            HE   A~oRNEY           GENERAL
                      OFTEXAS




Honorable W. P. Herms, Jr.
County Auditor
Wailer County
Hempstead, Texas
Dear Sir:              Opinion No. O-7207
                       Re: Whether Wailer County Funds are
                            adequately protected by certain
                            pledged seduritles now deposlted
                            in certain banks for safekeeping
          Your letter of recent date requesting an opinion
from this department on the above subject matter Is as fol-
lows:
          "The Cltlzens State Bank, Hempstead, Texas,
    County depository for Wailer County, in making its
    depository bond, has pledged U. 5. Treasury Bonds
    and notes 1n the amount of $720,000.00; such bonds
    being deposited with Federal Reserve Bank of Dallas,
    The City National Bank of Houston and San Jacinto
    National Bank of Houston.
          "Please find inclosed a photostatlc copy of
    safekeeping instrument Issued by Federal Reserve
    Bank of Dallas for $500,000.
            "The receipts from other %anks mentioned above
read:
            "THE CITY NATIONAL BANE:
                 Three receipts for a total of $20,000 Treasury
                 Bonds, showing 'Receivea from Citizens State
                 Bank, Hempstead, Texas and A. B. Anderson,
                 County Judge, or his Successor in office,
                 jointly.'
                 JACINTO NATIONAL BANK:
                 Two receLpts for a total of $100,000 U. S.
                 Treasury Notes and Bonds, receipts reading
                 'Received of Citizens State Bank of Hempstead,
                 Hempstead; Texas and Geo. 0. Grump, County
                 Judge of Wailer County, Texas (or his successor
Hon. W. P. Berms, Jr., page 2         O-7207


               in office). On each of the above receipts
               the following notation Is made: '(This de-
               posit constitutes a pledge by Citizens State
               Bank of Hempstead to Secure County Funds of
               Wailer County, Texas, and notes will be re-
               leased only on writteuorder from the County
               Judge of Wailer County, Texas.)'
          "THE CITY NATIONAL BANK:
               One receipt U. S. Treasury Bonds for $100,000,
               receipt showing 'Received from Citizens State
               Bank, Hempstead, Texas, and A. B. Anderson,
               County Judge, or his Successor in office,
               Jointly'. Notation typed on bottom of such
               receipt reads: 'Held In safekeeping at Manu-
               facturers Trust Company, New York, N. Y.'
           "By written statement to the Commissioners' Court
    on March 11, 1946, I pointed out to the CommIssionera'
    Court that said safekeepIng receipts were made to the
    depository and Wailer County, ,iointlK,and in my opinion,
    according to Art. 2547, R.C.S., such receipts should read
     'Received from the Commissioners' Court of Wailer County',
    alone and that such joint receipt issued to both the
    bankmaking the bond and Wailer County, defeats the very
    purpose for which the bond is made, since the effective-
    ness of such a bond is necessarily limlted to the consent
    and direction of the institution making the bond.
          "My basis for such advice to the Commissioners'
    Court was derived from Article 2547 (c) which reads in
    part: 'In lieu of such personal bonds.......said deposi-
    tory bank is authorlzed to pledge with the Commissioners'
    Court for the purpdse of securing such County Funds,
    securities of the following kind. . . . ., to w1t:'
          "Article 2547 (c) further provides: 'Upon the re-
    quest of the depository bank, the Commlssloners' Court
    shall surrender interest coupons or other evidence of
    interest, when due, on securities deposited with the Com-
    missioners' Court by such depository bank, provided said
    securltles remaini.ngpledged are ample to meet the re-
    quirements of said Commissioners' Court.'
          "The foregoIng seems to contemplate the exclusive
    control or possession by the Commissioners' Court of
    securities pledged by Depository Bank for Depository Bona.
Hon. W. P. Herms, Jr., page 3          O-7207


          "In the above referred to and inclosed photostatic
    copy of safekeeping receipt of Federal Reserve Bank of
    Dallas, paragraph No. 1, No. 5, and No. 8, are particu-
    larly referred,to, my own interpretation of these para-
    graphs, taken as a whole, and, in their entirety, being
    that the depository bank which Is bonded, has more con-
    trol over the securities representing the bond, than
    does Wailer County, to whom the bond Is made, and to
    whom such bond should be made payable unconditionally
    In the event of loss bv Wailer Countv. If such loss can
    not be made up by the liquidation of"such securities so
    pledged, and if same can not be done without the consent
    of the institution making the bond, then such a condition
    contemplates a law suit before collection on a loss can
    be sustalned.
          “My questions:

          "1. Are Wailer County Funds adequately protected
              as contemplated by the statutes governing
              same?
          "2 .   If your answer to Question No. 1 above is
                 'No' what steps should be taken to comply
                 with'the statutes?"
         Article 2547, subdivLsion (c), is in part as follows:
         11         of                      nv suretv ho
   &Jove soecifid      sawtion,                  assoc~a~
   or indivLdua1 binker so selected as county depository,
   may pledge, and said depository bank is authorized to
   pledge with the Commissioners' Court for the purpose of
   securing such county funds, securities of the following
   kind, in an amount equal to the amount of such county
   funds on deposit In said depository bank, to-wit: bonds
   and notes of the United States, securities of Indebtedness
   of the United States, and other evidences of indebtedness
   of the United States, when said evidences of indebtedness
   are supported by the full faith and credit of the United
   States of America,    and other bonds or other evidences of
   indebtedness which are guaranteed as to both principal
   and interest by the United States Government, bonds of
   the State of Texas, ........ and such securities so oledned
   by such depository bank shall be deposited as the Com-
   ml.ssioners'Court may direct."
          We note that the Commissioners' Court of Wailer
County in accordance with the provisions of the foregoing
Article has directed that certain securities pledged by the
Hon. W. P. Herms, Jr., page 4         O-7207


depository bank be deposited in the Federal Reserve Bank of
Dallas for safekeeping as evidenced by the following agree-
ment, a photostatic copy of which you enclosed~with your re-
quest:
"APPLICATION TO FEDERAL RESERVE BANK OF DALLAS REQUESTING
 THAT IT ACCEPT CERTAIN SECURITIES FOR SAFEKEEPING

          "Whereas, the undersIgned Depository has been duly
    and legally designated, and has done all things and per-
    formed all acts necessary to qualify as the public deposi-
    tory of the funds of the undersigned Depositor; and
          "Whereas, to secure the funds deposited with it, the
    Depository has in accordance with law pledged with the
    Depositor the following securities:
          I‘       . .(Description of $500,000.00 U.S. Treasury
    Bonds ,mittedj
          '(In the above space give complete description of
    securities offered for safekeeping. If above space Is
    not sufficient, continue description on reverse side
    hereof.)
          "And whereas, other and additional securities may
    be pledged by the Depository with the DeposLtor at some
    future time; and
          "Whereas, both the Depositor and Depository desire
    and hereby request that the Federal Reserve Bank of Dallas
    accept the securities above described, or any hereafter
    tendered, to be held by it for the joint account of the
    Depositor and Depository under such joint safekeeping
    receipts as it may desire to issue:
          "Now, therefore, in consideration of the premises,
    and as an inducement to the Federal Reserve Bank of
    Dallas gratuitously to hold for safekeeping the above
    described securities or any other additlonal or sub-
    stituted securities which may hereafter be tendered to
    it, it is agreed by and between the Depositor and De-
    pository for the benefit of themselves and of the Federal
    Reserve Bank of Dallas should it agree to act in the
    capacity requested, as follows:
          "1 . The agreement of the Federal Reserve Bank of
    Dallas to act under this application In the capacity re-
    quested shall be evidenced by the issuance of its Joint
    Safekeeping Receipt, and It is understood and agreed
    --
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         Hon. W. P. Herms, Jr., page 5         O-7207


             that such receipt, if issued, shall be Subject to
             the terms and conditions hereinafter set out.
                   "2 . The Federal Reserve Bank of Dallas shall act
             only as a gratuitous bailee. It shall give the securities
             hereinabove described, or any taken in substitution there-
             for or in addition thereto, the same care that it gives
             to its own property of like kind, but otherwise It shall
             be liable only for its own negligence or for failure to
             comply with the terms of this agreement.
                   “3 . The Federal Reserve BAnk of Dallas need not
             maintain any form of Insurance for the account of the
             Depositor and/or Depository on the securities placed with
             it Under this agreement. The Depositor and Depository
             shall carry for their own account such insurance as they
             think necessary or desirable.
                   "h . Substitutions may be mad8 for any of the above
             described securities or any additional securities which
             may be tendered and accepted, or for securities which
             have been previously substituted under the terms of this
             paragraph, upon joint request of the Depositor and Deposi-
             tory When accompanied by authority, given under proper
             resolution of the Governing Body hereinafter referred to.
             Such SUbstltUted or additional securities shall b8 held
             subject to the terms and conditions of this agreement.
                   "5. The securities abOV8 described, or any add,i-
             tional securities which may be tendered and accepted, or
             any taken In substitution therefor, shall be surrendered
             only upon the join request of the Depositor and Deposltory,
             and then only when accompanied by authority, given under
             proper resolution of the Governing Body hereinafter referred
             to.
                   “6 . The Federal Reserve Bank of Dallas shall in no
             manner be responsible for the genuineness, negotiability,
             acceptability, or eligibility of the securities delivered
             to it under this application. Its only responsibility is
             to hold such securities as may be delivered to it, in ac-
             cordance with this agreement.
                     . The Federal Reserve Bank of Dallas in authorized
                   1’7
             to clip the maturing interest coupons on the Securities
             which it holds under this agreement and deliver them or
             their proceeds t0 the Depository; provided, however, that
             if End whenever, notified by the Depositor in writing to
             discontinue this practice the said Federal Reserve Bank
             shall obey such instructions, and it shall thereafter hold
Hon. W. P. Herms, Jr., page   6            o-7207


    such maturing interest coupons without collection.
         “8 . The Federal R8S8rVe BAnk of Dallas is author-
   ized to act upon instruction given under the signature
   of any officer of the Depository on file with it. The
   signature of the Depositor is that appended to this agree-
   ment, and the said Federal Reserve Bank is authorized to
   act upon instructions given under this signature. If
   there should b8 a successor to anyone authorized to sign
   for the Depositor named herein before the full delivery
   of all securities covered by any Joint Safekeeping Receipt
   issued upon this application, including substitutions,
   it shall be the duty of the Governing Body hereinafter
   named to certify the name and signature of such successor
   or successors to the Federal Reserve Bank of Dallas, and
   thereafter said bank shall be authorized to act upon this
   signature to the same extent as under the signature of the
   Depositor named herein.
         “9 . The Governing Body referred to in this instru-
   ment is Commissioners Court of Waller County, Hemustead,
   Texas and said body, by proper resolution spread upon its
   minutes, fully authorized the execution of this agreement
   by the Depositor.
          "In witness whereof, this agreement is executed in
    triplicate, a copy being intended for each the Depositor,
    the Depository and the Federal Reserve Bank of Dallas,
    on this the m    day of February. 1946.
          "Commissioners Court, Waller County, Hempstead. Tex.
          "By                     COUNTY JUDGE
                                    Depositor
          "CITIZENS STATE BANK OF HEMPSTEAD. TEXAS
          "By                 VICE PRESIDENT
                               Depository."
          According to your letter, similar agreements have
been entered into with City National Bank of Houston and the
San Jacinto National Bank of Houston. We have carefully con-
sidered the above quoted agreement, and it is our opinion that
the provisions of said agreement are in compliance with the
applicable provisions of Article 2547, subdivision (c), V.A.C.S.
Therefore, in answer to your first question, it Is our opinion
that Wailer County Funds are adequately protected to the 8X-
tent of the amount of pledges included in the above mentioned
agreements.
Hon. W. P. Herms, Jr., page 7        O-7207


          Our answer to your first question precludes the
necessity of answering your second question.
                                Yours very truly
                            ATTORNEY GENERAL OF TEXAS

                                By s/J. C. Davis, Jr.
                                     J. C. Davis, Jr.
                                     Assistant
                                By s/John Reeves
                                     John Reeves

JR:djm:wc

APPROVED MAY 13, 1946,
s/Carlos C. Ashley
FIRST ASSISTANT
ATTORNEY GENERAL
Approved Opinion Committee By s/BWB Chairman
