R-420




                                        AUSDTN nit. TEXAS
PRICE          DANIEL
I.¶-ra.lllRT    r.*:nvzlrm.,
                                            Mag   20,   1947


                Honorable L. S, Johnson, Commissioner
                Department of Banking
                Austin 14, Texas            Opinion No, V-209
                                                   Re: Eligibility of warrant
                                                       indebtednessof the
                                                       Bowie County Vocation-
                                                       al School for exemp-
                                                       tion from the loan
                                                       limit ,ofState banks
                                                       in accordancewith
                                                       Article 342-507, V.C.S.
                Dear Sir:
                          We quote the final paragraph of your request
                for an opinion as follows:
                                "In order to determinewhether the
                           warrant indebtednessof the Bowie County
                           Vocational School is eligible as an ex-
                           ception to the loan limit permitted to
                           state banks under the provisions of Sub-
                           section 6, Article 7, Chapter 5, Texas
                           Banking Code, we, therefore?request your
                           opinion as to whether such indebtednessas
                           created by officials of the Bowie County
                           Vocational,School, under the authority of
                           the Bowie County Board of Education, is a
                           legally created municipal obligation. We
                           should also like your opinion as to wheth-
                           er the indebtedness,whose repayment ap-
                           parently is restricted to receipts of tui-
                           tion fees from the Administratorof Veter- ~'
                           ans Affairs, can be considered a general
                           obligation as contemplatedby Paragraph 6,
                           Article 7, Chapter 5, Texas Banking Code."
                          Your final paragraph is preceded by a general
                statement descriptive of the manner in which your ques-
                tion arises, a descriptionof the nature of the finan-
                cial activities of the Bowie County Vocational School,
Hon. L. S. Johnson - Page 2                        v-209


and referencesto discussions contained in letters at-
tached to your request frolathe'State Bank of DeKalb
and the Executive Direator, State Board for Vocational
Edukation.
          The Texas Banking Code of 1943 was enacted as
House Bill 79, Chapter 97, Acts of the 48th Legislature,
Regular Semion, 1943, page‘127. Your reference is to
Subdivision 6 of Article 7, Chapter 5, of that Act
which $8 pub&bed as Subdivision 6 of Article 342-307
of Vernan's Civil Statutes, The pertinent provisions
of Article 342-507 provide:
          "No state bank shall permit any per-
     son or any corporationto become indebted
     or in any other way liable to it in an
     amount in excess of twenty-fiveper cent
     (255) of its capital and certified surplus.
     The phrase 'indebtedor in any other way
     liable' ,shallbe construed to include lia-
     bility as partner or otheiwise. The above
     limit,atiensshall not apply to the follow-
     ing classes of indebtednessor liability:


         "6. Bonds and other legally created
    general obligationsof'the State of Texas
    or of any county, city, municipality or
    political subditisianthereof and indebt-
    edness of the United States of America,
    the ReaematructienFinance Corporation,or
    other instrumentalityer agency of the
    United States GoWmment.lt
          Reference is made to Opinions Nos. O-6867 and
F&tce    ies of which are attached hereto, hold+ in
         at the State Board for Vocational Education
       tE:
and local beards of s&e01 trustees have requisite au-
thority to sponsor and administsr the schools designated
and contemplatedby the G, I. Bill, and incidentally  to
administer the fiuaancialphases of such activities.
H-over, we find no authority authorieingthe pledging
of the credit ef either a local school district or
school agency, or the credit of the State, or af the
United States Qoverrment, or au agency thereof, and at-
tention is called to the discussion in the attached o-
pinions indicatingthat the operation of the program
Hon. L. S. Johnson - Page 3                       v&209


shall not in any wise involve the credit of either the
State or of a local subdivisionof the State School
System.
          Under the contract of the Bowie County Voca-
tional School for 1946-1947,  a copy of which is attached
to your request, the sole income of the Vocational
School is from stipulated payments of a stated amount
per student. That contract, taken together with legis-
lation enacted by the State of Texas and the Congress,
providing moneys to be disbursed according to such ar-
rangements as made by the State Board for Vocational
Education and the Veterans( Administrationappears to
be the only commitmentof either the State or the Na-
tional Government. That such a plan for financing the
school has no direct relationshipto the warrants which
may be issued by the Vocational School authoritiesis
obvious. Section 7 of Article 342-507,TV.C. S,, which
immediately follows Section 6, above quoted, provides:
          "Any portion of any indebtednesswhich
     the United States Government,the Reconstruc-
     tion Finance Corporation,or any other agency
     or instrumentalitvof the United States Gov-
     ernment, has unconditionau agreed to pur-
     chase or has unconditionallyguaranteed-asto
     payment of both principal snd interest."
     (Emphasissupplied).
          Reading subdivisions6 and 7 together, we be-
lieve that similar standards should apply to the obli-
gations under subdivision 6 as under subdivision7. It
is manifest that the local school officialshave neither
the means nor the authority to definitely commit them-
selves, the State, or the National Government,to the
payment of the warrants of the school. The contract of
the Bowie County Vocational School contemplatespayments
based upon the number of approved courses given to prop-
erly certified veterans. The meeting of the expenses
of the Vocational School depends entirely upon the prop-
er financial management of the school within such ex-
pected revenues.
          In view of the indefinite provision for meet-
ing such expenses, we do not believe that the obliga-
tions evidenced by the warrants are of a nature contem-
plated by Section 6, The language "bonds and other le-
gally created general obligationsnindicates to our minds
Hon. L. S. Johnson - Page 4                       V-209


a type of obligation of greater dignity and conclusive-
ness as to validity and amount. We believe that the
statute contemplatessecurities,the validity and face
value of which are not debatable and which have been
duly and formally issued, creating an absolute liabili-
ty for the amount stipulated,and based upon a formal
act of an agency legally authorized to incur the in-
debtedness,fully acknowledgingthe specific debt. We
conclude then that the warrant indebtednessof the
Bowie County Vocational School and indebtednesssimi-
larly created by other Vocational Schools under a pro-
gram set up under the G. I. Bill are not eligible as
exemptions from the loan limit of State banks under
Article 342-507, V. C. S.
                      ,SUMMARY
         The warrant indebtednessof the
    Bowie County Vocational School and in-
    debtedness similarly created by other
    Vocational Schools under a program set
    up under the G. I. Bill are not eligi-
    ble as exemptions from the loan limit
    of State banks under Article 342-507,
    v. c. s.
                                   Yours very truly
                              ATTORNEY GENERAL OF TEXAS


                              BY

                                             Assistant.


                              APPROVEDMAY 21, 1947

                               jiL#     eaiiL.2
                              ATTORNEY GENERAL
    NMc/JMc/erc