Untitled Texas Attorney General Opinion ( 1987 )

September 29, 1987
Honorable L. M. Braziel Opinion No. JM-800
Rains County Attorney
Courthouse Re: Whether article 2368a.2,
Emory, Texas 75440 V.T.C.S., permits the con-
struction of a county jail
building through a lease-
purchase agreement when the
agreement describes the build-
ing as "personal property"
Dear Mr. Braziel:
You ask the following question:
May the construction of a county jail
building be lawfully financed through a
lease-purchase arrangement, pursuant to
article 2368a.2, V.T.C.S., when the parties
have contractually characterized the jail
building as "personal property"?
The Rains County Commissioners Court has entered into
a "lease-purchase" agreement with Consolidated Financial
Resources regarding certain llProperty** defined as follows:
Relocatable County jail facility erected
with 32 Dan/Tex finished ribbed panels and
consisting of 51 rooms, including bed-space
for 17 prisoners, together with a chain-link
enclosure for an exercise yard.
Lease-Purchase Agreement By and Between Consolidated
Financial Resources, Inc., and Rains County, Texas,
November 1, 1985, Exhibit A [hereinafter Agreement].
The lease-purchase agreement is actually a financing
arrangement. Consolidated Financial Resources, Inc. does
not agree to deliver the property to the county. Instead,
the agreement provides that the property shall be acquired
and installed pursuant to one or more purchase contracts
entered into by the county and one or more contractors.
Lease payments are allocated between principal and
p. 3779
Honorable L. M. Braziel - Page 2 (J&800)
interest. Agreement, Exhibit B. The county in fact has
entered into a purchase contract to acquire a relocatable
jail from Detention Systems, Inc. IdL Exhibit C.
The following provision of the lease-purchase
agreement characterizes the jail as personal property:
The Property is and will remain personal
property and will not be deemed to be
affixed to or a part of the real estate on
which it may be situated, notwithstanding
that the Property or any part thereof may be
or hereafter become in any manner physically
affixed or attached to real estate or any
building thereon. Upon direction of Lessor,
Lessee will, at Lessee>s expense, furnish a
landlord or mortgagee waiver with respect to
the Property. In addition, upon execution
of this Lease, Lessee shall furnish to
Lessor a certificate executed by an engineer
or architect, said engineer or architect
being approved by Lessor and being not
affiliated with any Contractor, certifying
that any portion of the Property which
constitutes a building or structure is
structurally relocatable and is and will
remain personal property.
Agreement, 513.
The architect's letter to Consolidated Financial
Resources states that
all construction elements of the jail could
be relocated with the exception of the
following:
1. Site - underground utilities
- parking surfaces
- sidewalks
- site grading
- landscaping
2. Building - plumbing under slab
foundation
- concrete floor slab
- floor coverings
- gypsum steel stud walls
p. 3780
Honorable L. M. Braziel - Page 3 (JN-800)
All remaining construction elements could,
therefore, remain personal property.
A brief submitted in support of the lease agreement
states that site preparation, underground utilities,
and other "non-relocatable" elements will be financed
separately from the jail facility. The jail will be
constructed with prefabricated panels. If the county
terminates the agreement prior to purchase of the jail
facility, the facility will be removed and returned to
Consolidated Financial Resources. Agreement, 558, 23.
The requestor writes that the Rains County jail is
described as "relocatable," but that
it appears from its size and manner of
construction that it would be commercially
impractical to do so. The jail facility
seems to be quite different from the type of
structures typically considered to be
*personal property' -- temporary buildings
and trailers which are brought to the
property fully assembled, or temporary
buildings and sheds built through the
efforts and expense of a tenant upon lease-
hold property, intended for removal by the
tenant when his lease expires.
Article 2368a.2, V.T.C.S., the Public Property
Finance Act, authorizes governmental agencies, including
counties, to enter into contracts to lease or purchase
property. V.T.C.S. art. 2368a.2, 54(a). The county may
agree to a lease, a lease purchase contract, or an in-
stallment purchase. Id. The statute defines "property"
as
personal property, appliances, equipment,
facilities or furnishings or an interest
therein, whether movable or fixed. . . .
V.T.C.S. art. 2368a.2, §3(11). It also includes the
following provision:
Notwithstanding any contrary provision,
this Act does not apply to a contract solely
for the construction of improvements to real
property.
V.T.C.S. art. 2368a.2, 59.
p. 3781
Honorable L. M. Braziel - Page 4 (.8+800)
Attorney General Opinion JM-697 (1987) cited sections
3(11) and 9 of article 2368a.2, V.T.C.S., quoted above,
and stated that this statute does not authorize the
commissioners court to acquire a jail under a lease
purchase contract. Legislative history evidences the
legislative intent that article 2368a.2, V.T.C.S., does
not authorize the acquisition of real property. This
statute was enacted by House Bill No. 1176 of the
Sixty-sixth Legislature. Acts 1979, 66th Leg., ch. 749,
at 183.9. The bill was amended in the House to add the
language in section 9, quoted above, that the act does not
apply to a contract solely for the construction of
improvements to real property. Bill File to H.B. No.
1176, 66th Leg., filed in Legislative Reference Library.
The Senate amended the bill's definition of "property,"
which originally stated, among other things, that property
means "any property other than land." Id. The Senate
amendment, which is part of the enacted language
quoted above as section 3(11) defines property to mean
personal property, appliances, equipment, facilities, or
furnishings and adds the express provision that property
"shall not include real property." Hence, it appears that
the intention of the legislature was to exclude more than
land and instead to exclude real property and the
construction of improvements to real property.
Attorney General Opinion JM-697 concluded that a
county has implied authority to acquire a jail through a
lease-purchase contract extending beyond the present year,
but did not consider whether a commissioners court could
bring a jail construction project within article 2368a.2,
V.T.C.S., by agreeing that it would remain personal
property. The opinion further stated that article
2368a.2, V.T.C.S.,
establishes a procedure whereby the validity
of a contract may become 'incontestable for
any cause,' and provides that contracts
entered into pursuant to the statute are
legal and authorized investments for certain
enumerated financial institutions and
sinking funds of governmental bodies. See
V.T.C.S. art. 2368a.2, 556, 7. The legisla-
ture may have excluded real property and the
improvement of real property from article
2368a.2 because it did not want all of these
provisions to apply to contracts for the
acquisition or improvement of real property.
Attorney General Opinion JM-697 (1987).
p. 3782
Honorable L. M. Braziel - Page 5 (JM-800)
Unless the commissioners court may make a valid
agreement that the county jail will be personal property,
it may not construct and finance this project under
article 2368a.2, V.T.C.S.
Tangible property is either realty or personalty and
the word "real" describes land and that which is annexed
to it. Erwin v. Steele, 228 S.W.Zd 882, 885 (Tex. Civ.
APP. - Dallas 1950, writ ref'd n.r.e.). Generally, a
building constructed on land becomes part of the freehold
in the absence of an intention or agreement that the
building will not become permanently annexed to the land,
and the law presumes that a house located on land is part
of the land in the absence of evidence to the contrary.
See Brown v. Roland, 45 S.W. 795, 796 (Tex. 1898); Ford v.
Forsoard, 27 S.W. 57, 58 (Tex. 1894); Calvert v. Welch,
369 S.W.2d 840, 842 (Tex. Civ. App. - Texarkana 1963, no
writ); Griqos v. Masnolia Petroleum Comnanv, 319 S.W.2d
818, 819 (Tex. Civ. ADD. - Amarillo 1958. no writ):
Evanselicai St. John's Church v. Otto Indewendent School
District, 203 S.W.2d 299, 301 (Tex. Civ. App. - Waco 1947,
no writ). Black's Law Dictionary 1096 (5th ed. 1979),
defines real property as land and generally whatever is
erected or growing upon or affixed to land. Thus, a jail
building would ordinarily .be considered to be real
property, even though a substantial portion consisted of
relocatable "construction elements."
It is a well recognized rule that, as between the
parties to a contract, the character of property may be
fixed by contract to the effect that it shall remain
personalty and not become attached to real property.
National Bank v. Elk Mfo . C o., 29 S.W.2d 1062,
1066 (Tex. Comm'n App. 1930, judgment adopted): Roaers v.
Fort Worth Poultrv and Egg Co., 185 S.W.2d 165, 167 (Tex.
Civ. App. - Fort Worth 1944, no writ).
While fixing the character of property as between the
parties to a contract, such an agreement does not deter-
mine the character of the property as to all persons and
purposes. The Texas courts have held that third party
purchasers and mortgagees who take in good faith and
without notice of such an agreement have a right to view
the property in accord with its apparent condition and
character at the time of the purchase or acceptance of the
mortgage. See Citizens' National Bank v. Elk Mfo. Co.,
m; Philliws v. Newsome, 179 S.W. 1123, 1124 (Tex. Civ.
APP. - Fort Worth 1915, no writ): Ice. Liaht. and Water
co. v. Lone Star Ensine 8 Boiler Works, 41 S.W. 835, 836
(Tex. Civ. App. 1897, no writ). The intention of a party
p. 3783
Honorable L. M. Braziel - Page 6 (``-800)
as to the character of property has been held not to
determine its character for insurance purposes in the face
of physical facts to the contrary. See Rubv v. Cambridse
Mutual Fire Insurance Comvany, 358 S.W.Zd 943, 946 (Tex.
Civ. App. - Dallas 1962, no writ).
In the present case, the legislature intended. that
article 2368a.2, V.T.C.S., not apply to real property.
The parties have attempted to bring real property within
the statute by characterizing it as "personal property"
despite physical facts to the contrary. The parties could
not alter the statutory definition by consent. See Casias
v . State of Texas, 503 S.W.2d 262 (Tex. Crim. App. 1973);
see also Ex warte Salter, 452 S.W.2d 711 (Tex. Civ. App. -
Houston [lst Dist.] 1970, writ ref'd) (court must confine
itself to a reasonable construction of the language used).
We believe the characterization of real property as
personal property should be disregarded, as an attempt to
circumvent the legislative intent underlying article
2368a.2, V.T.C.S.
The provisions of the Public Property Finance Act do
not apply to the lease agreement which the Rains County _
Commissioners Court entered into to finance the acquisi- ?
tion of a county jail.
SUMMARX
Article 2368a.2, V.T.C.S., the Public
Property Finance Act, applies to the
acquisition of personal property and not
real property. The parties to a contract
may not bring property ordinarily considered
to be real property within the terms of this
statute by agreeing to characterize it as
personal property.
JIM MATTOX.
Attorney General of Texas
MARY KELLER
Executive Assistant Attorney General
p. 3784
Honorable L. M. Braziel - Page-7 (JM-800)
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney Gene&l
RICK GILPIN
Chairman, Opinion Committee
Prepared by Susan L. Garrison
Assistant Attorney General
p. 3785