R-420

PRICE DANIEL **AUSDTN nit.**  **TEXAS**
I.¶-ra.lllRT r.*:nvzlrm., Mag 20, 1947

Honorable L. S, Johnson, Commissioner Department of Banking Austin 14, Texas Opinion No, V-209

Re: Eligibilityof warrant indebtednessof the Bowie County Vocational School for exemption from the loan limit ,of

State banks in accordance

with Article 342-507,V.C.S.

Dear Sir:

We quote the final paragraph of your request for an opinion as follows:

"In order to determinewhether the warrant indebtednessof the Bowie County Vocational School is eligible as an exception to the loan limit permittedto state banks under the provisionsof Subsection 6, Article 7, Chapter 5, Texas Banking Code, we, therefore?request your opinion as to whether such indebtedness as created by officials of the Bowie County Vocational,

School, under the authority of the Bowie County Board of Education, is a legally createdmunicipal obligation. We should also like your opinion as to whether the indebtedness, whose repayment apparently is restrictedto receipts of tuition fees from the Administratorof Veter- ~' ans Affairs, can be considereda general obligationas contemplated by Paragraph 6, Article 7, Chapter 5, Texas Banking Code."

Your final paragraph is precededby a general statementdescriptiveof the manner in which your question arises, a descriptionof the nature of the financial activities of the Bowie County VocationalSchool,Hon. L. S. Johnson - Page 2 v-209

and referencesto discussionscontainedin letters attached to your request frola the'StateBank of DeKalb and the ExecutiveDireator, State Board for Vocational Edukation.

The Texas Banking Code of 1943 was enacted as House Bill 79, Chapter 97, Acts of the 48th Legislature, Regular Semion, 1943, page‘127. Your reference is to Subdivision 6 of Article 7, Chapter 5, of that Act which $8 pub&bed as Subdivision6 of Article 342-307 of Vernan's Civil Statutes, The pertinentprovisions of Article 342-507 provide:

"No state bank shall permit any person or any corporationto become indebted
or in any other way liable to it in an amount in excess of twenty-five per cent (255) of its capital and certifiedsurplus. The phrase 'indebtedor in any other way liable' ,shall

be construedto include liability as partner or otheiwise. The above limit,atiens

shall not apply to the following classes of indebtednessor liability:

"6. Bonds and other legally created general obligationsof'the State of Texas or of any county, city, municipalityor political subditisianthereof and indebtedness of the United States of America, the Reaematructien Finance Corporation,or other instrumentality er agency of the United States GoWmment.lt

F&tce Reference is made to OpinionsNos. O-6867 and

ies tE: at of which are attachedhereto, hold+ in the State Board for VocationalEducation and local beards of s&e01 trusteeshave requisite authority to sponsor and administsrthe schools designated and contemplated

by the G, I. Bill, and incidentally 

## to administer the fiuaancial phases of such activities. H-over, we find no authorityauthorieingthe pledging of the credit ef either a local school district or school agency, or the credit of the State, or af the United States Qoverrment,or au agency thereof, and attention is called to the discussionin the attached opinions indicatingthat the operationof the programHon. L. S. Johnson - Page 3 v&209

shall not in any wise involve the credit of either the State or of a local subdivisionof the State School System.
Under the contract of the Bowie County Vocational School for 1946-1947, a copy of which is attached to your request, the sole income of the Vocational School is from stipulatedpayments of a stated amount per student. That contract, taken togetherwith legislation enacted by the State of Texas and the Congress, providingmoneys to be disbursed according to such arrangementsas made by the State Board for Vocational Education and the Veterans( Administration appears to be the only commitmentof either the State or the National Government. That such a plan for financingthe school has no direct relationshipto the warrantswhich may be issued by the VocationalSchool authoritiesis obvious. Section 7 of Article 342-507, TV.C. S,, which immediately follows Section 6, above quoted, provides:

"Any portion of any indebtedness which the United States Government,the Reconstruction Finance Corporation,or any other agency or instrumentalitv of the United States Government,has unconditionau agreed to purchase or has payment of both (Emphasissupplied).

unconditionally

guaranteed-asto principal snd interest."

Reading subdivisions6 and 7 together,we believe that similar standards should apply to the obligations under subdivision6 as under subdivision7. It is manifest that the local school officialshave neither the means nor the authority to definitelycommit themselves, the State, or the National Government,to the payment of the warrants of the school. The contract of the Bowie County Vocational School contemplates payments based upon the number of approved courses given to properly certifiedveterans. The meeting of the expenses of the Vocational School depends entirelyupon the proper financialmanagement of the school within such expected revenues.

In view of the indefiniteprovision for meeting such expenses,we do not believe that the obligations evidencedby the warrants are of a nature contemplated by Section 6, The language "bonds and other legally created general obligationsnindicatesto our mindsHon. L. S. Johnson - Page 4 V-209

a type of obligationof greater dignity and conclusiveness as to validity and amount. We believe that the statute contemplatessecurities,the validity and face value of which are not debatable and which have been duly and formally issued, creating an absolute liability for the amount stipulated,and based upon a formal act of an agency legally authorizedto incur the indebtedness,fully acknowledging the specificdebt. We conclude then that the warrant indebtedness of the Bowie County Vocational School and indebtednesssimilarly createdby other VocationalSchools under a program set up under the G. I. Bill are not eligible as exemptionsfrom the loan limit of State banks under Article 342-507,V. C. S.
,SUMMARY

The warrant indebtednessof the Bowie County Vocational School and indebtedness similarly createdby other Vocational Schools under a program set up under the G. I. Bill are not eligible as exemptions from the loan limit of State banks under Article 342-507,
v. c. s.

Yours very truly

ATTORNEY GENERAL OF TEXAS

BY Assistant.

APPROVEDMAY 21, 1947

jiL# eaiiL.2 ATTORNEY GENERAL
NMc/JMc/erc