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Murphy v. State

Supreme Court of Arizona

May 26, 1947

MURPHY et al.

Rehearing Denied June 16, 1947.

Page 337

Appeal from Superior Court, Pinal County; Henry C. Kelly, Judge.

Suit by the State against Harold Murphy, Ruth Murphy and Ohio National Life Insurance Company, to cancel certain deeds and a mortgage. From an adverse judgment, the defendants appeal.


Stockton & Karam, of Phoenix, for appellants Harold Murphy and Ruth Murphy.

Tom Fulbright, of Florence, and Kramer, Morrison, Roche & Perry, of Phoenix, for appellant Ohio National Life Ins. Co.

John L. Sullivan, Atty. Gen., and Harry O. Juliani, John W. Rood, and Burr Sutter, Asst. Attys. Gen., for appellee.

LaPrade, Judge. Stanford, C. J., and Udall, J., concur.


LaPrade, Judge.

Page 338

[65 Ariz. 341] This appeal is from a judgment cancelling certain deeds from the state of Arizona to Ed E. Murphy and wife, and from Murphy and wife to the state. The judgment [65 Ariz. 342] also cancelled and annulled a mortgage from the successors in interest of Murphy to the Ohio National Life Insurance Company on the lands received from the state in the exchange.

This decision is perhaps unduly lengthy but, due to the rights asserted and the possible ultimate disposition of more than 10,000 acres of land acquired by the state on foreclosures resulting from the nonpayment of loans made from the permanent school and institutional funds, we have not been able to more summarily dispose of the case. The gravity of the issues involved is brought into bold relief by the realization that the state of Arizona now holds in trust for the use and benefit of its common schools and other institutions nearly 9,000,000 acres of land granted to it by the United States at and before its admission into the Union. There has accrued to the state from sales of a small portion of the lands granted approximately $ 5,000,000, which sum is held in trust for the uses and benefits set up in the Enabling Act (permanent school and institutional funds).

Statement of Facts.

On October 8, 1940, the state treasurer, with the approval of the governor and secretary of state, traded and exchanged lands with Murphy. The lands exchanged and traded by the treasurer constituted 1440 acres. The legal title to these lands was vested in the state of Arizona. These lands were not grant land from the United States government to the state. The entire acreage was patented by the United States government and by mesne conveyances was vested in a number of individuals who years ago borrowed, from various state treasurers, money belonging to the permanent school and institutional funds of the state, and gave mortgages to secure the repayment of the monies borrowed. The mortgagors failed to repay the money borrowed, the state foreclosed, and at sheriff's sale bid in and thus acquired title. All of the lands involved herein are in Pinal county. The lands traded by Murphy to the state comprised two sections aggregating 1280 acres. These two sections were originally patented by the United States government to predecessors in interest of Murphy who had acquired title by mesne conveyances. These lands were never grant lands from the United States government to the state. Mr. Murphy died in February, 1941. His son, Harold Murphy, one of the appellants herein, prior to commencement of this litigation became the owner of this property in part by inheritance as a son of his father, acquiring the remainder by purchase from the surviving wife and other heirs of the deceased. Subsequent to the acquisition of the lands, the Murphys made extensive and costly improvements thereon. In this connection they borrowed from appellant Ohio National Life Insurance Company the sum of $ 40,000, which they secured by a realty mortgage on the premises and improvements thereon.

[65 Ariz. 343] The state treasurer testified that the exchange was prompted by a desire on the part of all parties concerned to develop a dependable water supply if possible and thus enhance the value of the land belonging to the state and to Murphy; that the 1440 acres owned by the state interlaced other lands of Murphy; that the two sections

Page 339

traded by Murphy were contiguous, and by the exchange each of the parties secured a compact body of land; and that the state owned considerable acreage in the same vicinity and it was known that without proof of available water the land had no value other than that of desert land. Other testimony was to the effect that the development of water has created a condition in which the two sections of land acquired by the state with its other lands now have a very real and substantial value; that it was and is impractical to spend many thousands of dollars in drilling and equipping a well for an acreage smaller than a section; and that the speculative risk was too great for Murphy to undertake had he not owned considerable acreage in a compact body. By the exchange he had effected a consolidation of some 2500 acres.

The 1440 acres exchanged by the state had been under lease to other parties since the year 1935 or before. To acquire this lease and the improvements thereon, Murphy paid the sum of $ 30,700 to the then lessee from the state. At the time Murphy acquired the lease, there were 640 acres in cultivation, 352 acres of which were planted to cotton. Sections 5 and 8, Twp. 5 S, R 4 E, G. & S. R. B. & M., Pinal county, Arizona, deeded by Murphy to the state, were unimproved and in native brush. No improvements had been placed thereon at the date of trial.

The water for irrigation was furnished by four wells, one of which was 470 feet in depth. With reference to the improvements at date of acquisition, Harold Murphy testified: "There was four wells equipped, and approximately 352 acres in cotton, and an old store building and many cotton picker houses, and roads and ditches and it was all fenced, and an electric power line, of course, was all around it." Murphy's assignor had expended approximately $ 40,000 in drilling and equipping the wells

After the exchange of titles, Murphy secured a lease from the state on Sections 5 and 8, Twp. 5 S, R 4 E, which he had just traded to the state. He now has these two sections under lease.

Murphy had the existing wells "dry iced," which improved the production of all the wells except one. He drilled a new well 707 feet deep on the SE 1/4 of Sec. 28, Twp. 4 S, R 4 E, acquired from the state, at an expense of some $ 11,000. At the time of the trade, the south half of Sec. 21, Twp. 4 S, R 4 E, acquired from the state, was covered with desert flora. Murphy grubbed out the mesquite, plowed the land, bordered it, and put it into cultivation, at an expense of approximately $ 4000.

[65 Ariz. 344] In the exchange of the land the state treasurer made no attempt to comply with section 28 of the Enabling Act or the provisions of article 10 of the Constitution of Arizona. Generally, the provisions of the Enabling Act and the Constitution, with distinctions to be noted later, require that grant lands acquired by the state upon its admission to the Union be held in trust for certain purposes; that they can be disposed of only after appraisal and sale at public auction, after being advertised for ten weeks, at not less than $ 3 per acre, and not more than 160 acres to any one person, to the highest and best bidder for cash. In addition to the Enabling Act and constitutional provisions referred to, the state legislature had enacted certain laws purporting to govern the sale and disposition of any lands that had been acquired by the state on foreclosure for nonpayment of loans made from the permanent school fund. This fund had been created through sale of grant lands. Statutory provisions required that lands acquired on foreclosure should be administered "for the benefit of the fund from which the money loaned was derived, in the manner provided by law for administration of lands of similar character." Laws 1939, ch. 86, sec. 4, page 265; sections 10-312 and 10-313, A.C.A.1939.

It is the contention of the state that the transaction in question is void whether it is called a sale or an exchange for the reasons that: first, no exchange of land by the state of Arizona is authorized by law; and, second, if the transaction was a sale, provisions of the Enabling Act, Constitution, and statutes regarding notice, bidding, and amount of land that may be conveyed

Page 340

to one individual were not followed by the state treasurer.

Appellant Murphy's appeal presents two questions for determination: (1) Do the provisions of the Enabling Act (section 28) and the Constitution of Arizona (article 10) relating to the sale of grant lands apply to the administration and sale of land, never grant land, title to which the state acquired by foreclosure of mortgages given to secure the repayment of loans of institutional funds (proceeds of grant lands); (2) Did the legislature have authority to enact section 4, chapter 86, Laws 1939 (section 10-313, A.C.A.1939) providing that: "In the event that title to any farm lands serving as a security for an investment or loan of moneys in the permanent funds vests in the state, such lands shall be administered for the benefit of the fund from which the money loaned was derived, in the manner provided by law for administration of lands of similar character."

Enabling Act, Constitution, and Statutes to be Considered.

No comprehensive approach can be made to the issues without a minute appraisal of the laws involved. We, therefore, deem it necessary in the course of this opinion to set forth these provisions en toto.

The Congress of the United States enacted and there was approved on June 20, [65 Ariz. 345] 1910, an Enabling Act for the admission into the Union of New Mexico and Arizona. Sections 1 to 18 of the Enabling Act refer exclusively to New Mexico. The Enabling Act as it refers to Arizona commences at Section 19 and continues through section 35, and is found on pages 37 to 51 of Arizona Code Annotated, 1939, in volume 1. The provisions of the New Mexico Enabling Act, with reference to granted land, its sale, and the investment of permanent school funds derived therefrom, are identical with the provisions of the Enabling Act affecting Arizona.

This Enabling Act was accepted by the people of Arizona (par. 12, art. 20, Const.), and it, therefore, became and is the fundamental and paramount law. It cannot be altered, changed, amended, or disregarded without an act of Congress. Par. 13, art. 20, Const. The Arizona Constitution cannot be inconsistent with the Enabling Act.

It is thus necessary that we examine the provisions of the Enabling Act to orient ourselves in determining the power of the state treasurer, acting with the approval of the governor and the secretary of state, in exchanging lands acquired at sheriff's sale in actions foreclosing mortgages given to secure repayment of institutional funds loaned by the state treasurer.

The pertinent provisions of the Enabling Act are found in sections 24, 25, 26, 27, and 28 thereof. Before considering these provisions, we desire to mention the fact that the Enabling Act has been amended twice by Congressional enactment: first, by the Act of August 24, 1935, ch. 648, 49 Stat. 798; and, later, by the Act of June 5, 1936, ch. 517, 49 Stat. 1477.

By section 24 of the Enabling Act there is granted by the United States government to the state of Arizona, for the support of the common schools, sections 2 and 32 in every township. Prior to the Enabling Act there had been reserved to the territory of Arizona for the same purpose sections 16 and 36. These four sections under the Enabling Act thus reached the state for the support of common schools. There are found in section 24 certain exceptions and provisions for substitution of certain lands so as to assure the state's securing "for the support of common schools" four full sections in each township. We are not here concerned with the exceptions or provisions for exchange

By section 25 of the Enabling Act the United States government grants to the state of Arizona large acreages of land for twelve separate purposes. These purposes are listed with the number of acres granted for each. These grants are in lieu of other benefits conferred on other states upon their entering the Union.

Page 341

By section 26 it is provided that schools, colleges and universities provided for shall forever remain under the executive control of the state, and that no part of the proceeds derived from sale or other disposal of granted lands for educational purposes [65 Ariz. 346] shall be used for support of any sectarian or denominational school, college or university.

Section 28 of the Enabling Act, on the questions here under consideration, is the more important section. This section as amended reads as follows:

1. "That it is hereby declared that all lands hereby granted, including those which, having been heretofore granted to 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."

2. "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 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."

3. "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. Said lands shall not be sold or leased, in whole or in part, except to the highest and best bidder at a public auction to be held at the county seat of the county wherein the lands to be affected, or the major portion thereof, shall lie, notice of which public auction shall first have been duly given by advertisement, which shall set forth the nature, time, and place of the transaction to be had, with a full description of the lands to be offered, and be published once each week for not less than ten successive weeks in a newspaper of general circulation published regularly at the state capitol, and in the newspaper of the circulation which shall then be regularly published nearest to the location of such lands so offered; nor shall any sale or contract for the sale of any timber or other natural products of such lands be made save at the place, in the manner, and after the notice by publication thus provided for sales and leases of the lands themselves; 'Provided, That nothing herein contained shall prevent said state of Arizona from leasing in a manner as the state legislature may direct, any of said lands referred to in this section for grazing and agricultural purposes for a term of ten years or less, or from leasing any of said lands for mineral purposes (including leases for exploration of oil and gas and extraction thereof) for a term of twenty years or less.'"

4. "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, nor upon credit unless [65 Ariz. 347] accompanied by ample security, and the legal title shall not be deemed to have passed until the consideration shall have been paid."

5. "No lands shall be sold for less than their appraised value, and no lands which are or shall be susceptible of irrigation under any projects now or hereafter completed or adopted by the United States under legislation for the reclamation of lands, or under any other project for the reclamation of lands, shall be sold at less than twenty-five dollars per acre: Provided, that said state, at the request of the secretary of the interior, shall from time to time relinquish such of its lands to the United States as at any time are needed for irrigation works in connection with any such government project. And other lands in lieu thereof are hereby granted to said state, to be selected from lands of the character named and in the manner prescribed in section twenty-four of this act."

6. "'The state of Arizona is authorized to exchange any lands owned by it for other lands, public or private, under such regulations as the legislature thereof may prescribe: Provided, That such exchanges involving public lands may be made only as authorized by Acts of Congress and regulations thereunder.'

7. "There is hereby reserved to the United States and excepted from ...

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