Case Information
*1 OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
GERALD C. MANN ATTORNEY GENERAL
Honorable A. D. Lauth County Attorney Farmer County Farrell, Texas
Dear Sir:
Opinion No. Q24933 The: Construing Article 7, Section 6 of the State Constitution with reference to "delay rentals" received by county from oil and gas lease on county school land.
We acknowledge receipt of your letter of October 14, 1942, reading as follows:
"I would appreciate very much for you to give me your opinion as to the correctness of procedure of the Commissioners Court of Farmer County in the following three instances:
"Farmer County still owes three of the four leagues of school lands granted to Farmer County for its Permanent School Fund.
The Commissioners Court has leased the entire three leagues to a ranch company for grazing purposes. The annual rental from this grass lease is being transferred to the County Available Land and is being distributed to the various school districts in the County on a schoolable basis.
"SECUND: The Commissioners Court has leased one and one-half leagues to a petroleum company under a standard Gas, oil and minerals lease agreement. Under this lease, the leaseg agrees
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Eonorable A. D. Smith, page 2
to pay the County an annual delay rental of fifty cents per acre. The lessee has not, as yet, drilled for oil or gas and has not renoved from the land any oil, gas or any other minerals and may never do so. Under Article 2825 Civil Statutes of Tebae, the Comnissioners Court proposes to appropriate the annual fifty cents per acre to the County Avallable Fund as in 'First' above. "Article 2825. Besides other achool funds provided by law, the proceede of any leasing or renting of lands, heretofore granted by the State of Tease to the several oounties thereof for educational purposes, shall be appropriated by the comnissioners courts of said counties in the same manner as is provided by law for the appropriation of the interest on bonds parchased with the proceeds of the sale of such lands; and the proceeds arising from the sale of timber on said lands, or any part thereof, shall be invested in like manner as the Constitution and law requires of the proceeds of the sales of such lands; and it shall/be unlawful - - etc.' "Inasmuch as no gas, oil or any other minerals have been removed from the lands, the County atill has all it had before the lease agreement took effect, and therefore is not similar to the 'sale of trees' in the law. "THIRD: The lease agreement under 'Second' above also provides the standard royalty on all gas, oil and minerals removed from these lands. If and when the lessee produces gas, oil and others minerals and pays the County its royalty, the Comnissioners Court proposes to appropriate such royalties to the County Fermanent Fund."
*3 Honorable A. D. Smith, page 3
First, we approve the procedure outlined in your first question. Article 2825, R. S. 1925, expressly authorizes the county to appropriate the proceeds of a grazing lease. "In the same manner as is provided by law for the appropriation of the interest on bonds purchased with the proceeds of the sale of such lands" and Article 7, Section 6 of the Texas Constitution provides that "said lands, and the proceeds thereof, when sold, shall be held by said counties alone as a trust for the benefit of public schools therein; said proceeds to be invested in bonds of the United States, the State of Texas, or counties in said State, or in such other securities, and under such restrictions as may be prescribed by law; and the counties shall be responsible for all investments; and interest thereon, and other revenue, except the principal shell be available fund."
Second, we presume that the county followed Article 5400a, Vernon's Annotated Civil Statutes, in making the mineral losses. We are of the opinion that the "delay rental," 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 the contrary, it is a conveyance of an interest in land and, as such, operates to never the mineral estate from the surface." 31 Texas Jurisprudence 574-576, Section 39. The instant an oil and gas lease is executed and delivered the losses because the owner of the minerals in place and subject to be taxed therefor. Stephens County v. Mid-Kansas Oil and Gas Company, 113 Texas 160, 254, S. N. 290. The "bonus" or "rentals" which the losses 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 consideration for the sale constitutes a trust for the benefit of public schools and must be placed in the county permanent school fund. Theisen vs. Hobison 117 Texas 489, E.S. W. (2d) 646.
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Honorable A. D. Smith, page 4 "e, of course, hold thet the royal: 1 as anould also be deposited in the county's permanent school fund.
Trustin: that this answers your several inquiries, we are
Yours very truly
ATICNESY GRIERAL OF TELAS By Tagan Bichapn Pagan Likeson Assistant 16
1942
Bernd E. Thun