OF EXAS 

Honorable William S. Heatlg Opinion Ho. M-347 

Chairman, Appropriations Committee, 

House of Representatives Rer Validity of House Bill 

Capitol Station 

huetln, Texae 78711 

No. 232 concerning provoaed legislation which 

Bear Mr. 

Bill No. 

Gould priivlde that all 

mlneral leaeee, rental8 

and bonuses on public 

sahool lands and 72-l/2$ 

of all oil and gas kroyal

tier on such land be de+ 

posited to the available 

school fund and be made 

available for curren$ 

tspendlng by the LegieHeat ly t lature . 

You have requested our opinion on the validity of House 

232 of the :61& Leglrlature. Se&ion 1 oi’ House Bill No. 

232 provider x 

“Sactlon 1. All money8 received by the state 

as mineral leaw and proepeot bonuee8,and rental& 

and 72-l/2 percent ot the royaltlea under a leaae 

of publlo whoa1 land8 and landr which are a part 

of the permanent rohool fund executed Sor the purpo8e of mlneral exploration and develowent, ahall 

be deposited to the available eohool fund. The remaining 27-l/2 peroent of the royaltlea received 

by the state ehall be deposited to the permanent 

echool f’und . ” 

Section 2 o? Article VII of the Con8titutlon of Texa8 

eetabllehed a permanent eohool fund by dedicating landa to the 

fund and further provldlngr 

.and all mum of Monet .that may oome 

to the’siate rroln tne eale or any portion of 

%a same, ehall conatltute a perpetual public 

school find. ” (Nmpharlxx added. ) 

- 1711- 
. . 

Hon. Wlllluu 9. Heatly, page 2 (R-347) 

Section 4 of Article VII of the Constitution of Texas 

provides that land set apart to the permanent school fund: 

II 

. . .ahall be sold under such regulations, 

at such times, and on such tei?ms as may be preaoribed by law . . .” 

Although Section 2 of Article VII of the Constitution 

of Texas had already provided that ,money received from the sale 

of any portion of the land set apart for the schools of the State 

ua8 to oonetitute a perpetual school fund, Sectlon 5 of Article 

VII of the Constitution of Texas reiterates this view In the following language: 

‘The principal of all bonds and other f’unda, 

and the prlnolpal arising from the sale of the 

lands hereinbefore aet apart to said acbool fund, 

shall be the permanent school :-fund. . . 

Section 5 of Article VII of the Constitution of Texas 

further provides that: 

I, 

no law shall eve&be enacted approprlatl&‘& part of the per&ent or available 

school fund to any other purpose whatever . . .n 

Thus, by vi&&of the p~ovislons of Sections 2, 4 and. 

5 of Article VII of the-$onetitution of Texas, all proceeds arl-? 

sing frcm a sale (or mineral lease) of any part of the land 

dedicated to the permanent school fund must be deposited In the 

permanent school fund, aci such fund is constitutionally protected. 

From 1891 until Islfs4, one percent (1%) annually of the total 

value of the permanent school fund could have been transferred 

to the available school fund; however, this authorization to 

transfer was removed with the adoption of the amendment to Section 5 of Article VII of the Constitution of Texas (SJR No. 6 

of the 51st Legislature, Regular Session, adopted November 3, 

1964.). Subsequent to that date, no part of the permanent 

school find is authorized to be transferred. It Is well settled 

- 1712 - 
Hon. William S. Weatly, page 3 (M-347) 

execution of a lease Includes in a$dltlon to any bonus and 

delay rentals, the a reed royalt 

153 P.2d 695 75th Clr. 

Kounty v. Kirby Lumber 

19 t 6), cert.,den, 529 U S 713 

Stanollnd 011 & Gas co., 125 S.W.W 643 (T&.Clt. 

ef.); Ehllnger v. Clark, 117 Tex. 547, 8 

nrrthermore, It was held that the lands Included In 

the dedicathnto the permanent school fund became a part of 

such fund and the Legislature thereafter was, and Is, precluded 

from a disposition of this land except as authorized under this 

Constitution. Eyl v. State, 84 S.W. 607 (Tex.C: 

error ref.). 

lv.App. 1904, 

In construing Sections 10, 11, 12 and 15 of Article 

VII of the Constitution of Texas, (said sections being similar 

in nature to Sections 2, 4 and 5* but pertaining to the permanent 

University fund), the Texas Supreme Court In State v. Hatcher, 

=Y? 

has answered the question here presented in holding uncons ltutlonal a like attempt to direct royalty income from 

the permanent University fund. We quote, In part, from the 

opinion of the*,Supreme Court in the case of State v. Hatcher, 

supra: I, 

"Our view of the situation presented In 

this case coincides with the views of the Su- ') 

prem? Court of Wyoming, as ahown by Its opinion 

in the case of State v. Snyder, 212 P. 758, 29 

wyo. 163. We quote from that case as follows: 

1) 1011 and gas, while in situ, are 

part of ;hi realty; part of the corpus of the 

land. When a portion of It Is taken away> the 

proceeds necessarily arise out of the corpus, and 

it 1s humanly lmpossibIe to change that slanple, 

plain9 physical fact. . . . Whether the 011 be 

taken out of the ground pursuant to a license, 

lease, sale, or any other grant,;or without any 

authority whatever, could not In the slightest 

degree affect the physical fact that it comes 

from the corpus of the land. If taken and dlsposed of at all, the effect Is clearly a permanent disposition of that much of the corpus, 

the principal, of the land, and, irrespective 

of the authority pursuant to which that Is 

donep the proceeds must go to the beneficiaries 

according to the rights existing between them-- 

In this case to the permanent fund to which, 

-1713- 
Hon. ldllllam S. Neatly, Page 4 (M-347) 

according to the intention of the Constltutlon, the corpus of the property Is dedlcated--and we can by no subterfuge take It 

therefrom by. simply saying that royalties 

are rents. ’ 

“This Wyoming case bears a striking resemblance to the case at bar. . . . 

8, 

. . . 

“American courts, as shown in the opinion 

in the Wyoming case, supra, follow the English 

hold.lng that minerals are a part of the soil and 

when once removed are gone forever. In other 

words, there Is a final and permanent taking of . 

a portion of the Lm 

1, 

. . . 

“Being theroughly convinced that the royalties from University lands are a part of the 

permanent fund of that institution, we think they 

should be placed there, and thereafter Invested 

according to the express provisions of our state 

Constltutlon. 

in ‘&o’ far as St 

We think the Act of April 3, 1925, 

affects ‘the’ qu&stlon he+eiti ‘dMcussed, contravenes the Constitution itself, and 

la therefore null and void.” 

Article VII, Section 6 of the Texas Conatitutlon la 

similar In nature to Sections 2, ,4 and 5 (the permanent school 

%‘u& 

1 

and Sections 10, 11, 12 and 15 (the permanent UnlverM.ty 

but pertazna to the county permanent school fund. Attornei Oeneral Oei?ald Mann In construing Article VII, Section 

~,o;~;E Constitution in his Opinion No. O-4933 (1942) stated 

“Second, we presume that the county followed 

Article 5400a, Vernon’s Annotated Civil Statutes, 

in making the mineral leases.’ We are of the opir.- 

Ion that the ‘delay rental’ under the mineral lease 

should go into the permanent school fund and not 

the available fund. This Is necessary because of 

the nature of a mineral lease. ‘By the great weight 

and majority of the decisions of Texas Courts, the 

ordinary form of oil and gas lease is not,a lease 

at all; on t&e contrary, It 10 a conveyance of an 
. . 

Hon. William S. Heatly, page.5 (w-347) 

interest In land and, as such, operates 

this mineral estate from the surface.’ 

Jurisprudence 5'74-5~6~ Section 39. -Tf)e_ 

to sever 

31 Texas 

instant _ . 

an 011 and gas lease is executea ana aellverea the 

lessee beoomes the owners of the minerals in place 

and subject to be’ taxed therefor. Stephens County 

v. Mid-Kansas Oil and Qas Company, 113 Texas 160, 

254 S.W. 290. The ‘bonus’ or ‘rentals ’ which, the 

lessee pays are as much a part of the proceeds of 

the sale as the ‘royalty’ and under Article 7, 

Section 6 of the Texas Constitution, the entire 

consideration for the sale constitutes a trust 

for the benefit of public schools and must be 

placed In the county 

T&lsen vs. Robison, 

. 

“We, of course, 

also be deposited In 

fund . ” 

permanent school fund. 

117 Texas 489, 8 S.W.(2d) 

hold that the royalties should 

the county’s permanent school 

that 

In view of the foregoing authorities, it Is our opinion 

anything which the state receives, in whatever form, In 

conalderation of the oil taken or to be taken from the dedicated 

lands constitutes a part of the purchase price for the sale of 

such land or a portion thereof , and therefore such proceeds 

must be placed In the permanent school fund. 

Stanollnd Oil & Qaa Co r supra, 125 S.W.2d 643f%%'!?= 

Therefore, House Bill No., 232 If enacted, would be 

in violation of Sections 2, 4 and 5 of Article VII of the 

Constitution of Texas. 

SUMMARY 

House Bill No. 232, which provides that all 

mineral leases, rentals and bonuses on public 

school lands and 72-l/2$ of all 011 and gas royalties on such lands be deposited to the available 

school fund, if enacted, would be In violation 

of Sections 2, 4 and 5 of Article VII of the 

Constitution of Texas, for the reason that the 

same constitutes a sale of a part of the corpus 

and, as such9 the proceeds are required to be 

placed in the permanent school fund, rather than 

the available echo01 fund. State v. Hatcher, 115 

Tex. 332, 281 S.W. 192 (1926'). 

_ 1715- 
Hon. WIIWWI S. Heatly, page.6 (~-347) 

ORD C. HARTIN 

nay General of Texas 

Prepared by John Reeve8 

Aeeistant Attorney Qeneral 

APPROVED: 

OPINION COMHXTTEE 

Kerns Taylor, Cihairrmpn 

George Kelton, Vice-Chaliman 

Houghton Brownlee 

Alfred Walker 

Harold Kennedy 

Pat Bailey 

John Banh 

W. V. QEPPERT 

Staff Legal Astaistant 

-1716-