Judges: RICHARD P. IEYOUB
Filed Date: 11/21/2002
Status: Precedential
Modified Date: 7/5/2016
Dear Mr. Hightower:
You requested the opinion of this office concerning lease purchase or installment payment agreements for the acquisition of movable equipment by political subdivisions of the State. Your first question is as follows:
1. Does Act
128 of 2001 make Louisiana Uniform Commercial Code Chapter 9 relative to secured transactions apply to some municipal and other governmental transactions, particularly vehicle lease purchase or installment payment agreements?
Act
"§ 9-109. Scope
(a) General scope of Chapter. Except as otherwise provided in subsections (c) and (d), this Chapter applies to:
(1) a transaction, regardless of its form, that creates by contract a security interest in any type of personal property . . .
***
(c) Extent to which Chapter does not apply. This Chapter does not apply to the extent that:
(1) a statute, regulation, or treaty of the United States preempts this Chapter;
(2) another statute or the constitution of this State expressly governs the creation, perfection, priority, or enforcement of a security interest created by this State or a governmental unit of this State;. . . (Emphasis added)
"Governmental unit" is defined in Section 9-102(a)(45) to mean
"a subdivision, agency, department, county, parish, municipality, or other unit of the government of the United States, a State, or a foreign country. The term includes an organization, including a public trust, having a separate corporate existence if the organization is eligible to issue debt on which interest is exempt from income taxation under the laws of the United States. The term further includes all public entities as defined in R.S.
39:1421 (2)."
The Official Revision Comments to Section 9-109 explain the application of Revised Chapter 9, as follows in pertinent part:
***"(a) . . . Under this Section, all consensual security interests in personal property are covered by revised Chapter 9, except for transactions excluded by Subsections (c) and (d). As to which transactions give rise to a "security interest", the definition of that term in R.S.
10:1-201 must be consulted. When a security interest is created, revised Chapter 9 applies regardless of the form of the transaction or the name that parties have given to it.
(d) Subsection (c)(2) changes the law. Security interests created by public entities in connection with the issuance of securities were excluded under former Chapter 9. See former R.S.
10:9-104 (e). Revised Chapter 9 applies to security interests created by a governmental unit, which includes by definition all public entities as defined in R.S.39:1421 (2), except to the extent that another statute governs the issue in question. Revised Chapter 9 adds a reference to the Louisiana constitution as well. In Louisiana, R.S.39:1430.1 will preempt the application of revised Chapter 9 as to public finance transactions involving security interests in taxes, income, revenues, monies or receipts granted by public entities. See R.S.10:9-102 (a)(45)." (Emphasis added)
Furthermore, the comments to the Uniform Commercial Code as found under R.S.
"9. Governmental Debtors. Former Section 9-104(e) excluded transfers by governmental debtors. It has been revised and replaced by the exclusions in new paragraphs (2) and (3) of subsection (c). These paragraphs reflect the view that Article 9 should apply to security interests created by a State, foreign country, or a "governmental unit" (defined in Section 9-102) of either except to the extent that another statute governs the issue in question . . ."
Accordingly, Revised Chapter 9 applies to the secured transactions of governmental units (provided that the governmental unit is constitutionally permitted to create a secured transaction), except to the extent that another statute governs such a transaction. We were unable to locate any statute which specifically governs security interests created in connection with lease purchase or installment sale agreements1, and thus are of the opinion that Revised Chapter 9 applies to lease purchase and installment sale agreements, generally. If however, the lease purchase or installment sale agreement is secured by the "pledge of taxes, income, revenues, monies, or receipts . . . made by a public entity in connection with the issuance of securities", such agreement would not be subject to Revised Chapter 9 but would rather be subject to the provisions of R.S.
You advised that the Master Lease Agreement which the City of Shreveport proposes to enter does not involve the pledge or taxes, income, revenues, etc., accordingly, such agreement would be subject to Revised Chapter 9, subject to the City being constitutionally permitted to create a secured transaction.
2. If Act 128 is applicable, and a security interest in public property is created thereunder, would that make the agreement subject to State Bond Commission approval?
State Bond Commission approval is required whenever a political subdivision incurs debt. La. Const. Art.
La. Const. Art.
This office has consistently opined that a lease containing a "non-funding out" or a "non-appropriation clause" does not constitute a debt requiring State Bond Commission approval. Op.Atty.Gen. Nos. 98-258, 95-508, 95-342, 92-559, 86-735, 83-1045, 81-701, 81-160, 78-1089, 77-881. Such clauses provide that, if for any reason, the political subdivision fails to appropriate or make available funds to meet its obligations under the agreement during any fiscal year, the agreement may be terminated, without penalty. Such a clause, in essence, states that the contract is funded on a fiscal year to fiscal year basis and only involves currently appropriated revenue, and, therefore, does not incur indebtedness. The opinion of this office became statutory with the enactment of R.S.
As public funds, credit, property, or things of value can only be pledged for public purposes with respect to the issuance of bonds or other evidences of indebtedness to meet public obligations as provided by law, and all debt of political subdivisions require State Bond Commission approval, State Bond Commission approval is necessary in order for the City to enter the type of agreement contemplated in your request. In order to obtain the approval of the State Bond Commission, it will be necessary for the political subdivision to provide the State Bond Commission with evidence that there will be sufficient revenues to repay the borrowing3.
3. Would the creation of a security interest in public property violate ArticleXII , Section10 of the Louisiana Constitution?
La. Const. Art.
"Notwithstanding . . . any other provision of this constitution, the legislature by law may limit or provide for the extent of liability of the state, a state agency, or a political subdivision in all cases . . . It shall . . . provide for the effect of a judgment, but no public property or public funds shall be subject to seizure. . . . No judgment against the state, a state agency, or a political subdivision shall be exigible, payable, or paid except from funds appropriated therefor by the legislature or by the political subdivision against which the judgment is rendered." (Emphasis added)
Accordingly, while Revised Chapter 9 contemplates a security interest in public property and such is authorized by La. Const. Art.
Trusting this adequately responds to your request, we remain
Very truly yours,
RICHARD P. IEYOUB ATTORNEY GENERALBY: __________________________ MARTHA S. HESS Assistant Attorney General
RPI:MSH:jv