Hon. Joe Nelson, Director         Opinion No. WW-206
Board of County and District
  Road Indebtedness               Re: Concerning the warrants
100 Highway Building                  that are eligible for
Austin, Texas                         payment under the Bond
                                      AssumptionAct and are
                                      being paid out of the
                                      County Lateral Road
Dear Mr. Nelson:                      Acoount.

On May 16, 1957, the Commirssionera'Court of Naval County
entered an order declaring that the Duval County Speaial
Road Refunding Warrants of 1949 heretofore issued in the
amount of $140,000 were null, void and illegal and notified
the Board of County and Distriat Road Indebtednessthat the
county would refuse to pay the warrants and the interest
thereon.
The queations you have presented are a8 follows:

          1.   We have funds on deposit with the State
               Treasurer in the Coupon Paying Account
               for coupons which have matured and have
               not been presented for payment. Please
               advise us if we should stop,all payments
               from this Account.
          2.   Duval County haa funds deposited with us
               for the Sinking Pund of this issue. Please
               advise If these funds could be returned to
               Duval County or should they be held until
               this matter has been settled in Court.
          3.   Article 6674Q-7, Paragraph H, of the Re-
               vised Civil Statutes, require us to set
               aside each year from the Lateral Road Ac-
               count money with which to pay the matur-
               ing warrant8 and interest of this Issue.
               Please adviae ua if we should continue
Hon. Joe Nelson, page 2 (WW-206)



            annually to set aside fund6 from the
            Lateral Road Account for the payment
            of the maturing warrant8 and coupon8
            of thia iesue.

Each of your questions assumes that the refunding warrants
are in fact void, but the unilateral a&Ion of the iSSUing
agency In declaring the obligationsof no force and effect
does not neoessarilyhave that effeat.
On January 10, 1949, the minutes of the Commlssionera~Court
(Volum H, page 281-284) show that the Commiesionera~Court
purportedlyadopted an order authorizingthe refunding of
$50,000 Euval County Road and Bridge Warrants, Series A,
dated December 15, 1938, and $90,000 Duval County Road and
Bridge Warrants, dated December 15, 1538. These warrants were
refunded into the Euval County Special Road Refunding Warrants
whose validity is now questioned by the Commi8sioners1Court
of Euval County.
It is elemental that a county may issue time warrant8 for the
purpose of making authorized expenditures,but much lnstru-
ments are non-negotiableand subject to all of the defense8
held by the debtor. Adams v. McGill, 146 S.W. 26 332 (Tex.
Civ.All., 1940) error ref. San Patrlcio County v. McClane,
~~8~~0 392 (1876).   Robertson v. Breedlove, 61 TeX.    b
      a
Section 7 of Article 2368(a) ia the statute which authorize8
the refunding of warrants issued by a County, and reada, In
part, as followss
          "The cOmmi8SiOnerS’ Court of any county 0 . .
          may pass all necessary orders . . . to pro-
          vide for funding or refunding the whole or
          any part of any legal debt of such county
          . . . by cancellingevidence8 thereof and
          issuing to the holders or creditors,notes,
          bonds, or treasury warrants . . .'
The statute then prescribes the procedure for the issuance of
refunding bonds, and permits the issuance of notes or treasury
warrants to refund legal debts which were outstandingprior to
the effective date of the Act (1931), and then provides:
Hon. Joe Nelson, page #3 (WW-206)


         "After thia Aot beoomes effeative, no item
         of lndebtednese thereafter 'issued,except
         bonds and matured coupons thereon and except
         Item5 of indebtednessto be issued under
         contracts made before this law becomes ef-
         fective, shall be funded or refunded except
         in the manner hereinafter in this subsection
         ;;x;ibed', to-wit: rP . , " (Emphasis sup-


The statute then permit8 the issuance of refunding bond8,
after notice of intention ha8 been published if no refer-
endum petition ha8 been presented,
Section 9 declare8 that any warrants, bond8 or notes not
issued in conformitywith the Act ahall be void and permits
any taxpayer to enjoin the payment of the obligation.
An examinationof the order authorizilgtherefunding of the
warrants into more warrants demonstratesthe patent illegal-
ity of the refunding warrants for the failure to comply with
the provisions of Section 7 of Article 2368(a) in that no
notice wa8 given of the intention to issue refunding bonds
(and warrants rather than bond8 were issued) and there was no
opportunityfor the submission to the electorate a8 required
by that statute.
Accordingly,you are respectfullyadvised that the Duval
County Special Road and Bridge Warrants of 1949 are in fact
void.
The courts have repeatedlyheld that the refunding of obli-
gations does not create a new debt against the issuing agency
since the effect of such operation Is to merely change the
nature and characteristicsof an existi




This being true, the holdera of the refunding warrants would
be subrogatedto the rights and privileges possessed by the
holders of the original warrants sought to be refunded. (Sea-
tlon VIII of the order authorizingthe refunding warrant8 ex-
pressly reserved the right of subrogation). We have requested,
but have not been able to obtain, copies of the original order8
Hon. Joe Neison, page #4 (WW-206)


of the Comm188ionerstCourt whereby the original warrant8 were
iaeued In 1938, and, aaoordingly,we are not in a position to
advise you a8 to whether the county complied with the provieions
of Article 2368(a), V.C.S., in the issuance of such warrants.

In the light of the above facts, you are respectfullyadvised
that no further payments should be made from the interest and
sinking fund to the payment of any of the warrants or interest
thereon until the legality of the warrants ha8 been established
by a judicial proceeding,:,and you are further advlaed that no
funds should be returned to Duval County, and that you should
continue to set aside funds for the payment of the warrant8 and
cou ons from the Lateral Fund Account as authorized by Article
66&s), mwwah       H, v.c,s.

By follow1 this procedure, the right8 of the taxpayers,the
county andT he warrant holders will be preserved until such
time as the orders of the Commissioners*Court may be located
and a decision rendered by a court of competent jurisdiction.


                           SUMMARY


             The Duval County S ecial Road Refund-
             ing Warrants of 19fi
                                9 were not lesued
             in conformitywith the provisions of
             Article 2368(a), V.C.S., and are, there-
             fore, void, The holders of the warrant8
             are subrogated to the rights of the hold-
             ers of the original warrants, but the
             validity of those warrant8 can not be
             determined by this office without an
             examinationof the orders authorizing
             their issuance. Moneys now in the slnk-
             ing fund pertaining to such refunding
             warrants should be held Intact by the
             Board of County and District Road In-
             debtedness and payments into the fund
             should be continued under Article 6674(q),
Hon. Joe Nelson, page #5 (W-206)



             paragraph H, V.C.S., until such time as
             the rights of the taxpayers,warrant hold-
             ers, and the county have been adjudicated.


                                   Very truly yours,

                                   WILL WILSON
                                   Attorney General


                                   BY
                                         Assistant
APPROVED:
OPINION COMMI'ITEFZ
H. Grady Chandler, Chairman
J. C. Davis, Jr.
Fred Werkenthin
Grundy Williams
REVIEWEDFOR THEA!Fl!ORNEY
By: Geo. P. Blackburn
