The Attorney General of Texas
June 4, 1980
MARK WHITE
Attorney General
Honorable Warren G. Harding Opinion No. NW-187
State Treasurer
P. 0. Box 12608, Capitol Station Re: Whether the distributor’s
Austin, Texas 78711 cigarette tax surety bond is
ineffective on receipt of a
cancellation notice.
Dear Mr. Harding:
You ask for an interpretation of a Distributor’s Cigarette Tax Surety
Bond. Payment of the cigarette tax required by article 7.02, Taxation-
General, is evidenced by stamps purchased from the Treasurer and affixed to
each package of cigarettes. Tax.-Gen. art. ‘7.02(2). The distributor must
file a surety bond with the State Treasurer conditioned upon payment in full
for the stamps or meter settings within the time specified by statute. Tax.-
Gen. art. 7.08(S).
You inform us that a bonding company sent a cancellation notice
stating the date they wished to be released from further liability on the
bond. You ask whether the bonding company will be responsible for
purchases of stamps made after the cancellation date it specified if the
State Treasury Department wishes to continue the bond past that date.
You have submitted a copy of the cancellation notice and the bond
form. The answer to your question depends on an interpretation of the
provisions of the bond form. Bonds are construed in accordance with the
rules governing the construction of written contracts. Crane County v.
Bates, SO S.W.2d 243 (Tex. 1936). The Treasurer may cancel the bond for
failure of the distributor to comply with article 7.08(g) Taxation-General
and all rules and regulations promulgated thereunder. The following
provision from the bond in question relates to cancellation by the surety.
The Surety on this bond shall be released and
discharged from any end all liability accruing under
this bond by written request to the State Treasurer of
Texas, provided, however that such request shall not
operate to relieve, or release or discharge such surety
from any liability already accrued or which may
accrue until request is granted by the State Treasurer
of Texas.
P. 597
Honorable Warren G. Harding - Page Two (HW-187)
In our opinion, this provision clearly states that the surety is subject to liabilities
which accrue until his request is granted by the Treasurer. Although the first clause of
the sentence states that the surety shall be released, this must be read together with the
proviso, which conditions release on the granting of the surety request by the Treasurer.
See University Interscholastic League v. Midwestern University, 255 S.W.2d 177 (Tex.
1953) (contract must be construed as a whole). We believe the State Treasury Department
may continue the bond past the specified cancellation date so that the bonding company
remains responsible for purchases of stamps after that date until the Department grants
the request for cancellation.
We believe the parties may validly enter into such an agreement. The quoted
provision effectively permits termination by mutual consent on the instigation of the
surety. Even a provision which allows only one party an option to terminate is permissible
where supported by sufficient consideration. Thomas v. Western Indemnity Co., 246 S.W.
345 (Tex. 1922). We do not believe the termination provision is invalid. However, in order
to render it meaningful, we believe the Treasury Department must terminate within a
reasonable time and not withhold its consent and extend the surety’s liability indefinitely.
See Pace Corp. v. Jackson, 275 S.W.2d 849 (Tex. Civ. App. - Austin), mod. on other
Funds, 284 S.W.2d 340 (Tex. 1955) (law implies a reasonable time for performance).
SUMMARY
The surety cn the Distributor’s Cigarette Tax Surety Bond
presented for our consideration remains liable for purchases of
stamps made until the time his request for cancellation is accepted
by the State Treasury Department provided the Treasury Depart-
ment &es not withhold its consent for an unreasonable length of
time.
Very truly yours,
.
Y-7
24 MARK WHITE
Attorney General of Texas
JOHN W. FAINTER, JR.
First Assistant Attorney General
TED L. HARTLEY
Executive Assistant Attorney General
p. 598
Honorable Warren G. Harding - Page Three (MW-187)
Prepared by Susan Garrison
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
C. Robert Heath, Chairman
Bill Campbell
Susan Garrison
Rick Gilpin
Myra McDaniel
P. 599