Untitled Texas Attorney General Opinion ( 2008 )

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
May 14, 2008
Mr. Ralph J. Bernsen, Sr. Opinion No. GA-0628
Medina County Attorney
3rd Floor, Medina County Courthouse Re: Whether a county may terminate an
Hondo, Texas 78861 equipment lease by acquiring the equipment and
selling it without competitively bidding the sale
(RQ-0651-GA)
Dear Mr. Bernsen:
You ask whether Medina County may terminate an equipment lease by acquiring the
equipment and selling it without competitively bidding the sale.! Caterpillar Financial Services
Corporation ("CFSC") leased a "Caterpillar Motor Grader" to the county? You inform us that the
lease agreement allows the county at the end ofthe lease term to either return the equipment to CFSC
or purchase the equipment. Request Letter, supra note 1, at 1. You state that the county has opted
to return the equipment. Id You inform us, however, that "the current title holder ofthe equipment
is [CFSC] and the equipment needs to be transferred to Holt Caterpillar, Inc. ['Holt Caterpillar'],"
suggesting that CFSC and Holt Caterpillar are separate entities. Id You further state that CFSC
"intends to transfer the property to Medina County and wants Medina County to transfer the
property" to Holt Caterpillar. Id Finally, you state that "Holt Caterpillar paid [the] County $15,000
for the equipment." Id
You relate that the county auditor "is of the opinion that if the property goes into the
inventory ofMedina County, no matter for what purpose," then the County is statutorily required "to
seek bids for the sale of the property." Id at. 2. You disagree, opining that "the transfer of the
property is merely a vehicle to exercise the option to return the property to Holt Caterpillar under the
option in the contract to return the property at the end of the term of the LeaselPurchase contract."
Id at 1-2. You ask "whether ... it is necessary to seek bids on the equipment when the transfer is
merely a vehicle to exercise the return option in the Lease/Purchase contract." Id at 2.
I See Letter from Honorable Ralph J. Bernsen, Sr., Medina County Attorney, to the Office ofAttorney General,
at 1 (Nov. 26, 2007) (on file with the Opinion Committee, also available at http://www.oag.state.lx.us) [hereinafter
Request Letter].
'See [CFSC] Long Term Rental Agreement-[Between Medina County, Texas, Pct # 1, Lessee, and [CFSC],
Lessor; Utilization Date: 8/04/2002] (unsigned copy on file with the Opinion Committee).
The Honorable Ralph J. Bernsen, Sr. - Page 2 (GA-0628)
By "transfer of the equipment," we assume that you mean that CFSC intends to transfer
ownership of the equipment to the county, and the county would then transfer ownership to Holt
Caterpillar. Otherwise, if the county is merely returning property it has leased but never owned, it
is difficult to discern the basis for your question. And because you state that Holt Caterpillar paid
the county $15,000 "for the equipment," we assume the transfer of ownership from the county to
Holt Caterpillar is a sale. Consequently, we will review the applicability of statutory bidding
requirements to a county's contracts to sell its property such as heavy road equipment.
A commissioners court's contracting authority ultimately must be based on the constitution
or a statute. See City ofSan Antonio v. City ofBoerne, III S.W.3d 22,29 (Tex. 2003) (stating that
"a commissioners court's power is limited to that which is expressly delegated to it by the Texas
Constitution or Legislature, ornecessarily implied to perform its duties"); Jackv. State, 694 S.W.2d
391,397 (Tex. App.-San Antonio 1985, writ refd n.r.e.) (holding that a commissioners court's
authority "to make contracts in behalf of the county is limited to that conferred either expressly or
by necessary implication by the constitution and laws of this state"). Chapter 263 of the Local
Government Code broadly governs a county's sale or lease of its real and personal property. See
TEx. Lac. GOY'T CODE ANN. §§ 263.001-.158 (Vernon 2005 & Supp. 2007). See generally Tex.
Att'y Gen. Op. No. GA-0533 (2007) at 4-5 (describing scope ofchapter 263). Within Chapter 263,
section 263.152 of the Local Government Code authorizes a county to dispose of its personal
property as "salvage property" or "surplus property." See id § 263.152(a) (Vernon Supp. 2007).
"Salvage property" is personal property that, for various reasons, "has no value for the purpose for
which it was originally intended." Id § 263.151(1) (Vernon 2005). "Surplus property" is personal
property "that possesses some usefulness for the purpose for which it was intended," but that is not
currently needed by the owner nor required for the owner's foreseeable needs. Id § 263.151(2).
Section 263.152 authorizes a county to dispose of surplus or salvage property by several
different means. See id § 263.152 (Vernon Supp. 2007)3 Subsection (a)(1) sets forth the county's
general authority to sell salvage or surplus property:
(a) The commissioners court of a county may:
(1) periodically sell the county's surplus or salvage property
by competitive bid or auction, except that competitive bidding or an
auction is not necessary if the purchaser is another county or a
political subdivision within the county that is selling the surplus or
salvage property.
Id § 263.152(a)(1) (emphasis added). In other words, subsection (a)(l) authorizes a county to sell
its surplus or salvage property to a private party, but only by competitive bid or auction. We are not
'Not pertinent to your question, section 263.152 authorizes a connuissioners court to trade in, destroy, donate,
or transfer property under specified circumstances. Id. § 263. 152(a)-{a-l) (Yernon Supp. 2007).
The Honorable Ralph J. Bernsen, Sr. - Page 3 (GA-0628)
aware of any provision that allows a county to sell its personal property such as road equipment to
a private party without following procedures for competitive bidding or an auction. 4
'You have suggested that section 263. 152(b) may be pertinent to your question but do not explain the statute's
relevance. See Request Letter, supra note 1, at 1. Section 263 .152(b) provides:
If the property is earth-moving, material-handling, road maintenance, or
construction equipment, the commissioners court may exercise a repurchase option
in a contract in disposing of property under Subsection (a)(l) or (a)(2). The
repurchase price ofequipment contained in a previously accepted purchase contract
is considered a bid under Subsection (a)(l) or (a)(2).
TEX. Lac. GOV'T CODE ANN. § 263.152(b) (Vernon Supp. 2007). By its terms, this subsection concerns only contracts
containing a repurchase provision. You do not suggest that the transactions you describe involved the commissioners
courl's exercise of a repurchase option, or that the county accepted a "repurchase price of equipment contained in a
previously accepted purchase contract." Id. Moreover, the ordinary meaning of "repurchase" denotes a transaction
whereby a buyer sells property back to the original seller. See, e.g., Felin v. Kyle, 102 F.2d 349, 350 (3d Cir. 1939)
(noting that the word "redemption" in certain circumstances is defined as "buying back; a purchase back; a repurchase");
Lusher v. First Nat 'I Bank ofFort Worth, 260 S.W.2d 621, 628 (Tex. Civ. App.-Fort Worth 1953, writ refd n.r.e.)
(determining that sale of property with agreement that seller may purchase property within a reasonable time was an
unconditional sale with an option to repurchase); Youngv. Fitts, 183 S.W.2d 186, 190-91 (Tex. Civ. App.-Fort Worth
1944, writ refd w.o.m.) (construing contract granting seller ofland the right to purchase the property during a certain
term as an "option to 'redeem' or repurchase the land"). From your description ofthe facts, it seems unlikely that section
263.152(b) has any application to the transactions here.
The Honorable Ralph J. Bernsen, Sr. - Page 4 (GA-0628)
SUMMARY
A county that terminates a lease of a motor grader by
acquiring the equipment generally must follow competitive bidding
requirements before selling it to a private party.
Very truly yours,
KENT C. SULLIVAN
First Assistant Attorney General
ANDREW WEBER
Deputy Attorney General for Legal Counsel
NANCY S. FULLER
Chair, Opinion Committee
William A. Hill
Assistant Attorney General, Opinion Committee