The U.S. Supreme Court case Payne, Secretary of the Interior, et al. v. State of New Mexico in 1920 revolved around a dispute over land grants made by Congress to the Territory of New Mexico for common schools and other public institutions under an Act passed on July 22, 1854. The state claimed that it was entitled to indemnity for lands lost due to prior private settlement or Indian reservations within these granted areas while the federal government disagreed with this interpretation. The court ruled in favor of New Mexico stating that when Congress makes a grant like this one, it is presumed they intend for full effect be given to such grants as far as possible and any ambiguity should be resolved in favor of the state's claim unless there are clear indications otherwise from Congressional intent or language used in legislation itself. This decision affirmed states' rights regarding their ability to control and manage lands granted them by Congress without undue interference from federal agencies or officials interpreting laws contraryally.

In the dissenting opinion for Payne v. State of New Mexico, Justice McReynolds disagreed with the majority's interpretation of the Ferguson Act (1898). He argued that this act did not grant New Mexico ownership over lands within its borders but merely allowed it to lease those lands and collect revenue from them. According to him, these revenues were meant solely for supporting public schools in accordance with terms set by Congress when granting statehood. He further contended that any surplus funds should be returned to federal government rather than being used at discretion of state legislature as decided by majority ruling. Thus, he believed that New Mexico had exceeded its authority under Ferguson Act and was misappropriating federal property.