                                                             :i-   f
                             ..,
                                   July 12.1951


     Hon. Bascom Gilbs                   Opinion No. V-1204            ..
     Commissioner
     General Land’Office                  Re:      Legality of refunding lease
     Austin, Texas                                 rental payments made dur-
                                                   ing pendency of-litigation
                                                   relating to the validity of
                                                   such lease or the’authority
                                                   of the Land Commis,sioner
                                                  to lease the-land covered
     Dear Sir:                                    thereby. .’ <,
                                                                        ‘.
                 Your letter requesting an opinion is as follows:
                            4
              “I desire your official opinion on the question’of
Y’
         refnnding~payments now held in suspense -wh!ch were
         tendered to this~-office by various oil companies for
         rentals on oil and gas leases~ covering lands’in the
         Gulf of Mexico;which     have been in litigation in t&r
         Supreme Court of the United States, and return of k&t-
         als paid by Sun Oil Company and held in suspense, cov-
         ering oil and gas leases onla$ds”in Lag&ia’M&lre in-,
         volved in litigation in Civil Action No. 61~4,‘X@ted       :
         States District Court, %orpus Cliristi Division: Some
         of the rentals paid to this office for the Gulf of~ivfexi-
         co lands were p&id &de; protest and held in suspense
         by this department, and some were paid without pr.o-’
         test and held in suspense for a, judicial determination
         as to &ether or not Article 54211 of Vernon’s Anno-
         tated Civil Statutes. relieved the lessees from payment
         of rentals during the pendtncy of’the litigation above
         named.

              “There follows a list of rental payments made on
         oil and gas leases in the Gulf.of ‘Mexico, showing wheth-
         er or not such payments were.made under protest:
                              .I
.   *

                                                                             . :_


                                                                               -.

        Hon. Bascom Giles, Page 2, V-1204


            Name                     Date     Amount

           Humble Oil & Re-
             fining Co.            11-5-49   $49,371.00    Protested
           Stanolind Oil h
             Gas Co.              11-7-49     56,OOO.OOProtested
           Superior Oil Co. &
             Tidelands GilCorp.   10-19-49    35,040.OO Protested
           Phillips ~Petroleum
             co.      c           10-a-49      2,686.OO    Not Protested
           Sun Oi; Company        10-15-49     1,494.OO    Not Protested
           The Texas Company      11-5-49     17,020.00,   Protested
           Sun Gil Company        11-28-49     2,880.OO    Not Protested
           Oil Drilling Co.,
             Inc.                 11-29-49       480.00    Not   Protested
           Sun Oil Company        6-2-50         320.00    Not   Protested
           Brasos Oil & Gas Co.   10-7-50      1,664.OO    Not   Protested
           Sun.Oil Company        10-16-50     1,494.OO    Not   Protested
           Phillips Petroleum
             co.                  1 l-6-50     2.686.00    Not Protested
           Oil Drilling Co.,
             IUC.                 1 Z-4-50       480.00    Not Protested            4

            Superior Gil Company
             & Tidelands Oil.  i. .
             Corp.                12-5-50     35.040.00    Protested,
            Sun Oil Company       l-4-51       2;880.00    Not Protested

                “The above enumerated rental payments total
           $209.535.00.   which amount has been and is now held
           in suspense, and requests for refunds have been made
           in writing by two of the companies and inquiries have
           been made by other parties regarding the refunds of
           these rentals.

                “On January 28, 1950, Sun Gil Company tendered
           under protest *a sum of $16.458.00 and on January
           26, 1951 tendered under protest the sum of $16.458.00
           for rentals on oil and gas leasss covering lands in
           Laguna Madre in litigation on appeal under Civil Action
           No. 614. This total of $32,916.00 has been and is now
           held in suspense, and I have been requested by letter
           dated March 21, 1951. to refund these rentals to Sun
           Oil Company in light of the case styled, The Ohio Com-
           pany, et al vs. Bascom Giles. et al, 235 SW~2d 630.                      V
.




    Hon. Bascom Giles, Page 3; V-1204                 -’


        Motion for Rehea,ring on which was denied February
        5, 1951.

             “It is necessary that I have your official legal
        opinion as to whether or not these payments. should
        be refunded, as1 have requests for refunds pend-
        ing in this office.”

             The above rental payments were placed in a. suspense
    fund by your department under Article 4388, V.C.S., which pro-
    vides:

               “The State Treasurer shall receive daily from
         the head of each Department, each of whom is specif-..
         ically charged with the duty of making same daily, a
      .; detailed list of’all persons remitting money .the ‘status
         of which. is .und.etermined or which is awaiting thentime
         when it can ,fiqally be taken ,into, the Tre,as.ury..:togeth-:
         er with the actual remittances which the, Tieasurer.           X
         shall cash and place in his vaults or in legally author-
         ized depository banks, if the necessity arisesi .The .‘~:.
         report f,r,om the General Land Office shall include all
         money for interest, principal and.,leases of school,--
         university, asylum and other lands. A deposit receipt
         shall Abeissued- by, the Comptroller for the daily total
         of such r,emitt.anc.es from each Department; and .tlie . .. ‘.
         cashier of the Treasurer*s Department shall keep a
         cash book, .m be called, ‘suspense .cash book,..! in which
         to enter these deposit receipts,, .and any~others: is~sued :
         for ashreceived     for w&h no deposit warrants can
         be issued, or when their. issuance is del,ayed, *As soon
         as the status of money $0 placed with the Treasurer. ‘..
         on a deposit receipt iS determined, it shall be trans-... .
         ferred from the suspense account by placing the por-
         tion of Xbelonging to the State in the Treasury.by the
         issuance of a deposit warrant, and the part found, not..
         tobelong to the State shall ,be,refunded. When deposit’.
         warrants are issued,, they.shall be entered in this cash.
         book, as well as any refunds,. and the balance shall se-,
         present the aggregate :of the items still in suspense.
         Refunds shall be. made in a manner similar to that in
         present use, except that.separate series, of warrants,.
         shall be used for~m.aking~such refunds, to.bp.called
         ‘refund warrants,’ and such warrants shall be written
.




    Hon. Bascom Giles. Page 4, V-1204


        and signed by the Comptroller and countersigned
        by the Treasurer and charged against the suspense
        funds to which they apply.   Such warrants shall then
        be returned to the Comptroller and delivered by him
        to the person entitled to receive them.”

              The question of whether money held in suspension under
    Article 4388 can be recovered where the payment was not under
    protest, even though unlawfully exacted, does not appear to have
    been passed upon by the Texas courts. See Daniel v. Richcreek,
    118 S.W.2d 935, 937 (Tex. Civ. App. 1938). an appeal from an
    interlocutory order appointing a receiver of a fund deposited by
    the Texas Racing Commission in the suspense account of the State
    Treasury under Article 4388.     It was stated in the argument in
    that case before the Court of Civil Appeals “that the Treasurer
    and Cqmptroller would contend, upon the merits of the case, that
    the fees Eollected   by the Commission from jockeyg were volun-
    tarily paid, or in any event without protest, and therefore could
    not be recovered by those paying them, however illegal might
    have been their exaction.” Although the Court was not required
    to pass upon this question on the appeal on the merits,,having de-
    cided that the fund was not public in character and that the State
    had no interest therein, the Court indicated that a voluntary pay-
    ment of money held in suspension under Article 4388 might bar
    recovery.    Daniel v. Richcreek. 146 S.W.Zd 206 (Tex. Civ. App.
    1940, error dism.. judgm. car.).    The Court said:

              “If the Commission, acting under a presumed
        authority, had attempted to levy an excise tax or privi-
        lege fee for some public purpose connected with the
        act or otherwise, the question then would arise whether
        such taxes or fees might thereafter be recovered by
        those voluntarily paying them. It is at least plausible
        that recovery would be denied under the provisions
        of Art. 4388, since the payments were not (by those
        making them) deposited in the treasury suspense ac-
        count under protest as provided in that article.   See
        Rainey v. Malone, Tex. Civ. App.. 141 ~‘S.W.Zd 713.
        . . .” (146 S.W.2d at 208.)

             However, we do not find it necessary to pass upon that
    question in this opinion, since we think it is clear that the rent-
    al payments in question were made involuntarily.
.   .




        ohm. Bascom Giles,     Page 5, V-1204


                 Article   5372, V.C.S.,   provides that

                  “If any person, firm or corporation. . . shall
            fail or refuse to make the payment of any sum with-
            in thirty days after it becomes due, . . . the rights
            acquired under the . . . lease shall be subject to
            forfeiture by the Commissioner, and he shall forfeit
            same when sufficiently informed of the facts which
            authorize a forfeiture, and the oil and gas shall be
            subject to-sale . . .”

                  As stated in the brief for the State in Ohio Oil Co. v.
        Giles. 235 S.W.Zd 630 (Tex. Sup. 1950). “it is and has been the
        uniform interpretation and practice of the Commissioner of the
        General Land Office and his predecessors in office that the stat-
        utory order of forfeiture is required to be entered upon the
        failure of a lessee to pay the stipu‘lated rentals within 30 days
        of the date provided in the lease. . . . This interpretation and
        practice is generally known among les~sees of the State, and was
        generally knawn at the time the instant leases were offered and
        awarded.“1 Thus, “the lessees had to pay the rentals in order
        to keep the leases in force.” Ohio Oil Co. v. Giles. supra, ,at
        636.

                  The rentals having been paid under an express or im-
        plied threat of forfeiture of the leases, we think the rule most
        recently discussed by the Supreme Court of Texas in Crow v.
        City of Corpus Christi, 146 Tex. 558, 209 S.W.Zd 922 (1948),is
        applicable.   In permitting a cab company to recover certain
        fees paid under an invalid ordinance, which fees, although paid
        to the city without protest, would, not~have been paid exsept for
        clauses in the franchise ordinance providing for cancellation of
        the franchise for nonpayment, the Court said:

                 “The early common-law doctrine of duress has
            been expanded (17 Am. Jur., p.875) and many courts
            have adopted the modern doctrine of ‘business com-
            pulsion,’ under which ‘it is established that where by
            reason of the peculiar facts a reasonably prudent man
            finds that in order to preserve his property or pro-
            tect his business interest it is necessary to make a

             lf Reply to Relators’ Brief in Support of Motion for Leave
        to File Petition for Writ of Mandamus, p. 17.
.   .




        Hon. Bascom Giles, Page 6, V-1204


            payment of money which he does not owe and which
            in equity and good conscience the receiver should
            not retain, the payment may be recovered.’ 40 Am.
            hr., p. 831. A view similar to that of ‘business
            compulsion’ has been taken by our courts in cases
            involving the recovery of illegal taxes or fees; and
            ‘it is immaterial to the right of repayment,’ in the
            absence of statutory provision to that effect, ‘wheth-
            er or not an illegal tax is paid under protest.’ Na-
            tional Biscuit Co. v. State, supra; Austin Nat. Bank
            v. Sheppard, 123 Tex. 272,, 71 S.W.Zd 242; Cooley on
            Taxation, Vol. 3 (4th Ed.), p. 2566.” (209 S.W.2d at
            924.)

                 In Texas Power & Light Co. v. Doering Hotel Co..147
        S.W.Zd 897, 905 (Tex. Civ. App. 1941). aff. 139 Tex. 351,. 162
        S.W.Zd 938, this rule is stated as follows:

                 Y
                  . . . But where the payee has the power to en-
            force such payment, or on failure to pay, to work
            great financial loss, business disadvantage, or ir-
            reparable injury to the payor, duress occurs. even
            though it be not actually attempted to be exercised.
            Appellant had the power, under its contract with
            Doering. to cut off his service for nonpayment of its
            ~demand, and thus paralyze his business.   Nonpay-
            ment by him necessarily invoked that potential ha-
            zard. In such case, the Supreme Court has held in
            Austin National Bank v. Sheppard, 123 Tex. 272, 71       :
            S.W.Zd 242, and in National Biscuit Co. v. State,
            134 Tex. 293, 135 S.W.2d 687, ,692, that in the face
            of such existing power, payments so made are made
            under implied duress even though the payor did not
            make them under protest. See, also, Edwards v. Wil-
            liams, Tex. Civ. App., 93 S;W.Zd 452; Ward v. Scar-
            brough, Tex. Corn. App., 236S.W. 434. . . .*

                 See, also, Dale v. Simon, 267 S.W. 467 (Tex. Comrn.
        APP. 1924). and Kenyon v. United Salt Corp., 129 S.W.Zd 402 (Tex.
        Civ. App. 1937). in which it was held that money unlawfully obtain-
        ed could be rec:overed as having been paid under duress where the
        payment was made under a threat to declare a forfeiture of the
        lease, which could have been done without resort to the courts.
Hon. Bascom Giles, Page 7, V-1204


          In the light of the above cases, it is our opinion that
all of the rental payments listed in your letter are subject to re-
fund under Article 4388 if they were unlawfully collected from
the State’s lessees.

         The determination of the status of moneys held in sus-
pense undoerArticle 4388 is primarily a matter for the courts,
unless the Treasurer and Comptroller voluntarily assume the
responsibility of making such determination.  In Daniel v. Rich-
creek, 118 S.W:2d 935, 937, the following was said with refer-
ence to refunds under this article:

          “The fund was placed in the ‘suspension ac-
    count’ of the Treasury by state officials acting under
    Art. 4388, and can only be drawn out of said .account
    when and in the manner prescribed by said Article,
    -- that is: ‘as soon as the status of money so placed
    *** is determined,’ when it shall be.transferred,, if
    belonging to the state, by deposit in the Treasury, and
    if found not. to belong to the state to be. ‘refunded.*
    In either case the method is by warrant signed by
    the Comptroller and countersigned by the Treasurer.
    The Article is explicit in ‘requiring the ‘transfer, to
    be made ‘as soon as’ which necessarily implies ‘not
    before’ the ‘status’ of the money is ‘determined.’
    Clearly the word ‘status, inciudes-every ess.ential
    fact to its proper disposition, from the viewpoint
    of the Treasurer, its then custodian, . . . . . .

          “Under the Article no rightto demand the money
    from the Treasurer could properly be asserted until
    its ‘status’ is ‘d,etermined.’ There can be no s,erious
    question but that ‘determined in the sense of the Arti-
    cle means judicially determined. In any event, such
    is its necess.ary meaning where .tbe Treasure~r and
    Comptroller, each of whom must act to effectuate !a
    transfer of the money, do not voluntarily assume the
    responsibility of making such determination.     To com-
    pel their action a judicial proceeding is essential,
    and this means a plenary and not a mere interlocu-
    tory proceeding.,,

         The rightof the State to collect rentals during the pen-
dency of litigation relating to the validity of such leases or the
Hon. Bascom Giles, Page 8, V-1204


authority of the Land Commissioner to lease the lands covered
thereby was involved in the recent case of Ohio Oil Co. v. Giles,
235 S.W.2d 630 (Tex. Sup. 1950). That was an original man-
damus proceeding in which the Ohio Oil Company and Melben
Oil Company sought to compel the refund of $123,360 in rentals
paid tothe Land Commissioner and to require him .Yto recog-
nize certain mineral leases as valid and, subsisting, without the
payment or necessity to pay any rentals for the period during
which” the leases were involved in litigation. Article 542li.
under which Ohlo and Melben sought this refund, provides:

          “The running of the primary term of any oil, gas,
    or mineral lease heretofore or hereafter issued by the
    Commissioner of the General Land Office, which lease
    has been, ‘is, or which may hereafter become involved
    in litigation relating to the validity of such lease or to
    the authority of the Commissioner of the General Land
    Office to lease the land covered thereby, shall be sus-
    pended, and all obligations imposed by such leases
    shall be set at rest during the period of such litigation.
    After the rendition of final judgment in any such liti-
    gation the running of the primary term of such leases
    shall commence again and continue for the remainder
    of the period specified in such leases and all obligations
    and duties imposed thereby shall again be operative;
    provided such litigation has be,en instituted at least six
    (6) months prior to the expiration of the primary term
    of any such leases.,,

         The Court upheld Article 54211 insofar as it related to
leases executed after its enactment and said that this Article ,ke-
lieves the lessees of the obligation to pay rentals during the”
period of litigation. (235 S.W.Zd at 637. Emphasis added.) Writ
of mandamus was issued by the Court ‘“commanding Bascom Giles,
R. S. Calvert, and Jesse James’ to refund to relators the sum of
$123,360, the amount of rentals paid by relators to Bascom Giles
under protest oneNovember 7, 1949, for the ensuing year.,,

           However, the Court in the Ohio case did not pass upon
the question of whether the rentals ah     would have been due under
the leases but for their suspension by Article 5421i during the period
of litigation will become due and payable upon the termination of the
litigation. The Court merely held that the lessee was relieved of
    Hon. Bascom    Giles.   Page 9, V-1204


    the obligation to pay rentals during the period of litigation, find-
    ing it unnec’essary to decide whether Article 5421i forever re-
    lieves State lessees of the obligation to pay rentals~ -for the per-
    iod of litigation.

               In view of the opinion of the Supreme Court in the Ohio
     case, we are compelled to hold that the State had no right to=
     quire the payment of rentals under State leases during the per-
     iod that such lep.ses were involved in litigation re1ating:t.o their
     validity or.to the authority of thenLand~commissioner     to lease
     the land conveyed thereby.     The rental payments listed in your
     letter having been made during the period that the leases were
     involved in litigation within the meaning of Article 54211; these
     payments should be ~refunded.to’the lessees under Article 4388.
    .As you know, this office had previously differed yiith the .con-
     elusion reached by the Supr~eme Court kthe Ohio case; and we.
     so argued in the trial of that case, but the Co=     opinion is now
     binding and must beTfollowed.

              ‘This does not mean that the State does .not have the
J   right, if the lessees choose to hold the leases after thstermi-
    nation of the litigation involving the leases, to demand the pay-
    ment of the rentals which fell due’during the litigation but were
    suspended by Article 54211. As-above stated, the right of the
    State to collect such rentals at that time was not ~passed’upon
    by the Supreme Court in the Ohio case. It may be that if the
    title of the State to the “tide1and’~area.k   finally restored by
    congressional action, the .rentals on leases’ in that area can be
    recovered if the lessees elect to hold the leases.

              It is our opinion, therefore, that the rental payments
    listed in your letter should be refunded to the respective lessees,
    subject to the right of the State to require their repayment if the
    lessees elect to continue to hold the State leases after the termi-
    nation of the litigation involving the leases.

             For your guidance in the future, we call your’attention
    to Senate Bill 146 of the 32nd Legislature, effective June 15,
    1951, which clarifies Article 5421i by adding thereto the follow-
    ing:

              Y. . . Provided, further, that the lessee shall pay
         all annual delay rentals and any royalties which accrue
         during the period of litigation the same as during any
. .   .




          Hon. Bascom Giles,   Page 10, V-1204


              other period of the extended primary term. Such rent-
              als paid during the litigation period shall be held in
              suspense and returned to the lessee in the event the State
              is unsuccessful in any such litigation.”

                                   SUMMARY

                   Under the Supreme Court’s ruling in Ohio Oil CO.
              v. Giles, 2.35 S.W.2d 630 (1950), the State had no right
              to collect rentals from its lessees during the period
              that the leases were involved in litigation relating to
              the validity of ,such leases or the authority of the Land
              Commissioner to lease the lands covered thereby.
              Thes~e rentals, which were paid under an express or
              implied threat of forfeiture and which are now being
              held in suspense under Article 4388, V,C.S., should be
              refunded to the respective lessees, subject to the right
              of the State to require their repayment if the lessees~
              elect to continue to hold the State leases after the ter-
              mination of the litigation involving the leases.

                   Future payments of rentals will be governed by
             ~Senate Bill 146, Acts Stnd Legislature, effective June
              15. 1951. passed by the Legislature after the decision
             ip Ohio Oil Co. v. Giles. supra. which provides for
             their continued payment during the period of litigation,
             subject to being returned to the lessee in the event the
             State is unsuccessful in the litigation.

                                                  Yours very truly.

                                                  PRICE DANIEL
          APPROVED:                               AlhrneyGeneral

          Charles D. Mathews
          First Assistant

          Price Daniel
          Attorney General

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