Untitled Texas Attorney General Opinion

Honorable Robert S. Calvert Opinion No. M-1034 Comptroller of Public Accounts State Finance Building Re: Whether Article 5421c, Austin, Texas 78701 Sec. lla, V.C.S., and the appropriation con- tained in the Ge,neral Appropriation Bill (S.B. 11, Ch. 1047, 62nd Leg., 1971, R.S.) provide authority for payment of a certain claimed refund of bonuses, delay rentals, and special sales fees paid to the State by a lessee under terms of a lease where the leased development is prevented Dear Mr. Calvert: by a federal agency? Your request for an opinion asks the following ques- tion: "Does Article 5421c, Section lla, V.C.S., and the appropriation contained in the General Appropriation Bill (S.B. 11, Ch. 1047, 62nd Leg., 1971, R.S.) provide authority for payment of a certain claimed refund of bonuses, delay rentals and special sales fees paid to the State by a lessee under terms of a lease where the leased development is prevented by a federal agency?" In addition, you have further requested whether the claim may be validly paid under any State statute. House Bill 1862 was passed by the House on May 21, 1971, and by the Senate on May 26, 1971, and approved by the Governor and became effective on Nay 27, 1971; it adds Section lla to Article 5421c, V.C.S. -5041- . I Honorable Robert S. Calvert, page 2 (M-1034) As stated in your request, the subject lease (Mineral Lease No. 58676) was dated on October 5, 1965, and was entered into between the State of Texas and Cabot Corporation for a five year primary term. It is stated that the lease was located in the Gulf of Mexico near a bombing range of the U.S. Air Force and because of the danger involved, Cabot Corporation was prevented from drilling the lease during the primary term of the lease by the U.S. Corps of Engineers. Then lessee paid the State of Texas in good faith pursuant to their lease a total of $32,703.00 for special sales fees,, bonuses and delay rentals. Both the federal government and the lessee show that it was impossible to grant a shooting or drilling permit dur- ing the lease "since intensive bombing operations are in prog- ress on a daily basis." Your opinion request also states that the "School Land Board verified prerequisite facts which H.B. 1862 requires as basis for making refund." Section 44 of Article III, Constitution of Texas, pro- vides: "The Legislature shall provide by law for the compensation of all officers, servants, agents and public contractors, not provided for in this Constitution, but shall not grant extra compensation to any officer, agent, servant or public contractors,~ after such public service shall have been performed or contract entered into, for the performance of the same; nor grant, by appropriation or otherwise, any amount of the same shall not have been provided for by pre-existing law; nor employ anyone in the name of the State, unless authorized by pre- existing law." (Emphasis added.) Since the mineral lease is dated October 5, 1965, and Article 5421c, Section lla, V.C.S., was effective on May 27, 1971, said Article 5421c, Section lla, Vernon's Civil Statutes, does not constitute pre-existing law to support payment of the claim. This office accordingly previously refused to authorize payment of the claim in a letter ruling, dated April 27, 1971, addressed to the Chairman of the Claims Committee, House of Representa- tives. We now consider, however, a different statutory basis not dealt with or discussed in the letter ruling. Article 5411a, Section l(b), reads as follows: -5042- . . Honorable Robert,S. Calvert, page 3 (M-1034) "Section 1. Upon proper proof as herein- after provided, the Comptroller of the State of Texas is hereby authorized and directed to draw his warrant in refund of monies paid into the State Treasury on public lands in good faith but where the funds to which such monies may be accredited or may have been accredited, are not entitled thereto in any of the follow- ing instances: II . . . "(b) Where the payment is made in ac- cordance with law, but title cannot issue or possession cannot pass, because of conflict in boundaries, erroneous sales, erroneous lease or other cause:. . ." We believe that the Legislature intended by this statute to provide a remedy to a lessee of the State for refund of the considerationpaid to the State under a lease when such con- sideration has materially and substantially failed, although neither party be at fault. The statute may thusbe read into the lease as though it were expressly incorporated therein as an integral part thereof. Anderson-Rerney Realty Co. vs. Sovia, 41 S.W.Zd 279, 281 (1931). aff. 123 Tex. 100, 67 S.W.Zd 222: 12 AmJur. 76,9; Contractsi.Sec. 240. It is well settled that failure of title or possession, being a material failure of aon- sideration for a lease, would give rise to a cause of action or remedy by lessee against a lessor for reformation, cancellation or return of the consideration oaid. See, for example, 42 Tex. Jur.2d 217, Oil & Gas, Sec. 92.- In 58 CJS 528, Mines & Minerals, Sec. 209b; Fender vs. Farr, 262 S.W.2d 539, 543 (Tex.Civ.App. 1953, no writ). In R. C. Childress vs. 0. B. Siler, 272 S.W.2d 417, 420 (Tex.Civ.App. 1954, ref., n.r.e.1, it is said: "Whenever covenants of seizin or good right to convey are contained in a deed or lease or assignment of a lease they import an intention on the part of the grantor to do more than give a quitclaim, they import an intention to convey the land or the described interest in the land itself." -5043- Honorable Robert S. Calvert, page 4 (M-1034) When the statute, Article 5411a, Section l(b), is read into the lease, the latter necessarily provided that if title or possession failed, the lessor State had a legal obligation to return the monies paid to it by lessee. This was not in any way altered by, but rather modifies, the clause in the lease (Sec- tion 22), which provided in part: "Should Lessee be prevented. . .from conducting drilling operations thereon, or from producing oil and/or gas therefrom, after effort made in good faith, by reason of war, rebellion, riots, strikes, acts of God, or any order, rule or regulation of governmental authority, then while so prevented, Lessee's obligation to comply with such covenant shall be suspended. . ., provided, however, that nothing herein shall be construed to suspend the payment of rentals 'during the primary or extended term." It is apparent that while lessee was under a duty to continuepaying rentals to lessor State or forfeit the lease (Humble Oil & Refining Co. vs. Mullican, 192,S.W.Zd 770 [Tex. Sup. 194611, nevertheless his remedy for return of the rentals arose at least at the end of the primary term of the lease. While either the lessee or lessor or both may bring an action against a third party for tort during the lease, after its termina- tion the lessor rather than the lessee is the proper party to sue where no mining was performed under the lease. 58 CJS 423, Mines & Minerals, Section 194. Further, in Cabot Corporation's application for payment of claim against the State of Texas, the following certified language by Cabot Corporation appears: "Moreover, the 'Notice for Bids' issued by the General Land Commissioner and Chairman of the School Land Board for the October 5, 1965 sale of the subject Lease contained no notice or warning of such bombing activities or,condi- tions specified above and Cabot without knowledge of such facts bid for and purchased such Lease at such sale. "In summary, the subject Lease was not at the time of sale, or at any time during its primary term, subject to being explored and -5044- Honorable Robert S. Calvert, page 5 (M-1634) developed for oil and gas, the very purpose for which it was sold and purchased, and consequently, such Lease had no value. Unless we assume the School Land Board would know- ingly lease a worthless tract not subject to development, the situation arose from a mutual mistake of fact. In any event, the rights purported to be granted by the Lease were not subject to realization at the time the Lease was sold or at any time during its term. Cabot Corporation, therefore, makes the fore- going claim for refund." (Emphasis added.) As clearly set out above in the Cabot affidavit, it is clearly shown that Cabot Corporation had no knowledge that the bombing range covered the acreage that it had leased, and it logically follows that had Cabot realized that the acreage in question could never be used for oil and gas purposes, then the acreage would have never been leased from the State. Article 5411a, Section l(b), passed in 1945, was a pre- existing law at the time of the dated mineral lease, and pos- session of said lease could not be and was not delivered .to Cabot Corporation, who acted in good faith and complied with the terms of the five year lease. Coupled with the certified Application of Claim by Cabot Corporation, the verification of claim by the General Land Office of Texas and the appropriation by the Legislature (S.B. 11, Ch. 1047, 62nd Leg., 1971, R.S.) of funds to pay this claim, it is our opinion that payment of said claim may be made promptly, pursuant to Article 5411a, Section l(b). The previous ruling by this office, dated April 27, 1971, is accordingly overruled. SUMMARY Where~a mineral lease was entered into between the State and a lessee and by virtue of federal military activities, the lessee was prevented from drilling thereunder and title or possession could not pass because of such federal activity, but the lessee in good faith complied with the terms of the lease, paying the State the bonuses, delay rentals and special sales fees, and Article 5411a, Section l(b), V.C.S., was a pre-existing law in effect at the time of the lease, the lessee's claim -5045- Honorable Robert S. Calvert, page 6 (M-1034) for refund of such payments to the State may be lawfully paid by the State to the lessee when coupled with the verification of the claim by the General Land Office and the legislative appropriation to pay such claim. Yo)z$!5very truly, ey General of Texas Prepared by Jerry H. Roberts Assistant Attorney General APPROVED: OPINION COMMITTEE Kerns Taylor, Chairman W. E. Allen, Co-Chairman Linward Shivers John Reeves James Broadhurst Marietta Payne David Longoria SAM MCDANIEL Staff Legal Assistant ALFRED WALKER Executive Assistant NOLA WHITE First Assistant -5046-