Untitled Texas Attorney General Opinion

Honorable E. E. Coons County Attorney Sherman County Stratford, Texas Dear Sir: Ordnlon Rumber O-5000 Re: Whether She-i&n County may oompel bondholders to permit the county to pay off-unmatured bonds to extent of sinking fund and to refund remaining out- standing unmatured bonds. We are in receipt of your letter of recent date requesting our opinion on the question stated therein. The facts as disclosed in your letter are as follows: 'In the year 1922 Sherman County issued $62,500.00 in Burthouse bonds, dated July 10, 1922,,and maturing serially. At the present time there 1s outstanding of this issue $42,500.00. These bonds bear @ lnt- erest, and none are now, and never been, in default. Sherman County has in its sinking fund applicable to these bonds approximately gl5,ooo.oo. "Owing to the present conditions of the bond market, the Con.missionersrCourt has asked for an opinion as to whether the sinking fund can be used to redeem these bonds, and whether the . I. Honorable E. E. Coons, page #2, O-5000 other bonds may be refunded at a lower rate of interest. The bonds do not carrS; an option for payment prior to maturity. The questions submitted are: "1. May Sherman County require the holders of the above bonds, to the extent of Its sink- ing fund, to submit their bonds for redemption at par and accrued interest? (It being assumed that Sherman County will wish to use Its accum- ulated sinking fund for such purpose.) "2. May Sherman Count$ refund the remaining outstanding bonds by Issuing new bonds at a lower rate of interest, and require the holders of such bonds to submit them for redemption at par and accrued interest?" It is true that at the time these bonds were issued Article 657, Revised Statutes, 1911, read as follows: “Where bonds have been legally Issued, or may be hereafter issued, by any county for any of the purposes named in Article 610, new bonds bearing the same or a lower rate of Interest may be Issued, In con- formity with existing law, In lieu thereof." It is also true that Seotion 7 of the l'Bond and Warrant law of 1931" contains the following lan- guage: "Such CommIssionerat Court and such governing bodies shall have the right at all times to issue re- funding bonds for the refunding of any outstanding bonds legally issued and outstanding interest on any legally Issued outstanding bonds, subject to laws applicable to the issuance of refunding bonds and without the nec- essity of any notice or right to a referendum vote." From the foregoing it Is seen that counties are given the right to refund outstanding bonds. But Is that right contingent upon the consent of the bond- holders? We are of the opinion that It is unless the bonds contain an option of redemption under which the county reserves the right to call the bonds upon a Honorable E. E. Coons, page #3, O-5000 iven date. Dallas County v. Lockhart, 96 S. W. (26) f0. It Is our opinion that if the articles of the stat- utes hereinabove quoted undertook to authorize counties to compel the holders of unmatured bonds to surrender them either for cash or for refunding bonds bearing a lower rate of interest, such articles would be uncon- stitutional. Since the original bonds did not contain an option to redeem them prior to their maturity, any such law would Lmpair the obligation of the contract between the county and the bondholder. In Vol. 12, page 1056, Corpus Juris, Is found the following lan- .wse : 'Any enactment of a legislative character Is said to 'impair' a contract which attempts to take from a party a right to which he Is entitled by its terms, or which deprives him of the means of enforcing such a right." On page 1058, same volume of Corpus Jurls, It Is said: "Where a contract contains an express promise for the payment of interest + + * the obllga- tion as to interest is within the protection of the Constitution, and any subsequent statute Is void which attempts to remit such interest, or to change the rate at which it shall be computed.' The Supreme Court of California in the case of Los Angeles County v. Rockhold, 44 Pac. (26) 340, 100 A. L. R., 149, had before it a question similar to the one under consideration. An Act of the Legls- lature providing for the refunding of certain bonds was under attack. We quote the following from the opinion of the court: 'The second ground of unconstitutionality urged by respondent is that by the 1933 Act the contract of the bondholders has been im- paired. As already stated, the act provides that the refunding may take place when 75 per cent. of the holders of outstanding bonds con- sent. Under the refunding scheme, the nature of the security is changed and the principal and Interest of the bonds are reduced. It Is plain, therefore, that the obligation of the exlsting bonds is Impaired. As to the 75 per cent. or mope bondholders who consent, there Is, of course, no complaint. But as to the nonconsenting bondholders, including those who Honorable E. E. Coons, page #4, O-5000 are absent and those Incapacitated or lncompe- tent, who may hold up to 25 per cent. of the bonds, there is an obvious Impairment, if their bonds are canceled and they are forced to take new bonds with a different security, in a lesser amount, and bearing a reduced interest, or If their security Is lessened + * *'. The refunding act was held Invalid upon the grounds, among others, that lt,failed to protect ade- quately the rights of the dissenting bondholders. That the same result would be reached by the Texas courts is Indicated by the language used In the case of Love Q. Rockwall Independent School District, et al., 225 s. w. 263. In that case the question was considered whether a tax levy to pay the interest and provide a sinking fund for a certain issue of bonds was invalid because of the fact that the bonds had not been pre- sented to the Attorney General for his approval. After holding that this fact did not ItIQalidate the levy, the court made the following statement: ,,, "This action of the board of trustees was legal. Besides, just recently the defendants located the holders of said common school dis- trict bonds and obtalned,an agreement that the rerunding bonds would be accepted In lieu of common school district bonds, or that they would accept cash out of the proceeds of the sale of the refunding bonds." In view of the foregoing you are advised that Sherman County can not require the holders of the bonds to submit their bonds ror payment at par and accrued interest, and can not require such holders to submit their bonds for refunding at a lower rate of interest. Of course this opinion is limited to non-op- tion bonds. In the case of option bonds the Issuing h ,,-> Honorable E. E. Coons, page #5, O-5000 agency reserves the right to call the bonds in ior re- demptlon at stated times. Ln the case of'Dallas County Q. Lo&&art, supra, it was held that option bonds could be redeeqnedeither by payment or by the lssuanoe of refunding bonds. Very truly yours ATTORNEY GENERAL aF TFXAS CFG/s/lm E.p.p. APPROVED DEC 3, 1942 /s/ Gerald C. Mann ATTORNEY GENERAL OF TEXAS APPRUVED OPIIvIOri COMMITTEE Bs