Honorable Mike Atkins 

County Attorney 

Ector County 

Odessa, Texas 79761 

Opinion No. H-1033 

Re: Sale at a discount and 

"with recourse" by county 

hospital of accounts receivable from patients. 

Dear Mr. Atkins: 

You ask if a proposed financial arrangement between the 

Odessa Medical Center Hospital and a state or national bank 

would be illegal under Texas law. We have not been furnished 

a proposed contract, but you explain: 

Under the transaction in question, if a 

patient proposed to pay his account at the 

hospital in installments over a period of 

time in excess of 60 to 90 days, that account could be sold and assigned to a bank. 

The bank would discount the account at a 

fixed rate of interest and pay the difference to the hospital at the time the account was transferred to the bank. The bank 

would then undertake to collect the account. 

However, the account would be assigned with 

recourse on the hospital so that if reasonable 

collection efforts proved unsuccessful the 

account would be reassigned to the hospital 

and the remaining uncollected balance of 

the money previously paid by the bank to 

the hospital would be repaid to the bank out 

of current revenues of the hospital. 

The proposed transaction is a sale of accounts receivable with 

recourse to the hospital. See Chester v. Jones, 386 S.W.Zd 

544 (Tex. Civ. App. -- Tyler), dism'd as moot, 391 S.W.Zd 722 

(Tex. 1965). The word "recourse" in the context of such transactions means to "resort to a person who is secondarily liable 

after the default of the person who is primarily liable." Industrial Bank & Trust Co. v. Hesselberg, 195 S.W.2d 470 (MO. 

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Honorable Mike Atkins - Page 2 (H-1033) 

1946); Ballentines Law Dictionary 1070 (3rd ed. 1969); 36A 

Words and Phrases 105. For the advantage of receiving its 

money at an earlier time and avoiding the collection chore, 

the hospital would surrender to the bank the collectable difference between the face amount of the accounts and their 

discounted value. 

Odessa Medical Center Hospital is a county hospital operated 

and maintained pursuant to articles 4478 through 4493, V.T.C.S. 

As such, it is a county facility managed by a Board of Managers 

appointed by the Commissioners Court of Ector County. V.T.C.S. 

art. 4479. The Board has "general management and control . _ . 

of all matters relating to the . fiscal concerns thereof. (1 . . V.T.C.S. art. 4480. Article 4485, V.T.C.S., specifies that 

the superintendant of a county hospital "shall collect and receive all moneys due the hospital,' but article 4487 makes hospital care and treatment "a charge upon the county+' if the superintendent finds that the patient or his responsible relatives 

are unable to pay for it. When coupled with the Board's article 

4480 power to generally manage and control all matters relating 

to fiscal concerns, we believe these provisions furnish ample 

statutory authority for transactions of the contemolated sort. 

assuming-their constitutionality. 'See Attorney General Opinions 

M-912 (1971); M-807 (1971); V-1265 (1951). 

The Texas Constitution prevents counties from pledging or 

lending public credit, or from releasing indebtednesses due 

them. Tex. Const. art. 3, SS 52, 55; art. 11, 5 3. And after 

the occurrence of events which give rise to an obligation on 

the part of an individual or corporation to the State, the 

Legislature has no power to release or diminish that obligation 

without consideration. State v. City of Austin, 331 S.W.2d 

737 (Tex. 1960). Non-indigent patients at county hospitals become obligated to the county. V.T.C.S. art. 4488. However, we 

believe the sale to third parties by a county hospital of 

receivables from patients' accounts for less than the face 

value thereof would not generally be a "release" prohibited 

by the Texas Constitution. 

In Lindsey v. State, 74 S.W. 750 (Tex. 1903), the Supreme 

Court of Texas considered article 3 , ~section 55 objections to 

the sale for only $500 of an uncollectable $6,000 judgment obtained by a county against an insolvent bondsman. A statute 

[now V.T.C.S. art. 16211 purported to authorize such dispositions. The Supreme Court upheld the statute, expressly rejecting the argument that every sale 'of a judgment for less 

than its face value is a "release" of a part of it within the 

constitutional intent. The court observed: 

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Honorable Mike Atkins - Page 3 (H-1033) 

[W]e do not think that anything authorized 

by the statute comes within the mischiefs 

against which the inhibition in question is 

directed. It is one thing to release debtors 

or extinguish their indebtedness, liabilities, 

or obligations without payment or performance, 

and quite another to obtain by sale under fair 

and prudent management, the value of such 

assets. 

Id. at 751. Cf. Lindsey v. State, 

App. 1901, nowrit); 

66 S.W. 332 (Tex. Civ. 

Attorney General Opinion Y-575 (1970). 

See alse City of Houston v. Bullard, 354 S.W.2d 224 (Tex. Civ. -- 

APP. -- Houston 1962, no writ). 

Under the proposal as we understand it, the hospital would 

receive two types of consideration in exchange for its assignment of claims and its agreement to repurchase those claims 

which prove uncollectable.~ It would receive the discounted 

value of the claims, and it would avoid the need to make collection efforts itself -- the bank would perform that service. We 

cannot pass upon the adequacy of consideration in a particular 

transaction, but such an exchange made for adequate consideration does not constitute a grant or donation violative of article 3, section 52 or of article 11, section 3. Sullivan v. 

Andrews County, 517 S.W.2d 410 (Tex. Civ. App. -- El Paso 1974, 

writ ref'd n.r.e.). 

Nor do we think the agreement to repurchase claims which 

prove uncollectable would necessarily be infirm on other grounds. 

Such an agreement would apparently create a contingent "debt" of 

an uncertain amount but the creation of debts by counties (even 

debts uncertain in fact or inexact in amount) is not constitutionally prohibited if it is within the contemplation of the 

parties that the debts are to be satisfied out of current revenues for the year or out of some fund immediately controlled 

by the county. Tex. Const. art. 11, § 7; Brown v. Jefferson 

County, 406 S.W.2d 185 (Tex. 1966); 'County of Ector v. City Of 

Odessa, 492 S.W.Zd 360 (Tex. Civ. App. -- El Paso 1973, no 

writ); Lew'is v. Nacogdoches County, 461 S.W.2d 514 (Tex. Civ. 

APP. -- Tyler 1970, no writ). 

We do not pass upon the particulars of any agreement or 

arrangement, but it is our opinion that a transaction such as 

you describe would generally be valid. 

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Honorable Mike Atkins - Page 4 (H-1033) 

SUMMARY 

A transaction in which a county hospital 

sells and assigns to a state or federal 

bank accounts receivable from hospital 

patients at a discounted rate and with 

partial recourse on the hospital for uncollectable accounts would generally be 

valid. 

Very truly yours, 

Attorney General of Texas 

APPROVED: 

DAVID M. KENDALL, First Assistant 

Opinion Committee 

klw 

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