Title: Brazos River Authority v. Carr
Citation: 405 S.W.2d 689
Docket Number: A-11544
State: Texas
Issuer: Texas Supreme Court
Date: July 27, 1966

405 S.W.2d 689 (1966) BRAZOS RIVER AUTHORITY, Relator, v. Waggoner CARR, Attorney General, Respondent. No. A-11544. Supreme Court of Texas. July 27, 1966. *690 McCall, Parkhurst &amp; Horton, Dallas, Ray Hutchison, with above firm, Dallas, Beard, Kultgen &amp; Beard, Waco, for relator. Waggoner Carr, Atty. Gen., Austin, Paul Phy and Roy B. Johnson, Asst. Attys. Gen., for respondent. *691 STEAKLEY, Justice. This is an original proceeding in which the Relator, Brazos River Authority, seeks a writ of mandamus to require the Respondent, the Attorney General of Texas, to approve the following two issues of bonds: The bonds are being issued for the following stated purpose: The properties referred to are owned by a private corporation, American Canal Company of Texas. A note of the corporation in the principal sum of $1,099,365.38 is held by some of its stockholders secured by a mortgage lien against the properties of the corporation. It is proposed that Relator acquire the properties of the corporation in a single transaction by the following procedure: Relator will deliver the bonds in question to the stockholders of the corporation in exchange for all of the capital stock of the corporation and the note of the corporation with its supporting mortgage will be cancelled, following which all of the properties of the corporation will be conveyed to Relator and the corporation will be dissolved. Neither the procedural authorization for the bond issues and the properties acquisition, nor the purposes therefor, is questioned. However, the proposal involves novel questions of law and the Attorney General declined to approve the bond issues for reasons stated as follows: The statutes governing Relator appear as footnotes to Article 8280-101, Vernon's Texas Civil Statutes. Section 11 was added to the governing statute by the 44th Legislature in 1935;[1] it provides in part: Section 5-c was added by the 53rd Legislature in 1953;[2] it provides in part: We consider only the reasons which form the basis of the disapproval action of the Attorney General. Cf. Trinity River Authority of Tex. v. Carr, 386 S.W.2d 790 (Tex.Sup.1965). The first reason is the fact that the bond order provides that the bonds are to be exchanged for the capital stock of the American Canal Company of Texas, a corporation. Section 11, previously quoted, enacted in 1935, provides that bonds issued by the Authority may be on "such terms as the Board of Directors shall determine in exchange for property of any kind, real, personal or mixed or any interest therein which the Board of Directors shall deem necessary or convenient for any corporate purpose * * *." This is statutory authorization for the terms of the bond issues as a manner and method of acquiring the properties of the corporation, viz., by means of acquiring the stock, together with the concurring mechanics of the purchase transaction. It is the position of the Attorney General, however, that Section 5-c of the 1953 amendment exclusively prescribes the manner in which the bonds of the Authority *693 might thereafter be issued and preclude what is here proposed. The applicability to Section 11 and Section 5-c of the maxim "expressio unius est exclusio alterius," is argued, the contention being that Section 11 is a general law, whereas Section 5-c is controlling as a special law. Our view is otherwise. Section 5-c expressly provides that the provisions of the section shall continue in effect except for the added provisions, and quite clearly was not intended to embrace all the authority governing the authorization, issuance and sale of bonds. The purpose of the 1953 amendment was to expandnot shrink or restrictthe powers of the Authority and there is no antagonism between the 1935 and the 1953 statutes. There is no basis for what in effect would be a repeal by implication. See Gordon v. Lake, 163 Tex. 392, 356 S.W.2d 138 (1962); Lasater v. Lopez, 110 Tex. 179, 217 S.W. 373 (1919). The Attorney General is of the further view that the proposed exchange of bonds for the capital stock of American Canal Company of Texas, and the acquisition of the note of the corporation for cancellation, are violative of the following provisions of the Texas Constitution: In view of the singleness of the proposed transaction, the coincident execution of its various parts, and the immediacy of the dissolution of the corporation, there is not in the sense of these constitutional provisions either a pledging of credit, or a grant of public money, for the payment of a private debt; nor will the Authority become a stockholder in a corporation. The reasoning of the Court in Barrington v. Cokinos, 161 Tex. 136, 338 S.W.2d 133 (1960), is pertinent. Relator is not prohibited from business dealings with a private corporation, and a bond issue for direct accomplishment of purposes for which it was created is not rendered invalid by the fact that the method of handling the transaction is beneficial to the corporation and its stockholders. The latter receives no *694 gratuity. City of Aransas Pass v. Keeling, 112 Tex. 339, 247 S.W. 818 (1923). The contract and manner of consummation is no more than quid pro quo for that given up and received. San Antonio River Authority v. Shepperd, 157 Tex. 73, 299 S.W.2d 920 (1957). "No net gain accrues to" the corporation or its stockholders under the method of handling the acquisition of its properties by Relator. State v. City of Austin, 160 Tex. 348, 331 S.W.2d 737 (1960). The abuses and results which the constitutional provisions under review were designed to prevent cannot occur here. In fact, the Authority will be enabled to acquire the properties at less cost than would be the case in a cash purchase transaction, even if such could be accomplished, and this redounds to the benefit of the public which is served by the Authority. See Cawood v. Coleman, 294 Ky. 858, 172 S.W.2d 548 (1943); Long v. Mayo, 271 Ky. 192, 111 S.W.2d 633 (1937); City of Springfield v. Monday, 353 Mo. 981, 185 S.W.2d 788 (1945); State ex rel. Johnson v. Consumers Public Power Dist., 143 Neb. 753, 10 N.W.2d 784, 152 A.L.R. 480 (1943); People ex rel. Murphy v. Kelly, 76 N.Y. 475 (1879); Wheeler v. City of Philadelphia, 77 Pa. 338 (1875). Cf. Pleasant Township v. Aetna Life Ins. Co., 138 U.S. 67, 11 S. Ct. 215, 34 L. Ed. 864 (1891); Sun Printing &amp; Publishing Ass'n v. Mayor, etc., of New York, 152 N.Y. 257, 46 N.E. 499, 37 L.R.A. 788 (1897). The Authority is not entering into a joint venture with private enterprise or becoming a participating stockholder as in City of Tyler v. Texas Employers' Ins. Ass'n, 288 S.W. 409 (Tex.Com.App.1926), and Lewis v. Independent School Dist., 139 Tex. 83, 161 S.W.2d 450 (1942), upon which the Attorney General relies. Moore v. Myers, 282 S.W.2d 94 (Tex.Civ.App.1955, writ ref. n. r. e.), is disapproved to the extent of any conflict with our holding here. The final reason assigned by the Attorney General for his disapproval rested upon the asserted nonnegotiability of the Series B Bonds supplemental coupons. The coupons in question pay to the bearer "an amount of interest (not exceeding 2½%) under the conditions and to the extent provided for in the resolution authorizing this issue of Revenue Bonds * * *." Section 4.03 of the resolution of May 24, 1966, of the Authority states: The Series B Bonds provide on their face: *695 It is clear under both the Negotiable Instruments Law and the Uniform Commercial Code that the bonds and coupons in question are not negotiable instruments. Art. 5932, Section 1(2), V.A.C.S., of the Texas N.I.L. provided that: As of midnight, June 30, 1966, the Texas N.I.L. was superseded by the Texas U.C.C., and Section 3-104(1)(b) thereof (acts 59th Leg., R.S.1965, ch. 721, p. 57) states: The only exception authorized directly applicable to the coupons in question is that of Section 3-105(1) (g): The requirement of a "sum certain" within the meaning of Section 3-104(1) (b) is defined by section 3-106, as follows: The resolution of the Board of Directors of the Authority authorizing the bond issue purported to declare the bonds negotiable; it reads: To attain negotiability, however, the bonds with the interest obligation represented by the attached coupons must meet statutory requirements or fall under a statutory exception. See City of Erlanger v. Berkemeyer, 207 F.2d 832; 38 A.L.R.2d 918 (6th Cir. 1953); Hunter v. City of Louisville, 208 Ky. 326, 270 S.W. 841 (1925); Pulaski County v. Ben Hur Life Assn., 286 Ky. 119, 149 S.W.2d 738 (1941); State v. Special Road &amp; Bridge Dist. No. 4, 133 Fla. 119, 182 So. 583 (1938); Bay County v. State, 116 Fla. 656, 157 So. 1 (1934). "It is not necessary that the exact language of the Code be followed in order to create a negotiable instrument; but a nonnegotiable instrument does not become negotiable merely because there is an expressed intent that it should be negotiable." Anderson, uniform Commercial Code, Commentary § 3-104:3 (1961). See Pulaski County v. Ben Hur Life Assn., supra; Munro v. City of Albuquerque, 48 N.M. 306, 150 P.2d 733 (1943). See also Farnsworth, A General Survey of Article *696 3 and an Examination of Two Aspects of Codification, 44 Tex.L.Rev. 645, 647 (1966), where it is pointed out that Section 3-104 (1) of the U.C.C. sets forth formal requisites that need be complied with only if an instrument is to be negotiable "within this Article." Comment 1 to Section 3-104 of the U.C.C. explains that this "leaves open the possibility that some writings may be made negotiable by other statutes or by judicial decision." We turn, then, to Section 5-c of the statute governing the Authority to determine if the bonds with the indefinite interest rate provisions, and the interest coupons corresponding thereto, have been declared statutorily negotiable. Section 5-c, enacted in 1953, reads in part: When Section 5-c was added by the Legislature in 1953, negotiability vel non of bonds issued in Texas was determined by the N. I. L., of which Art. 5932, Section 3, provided: Revenue bonds such as issued by the Authority were nonnegotiable under the N. I. L., because their interest and principal were payable solely out of the particular designated revenue fund which might not be sufficient to pay them. See Moore v. City of Nampa, 276 U.S. 536, 45 S. Ct. 340, 72 L. Ed. 688 (1928); 12 Am.Jur.2d, Bonds § 53. It is reasonable to conclude that the Legislature in the 1953 amendment added the term "negotiable" to make certain that the revenue bonds would be construed as negotiable despite the fact that they were payable out of a particular fund and were not general obligations. Cf. City of Erlanger v. Berkemeyer, supra. This statutory grant of negotiability has been codified in the U.C.C., in which a promise to pay is considered unconditional despite the fact that it is limited to a particular fund, if the promissor is a governmental agency or unit. Texas U.C.C., Section 3-105(1)(g). While recognizing that the interest coupons are not negotiable in form as it is contended are the bonds themselves, Relator asserts that by the use in Section 5-c of the term "negotiable revenue bonds" the Legislature declared that all revenue bonds issued by the Authority are to be negotiable regardless of the nature of the obligation represented by the bonds, and that it may be implied that this legislative declaration of negotiability extends to interest obligations represented by interest coupons attached to the bonds. Alternatively, as to the latter, Relator contends that in any event the question is not one of negotiability of the coupons but of the power to issue bonds with interest coupons in such form as may be prescribed by the Board of Directors of the Authority. We disagree. In our opinion the legislative history of the statutes governing the Brazos River Authority will not support the proposition that the 1953 amendment adding Section 5-c has the effect of rendering the Series B Bonds negotiable, notwithstanding the nature of the interest payment obligation. "Coupons attached to a bond are a part of it, affected by its infirmities, as well as endowed with its strength, and their character is not changed by detaching them from the bond without the consent of the purchaser thereof." See 2 Jones, The Law of Bonds and Bond Securities, § 602 (4th ed. *697 1935). Interest coupons not negotiable in form do not become negotiable instruments when separated from the bonds, although the bonds are themselves negotiable; and the purchaser of the detached interest coupons takes them subject to all defects in title. Interest coupons serve no independent purpose until negotiated and are mere incidents of the bonds while in the hands of the holder. 12 Am.Jur.2d Bonds § 56. Finally we note that Section 11 of Acts 44th Leg., 1st C.S.1935, ch. 368, p. 152, provides that no bonds of the Brazos River Authority shall be issued and sold without prior approval by the Attorney General as having been issued in accordance with law. The statute further provides that such approval renders the bonds incontestable for any cause, and supports the legislative intent that bonds issued by the Authority are to be negotiable instruments in all respects. In City of Galveston v. Mann, 135 Tex. 319, 143 S.W.2d 1028 (1940), we underscored the reasons for prior approval by the Attorney General before county or municipal bonds may be issued and sold: The writ of mandamus is denied. No motion for rehearing will be entertained. [1] Acts 1935, 44th Leg., 1st C.S. p. 1527, ch. 368. [2] Acts 1953, 53rd Leg., R.S., p. 531, ch. 194.