August 25, 1987

Honorable Gamy Mauro commissioner GeneralLand Office StephenF.Austin Building 1700North CongressAvenue Austin,Texas 78701 OpinionNo. JM-774
Re: Whether theVeterans Land Board may impose a fee for delivery of a paid-in-full deed to a purchaser under theVeteransLand Program
Dear Mr. Mauro:
As chairman of the Veterans Land Board and Commissioner of the General Land Office, you request advice on the authority of the Veterans Land Board to collect the fees authorizedby section 161.070 of the Natural Resources Code from veterans who have purchased land through the board. The Veterans Land Board was createdby constitutional provision. See Tex. Const. art. III. 149-b. Article III, section49-b of the constitutionprovides for the creationand funding of theVeterans Land Fund, to be used to purchase land for resale to veterans on terms, prices, and interest rates provided by law. Id. The legislaturepassed an enablingact in 1949. Acts 1949, 51stLeg, ch. 318. at 592.
Statutes governing the Veterans Land Board are now codified in chapter 161 of the Natural Resources Code. Section 161.070 of the Code, theprovisionaboutwhichyou inquire,provides inpart:

(a) The board shall set and collect, for the use of the state, reasonable fees in amounts determined by the board for services it may provide in connection with processing and servicing of purchase applications and contracts of sale and purchase and matters incidental to these purchases. These fees may include but are not limitedto the following:

. . . . (2) contract of sale and purchase transfer fee for each transfer; (3) mineral lease service fee for each lease executedby purchasers;

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. . . . (6) fee for servicing and filing each easement; (7) service fee for each contract of sale andpurchase; (8) fee for homesite, severance, or paid-in-fulldeed; (9) title examinationfee; (10)recording fees;

. . . . (13) fee for preparation of legal instrumerits, including but not limited to deeds, contracts, affidavits, and curative instruments;

. . . . (16) fees for any other serviceswhich may be requestedof theboard. (b) These fees may be added to the price of any land sold or resoldby theboard. (c) Fees or portions of fees that are in the opinion of the board unused shall be refunded. (Emphasisadded).
Nat. Res. Code P161.070.
You particularly inquireabout the fee for issuinga paid-in-full deed pursuant to subsection (a)(8) of section 161.070. The factual informationand thebriefingyou haveprovided focus on the collection of a fee for that service. We will restrict our answer to this fee and will not consider other fees authorizedby section 161.070, since different legal and factual considerationsmay apply to each fee.
Your three questions are directed at determining whether the board has authority to collect the fee for issuing a deed upon full payment of the loan if the land purchase contractpredates subsection 161.070(a)(8)of theNatural ResourcesCode.

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The 1949 legislation for the Veterans Land Program did not specifically provide for fees. In 1961. a deed fee of $10 was authorized, and a later amendment increased it to $20. Acts 1961, 57th Leg., ch. 269, $3, at 572; Acts 1973, 63d Leg., ch. 615, 56 at 1690 (codifiedas formerV.T.C.S. art. 5421m. $21 (repealedin 1977)). In 1983, the specific amount of the deed feewas deieted from section 161.070of theNaturalResources Code, and theboardwas authorized to set the amount of the fee. Acts 1983, 68th Leg., ch. 81, 921(o), at 355, 406. The board promulgateda rule setting the deed fee at $80 in September 1983. 40 T.A.C. 9175;17(8) (1983).
You state that the longstandingpractice of theboard has been to collect from a veteran the amount authorized at the time the deed is issued,regardless of the date the contractbetween the board and the veteran was executed. In the board's opinion, the fee is directly related to services provided by the agency and the amount to be collected is determinedby the date the service isprovided.
You have attached a sample contract executed in September 1954. We will addressyour question in the contextof itsprovisions.
When the state enters into a valid contract, it is as much bound therebyas a private citizenwould be by a similar contract. Board of Regents of the University of Texas v. S 6 G Construction Co., 529 S.W.Zd 90 (Tex. Civ. App. - Austin 1975,writ ref'd n.r.e.); Seaway Companyv. Attorney General, 375 S.W.Zd 923 (Tex.Civ. App. - Houston 1964,writ ref'd n.r.e.). The authority of state officers and agents to contract is controlledby the law in effect when the contractwas entered into. Fasekasv. University of Houston, 565 S.W.Zd 299 (Tex. Civ. App. - Houston [lst Dist.] 1978, writ ref'd n.r.e.). appeal dismissed, 440 U.S. 952 (1979); see Statev. Ragland Clinic-Hospital, 159 S.W.Zd 105 (Tex. 1942); State. Steck Co., 236 S.W.Zd 866 (Tex. Civ. App. - Austin 1951, writ ref'd). The laws existing when a contract ismade constitutepart of the contract. United States Trust Co.V. New Jersey, 431U.S. 1, 19 at n. 17 (1977);Langeverv. Miller, 76 S.W.Zd 1025 (Tex. 1934);Housing Authority of El Paso v. Lira, 282 S.W.Zd 746 (Tex.Civ.App. - El Paso 1955,writ ref'dn.r.e.). The 1954 contractwhich you have attached to your request letter was entered into at a time when the Veterans Land Board had no statutory authority to charge fees for issuance of a deed when the loan was fully paid. Fee statures are strictly construed, and fees are not permittedby implication. Moore v. Sheppard, 192 S.W.Zd 559, 561 (Tex. 1946); Nueces County v. Currington, 162 S.W.Zd 687, 688 (Tex. 1942);Statev. Moore, 57 Tex. 307. 321 (1882);Attorney General Opinion Nos. JM-346 (1985);H-796 (1976); V-957 (1949). Thus, when the 1954 contract was entered into, the board had no express or impliedauthorityto charge a fee forprovidinga paid-in-fulldeed.

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The contract,moreover. expressly incorporates the provisions of the veterans land law as they existed when it was executed. The contract states inpart:

Whereas, theVeterans' Land Board of Texas has, in accordance with the provisions of Acts Slst Leg., R.S., 1949,ch. 318, as amendedby Acts 52nd Leg.. R.S., 1951, ch. 324, purchased a certain tract of land hereinafter described in this instrument;

. . . Whereas
. . .a duly qualifiedTexasVeteran as described in said Act, as amended, has complied with the requirements of said Board to purchase said Land in accordance with the provisions of saidAct which ismade a part of this contract for all purposes;
Now Therefore, the following named parties do make thisAgreement:

. . . . 9. Seller agrees to execute a deed under its seal to the original purchaser of the land when the entire indebtedness due the state under this contractof sale is paid.
10. It is agreedbetweenbuyer and seller that all of the conditions, limitations and requirements as well as all benefits and penalties contained in the provisions of Acts Slat Leg., R.S., 1949,ch. 318, as amendedby Acts 52nd Leg., R.S., 1951, ch. 324, togetherwith all rules and regulations promulgated by the Veterans' Land Board, shallbe bindingupon thepartieshereto in the same manner as if they were fully recited herein.
In this contract, the parties agree to exchange land for a purchase price and interest payable over a period not to exceed 40 years. They also exchange other promises, including the board's agreement to execute a deed when the debt is fully paid off. The veteran contracted for delivery of a deed as one aspect of the total consideration he received for his promise to pay the debt and to comply with other conditions required in the contract. When he complies with those conditions, the contract gives him a right to receivea deedwithout paying additionalconsideration.

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Imposition of the $80 fee for the deed would therefore change the terms of the contract. We will considerwhether the legislature may constitutionally authorize the board to collect the fee from purchasers whose contracts entitled them to delivery of the deed without any additionalpayment for thatpurpose. .Article I, section 10. clause 1, of the federal Constitution provides:
No State shall
. . . pass any . . . Law impairing

the Obligation of Contracts.
. . . Article I, section 16. of the Texas Constitution similarly prohibits the enactment of "any law impairing the obligation of contracts.
. . ." The contract clauses of the federal and state constitutionsapply to contracts entered into by states. Von Hoffman v. City of Quincy, 71 U.S. 535 (1866); Fasekas v. University of Houston, 565 S.W louston [lstDist.] 1978, i-2 x 299 (Tex. Civ. App. - i Gref'd n.r.e.). ameal dismissed, 440 U.S. 952 (1979);Determanv. z2t;r;f,fz. iekai: 609 f ;.W.Zd565 (Tex.Civ. App. - Dallas 1980, johnso,;. Smith, 246 S.W. 1013 (Tex. 1922). The contract clause appears to proscribe "any" impairment, but its prohibition is not absolute. United States Trust Co. v. New Jersey, 431 U.S. at 21;Home Building andLoan Assn.v. Blaisdale, 290 U.S. 398, 428 (1934). In Home Building and Loan Assn. v. Blaisdale, m, the SupremeCourtupheld theMinnesotaMortgageMoratorium Law, which allowed judicial extension of the time for redeeming a foreclosedmortgage. The act was a temporary provision, adopted in response to mortgagors' hardships during theDepression. The Supreme Court found that a reservationof statepower necessary toprotect the and Loan Assn. v. Blaisdale, 290 U.S. at 439. But see Tr; Insurance Co. v. Marshall, 76 S.W.Zd 1007 (Tex. 1934) (Texa; moratorium act held to violate article I, section 16. of the Texas oublic interestwas deemed tobe Dart of all contracts. Home Building avelers' ;mortgage Constitution).
In City of El Paso v. Simmons, 379 U.S. 497 (1965), the Supreme Court dealtwith a 1941 statute limiting the time inwhich purchasers of school lands could redeem land forfeited for failure to pay interest. Under a 1910 statute, the purchaser could redeem the property for an indefiniteperiod by paying delinquent interest. The 1941 statute limited to five years the time in which forfeited land couldbe redeemed,applying thisprovision to existing contracts. The pul'poseof the statute was to restore confidence in the stabilityand integrity of land titles. City of El Paso v. Simmons, 379 U.S. at 511. The indefiniteperiod for redemptionhad encouraged land speculation, in that purchasers would make the small down

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payment, fail to make interestpayments, and then redeem the land if it appeared likely to produce oil or gas. The SupremeCourtheld that in view of the state's interest in restoring the stability and integrity of land titles and enabling the state to administer its property in a businesslikemanner tomaximize revenues for the public schools, the 1941 statute did not impair the obligation of contracts. It moreover pointed out that the five year statute of limitations would protect anyonewith a bona fida interest inhis land. United States Trust Co. v. New Jersey, 431 U.S. 1 (1977) arose out of au agreementbetween New York and New Jersey on the financing of their jointly owned Port Authority. In 1962 the two states agreed with each other andwith holders of Port Authoritybonds not to divert to other uses any revenues or resemes pledged as security for those bonds. In 1974. both states enacted legislation repealing this covenant in order to devote revenues to mass transit. The Supreme Court determined that the 1962 covenant had been properly characterizedas a contractual obligation of the two states, and that its repeal impaired the states' contract with the bondholders. 431 U.S. at 21.
In determining whether chat impairment violated the Contract Clause the SupremeCourt discussed the states'reservedpower to adopt general regulatory measures even though private contracts might be impaired. The court then stated:

When a state impairs the obligation of its own contract, the reserved-powers doctrine has a differentbasis. The initial inquiry concerns the ability of the State to enter into an agreement that limits itspower to act in the future. United StatesTrust Co. v. New Jersey, 431U.S. at 23. Reviewing prior decisions, the Supreme Court pointed out that a state couldnot contractaway thepolicepower or thepower of eminent domain, but that a state could bind itself in the future exercise of rhe taxingand spendingpower. Id. at 24. However, an impairment of a state's own financial obligationsmight be constitutional if it is reasonable and necessary to serve an important public purpose. Complete deference to the legislature's assessment of reasonableness and necessity is not appropriatebecause the state's self-interest is at stake. The court further stated that

a State cannot refuse to meet its legitimate financial obligations simply because itswould prefer to spend the money to promote the public good.
. . .

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431 U.S. at 29. The repeal of the 1962 covenant could be sustained only if it was "both reasonableand necessary to serve the admittedly importantpurpose claimed by the State." 431 U.S. at 29. The court determined that total repeal of the covenant was not essential. In addition, the two states could have discouraged automobile use and improvedmass transitwithout modifying the contract at all. city of El Paso v. Simnons, was distinguished in that the imposition of a five-year statute of limitationson what was previously regarded as a perpetual right of redemptionwas "quite clearlynecessary" to achieve the state's "vital interest in the orderly administration of the school lands program." 431 U.S. at 31. Finally, the 1962 covenant was adoptedwith fullknowledge of theneed formass transportationin the area; the repeal cannot be said to be reasonable in light of changed circumstances.
We turn to a considerationof the $80 fee imposed for issuanceof a paid-in-full deed under subsection 161.070(a)(8) of the Natural ResourcesCode. This provisionwas included in SenateBillNo. 288 of the Sixty-eighth Legislature, which was enacted in 1983 to increase fees for servicesperformedby state agencies tomore nearly cover the administrative costs of delivering the service. Bill Analysis to C.S.S.B. 288, 68thLeg., filed in Bill file to S.B.No. 288, LegislativeReferenceLibrary.
An interim committeewas appointedby the Sixty-seventhLegislature to study fees collected by state agencies and to recommend changes. The report of the interim committee noted that reliance on fees has been necessitatedby several factors, including a decreasing dependence on the ability of the property tax to support services. Senate Committee on Fees and Grants, Interim Report to the 68th Texas Legislature at ii (Nov. 10, 1982). The report also stated that factors such as cost recovery and inflation contributed to its recommendations for fee increases. Id. at iii, It noted that rises in the consumer price index since-fees were set accounted for recommended increases in fees collected by the General Land Office. The proposed increases inVeterans Land Program fees set in 1949would account for a $600,000net gain. Id. at 14. Thus, section 161.070(a)(8) of the Natural Resources Code was part of a legislative program to increase revenues by bringing fees up to date. Neither the report nor the bill analysis mention the existence of coutract provisions relevant to payment for services subject to fee increases.
We first consider whether the imposition of an $80 fee on the land purchase contract is a significant enough change in contract terms to raise the issue of impairment. In United StatesTrust Co.v. New Jersey, the SupremeCourtwrote that

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a finding that therehas been a technical impairment ismerely a preliminary step in resolving the more difficultquestionwhether that impairmentis permittedunder theConstitution.
431 U.S. at 21. DiscussingUnited StatesTrust Co. v. New Jersey in a later case, the SupremeCourt characterizedit as recognizing that the state's sovereignmpower has limits "when its exercise effects substantialmodificationsof private contracts." Allied StructuralSteel Co. v. Spannaus, 438 U.S. 234, 244 (1978). The Supreme Court stated that the first inquirymust be whether the state law has operatedas a substantialimpairmentof a contractualrelationship:

Minimal alteration of contractual obligationsmay end the inquiry at its first stage. Severe impairment, on the other hand, will push the inquiry to a careful examinationof thenature and purpose of the state legislation. (Footnote omitted). Allied Structural Steel Co. v. Spannaus. 438 U.S. at 245. See also EnergyReservesGroup, Inc.v. Kansas Power & Light, 459U.S. 400. 411 (1983).
In our opinion. the assesssent of the additional $80 fee for issuance of a deed constitutes an impairment that is more than a minimal or technical impairsent. The individual veteran who contracted before 1962 to purchase land from the state expected to receive a deed upon full payment of the price stated in the contract. In effect, the state hopes to charge the veteran $80 for a service which it contracted to provide free of charge. Viewed from this perspective,we believe the impairmentof the contract is significant enough to require some examination of the nature and purpose of the legislarion. Allied Structural Steel Co. v. Spannaus, 438 U.S. at 245.The severity of the impairment increases the level of scrutiny to which the legislation will be subjected. Enrrgy Reserves Group, Inc. v. Kansas Power & Light, 459U.S. at 411;Allied Structural Steel co.v. Spannaus, E. Even if the impairment in this case is characterized as not very severe, the legislationwould not survive the correspondinglow level of scrutiny. In this case, the state has impaired its owe contract in order to increase fee revenues to support the Veterans Land Board. The state may bind itself in the future exercise of its spending powers. United States Trust Co. V. New Jersey, 431 U.S. at 24. Thus, it did not contract away an essential aspect of its sovereignty in contracting to sellveterans lands for a specific consideration. The legislature enacted Senate Bill No. 288 to increase revenues to state agencies. In our opinion, this reason

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does not justify the contract impairment at issue. As the Supreme Court stated inUnited StatesTrust Co.v. New Jersey:

A governmental entity can always find a use for extramoney, especiallywhen taxes do not have to be raised. If a State could reduce its financial obligationswhenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protectionat all. (Footnoteomitted).
431U.S. at 26.
In our opinion, the $80 feemay not constitutionallybe assessed of land purchasers whose contracts pre-date any fee provision. We need not, therefore, address article I, section 16, of the Texas Constitution. Based on a brief study of cases construing article I, section lb, it appears likely that imposition of the $80 fee would violate that provision as well. See, e.g., Hutchingsv. Slemons, 174 S.W.Zd 487 (Tex. 1943) (statute of frauds pertaining to real estate broker's contracts violates article I. section 16, of the Texas Constitution insofar as it applies to contracts made nrior to its effective date); Travelers Insurance Co. v. Marshall, 78 S.W.2d 1007 (Tex. 1934);Dallas CountyLevee ImprovementDistrictNo. 6 v. Rugel, 36 S.W.Zd 188 (Tex.Comm.App. 1931, judgmt adopted);Cape Conroe Ltd. v. Specht, 525 S.W.Zd 215 (Tex.Civ.App. - Houston 114thDist.] 1975, no writ) (substantiverights and duties of parties to contract are established by law at time of contracting; subsequent law which channes such rinhts and dutiesviolates article I, section 16, of the Texas Constitution).

The Veterans for delivery of section 161.070 SUMMARY

Land Board may not impose a fee a paid-in-fulldeed authorizedby of the Natural Resources Code on

. purchasersof landwhose contractsentitle them to delivery of the deed without payment of such a fee. A statute authorizing imposition of the fee in such cases would impair the obligation of contract and thus violate article I, section 10. clause 1, of theUnited StatesConstitution.

_

JIM MATTOX AttorneyGeneral of Texas

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MARY KELLER ExecutiveAssistantAttorneyGeneral
JUDGE ZOLLIE STEAKLEY SpecialAssistants AttorneyGeneral
RICK GILPIN Chairman,Opinion Committee Preparedby SusanL. Garrison AssistantAttorneyGeneral

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