HE L% IRNEY GENEWAL 

EXAS 

May 29, 1969 

Rep. Jack Blanton Opinion No. M-407 

House of Representa.tives 

State Capitol Re: Whether House Bill 700, 

Austin, Texas 61st Legislature, can 

legally prohibit a corporation from engaging 

in the business of farming, livestock feeding 

Dear Mr. Blanton: or ranching. 

In your recent request for an opinion from this office 

you stated: 

"I am enclosing a copy of House Bill 700 

of which I am chairman of the sub-committee. 

The point has been raised that it may be 

illegal for us to prohibit a corporation 

from farming in the State of Texas. We 

request your opinion on this matter." 

House Bill 700 is an act to amend Article 2.01, Subsection 

B of the Texas Business Corporation Act and to add provisions 

to that Article. 

Pertinent provisions of House Bill 700 read as follows: 

"BE IT ENACTED BY THE LEGISLATURE OF 

THE STATE OF TEXAS: 

Section 1. BUSINESSES IN WHICH CORPORATIONS MAY NOT ENGAGE. No corporation, foreign 

or domestic, except as provided in this Act, 

may engage in the business of farming, livestock feeding, or ranching. 

Sec. 2. DISPOSING OF OPERATIONS AND 

LAND. (a) All corporations except those 

falling under the provisions of Section 4 

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Rep. Jack Blanton, page 2 (M-407) 

of this Act which are engaged in farming, 

livestock feeding, or ranching operations 

at the effective date of this Act shall 

dispose of all such interests and withdraw 

from those operations within two years after the effective date of this Act. 

(b) All corporations except those 

falling under the provisions of Section 4 

of this Act which are engaged in farming, 

livestock feeding, or ranching operations 

which own or hold real estate which was 

acquired prior to the effective date of 

this Act and which is used or usable for 

farming, livestock feeding, or ranching 

purposes, but which Is not reasonably necessary to the conduct of the other business 

of the corporation, shall dispose of the 

real estate within 10 years after the effective date of this Act. A corporation 

holding real estate subject to the provisions of this section may use the land for 

farming, livestock feeding, or ranching 

purposes until the date by which it must 

be sold. 

(c) The ownership limitation provided in this section shall be deemed a 

covenant running with the title to the 

land against any grantee, successor, or 

assignee of a corporation which is also a 

corporation. 

Sec. 3. DISPOSING OF AFTER-ACQYIRED 

LAND. (a) A corporation which after the 

effective date of this Act, acquires real 

estate used or usable for farming, livestock feeding, dairylng or ranching purposes by judicial process, operation of 

law, or otherwise, shall dispose of all 

such real estate, except that which is 

reasonably necessary in the conduct of 

its other business, within 10 years after 

the real estate was acquired. 

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Rep. Jack Blanton, page 3 (M- 407) 

(b) The lo-year limitation provided 

by this section shall be deemed a covenant 

running with the title to the land against 

any grantee, successor, or assignee of a 

corporation which is also a corporation. 

Sec. 4. CORPORATIONS WHICH MAY ENGAGE IN FARMING. LIVESTOCK FEEDING, AND 

RANCHING OPERATIONS. (a) Farming, livestock feeding, or ranching operations may 

be conducted by a corporation in which 

(1) all shareholders are actively 

engaged in the management or operation of 

the corporation and at least 80 percent 

of the gross income of the corporation 

comes from farming, livestock feeding, or 

ranching operations: and 

(2) there are no shareholders other 

than trusts or estates who are not natural 

persons. 

(b) The Secretary of State of the 

State of Texas shall accept articles of 

incorporatlon with a purpose clause or 

clauses authorizing it to conduct farming, livestock feeding, or ranching operations, provided such articles of incorporation conta~in the limitations set 

forth in Subsection (a) of this section. 

Sec. 5. VIOLATIONS AND PENALTIES. 

Violations of the provisions of this Act 

are subject to the provisions of Articles 

4.06 and 4.07, Texas Miscellaneous Corporation Laws Act (Articles 1302-4.06 and l3O2- 

4.07, Vernon's Texas Civil Statutes). 

sec. 6. Subsection B, Article 2.01, 

Texas Business Corporation Act, is amended 

to read as follows: 

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Rep. Jack Blanton, page 4 (M-407) 

"B. No Corporation may adopt this Act 

or be orga~nized under this Act or obtain 

authority to transact business in this State 

under this Act: 

"(1) If any one or more of its purposes for the transaction of business in 

this State is expressly prohibited by any 

law of this State. 

"(2) If any one or more of its purposes for the transaction of business in 

this State is to engage in any activity 

which cannot lawfully be engaged in without first obtaining a license under the 

authority of the laws of this State to engage in such activity and such a license 

cannot lawfully be granted to a corporation. 

"(3) . . . .n 

Determination of the legality of House Bill 700 necessari 

requires an examination of the Texas law pertaining to regulation of statutory entities, vested property rights and constitutional prohibitions against impairment of contractual obligations. 

Article 1, Section 17, Constitution of Texas, expressly 

provides that "all privileges and franchises granted by the 

Legislature, or created under its authority shall be subject 

to the control thereof." 

Article 9.12, Texas Business Corporation Act, which 

superseded old Article 1318, Vernon's Civil Statutes, 

states: 

"The legislature shall -- at all times have power 

to prescribe such regulations, provisions and 

limitations as it may deem advisable, which regulations, provislons and limitations shall be 

binding u on any a~nd all corporations subject 

to the prov -5 sions of ms Act, and the ,Legislature shall have power to amend, re eal or 

modify this Act." (Emphasis added+ 

lY 

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Rep. Jack Blanton, Page 5 (M- 401) 

It is, therefore, clear that in Texas the legislature 

has reserved the power to alter, suspend or repeal all laws, 

providing for organization of corporations, and that such 

reservation becomes a part of the charter of the corporation. 

18 Am.Jur.2d 631-632, Corporations, Sec. 92, wherein it is 

said: 

11 . . . Corporations are the creations of the 

state, endowed with such faculties as the state 

bestows and subject to such conditions as the state 

imposes; and if the power to modify their cha~rters 

is reserved, that reservation is a part of the contract, and no change within the legitimate exercise 

of the power, whether directly or by an independent 

general regulation, Cain be said to impair its obligations. 

"General constitutional or statutory provisions 

in force at the time of incorporation reserving 

power in the legislature to amend, annul, or repeal any such corporation, are a part of the corporate charter, so much so, in fact, that it has been 

held that the right to repeal the charter will not 

be affected by the repeal of the general law . . .' 

In accord, Jefferson County Title Guaranty Co. v. Tarver, 119 

Tex. 410. 29 S.W.2d 3lb, 318 (1930). 

Texas authorities likewise recognize that a corporation 

is a creature of the state and it is therefore subject to its 

dominion and control. Zerr v. Lawlor, 300 S.W. 112 (;_'ex.Civ. 

App. 1927, no writ): McCutcheon v. Wazencraft, 230 S.W. 733, 

rev. on other grounds 255 S.W. eters-Pierce 71 Oil 

Co. v. Texas, 177 U.S. 28 (1900). 

House Bill 700, if enacted, would not terminate the existence of corporations now engaging in the sole business of 

farming and ranching, but would require such corporations to 

dispose of their interests in such activities within two years 

from the effective date of the Act. All real estate acquired 

prior to such date, used or usable for farming, livestock 

feeding, or ranching, not reasonably necessary to the conduct 

of the other business of the corporation, is required to be 

disposed of within ten years after the effective date of the 

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Rep. Jack Blanton, .page 6 (M- 407) 

Act. Article 2.02 of the Texas Business Corporation Act, and 

Article 1302-4.01, Vernon's Civil Statutes, Miscellaneous Corporation Laws Act, require that land owned by a corporation 

must be held as a necessary part of the business of the corporation. 

Consequently, we must determine whether such provisions 

would violate the provision found in Article 1, Section 16 

of the Constitution of Texas, prohibiting retroactive laws 

or laws impairing the obligations of contracts. In addition, 

the question of violation of due process and equal protection of the laws, in contravention of the Fourteenth Amendment of the U. S. Constitution, is raised for consideration. 

It should be observed in this connection that unless 

"vested rights" are actually destroyed or impaired, an act 

is not invalid even when retroactive in its operation. 

Paschal v. Perez, 7 Tex. 348 (1851); City of Ft. Worth v. 

know, 284 S W 274 (Tex.Civ.App. 192b, error ref.) Th 

-ion thui presents itself, does House Bill 700 impa:r 

any property rights which may be deemed "vested" so that it 

amounts to an arbitrary exercise of power in denial of the 

equal protection of the laws, constituting a deprivation of 

property without due process of law? Does the legislature 

have the power to pass a law which has the effect of 'erminating the corporate existence of such farming and ranching corporations; that is, by eliminating the corporate purposes of 

farming, ranching, etc.? 

We find the law on these questions to be pertinently stated 

in 18 Am.Jur.2d 633, Corporations, Sec. 33, as follows: 

"A reservation . . . in a general law of power 

to amend, alter, or repeal affects the entire relation between the state and the corporation and 

places under legislative control all rights, privileges, and immunities derived by its charter directly from the state, including its very existence. . . 

!I . . Under the reserved power of repeal the legislature may terminate the corporate existence . . ." 

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Rep. Jack Blanton, page 7 (M-407) 

Among the cases cited in support of the latter statement are 

Erie R. Co. v. Williams, 233 U.S. 685 1914 ; Spring Valley 

Waterworks v. Schottler, 110 U.S. 347 I 18@4 1 ; State v. 

Louisville & N.R. Co., 97 Miss. 35, 51 so. 918, 53 so. 454 

(1910); People v. O'Brien, 111 N.Y. 1, 18 N.E. 692 (1888). 

In 18 Am.Jur.2d 636-637, Corporations, Sec. 94, we find 

this statement: 

I, . . . it has been held that the reserved 

power of a state to amend a corporate charter 

is not limited to changes or alterations solely 

between the state and the corporation, but authorizes amendments and alterations, within 

certain limitations, directly affecting stockholders in their relations to the state, to 

the corporation, and to each other, and that 

such power may be invoked to sustain charter 

alterations justified by the advancement of 

public interest, even though they a~ffect contractual rights between the corporation and its 

stockholders and between stockholders inter 

se. . .I' 

It is held, however, that the reserved power to amend or 

repeal corporate charters does not give the legislature the 

power to impair or destroy the "executed" contracts of third 

persons with the corporations, as distinguished from "executory " contracts at the time the statute takes effect. Consequently, as to the latter, it is held that 

11 . . . The fact that a repealing statute destroys the right of a corporation to continue 

in existence under the statute repealed does 

not make such repealing statute unconstitutional even as against bondholders of the corporation. The execution of the mortgage and 

the issuing of bonds secured by the property 

of the corporation does not affect the right 

of the legislature to repeal the statute." 

18 Am.Jur.2d 638, Corporations, Sec. 95; People v. Calder, 153 

Mich. SUP. 724, 117 N.W. 314 (1908). 

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Rep. Jack Blanton, page 8 (M-407) 

We do not perceive any attempt in House Bill 700 to impair 

or destroy the contracts of third persons with the affected corporations. If such legislation should unconstitutionally threaten 

such am impairment, as applied to the specific facts of the case, 

and the legislature has not provided some special remedy, the 

courts will enforce such property rights by the means within 

their power. 18 Am.Jur.2d 636, Corporations, Sec. 94. 

We a~gree with the Supreme Court of Illinois in its observation that 

11 

to be's 

no corporation has a constitutional right 

corporation and it is fundamental tha~t 

corporate powers and charters are taken subject 

to the prerogative of the state to modify or 

amend the enabling legislation at any time. 

Kreicker v. Naylor Pipe Co., 374 Ill. 364, 29 

N.E.2d 502. And this matter is removed from 

the sphere of constitutional consideration by 

reason of the express language of the Business 

Corporation Act . . . which reserves to the 

General Assembly the power to repea~l, amend or 

modify the act and to impose limitations or restrictions at the pleasure of the General Assembly." 

Braeburn Securities Corp. v. Smith, 15 Ill.Sup.2d 55> 153 

N.E.2d 806, 811-812 (1956) upholding an amendment to a statute 

limiting the general power; of corporations in respect to ownership and control of stock in banks and overruling the contention 

that such legislation impaired obligation of contract and was a 

denial of equal protection under the, law. 

In Asbury Hospital v. Cass County, 7 N.W.2d 438 (N.D.%p. 

1943), the court had before it a challenge to the constitutionality of an act, requiring any corporation, domestic or 

foreign, owning farm land, except that reasonably necessary to 

the conduct of its b,lsiness, to dispose of the land within ten 

years from the date the Act took effect. It also prohibited 

such corporations from engaging in farming or agriculture in 

the future. In upholding the constitutionality of the statute 

against the contention by the plaintiff corporation that it 

operated to deprive the corporation of property without due 

process, the court said, beginning at page 452: 

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Rep. Jack Blanton, page 9 (M- 407) 

"As has been pointed out, there are 

constitutional or statutory provisions in 

many states restricting the right of corporations to acquire and hold real estate 

and requiring that such corporations dispose of real estate which they have acquired, 

within a fixed period of time. 

"No instance has been called to our attention, and none has been found, where such 

legislation was predicated upon the proposition that the State was without power to require a corporation to dispose of real property that it had acquired before the statute 

or constitutional provision became effective: 

and in some of the states, the legislation 

restricting the right of corporations to hold 

real property is specifically made applicable 

as well to property that had been acquired 

before the legislation became effective as to 

property subsequently acquired . . . [citing 

numerous authorities] In Commonwealth v. 

Clark County National Bank, supra, It was contended that Inasmuch as the land sought to be 

escheated had been acquired by the corporation 

before the adoption of the constitutional provision,'the corporation had a vested right 

which was unaffected by the adoption' of the 

new constitution containing the provision as 

'there could be no impairment of the obliga~- 

tion of contract or rights acquired and vested 

before the making of the law.'" [x37 Ky.sup. 

151, 219 S.W. 1821 

"The Court of Appeals of Kentucky held 

that . . . (the) enactment of the statute did 

not result in 'unconstitutionally' impairing 

the 'contract or vested rights' of the corporation. 

"We think it clearly follows from the principle announced by the Supreme Court of the United 

States in Connecticut Mutual Life Insurance Company 

v. Spratley, supra (172 U.S. 602) and Phillips 

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Rep. Jack Blanton, page 10 (M-407) 

Petroleum Company v. Jenkins, supra (297 

U.S. 629), that the provisions of the statute 

in question here restricting the power of the 

plaintiff to hold real estate, used or usable 

for farming or agriculture and requiring it 

to dispose of the same within ten years from 

the date the act took effect, do not impair 

the obligations of any plaintiff, or impair 

any vested property right of the plaintiff. 

"The question next presents itself whether 

such provisions operate to deprive the plaintiff 

corporation of its property without due process 

of law. This question must be answered in the 

negative. The State having the right to restrict 

the power of the plaintiff and corporations similarly situated as to the acquisition and ownership of real estate within the State, it naturally 

follows that any legislation which it might enact 

to carry such polic 

E 

into effect must have a beginning, and 'the 1 th Amendment does not forbid 

statutes and statutory changes to have a beginning.' 

Sperry & Hutchinson Co. v. Rhodes, 220 U.S. 502, 

31 S.Ct. 490, 491, 55 L.Ed. 561. Of course, the 

State could not put its new policy into effect 

in such sudden and arbitrary manner as to practically sacrifice and confiscate the interest of 

the corporation In the property that it had been 

permitted to acquire within the State. In making 

the change it must give the corporation reasonable time in which to dispose of its property. 

17 Fletcher, Cyc. Corps., p. 799. See also, 

State v. Crescent Cotton Oil CO., 116 Miss. 398, 

77 So. 185; Crescent Cotton Oil Co. v. State, 

121 Miss. 615, 83 So. 680; Crescent Cotton Oil 

Co. v. Mississippi, 257 U.S. 129, 42 S.Ct. 42, 

66 L.Ed. 166. The statute gives . . . ten 

years in which to dispose of it before such 

property becomes subject to the provisions of 

the statute providing for disposal of the property under the procedure provided by the statute. 

Clearly the period of time . . . cannot be said 

to be so unreasonable or arbitrary as to operate 

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Rep. Jack Blanton, page 11 (M-407) 

to deprive corporations holding land subject to 

the statute of property without due process of 

law . . . [citing authorities] Such period is 

considerably longer than that prescribed in analogous laws in other states. Thus, Oklahoma 

prescribes seven years, and Kentucky five 

years . . .' 

With respect to the discretion of the legislature in exercising its reserved power to repeal or alter the corporations 

charter, It is the general rule that no notice need be given 

to a corporation of such exercise. Jefferson County Title 

Guaranty Co. v. Tarver, supra, 119 Tex. 410, 

(1930); 18 Am.Jur. 638, Corporations, Sec. 95. House Bill 700, 

however, does allow two years from the effective date of the 

Act within which the subject corporation may withdraw from its 

farming and ranching operations and dispose of its interests. 

The ten year time period applies to real estate acquired prior 

to the effective date of the act. Such periods appear reasonable, and our research fails to reveal any such periods as 

having been held to be unreasonable. 

Texas laws recognize limitations u on the right of corporations to hold property. Article l3O2- E *Ol V.C.S., the Miscellaneous Corporations Laws Act prohibits a corporation from 

acquiring land except such as may be necessary to conduct the 

type of business for which it is incorporated. Article 1302- 

4.05 of the Miscellaneous Corporation Laws Act accords relief 

only to the extent of permitting corporations to acquire urban 

land, such entities being known as Town Lot Corporations. Articles 8.19 and 3.40 of the Texas Insurance Code require disposition of certain realty of Casualty and Life Insurance Companies within a five year period. 

No. O-1470 (1939). 

See Attorney General Opinion 

Article 4.02 Miscellaneous Corporation Laws 

Act, (old Article 1360, prior to 1961) Vernon's Civil Statutes, 

gives a fifteen year time period to corporations to dispose of 

lands deemed unnecessary to, or In excess of their business 

needs. All of these laws have remained unchallenged to this 

date and are presumably valid. 

In view of all of the foregoing considerationsr we conclude that House Bill 700, if enacted, would be constitutional. 

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Rep. Jack Blanton, Page 12 (M-407) 

SUMMARY 

House Bill 700, prohibiting corporations from engaging in 

the business of farming, livestock feeding, or ranching, and allowing a two year period for such corporations to withdraw from 

operations and to dispose of their interests and a ten year 

period to dispose of their real estate, if enacted, would be 

constitutional. 

Veryely yours, 

Prepared by Neil Williams 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Kerns Taylor, Chairman 

George Kelton, Vice-Chalrman 

Ralph Rash 

Terry Goodman 

Malcolm Quick 

Bill Allen 

W. V. GEPPERT 

Staff Legal Assistant 

HAWTHORNE PHILLIPS 

Executive Assistant 

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