Untitled Texas Attorney General Opinion ( 1964 )

Mr. R. C. Goodwin, President Opinion No. C-213
Texas Technological College
Lubbock, Texas Re: Authority of Texas
Technological College
to purchase and cancel
its Constitutional Tax
Dear Sir: Bonds.
With regard to Board of Directors of Texas Tech-
nological College Constitutional Tax Bonds, Series 1958,
Series 1958-A, and Series 1959, originally issued in the
total amount of $1,645,000, you requested an opinion as
follows:
"The above bonds, which are payable out of
the five-cent ad valorem tax levied by
Article VII, Section 17, as amended, of the
Texas Constitution, have matured or mature
serially in the years 1959 to 1968, both
inclusive. These bonds and the resolution
authorizing same do not contain provisions
which would give the Board of Directors of
Texas Technological College the option to
call such bonds prior to their stated maturi-
ties. However, there is being accumulated in
the Interest and Sinking Fund held by the
Comptroller of the State of Texas for the
benefit of these bonds, moneys .in excess of
the amount required to meet the interest and
principal payments as such fall due and ma-
ture.
"We are advised that the Board will save con-
siderable money if some of such bonds out-
standing can be purchased with such funds at
prices less than the stated principal amount.
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Mr. R. C. Goodwin, page 2 (C-273)
"It is requested that you advise whether
it will be permissible to employ such
funds for the purpose of purchasing such
bonds prior to their stated maturities.
It is not contemplated that such funds
would be used in a manner which would
precipitate a default in the payment of
principal of or interest on any of the
outstanding bonds in accordance with the
terms thereof".
We have re-examined the transcripts of proceed-
ings underlying the issuance of these bonds, including
the resolutions by the Board of Directors of Texas Tech-
nological College which authorized the issuance of the
bonds, and are of the opinion that it is permissible to
employ moneys in the Interest and Sinking Funds for the
purpose of purchasing, for cancellation, outstanding
bonds of the three series described prior to their stated
maturities at prices equal to or less than the stated
principal amounts.
All bonds of these three issues are on a parity.
This is illustrated by Section 6 of the Resolution per-
taining to issuance of the Series 1959 bonds, as follows:
"6. Bonds of Issue on Parity. That no one
of said Bonds shall be entitled to prior-
ity over any other Bond of this issue in
the application of the money in the Alloca-
ted Fund which has been pledged to the pay-
ment of the principal of and interest on
the Bonds, irrespective of the fact that
some of the Bonds may be delivered prior
to the delivery of other Bonds, it being
the intent of this Resolution that all Bonds
of this issue shall rank equally. The Bonds
of this issue shall be in all respects on a
parity with the Series 1958 Bonds and the
Series 1958-A Bonds".
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Mr. R. C. Goodwin, page 3 (C-273)
So that none of the rights of the holders of
any of the bonds left outstanding may be prejudiced,
the bonds should be purchased in order of their maturi-
ties. In this way all of the bonds of all three issues
maturing on July 1, 1964, will be retired before any of
the bonds maturing in 1965 are retired, and so on.
The moneys in the Interest and Sinking Fund, by
the terms of the resolutions authorizing the bonds above
described, are pledged ". . . solely to pay the princi-
pal of and interest on the Bonds and to defray the expense
incident to such payments . . .'I.
An interest and sinking fund is a fund specially
earmarked for the extinction of a debt, and the object of
every such fund is to diminish the debt whose existence
warranted its foundation. Clark v. City of Philadelphia,
328 Pa. 521 (1938); 196 A. 384, 387, 388. Bank for Sav-
inss v. Grace, 7 N.E.162, 168; 102 N.Y. 313 (1886). The
purchase for cancellation of some of its own outstanding
bonds by the Board of Directors of Texas Technological Col-
lege, prior to their stated maturities, is nothing'morez'than
a partial extinction of a debt and is in keeping with the
stated purpose for which the moneys in the Interest and
Sinking Fund are pledged.
SUMMARY
The Board of Directors of Texas Technologi-
cal College may, under conditions described,
use moneys in the Interest and Sinking Fund
for purchase and cancellation of the bonds
in question.
Very truly yours,
WAGGONER CARR
HWM.-S Assistant Attorney General
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Mr. R. C. Goodwin, page 4 (C-273)
APPROVED:
OPINION COMMITTEE
W. V. Geppert, Chairman
James Strock
Joe Long
Charles Swanner
Malcolm Quick
APPROVED FOR THE ATTORNEY GENERAL
By: Stanton Stone
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