Jensen v. Dinehart , 1982 Utah LEXIS 913 ( 1982 )

HALL, Chief Justice:

Plaintiff appeals the declaratory judgment of the Third Judicial District Court that mineral proceeds derived from state school lands must be deposited and retained in the State School Fund,¹ also referred to as the perpetual fund, rather than the Uniform School Fund,² which is currently expendable.

Defendant, as the Director of the Division of Utah State Lands, administers the school section lands granted to the state by acts of the United States Congress of 1894 and 1927. He places the proceeds therefrom in the State School Fund. Only the interest drawn thereon is placed in the Uniform School Fund for operational use. Plaintiff, the State Auditor, asserted that the mineral proceeds derived from said lands should be deposited in the currently expendable Uniform School Fund and thereafter sought a declaratory judgment in support of his conclusion. The trial court rejected his contention and granted defendant’s motion for summary judgment.

Plaintiff’s contentions are that the trial court incorrectly interpreted the Utah Enabling Act³ and the Act of January 25, 1927,⁴ and that both legal and practical considerations dictate that mineral proceeds be deposited in the currently expendable Uniform School Fund instead of being committed to the perpetual State School Fund. The issue for resolution here is whether mineral proceeds from lands received by this state for the support of the public schools must be deposited in the latter fund, from which only the interest earned thereon may be expended to support the public schools, or be deposited in the former fund and currently expended to meet public school needs.

The background leading to congressional enactment of state school land grant statutes was well stated in Utah v. Kleppe⁵ as follows:

There were no federal lands within the borders of the original thirteen states when they adopted and ratified the United States Constitution. Thus, virtually all of the lands within their borders were subject to taxation, including taxation necessary for the maintenance of their public school systems. When other states were subsequently admitted into the Union, their territorial confines were “carved” from federal territories. The “public lands” owned and reserved by the United States within those territorial confines were not subject to taxation. This reservation by the United States created a serious impediment to the “public land” states in relation to an adequate property tax base necessary to permit these states to operate and maintain essential governmental services, including the public school systems. It was in recognition thereof, i.e., in order to “equalize” the status of the newly admitted states with that of the original thirteen states, that the Congress enacted the federal land grant statutes.... to be held and administered by the states under trust covenants for the perpetual benefit of the public school systems.

(All emphasis in this opinion is added.)

If the mineral proceeds derived from state school lands are required to be placed in the perpetual fund as asserted by the defendant, it would be because they were thus committed in irrevocable trust for that purpose by the provisions of the Utah Enabling Act⁶ and the Utah Constitution discussed herein.

The Utah Enabling Act authorized the people of Utah to form a constitution and state government; and to be admitted into the Union on an equal footing with the original states (except as may be limited or conditioned by the Enabling Act.) Section 3 of said Act specifically required the State of Utah to adopt an irrevocable commitment for:

.. . the establishment and maintenance of a system of public schools, which shall be open to all the children of said State and free from sectarian control.

Section 6 thereof provided:

That upon the admission of said State into the Union, sections numbered two, sixteen, thirty-two, and thirty-six in every township of said proposed State ... are hereby granted to said State for the support of common schools.

Section 10 of the Enabling Act then imposed the specific conditions on the use and disposition of the school land grant contained in Section 6:

.. . the proceeds of lands herein granted for education purposes, except as hereinafter otherwise provided, shall constitute a permanent school fund, the interest of which only shall be expended for the support of said schools ....

The State of Utah accepted the conditions and obligations of the grant of federal lands for the support of the public schools by its adoption of the following constitutional provision:

The proceeds of all lands that have been, or may be granted by the United States to this State, for the support of the common schools; the proceeds of all property that may accrue to the State by escheat or forfeiture; all unclaimed shares and dividends of any corporation incorporated under the laws of this State; the proceeds of the sale of timber, minerals or other property from school and State lands, other than those granted for specific purposes; ... shall be and remain a perpetual fund, to be called the State School Fund, the interest of which only, ... shall be distributed among the several school districts according to the school population residing therein.⁷

It will be noted that the Enabling Act neither expressly included nor excluded mineral lands from its grant of federal lands to the State of Utah. However, in 1918, the United States Supreme Court, in United States v. Sweet;⁸ ruled that it had not been the intention of Congress to grant to the State of Utah by its Enabling Act school sections known to have been mineral in character. Arising out of and consistent with that ruling, there was considerable litigation with respect to titles to mineral lands in various states. It is of interest to observe that some state enabling acts expressly stated that mineral sections, as well as nonmineral sections, passed to the state. See, e.g., Enabling Act of Oklahoma, Ch. 3335, 34 Stat. 267, 273 (1906), while other enabling acts expressly excepted mineral lands from the school grants. Still other enabling acts, similar to Utah’s, had made no express mention of mineral lands. It was with respect to them that problems arose. In some instances, state conveyances of land were challenged long after the initial state conveyance, based on the contention that the lands had been known to be mineral lands at the time of the grant, or of the approval of the survey.

In an effort to deal with the difficulties which had arisen, in 1927 Congress enacted what is known as the Jones Act,⁹ which expressly extended the school land grants to include sections mineral in character. Applicable provisions of that Act are:

. . . the several grants to the States of numbered sections in place for the support or in aid of common or public schools be, and they are hereby, extended to embrace numbered school sections mineral in character . ..

* * * * * *

The additional grant made by this section is upon the express condition that all sales, grants, deeds, or patents for any of the lands so granted shall hereafter be subject to and contain a reservation to the State of all the coal and other minerals in the lands so sold, granted, deeded, or patented, together with the right to prospect for, mine, and remove the same. The coal and other mineral deposits in such lands not heretofore disposed of by the State shall be subject to lease by the State as the State legislature may direct, the proceeds and rentals and royalties therefrom to be utilized for the support or in aid of the common or public schools:

In order to harmonize with and take advantage of the more liberal grant by Congress in the Jones Act, in 1939, Utah amended Article X, Section 3 of our Constitution. That section as amended states:

The proceeds of the sales of all lands that have been or may hereafter be granted by the United States to this state, for the support of the common schools, . .. shall be and remain a permanent fund, to be called the State School Fund, the interest of which only, shall be expended for the support of the common schools. The interest on the State School Fund, the proceeds of all property that may accrue to the state by the escheat or forfeiture, all unclaimed shares and dividends of any corporation incorporated under the laws of this state, the proceeds of the sales of timber, and the proceeds of the sale or other disposition of minerals¹⁰ or other property from school and state lands, other than those granted for specific purposes, shall, with such other revenues as the Legislature may from time to time allot thereto, constitute a fund to be known as the Uniform School Fund, which Uniform School Fund shall be maintained and used for the support of the common and public schools of the state and apportioned in such manner as the Legislature shall provide.

Under the adjudication in the case of United States v. Sweet, supra, that the grant of school sections did not include known mineral sections, it reasonably follows that the Enabling Act did not commit the proceeds of minerals to the permanent school fund; and this is corroborated by the manner in which Utah in 1896 treated the proceeds of minerals, separately from the proceeds of lands, in Section 3 of Article X of its Constitution.¹¹ In any event, from the provision of the Jones Act that the grants of the school sections are “extended to embrace numbered school sections mineral in character,” it seems plain that the purpose of that Act was to nullify the effect of the decision in the Sweet case by completely freeing those federally granted school sections 2, 16, 32 and 36 from any restriction or limitation that may have theretofore existed, except as to use for public schools.

As a sovereign state, it was free and unfettered to place mineral proceeds from the school sections in the Uniform School Fund;¹² and we see no reason to believe that that conclusion is not just as valid as to sections acquired prior to the Jones Act and the 1939 amendment as it is to those acquired thereafter. It is therefore our opinion that the mineral proceeds from the school sections are properly placed in the Uniform School Fund, whenever such sections were acquired by this state.

Remanded for entry of judgment in conformity herewith. No costs awarded.

STEWART and HOWE, JJ., and J. ALLAN CROCKETT, Retired Justice, concur.

1 . A perpetual fund provided for by Article X, Section 3, Constitution of Utah (1896).

2 . An operational fund provided for by Article X, Section 3, Constitution of Utah (as amended, 1939).

3 . Act of July 16, 1894, 28 Stat. 107.

4 . 44 Stat. 1026, 43 U.S.C. Section 870 et seq.

5 . 586 F.2d 756 (10th Cir. 1978).

6 . Supra, footnote 3.

7 . Article X, Section 3, Constitution of Utah (1896).

8 . 245 U.S. ,563, 38 S.Ct. 193, 62 L.Ed. 473 (1918).

9 .Act of January 25, 1927, supra, footnote 4.

10 . Although this provision permits sales of minerals, U.C.A., 1953, 65-1-15 reserves minerals from sale, except on a rental or royalty basis, which is consistent with the congressional grant.

11 . If the framers had considered the phrase “proceeds of lands” in the beginning of that paragraph as including proceeds from minerals, it would have been repetitious and unnecessary to again mention the proceeds of minerals in connection with escheats, unclaimed shares of corporations, timber and other property.

12 .That a sovereign state has all powers of government except as constitutionally limited, see statement in Wood v. Budge, 13 Utah 2d 359, 374 P.2d 516 (1962).