TREA-~~ORNEY GENERAL
OFTEXAS
HonorableGeo. H. Sheppard Comptrollerof Public Accounts Austin, Texas
Dear Mr. Sheppard:
OpinionNumber O-3441 Be: Authorityof State Board of Education,the holder of the originalbonds, to a preferential right to contractfor acquiring refundingbonds isszd in lieu thereof.
We are in receiptof your letterof April 19, requestingour opinion on the followingquestion:
"IS the State Board of Education,the holder of the original bonds for the benefit of the PermanentSchoolFund, entitled to a preferenceright to contractfor acquiring refunding bonds issued in lieu thereof?"
The facts underlyingthis questionare, that the State Board of Education exerciseditsoption to purchasebonds originallyissuedby a road district of a county. The bonds providedthat the issuemay be redeemedat any time by givingten (10) days' notice,and the issuingdistricthas declaedto redeem all of the originalbonds purchasedby the State PermanentSchoolFund, and to issue in lieu thereof~ refundingbonds- The State Board of Educationnotifiedthe issuingdistrictthat the Permanent School Fund would purchasethe refundingbonds when the same were issued and pay the price offeredthereforby the beat bona fide bidder. The issuingdistrictelected to sell the refundingbonds to a purchaser other than the PermanentSchool Fund, the holder of the originalbonds.
In our opinion,preciselythis same questionwas ra,isedin the case of DallasCounty v- Lockhart,96 S. W. (2d) 60. The SupremeCourt replied as followsin answer to such question:
"The option grantedby Article 2673, as amended,to the Slate Board of Educationto purchasecountyand municipalbonds must be held to be limited- --- to -- the purchase -- of .,..,? -_ ori&nal bonds. .-v* RefundxgTonds are not issued to be sold on"iT;e' market as originalbonds. They cannotbe issued until the HonorableGeo. H. Sheppard,Page #2 O-3441
Originalbonds are called,andwhen iseuedare not the propertyof the county or municipalityissuingthem, but immediatelyupon their issuancethey become the propertyof the party having the right theretoby previous agreement. To give that articlea constructionthat would make it applicableto refundingbonds would be to give to the Board of Educationthe power to preventthe making of any contractlookingto the refundingof bonded indebtedness even when the originalbonds are in the hands of a private investor. Such a constructioncannotbe adopted."
The SupremeCourt in the Dallas County v. Lockhartcase, supra, expresslystated it was not calledupon to determinewhether the holders of originalbonds are entitledto a preferenceright to contractfor refundingbon& issued in lieu thereof,but as stated in the above quoted portionof the Court'sopinion,the refundingbonds cannotbe issueduntil the originalsare cancelled,and when issuedthey become the propertyof the party having the right theretoby previousagreement.
There is nothingto preventthe presentholder of the bonds calledout of the PermanentSchoolFund from retainingthem as evidenceof an obligationagainstthe issuingdistrictand therebydefeatany preferenceright the State PermanentSchool Fund could have to refunding bonds that may have been issued in lieu thereof. Therefore,it would become a matter of contractbetween the issuingdistrictand the owner of the-bondsas to the terms upon which same would be paid. Such as agreementobviouslycould be made without the necessityof issuingnew evidencesof such agreed obligations.
We think the languageof the Court above quoted sufficientlyin point to deny to the Board of Educationthe power to exercisea preferenceright to contractfor acquiringrefundingbonds issuedin lieu of originalbonds redeemedfrom the State PermanentSchoolFund pursuantto a legal call by the