OF EXAS

HonorableWilliam S. Heatlg OpinionHo. 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 kroyaltier on such land be **de+** posited to the available school **fund** and be made available for **curren$ tspendlng** **by** the LegieHeatly 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. )

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

Section 4 of ArticleVII of the Constitutionof Texas provides that land set apart to the permanent school fund:

II

. . .ahallbe sold under such regulations, at such times, and on such tei?ms as may be preaoribed by law

. . .” Although Section 2 of ArticleVII of the Constitution of Texas had alreadyprovided that ,money received from the sale of any portion of the land set apart for the schools of the State ua8 to oonetitutea perpetual school fund, Sectlon 5 of Article VII of the Constitutionof Texas reiteratesthis view In the following language:

‘The principalof all bonds and other f ’unda, and the prlnolpalarising from the sale of the lands hereinbeforeaet apart to **said** acboolfund, shall be the permanent school :-fund.

. . Section 5 of ArticleVII of the Constitutionof Texas furtherprovides that:

I, no law shall eve&be enacted approprlatl&‘& part of the per&ent or available school fund to any other purposewhatever

. . .n Thus, by vi&&of the p~ovislons of Sections 2, 4 and. 5 of ArticleVII of the-$onetitution of Texas, all proceedsarl-? sing frcm a sale (or mineral lease) of any part of the land dedicatedto 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 authorizationto transferwas removed with the adoption of the amendment to Section 5 of ArticleVII of the Constitutionof Texas (SJRNo. 6 of the 51st Legislature, Regular Session,adoptedNovember 3, 1964.). Subsequentto that date, no part of the permanent school find is authorizedto be transferred. It Is well settled

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

executionof 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 6), cert.,den,

529 U S 713 t Stanollnd011 & 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 Legislaturethereafterwas, and Is, precluded from a dispositionof this land except as authorizedunder this Constitution. Eyl v. State, 84 S.W. 607 (Tex.C: error ref.). lv.App.1904,

In construingSections 10, 11, 12 and 15 of Article VII of the Constitutionof Texas, (said sectionsbeing similar in nature to Sections 2, 4 and 5* but pertainingto the permanent Universityfund), the Texas Supreme Court In State v. Hatcher,

=Y? has answered the questionhere presented in holdinguncons ltutlonala like attempt to direct royalty income from the permanentUniversityfund. We quote, In part, from the opinion of the*,Supreme Court in the case of State v. Hatcher, supra: I,

"Our view of the situationpresented In this case coincideswith 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) 1 011 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 proceedsnecessarilyarise out of the corpus,and it 1s humanly lmpossibIeto 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,;orwithout any authoritywhatever, 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 dispositionof that much of the corpus, the principal,of the land, and, irrespective of the authoritypursuant to which that Is donep the proceedsmust go to the beneficiaries according to the rights existingbetween them-- In this case to the permanent fund to which,
-1713-Hon. ldllllam S. Neatly, Page 4 (M-347)

according to the intentionof the Constltutlon, the corpus of the property Is dedlcated--andwe can by no subterfugetake It therefromby.simply saying that royalties are rents.’
“ThisWyoming 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 permanenttaking of

. a portion of the Lm 1,

. . . “Beingtheroughly convincedthat the royalties from University lands are a part of the permanent fund of that institution, we think they shouldbe placed there, and thereafterInvested according to the **express** provisionsof our state Constltutlon. in ‘&o’ far as St

We think the Act of April 3, 1925, affects ‘the’

qu&stlonhe+eiti

‘dMcussed, contravenesthe Constitutionitself, and la thereforenull and void.”
ArticleVII, Section 6 of the Texas Conatitutlonla similar In nature to Sections 2, ,4and 5 (the permanent school %‘u&1 and Sections 10, 11, 12 and 15 (the permanentUnlverM.ty but pertazna to the county permanent school fund. Attornei Oeneral Oei?ald Mann In construingArticleVII, Section ~,o;~;E Constitutionin his OpinionNo. O-4933 (1942) stated

“Second,we presume that the county followed Article 5400a, Vernon’sAnnotatedCivil Statutes, in making the mineral leases.’We are of the opir.- Ion that the ‘delayrental’ under the mineral lease should go into the permanent school fund and not the available fund. This Is necessarybecause of the nature of a mineral lease. ‘By the great weight and majority of the decisionsof Texas Courts, the ordinary form of oil and gas lease is not,a lease at all; on t&e contrary,It 10 a conveyanceof an. .

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

interest In land and, as such, operates this mineral estate from the surface.’ Jurisprudence5'74-5~6~ Section 39. -Tf)e_

to sever 31 Texas instant

_ . an 011 and gas lease is executeaana aellvereathe lessee beoomes the owners of the minerals in place and subject to be’ taxed therefor. StephensCounty v. Mid-KansasOil 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 considerationfor the sale constitutesa trust for the benefit of public schoolsand 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’spermanent school

that In view of the foregoingauthorities,it Is our opinion anythingwhich the state receives,in whatever form, In conalderation

of the oil taken or to be taken from the dedicated lands constitutesa part of the purchaseprice for the sale of such land or a portion thereof , and therefore such proceeds must be placed In the permanent school fund. StanollndOil & Qaa Co r supra, 125 S.W.2d 643f%%'!?=

Therefore,House Bill No., 232 If enacted,would be in violationof Sections 2, 4 and 5 of ArticleVII of the Constitutionof 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 ArticleVII of the Constitutionof Texas, for the reason that the same constitutesa sale of a part of the corpus and, as such9 the proceedsare 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 Preparedby John Reeve8 **Aeeistant Attorney**  Qeneral

APPROVED: OPINION COMHXTTEE

Kerns Taylor,Cihairrmpn George Kelton,Vice-Chaliman HoughtonBrownlee Alfred **Walker** Harold Kennedy Pat Bailey John Banh
**W.** V. QEPPERT Staff Legal **Astaistant**

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