Hon. William A. Harrison 

Commissioner of Insurance 

State l3oard of Insurance 

Austin, Texas 

Dear Sir: 

March 21, 1958 

Opinion No. WW-393 

Re: Whether a municipal water 

and sewer contract made 

with a real estate developer 

is an authorized investment 

under Section 1, Article 3.39, 

Texas Insurance Code. 

With your opinion request you enclose a copy of a contract between 

a city and a real estate subdivision developer wh.ich is substantially as 

follows: 

The city agreed to construct a water 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 in yearly installments consisting of three-fourths 

of the revenues from sale of the water over a maximum period of 25 years. 

You ask whether or not this contractual obligation of the city is a 

permitted investment for a life insurance company pursuant toArticte 3.39, 

Section 1, of the Texas Insurance Code, which authorizes a life insurance 

company to invest in: 

%I 

. . * the bonds and warrants, including revernie and 

special obligations, of any educational institution of 

the State of Texas; 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 of the issuer. 

Not, only~ is the contract inquired about not in proper 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 a bond, 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. 
-, 

. i 

Hon. William. A. Harrison, page #2 (WW-393) 

Lopez, 202 S.W. 1039 (Civ.App. 1918), affirmed 110 Tex. 179, 217 S.W. 

meel v. Pulte, IO S.W. 2d 694 (T ex.Comm.App. 1928). The power 

of a city to issue waterworks and sewer tax bonds is found in Article 

823, V.C.S., and the power to issue waterworks and sewer revenue 

bonds is found in Articles 1111 to 1118, V.C.S. The election provisions 

relating to the issuance of all such bonds are set out in Chapter 1 of 

Title 22, Revised Civil Statutes of Texas, 1925, as amended. There 

has been no election, no attempt has been made by the city to observe 

the requirements of any of these statutes, and it is manifest that no 

bond has been issued. 

Nor is the contract a warrant. Time warrants are payable over 

a period of years; 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 of Article 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 of Articles 1111 to 1118, V.C.S., 

which expressly authorize issuance of warrants 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 of the 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 a period of years for the cost of construction of a waterworks and sewer system, 

is neither a bond nor a warrant and is not 

a permitted investment for a life insurance 

company under Section 1, Article 3.39, Texas 

Insurance Code. 

Very truly yours, 

WILL WILSON 

Attorney General of Texas 
Hon. William A. Harrison, page 63 (WW-393) 

Ma2 

Assistant Attorney General 

Howard W. Mays 

Assistant Attorney General / 

APPROVED: 

OPINION COMMITTEE 

Gee. P. Blackburn, Chairman 

,‘: ~‘Ceeil C. Rotsch 

..~ ;. .?‘. Milton Richardson 

J. Mark McLaughlin 

John H. Minton, Jr. 

REVIEWED FOR THE ATTORNEY GENERAL 

BY: W. V. GEPPERT