JOEIN I.. a*ra. Arre-. T~BXAR T@3'11 

Nl-roRNIy OMIPII. 

May 11, 1973 

The Honorable James H. Whitcomb 

County Attorney, Colorado County 

P, 0. Box 867 

Columbus, Texas 78934 

Opinion No. H- 38 

Re: May Commissioners Court 

accept a bid as depository 

bank either with an illegal 

rate of interest or providing that the bank will 

pay “the legal rate of inDear Mr. Whitcomb: 

terest” and related ques - 

tions. 

You have requested an opinion on questions regarding applications 

submitted under Article 2546, V. T. C. S., which sets out the procedures 

for the selection of county depositories. Article 2546 provides: 

“It shall be the duty of the Commissioners Court 

at ten o’clock a.m. on the first day of each term at 

which banks are to be selected as county depositories,- 

to consider all applications filed with the County Judg.e, 

cause such. ap >lications to be entered upon the minutes 

of the Court and to select those applicants that are 

acceptable and who offer the most favorable terms and 

conditions for the handling of such funds’ and having 

the power to reject those whose management or condition in the opinion of the Court, does not warrant 

placing of county funds in their, possession. The 

County Commissioners Court shall have the power 

to determine and designate the character and amount 

of county funds which will be deposited by it in said 

depositories that shall be ‘demand deposits, ’ and 

what character and amount of funds shall be ‘time 

deposits, ’ and maycontract with said depositories 

in regard to the payment of interest on ‘time deposits’ 

at such rate or rates as may be lawful under any Act 

of the Congress of the United States and any rule or 

p. 153 
Honorable James H. Whitcomb, page 2 (H-38) 

rerzulations that may be promulgated by the Board of 

Governors of the Federal Reserve System and the Board 

of Directors of the Federal Deposit Insurance Corpora- 

& When the selection of a depository or depositories . 

has been made, the checks of those applicants which 

have been rejected shall be immediately returned. ‘The 

check or checks of the applicant or applicants whose, 

applications are accepted shall be returned when said 

depository or depositories enter into and file the bond 

required by law and said bond has been approved by 

the Commissioners Court and the State Comptroller, 

and not until such bond is filed and approved. The term 

‘demand deposits’, as used herein, shall mean any 

deposit which is payable on demand, and the term 

‘time deposits’, as used herein, shall mean any deposit 

with reference to which there is in force a contract, 

that neither the whole nor any part of such deposit may 

be withdrawn by check or otherwise prior to the expiration of the period of notice which must be given in 

writing in advance of withdrawals. ‘I (Emphasis added) 

According to your request, only two banks submitted applications . 

or bids. The application from bank H contained varying interest rates ‘on 

certificates of deposit of less than $100, 000, depending on, t-he maturity 

period of the certificate: 

“We submit to you mr bid as your County Depository for 

all funds as follows: We will pay interest on Certificates 

of Deposit on denominations of less than $100, 000. 00 as 

follows: 

C.of D. with three month maturity .4 l/2% 

C.of D. with six month maturity 5% interest payable quarterly. 

C.of D. with twelve month maturity 5-l/2% interest payablequarterly 

C.of D. with maturity of twelve 

months or longer 5-314% interest payable quarterly 

C.of D. in denominations of $100, 000. 00 or more issued for one year 

or longer lO..lZ% interest payable quarterly 

’ . Enclosed is our last published statement of the financial condition 

of this bank. Also enclosed is our Houston Exchange in. the. amount. 

of $1, 000. 00 guaranteeing that this bank will make the required bond 

according to the law and ruling of this Honorable Court. ‘I 

p. 154 
The Honorable James H. Whitcomb, page 3 (H-38) 

~The maximum allowable interest rate of certificates set by the 

Federal Deposit Insurance Corporation and the Federal Reserve 

System is 7 - l/2% per annum except that no maximum is prescribed 

for certificates of deposit maturing in 30 to 89 days. 

The bid of bank C was: “We will pay the legal rate of interest 

on certificates of deposit according to your request, and/or wishes, 

depending on maturities during this two year contract . ’ . . . ” 

A deposit of $1,000 was submitted with each bid. The Commissioners 

Court has accepted the bid of bank H but its bond has not been approved. 

Five questions have been presented. The first two are: 

“(1) Does the Commissioners Court have the 

authority to accept this bid? ‘I 

“(2) Assuming the Court does not have the 

authority to accept the bid because of the unlawful 

rate in the written bid, would the entire bid be 

illegal, or only the one provision?” 

Under Article 2564, the Commissioners Court has considerable 

discretion in selecting a depository. Citizens State Bank of Roby v. 

McCain, 274 S. W. 2d 184 (Tex. Civ. App., 1954, no writ). 

A contract that violates a valid statute is illegal. Woolsey v. Panhandle Refining Co., 116 S. W. 2d 675 (Tex. Sup. 1938) and Lewis v. Davis3 

199 S. W. 2d 146 (Tex. Sup. 1947). The Commissioner 8. Court may not 

enter into an illegal contract. 

If the bid of bank H is construed to be an offer to issue certificates 

of deposit in amounts of $100,000 or more, with maturities of one year 

or more, and to pay 10.12% interest on such certificates. then the proposed contract would be clearly illegal. If, on the other hand, the bid 

may be construed to be an offer to issue certificates of deposit, with 

maturities of 30 to 89 days, but with the understanding that suchamounts 

of money would be held by the bank for periods of one year or longer, 

with the certificates being renewed from time to time within the year, , 

p. 155 
The Honorable James H. Whitcomb, page 4 (H-38) 

then the offer to pay 10.12% interest for that period would not be illegal, . 

inasmuch as interest rates on 30 to 89 day notes are not regulated. We 

are informed that performance in this manner to avoid an illdgai rate 

of interest is not uncommon. 

It is not possible for us to determine, from the bid itself, which 

of the above two alternatives was intended by the bank. It is significant 

that in its bid, with regard to certificates of deposit for less than 

$100, 000, the bank consistently used the word “maturity” in conjunction 

with the time periods di,scussed. However, in connection with the bid 

for denominations of $100, 000 or more, the word “maturity” is not 

used, and the bank simply offered to pay 10.12% on such certificates 

“issued for one year or longer”. The term “issue” is defined in 5 3.102 

of the Business and Commerce Code, as follows: 

” ‘Issue’ means the first delivery of an instrument 

to a holder or a remitter.” 

The term “maturity”, on the other hand, means the date on which 

a negotiable instrument is due and payable. Vestal v. Texas Employers 

Insurance Association, 285 S. W. 1041 (Tex. Comm. App., 1926). 

Without more info’rmation than we have been provided about the 

intentions of the parties in this instance, and without any information 

as to the past custom and usage of these parties, we are unable to 

resolve the ambiguities in bank H’s bid, and are unable to say whether 

or not it is a valid bid. 

Inanswer to the second question, bank H’s application was submitted 

“as your County Depository for al.1 funds. I’ There is no provision 

indicating that the bid is for anything less than all items listed in the bid. 

Fessman v. Barnes, 108 S. W. 170 (Tex. Civ. App. ,* 1908, no writ); If the 

portion is illegal, it is a part of the entire bid and both it and the legal 

portions should be considered as one and the entire bid should be rejected. 

The Texas rule on “competitive bidding” has been stated in the 

following manner: 

p. 156 
The Honorable James H. Whitcomb, page 5 (H-38) 

I’ ‘Competitive bidding’ requires due advertisement, 

giving opportunity to bid, and contemplates a bidding 

‘on the same undertaking upon each of the same material 

items covered by the contract; upon the same thing. It 

requires that all bidders be placed upon the same plane 

‘of equality and that they each bid upon the same terms 

and conditions involved in all the items and parts of 

the contract . . . . Its purpose is to stimulate competition, prevent favoritism . . . for the best interests 

and benefit of the taxpayers . . . . “(emphasis added). 

Sterrett v. Bell, 240 S. W. 2d 516, 520 (Tex. Civ.App., 1951, no writ). 

See also, Texas Highway Commission v. Texas Association of Steel 

Importers, 372 S. W. 2d 525 (Tex.Sup., 1963). 

Until the bond is approved, there is no final contract and the County 

can withdraw its approval. The Citizens State Bank of Roby v. I&Cain, 

supra. 

The third question is: 

“Assuming the court does not have the authority to 

accept the bid because of the unlawful rate in the 

written bid, ran the county keep the $1, 000. 00 

submitted with the bid? ” 

The statute requires the county to return the deposits of all rejected 

bidders when a successful bidder is selected. To construe it to allow 

the county to retain the deposit of a bidder who is selected and then 

rejected would result in the unequal treatment between unsuccessful bidders and would have characteristics of a forfeiture. not favored by the 

law. Manton v. City of San Antonio, 207 S. W. 951 (Tex. Civ. App. , 1918, 

err. reftd. ) and Mogren v. Goetze, 71 S. W. 2d 950 (Tex. Civ.App., 1934, 

err. dislm. ). It is, therefore, our opinion that the County cannot keep 

the deposit submitted with the bid in question. 

The fourth question presented is: 

p. 157 
The Honorable James H. Whitcomb. page 6 (H-38) 

“Once a Commissioners Court has accepted a bid 

as county depository, subject to bond (or pledge contracts) 

approval., would the county be subject to any liability if 

the court rescinded its order and selected another bank? ‘I 

In the Citizens State Bank case, supra, suit was brought by the ‘, 

State bank selected by the Commissioners Court for damages for loss 

of profits due to the depositing of county funds in a National bank. The 

court specificaUy stated: 

II 

. . . In the absence of a showing that appellant’s 

bond or security was approved, there was no final 

contract between the parties and appellant acquired 

no vested rights which would prevent the Commissioners 

Court from rescinding its prior order. ” (274 S. W. 2d at 

186). 

See also, Liquidation of People’s Bank of Butler, 127 S. W. 2d 669 (Ma. 

Sup. 1939). We are of the opinion that the County would have no liability 

under the facts stated and the cases cited. 

The fifth and remaining question is: “Would a bid based upon ‘the 

legal rate of interest’ on Certificate8 of Deposit be a valid bid? ,‘. 

Article 2564, supra, allows the Commissioners Court to contract 

in regard to the payment of interest on “time deposits” at “such rate or 

rates as may be lawful: under regulations of the Federal Reserve System 

and the Federal Deposit Insurance Corporation. 

If the bid in question is a bid based upon the maximum legal interest 

rate, the bid would bind the applicant to pay the maximum rate on each 

category of certificates of deposit. However, on certificates for $100,000 

or more for 30 to 89 days, there is no maximum interest rate specified 

by federal law. In this area, the bid would be incomplete. It sets no 

rate for such certificates of deposit and does not specify whether the , 

applicant is bidding on every category of certificate. 

p. 158 
. 

. 

The Honorable James H. Whitcomb, page 7 (H-38) 

SUMMARY 

Where a bank submits an application to be the 

county depository under Article 2546, Vernon’s 

Texas Civil Statutes, and purports to bid for all 

funds, the bid must state a legal rate of interest 

for time deposits of all amounts and lengths of 

time. Resort. may be,had to custom and usage 

to determine the scope and terms of a bid. 

When such a ‘bid is construed to omit relevant 

items, or to call for illegal terms, it cannot be 

later corrected and cannot be accepted. 

Very truly yours, 

DAVID M, KENDALL, Chairman 

Opinion Committee 

p. 159