                                       March     21, 1958


Hon. William   A. Harrison                            Opinion   No.   WW-393
Commissioner     of Insurance
State l3oard of Insurance                             Re:    Whether   a municipal     water
Austin,  Texas                                               and sewer contract       made
                                                             with a real estate developer
                                                              is an authorized    investment
                                                              under Section    1, Article   3.39,
Dear     Sir:                                                 Texas Insurance      Code.

         With your opinion request             you enclose   a copy of a contract      between
a city and a real estate subdivision             developer   wh.ich is substantially     as
follows:

          The city agreed to construct       a water and sewer system         in the sub-
division.   The developer      was to first deposit     $24,000 with the city, and
following   construction    the city will reimburse      the developer     90% of the
$24,000 deposit,     payable   in yearly   installments    consisting   of three-fourths
of the revenues    from sale of the water over a maximum              period of 25 years.

          You ask whether     or not this contractual  obligation  of the city is a
permitted     investment  for a life insurance   company pursuant toArticte       3.39,
Section   1, of the Texas Insurance     Code, which authorizes    a life insurance
company     to invest in:
            %I
               . . * the bonds and warrants,        including    revernie   and
            special    obligations,    of any educational     institution   of
            the State of Texas;       or any municipally      owned water
            system     or sewer system when special           revenuPs,    or
            income to meet the principal         atid interest     payments
            as they accrue       upon such obligations      shall have been
            appropr~iated,      pledged or otherwise      provided     by such
            municipality      or educational   institution;    . . ,,”

         The phrase   “including     revenue  and special obligations”   refers  to
the preceding  phrase    “bonds   and warrants ‘*, meaning that included within
such “bonds and warrants”        arr bonds and warrants    which c,onstitute re-
venue and special   obligations    of the issuer.

          Not, only~ is the   contract  inquired  about not in proper form for ei.ther
a bond   or warrant     (15   McQuillen   on Municipal   Corpo,ra?i.ons (19jO). Sec.
42.01 and 43.53), it is       not a bond, for the authority   to issue bonds must be
expressly     granted and     may be exercised    only in the mode speciti~ed.    Cit,y
of Brenham      v. German      American    Ba    144 [J.S. 173 (1892);   Lasater  v.
                                                                                           -,
                                                                                                .   i




Hon. William.    A.   Harrison,   page #2   (WW-393)




Lopez, 202 S.W. 1039 (Civ.App.         1918), affirmed    110 Tex. 179, 217 S.W.
meel        v. Pulte,   IO S.W. 2d 694 (T ex.Comm.App.         1928). The power
of a city to issue waterworks        and sewer tax bonds is found in Article
823, V.C.S.,   and the power to issue waterworks          and sewer revenue
bonds is found in Articles       1111 to 1118, V.C.S.     The election  provisions
relating  to the issuance     of all such bonds are set out in Chapter      1 of
Title 22, Revised     Civil Statutes of Texas,      1925, as amended.    There
has been no election,      no attempt has been made by the city to observe
the requirements      of any of these statutes,     and it is manifest that no
bond has been issued.

         Nor is the contract      a warrant.     Time warrants       are payable over
a period of years;    they have many of the characteristics            of bonds but
are not negotiable.     Lasater    v. Lopez,    supra.    This contract     is not pay-
able from taxes; therefore,       it could not be considered        a tax time warrant
even if the provisions     of Article   2368a, V.C.S.,      had been followed,     which
was not done.    Nor is the contract      a revenue     time warrant,     for there has
been no observance      of the requirements       of Articles    1111 to 1118, V.C.S.,
which expressly     authorize   issuance     of warrants     payable from net revenues.

         Clearl,y, the city had no intention   to issue either bonds or warrants,
and the contract   is neither.  Therefore,   the contract    is not an eligible in-
vestment   and your question   is answered    in the negative.

         Havi,ng found that the contract   is not an eligible   investment,   it is
not necessary    that we pass upon the validity    of the contract,   and for that
reason we express     no opinion in that respect,,

                                    SUMMARY

                The contract     inquired   about between a city
                and a real estate developer,        whereby    the
                city will partially    reimburse     the developer
                over a period of years for the cost of con-
                struction   of a waterworks      and sewer system,
                is neither   a bond nor a warrant       and is not
                a permitted    investment     for a life insurance
                company under Section        1, Article   3.39, Texas
                Insurance    Code.

                                             Very   truly   yours,



                                            WILL    WILSON
                                            Attorney   General       of Texas
    Hon. William     A. Harrison,     page 63    (WW-393)




                                                  Ma2
                                                  Assistant   Attorney   General




                                                 Howard W. Mays
                                                 Assistant Attorney      General   /

    APPROVED:

    OPINION     COMMITTEE

   Gee.   P. Blackburn,        Chairman

,‘: ~‘Ceeil C. Rotsch

..~;. .?‘. Milton Richardson

    J. Mark McLaughlin

    John H. Minton,     Jr.

   REVIEWED   FOR THE ATTORNEY                  GENERAL
   BY: W. V. GEPPERT
