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 frompatients.
Dear Mr. Atkins:
You ask if aproposed 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 inquestion, if a patient proposed topay his account at the hospital in installments over aperiod of time inexcess of 60 to 90days, that account could be sold and assigned toabank. 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 thebank. The bank would then undertake to collect the account. However, theaccount would be assigned with recourse on the hospital so that ifreasonable collection efforts proved unsuccessful the account would be reassigned to thehospital and the remaining uncollected balance of themoney previously paid by the bank to the hospital would be repaid to thebank out of current revenues of the hospital. The proposed transaction isa sale of accounts receivable with recourse to the hospital. See Chester v. Jones, 386 S.W.Zd 544 (Tex.Civ. App. -- Tyler), dism'd asmoot, 391 S.W.Zd 722 (Tex.1965). Theword "recourse" in the context of such transactions means to "resort to aperson who is secondarily liable after the default of theperson who isprimarily liable." Industrial Bank &Trust Co. v. Hesselberg, 195 S.W.2d 470 (MO.

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1946); Ballentines Law Dictionary 1070 (3rded. 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 andmaintained pursuant to articles 4478 through 4493,V.T.C.S. As such, it isa county facility managed by a Board ofManagers appointed by the Commissioners Court of Ector County. V.T.C.S. art. 4479. The Board has "general management and control
._ . of allmatters 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 allmoneys due the hospital,' but article 4487makes hospital care and treatment "a charge upon the county+'if the superintendent finds that the patient or his responsible relatives are unable topay for it. When coupled with the Board's article 4480 power togenerally manage and control allmatters relating to fiscal concerns, we believe these provisions furnish ample statutory authority for transactions of the contemolated sort. assuming-their constitutionality. 'SeeAttorney General Opinions M-912 (1971);M-807 (1971);V-1265 (1951). The Texas Constitution prevents counties frompledging 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 toan obligation on the part of an individual or corporation to the State, the Legislature has nopower to release or diminish that obligation without consideration. State v. City ofAustin, 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 frompatients' accounts for less than the face value thereof would not generally be a "release" prohibited by theTexas Constitution.
InLindsey v. State, 74 S.W. 750 (Tex.1903), the Supreme Court of Texas considered article 3,~section55objections to the sale for only $500 of an uncollectable $6,000 judgment obtained by a county against an insolvent bondsman. A statute [nowV.T.C.S. art. 16211 purported toauthorize such dispositions. The Supreme Court upheld the statute, expressly rejecting the argument that every sale 'ofa judgment for less than its facevalue isa "release" of apart of itwithin the constitutional intent. The court observed:

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[W]edo not think that anything authorized by the statute comes within themischiefs against which the inhibition inquestion 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, nowrit). Under theproposal as we understand it, thehospital would receive two types of consideration inexchange for its assignment of claims and itsagreement to repurchase those claims which prove uncollectable.~ Itwould receive the discounted value of the claims, and itwould avoid theneed tomake collection efforts itself -- the bank would perform that service. We cannot pass upon the adequacy of consideration in aparticular transaction, but such an exchange made for adequate consideration does not constitute agrant or donation violative of article 3, section 52or 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 dowe 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 inamount) isnot constitutionally prohibited if it iswithin the contemplation of the parties that the debts are to be satisfied out of current revenues for theyear 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); 'Countyof Ector v. City Of Odessa, 492 S.W.Zd 360 (Tex.Civ. App. --El Paso 1973, no writ); Lew'isv. Nacogdoches County, 461 S.W.2d 514 (Tex.Civ. APP. --Tyler 1970, nowrit).
We do not pass upon the particulars of any agreement or arrangement, but it isour opinion that a transaction such as you describe would generally be valid.

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SUMMARY
A transaction inwhich 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 thehospital for uncollectable accounts would generally be valid. Very truly yours,

Attorney General of Texas APPROVED:

DAVID M. KENDALL, FirstAssistant

Opinion Committee klw

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