                          AUU-I-IN11.Twx~n
                                     March 19,    1957

                                                                   .

Honorable     Earl Rudder
Commlasloner,      Qeneral    Land
       Office
Aua tin,   Texas
                        Opinion      No. WW-59
                        Re:    Authority    of the School Land
                               Board to reaclnd    Its action     in
                               accepting    a bld for lease of
                               school land when the acreage         la
                               found to be materially     different
                               from that stated     In the adver-
                               tlaement   for blda and related
                               ques tlona .
Dear Commlsaloner       Rudder:
             Your letter     of February        25, 1957, requested     our
oplnlon. on four questions        relating       to mineral    leasing  by
the School Land Board.        .Becauae     of    the rather    unuaual  fact
situation    Involved    and Ita bearing         upon our opinion,     your
letter    is set forth    almost in its         entirety    at the beginning
of this opinion:
          .~~“On October 24, 1956, the School Land Board
      authorized    advertlalng      for 011 and gas lease.
      among other land,       a tract    described    a8 Tract a,
      Aranaaa River,     San Patrlclo       and Refuglo Counties.
      The .tract~ wae advertlaed        aa containing      approx-
      imately    210 acrea and on the basis          of a l/6 royal-
      ty, $3.00 per acre annual rental             and a minimum
      bonus of $15.00 per acre.           This action      by the
      Board waa under the provieiona            of Article     542lc,
      V.C.S. and othe,r applicable          laws.
             “Purauant   to the advertleement,     bids were
    ’ received    on December 4, 1956 and the high bid
    o on the tract here involved       waa $87,000.00.     At
      the aame time the bidder      aubmltted   a separate
      check in the amount of $870.00 ,ln payment of the
                                                                                   ’   .




        Honorable      Earl   Rudder,     page    2 (No.WW-59)



        Special   Sale Fee ;,requlred      by Article    5382d-1,
        V.C.S.    The   high bid on   this   tract,   aa  well a8
        other high bids,     was accepted      by the Board at
        a meeting    held on December 12, 1956.
                “Immediately   after   the acceptance    of *the
        bid by the Board, the $87,000.00          waa cleared
        to the Permanent      Free School Fund and the $870.00
        was cleared     to the Special    Fund provided     bi
        Article    5382id-1.
                  “After   this   time, but before        a lease was
          issued,     I waa lnSox?ied. by the bidder            that there
         was some doubt as to the State’s               title      to the
         ,tract    and further      that there    apparently        was con-
         sldizrably’ ,lesa acreage         in the tract       than the ad-
        ‘vertlsed      210 acrea.        Based on this Information,
          I verbally     advised      the bidder    that I would wlth-
         hold the Issuance          of a lease    until     further     lnvestl-
         gation,could        be made.      The lease has not yet been
          Issued.         ‘~ ’
                “The bidder      has now submitted        evidence    to
        the Board In the form OS a. survey ,oS the tract
        which shows It to contain              54.97 acres as com-
        pared to. the advertised            acreage   of,210    acres and
        has’.requeated       the Board to reconsider          and rescind
        its action        of December 12, and refund his money
        to him.
                         . .
                “As noted above,         the payments made.have         bee;
        cleared      to the funds provided          by law ahd cannot
        now be &funded          by this office.        It. happens in
        this case,        however,    that the’ bidder .la making
        payments       on other leases        in the ,Sorm.oS royalty
    .   payments’which         amount to approximately          $8,500.00
          er month;:       These r,oyalty’ payments.;:: like the’
        ! 87.000.00       payment,    sre depos1ted.M        the State
        Treasury.      to ,the credit      of the Permanent. School
        Fund..        :’
                   ., ‘.                                                 :
                11. . . .                 ,.~.          ! ;             I,

        ,I*; :r ?ir vi&w> of. the .Soregolng’     Sac ta .and” c$rcum-
1       stsnces , your, ~offlclal       opinion   18: requested      on the
        follblng     ‘gtiatlona  :~‘..-                    .    ,,,,
                                                        .‘. ..,
                lb    Does the     Sciiibbl Land Board have the
.1   ’




         Honorable     Earl   Rudder,   page      3 (No.WW-59)



                authority to rescind        Its action In accepting
                ;;; E;MYon,December        12, 1956 and now reJect

                       2.   If your answer to question      number 1
                la In the afflimatlve,        can I legally  credit   the
                bidder    on othet    payments he la now’maklng on
                other leases     uqtll   such time as thi? ~87,000.00
                payment la absorbed?

                       3.    IS your answer to question    number 1 la
                In the affirmative,      can I legally  credit   the
                bidder    on payments he might make on Suture lease
                salea   until   such time as the $870.00 payment la
                absorbed?
                      4.  IS your answers   to questions    riumbers
                2 and 3 are In the negative,      la there  any other
                way the bidder   can secure   a refund   of the pay-
                ments he has made?”
                       The questions     will      be   answered   separately   and in
         the   order   propounded.
                                             1.
                      It Is apparent        that a mistake       OS Sect has been
         made by both the School Land Board and the bidder.                       The
         Board advertised       for lease a tract          of approximately       210
         acrea.   The bidder       calculated      his bid upon such acreage.
         It was not until      s.ometlme later        that the mistake      was dla-
         covered  and the actual         acreage    content    of the tract       to be
         leased was determined;           This situation       la outside      the
         scope of Article      5421c, Vernon’s          Civil  Statutes,     as the<’
         statute  did not anticipate           nor provide     for reclaalon       by
         the Board;     Neither     does this article         prohibit    such
         action.    It Is simply silent           In this regard.
                      Ample authority     la Sound, however, for the basic
         premise   that till State    agencies   must deal fairly    and
         equitably    with those with whom they transact        business.
         That the State must do equity         la evidenced   by the Sollow-
         ing language     from State   v. Bradford,     121 Tex. 515, 50 S.W.
         2d 1065 (1932):
                 1     “The State has e right to exact strict
                obedience   to Its laws and Constitution,    but
                it should also be the policy    of the State   to
‘r,4i8     Honorable    Earl    Rudder,    page 4 (No.WW-59)             ,,



                 deal,Salrly       with those uho, In good faith,
                 have. accepted‘lta         offer    to purchase     public
                 lands upon terms fixed by the State.                   That
                 It Is the public          policy    of ,the State    to deal
                 fairly     with those viho have purchased            Its
                 public     landa and for some reason have not
                 received      the.correct       acreage    so purchased      ’
                 and conveyed,         the Legislature       enacted    Article
                 5411, R.S.1925.          . . .*
                      Equity   requires    that relief    be granted   when one
           party  Is injured   by an agreement     entered   Into through   a
           mutual mistake    as to a material     fact.    This principle   has
           always been recognized       by Texas courts.
                           “That a contract       may be entirely          rescinded
                  upon the ground of mutual mistake,                   as well aa
                  for fraud,       la well settled.           In such cases,
                  where the parties         auppoee they are bargaining
                  with reference         to specific      property      which they
                  have In mind, when In fact It either                   does not
                  exist     or Is materially        different       from what they
                  believed      It to be, it la very evident                that
                  their     minds have not met and concurred                 so as
                 ‘to constitute       a contract       as to the real subject
                  matter,     as it Is afterwards           ascertained        to be,
                  and that the conveyance            of the property           as It
                3 really     exiata    (though    lt may be Identified            as
                   therein    described)      does not evidence           the true
                  Intention       of the parties       In making the con-
                   tract.”      Pendarvis     v. Qrax, 41 Tex. 326 (1874).
                         It Is irue    that aome diligence.      on the part of con-
           tracting     partlea   ia required,    80 that mlatakea       will not be
           made.      However, a party making an actual          misrepresentation
           of fact,     even though made In good faith,          cannot prevent      a
           recovery     by the Injured     party  simply by saying       that the ln-
           jured party was negligent          in not discovering      the mlsrepre-
           sentatlons      as they were made.       Host v. First     National     Bank,
           247 S.W. 637 (Tex.Clv.App.1922)           affirmed    259 S.W. 923.
                      The Courts have glven some criteria          by which to
           measure the .occaslon  when the mistake        Is OS such conse-
           quence as to require   equitable     relief.     The baalc require-
         4 ment Is that the surplus     or deficit      so greatly  exceed the
Honorable    Earl   Rudder,     page   5 (No.WW-59)



amount of land contemplated       that such error,     IS known, would
have material1   Influenced’    the contract.      g’Connel1  v. Duke
29 Tex. 299 (1867).      The following    caaea cite specific    ex- ’
ample3 of errors  oalllilg’ for relief.
             O’Connell     v. Duke, supra - 348 acrea           excbas    over
                           750 acres called.
                                   , 6 S.W.2d    143 (Tex.Clv.App.,l928)
                              02 acrea ahort     out of 2,000 called.
             Hobertz     v. Dunhaq   224 S.W. 549 (Tex.Clv.Ap
                           1928) 54.55 acres short  out of 33 E ‘&x-es
                            called.
             Cox v. Barton,     212 5.w.652    (Tex.Comm.App.1919)
                        16 acres short      out of 100 acres
                        called.
             Because of the existence       of a mutual mistake      of fact
as to the ! land available      for leasing    by the School Land Board,
a gross mistake      of 155.03 acres short      out OS 210 acres called
for, there was obviously        never a meeting     of the minds as to the
real subject     matter  of the lease     to be awarded.      For this rea-
son, It la our opinion       that equity    not only permits,     but re-
quires,   the Board to rescind       Its action    In accepting   the bid
and now reJect     the same ss requested       by the bidder.
                                        2.
           Your second question     suggests      that other obllga-
tlona of the bidder    to the Permanent      Free School Fund be
credited  as they came due until      the consideration      he has paid
for the lease   that 1s not to be Issued        la absorbed.    We are
of the opinion    that such procedure    cannot legally      be accom-
pllshed.
              The retention       of the $87,000.00      tendered    by the
bidder,    without     the awarding      of the lease,     creates   an ln-
debtedness     on the part of the State          In Savor OS the bidder.
This Indebtedness         la to be retired     by offsetting       obllga-
tlona of the bidder          as they accrue.       There la no assurance
that these obligationi          will   Sully offset     the lndebtedneaa,.
nor Is the rate of this retirement              of lndebtednese       certa’ln
or necessarily        constant.      Retaining    the consideration        wlth-
out aw$rdlng       the lease wohld simply place the State              In debt
    270
             Honorable    Earl    Rudder,   page   6 (No.WW-59)



             to the bidder,     regardless      of what provlslons         are made for.
             the retirement     of the State’s       Indebtedness.         Such action
             prohibited    by Article      III,  Section    49 of the      Texas Cons tl
             tlon,    which reads,    In part:
        ,.
                        “No debt shall       be created by or ‘ofi be-
                 half of the State,         except     to supply    oaaua~
                 deSlclencles       of revenue,      repel   lnvaalon,
             . * suppress     Insurrection,       defend the State       in
                 war, or pay existing          debt;     . . .’
                            While It la true that thla constitutional                provl
             allows     the creation      of a debt to pay existing           debt,  It Is
             felt    that the obligation         of the State       to return the bldde
             money la such a debt as la contemplated                  by this section.
             Historically,       the debts spoken of In this manner were exr
             of the revolutionary          struggle     with Mexico, expenses        of gc
             ment generally        and deficiency        appropriatiOn3     for salary     E
             other operating        expenses     of the State.        The tender    of a t
             by a lease bidder         can be returned         In the manner dlacuasei
             answer to your fourth           question     and does not create       a debt
             within     the meaning of this         constitutional      provlalon.      The
             Sore, we are of the opinion              that the anawer to your secor
             question      must be ‘In the negative.

                                                        3.
                          Your third   question   Is Identical          with your sect
             except   that a different     fund la involved.            THe same reaal
             applies,    however,   and your third   question          must also,  In 1
             opinion,    be answered negatively.
                                                        4.
                           Your fourth        inquiry     la directed    at a method of
             turning    the bonus to the bidder              IS the bid can be redect
             In our opinion,         this may be accomplished           by following     th
             procedures       outlined     In Article       5411a, V.C.S.     This artic
             was passed to cover exactly               such altuatlona      as this.
             State,                      supra,       The caption     of the Act shows
             clear   lenislstlve        Intent    In this resoect.        Acts 49th Len
             R..i. +945, ch. 145, p. 190.

    4                        Because of the special    nature        of the Permanent
             Free   School     Fund with Its Constitutional           protections,   SC
,
     .
.        *
 :       b
                                                                                            :c’;/ I
             Honorable     Earl   Rudder,    Page 7 (No.WW-59)


             In Article   VII, Sections    4 and 5, the application    of Ar tlcle
             5411a to this fund must be made In view of these protective
             provls Ions.    The pertinent   portions  of the sections   are
             as follows :
                            Section    4.   “The lands herein    set apart
                    to the Public Free School Fund, shall           be sold
                    under such regulation,         at such times,    and on
                    such terms aa may be prescribed           by l&wi and the
                    legislature       shall  not have the power to Grant
                    any relief      to purchasera    thereof.   . . .
                          Section    5. '. . . And no law shall      ever
                    be enacted    appropriating     any part of the permanent
                    or available     school    fund to any other purpose what-
                    ever;   . . .”
                            Both of these sections            are aimed at protecting          the
              established       fund.      They prohibit      appropriations       of parts    of
              the fund for any purposes              save those specified         In the Constl-
              tiltion.     But for moneys to partake             of these protective        sanction@
              they must actually            be a part of the fund.           A contlnuPng    appllca-
              tlon of the equitable            requltiments      laid down In State        v. Brad-
             ford,     aupra,     discloses      that the bonus paid by the bidder was
              In good faith,          but nevertheless       erroneously,      placed    in the
              School Fund.          It should not have Eeached            the fund, for there
              was no meeting          of the minds sufficient          to give rise      to a con-
              tract    obligating        the bidder     to tender    a bonus.       In the eyes
             ~of equity,       this money was never actually              a part of the fund.
                           In all oases we have Sound where these two protective
             clauses     were Invoked In behalf         of the fund, It was never ques;
             tloned     but that the moneys or land Involved            had clearly    become
             a part of the fund.           These cases struck     down attempts     to
             relinquish      mineral    rights    to the surface    owners of lands
             dedicated      to the fund, reduce Interest         rates ‘on purchase     in-
             debtedness,      appropriate      moneys to other     than school purposes,
             etc.     They never dealt        with the situation      where the recovery
             aought was for moneys or land not properly                a part of the fund.
                          Equity   requires     the action    of the Board be rescinded
             and the bid rejected.          Equity    also requires  the bonus erroneous-
             ly placed    In the Permanent        Free School Fund be recognized     as
             not actually     a part of the fund at all and thus subJect           to re-
             fund under the provisions          of Article    541la.  Honeys paid
             by the bidder      and erroneously       placed  In the Permanent  School
             Fuhd or In the Lease        Sales Fund may be refunded       to the bidder
                                                                                .,      .


Honorable         Earl   Rudder,.page     8 (No.WW-59)


by an appropriation  authorized by Article     +lla,   such appro-
priation  being baaed upon the bidder’s    application    for relief
to the Claims and Aocounta Committee of the Legislature.

           ‘I‘7:., >                    ,suMMARy
         ., I
                        1.    The School Land, Board has the *
                authority      to,resclnd Its action  In accep~t-
            ~,, lng the b/d on December 12,19.56, and now
                reject     the bid.

             ‘,           2.    The Board cannot legally    credit  the
                   bidder     on other .payments   he la now making on
                  .other    leases   until  such time as the $87,000.00
                   payment la absorbed.

                         3. The Board cannot legally   credit   the
                  bidder   on payments he might make on future
                  lease   sales  until such time as the $870.00
                  payment la absorbed.
                        4.    The bidder can secure          a refund of
                  the payments he has made under             the provisions
                  of Article    5411a, V.C.S.,  after          approprla-
                  tions   have been made therefor.
                                                   Yours   very   truly,
                                                   WILL WILSON
                                                   A,ttorney General

                                                   By   &-+         *                ‘pw)
APPROVED:                                               Robert E. Anderson
                                                        Asalstant Attorney    General
OPINION COUMITTEE

H. Orady       Chandler
               Chairman

RE%:bt


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