Hon. William A. Harrison Commissioner of Insurance State l3oard of Insurance Austin, Texas

Dear Sir: March 21, 1958 Opinion No. WW-393 Re: Whether amunicipal water and sewer contract made with areal estate developer is an authorized investment under Section 1,Article 3.39, Texas Insurance Code. With your opinion request you enclose a copy ofa contract between a city and a real estate subdivision developer wh.ich is substantially as follows: The city agreed to construct awater and sewer system in the subdivision. The developer was to first deposit $24,000 with the city, and following construction the city will reimburse the developer 90% of the $24,000 deposit, payable inyearly installments consisting of three-fourths of the revenues from sale of the water over a maximum period of25 years.

You ask whether or not this contractual obligation ofthe city is a permitted investment for a life insurance company pursuant toArticte 3.39, Section 1, ofthe Texas Insurance Code, which authorizes a life insurance company to invest in:

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.. *the bonds and warrants, including revernie and special obligations, ofany educational institution of the State ofTexas; or any municipally owned water system or sewer system when special revenuPs, or income to meet the principal atid interest payments as they accrue upon such obligations shall have been appropr~iated, pledged or otherwise provided by such municipality or educational institution;
.. ,,” The phrase “including revenue and special obligations” refers to the preceding phrase “bonds and warrants ‘*, meaning that included within such “bonds and warrants” arr bonds and warrants which c,onstitute revenue and special obligations ofthe issuer.

Not, only~is the contract inquired about not inproper form for ei.ther **a bond**  or warrant (15 McQuillen on Municipal Corpo,ra?i.ons (19jO). Sec. 42.01 and 43.53), it is not abond, for the authority to issue bonds must be expressly granted and may be exercised only in the mode speciti~ed. Cit,y of Brenham v. German American Ba 144[J.S. 173(1892); Lasater v.-,

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Hon. William. **A.** Harrison, page #2 (WW-393)
Lopez, 202 S.W. 1039 (Civ.App. 1918), affirmed 110Tex. 179, 217 S.W. meel v. Pulte, IOS.W. 2d 694 (Tex.Comm.App. 1928). The power ofa city to issue waterworks and sewer tax bonds is found inArticle 823, V.C.S., and the power to issue waterworks and sewer revenue bonds is found inArticles 1111 to 1118, V.C.S. The election provisions relating to the issuance ofall such bonds are set out in Chapter 1of Title 22, Revised Civil Statutes ofTexas, 1925, as amended. There has been no election, noattempt has been made by the city to observe the requirements ofany ofthese statutes, and it is manifest that no bond has been issued.

Nor is the contract awarrant. Time warrants are payable over aperiod ofyears; they have many of the characteristics of bonds but are not negotiable. Lasater v. Lopez, supra. This contract is not payable from taxes; therefore, it could not be considered a tax time warrant even if the provisions ofArticle 2368a, V.C.S., had been followed, which was not done. Nor is the contract a revenue time warrant, for there has been no observance of the requirements ofArticles 1111 to 1118, V.C.S., which expressly authorize issuance ofwarrants payable from net revenues.

Clearl,y, the city had no intention to issue either bonds or warrants, and the contract is neither. Therefore, the contract is not an eligible investment and your question is answered in the negative.

Havi,ng found that the contract is not an eligible investment, it is not necessary that we pass upon the validity ofthe contract, and for that reason we express no opinion in that respect,, SUMMARY The contract inquired about between a city and a real estate developer, whereby the city will partially reimburse the developer over aperiod ofyears for the cost of construction ofawaterworks and sewer system, is neither abond nor awarrant and is not apermitted investment for a life insurance company under Section 1,Article 3.39, Texas Insurance Code. Very truly yours,

WILL WILSON Attorney General ofTexasHon. William A. Harrison, page 63 (WW-393)



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Assistant Attorney General

Howard W. Mays Assistant Attorney General / APPROVED: OPINION COMMITTEE Gee. P. Blackburn, Chairman

,‘: ~‘Ceeil C. Rotsch

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.Milton Richardson J. Mark McLaughlin JohnH. Minton, Jr. REVIEWED FOR THE ATTORNEY GENERAL BY: W. V. GEPPERT