Honorable Robert S. Calvert Opinion No. M-1034

Comptroller of Public Accounts State Finance Building Re: Whether Article 5421c, Austin, Texas 78701 Sec. lla,V.C.S., and the appropriation contained in the Ge,neral Appropriation Bill (S.B. 11,Ch. 1047, 62nd Leg., 1971, R.S.) provide authority forpayment of a certain claimed refund ofbonuses, delay **rentals,** and special sales fees paid to the State by a lessee under terms of a lease where the leased development isprevented Dear Mr. Calvert: by a federal agency?

Your request for an opinion asks the following question:
"DoesArticle 5421c, Section lla,V.C.S.,

and the appropriation contained in the General Appropriation Bill (S.B. 11, Ch. 1047, 62nd Leg., 1971, R.S.) provide authority forpayment of **a** certain claimed refund ofbonuses, delay rentals and special sales feespaid to the State by a lessee under terms of a lease where the leased development isprevented by a federal agency?"
In addition, you have further requested whether the claim may be validly paid under any State statute.

House Bill 1862was passed by theHouse onMay 21, 1971, andby the Senate onMay 26, 1971, and approved by the Governor andbecame effective onNay 27, 1971; it adds Section lla to Article 5421c, V.C.S.

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(M-1034)

As stated inyour request, the subject lease (Mineral Lease No. 58676)was dated on October 5, 1965, andwas entered intobetween the State of Texas andCabot Corporation for a five **year** primary term. It is stated that the leasewas located in the Gulf ofMexico near abombing range of the U.S. Air Force andbecause of the danger involved, Cabot Corporation was prevented fromdrilling the lease during theprimary term of the leaseby theU.S. Corps of Engineers. Thenlessee paid the State ofTexas in good faith pursuant to their lease a total of $32,703.00 for special sales fees,,bonuses and delay rentals. Both the federal government and the lessee show that itwas impossible to grant a shooting or drilling permit during the lease "since intensive bombing operations are inprogress on adaily basis." Your opinion request also states that the "School Land Board verified prerequisite factswhich H.B. 1862 requires asbasis formaking refund."

vides: Section 44 ofArticle III, Constitution of Texas, pro-

"The Legislature shallprovide by law for the compensation of all officers, servants, agents andpublic contractors, not provided for in this Constitution, but shall not grant extra compensation to any officer, agent, servant or public contractors,~after such public service shall have been performed or contract entered into, for theperformance of the same; nor grant, by appropriation or otherwise, any amount of

the same shall not have been provided forby pre-existing law;nor employ anyone in the name of the State, unless authorized by preexisting law." (Emphasis added.) Since themineral lease isdated October 5, 1965, and Article 5421c, Section lla,V.C.S., was effective onMay 27, 1971, saidArticle 5421c, Section lla,Vernon's Civil Statutes, does not constitute pre-existing law to support payment of the claim. This office accordingly previously refused to authorize payment of the claim in a letter ruling, dated April 27, 1971, addressed to the Chairman of the Claims Committee, House of Representatives. We now consider, however, adifferent statutory basis not dealtwith or discussed in the letter ruling.

Article 5411a, Section l(b), reads as follows:
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"Section 1. Upon proper proof ashereinafter provided, the Comptroller of the State of Texas ishereby authorized anddirected to draw hiswarrant in refund ofmonies paid into the State Treasury onpublic lands in good faithbut where the funds towhich suchmonies may be accredited ormay have been accredited, are not entitled thereto in any of the following instances: II

. . . "(b) Where thepayment ismade in accordance with law,but title cannot issue or possession cannot pass, because of conflict inboundaries, erroneous sales, erroneous lease or other cause:. . ."
We believe that the Legislature intended by this statute toprovide a remedy to a lessee of the State for refund of the considerationpaid to the State under a leasewhen such consideration hasmaterially and substantially failed, although neither party be at fault. The statute may thusbe read into the lease as though itwere expressly incorporated therein as an integral part thereof. Anderson-Rerney Realty Co. vs. Sovia, 41 S.W.Zd 279, 281 (1931). aff. 123 Tex. 100, 67 S.W.Zd 222: 12AmJur. 76,9;Contractsi.Sec. 240. It iswell settled that failure of title orpossession, being amaterial failure of aonsideration for a lease,would give rise to a cause of action or remedy by lessee against a lessor for reformation, cancellation or return of the consideration oaid. See, forexample, 42Tex. Jur.2d 217, Oil &Gas, Sec. 92.- In 58 CJS 528, Mines &Minerals, Sec. 209b; Fender vs. Farr, 262 S.W.2d 539, 543 (Tex.Civ.App. 1953, nowrit).

InR. C. Childress vs. 0. B. Siler, 272 S.W.2d 417, 420 (Tex.Civ.App. 1954, ref., n.r.e.1, it is said:

"Whenever covenants of seizin or good right to convey are contained in adeed or lease or assignment of a lease they import an intention on the part of the grantor to domore than give aquitclaim, they import an intention to convey the land or the described interest in the land itself."

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When the statute, Article 5411a, Section l(b), isread into the lease, the latter necessarily provided that if title orpossession failed, the lessor State had a legal obligation to return themonies paid to itby lessee. This was not in anyway altered by, but rather modifies, the clause in the lease (Section 22),which provided inpart:

"Should Lessee be prevented.

. .from conducting drilling operations thereon, or fromproducing oil and/or gas therefrom, after effort made in good faith,by reason ofwar, rebellion, riots, strikes, acts of God, or any order, rule or regulation of governmental authority, thenwhile soprevented, Lessee's obligation to comply with such covenant shall be suspended.

. .,provided, however, that nothing herein shallbe construed to suspend thepayment of rentals 'duringthe primary or extended term."
It is apparent that while lesseewas under a duty to continuepaying rentals to lessor State or forfeit the lease (HumbleOil &Refining Co. vs. Mullican, 192,S.W.Zd 770 [Tex. Sup. 194611, nevertheless his remedy for return of the rentals arose at least at the end of theprimary term of the lease. While either the lessee or lessor orboth may bring an action against a third party for tort during the lease, after its termination the lessor rather than the lessee is the proper party to sue where nomining was performed under the lease. 58CJS 423,Mines &Minerals, Section 194.

Further, in Cabot Corporation's application forpayment of **claim** against the State ofTexas, the following certified language by Cabot Corporation appears:

"Moreover, the 'Notice forBids' issued by the General Land Commissioner and Chairman of the School Land Board for theOctober 5, 1965 sale of the subject Lease contained no notice orwarning of suchbombing activities or,conditions specified above and Cabot without knowledge of such factsbid for and purchased such Lease at such sale.
"In summary, the subject Lease was not at the time of sale, or at any time during its primary term, subject tobeing explored and

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developed foroil and gas, the very purpose forwhich itwas sold andpurchased, and consequently, such Lease had novalue. Unless we assume the School Land Board would knowingly lease aworthless tract not subject to development, the situation arose from amutual mistake of fact. In any event, the rights purported tobe granted by the Lease were not subject to realization at the time theLease was sold or at any timeduring its term. Cabot Corporation, therefore, makes the foregoing claim for refund." (Emphasis added.)
As clearly set out above in the Cabot affidavit, it is clearly shown that Cabot Corporation had no knowledge that the bombing range covered the acreage that ithad leased, and it logically follows thathad Cabot realized that the acreage in question could never be used for oil and gas purposes, then the acreage would have never been leased from the State.

Article 5411a, Section l(b), passed in 1945,was a preexisting law at the time of the datedmineral lease, andpossession of said lease could not be andwas not delivered .to Cabot Corporation, who acted in good faith and complied with the terms of the fiveyear lease. Coupled with the certified Application of Claim by Cabot Corporation, the verification of claimby the General Land Office of Texas and the appropriation **by** the Legislature (S.B. 11,Ch. 1047, 62nd Leg., 1971, R.S.) of funds topay this claim, it is our opinion thatpayment of said claimmay bemade promptly, pursuant toArticle 5411a, Section l(b). The previous ruling by this office, dated April 27, 1971, is accordingly overruled.

SUMMARY Where~a mineral leasewas entered intobetween the State and a lessee and byvirtue of federal military activities, the lesseewas prevented from drilling thereunder and title orpossession could not pass because of such federal activity, but the lessee in good faith complied with the terms of the lease, paying the State thebonuses, delay rentals and special sales fees, andArticle 5411a, Section l(b), V.C.S., was apre-existing law in effect at the time of the lease, the lessee's claim

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for refund of suchpayments to the State **may** be lawfully paid by the State to the lessee when coupled with the verification of the claim by the General Land Office and the legislative appropriation **to** pay such **claim.** Yo)z$!5 very truly,

Prepared by Jerry H. Roberts Assistant Attorney General ey General of Texas

APPROVED: OPINION COMMITTEE
Kerns Taylor, Chairman W. E.Allen, Co-Chairman Linward Shivers John Reeves James Broadhurst Marietta Payne David Longoria
SAM MCDANIEL Staff Legal Assistant
ALFRED WALKER Executive Assistant
NOLA WHITE First Assistant

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