Honorable L. Rains County Courthouse Emory, Texas September29,1987

M. Braziel Opinion No. JM-800 Attorney
75440 Re: Whether article 2368a.2,

V.T.C.S., permits the construction of a county jail building through a leasepurchase agreement when the agreement describes the building as "personal property"
Dear Mr. Braziel:
You ask the following question:
May the construction of a county jail building be lawfully financed through a lease-purchase arrangement, pursuant to article 2368a.2, V.T.C.S., when the parties have contractually characterized the jail building as "personal property"?
The Rains County Commissioners Court has entered into a "lease-purchase" agreement with Consolidated Financial Resources regarding certain llProperty**defined as follows:

Relocatable County jail facility erected with 32Dan/Tex finished ribbed panels and consisting of 51rooms, including bed-space for 17prisoners, together with achain-link enclosure foran exercise yard.
Lease-Purchase Agreement By and Between Consolidated Financial Resources, Inc., and Rains County, Texas, November 1, 1985, Exhibit A [hereinafter Agreement].
The lease-purchase agreement isactually a financing arrangement. Consolidated Financial Resources, Inc. does not agree todeliver the property tothe county. Instead, the agreement provides that the property shall be acquired and installed pursuant to one ormore purchase contracts entered into by the county and one ormore contractors. Lease payments are allocated between principal and

p.3779Honorable L.M. Braziel -Page 2 (J&800)

interest. Agreement, Exhibit B. The county in fact has entered into apurchase contract to acquire arelocatable jail from Detention Systems, Inc. IdL Exhibit C.
The following provision of the lease-purchase agreement characterizes the jail aspersonal property:

The Property isandwill remain personal property and will not be deemed to be affixed toorapart ofthe real estate on which it may be situated, notwithstanding that the Property orany part thereof may be orhereafter become inanymanner physically affixed orattached to real estate or any building thereon. Upon direction ofLessor, Lessee will, at Lessee>s expense, furnish a landlord ormortgagee waiver with respect to the Property. In addition, upon execution of this Lease, Lessee shall furnish to Lessor acertificate executed by anengineer or architect, said engineer or architect being approved by Lessor and being not affiliated with any Contractor, certifying that any portion of the Property which constitutes a building or structure is structurally relocatable and is and will remain personal property. Agreement, 513.
The architect's letter to Consolidated Financial Resources states that

all construction elements ofthe jail could be relocated with the exception of the following:
1.

2. Site -underground utilities

-parking surfaces

-sidewalks

-site grading

-landscaping Building -plumbing under slab

foundation

-concrete floor slab

-floor coverings

-gypsum steel stud walls

p.3780Honorable L.M. Braziel -Page 3 (JN-800)

A states All remaining construction elements could,

therefore, remain personal property. brief submitted in support of the lease agreement that site preparation, underground utilities, and other "non-relocatable" elements will be financed separately from the jail facility. The jail will be constructed with prefabricated panels. If the county terminates the agreement prior topurchase ofthe jail facility, the facility will be removed and returned to Consolidated Financial Resources. Agreement, 558, 23.
The requestor writes that the Rains County jail is described as "relocatable," but that

itappears from its size and manner of construction that it would be commercially impractical to do so. The jail facility seems tobe quite different from the type of structures typically considered to be *personal property' --temporary buildings and trailers which are brought to the property fully assembled, or temporary buildings and sheds built through the efforts and expense of atenant upon leasehold property, intended for removal by the tenant when his lease expires. Article 2368a.2, V.T.C.S., the Public Property Finance Act, authorizes governmental agencies, including counties, to enter into contracts to lease or purchase property. V.T.C.S. art. 2368a.2, 54(a). The county may agree to a lease, a lease purchase contract, oran installment purchase. Id. The statute defines "property" as personal property, appliances, equipment,

facilities or furnishings or an interest therein, whether movable or fixed. . . . V.T.C.S. art. 2368a.2, §3(11). It also includes the following provision:

Notwithstanding any contrary provision, this Act does not apply toacontract solely for the construction of improvements to real property.
V.T.C.S. art. 2368a.2, 59.

p.3781Honorable L. **M.** Braziel -Page 4 (.8+800)

Attorney General Opinion JM-697 (1987) cited sections 3(11) and 9 of article 2368a.2, V.T.C.S., quoted above, and stated that this statute does not authorize the commissioners court to acquire a jail under a lease purchase contract. Legislative history evidences the legislative intent that article 2368a.2, V.T.C.S., does not authorize the acquisition ofreal property. This statute was enacted by House Bill No. 1176 of the Sixty-sixth Legislature. Acts 1979, 66th Leg., ch. 749, at 183.9. The bill was amended inthe House toadd the language insection 9,quoted above, that the act does not apply to a contract solely for the construction of improvements to real property. Bill File toH.B. No. 1176, 66th Leg., filed inLegislative Reference Library. The Senate amended the bill's definition of "property," which originally stated, among other things, that property means "any property other than land." 

### Id. The Senate amendment, which is part of the enacted language quoted above as 

### section 3(11) defines property to mean personal property, appliances, 

### equipment, facilities, or furnishings and adds the express provision 

### thatproperty "shall not include real property." Hence, itappears that the intention of the legislature was to exclude 

### morethan land and instead to exclude real property 

### and the construction of improvements toreal property. Attorney General Opinion JM-697 concluded that a county has implied authority toacquire a jail through a lease-purchase contract extending beyond the present year, but did not consider whether acommissioners court could bring a jail construction project within article 2368a.2, V.T.C.S., by agreeing that it would remain personal property. The opinion further stated that article **2368a.2,** V.T.C.S.,

establishes aprocedure whereby the validity ofacontract may become 'incontestable for any cause,' and provides that contracts entered into pursuant tothe statute are legal and authorized investments for certain enumerated financial institutions and sinking funds of governmental bodies. See V.T.C.S. art. 2368a.2, 556, 7. The legislature may have excluded real property and the improvement of real property from article 2368a.2 because itdid notwant all of these provisions to apply to contracts for the acquisition or improvement of real property. Attorney General Opinion JM-697 (1987).

p.3782Honorable L. **M.** Braziel -Page 5 (JM-800)

Unless the commissioners court may make a valid agreement that the county jail will bepersonal property, itmay not construct and finance this project under article 2368a.2, V.T.C.S. Tangible property iseither realty or personalty and the word "real" describes land and that which isannexed to it. Erwin v. Steele, 228 S.W.Zd 882, 885 (Tex. Civ. APP. - Dallas 1950, writ ref'd n.r.e.). Generally, a building constructed on land becomes part of the freehold inthe absence ofan intention oragreement that the building will not become permanently annexed to the land, and the lawpresumes that ahouse located on land ispart ofthe land inthe absence ofevidence to the contrary. See Brown v.Roland, 45S.W. 795, 796 (Tex. 1898); Ford v. Forsoard, 27S.W. 57, 58 (Tex. 1894); Calvert v. Welch, 369 S.W.2d 840, 842 (Tex. Civ. App. -Texarkana writ); Griqos v. Masnolia Petroleum 1963, no Comnanv, 319 S.W.2d 818, 819 (Tex. Civ. Evanselicai St. John's ADD. -Amarillo Church v.Otto 1958. no writ): Indewendent School District, 203 S.W.2d 299, 301 (Tex. Civ. App. -Waco 1947, nowrit). Black's Law Dictionary 1096 (5thed. 1979), defines real property as land and generally whatever is erected orgrowing upon oraffixed to land. Thus, building would ordinarily .be considered to a jail be real property, even though asubstantial portion consisted of relocatable "construction elements."
It isa well recognized rule that, asbetween the parties to a contract, the character ofproperty may be fixed by contract to the effect that it shall remain personalty and not become attached to real property.

National Bank v. Elk Mfo.Co., 29 S.W.2d 1062, 1066 (Tex. Comm'n App. 1930, judgment adopted): Roaers v. Fort Worth Poultrv and Egg Co., 185 S.W.2d 165, 167 (Tex. Civ. App. -Fort Worth 1944, nowrit).
While fixing the character ofproperty asbetween the parties to acontract, such anagreement does not determine the character ofthe property asto all persons and purposes. The Texas courts have held that third party purchasers and mortgagees who take in good faith and without notice of such an agreement have aright toview the property inaccord with its apparent condition and character at the time ofthe purchase oracceptance ofthe mortgage. See Citizens' National Bank v. Elk Mfo. Co., m; Philliws v. Newsome, 179 S.W. 1123, 1124 (Tex. Civ. APP. -Fort Worth 1915, no writ): Ice. Liaht. and Water co.v. Lone Star Ensine 8Boiler Works, 41 S.W. 835, 836 (Tex. Civ. App. 1897, nowrit). The intention ofaparty

p.3783Honorable L.M. Braziel -Page 6 (~~-800)

asto the character of property has been held not to determine its character for insurance purposes inthe face ofphysical facts to the contrary. See Rubv v. Cambridse Mutual Fire Insurance Comvany, 358 S.W.Zd 943, 946 (Tex. Civ. App. -Dallas 1962, nowrit).

Inthe present case, the legislature intended. that article 2368a.2, V.T.C.S., not apply toreal property. The parties have attempted tobring real property within the statute by characterizing it as "personal property" despite physical facts tothe contrary. The parties could not alter the statutory definition by consent. See Casias v.State ofTexas, 503 S.W.2d 262 (Tex. Crim. App. 1973); see also Exwarte Salter, 452 S.W.2d 711 (Tex. Civ. App. - Houston [lst Dist.] 1970, writ ref'd) (court must confine itself to areasonable construction of the language used). We believe the characterization of real property as personal property should bedisregarded, as an attempt to circumvent the legislative intent underlying article 2368a.2, V.T.C.S.
The provisions of the Public Property Finance Act do not apply to the lease agreement which the Rains County

_ Commissioners Court entered into to finance the acquisi- ? tion of acounty jail.
SUMMARX

Article 2368a.2, V.T.C.S., the Public Property Finance Act, applies to the acquisition of personal property and not real property. The parties to a contract may not bring property ordinarily considered tobe real property within the terms of this statute by agreeing to characterize it as personal property.

JIM MATTOX. Attorney General ofTexas
MARY KELLER Executive Assistant Attorney General

p.3784Honorable L.M. Braziel -Page-7 (JM-800)

JUDGE ZOLLIE STEAKLEY Special Assistant Attorney Gene&l
RICK GILPIN Chairman, Opinion Committee Prepared by Susan L.Garrison Assistant Attorney General

p.3785