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IN THE SUPREME COURT OF THE STATE OF MONTANA

THOMAS J. WINCHELL AND DAVID WINCHELL, Plaintiffs and Respondents, -vsSTATE OF MONTANA, DEPARTMENT OF STATE LANDS, Defendants and Appellants.

APPEAL FROM:

District Court of the Seventh Judicial District, In and for the County of Dawson, The Honorab1.e Dale Cox, Judge presiding.

COUNSEL OF RECORD: For Appellant: Lyle Manley, Dept. of State Lands, Helena, Montana For Respondent: Thomas E. Smith; Moulton, Rellingham, Longo Billings, Montana
&

Mather,

Submitted on Briefs:

Sept. 29, 1988

Decided: November 29, 1988

-

Clerk

Mr. Chief Justice J. A. Turnage delivered the Opinion of the Court. A writ of prohibition was filed by the Honorable Dale Cox, Seventh Judicial District Court, Dawson County, restraining and prohibiting the Department of State Lands from (1) cancelling State Lease No. 0343 for nonpayment of agricultural rentals, (2) re-leasing the property to other parties, and (3) taking action for trespass against the plaintiffs. The court found that the property in dispute was leased for grazing only and the Department of State Lands (hereinafter Department) was in excess of its jurisdiction for cancelling the lease for nonpayment of agricultural rental. The Department appeals. We affirm. The issue on appeal is whether the District Court erred in issuing the writ prohibiting appellants from cancelling the lease. Thomas J. Winchell and David Winchell are both residents of Dawson County, Montana. The Department leased 477.9 acres to the Winchells in 1981 for grazing purposes. The lease was scheduled to operate from February 28, 1981, to February 28, 1991. In the fall of 1980, the Winchells had written the United States Soil and Conservation Service requesting help in developing a water-spreading system. Roy Henderson, Chief of the Resource Development Bureau of Land Administration of the Department of State Lands, explored the possibility of developing the water-spreading project. Section 77-1-209, MCA, promulgates that the Board of State Lands may prescribe rules relating to the leasing of state lands which contribute to the highest attainable measure to the purpose for which they were granted to the State of Montana. Section 77-1-102, MCA, grants to the Board the power to classify and recl-assify state lands. Al-ong these

lines, Am

5 26.3.126

requires that anyone who wishes to

reclassify land use must apply to the Department. The Department conducts a capability inventory of the tract to determine whether reclassification is in the best interests of the state. Development of a water-spreading project would require the Department to consider capability and reclassification. The Department agreed that the project was feasible and thirty-two acres were set aside to be converted from native range land to irrigated hay land through installation of water-spreading dikes. The Department invested approximately $1,300 into the project, to be paid back by the Winchells. In 1981, after the lease had taken effect, the Department and the Winchells entered into a Supplemental Lease Agreement designating thirty-two acres as agricultural land, with the remaining 445.9 acres to continue as grazing land. The supplemental agreement also stated that the winch ell.^, as lessees, would: Pay the State Land Department the greater of 1/4 crop share or a minimum cash payment of $20 .OO per acre. The Lessee agrees and understands that the above rental is to be paid on or before November 1st of each year. The State agrees to forego the $20.00 per acre stipulation the year hay is seeded and require only the standard statutory rental of 25% crop share on the developed acres. The second growing year of the initial seeding of developed acres, and for the balance of the lease term, the greater of 25% crop share or $20.00 per acre shall be applicable. On the original lease form appeared a handwritten note showing that the thirty-two acres had been reclassified by the Department as agricultural.

In 1983 the Winchells concluded that the water source for the project was inadequate for producing a profitable alfalfa crop at the higher agricultural rental rates. They negotiated to pay back the loan for the thirty-two acre development in a lump sum settlement of $1,920. They then reverted the land to grazing. In a letter dated April 10, 1984, Roy Henderson informed Tom Winchell that he had received the lump sum payment of $1,920 on March 30, 1984, and that the Supplemental Lease Agreement was null and void. He also stated in the Letter: Your rental on this portion of ground will now be the current AUM [Animal-Unit-Month] rate if in grazing or the statutory crop-share (currently 1/4 crop-share), if used for agricultural purposes. Since you indicated that the project site was returned to pasture, I have asked that this area be reappraised this year, so a correct AUM rate can be assigned. The indications from this letter are that lessees were now grazing on this land again and the Department would reclassify the land to grazing. With no other agreements supplementing the original lease agreement, the thirty-two acres reverted back to grazing land. Furthermore, Henderson's own notes taken from telephone conversations with lessees confirmed the return to grazing land. Kelly Blake, Administrator of the Land Administration Division of the Department, knew and approved the arrangement. After the lump sum had been paid, Sharon Moore, a land specialist at the Department's Eastern Land Office in Miles City, inspected the site for reappraisal purposes to see if the land should remain classified as agricultural or be used for grazing. She recommended that the thirty-two acres retain the agriculture classification.

In 1985 the Winchells went into bankruptcy. Before the Department sought relief in Bankruptcy Court, it sent a letter to lessees stating that the land was over-grazed and they owed one-fourth crop share for harvested alfalfa on the reclassified thirty-two acres. Following the letter, the Department obtained a stipulation from the Bankruptcy Court which promulgated that there was to be no grazing on the land at issue and that they were to pay the one-fourth crop share owing on alfalfa cut from the thirty-two acres. The Department cancelled the lease pursuant to S 77-6-210, MCA, mismanagement of the lease. The court later lifted the stay, and, as a result, the Department held an administrative hearing regarding the cancellation of the lease. The hearing examiner found that the agricultural status was the proper classification and the lessees had mismanaged the lease because they had failed to harvest the alfalfa crop and failed to pay proper rental. The Montana Board of Land Commissioners adopted the hearing examiner's findings on February 25, 1988. Lessees did not harvest the alfalfa crop or pay the crop share payments but continuefi t o pay grazing rental. Lessees petitioned the District Court for a writ of prohibition against automatic cancellation of the lease pursuant to 5 77-6-506, MCA, not in opposition to the hearing examiner's findings of mismanagement. Section 77-6-506(2) provides that rental for agricultural land is due on o r before November 15th of the year in which the crop is harvested. If payment is not made by December 31st, the lease is automatically cancelled. The question brought by the appellant is whether the District Court erred in issuing the writ of prohibition, restraining and prohibiting the Department from cancelling State Lease No. 0343 f o r nonpayment o f agricultural rentals,

from re-leasing

the property

to other parties, and

from

taking action in trespass against the lessees. Appellant stresses that the legislative intent behind revenue collected from leased state lands is that it is primarily "held in trust for the support of education and for the attainment of other worthy objects helpful to the well being of the people of this state." Section 77-1-202, MCA. We held in Department of State Lands v. Pettibone (Mont. 1985), 702 P.2d 948, 42 St.Rep. 869, that anyone acquiring interest in property does so subject to the trust. Moreover,

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Montana Law