Can a Texas county sell road equipment to a private company without competitive bidding?

TX AG Opinion GA-0628: Must a county competitively bid the sale of leased equipment it acquires?

Plain-English summary

Medina County leased a Caterpillar motor grader from Caterpillar Financial Services Corporation. At the end of the lease the county could either return the grader or buy it, and the county chose to return it. The wrinkle was that the leasing company wanted to transfer title to the county, have the county transfer it to a Caterpillar dealer (Holt Caterpillar), and the dealer paid the county $15,000 "for the equipment." The county auditor took the position that once the grader entered the county's inventory, the county had to seek bids before selling it. The county attorney disagreed, arguing the transfer was just a mechanism to exercise the lease's return option.

The opinion read the transaction the way the facts described it: the county would take ownership of the grader and then transfer ownership to the dealer for $15,000, which is a sale. Starting from the rule that a commissioners court can act only on authority granted by the constitution or a statute, the opinion turned to Chapter 263 of the Local Government Code, which governs how a county sells its personal property. Section 263.152(a)(1) lets a commissioners court sell surplus or salvage property to a private party, but only by competitive bid or auction (the exception for sales to another county or political subdivision did not fit here). The opinion found no provision that would let a county sell road equipment to a private party without bidding or an auction.

The opinion also addressed section 263.152(b), which the county had flagged. That subsection lets a commissioners court exercise a repurchase option in a contract when disposing of earth-moving or road equipment, treating the contract's repurchase price as a bid. The opinion explained that "repurchase" ordinarily means selling property back to the original seller, and nothing in the facts showed the county was exercising a repurchase option or accepting a repurchase price from a previously accepted purchase contract. So section 263.152(b) did not apply, and the general competitive-bidding rule controlled.

Currency note

This opinion was issued in 2008. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Chapter 263 of the Local Government Code and its surplus-property and bidding provisions may have been amended since 2008. Confirm current law before relying on this analysis.

Who this opinion affected (as of 2008)

County commissioners courts: The opinion concluded that selling county-owned personal property such as road equipment to a private party generally required competitive bidding or an auction under section 263.152(a)(1).

County auditors: The opinion aligned with the Medina County auditor's view that property entering the county's inventory triggered the statutory bidding requirement before a sale to a private buyer.

Equipment lessors and dealers: The opinion treated a structure where a county takes title and passes equipment to a private dealer for payment as a sale of county property, not a mere return, so it could not skip the bidding rules.

Common questions

Why did taking title matter?
The opinion explained that if the county was merely returning leased property it never owned, there would be no question. Because the facts had the county taking ownership and then transferring it to a dealer for $15,000, the opinion treated the second step as a sale of county personal property.

Can a county ever sell surplus property without bidding?
The opinion noted one exception in section 263.152(a)(1): competitive bidding or an auction is not necessary when the purchaser is another county or a political subdivision within the county. Selling to a private dealer did not fit that exception.

What about the repurchase-option provision?
The opinion concluded section 263.152(b) did not apply, because "repurchase" ordinarily means selling property back to the original seller, and the facts did not show the county exercising a repurchase option or accepting a repurchase price under a previously accepted purchase contract.

Background and statutory framework

A commissioners court's contracting power is limited to what the constitution or Legislature confers expressly or by necessary implication (City of San Antonio v. City of Boerne, 111 S.W.3d 22, 29 (Tex. 2003); Jack v. State, 694 S.W.2d 391, 397 (Tex. App.-San Antonio 1985, writ ref'd n.r.e.)). Chapter 263 of the Local Government Code governs a county's sale or lease of its property (Tex. Loc. Gov't Code Ann. §§ 263.001-.158 (Vernon 2005 & Supp. 2007)). Section 263.152 lets a county dispose of "salvage property" (personal property with no value for its original purpose) or "surplus property" (property still useful but not currently needed), defined in section 263.151(1)-(2). Section 263.152(a)(1) authorizes sale of surplus or salvage property by competitive bid or auction, with an exception only for sales to another county or a political subdivision within the county (Tex. Loc. Gov't Code Ann. § 263.152(a)(1) (Vernon Supp. 2007)). Section 263.152(b) allows a commissioners court to exercise a repurchase option for earth-moving, material-handling, road maintenance, or construction equipment, treating the contract repurchase price as a bid (id. § 263.152(b)).

Citations

Statutes:

• Tex. Loc. Gov't Code Ann. §§ 263.001-.158 (Vernon 2005 & Supp. 2007)
• Tex. Loc. Gov't Code Ann. §§ 263.151(1), 263.151(2) (Vernon 2005)
• Tex. Loc. Gov't Code Ann. §§ 263.152(a)(1), 263.152(b) (Vernon Supp. 2007)

Cases:

• City of San Antonio v. City of Boerne, 111 S.W.3d 22, 29 (Tex. 2003)
• Jack v. State, 694 S.W.2d 391, 397 (Tex. App.-San Antonio 1985, writ ref'd n.r.e.)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0628
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2008/ga0628.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts may remain - the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS

GREG ABBOTT

May 14, 2008

Mr. Ralph J. Bernsen, Sr.
Medina County Attorney
3rd Floor, Medina County Courthouse
Hondo, Texas 78861

Opinion No. GA-0628

Re: Whether a county may terminate an equipment lease by acquiring the equipment and selling it without competitively bidding the sale (RQ-0651-GA)

Dear Mr. Bernsen:

You ask whether Medina County may terminate an equipment lease by acquiring the equipment and selling it without competitively bidding the sale.[1] Caterpillar Financial Services Corporation ("CFSC") leased a "Caterpillar Motor Grader" to the county.[2] You inform us that the lease agreement allows the county at the end of the lease term to either return the equipment to CFSC or purchase the equipment. Request Letter, supra note 1, at 1. You state that the county has opted to return the equipment. Id. You inform us, however, that "the current title holder of the equipment is [CFSC] and the equipment needs to be transferred to Holt Caterpillar, Inc. ['Holt Caterpillar']," suggesting that CFSC and Holt Caterpillar are separate entities. Id. You further state that CFSC "intends to transfer the property to Medina County and wants Medina County to transfer the property" to Holt Caterpillar. Id. Finally, you state that "Holt Caterpillar paid [the] County $15,000 for the equipment." Id.

You relate that the county auditor "is of the opinion that if the property goes into the inventory of Medina County, no matter for what purpose," then the County is statutorily required "to seek bids for the sale of the property." Id. at 2. You disagree, opining that "the transfer of the property is merely a vehicle to exercise the option to return the property to Holt Caterpillar under the option in the contract to return the property at the end of the term of the Lease/Purchase contract." Id. at 1-2. You ask "whether ... it is necessary to seek bids on the equipment when the transfer is merely a vehicle to exercise the return option in the Lease/Purchase contract." Id. at 2.

By "transfer of the equipment," we assume that you mean that CFSC intends to transfer ownership of the equipment to the county, and the county would then transfer ownership to Holt Caterpillar. Otherwise, if the county is merely returning property it has leased but never owned, it is difficult to discern the basis for your question. And because you state that Holt Caterpillar paid the county $15,000 "for the equipment," we assume the transfer of ownership from the county to Holt Caterpillar is a sale. Consequently, we will review the applicability of statutory bidding requirements to a county's contracts to sell its property such as heavy road equipment.

A commissioners court's contracting authority ultimately must be based on the constitution or a statute. See City of San Antonio v. City of Boerne, 111 S.W.3d 22, 29 (Tex. 2003) (stating that "a commissioners court's power is limited to that which is expressly delegated to it by the Texas Constitution or Legislature, or necessarily implied to perform its duties"); Jack v. State, 694 S.W.2d 391, 397 (Tex. App.-San Antonio 1985, writ ref'd n.r.e.) (holding that a commissioners court's authority "to make contracts in behalf of the county is limited to that conferred either expressly or by necessary implication by the constitution and laws of this state"). Chapter 263 of the Local Government Code broadly governs a county's sale or lease of its real and personal property. See TEX. LOC. GOV'T CODE ANN. §§ 263.001-.158 (Vernon 2005 & Supp. 2007). See generally Tex. Att'y Gen. Op. No. GA-0533 (2007) at 4-5 (describing scope of chapter 263). Within Chapter 263, section 263.152 of the Local Government Code authorizes a county to dispose of its personal property as "salvage property" or "surplus property." See id. § 263.152(a) (Vernon Supp. 2007). "Salvage property" is personal property that, for various reasons, "has no value for the purpose for which it was originally intended." Id. § 263.151(1) (Vernon 2005). "Surplus property" is personal property "that possesses some usefulness for the purpose for which it was intended," but that is not currently needed by the owner nor required for the owner's foreseeable needs. Id. § 263.151(2).

Section 263.152 authorizes a county to dispose of surplus or salvage property by several different means. See id. § 263.152 (Vernon Supp. 2007).[3] Subsection (a)(1) sets forth the county's general authority to sell salvage or surplus property:

(a) The commissioners court of a county may:

(1) periodically sell the county's surplus or salvage property by competitive bid or auction, except that competitive bidding or an auction is not necessary if the purchaser is another county or a political subdivision within the county that is selling the surplus or salvage property.

Id. § 263.152(a)(1) (emphasis added). In other words, subsection (a)(1) authorizes a county to sell its surplus or salvage property to a private party, but only by competitive bid or auction. We are not aware of any provision that allows a county to sell its personal property such as road equipment to a private party without following procedures for competitive bidding or an auction.[4]

SUMMARY

A county that terminates a lease of a motor grader by acquiring the equipment generally must follow competitive bidding requirements before selling it to a private party.

Very truly yours,

GREG ABBOTT
Attorney General of Texas

KENT C. SULLIVAN
First Assistant Attorney General

ANDREW WEBER
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

William A. Hill
Assistant Attorney General, Opinion Committee

Footnotes

[1] See Letter from Honorable Ralph J. Bernsen, Sr., Medina County Attorney, to the Office of Attorney General, at 1 (Nov. 26, 2007) (on file with the Opinion Committee, also available at http://www.oag.state.tx.us) [hereinafter Request Letter].

[2] See [CFSC] Long Term Rental Agreement-[Between Medina County, Texas, Pct # 1, Lessee, and [CFSC], Lessor; Utilization Date: 8/04/2002] (unsigned copy on file with the Opinion Committee).

[3] Not pertinent to your question, section 263.152 authorizes a commissioners court to trade in, destroy, donate, or transfer property under specified circumstances. Id. § 263.152(a)-(a-1) (Vernon Supp. 2007).

[4] You have suggested that section 263.152(b) may be pertinent to your question but do not explain the statute's relevance. See Request Letter, supra note 1, at 1. Section 263.152(b) provides: If the property is earth-moving, material-handling, road maintenance, or construction equipment, the commissioners court may exercise a repurchase option in a contract in disposing of property under Subsection (a)(1) or (a)(2). The repurchase price of equipment contained in a previously accepted purchase contract is considered a bid under Subsection (a)(1) or (a)(2). TEX. LOC. GOV'T CODE ANN. § 263.152(b) (Vernon Supp. 2007). By its terms, this subsection concerns only contracts containing a repurchase provision. You do not suggest that the transactions you describe involved the commissioners court's exercise of a repurchase option, or that the county accepted a "repurchase price of equipment contained in a previously accepted purchase contract." Id. Moreover, the ordinary meaning of "repurchase" denotes a transaction whereby a buyer sells property back to the original seller. See, e.g., Felin v. Kyle, 102 F.2d 349, 350 (3d Cir. 1939) (noting that the word "redemption" in certain circumstances is defined as "buying back; a purchase back; a repurchase"); Lusher v. First Nat'l Bank of Fort Worth, 260 S.W.2d 621, 628 (Tex. Civ. App.-Fort Worth 1953, writ ref'd n.r.e.) (determining that sale of property with agreement that seller may purchase property within a reasonable time was an unconditional sale with an option to repurchase); Young v. Fitts, 183 S.W.2d 186, 190-91 (Tex. Civ. App.-Fort Worth 1944, writ ref'd w.o.m.) (construing contract granting seller of land the right to purchase the property during a certain term as an "option to 'redeem' or repurchase the land"). From your description of the facts, it seems unlikely that section 263.152(b) has any application to the transactions here.