                            OF        EXAS




Honorable William S. Heatlg                  Opinion Ho. M-347
Chairman, AppropriationsCommittee,
House of Representatives                     Rer Validity of House Bill
Capitol Station                                  No. 232 concerning pro-
huetln, Texae 78711                              voaed legislationwhich
                                                 Gould priivldethat all
                                                 mlneral leaeee, rental8
                                                 and bonuses on public
                                                 sahool lands and 72-l/2$
                                                 of all oil and gas kroyal
                                                 tier on such land be de+
                                                 posited to the available
                                                 school fund and be made
                                                 available  for curren$
                                                 tspendlng by the Legie-
Bear Mr. Heat ly t                               lature .
          You have requested our opinion on the validity of House
Bill No. 232 of the :61& Leglrlature.  Se&ion  1 oi’House Bill No.
232   provider   x

             “Sactlon 1. All money8 received by the state
       as mineral leaw and proepeot bonuee8,and rental&
       and 72-l/2 percent ot the royaltlea     under a leaae
       of publlo whoa1 land8 and landr which are a part
       of the permanent rohool fund executed Sor the pur-
       po8e of mlneral exploration and develowent,       ahall
       be deposited to the available     eohool fund.   The re-
       maining 27-l/2 peroent of the royaltlea     received
       by the state    ehall be deposited to the permanent
       echool f’und . ”
            Section 2 o? Article VII of the Con8titutlon   of Texa8
eetabllehed   a permanent eohool fund by dedicating   landa to the
fund and further provldlngr
                    .and all mum of Monet .that may oome
       to the’siate    rroln tne eale or any portion of
       %a same, ehall conatltute a perpetual public
       school find.” (Nmpharlxx      added. )

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Hon. Wlllluu 9. Heatly, page 2 (R-347)



           Section 4 of Article VII of the Constitutionof Texas
provides that land set apart to the permanent school fund:
           II
            . . .ahall be sold under such regulations,
     at such times, and on such tei?msas may be pre-
     aoribed by law . . .”
          Although Section 2 of Article VII of the Constitution
of Texas had already provided that ,moneyreceived from the sale
of any portion of the land set apart for the schools of the State
ua8 to oonetitutea perpetual school fund, Sectlon 5 of Article
VII of the Constitutionof Texas reiterates this view In the fol-
lowing language:
          ‘The principal of all bonds and other f’unda,
     and the prlnolpal arising from the sale of the
     lands hereinbeforeaet apart to said acbool fund,
     shall be the permanent school:-fund. . .
          Section 5 of Article VII of the Constitutionof Texas
further provides that:
          I,     no law shall eve&be enacted appro-
     prlatl&‘&    part of the per&ent or available
     school fund to any other purpose whatever . . .n
          Thus, by vi&&of    the p~ovislons of Sections 2, 4 and.
5 of Article VII of the-$onetitutionof Texas, all proceeds arl-?
sing frcm a sale (or mineral lease) of any part of the land
dedicated to the permanent school fund must be deposited In the
permanent school fund, acisuch fund is constitutionallyprotected.
From 1891 until Islfs4,
                      one percent (1%) annually of the total
value of the permanent school fund could have been transferred
to the available school fund; however, this authorizationto
transfer was removed with the adoption of the amendment to Sec-
tion 5 of Article VII of the Constitutionof Texas (SJR No. 6
of the 51st Legislature,Regular Session, adopted November 3,
1964.). Subsequent to that date, no part of the permanent
school find is authorized to be transferred. It Is well settled




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Hon. William S. Weatly, page   3 (M-347)



execution of a lease Includes in a$dltlon to any bonus and
delay rentals, the a reed royalt      Kounty v. Kirby Lumber
       153 P.2d 695 75th Clr. 19t6), cert.,den, 529 U S 713
            Stanollnd 011 & Gas co., 125 S.W.W 643 (T&.Clt.
                   ef.); Ehllnger v. Clark, 117 Tex. 547, 8

          nrrthermore,It was held that the lands Included In
the dedicathnto the permanent school fund became a part of
such fund and the Legislature thereafterwas, and Is, precluded
from a disposition of this land except as authorized under this
Constitution. Eyl v. State, 84 S.W. 607 (Tex.C:lv.App. 1904,
error ref.).
          In construing Sections 10, 11, 12 and 15 of Article
VII of the Constitutionof Texas, (said sections being similar
in nature to Sections 2, 4 and 5* but pertaining to the permanent
University fund), the Texas Supreme Court In State v. Hatcher,
       has answered the question here presented in holding un-
cons ltutlonala like attempt to direct royalty income from
=Y?
the permanent University fund. We quote, In part, from the
opinion of the*,SupremeCourt in the case of State v. Hatcher,
supra:        I,
          "Our view of the situation presented In
     this case coincides with the views of the Su- ')
     prem? Court of Wyoming, as ahown by Its opinion
     in the case of State v. Snyder, 212 P. 758, 29
     wyo. 163. We quote from that case as follows:
         1)
          1      011 and gas, while in situ, are
     part of ;hi realty; part of the corpus of the
     land. When a portion of It Is taken away> the
     proceeds necessarily arise out of the corpus, and
     it 1s humanly lmpossibIe to change that slanple,
     plain9 physical fact. . . . Whether the 011 be
     taken out of the ground pursuant to a license,
     lease, sale, or any other grant,;or without any
     authority whatever, could not In the slightest
     degree affect the physical fact that it comes
     from the corpus of the land. If taken and dls-
     posed of at all, the effect Is clearly a per-
     manent disposition of that much of the corpus,
     the principal, of the land, and, irrespective
     of the authority pursuant to which that Is
     donep the proceeds must go to the beneficiaries
     according to the rights existing between them--
     In this case to the permanent fund to which,
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Hon. ldllllamS. Neatly, Page 4 (M-347)


    according to the intention of the Constl-
    tutlon, the corpus of the property Is dedl-
    cated--andwe can by no subterfugetake It
    therefrom by.simply saying that royalties
    are rents.’
         “This Wyoming case bears a striking   resem-
    blance to the case at bar. . . .
         8,
          . . .
         “American courts, as shown in the opinion
    in the Wyoming case, supra, follow the English
    hold.lngthat minerals are a part of the soil and
    when once removed are gone forever. In other
    words, there Is a final and permanent taking of .
    a portion of the Lm
         1,
          . . .
         “Being theroughly convinced that the royal-
    ties from University lands are a part of the
    permanent fund of that institution,we think they
    should be placed there, and thereafter Invested
    according to the express provisions of our state
    Constltutlon. We think the Act of April 3, 1925,
    in ‘&o’
          far as St affects ‘the’
                                qu&stlon he+eiti
                                               ‘dM-
    cussed, contravenesthe Constitutionitself, and
    la therefore null and void.”
          Article VII, Section 6 of the Texas Conatitutlonla
similar In nature to Sections 2, ,4and 5 (the permanent school
%‘u& and Sections 10, 11, 12 and 15 (the permanent UnlverM.ty
    1 but pertazna to the county permanent school fund. At-
tornei Oeneral Oei?aldMann In construingArticle VII, Section
~,o;~;E Constitutionin his Opinion No. O-4933 (1942) stated

           “Second,we presume that the county followed
    Article 5400a, Vernon’s Annotated Civil Statutes,
    in making the mineral leases.’ We are of the opir.-
    Ion that the ‘delayrental’ under the mineral lease
    should go into the permanent school fund and not
    the available fund. This Is necessary because of
    the nature of a mineral lease. ‘By the great weight
    and majority of the decisions of Texas Courts, the
    ordinary  form of oil and gas lease is not,a lease
    at all; on t&e contrary, It 10 a conveyance of an
.   .




Hon. William S. Heatly, page.5 (w-347)


    interest In land and, as such, operates to sever
    this mineral estate from the surface.’ 31 Texas
    Jurisprudence5'74-5~6~Section 39. -Tf)e_instant
                                                  _ .
    an 011 and gas lease is executea ana aellverea the
    lessee beoomes the ownersof the minerals in place
    and subject to be’taxed therefor. Stephens County
    v. Mid-Kansas Oil and Qas Company, 113 Texas 160,
    254 S.W. 290. The ‘bonus’or ‘rentals’ which,the
    lessee pays are as much a part of the proceeds of
    the sale as the ‘royalty’and under Article 7,
    Section 6 of the Texas Constitution,the entire
    considerationfor the sale constitutesa trust
    for the benefit of public schools and must be
    placed In the county permanent school fund.
    T&lsen vs. Robison, 117 Texas 489, 8 S.W.(2d)
       .
          “We, of course, hold that the royalties should
     also be deposited In the county’s permanent school
     fund.”
          In view of the foregoing authorities, it Is our opinion
that anything which the state receives, in whatever form, In
conalderationof the oil taken or to be taken from the dedicated
lands constitutesa part of the purchase price for the sale of
such land or a portion thereof, and therefore such proceeds
must be placed In the permanent school fund.
Stanollnd Oil & Qaa Co r supra, 125 S.W.2d 643f%%'!?=
         Therefore, House Bill No.,232 If enacted, would be
in violation of Sections 2, 4 and 5 of Article VII of the
Constitutionof Texas.
                    SUMMARY
         House Bill No. 232, which provides that all
    mineral leases, rentals and bonuses on public
    school lands and 72-l/2$ of all 011 and gas royal-
    ties on such lands be deposited to the available
    school fund, if enacted, would be In violation
    of Sections 2, 4 and 5 of Article VII of the
    Constitutionof Texas, for the reason that the
    same constitutesa sale of a part of the corpus
    and, as such9 the proceeds are required to be
    placed in the permanent school fund, rather than
    the available echo01 fund. State v. Hatcher, 115
    Tex. 332, 281 S.W. 192 (1926').

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Hon. WIIWWI S. Heatly, page.6 (~-347)




                                   ORD C. HARTIN
                                   nay General of Texas
Prepared by John Reeve8
Aeeistant Attorney Qeneral

APPROVED:
OPINION COMHXTTEE
Kerns Taylor, Cihairrmpn
George Kelton, Vice-Chaliman
Houghton Brownlee
Alfred Walker
Harold Kennedy
Pat Bailey
John Banh
W. V. QEPPERT
Staff Legal Astaistant




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