private property be taken for public use, without
just compensation."
[
Footnote 9]
The Arizona statutes governing grazing leases of trust lands
recognize this possibility and provide for adjustment of rent at
specified times to account for fluctuations in fair rental value.
Ariz.Rev.Stat.Ann. §§ 37-283, 37-285 (1974). Indeed, under § 28 of
the Enabling Act, at the termination of a lease, a reevaluation
would appear to be required before release or renewal.
[
Footnote 10]
The Supreme Court of New Mexico long ago ruled that a grazing
lease of state lands is not a "mortgage or . . . encumbrance,"
within the meaning of the identical prohibition, applicable to New
Mexico, in § 10 of the New Mexico-Arizona Enabling Act, 36 Stat.
563.
American Mortgage Co. v. White, 34 N.M. 602, 605-606,
287 P. 702, 703 (1930).
See United States v. 40,021.64 Acres of
Land, 387 F.
Supp. 839, 848-849 (NM 1975);
State ex rel. State Highway
Comm'n v. Chavez, 80 N.M. 394,
456 P.2d 868
(1969).
[
Footnote 11]
§37-242:
"A. When state lands on which there are improvements for which
the owner thereof is entitled to be compensated are offered for
sale, and the purchaser is not the owner of the improvements, the
purchaser shall pay the person conducting the sale ten percent of
the appraised value of the improvements and the balance within
thirty days thereafter. If the state land department determines
that the amount at which the improvements are appraised is so great
that competitive bidding for the land will be thereby hindered, the
department may sell the improvements on installments payable ten
per cent upon announcement of the successful bidder, fifteen per
cent thirty days thereafter, and fifteen per cent annually
thereafter for five years, together with six per cent interest on
the balance remaining unpaid, which amount, until paid, shall be a
lien upon the land. The purchaser shall at all times, keep the
insurable improvements insured for the benefit of the state.
Payments shall be made at the time and in the manner prescribed for
payments on the land, and any default in the payments for
improvements shall be deemed a default in the payments for the
land."
"B. When improvements are sold on installments, the first
twenty-five per cent, after deducting all rents, penalties and
costs owing to the state on account of the land, shall be paid to
the owner of the improvements, and the balance shall become a legal
charge against the state."
"C. Upon surrendering possession of any such land, the owner of
the improvements thereof shall file with the commissioner of
finance his claim for the balance on the improvements remaining
unpaid, and if the claim bears the approval of the department as to
correctness, and a certificate that possession of the lands and
improvements has been surrendered by all persons having lawful
claims for improvements on the land, it shall be paid by the state
treasurer on the warrant of the commissioner of finance from any
fund in which there is money subject to investment. As payments for
the improvements are made by the purchaser, they shall be deposited
with the state treasurer and both principal and interest shall be
returned by him to the fund from which they were taken."
"D. Failure to pay the balance of the purchase price or the
fifteen per cent within thirty days after the announcement of the
successful bidder shall constitute a forfeiture of all rights to
the land and all payments made."
"
* * * *"
§ 37-293:
"A. A lessee of state lands shall be reimbursed by a succeeding
lessee for improvements placed on the lands which are not
removable. If the retiring lessee and the new lessee do not agree
upon the value of the improvements, either party may file with the
state land department an application for appraisal of the
improvements. Thereafter, an appraisal of the improvements shall be
made in the same manner and subject to the same conditions as
appraisals of improvements are made when state lands are sold."
"B. Upon making the appraisal, the department shall give notice
of the amount thereof by registered mail to each person interested
in the appraisal. The notice shall require that the new lessee pay
to the department for the prior lessee the entire amount of the
appraisal within thirty days from the date of the notice or the
department, when the value is greater than the rental for the
period of the lease, may require that payment of ten per cent of
the appraised value be made within thirty days, fifteen per cent
within sixty days, twenty-five per cent at the end of the first
year of the new lease, and twenty-five per cent at the end of each
year thereafter until the entire balance is paid."
"C. If the improvements are not paid for as required in the
notice, the succeeding lessee shall not be permitted to sell,
assign, or transfer his lease, nor sell, assign or remove any
improvements whatever from the land until the entire amount of the
appraised value of the improvements has been paid. Upon default he
shall be subject to the same penalties and liabilities as provided
by § 37-288 for failure to pay rents, including a cancellation of
the lease."
[
Footnote 12]
We note in regard to the possible value of renewal rights that
leases of the kind in issue here are limited by statute to 10 years
in duration, and that the Act requires that rentals be adjusted to
reflect current fair rental value before any renewal.
See
n 9,
supra. Therefore,
although we do not foreclose the relevance of possible renewals,
the calculation of the lessee's interest cannot include the
prospect of renewing the lease at less than fair rental value.
MR. JUSTICE WHITE, with whom MR. JUSTICE BRENNAN joins,
dissenting.
The question in this case is whether, under § 28 of the
Page 424 U. S. 312
New Mexico-Arizona Enabling Act, 36 Stat. 574, the State of
Arizona had the power to grant to petitioner a compensable
leasehold interest in the property in issue. The question is solely
one of statutory construction. As I agree with the Court of Appeals
for the Ninth Circuit that Congress intended that lessees of land
covered by the Act should acquire a compensable interest in leased
land only to the extent of "improvements . . . placed thereon by
such lessee,"
United States v. 2,62.92 Acres of Land, 495
F.2d 12, 14 (1974), I dissent.
The Act states expressly, with respect to the lands involved
here, that
"no mortgage or other encumbrance of the said lands . . . shall
be valid in favor of any person or for any purpose or under any
circumstances whatsoever."
A lease, if not terminable at will by the State or terminable
automatically upon sale or condemnation, is clearly an
"encumbrance." 7 G. Thompson, Real Property § 3183, p. 277 (1962);
2 Bouvier's Law Dictionary 1530 (8th ed.1914). A lease not so
terminable is, therefore expressly prohibited by the Act. The
majority opinion, however, finds implicit in the Act an exception
to the express ban on encumbrances in the case of leases for terms
of 10 years or less. It points to the fact that 10-year leases of
school trust lands are expressly permitted by the Act, and states
that to treat a lease as an "encumbrance" under the circumstances
would be to "downgrade a 10-year grazing lease, fully recognized
and permitted by the Act, into a lease terminable at will or into
one automatically terminated whenever the State sells the property
or it is condemned."
Ante at
424 U. S. 307.
Treating the lease as an encumbrance would certainly have the
effect which the majority says it would. The majority does not
disclose, however, why such an effect is contrary to the intent of
the Act. Apparently, it simply finds illogical
Page 424 U. S. 313
the notion that a lease could be terminable on sale or
condemnation and still be a "10-year" lease, notwithstanding the
fact that treating 10-year leases as being so terminable is the
only way to square them with the Act's unqualified ban on
encumbrances.
It is Congress' policy, however, and not our own, which we must
apply to the Act; and Congress' prior statutes governing leases by
States of school trust lands granted to them by the United States
strongly support the proposition that Congress viewed an express
statutory provision permitting leases of such land for a term of
years as entirely consistent with provisions making such leases
terminable at will or by sale or condemnation. In 1888, Congress
provided, with respect to school trust lands granted to Wyoming,
that the lands could be leased for 5-year periods, but that such
leases could be annulled at will by the Secretary of the Interior.
25 Stat. 393. Of far more significance to this case was Congress'
treatment of the lands granted to Oklahoma -- the State to enter
the Union most recently prior to the entry of Arizona and New
Mexico -- in the Oklahoma Enabling Act. C. 3335, 34 Stat. 267. In
that Act, Congress expressly provided Oklahoma with the authority
to lease school trust lands for 10-year periods while also clearly
providing that, upon sale of the lands during the period of the
lease, the lessee would receive only the value of its improvements.
That Act states with respect to sales of lands subject to a lease
that "preference right to purchase at the highest bid [is] given to
the
lessee at the time of such sale,"
id. at 274
(emphasis added); and then provides:
"[I]n case the leaseholder does not become the purchaser, the
purchaser at said sale shall, under such rules and regulations as
the legislature may prescribe, pay to or for the leaseholder the
appraised value
Page 424 U. S. 314
of . . . improvements,
and to the State the amount bid for
said lands, exclusive of the appraised value of improvements.
. . ."
Ibid. (emphasis added). The Oklahoma Enabling Act thus
clearly provides for the result which the majority finds so
illogical, and which it declines for that reason alone to attribute
to Congress under the New Mexico-Arizona Enabling Act, passed only
four years later. Moreover, in the single piece of legislative
history shedding any light on the relevant portion of the Act, the
Senate sponsor of the Act -- Senator Beveridge -- spoke approvingly
of the restrictions placed on Oklahoma in dealing with school trust
lands granted to it in the Oklahoma Enabling Act and indicated his
belief that the restrictions on Arizona and New Mexico were more
stringent. He stated:
"We took the position [in drafting the Act] that the United
States owned this land, and, in creating these States, we were
giving the lands to the States for specific purposes, and that
restrictions should be thrown about it which would assure its being
used for those purposes."
"
* * * *"
"We have thrown conditions around land grants in several States
heretofore, notably in the case of Oklahoma, but not so thorough
and complete as this."
45 Cong.Rec. 8227 (1910). The Oklahoma Enabling Act prevents the
creation of a compensable interest in a lessee of school trust
lands except to the extent of improvements placed thereon by him. A
literal application of the New Mexico-Arizona Enabling Act at issue
here reaches the same result. The latter Act, passed only four
years after the Oklahoma Enabling Act, had purposes similar to
those of the former. I cannot but conclude that it should also
be
Page 424 U. S. 315
construed to prevent the creation of a compensable interest in
leaseholds of school trust lands.
Congress' reasons for so limiting the rights of leaseholders is
easily discernible from the Act and its legislative history.
Congress anticipated that the value of the school trust lands would
increase over time, and it intended that the schools, not
leaseholders, benefit from this increase. Pursuing this end, the
Act set a minimum sales price for school trust lands of $3 per
acre, 36 Stat. 574, the House committee report explaining:
"The bill fixes a minimum price at which the lands granted for
educational purposes subject to sale may be sold. . . ."
"It is recognized by the committee as well as by other earnest
advocates of a minimum price, that practically none of these lands
are worth now anything like the minimum price fixed. . . . It is
believed, however, that the advance of science, the extension of
public and private irrigation projects, and the tendency toward the
higher development of smaller holdings will, in the case of Arizona
and New Mexico, as in the case of other States,
result in a
sure, although possibly slow, increase of land values."
"The educational lands which are subject to sale would probably
not bring on the market now much more than 25 cents an acre, but if
the history of other states in which minimum prices, which at the
time were considered prohibitive, were fixed shall be repeated in
Arizona and New Mexico, it is of the utmost importance that some
restriction be placed upon the sale of these lands."
"The experience of other States and the importance of fixing a
minimum selling price for educational lands is indicated in the
following extract
Page 424 U. S. 316
from a letter from former Secretary of the Interior Garfield
addressed to the chairman of the committee in the last Congress:
"
" The history of the public land States in the matter of the
disposal of granted school lands has convinced me that those States
which have a minimum price fixed on their lands granted for
educational purposes get a much larger return from their lands. I
am informed that most States with no minimum have not disposed of
their lands to the best advantage, thus seriously failing to derive
the full benefit to which the schools are entitled. The States of
North and South Dakota, Montana, Wyoming, Idaho, and Washington
have a $10 minimum fixed on their lands, and I am informed that
none of these States, unless it is Wyoming, feels that this high
minimum is harmful."
" On the contrary, I find that officials of these States are
zealous and proud of the splendid school funds which they are
creating from the sale of school lands. North Dakota, which a few
years ago seemed to contain immense areas of poor land, is, I am
informed, obtaining in many cases $15 or $20 per acre for its
school sections. Colorado seems to have an exceedingly low minimum,
$2.50; and, nevertheless, it has administered its land grants
unusually well, securing from them very large returns, both from
sales and from leases. For these reasons, I urge that a minimum
price be fixed for these proposed new States. They will be able to
lease most of their land, if it is not worth today the minimum
price, and will thereby obtain an income."
H.R.Rep. No. 152, 61st Cong., 2d Sess., 2-3 (1910). If leases
were permitted to encumber school trust lands
Page 424 U. S. 317
at a time when they were worth less than the minimum sales
price, then, when the land rose in value -- as Congress anticipated
it would -- and was sold for the minimum price or more, the State
would have to give part of such sales price to the lessee. Such a
result is utterly irreconcilable with the reasons for setting
minimum sales prices. Plainly, Congress intended the school trust
to receive the full sales price and to prevent the States from
disposing of the lands in any fashion which would result in its
receiving any less. Lessees were to receive none of the proceeds of
sale of the land itself even if the land had appreciated in value
subsequent to the creation of the lease.
To make its purpose even clearer, Congress, in dealing with the
very question of whether the lessee should share in the proceeds
when lands subject to the lease are sold, provided:
"Nothing herein contained shall prevent . . . (4) the
Legislature of the State of Arizona from providing by proper laws
for the protection of lessees of said lands, whereby such lessees
shall be protected in their rights to their improvements (including
water rights) in such manner that, in case of lease or sale of said
lands to other parties, the former lessee shall be paid by the
succeeding lessee or purchaser the value of such improvements and
rights placed thereon by such lessee."
65 Stat. 52. The Act provides for no other kind of compensation
to the lessee of lands sold. Under the majority opinion, a lessee
could, if the value of the lands increased after the lease was
entered into, and if the lease had not expired at the time of any
sale or condemnation, receive a portion of the sale or condemnation
price over and above the value of any improvements. In
Lassen v.
Arizona
Page 424 U. S. 318
ex rel. Arizona Highway Dept., 385 U.
S. 458,
385 U. S. 466
(1967), we said that Act "unequivocally demands . . . that the
trust receive the full value of lands transferred from it." The
majority now construes the Act to authorize a result contrary to
the Act's "unequivocal demand" and, accordingly, I dissent.