.

              THE    A’II’ORNES                GENERAL
                            OF   TEXAS

aH*WFoRD
       c. MARTlN         AUSTIN.TEXAS         78711


                                March   28,    1972


    Honorable Thomas Bartlett      Opinion No. M-1104
    County Attorney
    Falls County Courthouse         Re:       Whether certain Certificates
    Marlin. Texas 76661
          I
                                              of Obligation of Falls County.
                                              Issued.by the Commissioners ~'
                                              Court pursuant to Article
                                              2368a.1, V.C.S., may be pur-
                                              chased by the Permanent School
    Dear Mr. Bartlett:                        Fund of Falls County?
         In your recent letter you have requested the opinion of
    this department on the following question:
              "Whether certain Certificates of,Obllgation
         of Falls County, issued by the Commissioners Court
         pursuant to Article 2368a.1, V.A.T.S., may be pur-
         chased by the Permanent School Fund of Falls County?"
         In answering this question we should first examine the
    posi,,tion
             of ,theFal.lsCounty Commissioners Court in matters
    of this natllre~
         Article VII, Section 6 of the Texas *Consti,tutionstates
    that the county permanent school lands and the proceeds from
    their sale "D0.shall be held by said counties alone as a
    trust for the benefit of public schools..." (Emphasis added).
    Section 17.82(b) of the Texas Education Code makes reference
    to this trust wherein it states that when school lands are
    sold "the proceeds of any such sale shall be invested in
    bonds,. 01)and further that "These bonds shall be held by the
    county in trust for the benefit of its public free schools,
    and only interest thereon may be used and expended annually."
         With reference to the investment of the trust proceeds
    Article VII Section 6 of the Texas Constitution states that
    the proceed; can be "invested in bonds of the United States,
    the State of Texas, or counties in said state, or in such
    other securities9" as designated in See, 17.82(b) of the
    Texas Education Code. Section 6 of Article VII also states
    that any such investtnen,t
                             will be made *.-under such restric-
    tions as may be prescribed by law" and that the "counties

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                                                                 i


Honorable Thomas Bartlett, page 2, (M-1104)


shall be responsible for all investments" should there be
any question as to the misuse of funds. County School
Trustees of Brazorla County v. Brazorla Count   240 s.w*
6’75 676 (Tex.Ci A     1922        it ) Coman%e County
v. Burks 166 S.;: t%,   4739 (;:x?iv:A;p. 1914, error
iGrr--$
     The court in the Comanche Counte case at page 473
referring to the actions of a commissioners' court in the
investment of the counties "permanent school fund," states:
          "The county for which they act holds the
     proceeds as an express trust, and the invest-
     ment thereof in the securities named In the
     Constitution or otherwise, as may be prescribed
     by law, necessarily involves an exercise of
     judgment and discretion." (Emphasis added).
     The Texas Trust Act, Article 7425b-2, Vernon's Civil
Statutes, defines a "trust" for Its purposes as being an
"express trust," and there can be no doubt that the "trust"
in our situation is such a trust. Article 7425b-12 of the
W;sie;;t clearly states that "a trustee" may not "...buy
          either directly or indirectly, any property
owned by'or belonging to the trust estate, from or to
itself or an affiliate."
     hit is clear from the language of the Texas Trust Act
that the commissioners court could not sell to the County's
Permanent School Fund bonds or other securities issued by
the county while serving as Trustees of said fund.
     It has been brought to our attention in this case that
the Certificates of Obligation which Falls County wishes
to sell to the county's permanent school fund bear interest
at l/lOth of 1 percent per annum.
     The only income that the schools within a county receive
as a result of the investments of its "permanent fund" is
the "interest thereon" or other Income realized as a result
thereof, all of which make up the County's"available fund."
     This presents the additional question of the propriety
of such an investment considering the extremely low interest
rate on these certificates. Article 74a5b-46 states "***
the trustee shall exercise the judgment and care under the
circumstances then prevailing, which men of ordinary prudence,

                             -5384-
Honorable Thomas Bartlett, page 3,     (M- 1104)


discretion and intelligence exercise in the management
of thei,rown affairs.. r"
     It would not seem rceasonablethat any one of the
County Commissioners would invest their personal funds
at such a low rate of interest notwithstanding the
"prudent man test" and it would seem inconsistent with
the manifest purpose of the "permanent fund" to make
such an investment.
                   page 474,in the Comanche County
     The coui't,a,t.
case made clear the point ,that".* .in the matter of the
trust under consideration we see no reason why the
county should not be held'to the same rules of law that
are applicable to other trustees..." and in.that case
held the county liable for interest at the then prevailing
legal rate on an improper investment, Consequently, great
caution should be exercised to insure that the highest
prevaili~ngrate of interest, consistent with investment
safety, is secured on any investment of county permanent
school funds, and that said funds are invested in securl-
ties other than those issued by the trustee-commissioners.

                      SUMMARY
          Certificates of Obligation of Falls County,
     issued by the Commissioners Court, may not be
     purchased by the Permanent School Fund of Falls
     County for the Commissfoners of said Court are
     the Trustees of said fund and prohibl,tedby the
     Texas Trust A& f,rommaking sucAan Investment.




Prepared by Robert B. Davis
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Kerns Taylor, Chairman
W. E. Allen, Co-Chairman

                              -5385-
Honorable Thomas Bartlett, page 4, (M-1104)


John Reeves
Jim Swearingen
John Banks
Bob Lattimore
SAMUEL D. MCDANIEL
Staff Legal Assistant

ALFRED WALKER
Executive Ass1stan.t

NOLA WHITE
First Assistant    .




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