         TREA-~~ORNEY                 GENERAL

                        OFTEXAS




HonorableGeo. H. Sheppard
Comptrollerof Public Accounts
Austin, Texas

Dear Mr. Sheppard:

                                  OpinionNumber O-3441
                                  Be: Authorityof State Board of
                                      Education,the holder of the
                                      originalbonds, to a preferential
                                      right to contractfor acquiring
                                      refundingbonds isszd in lieu
                                      thereof.

We are in receiptof your letterof April 19, requestingour opinion
on the followingquestion:

    "IS the State Board of Education,the holder of the original
    bonds for the benefit of the PermanentSchoolFund, entitled
    to a preferenceright to contractfor acquiring refunding
    bonds issued in lieu thereof?"

The facts underlyingthis questionare, that the State Board of Education
exerciseditsoption to purchasebonds originallyissuedby a road district
of a county. The bonds providedthat the issuemay be redeemedat any
time by givingten (10) days' notice,and the issuingdistricthas
declaedto redeem all of the originalbonds purchasedby the State
PermanentSchoolFund, and to issue in lieu thereof~ refundingbonds- The
State Board of Educationnotifiedthe issuingdistrictthat the Permanent
School Fund would purchasethe refundingbonds when the same were issued
and pay the price offeredthereforby the beat bona fide bidder. The
issuingdistrictelected to sell the refundingbonds to a purchaser
other than the PermanentSchool Fund, the holder of the originalbonds.

In our opinion,preciselythis same questionwas ra,isedin the case of
DallasCounty v- Lockhart,96 S. W. (2d) 60. The SupremeCourt replied
as followsin answer to such question:

    "The option grantedby Article 2673, as amended,to the Slate
    Board of Educationto purchasecountyand municipalbonds
    must be held to be limited-
    ---                        to --
                                  the purchase
                                       --      of .,..,?
                                               -_ ori&nal
    bonds.
    .-v*   RefundxgTonds  are  not issued to be sold on"iT;e'
    market as originalbonds. They cannotbe issued until the
HonorableGeo. H. Sheppard,Page #2     O-3441


     Originalbonds are called,andwhen iseuedare not the
     propertyof the county or municipalityissuingthem,
     but immediatelyupon their issuancethey become the
     propertyof the party having the right theretoby previous
     agreement. To give that articlea constructionthat would
     make it applicableto refundingbonds would be to give to
     the Board of Educationthe power to preventthe making of
     any contractlookingto the refundingof bonded indebtedness
     even when the originalbonds are in the hands of a private
     investor. Such a constructioncannotbe adopted."

The SupremeCourt in the Dallas County v. Lockhartcase, supra,
expresslystated it was not calledupon to determinewhether the holders
of originalbonds are entitledto a preferenceright to contractfor
refundingbon& issued in lieu thereof,but as stated in the above quoted
portionof the Court'sopinion,the refundingbonds cannotbe issueduntil
the originalsare cancelled,and when issuedthey become the propertyof
the party having the right theretoby previousagreement.

There is nothingto preventthe presentholder of the bonds calledout
of the PermanentSchoolFund from retainingthem as evidenceof an
obligationagainstthe issuingdistrictand therebydefeatany
preferenceright the State PermanentSchool Fund could have to refunding
bonds that may have been issued in lieu thereof. Therefore,it would
become a matter of contractbetween the issuingdistrictand the owner
of the-bondsas to the terms upon which same would be paid. Such as
agreementobviouslycould be made without the necessityof issuingnew
evidencesof such agreed obligations.

We think the languageof the Court above quoted sufficientlyin point to
deny to the Board of Educationthe power to exercisea preferenceright
to contractfor acquiringrefundingbonds issuedin lieu of originalbonds
redeemedfrom the State PermanentSchoolFund pursuantto a legal call
by the issuingdistrict.

Having answeredthis questionin the negative,we deem it unnecessaryto
reply to the second questioncontainedin your letter of April lgO

Trustingthat this satisfactorily
                               answersyour inquiry,we area

                                       Very truly yours

                                 ATTORNEY   GENERALOFTEXAS
APPBOVEDAPB. 29, 1941
s/ GlennB. Lewis                 S/ ClsrenceE. Crowe
ACTING ATTORNEiX GSNERhL
OF TEXAS
APPBOVEDOPINIONCOMMITTEE         BY
BY B. W. B. CEUUBMAN                  ClarenceE. Crowe
CEC-s-ldw                                    Assistant
