TREA-~~ORNEY GENERAL 

OFTEXAS 

Honorable Geo. H. Sheppard 

Comptroller of Public Accounts 

Austin, Texas 

Dear Mr. Sheppard: 

Opinion Number O-3441 

Be: Authority of State Board of 

Education, the holder of the 

original bonds, to a preferential 

right to contract for acquiring 

refunding bonds isszd in lieu 

thereof. 

We are in receipt of your letter of April 19, requesting our opinion 

on the following question: 

"IS the State Board of Education, the holder of the original 

bonds for the benefit of the Permanent School Fund, entitled 

to a preference right to contract for acquiring refunding 

bonds issued in lieu thereof?" 

The facts underlying this question are, that the State Board of Education 

exercisedits option to purchase bonds originally issued by a road district 

of a county. The bonds provided that the issue may be redeemed at any 

time by giving ten (10) days' notice, and the issuing district has 

declaed to redeem all of the original bonds purchased by the State 

Permanent School Fund, and to issue in lieu thereof~ refunding bonds- The 

State Board of Education notified the issuing district that the Permanent 

School Fund would purchase the refunding bonds when the same were issued 

and pay the price offered therefor by the beat bona fide bidder. The 

issuing districtelected to sell the refunding bonds to a purchaser 

other than the Permanent School Fund, the holder of the original bonds. 

In our opinion, precisely this same question was ra,ised in the case of 

Dallas County v- Lockhart, 96 S. W. (2d) 60. The Supreme Court replied 

as follows in answer to such question: 

"The option granted by Article 2673, as amended, to the Slate 

Board of Education to purchase county and municipal bonds 

must be held to be limited to the purchase of ori&nal --- - -- -- -_ .,..,? 

bonds. RefundxgTonds are not issued to be sold on"iT;e' .-v* 

market as original bonds. They cannot be issued until the 
Honorable Geo. H. Sheppard, Page #2 O-3441 

Original bonds are called, andwhen iseued are not the 

property of the county or municipality issuing them, 

but immediately upon their issuance they become the 

property of the party having the right thereto by previous 

agreement. To give that article a construction that would 

make it applicable to refunding bonds would be to give to 

the Board of Education the power to prevent the making of 

any contract looking to the refunding of bonded indebtedness 

even when the original bonds are in the hands of a private 

investor. Such a construction cannot be adopted." 

The Supreme Court in the Dallas County v. Lockhart case, supra, 

expressly stated it was not called upon to determine whether the holders 

of original bonds are entitled to a preference right to contract for 

refunding bon& issued in lieu thereof, but as stated in the above quoted 

portion of the Court's opinion, the refunding bonds cannot be issued until 

the originals are cancelled, and when issued they become the property of 

the party having the right thereto by previous agreement. 

There is nothing to prevent the present holder of the bonds called out 

of the Permanent School Fund from retaining them as evidence of an 

obligation against the issuing district and thereby defeat any 

preference right the State Permanent School Fund could have to refunding 

bonds that may have been issued in lieu thereof. Therefore, it would 

become a matter of contract between the issuing district and the owner 

of the-bonds as to the terms upon which same would be paid. Such as 

agreement obviously could be made without the necessity of issuing new 

evidences of such agreed obligations. 

We think the language of the Court above quoted sufficiently in point to 

deny to the Board of Education the power to exercise a preference right 

to contract for acquiring refunding bonds issued in lieu of original bonds 

redeemed from the State Permanent School Fund pursuant to a legal call 

by the issuing district. 

Having answered this question in the negative, we deem it unnecessary to 

reply to the second question contained in your letter of April lgO 

Trusting that this satisfactorily answers your inquiry, we area 

Very truly yours 

APPBOVED APB. 29, 1941 

s/ Glenn B. Lewis 

ACTING ATTORNEiX GSNERhL 

OF TEXAS 

ATTORNEY GENERALOFTEXAS 

S/ Clsrence E. Crowe 

APPBOVED OPINION COMMITTEE BY 

BY B. W. B. CEUUBMAN Clarence E. Crowe 

CEC-s-ldw Assistant