                         September 29, 1987




Honorable  L. M. Braziel             Opinion    No.   JM-800
Rains County Attorney
Courthouse                           Re:   Whether     article 2368a.2,
Emory, Texas    75440                V.T.C.S.,     permits      the   con-
                                     struction     of   a county      jail
                                     building    through      a     lease-
                                     purchase    agreement      when   the
                                     agreement   describes    the build-
                                     ing 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 32 Dan/Tex     finished ribbed panels    and
         consisting   of 51 rooms, including   bed-space
         for 17 prisoners,    together with a chain-link
         enclosure   for an 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   is actually      a financing
arrangement.     Consolidated    Financial   Resources,      Inc. does
not agree to deliver the property        to the county.       Instead,
the agreement    provides that the property       shall be acquired
and installed    pursuant to     one or more     purchase    contracts
entered into by      the county and     one or more      contractors.
Lease   payments     are    allocated    between     principal      and




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




interest.  Agreement,   Exhibit B.   The county in    fact has
entered into a purchase contract to     acquire a relocatable
jail from Detention   Systems,  Inc. IdL Exhibit C.

      The    following     provision         of  the    lease-purchase
agreement    characterizes   the jail       as personal  property:

            The Property    is and will remain         personal
        property    and    will    not    be   deemed     to   be
        affixed to or a part         of the real estate        on
        which it may be        situated,      notwithstanding
        that the Property or any part thereof may be
        or hereafter    become in any manner physically
        affixed or attached        to real     estate or      any
        building thereon.        Upon direction      of Lessor,
        Lessee will, at Lessee>s expense,            furnish     a
        landlord or mortgagee        waiver with respect to
        the Property.      In    addition,    upon    execution
        of   this    Lease,    Lessee     shall     furnish    to
        Lessor a certificate       executed by an engineer
        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         of the jail    could
        be   relocated   with   the         exception   of   the
        following:

             1.   Site       -   underground  utilities
                             -   parking surfaces
                             -   sidewalks
                             -   site grading
                             -   landscaping

             2.   Building   - plumbing under slab
                               foundation
                             - concrete   floor slab
                             - floor coverings
                             - gypsum steel stud walls




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           All remaining    construction        elements        could,
           therefore,  remain personal         property.

      A brief submitted      in   support of the      lease agreement
states    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    to purchase     of the    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

           it appears     from    its   size    and   manner     of
           construction    that it would be         commercially
           impractical    to   do   so.    The   jail    facility
           seems to be 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 a tenant upon             lease-
           hold 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,  or an   in-
stallment   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 to a contract      solely
           for the construction   of improvements    to real
           property.

V.T.C.S.     art.   2368a.2,   59.




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      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       of real     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        in the     House to add      the
language    in section 9, quoted above, that the act does not
apply    to    a contract       solely     for   the    construction       of
improvements     to    real    property.     Bill    File    to H.B.     No.
1176, 66th Leg.,        filed in Legislative         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          that property
"shall not include real property."              Hence, it appears that
the intention     of the legislature        was to     exclude more than
land    and    instead    to    exclude     real     property     and the
construction     of improvements       to real property.

       Attorney   General     Opinion    JM-697    concluded     that    a
county has implied authority           to acquire a jail      through a
lease-purchase      contract extending     beyond the present year,
but did not consider         whether a commissioners        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    a procedure    whereby the validity
           of a contract may become 'incontestable             for
           any   cause,'     and   provides     that    contracts
           entered into      pursuant    to the     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 legisla-
           ture may have excluded real property           and the
           improvement    of   real property       from   article
           2368a.2 because it did not want all of these
           provisions    to   apply    to contracts      for   the
           acquisition    or improvement     of real property.

Attorney     General    Opinion    JM-697       (1987).




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      Unless the     commissioners    court   may   make    a valid
agreement   that the county jail will       be personal property,
it may    not   construct    and   finance   this   project   under
article 2368a.2, V.T.C.S.

      Tangible property     is either realty or         personalty      and
the word "real" describes         land and that which         is annexed
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
in the    absence    of an    intention      or agreement      that     the
building will not become permanently           annexed     to the land,
and the law presumes that a house located on               land is part
of the land      in the absence      of evidence to       the contrary.
See Brown v. Roland, 45 S.W. 795, 796 (Tex. 1898); Ford v.
Forsoard,    27 S.W.    57, 58 (Tex.      1894); Calvert v.         Welch,
369 S.W.2d 840, 842 (Tex.         Civ. App. - Texarkana          1963, no
writ); Griqos v.      Masnolia    Petroleum      Comnanv,    319    S.W.2d
818, 819     (Tex.   Civ.   ADD.     -  Amarillo     1958.    no    writ):
Evanselicai    St. John's     Church v. Otto       Indewendent      School
District,    203 S.W.2d 299, 301 (Tex. Civ. App. - Waco 1947,
no writ).      Black's Law     Dictionary     1096    (5th ed.      1979),
defines real property       as land      and generally     whatever      is
erected or growing upon or affixed to land.                Thus, a jail
building    would    ordinarily     .be   considered      to     be   real
property,    even  though   a  substantial     portion     consisted     of
relocatable    "construction    elements."

      It is a well recognized       rule that,     as between    the
parties to a contract,      the character     of property 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 . C o., 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, no writ).

      While fixing the character        of property   as between the
parties to a contract,       such an agreement      does  not deter-
mine the character      of the   property as to 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 a right     to view
the property      in accord    with its    apparent condition     and
character   at the time of the purchase        or acceptance   of the
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        8 Boiler Works, 41 S.W.       835, 836
(Tex. Civ. App. 1897, no writ).          The intention    of a party




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as to   the character     of   property has    been   held not   to
determine   its character    for insurance   purposes  in the face
of physical   facts to the contrary.       See   Rubv v. Cambridse
Mutual Fire Insurance     Comvany,    358 S.W.Zd 943,     946 (Tex.
Civ. App. - Dallas 1962, no writ).

      In the present      case, the     legislature    intended.   that
article 2368a.2,      V.T.C.S.,    not    apply   to real    property.
The parties have attempted         to bring real      property within
the statute by      characterizing     it   as "personal     property"
despite physical     facts to the contrary.        The parties could
not alter the statutory      definition     by consent.     See Casias
v . State of Texas, 503 S.W.2d 262 (Tex.           Crim. App. 1973);
see also Ex warte Salter, 452 S.W.2d 711 (Tex. Civ. App. -
Houston   [lst Dist.] 1970, writ ref'd)          (court must confine
itself to a reasonable      construction      of the language used).
We   believe    the   characterization        of  real    property    as
personal   property   should be disregarded,       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 a county 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
        to be real property within the terms of this
        statute by    agreeing to     characterize     it   as
        personal property.




                                            JIM      MATTOX.
                                            Attorney  General   of Texas

MARY KELLER
Executive  Assistant     Attorney     General




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JUDGE ZOLLIE STEAKLEY
Special Assistant  Attorney      Gene&l

RICK GILPIN
Chairman,  Opinion   Committee

Prepared by Susan L. Garrison
Assistant Attorney General




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