Honorable E. E. Coons
County Attorney
Sherman County
Stratford, Texas
Dear Sir:
                               Ordnlon Rumber O-5000
                               Re: Whether She-i&n County
                                    may oompel bondholders
                                    to permit the county
                                    to pay off-unmatured
                                    bonds to extent of
                                    sinking fund and to
                                    refund remaining out-
                                    standing unmatured
                                    bonds.
          We are in receipt of your letter of recent
date requesting our opinion on the question stated therein.
            The facts as disclosed in your letter are as
follows:
          'In the year 1922 Sherman County issued
     $62,500.00 in Burthouse bonds, dated July
     10, 1922,,and maturing serially. At the
     present time there 1s outstanding of this
     issue $42,500.00. These bonds bear @ lnt-
     erest, and none are now, and never been, in
     default. Sherman County has in its sinking
     fund applicable to these bonds approximately
     gl5,ooo.oo.

         "Owing to the present conditions of the bond
    market, the Con.missionersrCourt has asked for
    an opinion as to whether the sinking fund can
    be used to redeem these bonds, and whether the
                                                           .   I.




Honorable E. E. Coons, page #2, O-5000


     other bonds may be refunded at a lower
     rate of interest. The bonds do not carrS;
     an option for payment prior to maturity.
          The questions submitted are:
            "1. May Sherman County require the holders
     of the above bonds, to the extent of Its sink-
     ing fund, to submit their bonds for redemption
     at par and accrued interest? (It being assumed
     that Sherman County will wish to use Its accum-
     ulated   sinking fund for such purpose.)
          "2. May Sherman Count$ refund the remaining
     outstanding bonds by Issuing new bonds at a
     lower rate of interest, and require the holders
     of such bonds to submit them for redemption at
     par and accrued interest?"
          It is true that at the time these bonds were
issued Article 657, Revised Statutes, 1911, read as
follows: “Where bonds have been legally  Issued, or
may be hereafter issued, by any county for any of the
purposes named in Article 610, new bonds bearing the
same or a lower rate of Interest may be Issued, In con-
formity with existing law, In lieu thereof."
          It is also true that Seotion 7 of the l'Bond
and Warrant law of 1931" contains the following lan-
guage: "Such CommIssionerat Court and such governing
bodies shall have the right at all times to issue re-
funding bonds for the refunding of any outstanding bonds
legally issued and outstanding interest on any legally
Issued outstanding bonds, subject to laws applicable
to the issuance of refunding bonds and without the nec-
essity of any notice or right to a referendum vote."
          From the foregoing it Is seen that counties
are given the right to refund outstanding bonds. But
Is that right contingent upon the consent of the bond-
holders? We are of the opinion that It is unless the
bonds contain an option of redemption under which the
county reserves the right to call the bonds upon a
Honorable E. E. Coons, page #3,   O-5000


 iven date. Dallas County v. Lockhart, 96 S. W. (26)
f0. It Is our opinion that if the articles of the stat-
utes hereinabove quoted undertook to authorize counties
to compel the holders of unmatured bonds to surrender
them either for cash or for refunding bonds bearing
a lower rate of interest, such articles would be uncon-
stitutional. Since the original bonds did not contain
an option to redeem them prior to their maturity, any
such law would Lmpair the obligation of the contract
between the county and the bondholder. In Vol. 12,
page 1056, Corpus Juris, Is found the following lan-
.wse : 'Any enactment of a legislative character Is
said to 'impair' a contract which attempts to take from
a party a right to which he Is entitled by its terms,
or which deprives him of the means of enforcing such
a right." On page 1058, same volume of Corpus Jurls,
It Is said: "Where a contract contains an express
promise for the payment of interest + + * the obllga-
tion as to interest is within the protection of the
Constitution, and any subsequent statute Is void which
attempts to remit such interest, or to change the rate
at which it shall be computed.'
          The Supreme Court of California in the case
of Los Angeles County v. Rockhold, 44 Pac. (26) 340,
100 A. L. R., 149, had before it a question similar
to the one under consideration. An Act of the Legls-
lature providing for the refunding of certain bonds
was under attack. We quote the following from the
opinion of the court:
          'The second ground of unconstitutionality
     urged by respondent is that by the 1933 Act
     the contract of the bondholders has been im-
     paired. As already stated, the act provides
     that the refunding may take place when 75 per
     cent. of the holders of outstanding bonds con-
     sent. Under the refunding scheme, the nature
     of the security is changed and the principal
     and Interest of the bonds are reduced. It Is
     plain, therefore, that the obligation of the
     exlsting bonds is Impaired. As to the 75 per
     cent. or mope bondholders who consent, there
     Is, of course, no complaint. But as to the
     nonconsenting bondholders, including those who
Honorable E. E. Coons, page #4, O-5000


     are absent and those Incapacitated or lncompe-
     tent, who may hold up to 25 per cent. of the
     bonds, there is an obvious Impairment, if their
     bonds are canceled and they are forced to take
     new bonds with a different security, in a lesser
     amount, and bearing a reduced interest, or If
     their security Is lessened + * *'.
          The refunding act was held Invalid upon the
grounds, among others, that lt,failed to protect ade-
quately the rights of the dissenting bondholders. That
the same result would be reached by the Texas courts
is Indicated by the language used In the case of Love
Q. Rockwall Independent School District, et al., 225
s. w. 263. In that case the question was considered
whether a tax levy to pay the interest and provide a
sinking fund for a certain issue of bonds was invalid
because of the fact that the bonds had not been pre-
sented to the Attorney General for his approval. After
holding that this fact did not ItIQalidate the levy,
the court made the following statement:          ,,,
          "This action of the board of trustees was
     legal. Besides, just recently the defendants
     located the holders of said common school dis-
     trict bonds and obtalned,an agreement that the
     rerunding bonds would be accepted In lieu of
     common school district bonds, or that they would
     accept cash out of the proceeds of the sale of
     the refunding bonds."
          In view of the foregoing you are advised that
Sherman County can not require the holders of the bonds
to submit their bonds ror payment at par and accrued
interest, and can not require such holders to submit
their bonds for refunding at a lower rate of interest.
          Of course this opinion is limited to non-op-
tion bonds. In the case of option bonds the Issuing
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Honorable E. E. Coons, page #5,   O-5000


agency reserves the right to call the bonds in ior re-
demptlon at stated times. Ln the case of'Dallas County
Q. Lo&&art, supra, it was held that option bonds could
be redeeqnedeither by payment or by the lssuanoe of
refunding bonds.


                                   Very truly yours
                              ATTORNEY GENERAL aF TFXAS




CFG/s/lm
E.p.p.
                    APPROVED DEC 3, 1942
                    /s/ Gerald C. Mann
                    ATTORNEY GENERAL OF TEXAS


                              APPRUVED
                              OPIIvIOri
                              COMMITTEE
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