Could an individual Texas bail bondsman use a letter of credit as the required cash equivalent for a bail-bond license?

Bail-bond security and qualifying letters of credit

Plain-English summary

Texas Attorney General Jim Mattox concluded in 1990 that both individual and corporate applicants for a bail-bond license could use certain letters of credit as cash equivalents under former article 2372p-3. The statute's definition of person covered individuals and corporations, and the financial-security rules applied to any approved applicant.

"We conclude that an individual as well as corporate applicants may submit certain letters of credit as 'cash equivalents.'"

Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1990/jm1245.pdf

A qualifying letter of credit had to meet four requirements stated in the opinion's summary:

1. It had to be irrevocable.
2. It had to limit inquiry into the underlying transactions between the county and the bondsman.
3. It had to provide payment on sight or within a reasonably brief period after all required documents were presented.
4. It could not make payment depend on the bondsman's consent or another person's action.

"To qualify as 'cash equivalents,' letters of credit must be irrevocable, must limit inquiry into the underlying transactions between the county and the bondsman, must provide for payment of drafts or demands for payment thereunder on sight or within a reasonably brief period of time after presentation of all required documents, and must not make payment contingent upon the consent of, or other action by, the bondsman or other party."

Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1990/jm1245.pdf

The body added that the issuing institution or entity had to be financially responsive for the amount of the credit in the county bail bond board's judgment. The board could also establish a reasonable payment period based on local circumstances.

The opinion distinguished a true letter of credit from a guaranty. A qualifying credit could require a statement or other document, but it could not require proof of the bondsman's default or force the county into litigation over the underlying obligation before payment.

Currency note

This opinion was issued in 1990. 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.

What the opinion said for affected groups in 1990

Individual and corporate bail bondsmen

Both types of applicants could submit qualifying letters of credit. The same basic cash-equivalent standard applied to each.

County bail bond boards

The board assessed whether the issuer was financially responsive for the credit amount and could set reasonable time periods for payment. The credit still had to remain readily convertible into cash without the bondsman's cooperation.

County treasurers and beneficiaries

Payment could depend on presentation of specified documents, but the credit could not require the county to prove default or obtain the bondsman's consent before the issuer paid.

Banks and other issuers

The credit had to create an independent, primary obligation. A revocable instrument or a guaranty tied to performance of the underlying bail-bond obligations did not meet the opinion's standard.

Common questions

Could only corporate bail bondsmen use letters of credit?

No. The opinion read the statute to cover individual and corporate applicants.

Did any irrevocable letter of credit qualify as a cash equivalent?

No. It also had to operate independently from the underlying dispute, pay promptly after proper presentation, avoid conditions requiring outside consent or action, and come from a financially responsive issuer.

Could the county require proof that the bondsman had defaulted?

Not as a condition that forced examination of the underlying transaction. The opinion said that would make the instrument function like a guaranty rather than a true letter of credit.

Did payment have to occur immediately on sight?

Not always. The credit could pay on sight or within a reasonably brief period, and the county bail bond board could set reasonable time periods based on the circumstances.

Could another kind of security still count as a cash equivalent?

Yes. The opinion said its holding did not exclude other instruments that satisfied the conversion-to-cash standards stated in Attorney General Opinion JM-935.

Background and legal framework

Former article 2372p-3 required approved bail-bond license applicants to deposit cash, a cashier's check, a certificate of deposit, or a cash equivalent. Earlier Attorney General opinions treated a cash equivalent as an instrument readily convertible into cash at a fixed price, within a reasonable time and with reasonable effort.

Chapter 5 of the Business and Commerce Code supplied the legal framework for letters of credit. A true letter of credit created an obligation independent of the underlying contract between the customer and beneficiary. The issuer paid when the beneficiary presented the documents required by the credit.

The opinion reviewed commercial, standby, documentary, clean, sight, time, revocable, and irrevocable credits. It used those distinctions to identify which features kept the county's security close enough to cash for licensing purposes.

Key citations

• V.T.C.S. article 2372p-3, sections 2 and 6
• Bus. & Com. Code chapter 5, including §§ 5.102, 5.103, 5.106, and 5.114
• Code Crim. Proc. art. 22.14
• Republic Nat'l Bank of Dallas v. Northwest Nat'l Bank of Fort Worth, 578 S.W.2d 109 (Tex. 1978)
• Westwind Exploration, Inc. v. Homestate Sav. Ass'n, 696 S.W.2d 378 (Tex. 1985)
• New Braunfels Nat'l Bank v. Odiorne, 780 S.W.2d 313 (Tex. App. - Austin 1989, writ denied)
• Apex Oil Co. v. Archem Co., 770 F.2d 1353 (5th Cir. 1985)
• Gunn-Olson-Stordahl Joint Venture v. Early Bank, 748 S.W.2d 316 (Tex. App. - Eastland 1988, writ denied)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1245
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1990/jm1245.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Obvious character-level OCR errors have been corrected where verified against the scan and reporter citations; minor errors may remain. The linked PDF is authoritative.

Hist MLATTOX November 13, 1990
ATTORNEY GENERAL
Honorable John J. Gavin Opinion No. JM-1245 Chairman Insurance Committee Re: Whether an individual Texas House of Representatives surety may file a letter of P. O. Box 2910 credit for bail bond pur- Austin, Texas 78769-2910 poses under article 2372p-3, V.T.C.S. (RQ-1966) Dear Representative Gavin:

You ask whether an individual applicant for a license to execute bail bonds may satisfy the financial security requirements of article 2372p-3, V.T.C.S., by submitting a letter of credit. Subsection 6(f)(1) of article 2372p-3 provides in part:

(F) Upon notice from the [county bail bond) board that the application has been tentatively approved, the applicant shall then: (1) deposit with the county treasurer of the county in which the license is to be issued a cashier’s check, certificate of deposit, cash, or cash equivalent in the amount indicated by the applicant under Sub- division (5) of Subsection (a) of Section 6 of this Act but in no event less than $50,000 except in counties with populations of less than 250,000 persons by the most recent federal census, the amount for applicants in said counties shall be $10,000 to be held in a special fund to be called the bail security fund. (Emphasis added.)1

1. Section 6(a) describes the information that must be
   included in the application. Section 6(a)(5) requires the applicant to include a statement of "the amount of cash or cash value of any certificate of deposit or cashier’s checks which the applicant intends to place on deposit ... if the license is granted." Instead of complying with section

(Footnote Continued)
p. 6630

Honorable John J. Gavin - Page 2. (JM-1245)

We conclude that an individual as well as corporate appli- cants may submit certain letters of credit as "cash equiva- lents." To qualify, the letters of credit must be irrevoca- ble, must limit inquiry into the underlying transactions between the county and the bondsman, must provide for payment thereunder on sight or within a reasonably brief period of time after presentation of all required documents, and must not make such payment contingent upon the consent of, or any other action by, the bondsman or other party.

Article 2372p-3 does not define the word "applicant." Section 6(a), however, requires "any person desiring to act as a bondsman" to file an application for a license. "Person" is defined by section 2(1) of the act to mean an individual or corporation. Consequently an applicant may be either an individual or a corporation who desires to act as a bondsman. Since the financial security requirements of section 6(f)(1) and (2) of article 2372p-3 apply to any applicant whose application has been tentatively approved, they apply to both individual and corporate applicants. 2

Article 2372p-3 also does not define "cash equivalent."

The statute as originally enacted in 1973 did not contain that phrase. Section 6(a)(1) of the 1973 act required the applicant upon tentative approval of his application to deposit either "a cashier’s check, certificate of deposit, or cash in the amount of $5,000," or execute in trust a deed to nonexempt realty worth at least $10,000. Acts 1973, 63rd (Footnote Continued) 6(f)(1), an applicant may satisfy the requirements of section 6(f)(2) and execute in trust a deed to nonexempt realty equal in value to the applicable minimum described in section 6(f)(1).

2. This conclusion is consistent with the cases
   applying the financial security requirements in section 6 as originally enacted and later amended to both individual and corporate applicants. See, e.g., Texas Fire & Casualty Co. v. Harris County Bail Bond Bd., 684 S.W.2d 177 (Tex. App. - Houston [14th Dist.] 1984, writ ref’d n.r.e.) (local rule invalid to extent that it requires corporate surety to deposit pursuant to section 6(f) of 1981 act more than
   $5,000); Bexar County Bail Bond Bd. v. Deckard, 604 S.W.2d 214 (Tex. Civ. App. - San Antonio 1980, no writ) (individual surety is not required by section 6(d) of 1973 act to deposit more than $5,000). Compare Attorney General Opinion JM-799 (1987) (section 7(a) of the act expressly makes section 6(g) inapplicable to corporate sureties).

p. 6631 —.

Honorable John J. Gavin - Page 3 (JM-1245) Leg., ch. 550, § 6, at 1523.3 The 1973 act was. substan- tially amended by the legislature in 1981. Acts 1981, 67th Leg., ch. 312, § 1, at 875-85. The 1981 amendments added section 6(a) (5), renumbered section 6(d)(1) as 6(f)(1), and amended the renumbered provision to include the phrase "cash equivalent" and the reference to subsection 6(a) (5). Neither the testimony at the legislative hearings nor the bill analyses clarify this amendatory language. 4

In Attorney General Opinion JM-935 (1988), we construed the phrase "cash equivalent" to "be something commercially as good as cash, or, as we take it, something that could readily be converted into cash at a fixed price." Id. at 2

(quoting from Kellogg v. Muller, 4 S.W. 361 (Tex. 1887)). We further described “cash equivalent" in that opinion as an instrument convertible into cash within a reasonable time and with reasonable effort. Id. at 3. Applying those definitions, we noted that an assignment of a life insurance policy without transfer of the power to surrender the policy for its cash value would require the county to obtain the

3. In 1987 the legislature increased the minimum cash
   or cash equivalent amount required by section 6(f)(1) from
   $5,000 to $10,000 or $50,000 depending on the population of the county. Acts 1987, 70th Leg., ch. 921, § 2, at 3110.

4. The 1981 amendments also added section 6(f)(3),
   which requires a corporate bondsman to furnish the county sheriff an irrevocable letter of credit as a cash equivalent to satisfy any final judgment of forfeiture. The legisla- tive history is silent with regard to this addition. Article 22.14 of the Code of Criminal Procedure makes a judgment in a bond forfeiture case final after atrial during which insufficient cause is shown for the principal’s failure to appear. The section 6(f)(3) requirement applies after the issuance of bonds in contrast to the financial security requirements of section 6(f)(1) and (2), which must be satisfied upon tentative approval of the application to issue bonds. Thus we interpret section 6(f)(3) as an additional financial requirement on corporate bondsmen rather than as an indication that individual bondsmen may not use letters of credit to satisfy section 6(f) (1).

p. 6632

Honorable John J. Gavin - Page 4 (JM-1245) bondsman’s express consent to surrender and concluded that such a limited assignment did not constitute a “cash equiva- lent."5

No other opinion or judicial decision affords us insight into the meaning of "cash equivalent." However, in Attorney General Opinion H-430 (1974), which interpreted the 1973 version of the statute, we stated the purpose of the financial security requirements to be the placement of “resources in the hands of the County with which to satisfy a forfeiture without having to resort to court proceedings." Id. at 2 (holding that certificate of deposit, whether or not negotiable, must be payable to the county so that it could be reduced to cash without any action by the bail bondsman). In Attorney General Opinion JM-935, we confirmed this earlier interpretation of the statute’s purpose by denying a bail bondsman the right to submit as financial security an instrument that required action on the bonds- man’s part prior to conversion of the instrument into cash.

5. Our holding in Attorney General Opinion JM-935
   (1988) is consistent with the cardinal rule of construction that effect be given to every part of a statute. See 67 Tex. Jur. 3d Statutes § 124. We did not therein restrict the phrase "cash equivalent" to the security devices listed in section 6(a)(5) of the act: cash, cashier’s checks, and certificates of deposit. The legislature included the phrase "cash equivalent" along with all three of those devices in section 6(f)(1), and thereby indicated its intent not to restrict the submission of security devices to those listed in section 6(a)(5). Thus we give little weight to the omission of the phrase “cash equivalent" in section 6(a)(5) and construe that section as requiring an applicant to describe in his application the amount and type of qualifying security that he will submit on tentative approval of his application. This will achieve the purpose of providing the financial security information that the board needs to assess the qualifications of the applicant without restricting the type of security ina manner that violates the intent of section 6(f)(1).

p. 6633

Honorable John J. Gavin - Page 5 (JM-1245)

Section 5.103(a)(1) of the Texas Business and Commerce Code defines “letter of credit" for purposes of chapter 5 of the code® concerning letters of credit as

an engagement by a bank or other person made

at the request of a customer and of a kind

within the scope of this chapter (Section

5.102) that the issuer will honor drafts or

other demands for payment upon compliance

with the conditions specified in the

credit. A credit may be either revocable or

irrevocable.
Section 5.102 states that chapter 5 applies to the follow- ing: (1) a letter of credit issued by a bank if the credit requires a documentary draft or documentary demand’ for payment, (2) a letter of credit issued by a person other than a bank if the credit requires that the demand for pay- ment be accompanied by a document of title, or (3) a letter of credit issued by a bank or other person if the credit states that it is a letter of credit or is conspicuously entitled as such.

6. Your request does not refer to chapter 5 of the
   Texas Business and Commerce Code. We limit our opinion, however, to letters of credit within the scope of chapter 5, since chapter 5 establishes the framework for development of the law of letters of credit by codifying the fundamental concepts underlying letters of credit. See Bus. & Com. Code
   § 5.102(c), comment 2 (Tex. UCC) (Vernon 1968); see also BA Commercial Corp. v. Hynutek, Inc., 705 S.W.2d 713, 715 (Tex. App. - Dallas 1986, no writ) (instrument outside the scope of chapter 5 cannot be a letter of credit).

7. A “documentary draft" or “documentary demand for
   payment" refers to a draft or demand whose honor is’ con- ditioned upon the presentation of any paper including a notice of default, invoice, or document of title. Bus. & Com. Code § 5.103(a)(2). A draft refers to a bill of exchange. Id. § 3.104(b)(1), (c)+ see Travis Bank & Trust v. State, 660 S.W.2d 851, 855 (Tex. App. - Austin 1983, no writ) (bill of exchange is any written requirement for payment of a specified sum to a third person at a stated time or on demand); see also Black’s Law Dictionary 149 (5th ed. 1979) (bill of exchange is a third party instrument by one party ordering payment by another party of a sum certain to a third party).

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Honorable John J. Gavin - Page 6 (JM-1245)

Letters of credit have traditionally been used as security devices in international sales transactions. Foreign sellers in those transactions ensured payment by requiring their buyers to obtain letters of credit authoriz- ing draws against the credits upon presentation of documents of title such as bills of lading. See East Girard Sav. Ass'n v. Citizens Nat'l Bank & Trust, 593 F.2d 598 (5th Cir. 1979); Annot., 35 A.L.R.3d 1404 (1971). Traditional sales credits are often referred to as “commercial credits." Letters of credit in recent years have also been used to secure the payment of various financial obligations or the performance of real estate, construction, or other nonsales contracts. See Annot., 44 A.L.R.4th 172 (1986); Mueller, Letters of Credit: A New Tool of Trade for the Real Estate Attorney, 38 Baylor L. Rev. 109 (1986) (hereinafter Mueller). These credits are often referred to as "standby credits" or "guaranty credits."

A letter of credit, whether it is a commercial or a standby credit, concerns

three actors engaged in three related con-

tracts. The three parties... are: the

customer, which . . . causes it to be issued;

the issuer (usually a financial institution],

which is the party who executes the credit;

and the beneficiary, which is the party

entitled to payment pursuant to the credit.

Typically, the first contract entered into

involves the underlying obligation between

the beneficiary and the customer... .

Pursuant to this underlying obligation, the

customer will next contract with the issuer

to execute the credit. In performance of

the contract with the customer, the issuer

executes the credit which embodies the

issuer’s contract to pay the beneficiary when

the beneficiary satisfies the conditions for

payment expressed in the letter of credit.

(Citations omitted.)
Mueller, supra, at 110-11. These contracts are independent of one another in the case of a true letter of credit. Republic Nat'l Bank of Dallas v. Northwest Nat'l Bank of Fort Worth, 578 S.W.2d 109, 112-15 (Tex. 1978). The issuer acts as a principal and not as the agent of the customer, and it assumes a primary obligation to the beneficiary independent of the performance of the contract between the customer and the beneficiary. The issuer must therefore pay the beneficiary if the beneficiary’s demand for payment conforms to the terms of the letter of credit “without reference to the rights and obligations of the parties to

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Honorable John J. Gavin - Page 7 (JM-1245)

the underlying contract." Id, at 114; see also Bus. & Com. Code § 5.114(a); 49 Tex. Jur. 3d Letters of Credit § 1, at 523.8

Conforming presentation requires that the beneficiary strictly comply with the conditions for payment described in the credit. Westwind Exploration, Inc. v. Homestate Sav. Ass'n, 696 S.W.2d 378 (Tex. 1985). The courts, however, will not construe mere promises to be conditions and will resolve ambiguities against the issuer. Furthermore, absolute perfection of presentation is not a requirement. See, e.g., New Braunfels Nat'l Bank v. Odiorne, 780 S.W.2d 313, 316-17 (Tex. App. - Austin 1989, writ denied); Willow Bend Nat'l Bank v. Commonwealth Mortgage Corp., 722 S.W.2da 12, 14 (Tex. App. - Dallas 1986, writ ref’d n.r.e.).

Either a commercial or a standby credit may be a "documentary" credit, a credit whose terms require that the draft or demand for payment be accompanied by certain documents, or a "clean" credit, a credit whose terms require only the presentation of the draft or demand for payment.

8. Even though the issuer has a primary and not
   secondary obligation to the beneficiary, the issuer may refuse to honor a conforming draft or demand for payment under section 5.114(b) of the Business and Commerce Code where there is "fraud in the transaction." The customer may also seek an injunction against payment by the issuer where there is such fraud. Texas courts discussing this exception to payment, have upheld injunctions only if there was fraud so egregious that it destroyed the legitimate reason for maintaining the independence of the credit from the underly- ing obligation. Paris Sav. & Loan Ass'n v. Walden, 730 S.W.2d 355, 359-64 (Tex. App. - Dallas 1987, writ dism’d) (cattle production below the hoped for but not guaranteed quality was unintentional and did not constitute fraud for section 5.114 purposes); Philipp Bros., Inc. v. Oil Country Specialists, Ltd., 709 S.W.2d 262, 264-65 (Tex. App. - Houston [1st Dist.] 1986, writ dism’d) (beneficiary’s intentional shipment of totally worthless pipe destroyed legitimate purposes of the credit and justified an injunction); see also Annot., 25 A.L.R.4th 239 (1983) (many courts including Texas courts refuse to give broad construc- tion to section 5.114). The limits of this exception to payment may not be avoided by an issuer filing an inter- pleader action to determine the respective rights of the beneficiary and the issuer’s customer. Dallas Bank & Trust Co. v. Commonwealth Dev. Corp., 686 S.W.2d 226 (Tex. App. - Dallas 1984, writ ref’d n.r.e.).

p. 6636

Honorable John J. Gavin - Page 8 (JM-1245) Annot., 44 A.L.R.4th 172, 176 (1986); see also Apex Oil Co. v. Archem Co., 770 F.2d 1353, 1355 (5th Cir. 1985) (a credit may be both "documentary" and "standby"); Gunn-Olson-Stordahl Joint Venture v. Early Bank, 748 S.W.2d 316 (Tex. App. - Eastland 1988, writ denied) (standby credits are often documentary credits since they generally require a statement there has been a default). A commercial or standby credit may also be a "sight" credit under which the beneficiary may demand payment on presentation of a draft and all other conforming documents or a "time" credit that is not payable until a specified time after presentation of all required documents. Mueller, supra, at 116; see also Willow Bend Nat'l Bank, 722 S.W.2d at 12 (draft payable on

sight was payable on demand). Letters of credit, however, are not negotiable instruments, although the underlying drafts for payment may be either negotiable or non- negotiable. Heritage Housing Corp. v. Ferguson, 651 S.W.2d 272 (Tex. App. - Dallas 1983, no writ) (since letters of credit are not payable to bearer they are not negotiable); Travis Bank & Trust v. State, 660 S.W.2d 851, 855 (Tex. App.

• Austin 1983, no writ) (unless credit otherwise specifies,
  draft may be either negotiable or nonnegotiable).

Credits may also be either revocable or irrevocable. Bus. & Com. Code § 5.103(a)(1). According to section 5.106(b) of the Business and Commerce Code, once an irrevo- cable credit is established with regard to the beneficiary it can be modified or revoked only with the beneficiary’s consent. A credit is established with regard to a benefi- ciary when he either receives the credit or an authorized advice of its issuance. Id. § 5.106(a)(2). In contrast, a revocable credit may generally be modified or revoked by the issuer without either notice to or consent from the customer or the beneficiary. Id. § 5.106(c).9

Given our review of these fundamental concepts of the law of letters of credit, we conclude that not all letters of credit will satisfy the requirement for "cash

9. Neither section 5.103(a) nor section 5.106 provides
   which status should be presumed if the credit does not state whether it is revocable or irrevocable. In at least one case concerning an undesignated credit, a court has held a standby credit irrevocable since to do otherwise would frustrate the basic purpose of the credit -- the making certain of the right to payment independent of disputes over the performance of the underlying contract. Mueller, supra, at 117-18 (citing West Virginia Housing Dev. Fund v. Sroka, 415 F. Supp. 1107 (W.D. Pa. 1975)).

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Honorable John J. Gavin - Page 9 (JM-1245)

equivalents" that they be readily convertible into cash within a reasonable time and with reasonable effort without resort to consent by the bondsman or to other outside action. To satisfy that requirement and thus constitute a "cash equivalent" for purposes of section 6(f)(1) of article 2372p-3, V.T.C.S., we hold that a standby letter of credit used to secure the bail bond obligations of an individual or corporate bondsman must possess the following charac- teristics: (1) the credit must be irrevocable, (2) the credit must be a true letter of credit that does not require examination of the performance of the underlying transaction absent "fraud in the transaction," (3) the drafts or demands for payment under the credit must be payable to the county on sight or within a reasonably brief period of time after presentation of all required documents, (4) the credit must not include any condition that makes payment to the county as beneficiary contingent upon the consent of or other action by the bondsman or other party, and (5) the credit must be issued by an institution or entity which is financially responsive in the amount of the credits, in the opinion of the county bail bond board. However, our conclusion does not foreclose other “cash equivalents" as long as the standards of Attorney General Opinion JM-935 are satisfied.

The credit must be irrevocable to ensure that the issuer does not unilaterally modify or revoke the credit prior to a county’s demand for payment under the credit. The three named security devices in section 6(f)(1) -- cash, cashier’s checks, and certificates of deposit -- are not revocable; thus qualifying letters of credit must not be revocable. Furthermore, to hold otherwise would not ensure that the necessary resources would be available to satisfy bond forfeitures.

Second, a qualifying credit must be a true letter of credit. A true letter of credit limits the circumstances in which the underlying transactions between the bondsman and the county may be examined. Republic Nat'l Bank of Dallas, 578 S.W.2d at 115. If the credit requires as a condition for payment that there be a factual determination of forfei- ture or default, the county would likely have to resort to outside action, such as a court proceeding, to establish its rights to payment under the credit. Thus even though the credit may require a document be submitted prior to

10. As mentioned earlier, a credit may be either a
    "documentary" credit ora "clean" letter of credit. See

(Footnote Continued)
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Honorable John J. Gavin - Page 10 (JM-1245)

payment that states the bondsman has defaulted in his underlying obligations to the county, the credit may not require as a condition for payment proof of default or other examination of the performance of the underlying obliga- tions. See, e.g., Gunn-Olson-Stordahl Joint Venture, 748 S.W.2d 316 (summary judgment reversed on appeal since credit subject to performance in compliance with underlying con- tract and thus was not true letter of credit but guaranty contract); Summit Ins. Co. of New York v. Central Nat'l Bank of Houston, 624 S.W.2d 222 (Tex. Civ. App. - Houston [1st Dist.] 1981, writ ref’d n.r.e.) (true letter of credit may contain references to underlying obligations but those references may not create conditions for honoring drafts).

Third, drafts or other demands for payment under a qualifying letter of credit must be payable on sight or within a reasonably brief period of time after proper presentation of all required documents so that the credit is readily convertible into cash. What is a reasonable time may vary depending on individual and local circumstances, and we are not in a position to address these varying circumstances as a part of the opinion process. Further- more, section 6(f)(1) sanctions the use of certificates of deposit without prohibiting the use of time deposits. See Attorney General Opinion H-430 (1974) (on maturity bondsman may withdraw certificate if substitute security is pro- vided). We therefore conclude that county bail bond boards may establish reasonable time periods for payment under letters of credit submitted as “cash equivalents" pursuant to section 6(f)(1) of article 2372p-3.

Finally, the terms of a qualifying letter of credit must not make payment contingent upon any action by the bondsman or other individual or entity. To satisfy this standard, the credit must not include any condition for payment that the county cannot satisfy without the consent of, or other action by, the bondsman or other party. For (Footnote Continued) infra, at 11. Although a "clean" letter of credit, a credit that requires only a draft or demand for payment, limits the risk that it will be construed as a guaranty, standby credits are frequently documentary credits since the terms of the credits usually require that the draft or demand for payment be accompanied by a statement that the customer is in default. A cautious beneficiary can limit his risk by avoiding any reference to guaranties and unnecessary reference to the underlying obligations. See Mueller, supra, at 113 n.22 (various advice to cautious bene- ficiaries).

p. 6639

Honorable John J. Gavin - Page 11 (JM-1245) instance, the credit may not require the county as bene- ficiary to submit a document signed by the bondsman that he has defaulted on his underlying obligations to the county. Neither the terms of a cashier’s check or certificate of deposit payable to the county requires consent of or other action by anyone else prior to conversion into cash. Thus, the terms of a qualifying letter of credit must not condi- tion payment on such consent or action. SUMMARY Individual as well as corporate applicants may submit certain letters of credit as "cash equivalents" for purposes of section 6(f) (1) of article 2372p-3, V.T.C.S. To qualify as “cash equivalents," letters of credit must be irrevocable, must limit inquiry into the underlying transactions between the county and the bondsman, must provide for payment of drafts or demands for payment thereunder on sight or within a reasonably brief period of time after presentation of all required documents, and must not make payment con- tingent upon the consent of, or other action by, the bondsman or other party. Very truly yours, JIM MATTOX Attorney General of Texas MARY KELLER First Assistant Attorney General LOU MCCREARY Executive Assistant Attorney General JUDGE ZOLLIE STEAKLEY Special Assistant Attorney General RENEA HICKS Special Assistant Attorney General RICK GILPIN Chairman, Opinion Committee Prepared by Celeste A. Baker Assistant Attorney General p. 6640